Trademark Licensee’s Rights Survive Rejection of License in Bankruptcy in Sunbeam Decision

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In reaction to a decision by the U.S. Court of Appeals for the Fourth Circuit, Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), in which the court held that a licensee of patents, copyrights and trademarks loses its rights if the trustee or debtor in possession rejects a license under the Bankruptcy Code under which the debtor was the licensor, Congress enacted section 365(n) of the Bankruptcy Code (11 U.S.C. § 365(n)). Section 365(n) provides that if the debtor was the licensor under a patent or copyright license that is rejected in bankruptcy, the licensee has the option either to retain its rights as they existed on the bankruptcy petition date and continue its performance, or to treat the license as terminated. Section 365(n) does not apply to trademarks, an omission by Congress that was intentional.

Taking issue with Lubrizol, the U.S. Court of Appeals for the Seventh Circuit, on a direct appeal from the bankruptcy court, held that the rejection of a trademark license by a trustee or debtor in possession does not strip the licensee of its right to continue to use the trademark. In Sunbeam Products, Inc. v. Chicago American Mfg., LLC, 2012 WL 2687939 (7th Cir. July 9, 2012), the court held that Congress’s omission of trademarks from the scope of section 365(n) did not mean that Congress intended to adopt the rule of Lubrizol where trademark licenses were involved.

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