To increase the profit ratio of trademarks, licensing has become similarly more important for many companies: More and more companies sell services or products under a trademark that they have licensed from another company, relying on the higher likelihood of consumer acceptance, especially if the trademark is already established on the market. The increased number of contractual relationships has, however, also led to a heightened interdependence of the individual companies, especially if one of the parties of a licensing agreement files for bankruptcy and the interests of both parties are brought into a conflict.
Section 365(n) of the Bankruptcy Code protects licensees of intellectual property in the event of the licensor's bankruptcy, so that a licensee can choose to continue using the licensed invention. Section 365(n), however, does not provide protection for trademark licenses. This paper argues that given the developments in both bankruptcy and trademark law, the exclusion of trademark licenses from the protecting provision in Section 365(n) of the Bankruptcy Code is unwarranted.
This paper evaluates the case for extending protection to trademark licensees, and considers the prospects of extending protection to trademark licensees through judicial action, and the ideal shape of legislative reform. It argues that trademark licensees should be granted protection in licensor bankruptcies similar to that enjoyed by licensees of other types of intellectual property. Further, the "quality control" rationale for treating trademarks differently justifies, at most, extending protection to licensees under certain conditions, rather than denying it altogether. Lastly, the paper argues that trademarks have in recent decades gained more of the qualities of assets or property, and should be treated as such in bankruptcy.
In the event of a licensee's bankruptcy, Section 365(c) of the Bankruptcy Code prohibits the trustee from assigning an executory contract if applicable non-bankruptcy law excuses the non-debtor party "from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession." Some of the circuit courts have applied the "hypothetical test," which means that if applicable law prevents a debtor from hypothetically assigning the contract to a third party, then Section 365(c) also bars the assumption of the contract. Other courts have adopted the "actual test." They apply the exception of Section 365(c) only to cases where the trustee actually intends to assign the contract to a third party rather than assuming it for itself. Courts that adopt this test argue that, although it may be less conform to the literal meaning of the statute, their reading follows the general policy of the Bankruptcy Code. A third group of courts has created a special exception for debtors in possession, arguing that the language of Section 365(c) only applies to trustees but does not bar assumption from a debtor in possession.
A more uniform resolution of the problem that is applicable to trademark licenses as well as to patent and copyright licenses is necessary to give them more certainty about the outcome of a possible bankruptcy. This thesis argues that the test that has been developed in the In re Footstar -decision, which allows the debtor-licensor to retain the license, is more in accordance with the overall policies of the Bankruptcy Code and thus seems appropriate.
|School:||The George Washington University|
|Department:||Intellectual Property Law|
|School Location:||United States -- District of Columbia|
|Source:||MAI 51/01M(E), Masters Abstracts International|
|Keywords:||Bankruptcy, Ipbpa, License, Quality control, Trademark|
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