Amicus Curiae Brief — Mission Product Holdings, Inc., Petitioner v. Tempnology, LLC, nka Old Cold LLC

Supreme Court briefJul 11, 2018

Ask Donna

What actually matters in this document.

Text

No. 17-1657

IN THE

Supreme Court of the United States

MISSION PRODUCT HOLDINGS, INC.,

Petitioner,

—v.—

TEMPNOLOGY, LLC, N/K/A OLD COLD LLC,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE FIRST CIRCUIT

AMICUS CURIAE BRIEF OF

THE INTERNATIONAL TRADEMARK ASSOCIATION

IN SUPPORT OF PETITIONER

ELEANOR M. LACKMAN

COWAN, DEBAETS, ABRAHAMS

& SHEPPARD LLP

41 Madison Avenue, 38th Floor

New York, New York 10010

(212) 974-7474

DAVID H. BERNSTEIN

Counsel of Record

JEFFREY P. CUNARD*

JEREMY FEIGELSON

JASMINE BALL

JARED I. KAGAN

ELIE J. WORENKLEIN

DEBEVOISE & PLIMPTON LLP

919 Third Avenue

New York, New York 10022

(212) 909-6696

dhbernstein@debevoise.com

*Resident in Washington,

D.C. Office

Attorneys for Amicus Curiae

The International Trademark Association

TABLE OF CONTENTS

Table of Authorities ................................................... ii

Interest of the Amicus Curiae ................................... 1

Summary of Argument .............................................. 5

Argument.................................................................... 8

II.

This Court Should Grant Certiorari to

Resolve the Circuit Split by Adopting the

Sunbeam Rule .................................................... 8

The Split Below Is Substantial and

Leads to Uncertainty ................................. 8

The Sunbeam Rule, Treating

Rejection of a Debtor-Licensor’s

Contractual Obligations Under a

Trademark License Agreement as a

Breach but Not a Termination, Best

Promotes the Strength and Stability

of the Trademark System ........................ 14

This Case Presents a Rare Opportunity

to Clarify a Commercially Critical Area of

the Law ............................................................. 24

Conclusion ................................................................ 28

TABLE OF AUTHORITIES

CASES

Already, LLC v. Nike, Inc.,

568 U.S. 85 (2013)................................................ 2

Am. Needle, Inc. v. Nat’l Football League,

560 U.S. 183 (2010)............................................ 24

B&B Hardware, Inc. v. Hargis Indus., Inc.,

135 S. Ct. 1293 (2015).......................................... 2

Banning Lewis Ranch Co. v. City of Colo. Springs,

532 B.R. 335 (Bankr. D. Co. 2015) .................... 11

Chloe v. Queen Bee of Beverly Hills, LLC,

616 F.3d 158 (2d Cir. 2010) ................................. 3

Christian Louboutin S.A. v. Yves Saint Laurent Am.

Holdings, Inc.,

696 F.3d 206 (2d Cir. 2012) ................................. 2

Dastar Corp. v. Twentieth Century Fox Film Corp.,

539 U.S. 23 (2003)................................................ 2

Dawn Donut Co. v. Hart’s Food Stores, Inc.,

267 F.2d 358 (2d Cir. 1959) ............................... 19

Dickinson v. Zurko,

527 U.S. 150 (1999).............................................. 2

Ferring B.V. Inc. v. Watson Laboratories, Inc.-Fla.,

764 F.3d 1382 (3d Cir. 2014) ............................... 2

Fla. Prepaid Postsecondary Educ. Expense Bd. v.

Coll. Sav. Bank,

527 U.S. 627 (1999).............................................. 2

Fleischer Studios, Inc. v. A.V.E.L.A., Inc.,

654 F.3d 958 (9th Cir. 2011) ............................... 3

iii

Gorenstein Enters., Inc. v. Quality Care-USA, Inc.,

874 F.2d 431 (7th Cir. 1989) ............................. 19

Hana Fin., Inc. v. Hana Bank,

135 S. Ct. 907 (2015)............................................ 2

In re Austin Dev. Co.,

19 F.3d 1077 (5th Cir. 1994) ............................. 17

In re Blackstone Potato Chip Co.,

109 B.R. 557 (Bankr. D.R.I. 1990) ...................... 9

In re Centura Software Corp.,

281 B.R. 660 (Bankr. N.D. Cal. 2002) ................. 9

In re Charter Commc’ns, Inc.,

691 F.3d 476 (2d Cir. 2012) ............................... 27

In re Crumbs Bake Shop, Inc.,

522 B.R. 766 (Bankr. D.N.J. 2014).............. 11, 20

In re Drexel Burnham Lambert Grp., Inc.,

138 B.R. 687 (Bankr. S.D.N.Y. 1992) ................ 17

In re Exide Techs.,

607 F.3d 957 (3d Cir. 2010) ..............10, 11, 16, 19

In re HQ Global Holdings, Inc.,

290 B.R. 507 (Bankr. D. Del. 2003) ..................... 9

In re Modern Textile, Inc.,

900 F.2d 1184 (8th Cir. 1990)............................ 17

In re Rent-A-Wreck of Am., Inc.,

580 B.R. 364 (Bankr. D. Del. 2018) ................... 12

In re Select-A-Seat Corp.,

625 F.2d 290 (9th Cir. 1980) ............................. 10

In re Sima Int’l, Inc.,

Case No. 17-21761, 2018 WL 2293705

(Bankr. D. Conn. May 17, 2018) ....................... 12

In re Tempnology, LLC,

879 F.3d 389 (1st Cir. 2018) .............................. 12

ITC. Ltd v. Punchgini, Inc.,

482 F.3d 135 (2d Cir. 2007) ................................. 3

K Mart Corp. v. Cartier, Inc.,

486 U.S. 281 (1988)........................................ 2, 24

KP Permanent Make-Up, Inc.

v. Lasting Impression I, Inc.,

543 U.S. 111 (2004).............................................. 2

Leasing Serv. Corp. v. First Tenn. Bank Nat’l Ass’n,

826 F.2d 434 (6th Cir. 1987) ............................. 17

Levi Strauss & Co. v. Abercrombie

& Fitch Trading Co.,

633 F.3d 1158 (9th Cir. 2011).............................. 3

Louis Vuitton Malletier, S.A. v.

