In the

United States Court of Appeals

For the Seventh Circuit

Nos. 10-2596, 10-2597, 10-2598, 10-2599

IN RE:

XMH CORP.,

Debtor.

APPEAL OF:

WESTERN GLOVE WORKS.

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

Nos. 1:09-cv-05406, -05963, -05965, -06453—William J. Hibbler, Judge.

ARGUED FEBRUARY 11, 2011—DECIDED JULY 26, 2011

Before BAUER, POSNER, and WILLIAMS, Circuit Judges.

POSNER, Circuit Judge. This appeal (actually there are

multiple appeals, but only one needs to be discussed—the

others are academic in light of our decision) presents

two questions about the assignability of trademark

licenses, in the context of a bankruptcy proceeding. The

first is whether a trademark license is assignable (that

is, salable) without the licensor’s permission, in the

absence of a clause in the agreement stating that it is

assignable. The second is whether a trademark license
2 Nos. 10-2596, 10-2597, 10-2598, 10-2599

can be “implied” in an agreement that does not say it’s

a trademark license.

In 2009 a clothing firm named XMH (formerly Hartmarx)

sought relief, along with a number of its subsidiaries

including one named Simply Blue, under Chapter 11 of

the Bankruptcy Code. As debtor in possession XMH

asked the bankruptcy court for permission to sell Simply

Blue’s assets to Emerisque Brands and SKNL (we’ll

call these “the purchasers”). See 11 U.S.C. § 363. The

court gave its permission. XMH told the court that an

executory contract between Blue and Western Glove

Works, another clothing firm, would be assigned to the

purchasers because it was an asset of Blue. Western Glove

Works objected to the assignment. It argued that the

contract was a sublicense to Blue of a trademark licensed

by Western and couldn’t be assigned without its permission—which it refused to give.

The bankruptcy judge, persuaded by Western, ruled

that the contract couldn’t be assigned to the purchasers

because Western wouldn’t consent to the assignment.

XMH appealed the ruling to the district court, while

seeking to circumvent it by renegotiating its contract with

the purchasers. Under the new contract Blue would

retain title to the contract but the purchasers would

assume all the duties that Blue had owed to Western

under the contract and would receive all the fees to

which Blue had been entitled by it.

The bankruptcy judge allowed the amendment,

although it was a transparent evasion of his order forbidding assignment. Western appealed. Meanwhile the
Nos. 10-2596, 10-2597, 10-2598, 10-2599 3

district court, addressing XMH’s appeal to it, granted a

motion by the purchasers to be substituted for XMH and

then ruled that the bankruptcy judge’s order barring

assignment of the (original) contract between Western

and Blue was erroneous. This ruling disposed of

Western’s appeal, precipitating its appeal to us.

Western argues first that the purchasers of Blue’s assets,

who are also the assignees of Blue’s contract with

Western, waived their right to litigate the case in the

district court, and in our court as well, because they

didn’t appeal the bankruptcy court’s order forbidding

assignment. XMH was the only appellant in the district

court, and Western contends that because XMH is no

longer a party the case should be treated as having

ended with the bankruptcy court’s decision in favor

of Western.

But XMH’s interest in the contract hadn’t evaporated;

it had merely migrated to the purchasers, who now

stand in XMH’s shoes. XMH had ceased to have any

stake in the dispute with Western after it divested itself

of Blue, the assets of which included Blue’s contract

with Western. That divestment occurred while XMH’s

appeal to the district court was pending, but there is

nothing problematic about substituting a party into a

litigation because it has succeeded to the interest of the

original party. A party can lose its case in the lower court,

and then assign the claim on which its case is based to

someone else, and the assignee can take the case up on

appeal. Plumb v. Fluid Pump Service, Inc., 124 F.3d 849,

864 (7th Cir. 1997); Cordes & Co. Financial Services, Inc. v.
4 Nos. 10-2596, 10-2597, 10-2598, 10-2599

A.G. Edwards & Sons, Inc., 502 F.3d 91, 102-03 (2d Cir. 2007);

see generally 6A Charles Alan Wright et al., Federal

Practice and Procedure § 1545, pp. 346-51 (2d ed. 1990).

