## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N os. 10

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- 2599 I N RE : X MH C O RP ., D e b t or . A PP E A L OF : W ES T ERN G LOVE W OR KS .

A pp ealsfr o m the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No s. 1: 09-cv -05406, -05963, -05965, -06453

—Wi ll iam J. H ibb ler , Judge
. A RG UE D F EB RU AR Y 11, 2011

— D ECI DE D J UL Y 26, 2011

Befo re B AUER, P OSNER, an d W I L L I A MS, Circ uit Ju dg es . P OSNER, Cir cu i tJudg e . T his ap p eal (actu all y th ere are m ult i ple appeal s, but onl y one needs to be disc ussed

— th e othe rs ar e a cadem i c i n l i ght o fou r d eci si on) pre sents tw o que st i o ns abo utthe a ss i g nabi l i tyo ft r ade m ark l i ce ns es , i n the c ont exto fa b an k r upt cypr o ce eding . The fi rs t i s whether a t ra dem ar k l i cense i s a ssi gnabl e ( that i s, s al abl e) wi th o utthe l i ce ns o r ’ s per m i ss i o n, i n the ab se n c e o f a c lau se i n t h e a gr ee m en t s ta tin g t h at it is ass i gnabl e. The s ec ond i s whether a t ra dem ar k l i cense2 N os. 10

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can be “im p li ed ” in an agreem e n t tha t d oes not say it’ s a t ra dem ar k l i cense. I n 2 00 9 a cl o th i ngf i r m named XM H ( f o r m er l y Har tmar x) soughtr el i ef, al ong w i th a nu m b er o fi ts subsi diar i es i ncl ud i ng o ne nam ed S im plyBl ue, under Chapter 11 of th e B a n k r u p t c y C o de
. As d e b t o r i n p o s s e s s i o n X MH as ke d th e b an kr u p tc y c ou rtfor p er m iss ion to se ll Sim p ly B lu e’s a s se ts to E m er isq u e B ra n d s a n d SK N L (w e’ll ca l l the se “ th e pur ch as er s” )
. S ee 1 1 U. S
. C. § 3 63
. The cour t g ave i ts p er m iss i on. XM H to l d the co urt that an exec u tory contr act between Bl ue and W est er n Glo ve W o r k s, a no th erc l o th i ngfi r m , woul d be as si g ne d t o the pu rchas er s be cause i t was an a sse t o fBl ue. W est er n Glo ve W o r k s o bj ec te d t o the a ss i g nm en t. It a rgue d tha t th e contr act w as a s ub license to Bl ue o fa tr adem ar k l i censed by W est er n and coul dn ’ t be as si gned w i thout i ts perm i ssi on

— w hi ch i t r efused to gi ve. The bankr up tcy j ud ge, pers u ad ed by W est er n, r ule d th at th e con tract co uld n’t be ass igned to the p ur c h asers because W est er n w oul dn ’ t con sent to the a ssi gnm ent. X M H appeal ed the rul i ng to the dist ri ct c ourt, wh i le see ki ng to ci rcum vent i t by re nego ti ati ng i ts contr act w i th th e p u rc h as er s. U n d er th e n ew co n tr ac t B lu e w ou ld re ta in tit le t o t h e c on tr ac t b u t t h e p u rc h as er s w ou ld assu m e a ll th e d ut ies that B lue ha d ow ed to W estern und erthe contr act an d w oul d rec ei ve al l the fees to w hi ch Blue had been e nti tl ed by i t. The b ankr up tcy j ud ge al l owed the am endm ent, altho ug h i t was a tr an spa r en t ev as i o n o f hi s o r derf orbi ddi nga ss i g nm en t. W es te r n a ppea l ed. M eanwhi l e th eN os. 10

