The Seventh Circuit Court of Appeals has issued the first published Circuit Court opinion on the question of whether trademarks are assignable in a Bankruptcy case. The opinion, authored by Judge Posner, is in the case of In re XMH Corp., Nos. 10-2596, 10-2597, 10-2598, 10-2599, 2011 U.S. App. LEXIS 15372 (7th Cir. July 26, 2011) (click here for .pdf of opinion).
The holding of the case is not a surprise:
Section 365(c)(1) of the Bankruptcy Code limits the assignment of an executory contract of the debtor if “applicable law” authorizes the other party to the contract to refuse to accept performance from an assignee “whether or not such contract . . . prohibits or restricts assignment.” …[T]rademark law is applicable law.
None of this matters, though, because as far as we’ve been able to determine, the universal rule is that trademark licenses are not assignable in the absence of a clause expressly authorizing assignment. Miller v. Glenn Miller Productions, Inc., 454 F.3d 975, 988 (9th Cir. 2006) (per curiam); In re N.C.P. Marketing Group, Inc., 337 B.R. 230, 235-36 (D. Nev. 2005); 3 McCarthy on Trademarks § 18:43, pp. 18-92 to 18-93 (4th ed. 2010). “The purpose of a trademark, after all, is to identify a good or service to the consumer, and identity implies consistency and a correlative duty to make sure that the good or service really is of consistent quality, i.e., really is the same good or service. If the owner of the trademark has broken off business relations with a licensee he cannot ensure the continued quality of the (ex-)licensee’s operation, whose continued use of the trademark is therefore a violation of trademark law.” Gorenstein Enterprises, Inc. v. Quality Care USA, Inc., 874 F.2d 431, 435 (7th Cir. 1989).