IP Law Daily, TRADEMARK NEWS: Supreme Court Asked to Decide Whether Bankruptcy Code Abrogates Trademark Licensee Rights, (Oct 12, 2012)

By Cheryl Beise, J.D.

A petition filed by Sunbeam Products, Inc. asks the Supreme Court to decide whether a trademark licensee retains the right to use licensed marks after the license agreement is rejected in bankruptcy (Sunbeam Products, Inc. v. Chicago American Manufacturing, No. 12-431, filed October 5, 2012).

At issue is a decision of the U.S. Court of Appeals in Chicago (Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, July 9, 2012, Easterbrook, F.), holding that Section 365(g) of the Bankruptcy Code— which classifies a rejection in bankruptcy as a breach—applies to trademark licenses.

Sunbeam purchased the assets of a box fan manufacturer, Lakewood Engineering & Manufacturing Co., at a bankruptcy auction. Lakewood previously had contracted with Chicago American Manufacturing, LLC (“CAM”) to manufacture fans using Lakewood’s trademarks. The bankruptcy judge determined that CAM was entitled to continue to use Lakewood’s mark “on equitable grounds.”

On appeal, the Seventh Circuit rejected the court’s authority to override the Bankruptcy Code by declaring that enforcement would be “inequitable,” but upheld CAM’s right to continue to use Lakewood’s mark under §365. In so doing, the appellate court rejected the conclusion reached by some courts that because trademarks are omitted from the Bankruptcy Code’s definition of “intellectual property,” they are not included in §365(n)—which allows licensees to continue using “intellectual property” after rejection, subject to certain conditions.

Section 365(n) was enacted to overturn Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), which held that when an intellectual-property license is rejected in bankruptcy, the licensee loses the ability to use any licensed copyrights, trademarks, and patents. The appellate court rejected Lubrizol and did not rely on § 365(n). Instead, the court held that §365(g) protected CAM’s contractual rights. “What §365(g) does by classifying rejection as breach is establish that in bankruptcy, as outside it, the other party’s rights remain in place,” the court said.

The question presented to the Supreme Court by Sunbeam is: “Under 11 U.S.C. §365, does a licensee retain the ability to use a debtor’s trademarks after the corresponding intellectual property license is rejected in bankruptcy?”

The Petition is No. 12-431.

Leonard J. Feldman (Stoel Rives LLP) for Sunbeam Products Inc., d/b/a Jarden Consumer Solutions)

News: Trademark