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- 2599 3 di s t r i c tc o ur t, a ddr e s s i ngX M H’ s a pp eal to i t, g r a nt e d a m o ti o n b y the pur ch as er s to b e su bs ti tu te d f o r X M H a nd th enr ul ed th atthe b an k r upt cyj udg e’ s o r derb ar r i ng assign m en t of th e (ori ginal) con tract b e t w een W estern and B lue was er ro neous. Thi s r uling di spose d of W est er n’s appeal, pre ci pit ati ng i ts appeal to us. W est er n ar gues fi rs t that the purchas er s o fBl ue’ s a sse ts, w ho a re al so the a ssi gnees o fBlu e’s contr act w i th W es te r n, waived th ei r r i g htt o l i ti g at e th e ca se i n the dist ri ct c ourt, and i n ourco urt as w el l, bec ause they di dn’ t appe althe b an k r upt cyc o ur t’ s o r derf o rbi ddi ng ass i gnm ent. XM H was the onl y a pp el l an t i n the dist ri ct co ur t, a nd W es te r n c o nt en ds th at be ca us e XM H i s no l o ng era pa r tythe c as e sh o ul d b e tr ea te d a s ha ving e nd e d wi th the b a nk r up t c y c o ur t ’ s de c i s i o n i n f avo r o fW es te r n. Bu tX M H’ s i nt er esti n the c o nt r a c th a dn ’ te v a po r a t e d; i t had m er el y m i gr ate d to th e pu rchas er s, wh o now st an d i n XMH ’ s shoes. X M H ha d c ea se d t o ha ve a ny st ak e in th e d isp u te w ith W es te rn aft er it div es te d it se lf of Bl ue, the ass ets o fwh i ch i ncl ud ed Blue’ s co ntra ct w ith W estern . Th at d ivestm en t occu rred w hile XM H ’s ap p ea l to t h e d ist ric t c ou rtw as p en d in g, bu t t h e re is nothi ng pro bl em atic about substi tuti ng a partyi nto a li ti g at i o n b ec au se i t ha s su cc ee ded to the i nt er es t o fthe or i gi nal party. A party c an l ose i ts case in the l ower co urt, and then as si gn the c laim on w hi ch i ts case i s ba sed to som eone el se, and the ass i gnee can ta ke the case up o n ap p ea l. P lum b v. Flui d P um p Service, Inc. , 12 4 F
. 3d 849, 86 4 (7 th C ir. 19 97 ); C ordes & Co
. Finan cial Service s, Inc. v.4 N os. 10

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. G
. Ed w ards & Sons, Inc. , 502 F.3d 91, 102-03 (2d C ir. 2007); se e g en er ally 6A C h ar les A lan W rig h t e t a l., Fe de r al Prac t i cean d Pr oc e du re § 1545, pp
. 346-51 (2d ed
. 1990). That i s e sse nti al l y what happened her e. The o nl y o ddi t y i s tha ta s a r e s ul to fthe s ub s t i tuti on ofpart i es w e no w have a bankr up tcy appeal to wh i ch nei therthe bankr up t no r a tr u st ee i s a party: we have a su i t byW es te r n a g ains t pur ch as er s o fa ss et s f r o m the bankr up t e sta te. But i t would be si l l y t o te llthe parti es to sta rto ver, i n federa l dist ric t co urt i fther e i s di ver si ty ofci ti zenshi p and in sta te cour t o th er w ise. ( Sui ts ove r ass i gnm ents oftr adem ar k l i censes ar e deem ed to ar i se unde r s tate r athe r tha n fede r all aw, e ve n whe n the tr adem ar k i s federa l l y r egi ste re d. Intern a tio na l A rm o r & Lim ousineCo
. v. M oloney Co achbuilde rs, Inc. , 27 2 F
. 3d 912, 91 4-1 7 (7 th C ir. 20 01 ); Gib r al t ar, P. R. , Inc . v. O t okiGr oup, Inc. , 10 4 F
. 3d 616, 61 8- 19 ( 4th Ci r. 19 97) ; cf
. G a im an v. M cF ar l ane, 360 F.3d 64 4, 65 2 (7 th C ir. 20 04 ); T. B. Harm s C o . v . E li sc u , 33 9 F
. 2d 823, 82 4, 82 8 ( 2d Cir
. 19 64) ( Fr i en d ly, J. )
. ) The r eco rd was m ade i n the bankruptcy cour t; and anyway w h en a cas e i s withi n federa l j uri sdic ti on wh en fi l ed, l ate r eve nts, wh i ch w oul d have pr ec l ude d j ur i sdi ct i o n had th eyo cc ur r ed be f o r e th e c as e was fi l ed, do not( w i th i m m ate ri alexce pti ons) d ep riv e t h e fe d er al c ou rtof j u ris d ict ion . E .g., M ol l an v. Torrance, 22 U
. S. (9 W he at.) 537, 539-40 (1824 ); Cunn i ngh am C harte r C orp. v . Le arje t, Inc. , 592 F. 3d 805, 807 ( 7th C ir. 2010). T he re i s ano th er j urisd ict ion al i ssu e. T he pu rch asers ar g ue tha t th e di st r i ctcou r t’ s o r ders et tinga si de th e bankr up tcy cour t’ s r uling tha t the co ntra ct b etween Blue and W est er n w as not ass i gnabl e was no t a fi nalN os. 10