That is essentially what happened here.

The only oddity is that as a result of the substitution

of parties we now have a bankruptcy appeal to which

neither the bankrupt nor a trustee is a party: we have a

suit by Western against purchasers of assets from the

bankrupt estate. But it would be silly to tell the parties

to start over, in federal district court if there is diversity

of citizenship and in state court otherwise. (Suits over

assignments of trademark licenses are deemed to

arise under state rather than federal law, even when the

trademark is federally registered. International Armor &

Limousine Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912,

914-17 (7th Cir. 2001); Gibraltar, P.R., Inc. v. Otoki Group,

Inc., 104 F.3d 616, 618-19 (4th Cir. 1997); cf. Gaiman

v. McFarlane, 360 F.3d 644, 652 (7th Cir. 2004); T.B.

Harms Co. v. Eliscu, 339 F.2d 823, 824, 828 (2d Cir. 1964)

(Friendly, J.).) The record was made in the bankruptcy court; and anyway when a case is within federal

jurisdiction when filed, later events, which would have

precluded jurisdiction had they occurred before the

case was filed, do not (with immaterial exceptions)

deprive the federal court of jurisdiction. E.g., Mollan v.

Torrance, 22 U.S. (9 Wheat.) 537, 539-40 (1824); Cunningham

Charter Corp. v. Learjet, Inc., 592 F.3d 805, 807 (7th Cir. 2010).

There is another jurisdictional issue. The purchasers

argue that the district court’s order setting aside the

bankruptcy court’s ruling that the contract between

Blue and Western was not assignable was not a final
Nos. 10-2596, 10-2597, 10-2598, 10-2599 5

order, because the district court remanded the case to

the bankruptcy court to make a final decision regarding

whether to permit assignment. A debtor in possession

may not assume and assign an executory contract if he

has defaulted on it unless he satisfies the bankruptcy

court that he’s cured the default, 11 U.S.C. § 365(b)(1);

In re UAL Corp., 635 F.3d 312, 315 (7th Cir. 2011); and

he must also provide assurance that the assignee will

perform the contract. 11 U.S.C. § 365(f)(2).

But an order, even though not literally final, is

appealable if all that remains to be done on remand to

make it final is a “ministerial” ruling by the lower court.

In re Holland, 539 F.3d 563, 565 (7th Cir. 2008); In re

A.G. Financial Service Center, Inc., 395 F.3d 410, 413 (7th

Cir. 2005); In re Lopez, 116 F.3d 1191, 1192-93 (7th Cir. 1997);

In re Northwood Properties, LLC, 509 F.3d 15, 21 and n. 2 (1st

Cir. 2007); In re Hicks, 491 F.3d 1136, 1139 (10th Cir. 2007);

In re Cortez, 457 F.3d 448, 453-54 (5th Cir. 2006). That

means, as a practical matter, a ruling unlikely to give

rise to a controversy that would trigger a further appeal.

In Lopez we gave the example of “calculating prejudgment interest when the amount of the judgment, the

interest rate, and the period over which the interest is to

be calculated are all uncontested.” 116 F.3d at 1192. We

pointed out that “in such a case, the proceedings on

remand are highly unlikely to generate a further appeal,

so deciding the issue appealed from immediately will

save time without raising the spectre of piecemeal appeals.” Id. This is a serviceable test of finality—the Ninth

Circuit has created two multifactor tests, see, e.g., In re

Fowler, 394 F.3d 1208, 1211 (9th Cir. 2005), which strikes us
6 Nos. 10-2596, 10-2597, 10-2598, 10-2599

as overkill. As there are no further issues regarding the

assignment of the contract between Western and Blue—

no creditor has objected and Western has stipulated

that there was no default by Blue and that adequate

assurance of future performance has been provided—all

the bankruptcy court has to do on remand (if we affirm)

is to enter, with no further proceedings or analysis, an

order saying that the contract can be assigned to

the purchasers.

