## Facts

- Institut Pasteur and its exclusive licensee held patents used in HIV diagnostic testing; Cambridge Biotech Corp. (CBC) manufactured and sold HIV diagnostic kits.
- In 1989, Pasteur and CBC entered mutual, nonexclusive, perpetual cross-license agreements covering certain patented technology, including Pasteur’s HIV-2 procedures.
- The licenses broadly barred assignment or sublicensing and stated that no other person would acquire rights under the agreements.
- The licenses allowed each party to extend benefits to “Affiliated Companies,” defined by control relationships, while the contracting party remained responsible for license obligations.
- In 1994, CBC filed Chapter 11 and operated as debtor-in-possession.
- CBC’s reorganization plan proposed (i) assumption of the cross-licenses under 11 U.S.C. § 365 and continued use of Pasteur’s HIV-2 procedures, and (ii) sale of all CBC stock to a subsidiary of bioMérieux Vitek, Inc., a competitor of Pasteur.
- Pasteur objected, arguing the plan effectively transferred the licenses to a competitor contrary to the contracts and federal law governing patent-license assignability.

## Issues

1. Whether a Chapter 11 debtor-in-possession may assume nonexclusive patent cross-licenses under 11 U.S.C. § 365 when the debtor’s stock will be sold to a competitor of the licensor.
2. Whether a sale of all corporate stock, combined with assumption of nonexclusive patent licenses, constitutes an unauthorized “assignment” or sublicense barred by the license terms or federal common law restricting assignment of nonexclusive patent licenses.

## Decision

- The First Circuit affirmed confirmation of the Chapter 11 plan and the order authorizing CBC to assume the cross-licenses.
- The court held that the plan did not effect an assignment or sublicense of the licenses because CBC, the contracting licensee entity, remained the same after the stock sale.
- The court concluded that restrictions on assignment of nonexclusive patent licenses were not triggered because no transfer of the license agreements to a different legal entity occurred.
- The court found no error in the bankruptcy court’s determination that assumption under § 365 was permissible notwithstanding the change in CBC’s ownership.

## Legal Principles

- A change in corporate ownership through a stock sale does not, by itself, transfer the corporation’s contracts or constitute an assignment of those contracts; the corporate entity remains the contracting party.
- Contractual anti-assignment provisions and federal common-law limits on assignment of nonexclusive patent licenses generally address transfers of the license from one legal entity to another, not changes in shareholders of the existing licensee.
- Under 11 U.S.C. § 365, a debtor may assume an executory contract where statutory conditions are satisfied; assumption is not treated as an assignment solely because the debtor’s equity ownership changes.

## Conclusion

The court upheld a Chapter 11 plan allowing a debtor to assume nonexclusive patent cross-licenses even though all of the debtor’s stock would be sold to a competitor’s subsidiary, because the transaction changed only ownership of the licensee corporation and did not assign the licenses to a new entity.


Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997)