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U.S. top court won’t consider fate of trademarks in bankruptcy

Dec 10 (Reuters) – The U.S. Supreme Court refused on Monday to resolve the question of what happens to the license to use a trademark when the owner of that trademark goes through bankruptcy.

In an order, without comment, the high court rejected a request from Jarden Consumer Solutions to help settle a conflict between federal courts of appeal over whether trademark licenses survive bankruptcy.

The case involves Lakewood Engineering & Manufacturing Co, a consumer products company that outsourced the manufacturing of box fans bearing its trademark to Chicago American Manufacturing.

Lakewood’s creditors in 2009 filed an involuntary bankruptcy petition against the company. The bankruptcy trustee rejected Lakewood’s supply contract with Chicago American and sold the bulk of Lakewood’s assets to the highest bidder, Jarden.

Chicago American continued to produce fans with the Lakewood trademark, prompting a lawsuit by the trustee and later Jarden for trademark infringement. But the bankruptcy court found that even though the trustee had rejected the contract, Chicago American could continue to use the Lakewood trademark.

The 7th U.S. Circuit Court of Appeals reached the same conclusion in July, breaking with a 1985 ruling from the 4th Circuit, Lubrizol Enterprises v. Richmond Metal Finishers, which found that a trustee’s rejection of a licensing agreement terminated all rights to continue to use the debtor’s intellectual property.

In response to that 4th Circuit ruling, Congress in 1988 changed the bankruptcy code to allow holders of intellectual property licenses from a debtor to retain their rights even if a trustee rejects the licensing agreement in a bankruptcy. However, in its definition of “intellectual property,” Congress included patents and copyrights but not trademarks. For decades, that left the holders of trademark licenses at risk of losing their rights if the licensing agreement was rejected in a bankruptcy.

But the 7th Circuit extended the protection to trademark licenses in July, acknowledging that its decision created a division between the federal courts of appeal.

The Supreme Court often takes cases to resolve such disagreements in the circuit courts, but it declined to review the case on Monday.

“We think this is going to interfere with the bankruptcy process and lead to the dilution of trademark rights by creating uncertainty regarding the parties’ trademark rights and obligations post-rejection in bankruptcy,” said Leonard Feldman, Jarden’s appellate lawyer at Stoel Rives.

Purchasers of trademark licenses from companies in financial distress or bankruptcy are going to pay less because they’re not sure what they’re getting, said Ethan Horwitz, a lawyer at King & Spaulding who filed a brief for the International Trademark Association, urging the justices to take the case. That, in turn, makes it harder for companies to license their trademarks to escape financial difficulty, he said.

“Everybody loses. There’s no question that merely deciding one way or another is important,” Horwitz said.

But Chicago American’s lawyer, David Goroff at Foley & Lardner, said the 7th Circuit ruling provided clear guidance to both sides on trademark licenses.

“If you have a license, you don’t have to fear that bankruptcy means (your rights) disappear in a flash,” he said.

The case is Sunbeam Products Inc v. Chicago American Manufacturing, No. 12-431.


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