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or der, bec ause the di str ict c ou rtr em anded the case to th e ba nk r upt cyc o ur t to make a fi na l de ci si o n r eg ar di ng w hetherto per m i t a ssig n m en t. A debto r i n posse ssi on m ayno t as su m e an d a ss i g n a n e xe cut o r y c ont racti fhe h as defa ult ed on i t unl ess he s ati sfi es the b ankr up tcy cou r t t h a t he’s cu red the d efault, 11 U
. S. C
. § 365(b)(1) ; In reUAL Corp. , 6 35 F
. 3d 31 2, 3 15 (7th Ci r . 2 01 1) ; a nd h e m u st als o p ro vid e a ss u ra n c e t h at th e a ss ign ee w ill p erform the con tract. 11 U
. S. C
. § 365(f) (2). B u t a n ord er , eve n th ou g h n o t lite ra lly fin al, is appeal abl e i fal l t h at rem ai ns to be done on re m and to m ake i t fi nal i s a “m i ni ste ri al ” r uling bythe l ower co urt. In reHol l and, 53 9 F.3d 56 3, 56 5 (7t h C i r . 2 00 8); In re A
. G
. Financial ServiceCenter, Inc. , 39 5 F
. 3d 410, 41 3 ( 7th C ir. 20 05 ); In re Lo pez , 116 F. 3d 1191, 1192-93 (7th C ir. 1997); In reNor t hwood Pr ope r t i e s , LL C, 509 F. 3d 15, 21 and n. 2 ( 1st C ir. 20 0 7); In reH i cks , 491 F.3d 113 6, 1139 ( 10th Cir. 2007); In re C o rtez , 4 5 7 F
. 3 d 4 4 8 , 4 5 3
- 5 4 ( 5 th Ci r . 2 0 0 6 )
. That m eans, as a pract i cal m att er, a rul i ng unli kel y to give ris e t o a co n tr o v e r s y t h at w ou ld trig ge r a fu rt h er ap p ea l. I n Lo pez we gave the exam ple o f“ca l cul ati ng prej ud gm en t in te r es t when th e amoun t o fthe j udg m en t, the i nter estr ate , and th e per i od ov erwh i ch the i nter esti s t o b e c a l c u l a t e d a r e a l l u n c o n t e s t e d
. ” 1 1 6 F
. 3 d a t 11 9 2
. We poi nted out th at “i n such a case , the proce edi ngs o n re m an d are h igh ly u n lik e l y to ge n er at e a fu rt h er ap p ea l, so d ec id in g t h e is su e a p p ea led from im m ed iat ely w ill s a v e t i me wi tho utr a i s i ngthe s pe c t r e o fp i e c e mea l a ppeal s. ” Id
. Thi s i s a se rv i ceabl e t esto ffi nal i ty

— the Ninth C irc u it h as cr ea te d tw o m u ltifa c to r te st s, se e, e.g ., In re Fo w ler, 39 4 F
. 3d 12 08 , 12 11 ( 9th Ci r . 2 00 5) , whi chs tr i k es us6 N os. 10

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as o ve r k i l l
. As the r e ar e no fur th eri ss ue s re g ar di ngthe as si g nm en t o fthe c o nt r ac t be twe enW es te r n a nd Bl ue

— no cr edi torhas obj ecte d and W ester n has s ti pu l ate d that ther e was no defa ultby Bl ue and that adequate ass urance offuture perf or m ance ha s be en pro vi ded

— all th e b a n k r u p t c y co ur t ha s t o d o o n r e ma n d ( i fw e a ffi r m) i s t o enter, with no furtherpro ceedi ngs o r anal ysi s, an or der say i ng tha t the co ntra ct c an be ass i gned to the purchas er s. So we com e a t l astto the m er its o f t h e app eal
. S ecti on 36 5( c) ( 1) o fthe Bank r upt cyCo de l i m i ts the a ss i g nm en t of a n ex ec u to ry co n tr ac t o f th e d eb to r if “a p p lica b le l aw ” a uthor i zes the othe r partyto the contr ac t to r efuse to accept perf or m ance fro m an assi gnee “w hethero r not su chc o nt r ac t . . . pr o hibi ts o r re st r i ct s as si g nm en t. ” The oth er pa rty i s W estern and the ass ignees w hom W estern refus es t o a cc epta s su bs ti tu te pe r f o r m er s f o r Bl ue are the tw o ass i gnees . The co ntra c t d oes notpro hibi t o r o th er wi se rest r i cta ss i g nm en t

