Back in March I gave an update on 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. 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 and here to read earlier posts 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 theBilly 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.
- However, instead of approving the settlement the Bankruptcy Court authorized a sale of the appeal rights to certain objecting parties, who then restarted the appeal before the Ninth Circuit and requested an oral argument.
The Ninth Circuit Affirms The District Court’s Decision. In an unpublished order dated May 23, 2008, the Ninth Circuit denied the request for oral argument and affirmed the District Court’s judgment "for the reasons provided by that court." The appellants’ request for a panel rehearing or rehearing en banc was denied by order dated July 9, 2008. The Ninth Circuit designated the May 23, 2008 order affirming the District Court as "not for publication," meaning it is not precedent under the Federal Rules of Appellate Procedure and the Ninth Circuit’s Circuit Rules. Nevertheless, the order may be cited in other cases.
A Final Thought. Precedent or not, the Ninth Circuit’s order has affirmed the District Court’s decision on this important issue. Trademark owners now have a stronger argument in the Ninth Circuit (and also in the Southern District of Florida given the In re Wellington Vision, Inc. decision last year), that non-exclusive trademark licenses may not be assigned, or even assumed, in bankruptcy cases absent consent of the trademark owner.