Actual or Hypothetical: Determining the Proper Test for Trademark Licensee Rights in Bankruptcy

INTRODUCTION PART I A. Trademark Law vs. Bankruptcy Law: Competing Interests 1. Trademark Law Purpose a. Trademark Licensing b. Licensor Control 2. Bankruptcy Law Purpose a. Overview of Chapter 11 Bankruptcy b. The Roles of the Debtor-in-Possession and the Chapter 11 Trustee i. Statutory Controls over Executory Contracts ii. Assumption of an Executory Contract iii. Objection to Assumption of an Executory Contract by Non-Debtor B. The Conflict between Trademark Law and Bankruptcy Law 1. Trademarks Are Not Intellectual Property 2. Rights of a Trademark Debtor-Licensee PART II A. In re N.C.P. Marketing Group 1. The Genesis of TAE BO B. Assumption of the License 1. The In re N.C.P. Marketing Group Court's Interpretation of Bankruptcy Code [section] 365(c)(1) a. The Hypothetical Test b. The Actual Test c. Applicable Federal Law 2. Critique of In re N.C.P. Marketing Group C. Questions Remain: N.C.P. Marketing Group v. BG Star Productions PART III A. Conjunction Junction, What Is Your Function: Explaining the Circuit Split 1. The Hypothetical Test a. The Ninth Circuit: In re Catapult Entertainment b. The Third Circuit: In re West Electronics c. The Fourth Circuit: In re Sunterra Corp 2. The Actual Test: The First Circuit B. An Alternative: In re Footstar CONCLUSION INTRODUCTION Across the country, storefront window displays have become frames for large neon posters that scream: "Going out of business!"; entrances have been adorned with large yellow banners proclaiming in bold letters: "Everything Must Go!" In a matter of weeks, store shelves that were once fully stocked become victims of savage bargain hunters. Eventually, the stores are stripped clean until only the bolted down shelves remain. It is a scene that has unfolded uniformly at myriad retail locations of Sharper Image, Bombay Co., Linens 'n Things, and Circuit City. (1) Today, these stores have become empty shells, serving only as blighted reminders of hard economic times. (2) Yet, even as bargain hunters have snatched up every ionic air cleanser, incense holder, pillow sham, and cell phone charger from these bankrupt retailers, the most valuable asset remains--the store's brand. (3) Investors know that while a company may be bankrupt in the sense of its hard assets, significant value remains in the brand itself. (4) For example, The Sharper Image, which filed for Chapter 11 bankruptcy protection in 2008, is no longer a retail company with stores and retail associates. Instead, The Sharper Image has reincarnated itself as a "global lifestyle brand licensor." (5) So while a customer can no longer walk into a Sharper Image store and try out the "deluxe shiatsu foot massager," a customer in search of the "Sharper Image experience" can still buy Sharper Image licensed merchandise at Macy's, Best Buy, or OfficeMax. (6) Thus, The Sharper Image has reorganized itself from a failed capital-based business, to a more sustainable royalty-driven business that exploits the value of its brand, and its trademark in particular. (7) Although THE SHARPER IMAGE trademark has found a happy ending in life after bankruptcy, that is not always the case for trademark licensees. Rather, for licensees, the intersection of trademark law and bankruptcy law has largely been a train wreck: The courts are divided over debtor-licensee rights, and Congress has neglected the problem. (8) As trademark rights become an increasingly valuable asset (9) in Chapter 11 reorganizations, (10) it is critical for Congress and the courts to clarify how trademarks will be treated in bankruptcy. Resolution is particularly important for trademark licensees seeking to revive their businesses through reorganization. …