So we come at last to the merits of the appeal. 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.” The

other party is Western and the assignees whom Western

refuses to accept as substitute performers for Blue are

the two assignees. The contract does not prohibit or

otherwise restrict assignment—and if it did the bankruptcy court could override the restriction unless “applicable law” entitles the other party to refuse to accept

the substitution of the assignee for the assignor. 11

U.S.C. § 365(f); FutureSource LLC v. Reuters Ltd., 312

F.3d 281, 286-87 (7th Cir. 2002); In re Midway Airlines, Inc.,

6 F.3d 492, 495-96 (7th Cir. 1993).

The applicable law on which Western relies is trademark law. The contract with Blue recites that Western is

a licensee of the trademark “Jag Jeans.” (“Jag” is a

federally registered trademark, owned by the Jag

Licensing LLC, for “push-up pads for women’s bra-style
Nos. 10-2596, 10-2597, 10-2598, 10-2599 7

tops; sweatshirts; pants; skirts; shorts; jeans; jackets;

tops; knit tops”; we do not know whether “Jag Jeans” is

another trademark owned by that company and licensed

to Western, or a misnomer of the trademark “Jag.”) The

contract says that Western “hereby grants” Blue, which

“has been formed for the purpose of designing apparel,

sourcing apparel (that is, arranging for the manufacture

and importation of apparel), and selling apparel,” a

license (that is, a sublicense) “to sell womens’ jeanswear

bearing the Trademark . . . [until] December 31, 2002.” Blue

agreed to pay Western a license fee of 12.5 percent of

Blue’s net sales of the trademarked apparel during the

period in which the contract was in effect. Remarkably,

the period was only two weeks, for the contract had

taken effect on December 17.

The contract further provided that during the year

following the expiration of the trademark sublicense,

Western would once again “sell, for its own account, the

Trademarked Apparel,” while Blue would provide a

variety of services related to that apparel, including

“sourcing services,” “marketing and sales services,”

“merchandising services,” and “customer service.” Western would “control and . . . be financially responsible for

all other aspects of the production and sale of the Trademarked Apparel, including, by way of example, purchasing the apparel from [Blue’s] sources, setting prices,

approving the credit of prospective customers, importation, warehousing, shipping, distribution, invoicing,

and collection of accounts.” For the services that Blue

would be providing, Western would pay Blue a fee
8 Nos. 10-2596, 10-2597, 10-2598, 10-2599

equal to 30 percent of Western’s “Net Sales of Trademarked Apparel.”

We don’t know why the parties created a trademark

sublicense to last only two weeks; the lawyers could not

explain it at argument and no evidence was presented

in the courts below. Maybe the parties didn’t know

either, because in March 2003, three months after the

expiration of the sublicense, they agreed to extend it

(retroactively to January 1, 2003, the day after the expiration of the original, two-week sublicense) to June 30

of that year and also agreed that the services provisions of the contract, which were to have kicked in on

January 1, would now kick in on July 1 and run until

June 30, 2007. Blue was also given an option to renew

them for an additional four years, and it did renew them,

in April 2007, and at that time it was given two further

five-year renewal options, which allow the purchasers,

if the assignment is permitted, to extend that part of

the contract to the end of 2021.

We are guessing that the purpose of keeping the trademark sublicense in force for an additional six months

was to give the parties a chance to decide that maybe

the license with a 12.5 percent royalty based on the price

of the trademarked jeans set by Blue was a superior

method of regulating the relation between the parties

than a services agreement that would give Blue 30 percent of the price set by Western.

In any event, if the contract still included a trademark

sublicense when XMH attempted to assign the contract

to the purchasers, it was not assignable. The term “appli-
Nos. 10-2596, 10-2597, 10-2598, 10-2599 9

cable law” means any law applicable to a contract, other

than bankruptcy law, In re Sunterra Corp., 361 F.3d 257,

261 n. 5 (4th Cir. 2004); In re Pioneer Ford Sales, Inc., 729 F.2d

27, 28 (1st Cir. 1984); In re Wellington Vision, Inc., 364 B.R.

129, 135 (S.D. Fla. 2007), since bankruptcy law would

permit any assignment that was in the best interest of the

creditors, subject to the limitations in section 365 previously discussed. So trademark law is applicable law.

