United States: Questioning The Executoriness Of Trademark Licenses In Integrated Agreements

Protections added to the Bankruptcy Code in 1988 that give some intellectual property ("IP") licensees the right to continued use of licensed property notwithstanding rejection of the underlying license agreement do not expressly apply to trademark licenses. As a consequence, a trademark licensee faces a great deal of uncertainty concerning its ability to continue using a licensed trademark if the licensor files for bankruptcy. This uncertainty has been compounded by inconsistent court rulings addressing the ramifications of rejection of an executory trademark license by a chapter 11 debtor-in-possession ("DIP") or a bankruptcy trustee. Another layer of confusion has been added by recent court decisions suggesting that certain pre-bankruptcy trademark licenses may not be either assumed or rejected by a DIP or trustee because they are no longer executory at the time the debtor files for bankruptcy protection. This was the issue recently confronted by the Eighth Circuit Court of Appeals in Lewis Bros. Bakeries, Inc. v. Interstate Brands Corp. (In re Interstate Bakeries Corp.), 751 F.3d 955 (8th Cir. 2014). The court held that a license agreement was not executory and thus could not be assumed or rejected because the license was part of a larger, integrated agreement which had been substantially performed by the debtor prior to filing for bankruptcy. 

Assumption and Rejection of

Executory Contracts and Unexpired Leases

Section 365 of the Bankruptcy Code authorizes a DIP or trustee to assume or reject most kinds of executory contracts and unexpired leases. When a contract or lease is assumed, the debtor must cure existing defaults (with certain exceptions), compensate the other party to the agreement for actual pecuniary loss resulting from any default, and provide adequate assurance of future performance under the agreement. Therefore, when a contract or lease is assumed, the parties' ongoing obligations under the assumed contract or lease are effectively reinstated. When a contract or lease is rejected, however, the rejection is treated as a court-authorized breach of the agreement arising immediately prior to the bankruptcy filing date, and any damages suffered by the creditor will typically be treated as a general unsecured claim against the debtor's estate.

In general terms, an "executory" contract is defined as a contract with material obligations remaining on both sides as of the bankruptcy petition date. Most courts rely on the late Harvard Law School professor Vern Countryman's well-known definition of an executory contract: "a contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that a failure of either to complete performance would constitute a material breach excusing performance of the other."

Special Rules for Certain IP Licenses

Prior to 1988, the rejection of an IP license, particularly a license of IP that was critical to a licensee's business operations, could have a severe impact on the licensee's business and leave the licensee scrambling to procure other IP to keep its business afloat. This concern was heightened by the Fourth Circuit's ruling in Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), that if a debtor rejects an executory IP license, the licensee loses the right to use any licensed copyrights, trademarks, and patents.

In order to better protect such licensees, Congress amended the Bankruptcy Code in 1988 to add section 365(n). Under section 365(n), licensees of some (but not all) IP licenses have two options when a DIP or trustee rejects the license. The licensee may either: (i) treat the agreement as terminated and assert a claim for damages; or (ii) retain the right to use the licensed IP for the duration of the license (with certain limitations). By adding section 365(n), Congress intended to make clear that the rights of an IP licensee to use licensed property cannot be unilaterally cut off as a result of the rejection of the license.

However, notwithstanding the addition of section 365(n) to the Bankruptcy Code, the legacy of Lubrizol endures—since by its terms, section 365(n) does not apply to trademark licenses and other kinds of "intellectual property" outside the Bankruptcy Code's definition of the term. In particular, trademarks, trade names, and service marks are not included in the definition of "intellectual property" under section 101(35A) of the Bankruptcy Code. Due to this omission, courts continue to struggle when determining the proper treatment of trademark licenses in bankruptcy.

Circuit Courts Weigh In on Trademark Licenses After Lubrizol

During the last few years, several federal courts of appeal have had the opportunity to weigh in on how rejection in bankruptcy of a trademark license impacts the rights of the non-debtor licensee.

For example, in In re Exide Technologies, 607 F.3d 957 (3d Cir. 2010), the Third Circuit concluded that a trademark license agreement was not executory because the non-debtor licensee had materially completed its performance under the agreement prior to the debtor's bankruptcy filing. Thus, the court held that the agreement could not be assumed or rejected at all. As a consequence, the Third Circuit never addressed whether rejection of the agreement (had it been found to be executory) would have terminated the licensee's right to use the debtor's trademarks.

In Sunbeam Prods., Inc. v. Chicago Am. Manuf., LLC, 686 F.3d 372 (7th Cir. 2012), cert. denied, 133 S. Ct. 790 (2012), the Seventh Circuit held as a matter of first impression that when a trademark license is rejected in bankruptcy, the licensee does not lose the ability to use the licensed IP. In so ruling, the Seventh Circuit expressly rejected Lubrizol. The Seventh Circuit reasoned that lawmakers' failure to include trademark licenses within the ambit of section 365(n) should not be viewed as an endorsement of any particular approach regarding rejection of a trademark license agreement, observing that "an omission is just an omission."

