Pattishall IP Blog

July 12, 2012

Seventh Circuit Issues Important Decision Regarding Trademarks in Bankruptcy

Filed under: Licensing, Trademark (General) — Tags: , , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 10:46 am

By Janet Marvel, Trademark Attorney

When a trademark licensor declares bankruptcy, the trustee may reject the trademark license.   The trademark licensee then can lose its rights to use the licensed trademark, which obviously can be a disaster for the licensee.  The Bankruptcy Code protects patent and copyright licensees from this fate, but not trademark licensees.  See 11 U.S.C. § 365(n).

On Monday, the Seventh Circuit created a circuit split and issued a very encouraging decision for trademark licensees.  In Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC., 2012 WL 2687939 (7th Cir. July 9, 2012), the Seventh Circuit held that a trademark licensee retained its rights to use a licensed trademark even after the bankruptcy trustee for the licensor rejected the license agreement.

Some background is necessary.  In 1985, the Fourth Circuit decided Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985).  There, the court held that an intellectual property licensee loses its rights to use licensed property if the license is rejected in bankruptcy.  Three years later, Congress amended the Bankruptcy Code to permit “intellectual property” licensees to continue to use licensed property after rejection, subject to certain conditions. 11 U.S.C. § 365(n).  The Bankruptcy Code’s definition of “intellectual property” includes patents, copyrights, and trade secrets, but not trademarks.

Many courts interpreted the omission of trademarks from the definition of “intellectual property” to mean that the Lubrizol holding continued to apply to trademark licensees, and they would not retain any license rights upon rejection.  This interpretation has been assailed, but never as aggressively as by the Sunbeam Products decision.  See In re Exide Technologies, 607 F.3d 957 (3d Cir. 2010), cert. denied, 131 S.Ct. 1470 (2011) (Ambro J., concurring).

Chief Judge Easterbrook, writing for the court in Sunbeam Products, found that Lubrizol “was mistaken”.  In the Sunbeam Products case, the debtor-licensor made box fans, among other things.  It contracted with Chicago American Manufacturing (“CAM”) to manufacture the fans, and granted a patent and trademark license to CAM.  The agreement permitted CAM to itself sell box fans it made for the debtor if the debtor could not afford to buy the fans for resale.  When the debtor went bankrupt, Sunbeam bought its trademarks.  Sunbeam wanted to make fans under the licensed mark without competition from CAM.  The trustee rejected CAM’s license agreement, and Sunbeam sued CAM for infringement.

The district court held for CAM, permitting CAM “on equitable grounds” to continue to use the licensed mark.  The Seventh Circuit rejected “equitable grounds” as the rationale for the decision, but affirmed it anyway.  The court held that the omission of trademarks from section 365(n) was not a codification of Lubrizol.  Instead, the court stated that “an omission is just an omission.”  The court then noted that a rejection under the Bankruptcy Code was a breach of contract, in this case by the licensor, “but nothing about this process implies that any rights of the other contracting party have been vaporized.”  Id. at *3.  The rejection ”merely frees the estate from the obligation to perform and has absolutely no effect upon the contract’s continued existence.” Id. at *4 (citations and internal quotations omitted). As such, rejection, even if effected, did not terminate the licensee’s rights.

After Sunbeam Products, trademark licensees in the Seventh Circuit now share “the same rights” under the Bankruptcy Code as other intellectual property licensees.  Whether Sunbeam will appeal to the Supreme Court, and then, whether the Court will grant certiorari, remains to be seen.

*     *     *

Janet Marvel is a partner with Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP, a leading intellectual property law firm based in Chicago, Illinois.  Pattishall McAuliffe represents both plaintiffs and defendants in trademark, copyright, and unfair competition trials and appeals, and advises its clients on a broad range of domestic and international intellectual property matters, including brand protection, Internet, and e-commerce issues.  Ms. Marvel’s practice focuses on litigation, transactions, and counseling in domestic and international trademark, trade dress, Internet, and copyright law.  She co-authored the Fifth Edition of the Trademarks and Unfair Competition Deskbook, recently published by LexisNexis.

