Lubrizol Enterprises v. Richmond Metal Finishers
United States Court of Appeals for the Fourth Circuit
756 F.2d 1043 (1985)
Richmond Metal Finishers (RMF) (defendant) nonexclusively licensed metal-coating technology to Lubrizol Enterprises (plaintiff) under a contract with a most-favored-licensee clause barring RMF from licensing the technology to others on more favorable terms, along with RMF's promises to notify Lubrizol of infringement, defend infringement suits, and indemnify certain losses, while Lubrizol promised ongoing accounting, quarterly reporting, royalty payments, and record inspection rights. After RMF filed for Chapter 11 reorganization and sought to reject the contract under section 365 - at a time when Lubrizol had never actually used the technology - the bankruptcy court approved rejection as executory and beneficial to RMF, but the district court reversed, finding the contract non-executory and rejection non-advantageous since performance was not onerous and Lubrizol would retain use rights regardless; RMF appealed.
Whether a technology license agreement, in which the licensee has ongoing reporting, recordkeeping, accounting, and payment obligations and the licensor has ongoing obligations including refraining from more favorable third-party licensing, is an executory contract that the licensor may reject in bankruptcy where doing so reflects sound business judgment.