— and i fi t di d the ba nkrupt c y c o ur tc o ul d o v e r r i de the r e s t r i c t i o n un l e s s “ a ppl i c a b l e l a w” en t i t l e s the o the r p a r t y t o r e fus e t o a c c e pt the s ubsti tuti on o fthe ass i gnee f orthe ass i gnor . 11 U .S.C . § 36 5(f) ; Fut ure Sou r ceLL C v. Re ut e rs Lt d. , 3 12 F.3 d 28 1, 28 6-8 7 (7 th C ir. 20 02 ); In re M idwa y Airli nes, Inc. , 6 F. 3d 492, 495-96 (7th Cir. 1993). The appli cabl e l aw o n w hi ch W est er n re l i es i s t ra dem ar k la w . Th e c on tr ac t w i t h B lu e re c ite s t h at W es te rn is a l i censee o fthe tr ad em ar k “ J ag J eans. ” ( “J ag” i s a f edera l l y r egi st er ed tr adem ar k, o w ned by the J ag L ice n sin g L L C , for “p u sh -u p p ad s fo r w om en ’s b ra -st yleN os. 10

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- 2599 7 tops; sweatshi rt s; pants; sk i rt s; sho rt s; j eans; j acke ts; tops; kni t tops”; w e do not know whether “J ag J ea n s” is anothe r tr adem ar k o w n ed by that com pany and l i censed to W es te r n, o r a mis no m ero fthe tra demar k“ J ag . ”) The c on tr act say s that W est er n “her eby gr ants” Bl ue, wh i ch “h as be en form ed for t h e p u rp os e o f d es ign in g a p p ar el, sou rcing ap p arel ( th at is, a r ran ging for th e m an ufac tu re and i m port ati on o fapparel ) , and sel l i ng app ar el, ” a l i cense ( that i s, a subl i cense) “t o sel l w om ens’ j eanswear be ar i ngthe Tr ade m ar k
. . . [ unt i l ] De ce m be r 31 , 20 02
. ” Bl ue agr eed to pay W est er n a lic ense fee of12
. 5 per cent of Bl ue ’ s ne t sa l es o fthe t r ade m ar k ed apparel duri ngthe peri od i n w hi ch the contr act w as i n effe c t. Rem ar kabl y, the per i od w as onl y tw o w eek s, f orthe contr act had tak en eff ect on Decem ber17
. The contr act fu rt h er pro vi ded thatduri ng the ye ar f ol l owing the e xp ira tio n ofthe tr adem ar k s ubl i cense, W es te r n wo ul d o nc e ag ain “ se l l, f o r i ts o wn ac co unt, the Tradem ar ked Ap p ar el, ” whil e Bl ue would prov i de a va r i ety o fs er vi ce s r el at ed to tha t appa r el, i nc l udi ng “s ou rc in g s er vic es ,” “m ar ke tin g a n d sa les se rv ice s,” “m er chandising se rv i ces, ” a nd “cust om er se rv i ce. ” W est
er n w oul d “contr oland .
. . be fi nanci al l y r esponsibl e f or al l o theras pects ofthe producti on a nd sa l e o fthe Trad em arked A p p arel, i nc lud ing , b y w ay of exam p le, pu rchasi ng the apparelfro m [B l ue’ s] so urces , se tti ng pri ces, approvi ng the cr edi t o f p ro specti ve custo m er s, i m port ati on, w ar ehousi ng, shi pp i ng, di str ibuti on, i nvoi ci ng, an d c o l l ec ti o n o fa cc o unt s. ” F o r the s er vi ce s th atBl ue w oul d b e provi ding, W est er n w oul d pay Blue a fee8 N os. 10

