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Sunbeam Products: A Ray of Light for the Bankruptcy Treatment of Licenses Under Rejected Trademark Licenses?

In Sunbeam Products, Inc., v. Chicago American Manufacturing, LLC, the Seventh Circuit, in a Judge Easterbrook authored opinion, became the first Circuit Court to issue a reported opinion directly considering and rejecting the decades old holding of the Fourth Circuit in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., that a licensee’s rights to use a licensed mark or intellectual property is necessarily lost upon debtor-licensor’s rejection of an executory license agreement. In so holding, the Sunbeam court reasoned that the enactment of section 365(n) of the Bankruptcy Code is irrelevant to the treatment of trademark licenses in bankruptcy and that nothing in section 365(g) deprives a non-debtor contracting party of rights not in the nature of specific performance. Thus, according to the Seventh Circuit, the trademark licensee in Sunbeam was permitted to continue to use the licensed marks notwithstanding a debtor-licensor’s rejection of the agreement containing the license. The Sunbeam decision has the potential to inject significant uncertainty into the Bankruptcy Code’s treatment of trademark licenses. But, its reach may extend well beyond that.

Click here to download a summary, analysis of the Court’s ruling.

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