Seventh Circuit Strengthens Protection for IP Licenses in Bankruptcy

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On July 9, 2012, the United States Court of Appeals for the Seventh Circuit significantly strengthened the potential ability of licensees to trademarks, international intellectual property, and other rights to continue to enjoy the benefits of their licenses despite a licensor’s bankruptcy. In Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, a trademark licensee sought to continue to use licensed trademarks despite the bankruptcy trustee’s rejection of the license. Relying on the basic consequences of contract rejection rather than on any special provisions of the Bankruptcy Code, the Seventh Circuit said the licensee could continue to use the licensed trademarks.

In Sunbeam, the debtor had entered into an agreement with Chicago American Manufacturing that allowed the company to make and sell fans under the debtor’s patents and to brand them with the debtor’s trademarks. The debtor was placed into involuntary bankruptcy and the bankruptcy trustee sold the debtor’s business to Sunbeam Products, rejecting Chicago American’s agreement under 11 U.S.C. § 365(a). Chicago American continued to make fans bearing debtor’s trademarks, and Sunbeam brought an adversary proceeding to stop it.

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