By Terry Baynes
Dec 10 (Reuters) - The U.S. Supreme Court refused on Monday
to resolve the question of what happens to the license to use a
trademark when the owner of that trademark goes through
In an order, without comment, the high court rejected a
request from Jarden Consumer Solutions to help settle a conflict
between federal courts of appeal over whether trademark licenses
The case involves Lakewood Engineering & Manufacturing Co, a
consumer products company that outsourced the manufacturing of
box fans bearing its trademark to Chicago American
Lakewood's creditors in 2009 filed an involuntary bankruptcy
petition against the company. The bankruptcy trustee rejected
Lakewood's supply contract with Chicago American and sold the
bulk of Lakewood's assets to the highest bidder, Jarden.
Chicago American continued to produce fans with the Lakewood
trademark, prompting a lawsuit by the trustee and later Jarden
for trademark infringement. But the bankruptcy court found that
even though the trustee had rejected the contract, Chicago
American could continue to use the Lakewood trademark.
The 7th U.S. Circuit Court of Appeals reached the same
conclusion in July, breaking with a 1985 ruling from the 4th
Circuit, Lubrizol Enterprises v. Richmond Metal Finishers, which
found that a trustee's rejection of a licensing agreement
terminated all rights to continue to use the debtor's
In response to that 4th Circuit ruling, Congress in 1988
changed the bankruptcy code to allow holders of intellectual
property licenses from a debtor to retain their rights even if a
trustee rejects the licensing agreement in a bankruptcy.
However, in its definition of "intellectual property," Congress
included patents and copyrights but not trademarks. For decades,
that left the holders of trademark licenses at risk of losing
their rights if the licensing agreement was rejected in a
But the 7th Circuit extended the protection to trademark
licenses in July, acknowledging that its decision created a
division between the federal courts of appeal.
The Supreme Court often takes cases to resolve such
disagreements in the circuit courts, but it declined to review
the case on Monday.
"We think this is going to interfere with the bankruptcy
process and lead to the dilution of trademark rights by creating
uncertainty regarding the parties' trademark rights and
obligations post-rejection in bankruptcy," said Leonard Feldman,
Jarden's appellate lawyer at Stoel Rives.
Purchasers of trademark licenses from companies in financial
distress or bankruptcy are going to pay less because they're not
sure what they're getting, said Ethan Horwitz, a lawyer at King
& Spaulding who filed a brief for the International Trademark
Association, urging the justices to take the case. That, in
turn, makes it harder for companies to license their trademarks
to escape financial difficulty, he said.
"Everybody loses. There's no question that merely deciding
one way or another is important," Horwitz said.
But Chicago American's lawyer, David Goroff at Foley &
Lardner, said the 7th Circuit ruling provided clear guidance to
both sides on trademark licenses.
"If you have a license, you don't have to fear that
bankruptcy means (your rights) disappear in a flash," he said.
The case is Sunbeam Products Inc v. Chicago American
Manufacturing, No. 12-431.
For Jarden: Leonard Feldman of Stoel Rives.
For Chicago American: David Goroff of Foley & Lardner.
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