A trademark license is an agreement through which one organization allows another to draw on its trademark. Ostensibly, till last year, no court had been asked to decide if a trademark licensee in bankruptcy can presume, or presume and consign, a non-licensed trademark license without the consent of the trademark owner. The first answer to that query was found in a case named In re: N.C.P. Marketing Group, Inc., 337 B.R. 230, at a time when the U.S. District Court (Nevada) declared that trademark licenses are private and non-convertible, deficit of a regulation in the trademark license on the other hand. In the concluding part, the court stated that according to the Lanham Act, (the federal trademark statute), a trademark holder has the right and responsibility to supervise the quality of products sold under the trademark:
Given that the holder of the trademark has an interest in the entity to whom the trademark is consigned so that it maintains the quality, value, and goodwill of its merchandise and thereby its brand name; trademark licenses are exclusive to the beneficiary and not freely transferable to a third party.
The U.S. Court of Appeals for the Ninth Circuit (including California, Nevada and other western states) had formerly improvised that the key Bankruptcy Code terms involved, Section 365(c)(1), in order to prevent a debtor from taking on a contract while it does not hold the right to consign it.
Constituting on the Ninth Circuit law, the trade name holder in the N.C.P. Marketing Group event disputed that under trademark act the defaulter could neither assign nor assume the non-transferable trademark permit at issue. This was agreed by the district court, stating that the bankruptcy court rightly allowed the trademark holder’s action to induce the debtor to decline the trademark permit, compelling the debtor to renounce its license rights.
For trademark owners, this judgment is good news. A lot of people have been apprehensive that if a licensee declares bankruptcy, it could use the Bankruptcy Code’s universal authority to assume and assign executory agreements to consign trademark permits to third parties over the trademark holder’s disapproval. The decision of the N.C.P. Marketing Group extends to trademark holders insurance already acknowledged by various courts for copyright and patent owners. The instance does not state whether the same law would be applicable for special trademark licenses. However, known that the trademark holder has analogous rights and responsibilities to supervise the quality of products traded under a certified mark, the upshots could be the same.
For trademark licensees declaring bankruptcy, the judgment is, certainly, bad news. In case the decision is trailed by other courts, trademark licensees declaring bankruptcy shall be powerless to give their rights to third parties or to retain those authorities for themselves without the consent of the trademark holder. The merit of these debtors, as well as their capability to pay off creditors, could suffer too.
If you have additional questions please visit our Seattle trademark lawyer homepage.