First Circuit Rules That Licensor’s Rejection of Trademark License in Bankruptcy Terminates Licensee’s Right to Use Trademark
On January 12, 2018, the United States Court of Appeals for the First Circuit ruled that a trademark licensee lost its right to use the licensed mark following rejection of the license by the debtor-licensor. The Court re-affirmed that Section 365(n) of the U.S. Bankruptcy Code does not provide special protections to trademark licensees and held that rejection of a trademark license by the debtor effectively terminated the licensee’s right to use the subject marks.
The First Circuit ruling sets up a circuit split on the issue, by disagreeing with the Seventh Circuit’s ruling in the Sunbeam case. In Sunbeam, the Seventh Circuit held that rejection of a trademark license by the licensor is a pre-petition breach, but does not terminate the licensee’s right to continued use of the mark.