## Facts

- Spansion, a semiconductor manufacturer, sued Apple in the ITC for patent infringement involving flash-memory patents.
- Spansion and Apple entered a prepetition letter agreement: Spansion agreed to dismiss the ITC action and not refile or bring another action involving one or more of the same patents against Apple.
- Apple agreed it would not bar Spansion as a supplier and would continue to consider Spansion as a supplier.
- Soon after, Spansion filed Chapter 11 and moved to reject the letter agreement as an executory contract under 11 U.S.C. § 365(a).
- The bankruptcy court granted rejection and initially stated its order constituted written notice of the agreement’s termination.
- Apple filed an election under 11 U.S.C. § 365(n), asserting the letter agreement was, in substance, an intellectual property license preserving Apple’s rights despite rejection.
- Apple also sought relief under Fed. R. Civ. P. 60(b) (via Bankruptcy Rule 9024) to remove the order’s termination language as exceeding the rejection relief requested.
- The bankruptcy court amended the order to be without prejudice on termination but denied Apple’s § 365(n) election, concluding the agreement was not a license.
- On appeal, the district court reversed on § 365(n), holding the agreement was a covenant not to sue equivalent to a license, and affirmed the Rule 60(b) amendment.
- Spansion appealed to the Third Circuit.

## Issues

1. Whether a prepetition patent covenant not to sue (memorialized in a letter agreement) is a “license of intellectual property” under 11 U.S.C. § 365(n), permitting the counterparty to retain its rights after rejection.
2. Whether the bankruptcy court abused its discretion by granting Rule 60(b) relief to amend the rejection order to remove language treating rejection as termination.

## Decision

- The Third Circuit affirmed the district court in full.
- The court held the letter agreement functioned as a patent license because a covenant not to sue is practically equivalent to a license; therefore, § 365(n) applied and Apple’s election was effective.
- The court held the bankruptcy court did not abuse its discretion in granting Rule 60(b) relief to modify the rejection order to be without prejudice as to termination.

## Legal Principles

- For § 365(n) purposes, courts look to the substance of rights conveyed, not the contract’s label; a patent covenant not to sue can be treated as a license of intellectual property.
- Rejection under § 365(a) is generally a breach, not a rescission or termination; § 365(n) allows an IP licensee to retain licensed rights notwithstanding rejection when properly elected.
- Rule 60(b) relief may be used to correct or clarify an order that goes beyond the relief sought, including removing language that improperly conflates rejection with termination.

## Conclusion

The Third Circuit treated Spansion’s patent covenant not to sue as an IP license protected by § 365(n), allowing Apple to retain its rights after rejection, and upheld Rule 60(b) modification of the rejection order to avoid an improper termination determination.


In re Spansion, Inc., 507 F. App’x 125 (3d Cir. 2012)