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John Loughnane publishes “8th Circ. Ruling Is Big Win For Nondebtor Trademark Licensees” in Law360’s “Expert Analysis” section

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John G. Loughnane, a partner in the Business Department, published “8th Circ. Ruling Is Big Win For Nondebtor Trademark Licensees” in Law360’s “Expert Analysis” section on June 10. The article discusses the June 6 ruling by the Eighth Circuit, in which it reversed its own August 2012 panel decision that had allowed a Chapter 11 debtor to “reject” a perpetual, royalty-free trademark license agreement as an “executory contract.” In reversing its earlier decision, the entire Eight Circuit determined that a perpetual, royalty-free trademark license was not an executory contract and thus not subject to assumption or rejection by a licensor debtor. The Eighth Circuit decision stands in harmony with the Third Circuit’s decision in In re Exide Technologies, 607 F. 3d 957 (3d Cir. 2010), and in joining the Third Circuit in adopting a similar approach to determining “executoriness,” the Eighth Circuit has harmonized the views of the two circuits on a critical issue: When is a trademark license considered “executory” and thus subject to assumption or rejection in bankruptcy?

John notes that the Eighth Circuit decision is a major win for nondebtor trademark licensees, who have not been afforded the level of protection accorded nondebtor licensees of patents and copyrights under the Bankruptcy Code. Under the Third and now the Eighth Circuit’s rulings, challenging whether an agreement is executory may be a profitable path forward when critical intellectual property rights are at stake in a bankruptcy proceeding.

He points out that because the power to reject a license agreement is so powerful, trademark licensees should take comfort in the Eighth Circuit’s decision to vacate its earlier panel decision and render an en banc decision agreeing with the Third Circuit in Exide. The best way for a trademark licensee to hold onto its rights when a debtor licensor threatens to reject is to argue that the agreement is not executory relying on the reasoning of Interstate and Exide. If that fails, the logic of Sunbeam may provide an alternative path to retention of rights — but the first defense of a licensee should be to argue that the license is not executory and not capable of rejection.

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