The U.S. Court of Appeals for the Seventh Circuit in Chicago has issued a decision with significant implications for licensees of trademarks whose licensors become debtors in bankruptcy. In Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, the Court considered whether rejection of a trademark license in bankruptcy deprives the licensee of the right to use the licensed mark. Disagreeing with the holding of the Court of Appeals for the Fourth Circuit in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., the Court concluded that a licensee could continue to use the licensed mark notwithstanding the rejection of the license agreement. The decision may have important implications also for other types of intellectual property licenses and, indeed, all other kinds of contracts, licenses and leases as well.

Lubrizol and Congressional Response -

Lubrizol held that, when an IP license is rejected in the bankruptcy case of the licensor, the licensee “could not seek to retain its contract rights in the [IP] by specific performance.” 746 F.2d at 1048. Lubrizol was universally understood to mean that the licensee loses the right to use any licensed IP following rejection of the license agreement. The licensee’s sole remedy under the Bankruptcy Code following rejection of its license agreement, Lubrizol explained, is a claim for damages. Id.