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- 2599 equal to 30 per cent ofW es ter n’s “N et Sal es ofTra dem ar ke d A p p ar el.” W e d on’t kn ow w hy the p arties created a trad em ark subl i cense to l asto nl y t w o w eek s; the l aw yer s co uld not expla i n i t a t a rgu m en t and no evi dence w as prese nted i n the cour ts bel ow. M ayb e th e parti es didn’tkno w ei th er, b ec au se i n Mar ch2 00 3, thr ee months a fte r the ex p ira t i o n o f th e s u b lice n se , th ey ag re ed to ex te n d it ( r et r o a c t i v e l y t o J a n u a r y 1 , 2 0 0 3 , th e d a y a ft e r th e e xp ira ti on o fthe or i gi nal, two- w eeksubl i cense) to J une 30 of t h at ye ar an d als o a gr ee d th at th e s e r v i c es p ro visi ons ofthe contr act, wh i ch w er e t o h ave ki cked i n on Jan u ar y 1 , w o u l d n ow kic k in on Ju ly 1 an d ru n u n til Ju n e 30 , 20 07. Bl ue was al so gi ven a n opti on t o re new th e m f o r a n a d d i t i o na l f o u r y e a r s , a n d i td i d r e n e w th e m, i n A p ril 2 007, and at that ti m e i t was gi ven t w o further fi ve- yea r re new alo pti ons, wh i ch a llow the purchas er s, if the as si gnm ent i s per m i tte d, to extend thatparto f the c ontr act to the e nd o f20 21. W e a re gues si ng tha t the purpose o fkeep in g th e t ra dem ar ks ubl i ce ns e i n f o r ce f o r a n a ddi ti o na l s i x months w as to gi ve the par ti es a c h ance t o deci de that m aybe the l i cense w i th a 12. 5 per cent ro ya lty b ase d on the pri ce ofthe tr adem ar ked j eans setby B l ue was a s up er i or m etho d ofr egul ati ng the r el ati on be tw een the par ti es th a n a services agreem en t tha t w ou ld give Blu e 30 p erce nto fthe pr i ce s etb y W es te r n. I n an y even t, ifthe con trac ts t ill i nc lud ed a trad em ark subl i cense w hen XM H att em pted to ass i gn th e c ontr act t o t h e p u rc h as er s, it w as n otas sig n ab le. T h e t er m “a p p li-N os. 10

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- 2599 9 cabl e l aw ” m eans any l aw appli cabl e to a co ntra ct, o ther t h an ba n kr u p tc y la w , In reSu nt e r r a Corp. , 3 6 1 F
. 3 d 2 57, 26 1 n. 5 (4 th C ir. 20 04 ); In re P io neer Fo rd S a les, Inc ., 72 9 F
. 2d 27, 2 8 ( 1s t Ci r . 1 98 4) ; In reWel li ngton Vision, Inc. , 3 64 B. R. 12 9, 13 5 (S .D . F l a. 20 07 ), sin c e b an kr u p tc y la w w ou ld per m i t an y ass i g nm en t th atwas i n the b es t i nt er es t o fthe c re d ito rs , su b j ec t t o th e lim ita tio n s in se c tio n 36 5 p re vio u s l y d i s c u s s e d
. S o t r a d e ma r k l a w i s a p p l i c a b l e l a w. U nfortunat el y the pa r ti es ha ve n’ t to l d us whethe r the appl i cabl e tr ade m ar kl aw i s fede r alo r s tate, o r i fthe l att erwh i ch st ate ’s law i s a pp l i cabl e ( the c ontr act do es no t co nt ain a c ho i ce ofl aw pr o vi si o n)

— orf orthat m att erwh i ch nati on’ s, since W est er n i s a Canadian fi rm . (B lu e’s headquarte rs ar e in the St ate o fW ashi ngton. ) N one ofthi s m att er s, tho ug h , b ecause as f aras w e’ ve been abl e t o d ete rm i ne, the unive rs alr ule i s that trad e m a r k l icens es are not assignab le in th e absen ce of a c lau se ex p re ss ly a u th or izin g a ss ign m en t. M i l l e rv. G l e nn M il le r P roducti ons, Inc. , 454 F. 3d 975, 98 8 ( 9th Ci r. 20 06) ( per c u ria m ); In re N
. C
. P
. M a rk et ing Group, Inc. , 33 7 B. R. 23 0, 23 5- 36 ( D. N ev. 20 05) ; 3 M cCar t hy on Trad e m arks § 1 8 : 43, pp . 18

- 92 to 18-9 3 (4t h ed. 20 10)
. “The purpose o fa tr adem ar k, a fte r a l l, i s to i den ti fy a good o r s er vi ce t o the con su m er, and i d en tity i m p li es con sisten cy an d a corre lat ive d u ty to m ak e s u re th at t h e g oo d or s er vic e re ally i s o fco nsi ste nt qual i ty, i
. e. , r eal l y i s th e sa m e goo d or service
. I fthe o wnero fthe t r ade m ar kha s br o k eno ff bus i ness r el at i o ns wi tha l i ce ns ee he c an no t en su r e th e continued qual i ty ofthe ( ex- ) l i censee ’ s o perat i on, wh ose continued use ofthe tr adem ar k i s there for e a vi ol ati on o f tr adem ar k l aw . ” G o renstein E nterp rises, Inc . v. Q ua lity C a re-10 N os. 10