Unfortunately the parties haven’t told us whether the

applicable trademark law is federal or state, or if the

latter which state’s law is applicable (the contract

does not contain a choice of law provision)—or for that

matter which nation’s, since Western is a Canadian

firm. (Blue’s headquarters are in the State of Washington.) 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-
10 Nos. 10-2596, 10-2597, 10-2598, 10-2599

USA, Inc., 874 F.2d 431, 435 (7th Cir. 1989). It is even

worse if the ex-licensee, rather than continuing to use

the trademark himself, has sublicensed it.

A trademark is a shorthand designation of a brand.

It conveys information that allows the consumer to say

to himself, “I need not investigate the attributes of the

product I am about to purchase because the trademark

is a shorthand way of telling me that the attributes are

the same as that of the like-branded product I enjoyed

earlier.” If without notice the seller reduces the quality

of his brand, the trademark becomes deceptive because

its assurance of continuity of quality is no longer truthful. That is why the licensee is not permitted to sublicense the trademark to a seller over whom the trademark owner, having no contract with the sublicensee,

will have no control. It’s also the reason that transfers of

trademarks “in gross”—that is, apart from the assets used

to produce the trademarked product—are prohibited.

E.g., United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90,

96-97 (1918); Green River Bottling Co. v. Green River Corp.,

997 F.2d 359, 361-62 (7th Cir. 1993); 3 McCarthy, supra,

§ 18:3, pp. 18-8 to 18-9. If as a purchase in gross implies,

the buyer doesn’t want the assets that the seller had used

to produce the trademarked good, this probably means

that they are more valuable in some other employment—or

perhaps the buyer doesn’t want them because he is planning to reduce the quality of the product so that he can use

cheaper inputs to produce it. In either case—the seller

is either leaving the market or going out of business

entirely—he is unlikely to be risking market retaliation
Nos. 10-2596, 10-2597, 10-2598, 10-2599 11

for selling a trademark that will be used by another firm

to deceive consumers.

Often the owner of a trademark will find that the most

efficient way to exploit it is to license the production of

the trademarked good to another company, which may

have lower costs of production or other advantages

over the trademark’s owner. Normally the owner who

does this will not want the licensee to be allowed to

assign the license (that is, sublicense the trademark)

without the owner’s consent, because while the owner

will have picked his licensee because of confidence that

he will not degrade the quality of the trademarked

product he can have no similar assurance with respect

to some unknown future sublicensee.

Because this is the normal reaction of a trademark

owner, it makes sense to make the rule that a trademark license is not assignable without the owner’s

express permission a rule of contract law—what is

called a “default” rule because it is the rule if the parties

do not provide otherwise (as they are allowed to do).

Default rules economize on the costs of contracts by

saving the parties the bother of negotiating a provision

that most of them want—the members of the minority

that does not want such a provision are free to contract around it but the majority is saved that bother and

expense. E.g., Wal-Mart Stores, Inc. Associates’ Health &

Welfare Plan v. Wells, 213 F.3d 398, 402 (7th Cir. 2000).

The “best efforts” duty of an exclusive distributor is a

familiar example of a contract default rule: the assumption is that a seller would not grant an exclusive distribu-
12 Nos. 10-2596, 10-2597, 10-2598, 10-2599

torship without requiring the distributor to use his best

efforts to promote the seller’s brand, so in the absence of

an express provision to the contrary a best-efforts requirement is read into every exclusive distributorship. E.g.,

Classic Cheesecake Co. v. JPMorgan Chase Bank, N.A., 546

F.3d 839, 845-46 (7th Cir. 2008); Wood v. Lucy, Lady DuffGordon, 118 N.E. 214, 214-15 (N.Y. 1917) (Cardozo, J.). The

rule that trademark licenses are not assignable in the

absence of a provision authorizing assignment is a similarly sensible default rule.