The Eighth Circuit recently had the opportunity to address this issue in Interstate Bakeries

Interstate Bakeries

Pursuant to an antitrust judgment, Interstate Brands Corporation ("Interstate Brands"), a subsidiary of Interstate Bakeries Corp. ("IBC"), entered into an agreement to sell certain bread operations and assets to Lewis Brothers Bakeries, Inc. ("Lewis Brothers"). To effectuate the transfer, Interstate Brands and Lewis Brothers entered into two agreements: an Asset Purchase Agreement ("APA") and a License Agreement. The APA provided for the transfer to Lewis Brothers of tangible assets and "the perpetual, royalty-free, assignable, transferable exclusive license to use the trademarks . . . pursuant to the terms of the License Agreement." Of the $20 million purchase price, the parties agreed to allocate $8.12 million to the intangible assets, including the 13 trademarks covered by the License Agreement.

Nearly eight years following the completion of the sale to Lewis Brothers, Interstate Brands filed for chapter 11 protection in the Western District of Missouri. Interstate Brands identified the License Agreement as an executory contract that it intended to assume as part of its chapter 11 plan. Lewis Brothers responded by commencing an adversary proceeding seeking a declaration that the License Agreement was not an executory contract and thus not subject to assumption or rejection.

The bankruptcy court, looking solely to the License Agreement and relying on Exide Technologies, held that the License Agreement was executory because both Interstate Brands and Lewis Brothers had material, outstanding obligations under the agreement as of the bankruptcy petition date. A district court affirmed on appeal, reasoning that the failure of Lewis Brothers "to maintain the character and quality of goods sold under the [t]rademarks would constitute a material breach of the License Agreement, thus a material obligation remains under the License Agreement, and it is an executory contract."

Lewis Brothers appealed to the Eighth Circuit. While the appeal was pending, IBC changed its name to Hostess Brands, Inc., which in January 2012 filed for chapter 11 protection in the Southern District of New York. The New York bankruptcy court later authorized IBC to wind down its business.

In August 2012, a divided panel of the Eighth Circuit affirmed the lower courts' rulings that the License Agreement was executory and therefore subject to assumption or rejection. See In re Interstate Bakeries Corp., 690 F.3d 1069 (8th Cir. 2012). In reaching this conclusion, the majority of the panel focused solely on the License Agreement itself, but the dissenting judge argued that "[t]he APA and the License Agreement should be considered together" in assessing whether the integrated contract was executory. After soliciting the views of the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, the Eighth Circuit granted Lewis Brothers' petition for rehearing en banc.

The Eighth Circuit's Ruling on Rehearing

On rehearing, the Eighth Circuit began its inquiry by identifying what constituted the agreement at issue, relying on the "general rule" under Illinois law that "in the absence of evidence of a contrary intention, where two or more instruments are executed by the same contracting parties in the course of the same transaction, the instruments will be considered together . . . because they are, in the eyes of the law, one contract." Applying this rule to the APA and the License Agreement, the court determined that the lower courts did not analyze the documents at issue properly. According to the Eighth Circuit, the proper inquiry for the courts was whether the integrated agreement—as distinguished from the License Agreement alone—was executory.

Applying the Countryman definition of "executoriness," the court concluded that the integrated contract at issue was not executory. The Eighth Circuit explained that the doctrine of substantial performance is inherent in the Countryman definition of an executory contract, stressing that "substantial performance is the antithesis of material breach." According to the court, the essence of the integrated agreement was the sale of Interstate Brands' bread business and operations, not merely the licensing of the company's trademarks.

Distinguishing the case before it from Exide Technologies, the Eighth Circuit explained that Interstate Brands' remaining obligations under the APA and the License Agreement (e.g., notice and forbearance, maintenance and defense, and other infringement-related obligations) concerned only one of the many assets included in the sale—the trademark license.

The Eighth Circuit considered such obligations, when considered in the context of the integrated agreement as a whole, to be relatively minor and unrelated to the central purpose of the agreement to sell the bread operations and assets. It also found that, because Interstate Brands had substantially performed its obligations under the APA and the License Agreement, its failure to perform any remaining obligations would not be a material breach of the integrated agreement. Thus, the court ruled, the integrated agreement was not executory and could not be assumed or rejected.

Three judges issued an opinion in which they concurred in part and dissented in part. Among other things, these judges stated that "the license and the attendant ongoing obligations were of primary importance to the parties and their integrated agreement" and that the importance of those obligations should be considered when assessing whether "the parties have substantially performed their obligations to determine whether the contract is executory."


The ruling in Interstate Bakeries provides useful guidance in assessing whether a trademark license granted as part of an integrated transaction involving other related agreements is executory and may therefore be assumed or rejected in a bankruptcy case. However, like Exide Technologies, it falls short of addressing the issues raised by Lubrizol and Sunbeam. Indeed, in a footnote, the Eighth Circuit remarked that "[b]ecause the agreement is not executory, we need not address whether rejection of a trademark-licensing agreement terminates the licensee's rights to use the trademark." As such, at least in the Eighth Circuit, trademark licensees remain caught in a limbo of uncertainty concerning this important question.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Mark G. Douglas
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions