Emory Bankruptcy Developments Journal


Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC incorrectly altered the remedies available to a trademark licensee after a debtor licensor has rejected the license. Decided in July 2012, this decision by the U.S. Court of Appeals for the Seventh Circuit conflicts with decisions going back more than twenty-five years, when the U.S. Court of Appeals for the Fourth Circuit decided Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. During that span of time, licensees had a single remedy upon rejection of the license: damages in the way of an unsecured prepetition claim. Licensees were not granted specific performance, and were not permitted to continue using the trademark or retain any other rights under the license, save for the claim for damages. Congress had granted guaranteed specific performance to the licensee of a patent, copyright, or trade secret through 11 U.S.C. § 365(n). However, when Congress enacted § 365(n) in 1989, Congress explicitly and unequivocally excluded trademark licenses from the protection of that provision. In July 2012, the Seventh Circuit held in Sunbeam that because trademark licensees are not protected by § 365(n), the Bankruptcy Code is silent as to the rejection of a trademark license. A licensee was granted the right to continued use of the trademark, just as that remedy would be available outside of bankruptcy. Ideal as this holding may be, this Comment argues it is contradictory to a careful examination and interpretation of the law as it applies, and historically has been applied. Fundamentally, allowing a trademark licensee to retain its rights is a de facto order of specific performance on a trademark owner, but when that owner is a debtor in bankruptcy, specific performance should not be available against it. In short, Sunbeam should not be given any weight going forward. A licensee should be limited to a prepetition claim for damages, only.