Effects of Licensors’ Duty to Maintain Control Over a Trademark on Licensees’ Ability to Assert Rights Provided Under Section 365 of the Bankruptcy Code

(Excerpt) Under title 11 of the United States Code (the “Bankruptcy Code”), a debtor may reject or assume an executory contract, including a license for intellectual property. The definition of intellectual property does not include the term “trademark.” Consequently, it is not clear whether a non-debtor licensee can continue using a trademark if the debtor-licensor rejects it. Moreover, there appears to be a consensus forming among courts in that a debtor-licensee cannot assign a license to a third-party without the consent of the licensor. Regardless of which party initiates bankruptcy proceedings, there is a special consideration contemplated by courts– the licensor’s duty under federal trademark law to ensure that the goods and/or services being used in connection with the licensed trademark are of appropriate quality. This memorandum will examine this duty imposed on the licensor under federal trademark law and the effects it has on licensees in enacting rights and protections provided under section 365 of the Bankruptcy Code in a three-fold approach. Part I describes the function of federal trademark law, and the rights of licensors and licensees. Part II examines the significance of the absence of trademark from the Bankruptcy Code’s definition of intellectual property, and how this effects the applicability of section 365(n), which provides protections for intellectual property licensees. Part III analyzes the extent to which trademark licenses can be assigned by debtor-licensees under section 365(a) of the Bankruptcy Code