Trademark Licensees May Be Able to Have Their (Cup)Cake and Eat It, Too

Given that intellectual property licenses are generally considered to be executory contracts that may be rejected pursuant to Section 365(a) of the Bankruptcy Code, Section 365(n) serves to mitigate an intellectual property licensee's exposure to the risk of the licensor's bankruptcy by allowing the licensee to treat a rejected license as terminated or to elect to retain certain of its rights under the license. If the licensee accepts termination of its license, it can file a claim in the bankruptcy case, which would typically be treated as a pre-petition general unsecured claim. If the licensee makes an election under Section 365(n) to retain its rights, the debtor-licensor must comply with the confidentiality and exclusivity provisions of the license agreement and continue to provide access to the licensed intellectual property as it existed immediately before the bankruptcy filing.

However, when Congress enacted Section 365(n), it excluded trademarks from the definition of “intellectual property” under the Bankruptcy Code for the purposes of Section 365(n) (see 11 U.S.C. ' 101(35A)), and consequently, courts have traditionally reasoned by negative inference that a trademark licensee's rights to licensed trademarks are vulnerable if a trademark licensor in bankruptcy elects to reject the trademark license under Section 365(a). See, e.g., In re Old Carco LLC, 406 B.R. 180, 211 (Bankr. S.D.N.Y. 2009); In re HQ Global Holdings, Inc., 290 B.R. 507, 513 (Bankr. D. Del. 2003).