First Circuit BAP Protects Trademark Licensees In Bankruptcy Despite Section 365(n)

by Akerman LLP - Marks, Works & Secrets

The First Circuit recently issued an important interpretation of bankruptcy law that directly impacts trademark licensing rights. In In re Tempnology LLC, 559 B.R. 809 (1st Cir. BAP 2016), the First Circuit Bankruptcy Appellate Panel held that a debtor-licensor’s rejection of a trademark licensing agreement “did not vaporize” the licensee’s contractual right to use the debtor’s mark and logo.  The court found that, while trademarks are “not encompassed in the categories of intellectual property entitled to special protections under § 365(n)” of the Bankruptcy Code, the licensee could still retain trademark rights under the terms of the parties’ co-marketing and distribution agreement (which contained the trademark licensing agreement) and applicable non-bankruptcy law.

In so ruling, the First Circuit concluded that the Bankruptcy Court for the District of New Hampshire did not err in finding that the licensee’s § 365(n) election failed to protect its rights as licensee of the debtor’s trademark and logo. Despite that, the First Circuit found that the bankruptcy court erred in ruling that the licensee’s rights in the debtor’s trademark and logo terminated upon the debtor’s rejection of the parties’ licensing agreement.  To reach that result, the First Circuit followed the analysis of Sunbeam Products, Inc. v. Chicago American Manufacturing, 686 F.3d 372 (7th Cir. 2012), a case to which the First Circuit noted that the bankruptcy court did not refer or cite.

In Sunbeam, the Seventh Circuit held that a debtor’s rejection of a trademark license, which was part of a supply agreement that related to the manufacturing and sale of electronic fans by a third party, did not automatically extinguish the licensee’s right to use the debtor’s trademarks.  Applying § 365(g) of the Bankruptcy Code, the Seventh Circuit reasoned that the debtor’s rejection of an executory contract constitutes a breach of the contract – not a rescission of the contract – and results in the non-rejecting party’s rights remaining in place. The debtor’s unfulfilled obligations are converted to damages, which are treated as a pre-petition obligation, and which may be compromised with other debts of the same class.  But, as the Seventh Circuit explained, “nothing about this process implies that any rights of the other contracting party have been vaporized.”

The First Circuit BAP’s adoption of Sunbeam is significant because it widens the judicial split on the issue of whether §365 of the Bankruptcy Code protects trademark licenses.  While the purpose of §365(n) is to protect licensees of intellectual property, the section does not define the term “intellectual property,” and trademarks are conspicuously absent from the § 101(35A) definition of intellectual property, which provides that:

The term “intellectual property” means—

(A) trade secret;

(B) invention, process, design, or plant protected under title 35 [relating to patents];

(C) patent application;

(D) plant variety;

(E) work of authorship protected under title 17 [relating to copyrights]; or

(F) mask work protected under chapter 9 of title 17 [relating to microchips];

to the extent protected by applicable nonbankruptcy law.

As the First Circuit BAP recognized, “[s]ome courts [have] reasoned by negative inference that the omission of trademarks from § 101(35A) means that trademark licenses are not afforded any protection under § 365(n) and therefore electing licensees have no rights to use trademarks post-rejection.” Yet “[o]ther courts have expressed the view that reasoning by negative inference is inappropriate” and that “Congress intended the bankruptcy courts to exercise their equitable powers to decide, on a case-by-case basis, which trademark licensees may retain the rights under § 365(n).”  Balancing those views, the Seventh Circuit and First Circuit BAP have concluded that termination of a trademark  license by rejection under §365 does not terminate the licensee’s trademark rights.

With the courts divided on this critical issue affecting both bankruptcy and trademark rights, it remains to be seen if other circuits follow the Tempnology/Sunbeam approach, if this issue makes its way up to the Supreme Court, or if Congress clarifies §365(n) of the Bankruptcy Code.  In the meantime, attorneys advising trademark licensees in bankruptcy proceedings should be aware that trademark rights are, at least, at risk if the debtor-licensor rejects the license agreement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akerman LLP - Marks, Works & Secrets | Attorney Advertising

Written by:

Akerman LLP - Marks, Works & Secrets

Akerman LLP - Marks, Works & Secrets on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.