Haute Diggity Dog, LLC,

507 F.3d 252 (4th Cir. 2007) ............................... 3

Lubrizol Enters., Inc. v. Richmond

Metal Finishers, Inc.,

756 F.2d 1043 (4th Cir. 1985)..................... passim

Matal v. Tam,

137 S. Ct. 1744 (2017).......................................... 2

Med. Malpractice Ins. v. Hirsch,

114 F.3d 379 (2d Cir. 1997) ............................... 17

Moseley v. V Secret Catalogue, Inc.,

537 U.S. 418 (2003).............................................. 2

NLRB v. Bildisco & Bildisco,

465 U.S. 513 (1984)............................................ 18

Nordhoff Invs., Inc. v. Zenith Elecs. Corp.,

258 F.3d 180 (3d Cir. 2001) ............................... 27

O’Neil v. Continental Airlines, Inc.,

981 F.2d 1450 (5th Cir. 1993)........................... 17

Orion Pictures Corp. v. Showtime Networks, Inc.,

4 F.3d 1095 (2d Cir. 1993) ................................. 18

Pepper v. Litton,

308 U.S. 295 (1939)............................................ 16

Pom Wonderful LLC v. Coca-Cola Co.,

134 S. Ct. 2228 (2014).......................................... 2

Qualitex Co. v. Jacobson Prods. Co.,

514 U.S. 159 (1995).............................................. 2

Rosetta Stone Ltd. v. Google, Inc.,

676 F.3d 144 (4th Cir. 2012) ............................... 3

Shammas v. Focarino,

784 F.3d 219 (4th Cir. 2015) ............................... 2

Starbucks Corp. v. Wolfe’s Borough Coffee, Inc.,

588 F.3d 97 (2d Cir. 2009) ................................... 3

Sunbeam Prods, Inc. v. Chicago Mfg., LLC,

686 F.3d 372 (7th Cir. 2012) ...................... passim

Test Masters Educ. Servs. v. Singh,

428 F.3d 559 (5th Cir. 2005) ............................... 3

Thompkins v. Lil’ Joe Records, Inc.,

476 F.3d 1294 (11th Cir. 2007).......................... 17

TrafFix Devices, Inc. v. Mktg. Displays, Inc.,

532 U.S. 23 (2001)................................................ 2

Two Pesos, Inc. v. Taco Cabana, Inc.,

505 U.S. 763 (1992).............................................. 2

United States v. Sealy, Inc.,

388 U.S. 350 (1967)............................................ 24

Wal-Mart Stores, Inc. v. Samara Bros.,

529 U.S. 205 (2000).............................................. 2

Walker v. Armco Steel Corp.,

446 U.S. 740 (1980)............................................ 13

Young v. United States,

535 U.S. 43 (2002).............................................. 16

STATUTES

11 U.S.C. § 365(n) .....................................8, 10, 14, 15

15 U.S.C. § 1055 ....................................................... 19

28 U.S.C. § 158(a)..................................................... 26

28 U.S.C. § 158(d)..................................................... 26

OTHER AUTHORITIES

David J. Franklyn, The Apparent Manufacturer

Doctrine, Trademark Licensors and the Third

Restatement of Torts,

49 CASE W. RES. L. REV. 671 (1999) .................. 25

David M. Jenkins, Licensees, Trademarks, and

Bankruptcy, Oh My!: Trademark Licensing and

the Perils of Licensor Bankruptcy,

25 J. MARSHALL L. REV. 143 (1991) ................... 23

Economics and Statistics Administration & United

States Patent and Trademark Office,

INTELLECTUAL PROPERTY AND THE U.S. ECONOMY:

2016 UPDATE (2016) ........................................... 24

Irene Calboli, The Sunset of “Quality Control” in

Modern Trademark Licensing,

57 AM. U. L. REV. 341 (2007) ............................. 25

vii

John E. Calfee & Richard Craswell, Some Effects of

Uncertainty on Compliance with Legal

Standards, 70 VA. L. REV. 965 (1984) ............... 13

Joint Press Statement of Senators Cornyn and

Warren concerning Bankruptcy Venue Reform

Act of 2018 (Jan. 8, 2018),

available at https://www.cornyn.senate.gov/

content/news/cornyn-warren-introducebill-prevent-%E2%80%98forumshopping%E2%80%99-bankruptcy-cases.......... 13

Kayvan Ghaffari, The End to an Era of Neglect:

The Need for Effective Protection of

Trademark Licenses,

87 S. CAL. L. REV. 1053 (2014)........................... 26

Laura Jelinek, Equity for Brand Equity:

