SOLUTION: CMSA Air University Impacts of IP in Covid 19 Crisis Questions

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https://www.wsj.com/articles/intellectual-property-assets-are-getting-more-valuable-11597829401
PRO BANKRUPTCY
Intellectual-Property Assets Are Getting
More Valuable
Covid-19 highlights importance of intellectual-property assets, particularly what happens with licensing
contracts if a company goes out of business
New York City grocery chain Fairway, which iled for bankruptcy in January, is being sued for alleged
breach of contract, fraudulent misrepresentation, infringement of intellectual property and unfair
competition.
PHOTO: JEENAH MOON BLOOMBERG NEWS
By Aisha Al-Muslim
Updated Aug. 19, 2020 11 27 am ET
Intellectual-property assets such as brand names, customer data and trademarks are
gaining value as the Covid-19 pandemic upends traditional models for retailers,
restaurants and other struggling businesses.
The recent wave of corporate bankruptcies shows intellectual property, or IP, is one of the
most valuable assets a struggling business holds, financial experts, lawyers and contract
analysts say. The sale of intellectual property out of bankruptcy has become an important
source of cash for distressed companies looking to unlock value that could be used to pay
off creditors.
In recent weeks, IP—trademark-protected names, symbols and logos, as well as patents,
copyrights, trade secrets, data and software—tied to Brooks Brothers Inc., Lucky Brand
Dungarees LLC and Pier 1 Imports Inc. have changed hands in bankruptcy court for
millions of dollars.
“IP assets are going to continue to grow in importance as bankruptcies continue,” said
Jennifer Tsai, legal knowledge analyst at Toronto-based contract review and analysis
software company Kira Inc.
Retailers’ branding and e-commerce IP assets have become more valuable because of the
expedited shift to online shopping due to the pandemic. Shoppers are more likely to
support and trust brand names they recognize, further bolstering the IP value.
“It is interesting that in the retail environment, the intellectual property is worth more
than the business itself,” said bankruptcy expert Chuck Tatelbaum, a lawyer at Fort
Lauderdale-based law firm Tripp Scott. “What an unusual turn of events.”
Intangible assets accounted for more than 80% of the total $25 trillion in assets of S&P
500 companies as of 2018, according to global professional services firm Aon PLC. The
value of IP in the U.S. alone is about $6.6 trillion, according to the U.S. Chamber of
Commerce.
A big income generator is striking IP licensing and royalty deals that guarantee minimum
payments or ensure getting a percentage of sales, said Larry Klaff, senior managing
director and head of asset-based lending at alternative credit investment manager First
Eagle Alternative Credit LLC, a subsidiary of First Eagle Investment Management LLC.
The move can also help expand brand awareness in other markets.
Modell’s Sporting Goods is closing all its brick-and-mortar stores and has sold its e-commerce and
intellectual-property assets.
PHOTO: LEV RADIN ZUMA PRESS
One company taking advantage of the wave of bankruptcies is Retail Ecommerce Ventures
LLC, led by serial entrepreneurs Alex Mehr and Tai Lopez. The company acquired the IP
and related assets of Modell’s Sporting Goods Inc. for more than $3.6 million out of
bankruptcy last week and bought the IP assets of Pier 1 through a bankruptcy sale for $31
million in July. Both Modell’s and Pier 1 are closing all their physical stores.
Other recent deals to buy e-commerce businesses and related IP include Sunrise Brands
LLC’s $20 million bid for New York & Co. and Fashion to Figure, as well as City Chic
Collective Ltd. ’s $16 million offer for Ascena Retail Group Inc.’s plus-size chain
Catherines.
The business of stripping out valuable IP is growing as more brick-and-mortar retailers
end up in bankruptcy and often liquidate. Troubled retailers are selling e-commerce and
IP assets to cash in on brand names, trademarks, website domains and social-media
accounts, as well as lists with mailing and email addresses of customers.
“You can usually get brand intellectual property pretty cheap when a company goes
bankrupt,” said Michael Bendel, a counsel and patent attorney at law firm Epiphany Law
LLC in Appleton, Wis.
One feature of U.S. bankruptcy law allows companies that license certain technologies,
copyrights and trade secrets to continue to use them even if something happens to the
licenser.
“It gives some security to licensees who are practicing the technology and all of a sudden
the licenser goes out of business,” Mr. Bendel said. “The law really helped to shore up and
make intellectual property more valuable through bankruptcy, because you wouldn’t be
forced into a renegotiation with the bankruptcy trustee.”
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Because the law doesn’t include all types of IP, sometimes clauses are included in
commercial contracts to specify that in a bankruptcy, the licensed materials, such as
trademarks, should receive protection provided by the relevant part of the bankruptcy
code, Section 365(n), according to a report by Kira.
However, Kira found that only 22% of 96 intellectual-property agreements filed with the
U.S. Securities and Exchange Commission between 1999 and 2017 included provisions
stating that the IP licenses and rights were protected by Section 365(n) in the event of
bankruptcy.
Sometimes major disputes over protecting IP can crop up. Troubled cosmetics company
Revlon Inc. is in a legal fight after allegedly shifting intellectual-property assets out of
creditors’ reach.
Last month, Village Super Market Inc. and the Wakefern Food Corp. cooperative sued New
York City grocery chain Fairway Group Holdings Corp. for alleged breach of contract,
fraudulent misrepresentation, infringement of intellectual property and unfair
competition.
Fairway, which filed for chapter 11 bankruptcy protection in January, had reached a deal
to sell its five New York supermarkets and a distribution center to Village Super Market, a
member of Wakefern, for $76 million. The agreement included $3 million for the
company’s intellectual property, such as the trademarks “Fairway” and “Fairway
Markets.”
The former owner of Fairway has relaunched under the name Fresh and Beyond Specialty
Grocer, while at the same time using the Fairway brand, which the lawsuit says breaches a
license agreement. Village Super Market, which operates ShopRite stores, had agreed that
the former Fairway owner could use the trademarks for a limited time, royalty free, to
make it easier to liquidate inventory.
A lawyer for Fairway didn’t respond to requests for comment.
A pretrial conference on the suit is set for mid-September.
Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com
Copyright © 2020 Dow Jones & Company, Inc. All Rights Reserved
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1. Briefly define “intellectual property”? Why is it protected under U.S. law? What are
the types discussed in the article?
2. How have the shutdowns affected the values of intellectual property? Do you think
these trends will continue into the future?
3. How should these changes in intellectual property market values affect how
business professionals manage and grow those kinds of assets?
4. What are the facts of the Fairway Markets lawsuit?
5. What areas of law are included in the plaintiff allegations? What defenses could the
defendant assert in that lawsuit? Which party do you think will be successful in the
lawsuit?

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