Seventh Circuit Allows Trademark Licensees to Continue Using License After Rejection of Licensing Agreement

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The Court of Appeals for the Seventh Circuit, in Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, recently issued a decision that holds contrary to the only other court of appeals that has addressed the issue — that rejection of a trademark licensing agreement by a debtor-licensor does not terminate the agreement and that a trademark licensee can thus continue using the license after rejection.

The Fourth Circuit’s Lubrizol Decision

In 1985, the Court of Appeals for the Fourth Circuit issued a controversial opinion in Lubrizol Enterpris-es, Inc. v. Richmond Metal Finishers, Inc., holding that when an intellectual property license is rejected in bankruptcy, the licensee loses the ability to use any licensed copyrights, trademarks, and patents. In the Court’s Sunbeam opinion, Chief Judge Easterbrook noted that while “[n]o other court of appeals has agreed with Lubrizol — or for that matter disagreed with it,” “[s]cholars uniformly criticize Lubrizol.”

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