The Case for Protecting Trademark

Licensees in Licensor Bankruptcies,

40 AIPLA Q.J. 365 (2012).................................. 20

Licensing Industry Merchandisers’ Association,

LIMA GLOBAL LICENSING INDUSTRY SURVEY

2015 REPORT (2015) ........................................... 25

Nicholas W. Quesenberry, Risky Business: How the

Economic Impact of the Risk of Debtor Default

Mandates Application of the PresumptiveContract Interest Rate in the Case of a

Cramdown Plan against a Secured Creditor with

a Lien on Personal Property in Chapter 13,

22 J. BANKR. L. & PRAC. 2 Art. 5. (2013) ........... 21

S. Ct. R. 37.6 ............................................................... 1

S. Rep. No. 100-505 (1988), as reprinted in 1988

U.S.C.C.A.N. 3200 ....................................... 14, 15

viii

William M. Landes and Richard A. Posner,

Trademark Law: An Economic Perspective,

30 J. LAW AND ECON. 265 (1987).......................... 6

World Intellectual Property Organization, WORLD

INTELLECTUAL PROPERTY REPORT: BRANDS –

REPUTATION AND IMAGE IN THE GLOBAL

MARKETPLACE 9 (2013) ........................................ 4

AMICUS CURIAE BRIEF OF THE

INTERNATIONAL TRADEMARK

ASSOCIATION IN SUPPORT OF PETITIONER

The undersigned amicus curiae respectfully

submits this brief in support of the petition for

certiorari filed by petitioner Mission Product

Holdings, Inc., seeking review of the decision of the

United States Court of Appeals for the First Circuit.1

INTEREST OF THE AMICUS CURIAE

Founded

1878,

amicus

curiae

The

International Trademark Association (INTA) is a

not-for-profit organization dedicated to the support

and advancement of trademarks and related

intellectual-property concepts as essential elements

of trade and commerce. INTA has more than 7,200

members in 191 countries. Its members include

trademark owners as well as law firms and other

professionals who regularly assist brand owners in

the

creation,

registration,

protection,

and

enforcement of their trademarks. All INTA members

share the goal of promoting an understanding of the

essential role that trademarks play in fostering

1 Both Petitioner and Respondent have provided their written

consent to INTA’s filing of a brief. This brief was authored

solely by INTA and its counsel. No party or counsel for a party

made a monetary contribution intended to fund the preparation

or submission of this brief. No person other than amicus curiae,

its members, and its counsel made such a monetary

contribution to its preparation or submission. See S. Ct. R. 37.6.

effective commerce, fair competition, and informed

decision-making by consumers.

INTA (formerly known as the United States

Trademark Association) was founded in part to

encourage the enactment of federal trademark

legislation after the invalidation on constitutional

grounds of the United States’ first trademark act.

Since then, INTA has been instrumental in making

recommendations and providing assistance to

legislators in connection with almost all major

trademark legislation, and has participated as

amicus curiae in numerous cases involving

significant trademark issues.2 INTA members are

2 Cases in which INTA has filed amicus briefs include: Matal v.

Tam, 137 S. Ct. 1744 (2017); Hana Fin., Inc. v. Hana Bank, 135

S. Ct. 907 (2015); B&B Hardware, Inc. v. Hargis Indus., Inc.,

135 S. Ct. 1293 (2015); Pom Wonderful LLC v. Coca-Cola Co.,

134 S. Ct. 2228 (2014); Already, LLC v. Nike, Inc., 568 U.S. 85

(2013); KP Permanent Make-Up, Inc. v. Lasting Impression I,

Inc., 543 U.S. 111 (2004); Dastar Corp. v. Twentieth Century

Fox Film Corp., 539 U.S. 23 (2003); Moseley v. V Secret

Catalogue, Inc., 537 U.S. 418 (2003); TrafFix Devices, Inc. v.

Mktg. Displays, Inc., 532 U.S. 23 (2001); Wal-Mart Stores, Inc.

v. Samara Bros., 529 U.S. 205 (2000); Fla. Prepaid

Postsecondary Educ. Expense Bd. v. Coll. Sav. Bank, 527 U.S.

627 (1999); Dickinson v. Zurko, 527 U.S. 150 (1999); Qualitex

Co. v. Jacobson Prods. Co., 514 U.S. 159 (1995); Two Pesos, Inc.

v. Taco Cabana, Inc., 505 U.S. 763 (1992); K Mart Corp. v.

Cartier, Inc., 486 U.S. 281 (1988); Shammas v. Focarino, 784

F.3d 219 (4th Cir. 2015); Ferring B.V. Inc. v. Watson

Laboratories, Inc.-Fla., 764 F.3d 1382 (3d Cir. 2014); Christian

Louboutin S.A. v. Yves Saint Laurent Am. Holdings, Inc., 696

F.3d 206 (2d Cir. 2012); Rosetta Stone Ltd. v. Google, Inc., 676

F.3d 144 (4th Cir. 2012); Fleischer Studios, Inc. v. A.V.E.L.A.,

frequent participants in licensing arrangements, are

often parties in trademark-related litigation as both

plaintiffs and defendants, and are also often parties

in bankruptcy proceedings as both debtors and

creditors.

INTA and its members have a particular interest

in this case because the question presented –

whether a debtor-licensor can terminate a

trademark license by rejection, thereby “taking back”

trademark rights it has licensed and precluding its

licensee from using the trademark – is the most

significant unresolved legal issue in trademark

licensing. That issue has led to uncertainty in the

market for trademark licenses. There is a growing

circuit split on this issue, which the First Circuit’s

decision exacerbates.

Uncertainty regarding the status of trademark

licenses involving a bankrupt licensor affects the

broader business community, given that trademarks

are the most widely used form of registered

intellectual property. World Intellectual Property

Organization, WORLD INTELLECTUAL PROPERTY

Inc., 654 F.3d 958 (9th Cir. 2011); Levi Strauss & Co. v.

Abercrombie & Fitch Trading Co., 633 F.3d 1158 (9th Cir.

2011); Chloe v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158

(2d Cir. 2010); Starbucks Corp. v. Wolfe’s Borough Coffee, Inc.,

588 F.3d 97 (2d Cir. 2009); ITC. Ltd v. Punchgini, Inc., 482

F.3d 135 (2d Cir. 2007); Louis Vuitton Malletier, S.A. v. Haute

Diggity Dog, LLC, 507 F.3d 252 (4th Cir. 2007); Test Masters

Educ. Servs. v. Singh, 428 F.3d 559 (5th Cir. 2005).

REPORT: BRANDS – REPUTATION AND IMAGE IN THE

GLOBAL MARKETPLACE 9 (2013). In light of the

importance of trademarks to businesses and the

economy, it hardly is surprising that trademark

rights, in many instances, are among a debtor’s key

assets and that trademark issues frequently arise in

the bankruptcy context.

The circuit split on the issue presented by the

petition has affected the value of trademark license

agreements, to the detriment of licensors, licensees,

and the consumers they both serve. INTA members

are interested in the development of clear,

consistent, and equitable principles for bankruptcy

proceedings that preserve and enhance the value of

trademarks for all parties. Clear, consistent, and

equitable rules not only will facilitate restructuring

for debtors in bankruptcy, but they also will enhance

the value of trademark licenses in the prebankruptcy context. These benefits, in turn, will help

trademarks better perform their core function of

helping guide consumers to the products and

services they want, with reliable assurances of

source and quality.