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- 2599 U SA , Inc. , 874 F
. 2d 431, 43 5 ( 7th Ci r. 1989)
. I t i s e ven w or se i f the ex- l i censee , ra ther than continuing to use the t ra dem ar k hi m sel f, has subl i censed i t. A t r a de mar ki s a s ho r tha nd de s i g na t i o n o fa b r a nd
. I t con v e y s i nfo r mat i o n tha ta l l o ws the c o ns ume r t o s ay to hi ms e l f, “ In e e d n o ti n v e s t i g a t e th e a t t r ib u t e s o fthe p rod uc t Iam abou t t o pu rch ase bec au se th e trad em ark is a sh ortha nd w ay of tel li ng m e tha t t h e a ttribut es are the s am e a s that o fthe l i ke-br anded pro du ct Ienj oye d ear l i er . ” I f w i thout noti ce the sel l er re du ces th e qu al i ty ofhi s br and, the t ra dem ar k b eco m es decep tive bec ause i ts a ss ur an ce o f con tinu i tyo fqua l i tyi s no l o ng ert r uthful. T h at is wh y the l i censee i s no t per m i tte d to subl i cense the t ra dem ar k t o a sel l ero verwh om the tr adem ar k o w ne r, havi ng no contr act w i th the subl i censee , w i l l have no contr ol
. I t’ s als o the r eas on that t ra nsfer s o f tr adem ar ks “i n gr oss ”

— that i s, ap ar t fr om the ass ets used to produce the tr adem ar ked pro du ct

— a r e p r o hib i t e d. E .g., U ni t e d DrugCo. v. The odoreRe ct anu s Co. , 24 8 U.S. 90, 96 -97 (1 9 1 8 ); Gre e n Ri ve rBot t l i ng Co. v. Gr e e n Ri ve rCorp. , 99 7 F .2d 35 9, 36 1-6 2 (7 th C ir. 19 93 ); 3 M c C a rt h y, sup ra , § 1 8: 3, pp. 18- 8 t o 18- 9. I fas a pu rchas e in gr oss i m pli es, the buyer doesn’ t w ant the ass ets that the sel l er h ad u sed to pr o duce the t r ade m ar k ed g o o d, this pr o babl y mean s th atthe y a r e m o r e va l uabl e i n s o m e o th ere m pl o y m en t

— or perha ps th e bu yerdo es n’ t wantthe m b ec au se he i s pl an ni ng to r educe the quali ty ofthe product so that he can use c heaper i npu ts to produce i t. In ei thercas e

— the se l l er i s e i therl eaving the m ar keto r goin g ou t ofbusi ness en tir ely

— he i s unl i kel y t o b e ri sking m ar ketr eta l i ati onN os. 10

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- 2599 11 for sell ing a trad em ark tha t w il l be u sed by anot he r firm to decei ve consum er s. Ofte n the own ero fa tr adem ar k wil l fi nd thatthe m ost effi ci ent way t o explo i t i t i s t o l i cense the pr oducti on o f the t r a de mar k e d g o o d t o a no the r c o mpa ny, whi ch m ay have l ower co sts o fpro d u c ti on o r othe r advantage s o ver the t r ade m ar k ’ s o wner . Nor m al l y the o wnerwho does thi s wil l notwan t the l i censee to be al l owed to ass i gn the l i cense ( that i s, subl i cense the t ra dem ar k) w i thout the o w ner’ s co nsent, bec ause w h i l e the o w ner w i l l have pi cked hi s l i censee be c au se ofco nfi dence that he w i l l n o tde g r a de the qua l i t y o fthe t r a de mar ked product he can have no si m i l ara ss u ra nce with re spect to som e unknown futur e s ubl i censee . B ecau se th is i s the norm al r eact ion of a trad em ark own er, i t m ake s s ense to m ake t h e rul e that a tr adem ark li cen se is not assign able w ithou t th e o w ne r’s express per m i ssi on a r ule ofco ntra ct l aw

— w h at is cal l ed a “ defa ult ” rule because i t i s the r ule i fthe parti es d o not p rovide otherw ise ( as t he y are all ow ed to do). De f a ul tr ul e s e c o no mi z e o n the c o s t s o fc o nt r a c t s by saving the parti es the bother of nego ti ati ng a p ro vi si on th a t mo s t o f th e m want

— the m em ber s o fthe m i nor i ty th atdo es no t wants uch a p rovi si o n a r e f r ee t o c o ntr ac t ar o und i t butthe maj o r i tyi s sa ve d tha t both era nd ex p en se . E .g., Wal

