Intellectual Property Licenses in Bankruptcy: Can Lubrizol, § 365(n), and Sunbeam Be Reconciled?

Marcelo Halpern

©2013. Published in Landslide, Vol. 6, No. 1, September/October 2013, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

In virtually any modern enterprise, intellectual property assets are among the most valuable of all business assets.1 This holds true for technology and media companies that make a business out of developing and marketing intellectual property works as well as for businesses that rely on technology, trade secrets, and other proprietary information to operate and gain competitive advantage and/or trademarks, trade dress, and works of authorship to distinguish their products from those of competitors. Intellectual property licenses have become indispensable parts of most businesses. It is therefore no surprise that the bankruptcy of a licensing partner can be a daunting prospect for either party to a licensing arrangement.2 It is a particularly troublesome scenario for licensees whose businesses may depend on intellectual property licensed from a bankrupt licensor.

In 1985, the Fourth Circuit’s decision in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc.3 changed the world of intellectual property licensing by putting licensees at high risk of losing their licenses upon a licensor’s bankruptcy. Congress reacted to this threat by enacting § 365(n) of the Bankruptcy Code4 to establish specific bankruptcy protections for some, but not all, licensees.

Conspicuously absent from § 365(n), however, is protection for trademark licensees. That has left trademark licensees at risk of losing their licenses in the event of the licensor’s bankruptcy. It also put trademark licensors in a position to use their bankruptcy status to squeeze licensees for more favorable terms in exchange for allowing the licenses to continue.

The Seventh Circuit’s recent decision in Sunbeam Products, Inc. v. Chicago American Manufacturing,5 however, may turn the tide back in favor of trademark licensees by challenging the legacy of Lubrizol and questioning the reasoning underlying § 365(n).

This article begins with a general explanation of the treatment of intellectual property licenses under U.S. bankruptcy law, examines the reasoning of Lubrizol and the congressional “fix” of § 365(n), and explores the potential impact of Sunbeam on the future of intellectual property licensing.

A Bankruptcy Primer

This article focuses on cases brought under Chapter 11 of the U.S. Bankruptcy Code,6 in which the licensor is the bankrupt party and has an ongoing interest in the intellectual property licensed to the licensee. This is not, however, the only path available for a company that has reached a point of insolvency and seeks protection from creditors. Many insolvent companies choose not to file a petition for bankruptcy under federal law but rather to avail themselves of state or foreign insolvency laws and processes. We do not here address the status of licenses in those situations.

The goal of Chapter 11 bankruptcy is to provide the bankrupt party (debtor) the opportunity to restructure and rehabilitate its business and emerge from bankruptcy with a fresh start and the ability to continue its business. The Bankruptcy Code accomplishes this by affording the debtor certain protections from creditors, including the ability to shed or renegotiate burdensome contracts and commitments.

Effects of Filing a Petition in Bankruptcy

When a debtor files a petition in bankruptcy, its timeline immediately separates into the “pre-petition period” and the “post-petition period,” in which the rights of both the debtor and its creditors are transformed. The filing has three immediate effects: (1) the creation of a bankruptcy estate, (2) the appointment of a trustee or debtor-in-possession to administer the bankruptcy estate, and (3) the imposition of an automatic stay to protect the debtor from its creditors.

The bankruptcy estate comes into being upon the filing of the bankruptcy petition and consists of all of the debtor’s interests in property at the moment of filing, any proceeds of such property, and any additional property interests acquired during the pendency of the bankruptcy.7

Upon creation of the bankruptcy estate, a trustee may be appointed to manage the affairs of the estate. In a Chapter 11 case, the debtor’s pre-petition management is often permitted to continue to operate the business without an independent trustee and is referred to as a “debtor-in-possession” or “DIP.” In those cases where a trustee is appointed, the powers of the trustee are largely the same as those of a debtor-in-possession.8 The trustee has broad powers to make decisions in connection with the administration of the bankruptcy process, the preservation and disposition of assets of the bankruptcy estate, and the operations of the debtor during the pendency of the bankruptcy.

The third immediate effect of the filing of a bankruptcy petition is the imposition of the “automatic stay,”9 under which all claims, actions, and activities against the debtor prior to bankruptcy are stayed. Certain contractual provisions predicated upon or purporting to be triggered by bankruptcy or the financial condition of the debtor are also stayed. Until the trustee determines the disposition of assets and liabilities, creditors may move against the debtor only by petitioning the bankruptcy court for relief from the stay. The automatic stay is what gives the bankruptcy petition much of its power to protect the debtor while it works to reform its operations.