SUMMARY OF ARGUMENT

This Court should grant the petition for certiorari

in order to resolve the substantial circuit split

concerning whether debtor-licensors can terminate a

trademark license by rejection, and to promote the

strength and stability of the trademark system by

adopting the rule articulated in Sunbeam Prods, Inc.

v. Chicago Mfg., LLC, 686 F.3d 372 (7th Cir. 2012).

In the decision below, the First Circuit held that

a debtor, who has the right to “reject” executory

contracts in order to eliminate contractual

obligations that may interfere with a restructuring,

may reject a trademark license agreement, and that

the effect of that rejection is to permanently

terminate the licensee’s right to use the licensed

trademark. Other courts have taken a different

approach: They have held that the rejection of a

trademark license agreement eliminates the debtorlicensor’s requirement that it perform its obligations

under the agreement (for example, the licensor need

no longer undertake or fund enforcement efforts

against infringers of the licensed mark, or defend

third-party infringement claims brought against the

licensee), but it does not terminate the licensee’s

right to continue to use the trademark under license.

The First Circuit plainly acknowledged the

existence of a circuit split on this issue. The ongoing

uncertainty harms trademark licensors, licensees,

bankruptcy creditors, and consumers alike.

The Court should adopt the Sunbeam approach

because it enhances the value of trademark licenses

and promotes the stability of the trademark system:

•

Licensors benefit because licensees will

pay more up front or in royalties for

licensed rights that survive a potential

bankruptcy filing by the licensor.

•

Licensees, who have substantial reliance

interests in the licensed trademarks (e.g.,

having hired employees and/or established

manufacturing capacity to take advantage

of the rights), will not suddenly find their

rights rendered valueless by the licensor’s

decision to terminate a trademark license

agreement

through

rejection

bankruptcy.

•

Above all, the American public will be

better off. The ultimate beneficiary of a

strong trademark system is the consumer,

who can rely on healthy trademarks as

indicators of source and quality. William

M. Landes and Richard A. Posner,

Trademark Law: An Economic Perspective,

30 J. LAW AND ECON. 265, 270 (1987).

Resolving this issue will have important

consequences beyond the effect of rejecting a

trademark license agreement. This case presents an

opportunity to clarify the effect of rejection under

Section 365 of the Bankruptcy Code as a general

matter. The Sunbeam approach is consistent with

the broader equitable purposes of the Code, under

which rejection of a contract generally is understood

as a breach (with associated remedies) and not a

termination of the agreement.

The purpose of rejection is to free the debtor from

onerous contractual obligations that it otherwise

would be required to perform (such as equipment

lease payments or routine contracts for monthly

services). Rejection never was intended to provide

the debtor with a means to recover legal rights it had

granted pre-petition through the artifice of

unwinding trademark licenses. Adoption of the

Sunbeam rule would enable licensors to optimize the

value of licensing a trademark without stripping

licensees of rights that they have acquired and as to

which they may have made investments at

substantial expense.

Uncertainty has percolated throughout the

circuits since this Court denied certiorari in

Sunbeam, and the circuit split has widened since

then. This petition presents a rare opportunity to

resolve the conflict. The nature of bankruptcy

proceedings – with their emphasis on quick,

negotiated resolutions – is such that pure questions

of law (like the one here) often are not presented to

this Court. A grant of certiorari is especially

warranted where an issue that has split the circuits

arises fairly regularly in the lower courts but

infrequently is raised before this Court.

For all these reasons, INTA urges the Court to

grant certiorari and hear this case to adopt the

holding in Sunbeam.

ARGUMENT

I. This Court Should Grant Certiorari to

Resolve the Circuit Split by Adopting the

Sunbeam Rule

The Split Below Is Substantial and

Leads to Uncertainty

There can be no doubt that the lower courts are

divided.

In Lubrizol Enters., Inc. v. Richmond Metal

Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), the

Fourth Circuit held that, when a debtor-licensor

rejects an executory license agreement, the rejection

terminates the license. Because the license was

treated as terminated, it required that the licensee

discontinue all use of the licensed intellectual

property, leaving the licensee with only a prepetition damages claim for the value of the nowterminated license.

In 1987, Congress expressly abrogated Lubrizol’s

result with respect to licenses of patents, copyrights,

and trade secrets, see 11 U.S.C. § 365(n), but

expressly left open the question of the impact of

rejection on trademark licenses. With respect to

trademark licenses, Lubrizol remains good law in

the Fourth Circuit and courts in other circuits

continue to rely on Lubrizol in holding that a

licensee’s rights are terminated upon rejection. See,

e.g., In re HQ Global Holdings, Inc., 290 B.R. 507,

512-13 (Bankr. D. Del. 2003); In re Blackstone Potato

Chip Co., 109 B.R. 557, 560-61 (Bankr. D.R.I. 1990);

In re Centura Software Corp., 281 B.R. 660, 673

(Bankr. N.D. Cal. 2002).

In Sunbeam Prods., Inc. v. Chicago Mfg., LLC,

686 F.3d 372 (7th Cir.), cert denied, 568 U.S. 1076

(2012), the Seventh Circuit reached the opposite

conclusion. Judge Easterbrook’s opinion for the court

held that the rejection of a debtor-licensor’s

obligations under a trademark license agreement is

a breach but not a termination. That is, the rejection

relieves the licensor of any obligations under the

agreement and is a breach that may cause harm to

the licensee, for which the licensee might have a

remedy. Under the Seventh Circuit’s reasoning,

however, rejection does not terminate either the

licensee’s right to continue using the licensed mark

or its obligation to continue to comply with the

license. Those obligations might include making any

necessary royalty payments and maintaining quality

control, which the licensor may continue to enforce.

