What is section 365(n) in bankruptcy?
Section 365(n) of the US Bankruptcy Code (title 11 of the US Code) protects a licensee of intellectual property when the licensor enters bankruptcy and the debtor rejects the license. In general terms, instead of treating the rejection as the end of the license, the licensee may elect to keep its rights under the license for its term, usually while continuing to pay what the contract requires. The exact conditions, and the interaction with other Bankruptcy Code sections, are in the statute itself, which this page summarizes but does not quote; have counsel read it. This is general information, not legal, tax or financial advice. Confirm with your own bankruptcy counsel before acting.
The protection is tied to a defined term. Section 101(35A) defines "intellectual property" for these purposes by listing categories. Whether a particular dataset counts depends on what legal rights attach to it, such as copyright in compilations or trade secret protection, and on how the license is drafted. Read the definition itself and do not assume a bare database is covered.
How does 365(n) work in practice?
The sequence below is a simplified outline for orientation, not a reading of any specific case.
- A licensor files for bankruptcy while a license is in place and the debtor still owes performance.
- The debtor, trustee or debtor in possession decides whether to assume or reject executory contracts.
- If a licensor rejects an IP license, the licensee faces a choice: treat the contract as terminated or elect to retain rights.
- A licensee that elects to retain rights generally keeps using the licensed IP under the contract terms and keeps paying royalties due.
- The licensor's other obligations may be limited, so licensees should plan for support and updates that may not continue.
Chapter 11 is a reorganization process in which the debtor ordinarily keeps possession of its assets as debtor in possession, and a plan may also be liquidating, as the federal judiciary's chapter 11 explainer describes. A rejected license can arise in any case where the licensor is the debtor, so read the statute and the case docket rather than relying on this outline.
Why does it matter for a distressed company's data?
A restructuring professional meets 365(n) from two sides.
| Side | Situation | What to check |
|---|---|---|
| Company as licensor | It licensed records to a buyer and now faces insolvency | Is the license an executory contract? Could the licensee elect to retain rights? |
| Company as licensee | It depends on someone else's data or software | Does the license qualify as IP under the statute, and is there a supplementary agreement? |
| Company considering a new license | Wants to monetize records before systems are retired | Will the buyer ask for bankruptcy-related terms, and who must approve? |
| Estate holding data | Trustee or assignee controls assets | Who has authority to license, and does the court need to approve? |
For a SourceX-style data license, the buyer's counsel may ask how the agreement behaves if the licensor later enters a case. That is a drafting and diligence point for the company's own lawyers.
How does this connect to selling or licensing records in a wind-down?
When a company winds down, records can be an asset. Where customer personal information is involved, the Bankruptcy Code also limits sales. Under section 363(b)(1), if the debtor had a privacy policy prohibiting transfer of personally identifiable information to unaffiliated persons that was in effect when the case began, a trustee generally may not sell or lease that information unless it is consistent with the policy or the court approves after appointment of a consumer privacy ombudsman, following notice and a hearing. The ombudsman role is set out in section 332.
In practice, business records that are not mainly personal data are a different conversation from customer lists with privacy promises. The first question for a professional is always who controls the data and who must authorize a license.
What should a restructuring professional ask first?
- Who has authority to license the records: the debtor, a trustee, an assignee or the court?
- Is any existing license to a third party an executory contract that could be assumed or rejected?
- Do the records mainly contain personal data subject to a privacy policy?
- Do client or vendor contracts restrict transfer or licensing?
- Has any part of the data already been licensed for AI training?
- Can the systems still be exported, and is retention or shutdown imminent?
- What approvals does the estate need before signing?
If a court, trustee or assignee controls the assets and has not been involved, the data is not ready to be introduced.
How does a restructuring professional introduce a company to SourceX?
Operating, acquired and wound-down companies can all qualify as long as the data still exists. The baseline is a US company with 50+ full-time employees at peak (contractors excluded), several years of documented operations, rights to license the data and an authorized sponsor. Use the company fit checker for a preliminary, non-binding screen and read who qualifies.
The partner makes the introduction and gives basic fit information only. The partner never exports, uploads or describes records. Companies keep ownership, nothing is binding until terms are agreed and signed, and delivery follows an executed agreement and the company's authorization. Where an estate is involved, court or creditor approval may be required.
Related reading: the fully paid-up license explainer for payment terms, the EBITDA bridge explainer for how a one-time receipt appears in results, and the exit readiness guide for owners planning a sale or wind-down. The what is an EOS implementer page describes another advisor who sees management records before a transition.
How do rewards work, and what are your own rules?
Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward is paid only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. Court-appointed and licensed professionals should check their own rules on referral fees, disclosure and conflicts, and any court approval, before accepting one. The program terms set out the details.
Next step
Assess records before systems are retired. If a client has an authorized decision-maker and exportable records, register as a partner and make the introduction. Companies can also apply directly at sourcex.si/apply.