Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC

Summarized by Jonathan Brand , Transworld Systems, Inc.
13 years 7 months ago

Citation:

In re Lakewood Engineering & Manufacturing Co.

Tag(s):

Ruling:

The Seventh Circuit was not persuaded by Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), and held that, when an intellectual-property license is rejected in bankruptcy, the licensee does not lose the ability to use any licensed copyrights, trademarks, and patents. The Court reasoned that, outside of bankruptcy, a licensor's breach does not terminate a licensee's right to use intellectual property. The same is true under 365(g). When a contract is rejected in the context of a bankruptcy, a breach is established, but the other party's rights remain in place. Therefore, CAM had the right to continue to perform under the pre-petition contract for the production of fans with the trademark of Lakewood Engineering & Manufacturing Co.

Procedural context:

The trial in the bankruptcy court adversary proceeding resulted in a judgment being entered for Chicago American Manufacturing ("CAM"). See Szilagyi v. Chicago Am. Mfg. LLC (In re Lakewood Engineering & Manufacturing Co. Inc.), 459 B.R. 306 (Bankr. N.D. Ill. 2011). Sunbeam Products, Inc. doing business as Jarden Consumer Solutions ("Jarden"), following certification by the district court, filed a direct appeal to the Seventh Circuit under 28 U.S.C. 158(d)(2)(A). The bankruptcy court held, despite the trustee's rejection of executory portions of CAM's contract, 365(n) allowed CAM to practice Lakewood's patents when making box fans for the 2009 season. On appeal, the Seventh Circuit determined whether the Fourth Circuit's Lubrizol opinion correctly understood 365(g) of the Bankruptcy Code, which specifies the consequences of a rejection under 365(a).

Facts:

Lakewood Engineering & Manufacturing Co. ("Lakewood") made and sold a number of consumer products, which were covered by its patents and trademarks. In 2009, Lakewood's creditors filed an involuntary bankruptcy petition against it. Prior to the filing, Lakewood entered into a contract with Chicago American Manufacturing ("CAM") which allowed CAM to practice Lakewood's patents and put its trademarks on completed fans for the 2009 season. After the bankruptcy filing, the Court appointed a trustee, who decided to sell Lakewood's business to Sunbeam Products, Inc. doing business as Jarden Consumer Solutions ("Jarden"). The sale of Lakewood's assets included Lakewood's patents and trademarks. Jarden did not want CAM to sell the fans with Lakewood's trademark because such fans would be in competition with Jarden's products. Therefore, Lakewood's trustee rejected the executory portion of the CAM contract under 11 U.S.C. 365(a). When CAM continued to sell the Lakewood-branded fans, Jarden filed suit in the bankruptcy case against CAM.

Judge(s):

Easterbrook, Williams, and Tinder

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