The split extends beyond the Fourth and Seventh

Circuits. Even before Lubrizol, the Ninth Circuit had

offered reasoning in line with the Seventh Circuit,

indicating that rejection does not impair a licensee’s

ability to use licensed intellectual property pursuant

to the contract. In re Select-A-Seat Corp., 625 F.2d

290 (9th Cir. 1980) (per curiam).3

Similarly, in In re Exide Techs., 607 F.3d 957 (3d

Cir. 2010), Judge Ambro’s concurring opinion

advocated the Sunbeam approach. There, the

licensee, whose license had been terminated by the

debtor-licensor, had argued (1) that the license was

not executory, and (2) that the court below had erred

in determining that the rejection terminated the

licensee’s rights. The majority opinion in Exide did

not reach the second issue4 because it concluded that

3 Congress subsequently abrogated Select-A-Seat’s holding that

rejection of a contract can void an exclusivity agreement. See 11

U.S.C. § 365(n)(1)(B) (stating that, upon rejection, a licensee

can retain its rights “including a right to enforce any

exclusivity provision”). Neither that congressional action, nor

any subsequent Ninth Circuit caselaw, changes the view

expressed in Select-A-Seat as to the effect of rejection on the

licensee’s ability to use licensed intellectual property after

rejection.

4 Although the court did not expressly reject Lubrizol’s

treatment of “rejection” as termination, the decision does

conflict with Lubrizol’s analysis of whether a trademark license

is “executory.” In an attempt to avoid Lubrizol, the majority

held that the paid-up, perpetual trademark license was not

executory because both the licensor and licensee had

“substantially performed”; the licensor’s obligation to maintain

quality control was insignificant, noting that the licensor had

never defined quality standards. 607 F.3d at 963-64. This may

have distinguished Lubrizol; however, in suggesting that a

the license at issue was not executory. Id. at 964. In

his concurrence, Judge Ambro did address the

second issue: “a trademark licensor’s rejection of a

trademark agreement under 11 U.S.C. § 365 does

not necessarily deprive the trademark licensee of its

rights in the licensed mark.” Id. at 965 (Ambro, J.,

concurring). He emphasized that the bankruptcy

laws should not allow a licensor to take back rights

that it had bargained away. Id. at 967.

Lower courts among the various circuits also are

split. As noted above, bankruptcy courts in

Delaware, Rhode Island and California have

followed the Lubrizol approach; in contrast,

bankruptcy courts in Colorado and New Jersey have

followed the approach in Sunbeam. See, e.g.,

Banning Lewis Ranch Co. v. City of Colo. Springs (In

re Banning Lewis Ranch Co.), 532 B.R. 335, 345

(Bankr. D. Co. 2015) (“rejection of a contract does not

work a rescission of the contract and is not, itself, an

avoiding power”; holding licensees under rejected

contract could continue to use trademark rights

granted under licenses) (citing Sunbeam, 686 F.3d at

377); In re Crumbs Bake Shop, Inc., 522 B.R. 766,

770 (Bankr. D.N.J. 2014) (“This Court is not

persuaded by the decision in Lubrizol and is not

alone in finding that its reasoning has been

discredited.”); see also In re Rent-A-Wreck of Am.,

licensor had not defined quality standards, it might suggest

that the trademark license was naked.

Inc., 580 B.R. 364, 387 & n.156 (Bankr. D. Del. 2018)

(noting the “unsettled area of rejection of trademark

licenses,” and recognizing that, regardless of which

circuit court’s view was adopted in the case, “further

litigation” is “certain to follow” and could delay

resolution of the bankruptcy case “for years.”).

In the case that gives rise to the present petition,

the First Circuit panel (which itself was split 2-1)5

adopted the Lubrizol approach. It held that the

rejection of a license agreement terminates the

licensee’s rights to use the licensed mark. The

majority opinion expressly recognized that “other

circuits are split” on the issue. In re Tempnology,

LLC, 879 F.3d 389, 392 (1st Cir. 2018).

Since then, the split has grown even wider, with

a bankruptcy court in Connecticut agreeing with

Sunbeam and with the Tempnology dissent. See In re

Sima Int’l, Inc., Case No. 17-21761, 2018 WL

2293705, at *8 (Bankr. D. Conn. May 17, 2018).

Sima criticized the Tempnology majority, holding

that it “strains to resurrect Lubrizol, [and] is plainly

contrary to Congress’ explicit efforts to rebalance

affected rights on intellectual property and leave

5 The majority reversed the First Circuit’s Bankruptcy Appeal

Panel, which, in a 3-0 decision, rejected Lubrizol and, in

reversing the Bankruptcy Court, followed Sunbeam. In short,

four judges in the First Circuit endorsed the Sunbeam

approach and three endorsed the Lubrizol approach.

Section 365(g) to answer otherwise unresolved

trademark issues.”

This Court should grant the petition to resolve

this conflict. All participants in the trademark

licensing market will benefit from clear, consistent,

and equitable rules concerning the rights of a debtorlicensor in bankruptcy. Moreover, neither licensors

nor licensees should be subject to conflicts based

solely on the court where the bankruptcy petition is

filed. Forum shopping in bankruptcy proceedings

(and otherwise) is considered by many, including

this Court, to be undesirable. See Joint Press

Statement of Senators Cornyn and Warren

concerning Bankruptcy Venue Reform Act of 2018

(Jan. 8, 2018), available at https://www.cornyn.

senate.gov/content/news/cornyn-warren-introducebill-prevent-%E2%80%98forum-shopping%E2%80%

99-bankruptcy-cases (“Closing the loophole that

allows corporations to ‘forum shop’ for districts

sympathetic to their interests will strengthen the

integrity of the bankruptcy system and build public

confidence.”); see also Walker v. Armco Steel Corp.,

446 U.S. 740, 745 (1980) (describing forum shopping

as “undesirable”).

Clarity alone will benefit all. See generally John

E. Calfee & Richard Craswell, Some Effects of

Uncertainty on Compliance with Legal Standards, 70

Va. L. Rev. 965 (1984) (uncertainty about legal

standards leads to economic inefficiency). As set

forth below, INTA asks this Court to grant the

petition for certiorari and to adopt the Sunbeam

rule.

