Lubrizol Enterprises v. Richmond Metal Finishers

In July 1982, Richmond Metal Finishers (RMF) (defendant) entered into a contract with Lubrizol Enterprises (plaintiff) whereby RMF licensed to Lubrizol, on a nonexclusive basis, a certain metal-coating technology. The contract contained a most-favored-licensee provision under which RMF was bound to refrain from licensing the technology to another licensee on more favorable terms than those given to Lubrizol. RMF also promised to notify Lubrizol of any patent infringement, to defend any infringement suits, and to indemnify Lubrizol for losses arising out of certain misconduct by RMF. For its part, Lubrizol promised to account for its use of the technology, to deliver quarterly sales reports, to make royalty payments, and to keep records that were subject to inspection. In August 1983, RMF filed for reorganization under Chapter 11. It sought to reject its contract with Lubrizol pursuant to 11 U.S.C. § 365. At the time of the bankruptcy filing, Lubrizol had never used the RMF technology. The bankruptcy court concluded that rejection was warranted on the grounds that the contract was executory and its rejection would benefit RMF. The district court reversed, concluding that the contract was not executory and that its rejection would not be advantageous to RMF because performance of the contract was not onerous and Lubrizol would remain entitled to use the technology notwithstanding rejection. RMF appealed.