Page 14 - US Bankruptcy Code Overview

> IP CONTRACTS IN BANKRUPTCY Bankruptcy Code Defines “Intellectual Property” Narrowly
- Under the Bankruptcy Code, definition of “intellectual property” includes trade secrets, inventions, processes, designs, patent applications and mask work. 11 U.S.C. § 101(35A).
- Trademarks are excluded from the definition of intellectual property.
• In re Old Carco LLC, 406 B.R. 180, 211 (Bankr. S.D.N.Y. 2009): “Trademarks are not ‘intellectual property’ under the Bankruptcy Code.” But see In re Lakewood Engineering & Mfg. Co., Inc. v. Chicago American Manufacturing, LLC, 459 B.R. 306 (2011) (declined to follow In re Old Carco LLC)
• Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380, 393 (2d Cir. 1997): “[T]he Act’s protection is limited to the Bankruptcy Code’s definition of ‘intellectual property’—which does not include trademarks . . . . Consequently, it may be seen that Congress specifically excluded trademark licensees from this protection accorded other intellectual property licensees.”
• In re HQ Global Holdings, Inc., 290 B.R. 507, 513 (Bankr. D. Del. 2003): “Trade names, trademarks and other proprietary marks are expressly excluded from the definition of intellectual property”.
• Thus, in the event that a debtor-trademark licensor rejects its license, the non-debtor licensee of trademarks is not protected by section 365(n) of the Bankruptcy Code.
Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012)
- Court held that non-debtor trademark licensee can still use licensed rights post-rejection under section 365(n) of the Bankruptcy Code, but not because trademarks fall under statutory definition of Intellectual Property.
- Court further found that section 365(n) was not intended to exempt trademarks and cited legislative history that Congress intended to address trademark issue at a later date because trademark rights are more fact-intensive.
- Non-debtor trademark licensee was still afforded licensed rights post-rejection because “rejection” did not mean “termination”
- Trademark license also tied to patent license in this case, which does statutorily fall under section 365(n).
Sunbeam Takeaway:
- While in Sunbeam, the trademark licensee was able to continue to use its licensed rights, the decision
does not provide much comfort for trademark licensees.
- Rationale allows trademark licensees to lose license rights when agreements are rejected.
- When drafting license agreements, tie contracts involving trademarks to more general “intellectual property” rights (patents/copyright), at least until Congress addresses the inclusion of trademark rights in section 365(n).
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