The

Sunbeam

Rule,

Treating

Rejection of a Debtor-Licensor’s

Contractual Obligations Under a

Trademark License Agreement as a

Breach but Not a Termination, Best

Promotes the Strength and Stability

of the Trademark System

The state of affairs under the current split helps

no one. The Court, by granting the petition and

adopting the Sunbeam rule, not only can resolve the

ongoing uncertainty, but also can set down a rule

that is consistent with bankruptcy law and promotes

the overall health of the trademark system.

a) The Sunbeam Rule Is Consistent with

the Bankruptcy Code.

The legislative history of Section 365(n) – which,

as noted above, Congress enacted post-Lubrizol –

makes clear that Congress did not intend to enable a

debtor to cancel a pre-bankruptcy grant of

intellectual property license rights through rejection:

“[Section] 365 was [n]ever intended to be a

mechanism for stripping innocent licensee[s] of

rights.”

S. Rep. No. 100-505, at 4 (1988), as

reprinted in 1988 U.S.C.C.A.N. 3200, 3203.

“Congress never anticipated that . . . the licensee

would lose not only any future affirmative

performance required of the licensor under the

license, but also any right of the licensee to continue

to use the intellectual property as originally agreed

in the license agreement.” Id. at 3, as reprinted in

1988 U.S.C.C.A.N. 3200, 3201.

Significantly, that Section 365(n) did not include

trademarks was not itself an endorsement of

Lubrizol. Nor did it reflect a congressional intent

that trademark licenses should be terminable by

debtor-licensors. Rather, as the legislative history

makes clear, Congress expressly intended that the

courts consider and determine the effect of debtor

rejection on trademark license rights:

In particular, trademark, trade name and

service mark licensing relationships

depend to a large extent on control of the

quality of the products or services sold by

the licensee. Since these matters could

not be addressed without more extensive

study, it was determined to postpone

congressional action in this area and to

allow the development of equitable

treatment of this situation by

bankruptcy courts.

S. Rep. No. 100-505, at 5 (1988), as reprinted in 1988

U.S.C.C.A.N. 3200, 3204 (emphasis added).

Moreover, “an omission is just an omission,” and the

“limited definition [of ‘intellectual property’] in

§101(35A) means that §365(n) does not affect

trademarks one way or the other.” Sunbeam, 686

F.3d at 375.

Congress’ reference to bankruptcy courts

developing “equitable treatment” of the handling of

pre-petition trademark licenses granted by a debtorlicensor is entirely consistent with the basic

equitable principles underpinning the Bankruptcy

Code. See Young v. United States, 535 U.S. 43, 50

(2002) (bankruptcy courts “are courts of equity and

‘appl[y] the principles and rules of equity

jurisprudence’” (quoting Pepper v. Litton, 308 U.S.

295, 304 (1939))). These equitable principles have

been cited by courts that have embraced the

Sunbeam approach. See, e.g., In re Exide, 607 F.3d at

967 (noting that “[r]ather than reasoning from

negative inference to apply another Circuit’s holding

to this dispute, the Courts here should have used, I

believe, their equitable powers to give [the debtor] a

fresh start without stripping [the licensee] of its

fairly procured trademark rights.”) (Ambro, J.,

concurring).

The Sunbeam rule also is consistent with the

general principle of bankruptcy law that rejection of

an executory contract does not terminate the

contract, but simply is a breach. The purpose of

Section 365 is not “to be the functional equivalent of

a rescission, rendering void the contract and

requiring that the parties be put back in the

positions they occupied before the contract was

formed.” Thompkins v. Lil’ Joe Records, Inc., 476

F.3d 1294, 1306 (11th Cir. 2007); see also id.

(“[r]ejection has absolutely no effect upon the

contract’s continued existence; the contract is not

cancelled, repudiated, rescinded, or in any other

fashion terminated.” (quoting In re Drexel Burnham

Lambert Grp., Inc., 138 B.R. 687, 703 (Bankr.

S.D.N.Y. 1992))); Med. Malpractice Ins. v. Hirsch,

114 F.3d 379, 386-87 (2d Cir. 1997) (“while rejection

is treated as a breach, it does not completely

terminate the contract”); O’Neil v. Continental

Airlines, Inc. (In re Continental Airlines), 981 F.2d

1450, 1459 (5th Cir. 1993) (“[t]o assert that a

contract effectively does not exist as of the date of

rejection is inconsistent with deeming the same

contract breached”); In re Modern Textile, Inc., 900

F.2d 1184, 1191 (8th Cir. 1990); Leasing Serv. Corp.

v. First Tenn. Bank Nat’l Ass’n, 826 F.2d 434, 436–

37 (6th Cir. 1987); In re Austin Dev. Co., 19 F.3d

1077, 1082 (5th Cir. 1994).

Section 365 permits the debtor to free itself from

burdensome contractual obligations that would

impede its ability to obtain a fresh start. For

example, a debtor-lessee can reject a non-residential

property lease that requires it to pay above-market

rents or a lease for equipment. In both cases, the

creditor-lessor would lose the benefit of the payment

stream (and would become a creditor with a claim for

damages against the debtor), but at least the lessor

would have its property back and could lease it to

another party. See generally NLRB v. Bildisco &

Bildisco, 465 U.S. 513, 528 (1984) (“authority to

reject an executory contract is vital to the basic

purpose of a Chapter 11 reorganization, because

rejection can release the debtor’s estate from

burdensome obligations that can impede a successful

reorganization”); Orion Pictures Corp. v. Showtime

Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d

1095, 1098 (2d Cir. 1993) (“§ 365 permits the trustee

or debtor-in-possession, subject to the approval of

the bankruptcy court, to go through the inventory of

executory contracts of the debtor and decide which

ones it would be beneficial to adhere to and which

ones it would be beneficial to reject”).

