The bankruptcy court in Delaware recently joined a number of bankruptcy courts in other jurisdictions protecting trademark owners’ rights to prohibit a debtor from either assuming or assigning a trademark without the trademark owner’s consent.
In In re Trump Entertainment Resorts, Inc., Case No. 14-12103 (Feb. 20, 2015, Bankr. D. Del.), the casino operator Debtors were the licensees of Donald and Ivanka Trump’s trademarks, which were owned by their company, Trump AC. Trump AC filed a motion for relief from the automatic stay to continue pursuing pre-petition state court litigation that sought to terminate the trademark license agreement on the grounds that the Debtors had failed to uphold the quality of the Trump trademarks as required by their trademark license agreement. Trump AC argued that there was cause to lift the stay because the Debtors were not permitted to assume or assign the trademark licenses under section 365(c)(1) of the Bankruptcy Code, which prohibits assumption or assignment of executory contracts where “applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to an entity other than the debtor . . .”
The bankruptcy court acknowledged that section 365(f)(1) generally nullifies anti-assignment provisions in contracts, but agreed with the Ninth Circuit that section 365(c)(1) may supersede section 365(f)(1), depending on why the governing non-bankruptcy law restricted assignment. Analyzing federal trademark law, the bankruptcy court determined that the assignment of trademark licenses is generally banned absent a licensor’s consent. The rationale for the ban is to protect trademark licensors’ ability to control the quality of their trademarks.
In Trump, because the applicable non-bankruptcy trademark law prohibited assignment without consent, and because the subject trademark agreement likewise prohibited assignment without consent, the bankruptcy court ruled that the Debtors could not assume or assign the trademark license without Trump AC’s express consent, and, therefore, granted Trump AC’s motion for relief from stay.
With this holding, the Delaware bankruptcy court joined the Ninth Circuit and the Seventh Circuit in protecting the non-assignability provisions of trademark license agreements in bankruptcy court.