-M ar tSt or e s , Inc . As s oc i at e s ’He al t h & Wel farePlan v. Wel ls , 2 1 3 F .3 d 3 98, 402 ( 7th Cir. 2000). The “bes t e ff or ts” duty o fan e xcl usi ve dist ributori s a f a mi l i a r e x a mp l e o fa c o n t r a c td e f a u l tr u l e : th e a s s u mpti o n i s th ata s el l erwou ld no t g r an t ane xc l us i ve di st r ibu-12 N os. 10

- 2596, 10

- 2597, 10

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- 2599 tor shi p w i thout re quir i ng the di str ibutorto u se hi s be st eff or ts to prom ote the sel l er ’ s br and, so i n the abse nce o f an expre ss provi si on to the co ntra rya best

- eff or ts re quir em en t is rea d int o e ve ry ex c lu s i v e d ist rib u to rs h ip . E .g., C l a s s i cC h e e s e c a k eC o . v . JP Mo rg a n C h a s eB a n k, N. A. , 5 46 F.3 d 83 9, 84 5-4 6 (7 th C ir. 20 08 ); Wood v. Lucy, Lady D uffGord on , 1 18 N. E. 2 14, 2 14

- 15 ( N
. Y. 1 91 7) ( Car do zo , J
. )
. The r ul e th att r ade m ark l i ce ns es a r e no t as si g nabl e i n the ab se n c e o fa p ro vis ion au th or izin g a ss ign m en t is a sim il ar l y s ensibl e def aul t r ule
. S i nc e the r e i s n o s uc h pr o v i s i o n i n the c o nt ra ct between W est er n and Blue, B l ue co uld nothave ass i gned the contr act w i thout W est er n’s per m i ssi on bef or e J uly1 , 2 003, wh en the tr adem ar k s ubl i cense th atW es te r n h ad give n Bl ue e xpi r ed. Butthe a ss i g nm en t o f th e con tr ac t, of w h ich th e su b lice n se w as a p ro vis i o n, to th e p u r c h a s e r s c a me y e a r s l a t e r . We s t e r n, h o wever, a r g ue s th atthe s ubl i ce ns e di d no t ex pi re w hen it appeared t o

— that the s er vi ces provi si ons of th e co nt r ac t, whi chs ur vi ve d the e xpirati o n o fthe subl i cense, wer e actuall y a co nti nuati on o fthe tr adem ar k s ubl i cense

— m aybe j ust a n “i m pli ed” subli cense buttha t, W es te r n a r g ue s, s ho ul d b e g o o d e no ug h. W e do n’ t ag r ee tha t th o se prov i si o ns c o ns ti tu te d a ny sor t o ftr adem ar k l i cense. The co ntra ct i s e x p li ci t that afterthe expir ati on of th e subl i cense to Blue to sel l J ag J ea ns a nd pa y a l i ce ns e fee t o W es te r n the r i g ht s i n the tr adem ar k r eve rtto W est er n; al l the tr adem ar ked apparel h eld by Blue has t o be r etur ned to W est er n; J ag Jeans w o ul d he nc efo r thb e pr i ce d a nd s o l d b y W es te r n;N os. 10