Rejection of a trademark license agreement

similarly may allow a debtor-licensor to avoid some

burdensome contractual obligations in a trademark

license. These might include the obligation to pursue

or maintain trademark registrations in multiple

jurisdictions or undertake or fund enforcement

actions against third parties who are infringing the

licensed mark.

Trademark licensors have continuing statutory

obligations to maintain quality control over the

licensee’s use of the licensed trademark to preserve

their rights in the trademark. That, however, is not

the sort of contractual obligation that may be

terminated through rejection. That is because the

continuing obligation of a trademark owner to

maintain quality control is based on statute, see 15

U.S.C. § 1055, wholly independent of any contractual

obligations, rejected or otherwise.

As a statutory obligation, the requirement that

the licensor assert quality control over its licensee’s

use serves a broader public purpose beyond the

contractual obligations that might be at issue when

a debtor-licensor decides whether to reject a contract

in bankruptcy. See Gorenstein Enters., Inc. v. Quality

Care-USA, Inc., 874 F.2d 431, 435 (7th Cir. 1989)

(“The purpose of a trademark, after all, is to identify

a good or service to the consumer, and identity

implies consistency and a correlative duty to make

sure that the good or service really is of consistent

quality.”); Dawn Donut Co. v. Hart’s Food Stores,

Inc., 267 F.2d 358, 367 (2d Cir. 1959) (“Without the

requirement of control, the right of a trademark

owner to license his mark separately from the

business in connection with which it has been used

would create the danger that products bearing the

same trademark might be of diverse qualities.”). The

Lubrizol rule, which would give debtor-licensors a

right in bankruptcy that would abrogate this

statutory requirement, would “make[] bankruptcy

more a sword than a shield, putting debtor-licensors

in a catbird seat they often do not deserve.” In re

Exide, 607 F.3d at 967-68 (Ambro, J., concurring).

Equitable principles support this result,

particularly given that “the standards for sufficient

control have become more and more lenient in recent

years.” Laura Jelinek, Equity for Brand Equity: The

Case for Protecting Trademark Licensees in Licensor

Bankruptcies, 40 AIPLA Q.J. 365, 389-90 (2012).

Any burden on the debtor-licensor to ensure that its

licensee maintains quality controls is lessened by the

licensee’s contractual obligations to maintain quality

control, including in the bankruptcy context. In re

Crumbs Bake Shop, Inc., 522 B.R. at 773.

The licensee of trademark rights should not be

forced to live in fear that the licensor, having

licensed these rights for consideration, may be

entitled years later to take them back in a

bankruptcy. Once the license is granted, the licensed

rights (as distinct from title in the underlying

trademarks) represent property of the licensee, not

of the licensor. The licensor should not be entitled to

rescind the grant and reclaim the licensed rights.

b) The Sunbeam Rule Promotes

Strength

and

Stability

Trademark System.

the

The market for trademark licenses is enormous,

diverse, and global. Licenses are granted in myriad

circumstances, from the sale of a business (where

the purchase price includes an up-front payment for

the license), to distribution and manufacturing

arrangements (where the licensed mark is central to

the success of the licensees’ business). That market

will function best under the Sunbeam rule. The

Lubrizol approach contributes to uncertainty over

trademark rights in bankruptcy, to the detriment of

licensors, licensees, and consumers.

Trademark licensors in non-bankruptcy contexts

have a strong interest in obtaining full value for

their assets. Yet the circuit split means that it will

be more difficult for a trademark licensor –

especially one in financial distress and trying to

stave off bankruptcy by generating cash – to obtain

full value for pre-bankruptcy licenses of its

trademarks.

It is basic economics that a potential licensee (or

any contracting party) generally will pay less to a

licensor for rights that would be impaired in the

event of a later bankruptcy. In assessing the impact

of Lubrizol on a licensor that might become

bankrupt, a rational licensee will insist on paying a

discounted price for a trademark license because

that decision puts it at the mercy of the licensor as to

whether it can continue to use the mark if the

licensor is put into bankruptcy. See Nicholas W.

Quesenberry, Risky Business: How the Economic

Impact of the Risk of Debtor Default Mandates

Application of the Presumptive-Contract Interest

Rate in the Case of a Cramdown Plan against a

Secured Creditor with a Lien on Personal Property in

Chapter 13, 22 J. BANKR. L. & PRAC. 2 Art. 5. (2013)

(“It is manifest that any disinterested buyer would

be willing to pay less for a riskier, less stable income

stream and more for a more stable and reliable

one.”).

Licensees, too, are harmed by the current

uncertainty in the law. A licensee that does not know

whether its license might be subject to termination

in bankruptcy will be less willing to invest capital in

the sort of resources – personnel, machinery or other

production capacity, advertising and promotion –

that would enable it to maximize sales and fully

profit from its license. If this results in failing to

maximize sales, that, too, will reduce royalties to the

trademark licensor, rendering the transaction less

economically beneficial for both parties.

Moreover, it is the experience of INTA’s members

that licensors and licensees alike are forced by the

uncertainty of the circuit split to engage in extensive

and costly negotiations in the pre-bankruptcy

context. Not knowing what legal rule will apply, they

must work to craft customized contract provisions to

try and mitigate the impact of a possible

termination. In some cases, to minimize the risk

created by Lubrizol, parties to a transaction may

agree to establish a bankruptcy remote vehicle that

would hold and license the trademarks, so that the

“remote” licensor would not be swept into a

bankruptcy of the operating company. This drains

resources from more productive activity, and

potentially results in lower pricing due to risk

allocation from negotiation.

The Sunbeam rule best resolves these concerns

and promotes stability of the trademark system as a

whole. The rule relieves the licensor of any

obligations under a trademark license agreement,

but does not terminate the licensee’s right to

continue to use the licensed mark or its obligation to

continue to comply with the license, including by

maintaining quality control over the licensed product

(which the licensor may continue to enforce), thus

also benefiting the public.

Trademark licensors also would benefit from this

regime where licensees, knowing their rights will be

more valuable in any eventual bankruptcy

proceeding, are incentivized to pay more for those

rights in pre-bankruptcy negotiations.

