Last November I reported on the status of the Ninth Circuit appeal in In re: N.C.P. Marketing Group, Inc., a case addressing whether a debtor can assume a trademark license over the trademark owner’s objection. Back in 2005 the U.S. District Court for the District of Nevada issued its first of a kind decision, In re: N.C.P. Marketing Group, Inc., 337 B.R. 230 (D.Nev. 2005), holding that trademark licenses are personal and nonassignable in bankruptcy absent a provision in the trademark license to the contrary. Click here for a copy of the N.C.P Marketing Group decision and here to read an earlier post on the case.
The N.C.P. Marketing Court’s Analysis. In reaching its conclusion, the District Court held that under the Lanham Act, the federal trademark statute, a trademark owner has a right and duty to control the quality of goods sold under the mark:
Because the owner of the trademark has an interest in the party to whom the trademark is assigned so that it can maintain the good will, quality, and value of its products and thereby its trademark, trademark rights are personal to the assignee and not freely assignable to a third party.
The trademark owner in that case, Billy Blanks of the Billy Blanks® Tae Bo® fitness program, successfully moved the court to compel rejection of the trademark license because under the "hypothetical test" analysis of Section 365(c)(1) of the Bankruptcy Code adopted by the U.S. Court of Appeals for the Ninth Circuit, contracts that cannot be assigned by the debtor without the nondebtor party’s consent cannot be assumed by the debtor either. (For a full discussion of these issues, take a look at this earlier post entitled "Assumption of Intellectual Property Licenses In Bankruptcy: Are Recent Cases Tilting Toward Debtors?")
The Ninth Circuit Appeal. N.C.P. Marketing appealed the decision to the Ninth Circuit, the appeal was fully briefed, and oral argument had been scheduled for November 5, 2007. Prior to the oral argument, the Chapter 7 trustee for N.C.P. Marketing reached a settlement in the case. At the trustee’s request, the Ninth Circuit took the oral argument off calendar and directed the parties to move to dismiss the appeal if the settlement was approved by the Bankruptcy Court. At the time, I commented that it appeared that no Ninth Circuit decision would be issued in the case due to the settlement.
The Settlement Is Rejected. Back in the Bankruptcy Court, the Chapter 7 trustee filed a motion for approval of the settlement, but N.C.P. Marketing and certain other parties filed an objection and offered a competing bid for the appeal rights. In something of a surprise, on February 28, 2008, the Bankruptcy Court issued a brief order denying the trustee’s motion for approval of the settlement and instead approved a sale of the appeal rights and certain other assets to the objecting parties. The objecting parties thereafter posted the undertaking required by the Bankruptcy Court’s order.
Appeal May Go Forward. As a result, the Ninth Circuit appeal may be revived, although no new oral argument has been scheduled yet. Barring further developments, trademark licensors and licensees may end up seeing a Ninth Circuit decision after all on the important issue of whether trademark licenses can be assumed in bankruptcy. Stay tuned.