For a printer-friendly version, click here.

May 24, 2011

The Seventh Circuit Upholds Finding that EVA’S BRIDAL Mark has been Abandoned through Naked Licensing between Family Members

Filed under: Licensing, Litigation — Tags: , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 4:29 pm

Categories: Licensing, Litigation
Tags: Licensing, 7th Circuit, Phillip Barengolts

by Phillip Barengolts, Trademark Litigator

Following the district court’s decision for defendant on summary judgment (see our prior post for the facts: Trademark Owners Must Exercise Sufficient Control over the Quality of Licensed Merchandise or Risk Losing Rights in Their Valuable Brands), the plaintiff, the owners of the original EVA’S BRIDAL, appealed.  Speaking on behalf of the Seventh Circuit, Judge Easterbrook found nothing wrong with the district court’s decision – affirming that the EVA’S BRIDAL mark has been abandoned through naked licensing.  Eva’s Bridal Ltd. v. Halanick Enterprises, Inc., 98 U.S.P.Q.2d 1662 (7th Cir. 2011).[1]

A finding of abandonment of a mark means that anyone else in the world can use the mark, not just the defendant – a draconian finding for any brand owner, but here it presents an especially troubling result not just for the plaintiff but also for the defendant.  Family members operated both stores in relatively close geographic proximity (roughly 18 miles apart on the west side of Chicago), the second store having been licensed at one point.  The store owners presumably were in contact for the entirety of the existence of both stores, although neither the lower court nor Seventh Circuit discussed this issue.  Now, potentially neither side of this family may be able to protect the mark against any third party.[2] (more…)

December 10, 2010

The Seventh Circuit Clarifies what Constitutes an “Exceptional Case” under the Lanham Act and Calls for Uniformity among the Circuits

Filed under: Litigation — Tags: , , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 11:10 am

Categories: Trademark (General)
Tags:  Trademark Infringement, Attorney’s Fees, 7th Circuit, Ashly A. Iacullo

by Ashly Iacullo, Trademark Attorney

The Lanham Act allows prevailing parties to recover an award of attorneys’ fees in “exceptional cases.”[1] Cases have been held “exceptional”, for example, where the suit was frivolous, or the infringement in bad faith, or there was misconduct during litigation.

Since its addition to the Lanham Act in 1975, the circuit courts have grappled with what constitutes an “exceptional” case and, accordingly, have set different standards.  In some jurisdictions, the standards for recovery by the plaintiff differ from the standards for recovery by the defendant. (more…)

October 4, 2010

Seventh Circuit Rules Section 230 of the Communications Decency Act Does Not Confer StubHub! Immunity from Chicago Tax Law

Filed under: Internet — Tags: , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 4:15 pm

by Phillip Barengolts, Esq.

The Good Samaritan provision of the Communications Decency Act (“CDA”), 42 U.S.C. § 230(c), shields online service providers from liability for content third parties post on their web sites.[1] Specifically, this provision has been interpreted by numerous courts as conferring immunity for information services providers from tort liability for third-party materials posted to the providers’ web sites over which the providers have no control.  See, e.g., Zeran v. America Online, Inc., 129 F.3d 327, 330 (4th Cir. 1997) (“lawsuits seeking to hold a service provider liable for its exercise of a publisher’s traditional editorial functions – such as deciding whether to publish, withdraw, postpone or alter content – are barred.”); Ben Ezra, Weinstein, and Co. Inc. v. America Online Inc., 206 F.3d 980 (10th Cir. 2000) (affirming summary judgment finding AOL not liable for publishing inaccurate stock quotes); Doe v. MySpace 528 F.3d 413 (5th Cir. 2008) (MySpace not liable for failure to police its users).  The Fourth Circuit in Zeran stated it best: “[b]y its plain language, [section] 230 creates a federal immunity to any cause of action that would make service providers liable for information originating with a third-party user of the service.”  129 F.3d at 330. (more…)

