## Facts

- Cadtrak Corporation owned patents covering certain computer-graphics technology.
- In 1986 (modified in 1989), Cadtrak granted CFLC, Inc. a royalty-free, worldwide, nonexclusive patent license in exchange for a one-time $290,000 payment.
- The license stated it was non-transferable, prohibited sublicensing, limited coverage to CFLC and majority-owned affiliates, allowed termination upon CFLC’s bankruptcy, and was governed by California law.
- CFLC filed for Chapter 11 on January 4, 1993.
- During the bankruptcy, CFLC sold substantially all remaining assets to Everex Systems, Inc. for about $4 million; the sale closed November 12, 1993.
- The asset purchase contemplated that CFLC would seek assumption and assignment of designated executory contracts, subject to bankruptcy court approval.
- CFLC moved under 11 U.S.C. § 365 to assume and assign the Cadtrak patent license to Everex; Cadtrak objected and refused consent.
- The bankruptcy court denied assumption and assignment of the license; the district court affirmed.

## Issues

1. Whether a debtor in possession may assume and assign a nonexclusive patent license under 11 U.S.C. § 365(c)(1) over the licensor’s objection.
2. Whether federal patent law makes a nonexclusive patent license nonassignable without the licensor’s consent such that § 365(c)(1) bars assumption and assignment.

## Decision

- The Ninth Circuit affirmed the district court and bankruptcy court.
- The court held that the nonexclusive patent license could not be assumed and assigned to Everex without Cadtrak’s consent.
- The court concluded that federal patent law treats nonexclusive patent licenses as personal and nonassignable absent express consent.
- Because Cadtrak did not consent, § 365(c)(1) barred the debtor in possession from assuming and assigning the license.

## Legal Principles

- Under federal patent law, a nonexclusive patent license is a personal right that is generally nonassignable without the patentee’s consent.
- For purposes of 11 U.S.C. § 365(c)(1), federal patent law is “applicable law” that can excuse a licensor from accepting performance from a party other than the original licensee.
- When (A) applicable law would bar assignment without consent and (B) the non-debtor party does not consent, the debtor in possession may not assume or assign the executory contract.
- Bankruptcy does not enlarge the debtor’s rights in an executory contract beyond what nonbankruptcy law permits, even if assignment would increase estate value.

## Conclusion

The Ninth Circuit held that CFLC could not use § 365 to transfer its nonexclusive patent license to Everex over Cadtrak’s objection because federal patent law makes such licenses nonassignable absent consent, satisfying § 365(c)(1)’s bar on assumption and assignment.


Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673 (9th Cir. 1996)