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Abstract

The Seventh Circuit created a circuit split in bankruptcy law regarding the rejection of trademark licenses in its 2011 decision in Sunbeam Prods., Inc. v. Chi. Am. Mfg. LLC. All other courts have held that when a trademark license is rejected under 11 U.S.C. § 365 in a Chapter 11 bankruptcy proceeding, the licensee may no longer use the licensed trademark. All other forms of intellectual property are subject to § 365(n), which prevents automatic termination of the licensee’s rights. In Sunbeam, the court held that the rejection of a trademark license under § 365 does not automatically terminate the licensee’s rights. The court held that Congress’ omission of trademarks from § 365(n) did not automatically mean that trademark licensee rights were exhausted after a rejection. An analysis of the history of the rejection of trademark licenses during bankruptcy proceedings reveals that the underlying reason for the circuit split arises from a larger circuit split regarding interpretation of the term “rejection” in § 365(g) of the Bankruptcy Code. This split has been around for at least twenty-eight years and a 1997 committee report requested that Congress clarify the term through an amendment. Congress has not yet clarified the term and the Supreme Court has not granted any writs of certiorari on the matter. This article therefore proposes the employment of a multi-factor test when a contract is rejected that takes into consideration the concerns of each side of the split. This article proposes further factors for consideration when the contract is a trademark license, which addresses the quality control concerns that led Congress to omit trademarks from § 365(n) in the first place. The employment of a multi-factor test allows a more equitable solution to be reached without waiting for Congress or the Supreme Court to take action.

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