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In re CellNet Data Systems, Inc.

327 F.3d 242 (2003)

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In re CellNet Data Systems, Inc.

United States Court of Appeals for the Third Circuit

327 F.3d 242 (2003)

Facts

CellNet Data Systems, Inc. (CellNet) (plaintiff) was a wireless-data-network developer. It entered into several licensing agreements for which it received royalty payments. Years later, CellNet filed for bankruptcy and shortly thereafter executed a sales agreement with Schlumberger Resource Management Services, Inc. (Schlumberger) (defendant) in which Schlumberger purchased many of CellNet’s assets, including its intellectual property. The agreement expressly excluded certain assets from the sale, including CellNet’s licensing agreements. CellNet also agreed to reject the licensing agreements under 11 U.S.C. § 365(a), a provision of the Bankruptcy Code that permitted CellNet to reject its executory contracts during bankruptcy. However, CellNet’s licensee retained its rights to the license agreements pursuant to 11 U.S.C. § 365(n), meaning the licensee still owed royalties under the agreements. Before the bankruptcy court, both CellNet and Schlumberger claimed the right to receive those royalty payments. CellNet argued that Schlumberger lost any right to the royalty payments by excluding the licensing agreements from its asset purchase and that the licensee’s decision to retain the agreement under § 365(n) renewed its royalty obligations to CellNet. Schlumberger argued it owned the rights to the royalties as the purchaser of CellNet’s intellectual property. Both the bankruptcy court and district court found that the royalties belonged to CellNet, and Schlumberger appealed.

Rule of Law

Issue

Holding and Reasoning (Nygaard, J.)

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