Since there is no such provision in the contract

between Western and Blue, Blue could not have

assigned the contract without Western’s permission

before July 1, 2003, when the trademark sublicense

that Western had given Blue expired. But the assignment of the contract, of which the sublicense was a provision, to the purchasers came years later. Western, however, argues that the sublicense did not expire

when it appeared to—that the services provisions of

the contract, which survived the expiration of the

sublicense, were actually a continuation of the trademark sublicense—maybe just an “implied” sublicense

but that, Western argues, should be good enough.

We don’t agree that those provisions constituted any

sort of trademark license. The contract is explicit that

after the expiration of the sublicense to Blue to sell Jag

Jeans and pay a license fee to Western the rights in the

trademark revert to Western; all the trademarked

apparel held by Blue has to be returned to Western; Jag

Jeans would henceforth be priced and sold by Western;
Nos. 10-2596, 10-2597, 10-2598, 10-2599 13

and the license fee would be replaced by a fee for specific

services rendered by Blue. The services were extensive,

but Western retained control over “all other aspects of

the production and sale of the Trademarked Apparel,” and

these were, as our quotations from the contract should

have made clear, also extensive.

A trademark owner (or, in this case, a trademark licensee) might delegate so much responsibility to the

service provider as to lose the right or power to assure

the quality of the trademarked brand, and then he

would lose the trademark (or his license). Eva’s Bridal

Ltd. v. Halanick Enterprises, Inc., 639 F.3d 788, 790-91 (7th

Cir. 2011); Draeger Oil Co. v. Uno-Ven Co., 314 F.3d 299, 300-

01 (7th Cir. 2002); Twentieth Century Fox Film Corp. v. Marvel

Enterprises, Inc., 277 F.3d 253, 259 (2d Cir. 2002); Tumblebus,

Inc. v. Cranmer, 399 F.3d 754, 764-65 (6th Cir. 2005). He

would have granted, as some cases say, a “naked license,”

or in this case a naked sublicense, which would be the

equivalent of a trademark owner’s selling his trademark in gross. “Trademark law requires that ‘decisionmaking authority over quality remains with the owner

of the mark.’ Restatement [(Third) of Unfair Competition] § 33

comment c [(1995)]. How much authority is enough

can’t be answered generally; the nature of the business,

and customers’ expectations, both matter. Ours is the

extreme case: plaintiffs had, and exercised, no authority

over the appearance and operations of defendants’ business, or even over what inventory to carry or avoid. That

is the paradigm of a naked license.” Eva’s Bridal Ltd. v.

Halanick Enterprises, Inc., supra, 639 F.3d at 791 (emphasis

in original).
14 Nos. 10-2596, 10-2597, 10-2598, 10-2599

But of course Western is not arguing that it lost its

license by delegating too much responsibility for the

product to Blue in the service agreement (no longer

services provisions, because after the sublicense expired all that was left was a contract for services); it

is arguing that it retained the license and merely sublicensed it, and it professes to be fearful that the

“sublicensees” (as it deems them)—the purchasers of

Blue’s assets, who are the assignees of the service agreement—won’t keep up the quality of the trademarked

product; consumers will be deceived and eventually

will retaliate against Western, which may forfeit its

license for failing to maintain consistent quality. (As to

what the consequences might be for Jag Licensing

LLC, the trademark’s owner, we needn’t speculate.)

But if the service agreement is really a trademark

license, why did the contract distinguish between a

trademark license and a service agreement and make

the former expire in 2003? Western has been unable to

answer that question. Maybe a contract regarding a

trademark could be a trademark license for some

purposes but not others, but this is not argued and we

are reluctant to go down that dark path. There is no

good reason for courts to wrestle with classification

issues in contract cases when it is easy for the contracting parties to resolve the issues themselves. If

Western wanted to prevent Blue from assigning the

service contract to another firm without Western’s permission, all it had to do was get Blue to agree to

designate the contract as a trademark sublicense, thus

triggering the default rule that we have discussed and
Nos. 10-2596, 10-2597, 10-2598, 10-2599 15

endorsed. That would have headed off a legal dispute

that courts are in a poor position to resolve. It would

have been more effective than a clause forbidding assignment because it would have survived bankruptcy;

anyway there was no such clause either.

AFFIRMED.

7-26-11