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- 2599 13

an d th e lic en se fee w ou ld be rep lac ed by a fee for s p ec ific ser vi ces re nd er ed by Blue. The se rv i ces w er e e xt en sive, but W est er n retai ned contr olo ver“a l l o theras pects of th e pr o duct i o n a nd s al e o fthe Tr ade m ar k ed Appar el, ” an d t h e s e w er e, as ou r q u ot at ion s fro m th e c on tr ac t s h ou ld have m ade cl ear, al so extensi ve. A tra d em ar k ow n e r ( o r , in th is c as e, a t ra d em ar k lice ns ee ) mightde l eg at e so much r es po ns ibil i tyt o the service p rovide r as to l ose th e ri gh t or pow er to assu re th e qua l i tyo fthe t rad em ar k ed br an d, a nd the n h e w ou ld lose th e t ra d em ar k (or h is lice n se ). Eva’s Bridal Ltd. v. Halanick E nte rpr is es, Inc. , 63 9 F
. 3d 7 88, 79 0- 91 ( 7th C ir. 20 11 ); D r aege rO i l C o. v. U no- Ven Co. , 31 4 F
. 3d 299, 30 0- 01 (7t h C ir. 20 02 ); Tw entieth C entu ry F o x F ilm C o rp. v. M a rvel E nte rpr is es, Inc. , 27 7 F.3d 25 3, 25 9 (2 d C ir. 20 02 ); Tum blebu s, Inc . v. Cra nm er, 3 9 9 F
. 3 d 7 5 4 , 7 6 4
- 6 5 ( 6 th C i r . 2 0 0 5 )
. He w ou ld h av e g ra n te d , a s so m e c as es s ay , a “ n ak ed lice n se ,” o r i n thi s case a na k ed su bl i ce ns e, whi chwoul d b e th e equi val ent o fa tr adem ar k o w ner’ s s el l i ng hi s t ra dem ark i n g r o ss . “ Tr ade m ar kl aw r equi r es tha t ‘ dec i si o nm aki ng autho rity ove r quali ty re m ai ns with the o w ner of the m ark.’ Res t at e m e nt[ ( Thir d) of U nf ai rCom pe t i t i on ] § 33 com m ent c[ ( 1995 )]
. H ow m uch author i ty i s e nough can’ t be answered g ener al l y; the nature o f t he busi ness, an d c us to m er s’ e xpe ct at i o ns , b o thmatt er . Our s i s th e ex tr em e c as e: p lain tiffs h ad , a n d ex er c ise d , no autho ri ty ov er th e a p p ea ra n c e a n d op er at ion s o f d e f e n d an ts ’ bu sin es s, orev en o verwh at i nventor y t o car ryo r avo i d. That i s the par adig m o f a naked l i cense. ” Eva’s Br i dal Lt d. v. Halanick E nte rpr is es, Inc. , sup ra , 63 9 F.3d at 79 1 (e m p h as is in ori ginal).14 N os. 10

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- 2599 Bu t o fco urse W est er n is n ot a rguingthati t l osti ts l i ce ns e by del eg at i ng to o m uch r es po ns ibi l i tyf or the product to Bl ue i n the ser vice a gr eem ent ( no l onge r ser vi ces provi si on s , b ec au se a fte r the s ub li ce ns e ex p ire d all th at w as left w as a con tr ac t for se rv ic e s ) ; it i s a rguingthatit r eta i ned the l i cense and m er el y s ubl i ce ns ed i t, a nd i t p rofes se s to b e fea r fultha t th e
“ s u b l i c e n s e e s ” ( a s i td e e ms th e m)

— the purchas er s o f Blue’ s a sse ts, wh o ar e the as si gnees o fthe se rvi ce a gr eem en t

— w on’ t k eep up the q u al i ty ofthe tr adem ar ked p ro d u c t; co n su m er s w ill be d ec eiv ed an d ev en tu ally w i l l r eta l i ate a gai nst W est er n, wh i ch m ay f or fei t i ts l i cense f orf ai l i ng to m ai ntai n consi stent qual i ty. ( A s t o whatthe c o ns eque nc es mightb e f o r J agLi cens i ng L L C , th e t ra d em ar k’s ow n er , w e n ee d n ’t s p ec u lat e.) B ut i f th e servic e a greem en t is reall y a trad em ark li cen se , why di d th e co nt r ac t di st i ng ui sh be twe ena tr adem ar k l i cense and a s er vi ce a gr eem ent a nd m ake the for m erex p ire in 2003? W est er n has b een unabl e t o answ erthatquesti on. M aybe a contractr ega rdi ng a t r a d e mar kc o u l d b e a t r a d e ma r kl i c e n s e f o r s o me p u r p o s e s b u tn o to th e r s , b u tth i s i s no ta r g u e d a n d we are relucta ntt o g o do wn th atda r kpa th
. The r e i s no goo d rea son f orco urts to wrestl e with cl ass i fi cati on i ss ue s i n co nt r ac t ca se s when i t i s ea sy f o r the contr ac tin g p ar ti e s t o re so lve th e is su es th em se lve s. If W es te r n wante d t o pr ev en t Bl ue fr o m a ss i g ni ngthe service con tract to an oth er fi rm w ithou t W es t e r n ’s perm i s s i o n, a l l i t ha d t o do wa s g e t Bl ue t o agr ee to des i g na te the c o nt r ac t as a t r ade m ar ksu bli ce ns e, thus tr i g gering th e def au l t r ul e th atwe ha ve di sc us se d a ndN os. 10

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- 2599 15 endors ed. That would have headed offa l ega l di spute th at c ou rt s are in a p oo r p os itio n to re so lve
. It w ou ld ha ve b ee n mor e ef f ec ti ve tha n a c l au se f o rbi ddi nga ss i g nm ent b ecause i t w ou ld have s urvi ved bankr up tcy; an yw ay th ere w as no suc h clau se either. A FFI RMED .

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