Very interesting post. I offer some responses to the three questions you posed at the end of your blog post, and a few other comments for good measure:

1. Trademarks and service marks are indeed a form of intellectual “property” (i.e. they are owned, can be sold, conveyed, licensed, etc. as other forms of property), but at the same time are a fragile, perhaps the most fragile, form of IP, since the existence of trademark rights ultimately depends on how the typical consumer perceives the mark, rather than how much money the trademark owner has invested in protecting and enforcing the mark. Indeed, some once-powerful trademarks lost their trademark significance because the public came to understand them as identifying the generic product itself, rather than the source of the product: aspirin, escalator, and cellophane are examples. One can easily think of some other very well-known marks that have, in our times, approached if not teetered on the brink of such “genericide”: KLEENEX, BAND-AID, ROLLERBLADE, and XEROX are examples.

In addition, unlike other forms of IP, trademarks require ongoing monitoring in the form of quality control for a valid license to exist. The “quality control” requirement is essential to an effective trademark license, since without it the prospective consumer has no ability to rely on the trademark’s primary function as an indicator of a source of origin of the product or service, even if licensed. Without effective quality control, a purported trademark license amounts to a “naked” license that can cause trademark rights to become abandoned.

2. The ongoing obligation for a trademark licensor to exercise effective quality control over the licensee’s use of the licensor’s mark could conceivably render any trademark license permanently executory and thus permanently subject to the debtor’s right to reject the contract under 11 U.S.C. § 365. One way around this problem would be to treat the type of license at issue in In re Exide Technologies as essentially a sale of the EXIDE trademark rights in connection with industrial batteries. By viewing the parties’ transaction as in essence a transfer of the relevant rights, the entire case would be removed from § 365 analysis.

3. Whether Congress should amend §§ 101 and 365(n) to include trademarks is a complicated one because of the above considerations. Nonetheless, I personally believe Congress should enact such an amendment and in the course of doing so make adequate provision for addressing the ongoing quality control requirement, and in the case of a perpetual, royalty-free, exclusive license such as was present in Exide, perhaps empower the Bankruptcy Court to deem the license a prior sale of the relevant trademark rights.

A few other thoughts:

The majority in Exide clearly gets it wrong when it characterizes the quality control provisions of the trademark license agreement as “minor”. 2010 WL 2163190 at 4. If in fact (as the court states) the record shows that Exide never implemented or enforced its quality control provisions, then the court could deem Exide to have abandoned its licensed trademark rights, and could have held that EnerSys instead created its own common law trademark rights through its continued use of the EXIDE mark in connection with industrial batteries following such abandonment.

I agree with you that Judge Ambro’s concurrence correctly rejects the premise that Congress intended to avoid protecting trademark licensees by not including trademarks in the § 101 definition of “intellectual property”. From the legislative history it is obvious that Congress instead recognized the complexities of the issues with respect to trademark licenses, and (wisely or unwisely) deferred resolution of those issues for a later day. Unfortunately (although unsurprisingly) Congress never has returned its attention to this issue, leaving it to the courts to reason from “negative inference” or otherwise, with the resulting morass in the case law.

However, Judge Ambro’s concurrence is not without flaws either. Treating a “rejection” of a trademark license as merely an abandonment of the debtor’s obligations to perform rather than a complete termination of the entire contract is a “clever” but ultimately unsatisfactory end-around, because it calls into question the very “naked” license problem the exercise of quality control was intended to avoid.

Other forms of intellectual property have come into existence since Congress first enacted § 365(n) (or Congress simply failed to recognize them at the time): e.g. rights of publicity, domain names. Thus it is an open question as to how a bankruptcy court should treat licenses of these forms of intellectual property that were not included in the § 101 definition.

It will be very interesting to see if the U.S. Supreme Court grants cert in this case. If they do, I suspect it will be as a result of the above infirmities in both the majority and the concurrence opinions.

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Hope you find these comments to be of interest. I would be happy to discuss them further with you if so desired.

Best regards,
Curt

Curtis Krechevsky, Esq.
Partner and Chair of Trademark & Copyright Department
Cantor Colburn LLP
20 Church Street
22nd Floor
Hartford, Connecticut 06103-3207 U.S.A.

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Admitted in Massachusetts and Colorado. Not admitted in Connecticut.

Steve