The Sunbeam rule also is more equitable. As

commentators have noted, licensees may be greatly

dependent upon the licensed intellectual property

rights and, as a result, could experience serious

financial and other damage if a license is terminated

upon a rejection in bankruptcy. David M. Jenkins,

Licensees, Trademarks, and Bankruptcy, Oh My!:

Trademark Licensing and the Perils of Licensor

Bankruptcy, 25 J. MARSHALL L. REV. 143, 175 (1991).

(When a licensor rejects a trademark license, “[a]

trademark licensee risks the total abrogation of its

right to use a trademark, a valuable property right

. . . [and] licensees must continue to bear the economic

burden of trademark owners’ mismanagement and

thus needlessly risk the loss of their investments.”).

The debtor may be protected under Lubrizol, but the

licensee has no such protection: It may find itself

severely injured financially, perhaps so badly that it

could go out of business.

In sum, Sunbeam’s approach is more equitable

because it takes both parties’ interests into account.

II.

This Case Presents a Rare Opportunity to

Clarify a Commercially Critical Area of

the Law

This Court has repeatedly recognized the

significance of trademarks and trademark licenses to

the United States economy. See, e.g., Am. Needle,

Inc. v. Nat’l Football League, 560 U.S. 183 (2010)

(addressing antitrust issues concerning trademark

licensing by the National Football League); K Mart

Corp. v. Cartier, Inc., 486 U.S. 281 (1988)

(addressing validity of Customs Service regulation

concerning importation of foreign-made goods where

United States trademark owner authorized use of

the mark); United States v. Sealy, Inc., 388 U.S. 350

(1967) (addressing antitrust issues concerning

trademark licensing for mattresses). In that light,

this case is particularly important.

In 2014, trademarks accounted for $6.1 trillion in

value added to the U.S. gross domestic product.

Economics and Statistics Administration & United

States Patent and Trademark Office, INTELLECTUAL

PROPERTY AND THE U.S. ECONOMY: 2016 UPDATE 22

(2016). In the United States alone, trademark

licensors generated $7.3 billion in royalty revenue

from the licensing of goods and services in 2014.

Licensing Industry Merchandisers’ Association,

LIMA GLOBAL LICENSING INDUSTRY SURVEY 2015

REPORT 15 (2015). This translates into an estimated

$133.3 billion in retail sales of licensed goods and

services. Id. at 14.

Licensing provides a significant stream of

revenue for trademark licensors, not to mention

extensive commercial opportunities. Irene Calboli,

The Sunset of “Quality Control” in Modern

Trademark Licensing, 57 AM. U. L. REV. 341, 343

(2007). By allowing trademark licensors to outsource

the manufacturing or distribution of a product to

specialized licensees who can do so more cheaply or

effectively, for example, licensing allows licensors to

distribute workloads and enjoy the benefits of

economies of scale. See David J. Franklyn, The

Apparent

Manufacturer

Doctrine,

Trademark

Licensors and the Third Restatement of Torts, 49

CASE W. RES. L. REV. 671, 681 (1999). Licenses also

enable licensors to increase brand recognition and to

reach new markets.

Just as trademarks are more widely used than

other forms of intellectual property (see pp. 3-4

supra), trademark licenses are central to

bankruptcies involving intellectual property rights.

“[S]ince 1988, out of 1100 bankruptcy filings

concerning intellectual property, over 600 involve

trademarks.” Kayvan Ghaffari, The End to an Era of

Neglect: The Need for Effective Protection of

Trademark Licenses, 87 S. CAL. L. REV. 1053, 1054

(2014). It thus is imperative that licensors and

licensees both have the benefit of the clear and

salutary Sunbeam rule.

This case presents a rare opportunity. This is the

first time since 2012 (when the Court denied

certiorari in Sunbeam) that the Court has had the

opportunity to address this issue. The relative rarity

of appeals on this issue hardly is surprising. In most

instances, bankruptcy appeals must travel through

an extra layer of appellate review to reach this

Court. A bankruptcy order ordinarily must be

appealed to the district court, and only then to the

court of appeals. 28 U.S.C. §§ 158(a), (d). Given the

need to preserve the assets of the bankruptcy estate,

a trustee or licensee often will be unwilling to

continue litigating a case through four different

courts, and thus may decline to appeal or to seek

certiorari, or may choose to settle rather than go

through multiple rounds of appellate review.

Even where the litigants are willing to take a

bankruptcy case all the way to this Court, the

bankruptcy doctrine of “equitable mootness” may

preclude appellate review. Under that doctrine, an

appellate court may decline to review the merits of a

bankruptcy appeal “when, even though effective

relief

conceivably

could

fashioned,

implementation of that relief would be inequitable”

because the debtor’s plan of reorganization has been

confirmed and “substantially consummated.” E.g., In

re Charter Commc’ns, Inc., 691 F.3d 476, 481-82 (2d

Cir. 2012) (citation omitted). That doctrine is not

applicable here because no plan of reorganization

has been filed, and there plainly is monetary relief

that could be granted to petitioner.6

Despite the fact that the issue presented by the

petition is not likely to come again soon before this

Court, it frequently is litigated below and is of dayto-day concern to trademark owners and

practitioners as it affects essentially every

trademark license. As long as there is continued

uncertainty, that will continue to harm licensors,

licensees, and the consuming public. INTA urges this

Court to take advantage of the opportunity before it

to resolve the split and to adopt the approach taken

in Sunbeam.

6 The equitable mootness doctrine has been criticized because it

“can easily be used as a weapon to prevent any appellate

review of bankruptcy court orders confirming reorganization

plans.” Nordhoff Invs., Inc. v. Zenith Elecs. Corp., 258 F.3d 180,

192 (3d Cir. 2001) (Alito, J., concurring).

CONCLUSION

The Court should grant the petition for a writ of

certiorari.

July 11, 2018

Respectfully submitted,

ELEANOR M. LACKMAN

COWAN, DeBAETS,

ABRAHAMS & SHEPPARD

LLP

41 Madison Avenue

New York, NY 10010