that CAM was not permitted to use
the Lakewood trademark following
rejection of the trademark license.
for Congress to study the statute’s
potential impact on trademarks.
the trademark. In fact, the legislative
history shows that Congress intended
this question to be answered by the
courts. S. Rep. No. 100-505, at 5,
reprinted in 1988 U.S.C.C.A.N. at 3204.
The recent case of Sunbeam Products,
Inc. v. Chicago American Manufacturing,
LLC, 686 F.3d 372 (7th Cir. 2012)
addresses the 11 U.S.C. § 365(n) issue,
holding that a licensee may continue to
use a trademark after a rejection of the
trademark license by the debtor-licensor.
The case may give some comfort to
licensees regarding their continued use
of trademark licenses after rejection
by the licensor, but Sunbeam has not
been adopted by the Supreme Court
or other circuit courts. Accordingly,
trademark licensees should remain
concerned about possibly losing the
right to use a licensed trademark after
rejection in a bankruptcy case.
In Sunbeam, Lakewood Engineering
& Manufacturing Co. had entered into
a contract with Chicago American
Manufacturing (CAM) authorizing the
company to manufacture box fans
under the Lakewood trademark.
Without deciding whether CAM
was permitted to use the Lakewood
trademark under 11 U.S.C. § 365(n),
the Bankruptcy Court held that CAM
was permitted to do so on “equitable
grounds,” supported mainly by the
substantial evidence CAM provided
to show its significant investment
in making the Lakewood box fans.
On appeal, the 7th U.S. Circuit Court
of Appeals rejected the Bankruptcy
Court’s reliance on equitable grounds
for its ruling, but nevertheless held
that CAM had the right to continue
using the Lakewood trademark.
After Lakewood was forced into an
involuntary bankruptcy, its business
was sold to Sunbeam, and the trustee
sought rejection of the trademark license
between Lakewood and CAM. The
Bankruptcy Court approved the rejection,
but CAM continued to manufacture box
fans under the Lakewood trademark.
Sunbeam then filed an action against
CAM for a declaratory judgment
In doing so, the 7th Circuit observed that
a debtor-licensor’s rejected obligations
may entitle the licensee to damages
under 11 U.S.C. § 365(g), “[b]ut nothing
about this process implies that any
rights of the other contracting party
have been vaporized.” Id. at 377. The
7th Circuit noted that the legislative
history of 11 U.S.C. § 365(n) was not
an implicit rejection of the licensee’s
continued use of trademarks, but was
omitted solely to allow more time
These cases illustrate the importance of
addressing possible bankruptcy issues
in the drafting of trademark licenses.
Best practices dictate that a trademark
licensee attempt to acquire ownership of
the trademark, if possible, or arrange for
the licensor to be a special purpose entity
not likely to file a subsequent bankruptcy
case. Alternatively, the licensee should
seriously explore contract language
that expressly declares that neither
party to the license has any material
obligations remaining after payment
of the purchase price, or limits those
obligations to monetary damages only.
Visit the TMA Events Calendar at turnaround.org to register and learn more. 2013 Great Lakes Regional Conference May 23 - 24, 2013 Peek’n Peak Resort and Spa Clymber, New York
The conference features a golf outing, cigar bar, networking
lounge, and current education panels, including “A Mid-Year
Economic Assessment” and “Managing the Obama-care Profit Hit.”
Don’t miss next month’s regional event, hosted by the Michigan,
Ohio, Pittsburgh, and Upstate New York TMA Chapters.