Recent Case Underscores Growing Divide on Treatment of Trademark Licenses in Bankruptcy Proceedings, an Issue Ripe for Supreme Court Review

June 7, 2018

The U.S. Supreme Court will soon likely be asked to clarify the extent to which trademark license rights survive rejection in bankruptcy proceedings, as the lower courts are growing increasingly divided.

On May 17, 2018, the U.S. Bankruptcy Court for the District of Connecticut held that a trademark licensee retains the right to use licensed trademarks following a debtor-licensor’s rejection of the license. See In re SIMA Int’l, Inc Debtor, No. 17-21761, 2018 WL 2293705 (Bankr. D. Conn. May 17, 2018). This decision, the most recent in a series of cases addressing the treatment of trademark licenses in bankruptcy proceedings, is consistent (in result though not necessarily in reasoning) with court decisions in the Third and Seventh Circuits, but directly conflicts with case law from the Fourth Circuit and with a recent First Circuit decision, which will likely be appealed to the Supreme Court on Monday, June 11, 2018.

Until the high court decides the issue, or Congress weighs in via statutory amendment, trademark licensees will face continued uncertainty on their ability to use licensed trademarks following rejection in bankruptcy. In the meantime, sophisticated licensees should explore with counsel ways to protect their trademark rights through creative arrangements and bespoke contract drafting, and in cases where the trademarks make up a material portion of the licensor-debtor’s assets, the divide in authorities should influence a debtor’s determination on the most advantageous venue in which to file Chapter 11.

This alert memo was republished by Law360.