In re XMH Corp.

Summarized by Madison Conquest , State of Tennessee Real Estate Asset Management
14 years 7 months ago

Citation:

Nos. 10-2596, 10-2597, 10-2598, 10-2599 (7th Cir. July 26, 2011)

Tag(s):

7th Circuit

Ruling:

The Court of Appeals AFFIRMED the District Court's reversal order thereby permitting assignment of an alleged trademark sublicense absent licensor's consent. Purchaser argued that the District Court's order permitting a trademark license assignment absent consent of the licensor could not be appealed due to lack of finality and Licensor/Western argued that Purchaser waived the right to contest the Bankruptcy Court's original order forbidding assignment where Purchaser did not separately appeal that original order. Licensor/Western also argued that the contract at issue constituted an "implied" trademark sublicense which could not be sold or assigned absent its consent. After the Purchaser was substituted for the Debtor as the party appellee and the substitution left the Court with a bankruptcy appeal where neither a debtor nor a trustee was a party, the Court ruled that federal court jurisdiction is determined at the time of case filing, and later events like party substitutions do not deprive the court of jurisdiction. In response to the Purchaser's argument that the District Court's order permitting trademark assignment lacked finality, the Court held that a remand order directing entry of an order approving assignment involved merely "ministerial" tasks not defeating finality where the trademark licensor had already stipulated that there was no default to cure and that adequate assurance of future performance had been provided. The Court ruled that a trademark license or sublicense is not assignable (i.e., salable) pursuant to 11 U.S.C. sections 363 and 365(c)(1) because applicable (trademark) law dictates the "universal rule ... that trademark licenses are not assignable in the absence of a clause expressly authorizing assignment." However, because the sublicense part of the contract had expired years before the attempted assignment, the non-assignability rule could not defeat the assignment of the remaining services contract. Licensor/Western could not argue that it had lost its license by delegating too much responsibility to the debtor/sublicensee in the remaining services agreement, as then it would have nothing to protect from an alleged transfer "in gross" of the trademark. The Court refused to find an "implied" trademark sublicense in the remaining services provisions where the contract expressly provided for separate expiration dates for the sublicense, which had expired, and services provisions, which had not expired. The Court admonished the trademark licensor that it should have expressly designated the contract as a trademark (sub)license if it wanted to trigger the default contract rule preventing nonconsensual assignments. It noted that such designation prevents noncensensual assignments even where an express nonassignment clause could not, as such nonassignment clauses can be overridden in bankruptcy pursuant to 11 U.S.C. section 365(f).

Procedural context:

Licensor/Western appealed the District Court's reversal of the Bankruptcy Court's Order barring assignment of a trademark sublicense absent consent of the trademark licensor. The Purchaser was substituted for the Debtor as the appellee party.

Facts:

Debtor XMH, a clothing firm, sought to sell the assets of its subsidiary, Simply Blue, to Purchaser pursuant to 11 U.S.C. section 363. In connection with the sale of Blue's assets, the Debtor sought to assume and assign to Purchaser an executory contract between Blue and Western Glove Works. Licensor/Western objected that the contract was a sublicense to Blue of the "Jag" trademark licensed by Western that could not be assigned without its permission, which it refused to give. The Bankruptcy Court approved the sale of Blue's assets to Purchaser but denied Debtor's related moton to assume and assign Blue's contract that allegedly included a trademark sublicense to Purchaser without Western's, the trademark licensor's, consent. Debtor appealed to the District Court and the District Court reversed the order barring assignment of the trademark sublicense pursuant to 11 U.S.C. section 365(c)(1). Licensor/Western appealed further to the Court of Appeals.

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