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Trademark Licensees May Be Able to Have Their (Cup)Cake and Eat It, Too
Following a recent line of high-profile and notable decisions that have sought to protect the rights of trademark licensees in a trademark licensor's bankruptcy, the United States Bankruptcy Court for the District of New Jersey has issued a significant decision that, for the first time, extends the protections of Section 365(n) of the Bankruptcy Code, 11 U.S.C. ' 365(n), to trademark licensees on equitable grounds. In re Crumbs Bake Shop, Inc., No. 14-24287 (Bankr. D.N.J. Oct. 31, 2014) (Crumbs).
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.
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