September 17, 2010

Protecting Product Configuration through Trademark Law: The Seventh Circuit Explains Functionality under the Lanham Act and the Interplay Between Patent and Trade Dress Protection

Filed under: Trade Dress — Tags: , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 2:40 pm

by Phillip Barengolts, Trademark Attorney

The configuration of a product may constitute protectable trade dress so long as the configuration is not functional and it signifies the source of the product, i.e., has secondary meaning.  Two recent companion decisions from the Seventh Circuit describe the limits of this protection and how it may be circumscribed by prior patents.  See Specialized Seating, Inc. v. Greenwich Industries, L.P., No. 07-1435, 2010 U.S. App. Lexis 17015 (7th Cir. Aug. 11, 2010);[1] Jay Franco & Sons, Inc. v. Franek, No. 09-2155, 2010 U.S. App. Lexis 17019 (7th Cir. Aug. 11, 2010).[2]

In Specialized Seating, both parties marketed “x-frame” chairs used in the live performance industry for temporary seating.  Greenwich Industries owned an incontestable federal registration for the below design of its “x-frame” chair:

(more…)

March 11, 2010

E-Discovery Guidelines and the Seventh Circuit’s Pilot Program

Filed under: E-Discovery — Tags: , , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 9:49 pm

by Ashly Iacullo and Ian J. Block, Trademark Attorneys

Overbroad discovery requests and acrimony between parties add to litigation costs on both sides of a lawsuit.  In an age in which litigants literally are able to produce terabytes of material—which can take thousands of man-hours to digest and analyze—e-discovery’s rising prevalence in federal litigation amplifies the potential cost of discovery even further.  And, as demonstrated in Judge Shira Scheindlin’s scathing opinion against litigants’ e-discovery methods in Pension Committee of University of Montreal Pension Plan v. Banc of America Securities, LLC,[1] courts expect litigants to preserve their electronically stored information (“ESI”) and are willing to impose harsh penalties for a party’s failure to meet its duties.  Given this landscape, Chief Judge James F. Holderman of the United States District Court for the Northern District of Illinois directed the Seventh Circuit Electronic Discovery Committee to develop and implement principles to facilitate more focused and less costly discovery of ESI.  In September 2009, the Committee released its Principles Relating to the Discovery of Electronically Stored Information (“Principles”).[2] (more…)

July 17, 2009

Supreme Court To Review: Does a Multi-Team Sports League Act as a Single Entity & Avoid Antitrust Liability When Licensing Individual Team Trademarks?

Filed under: Antitrust — Tags: , , — Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP @ 2:58 pm

by Sanjiv Sarwate, Trademark Attorney

On June 30, 2009, the Supreme Court agreed to review the Seventh Circuit’s decision in American Needle, Inc. v. National Football League, a case illustrating the intersection of trademark law and antitrust law.  American Needle manufactures headwear, and held a license from NFL Properties to manufacture, sell, and promote headwear bearing NFL team logos, names, and other indicia of origin.  NFL Properties initially licensed multiple parties to manufacture headwear bearing team logos.  However, in 2000, the NFL teams directed NFL Properties to solicit bids for an exclusive headwear license, which was eventually won by Reebok.  NFL Properties allowed licenses granted to other entities, including American Needle, to expire.  American Needle then brought suit, alleging that the exclusive license violated Section 1 of the Sherman Act, which forbids any “contract, combination, or conspiracy in restraint of trade.”

American Needle argued that because each NFL team owned its trademarks separately, the exclusive contract between NFL Properties and Reebok restrained other manufacturers’ abilities to obtain licenses from the teams.  Thus, the exclusive license between NFL Properties and Reebok restrained trade in violation of the Sherman Act.  The NFL argued that it is a “single entity” for purposes of licensing team trademarks, and therefore immune from liability under Section 1 of the Sherman Act.  The district court granted summary judgment to the NFL on the “single entity” defense and American Needle appealed. (more…)

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