Section 365(n) of the Bankruptcy Code generally provides powerful protection to intellectual property licensees against debtor licensors who seek to reject those licenses. Specifically, this section enables the licensee to either treat the license as terminated by such rejection or retain its rights for the duration of the contract, including any extension period the licensee may be entitled to under applicable non-bankruptcy law. Although broad, the Bankruptcy Code’s definition of “intellectual property” does not specifically include trademarks, thus seemingly leaving trademark licensees without the express protection of Section 365(n). Recently, however, the U.S. Bankruptcy Court for the District of New Jersey closed this void by finding that trademark licenses are nevertheless subject to Section 365(n) in In re Crumbs Bake Shop, 2014 Bankr. LEXIS 4568 (Bankr. D.N.J. Oct. 31, 2014). In so holding, the court not only afforded significant protection to licensees of a debtor’s trademarks, but also signaled to practitioners that any attempt to vitiate Section 365(n) rights through a sale process can only be accomplished after giving sufficient notice to the licensees that their rights are being impacted.
In Crumbs Bake Shop, the debtors had entered into licensing agreements with third parties that allowed them to use the Crumbs Bake Shop Inc. trademark and trade secrets in order to sell products under the Crumbs brand. On the petition date, the debtors entered into a credit-bid asset purchase agreement with a stalking horse purchaser for the sale of substantially all of their assets. The debtors proposed and the Bankruptcy Court approved bidding procedures for the solicitation of higher and better offers, but did not receive any. The court thereafter approved the sale of the debtors’ assets to the purchaser free and clear of any liens, claims, encumbrances and interests pursuant to Section 363(f) of the Bankruptcy Code.
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