Article Analyzing Footstar
In In re Footstar, Inc.
, 323 B.R. 566 (Bankr. S.D.N.Y. 2005), the bankruptcy court for the Southern District of New York rejected the "hypothetical test" for interpreting 265(c)(1)(A). The Court presented a new analysis supporting application of the "actual test" and held that the debtor could assume pending contracts with Kmart Corporation.
Three of the lawyers involved in the case, Jay R. Indyke
, Richard S. Kanowitz
, and Brent Weisenberg
, have written an article analyzing the court's decision and further explaining its approach to allowing assumption of otherwise non-assignable executory contracts.
The article, called "Ending the "Hypothetical" vs. "Actual" Test Debate: A New Way to Read Section 365(c)(1)" was published in the April 2007 edition of the Journal of Bankruptcy Law and Practice. 16 J. Bankr. L. & Prac. 2 Art. 2 (2007).
Labels: assignment, assumption
The Descent Into Darkness Continues
I've always viewed as misguided those attempts to apply to trademarks the "federal common law" rule that patent licenses (and to some extent copyright licenses) are not assignable absent the licensor's consent. In 2002, a somewhat confused Georgia bankruptcy court held that trademark licenses were personal to the licensor and not-assignable under the Lanham Act. In re Travelot Co
., 286 B.R. 447, 455 (Bankr. D. Ga. 2002). Fortunately for the licensee in that case, the Travelot
court also, incorrectly, failed to recognize the contract in question as containing a trademark license.
At least that court reached the correct result, if for the wrong reasons.
In In re Wellington Vision, Inc.
, 2007 WL 762398 (S.D. Fla. 2007), the District Court affirmed a bankruptcy court decision denying a debtor the right to assume a franchise agreement. The franchise agreement included, as do all franchise agreements, a license to use the franchisor's trademarks. The Court relied on the dicta in Travelot
(and only Travelot
- no other support was cited to) in holding that a non-exclusive trademark license is personal to the licensor and cannot be assigned without the licensor's consent. Unfortunately, Travelot
itself was not based on much more. The dicta in Travelot
was based solely on one other trademark case, Tap Publ'ns, Inc. v. Chinese Yellow Pages (New York), Inc
., 925 F.Supp. 212, 218 (S.D.N.Y. 1996), which itself appears to be based on a misreading of a well respected treatise on trademark law. In the end, this line of decisions is based on a misunderstanding of the purpose and application of trademark law.
The possible effect of cases like Wellington
is fairly serious. If more courts start to hold that trademark licenses are non-assignable in bankruptcy, and couple that concept with the "hypothetical test" for applying section 365(c)(1)(A), we will have a situation where no debtor can retain the benefit of a trademark license without the licensor's consent. Its bad enough we have that situation with respect to patent and copyright licenses.
Labels: assignment, assumption, trademark license, trademarks
Why We License
Rap artist JT Money transferred copyrights in sound recordings to Luke Records in exchange for a recording contract that required Luke Records to pay JT Money royalties. Luke Records later became a chapter 11 debtor. Luke Records rejected the recording contract and transferred the copyrights to a buyer, Lil' Joe Records, Inc.
In Thompkins v. Lil' Joe Records, Inc.
, 2007 WL 316302 (11th Cir. 2007), the Court of Appeals for the 11th Circuit held the recording contract was properly rejected and JT Money was not, as a result of the rejection, entitled to a return of the copyrights. A rejection of a contract is not a rescission. JT Money's remedy was limited to a general unsecured claim for damages against the Luke Records bankruptcy estate.
Because he transferred his copyrights instead of licensing them, JT Money was out of the money.
Labels: copyright, license, rejection