IP Update

All IP Is Not Created Equal

August 13, 2007

Julia Anne Matheson and Anna Bonny, in Finnegan's Trademark and Copyright Practice Group, suggest that trademark attorneys should be aware of Bankruptcy Code 365(a).

Most trademark attorneys may never encounter a bankruptcy case as part of their practice, but all trademark attorneys should be aware of Bankruptcy Code section 365(a) and the potential risks it may generate for their clients who license trademarks. Under section 365(a), a trademark licensor who declares bankruptcy and files for Chapter 11 may be permitted to reject—that is, to breach—a trademark license agreement where rejection could benefit the estate. Although bankruptcy law protects other intellectual property license agreements against rejection (e.g., licenses for patents and trade secrets), Congress purposely rejected extending a similar safeguard to trademark licensees, leaving them uniquely vulnerable to the loss of all or part of their business if the company licensing them a trademark declares bankruptcy. The majority of courts deciding whether to allow rejection of trademark licensing agreements have permitted trademark licensors to reject such agreements as executory contracts. Given the significant impact that section 365(a) can have on trademark licenses, trademark attorneys should keep the section in mind when drafting license agreements for their clients.

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Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.