Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

The Bankruptcy StrategistLJN NewslettersNewsSections

Sunbeam Eclipsed

By Kevin J. Walsh and Ella Shenhav
January 29, 2013

A recent decision of the Seventh Circuit Court of Appeals, Sunbeam Prods. v. Chi. Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012), has been viewed by many, including the authors of this article, as signaling a potential trend in favor of non-debtor licensees of intellectual property. This decision, described in more detail below, permits the non-debtor licensee to retain trademark rights under a rejected license agreement. Trademarks do not fall within the scope of Section 365(n) of the Bankruptcy Code, which protects certain intellectual property rights of a licensee when a licensor files for bankruptcy and rejects the license. But just as intellectual property licensees may have begun to breathe easier, a reminder came from a Virginia bankruptcy court that their sigh of relief may be, after all, premature, because it may be that a bankruptcy sale free and clear of competing interests in the intellectual property pursuant to Section 363(f) may override all 365(n) and similar rights of non-debtor licensees of intellectual property.

Section 365(n) of the Bankruptcy Code was promulgated by Congress as a direct response to the Fourth Circuit Court of Appeal's decision in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985). In Lubrizol, the court held that when a debtor rejects an intellectual property license, the non-debtor party retains no rights in the intellectual property, but rather it is merely entitled to a money damages remedy. In the aftermath of this controversial decision, Congress amended the Bankruptcy Code by adding Section 365(n), which allows licensees to continue using the licensed intellectual property under certain circumstances after the debtor rejects the license. However, the amendment was not a perfect fix, as the Bankruptcy Code's definition of intellectual property (and thus the scope of those property rights protected by Section 365(n)) includes patents, copyrights and trade secrets, but does not include trademarks or franchise agreements.

This premium content is locked for LJN Newsletters subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
The DOJ's Corporate Enforcement Policy: One Year Later Image

The DOJ's Criminal Division issued three declinations since the issuance of the revised CEP a year ago. Review of these cases gives insight into DOJ's implementation of the new policy in practice.

The DOJ's New Parameters for Evaluating Corporate Compliance Programs Image

The parameters set forth in the DOJ's memorandum have implications not only for the government's evaluation of compliance programs in the context of criminal charging decisions, but also for how defense counsel structure their conference-room advocacy seeking declinations or lesser sanctions in both criminal and civil investigations.

Use of Deferred Prosecution Agreements In White Collar Investigations Image

This article discusses the practical and policy reasons for the use of DPAs and NPAs in white-collar criminal investigations, and considers the NDAA's new reporting provision and its relationship with other efforts to enhance transparency in DOJ decision-making.

Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

A Lawyer's System for Active Reading Image

Active reading comprises many daily tasks lawyers engage in, including highlighting, annotating, note taking, comparing and searching texts. It demands more than flipping or turning pages.