It might sound odd to the ears of an intellectual property lawyer, but trademarks are not intellectual property—as defined in Section 101(35A) of the Bankruptcy Code, anyway. The significance of the omission of trademarks from this definition is that it is unclear what happens to the rights of a licensee of a trademark when a debtor in possession or trustee in bankruptcy, in the position of the licensor, rejects the license under Section 365(a) of the Bankruptcy Code. Is the license terminated, leaving the licensee with only an unsecured claim for damages, or is it up to the courts to fashion a remedy for the licensee? Federal circuit courts of appeal are split, as described in further detail in my article for the ABA’s Landslide magazine.
The Fourth Circuit held in 1985 in a case called Lubrizol that rejection of a license to use a technology (not a trademark) resulted in termination of that license. This was a problem for technology licensees. So in 1988, Congress enacted Section 365(n) of the Bankruptcy Code in order to give licensees of intellectual property the choice of whether to retain their rights under certain circumstances or to treat the license as terminated when the licensor rejects it. The key to whether the licensee gets that choice is whether the subject of the license is “intellectual property.” Congress included patents, copyrights, and other forms of intellectual property in the definition, but intentionally left out trademarks, leaving open to interpretation the effect of rejection of a trademark license by the licensor (or its bankruptcy trustee) after the licensor enters bankruptcy. Continue Reading