Executory Contracts and Intellectual Property Licenses

A key administrative power of the trustee is the ability to reject executory contracts. Section 365(a) of the Bankruptcy Code provides that “the trustee, subject to the court’s approval, may assume or reject any executory contract or unexpired lease of the debtor.”10

While a trustee’s decision to assume or reject a contract is subject to approval of the bankruptcy court, the courts largely defer to the judgment of the trustee and apply the fairly lenient “business judgment standard”11 to determine whether this discretion is being abused.12 This gives the trustee tremendous power to extricate the debtor from unprofitable or onerous contracts. Even contracts beneficial to the debtor may be renegotiated under threat of rejection to achieve more favorable terms for the debtor.

What constitutes an executory contract, however, is not always clear. The term is not defined in the Bankruptcy Code itself, as is acknowledged in the legislative history. “Though there is no precise definition of what contracts are executory, it generally includes contracts on which performance remains due to some extent on both sides.”13 One widely used definition, sometimes referred to as the “Countryman test,” states that an executory contract is one in which “the obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other.”14 Another test focuses on whether, at the time of the bankruptcy filing, the contract included at least one obligation on each party that would constitute a material breach if not performed.15 Because federal bankruptcy law is otherwise silent on the issue, whether a contract is executory is determined as a matter of state contract law.16

Are intellectual property licenses executory contracts? While there are exceptions, the answer is usually “yes.” Intellectual property licenses generally contain sufficient obligations on both sides to constitute executory contracts and therefore are vulnerable to the trustee’s power of rejection under § 365(a).17 Even in a fully paid-up, perpetual license, the licensor generally has ongoing obligations to the licensee (e.g., indemnification, defense from infringement, maintenance of registrations, and confidentiality) such that a failure to perform those obligations would constitute a material breach. Similarly, a licensee generally has ongoing responsibilities to the licensor (e.g., royalty payments, accounting, and maintaining quality control) sufficient to constitute material performance obligations. Under certain narrow circumstances, intellectual property licenses have been found nonexecutory when it appears that there are no material obligations left to be performed by one or both parties,18 but these are exceptional cases.

Assumption of an Executory Contract

Once a license is determined to be an executory contract, the trustee has the option to assume or reject the license. While we briefly address the assumption powers of the trustee, this article focuses on the trustee’s rejection powers and the impact of recent developments on the licensee’s rights when an intellectual property license is rejected.

To assume an executory contract under which the debtor has previously defaulted, the trustee must: (1) cure or provide adequate assurance that it will promptly cure any outstanding defaults under the contract (including defaults that may have occurred in the pre-petition period); (2) compensate or provide adequate assurance that it will promptly compensate any third party for any pecuniary loss caused by the default; and (3) provide adequate assurance of future performance under the assumed contract.19 Note that, unless separately agreed by the parties, the contract is assumed without modification.

There are considerations specific to the assumption of intellectual property licenses under § 365 that impact the ability of a trustee to assume the contract. For example, under § 365(c)(1), the debtor may not assume or assign an executory contract if the counterparty would not be required, under state law, to accept performance from someone other than the debtor.20 Further, there is a circuit split over whether a debtor-licensee can assume an executory contract if that contract is not assignable, even if there is no intent to assign the contract.21 A full discussion of these issues is beyond the scope of this article.

Rejection of an Executory Contract

The trustee is likely to reject an executory contract that it determines is a burden on the estate. In the case of a debtor-licensor, for example, the trustee may decide that the license fees are below market and the debtor could achieve a higher revenue stream from a third party. By rejecting the license, the licensor would be free to use the intellectual property itself or to seek new licensing revenue from third parties.

Section 365(g)22 provides that rejection of an executory contract constitutes a pre-petition breach of the contract by the debtor. That gives the creditor the right to sue for breach and assert all relevant claims. However, claims for damages arising from a pre-petition breach are afforded very low priority and may be discharged in whole or in part in connection with a plan of reorganization or liquidation. Even if the rejected licensee is able to sustain a claim, it may receive pennies on the dollar or nothing at all.

As a practical matter, rejection of an executory contract often is tantamount to termination of the agreement because the debtor no longer performs under the contract and remains in its protected breach status. However, § 365(g) itself does not go that far. Rather, it provides that rejection of an executory contract constitutes not a termination of the contract, but merely a breach. This distinction has become central to the status of intellectual property licenses in bankruptcy and the impact of Lubrizol and Sunbeam.

Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc.

The Fourth Circuit’s Lubrizol decision in 1985 cast a harsh spotlight on the issue of executory contracts relating to intellectual property. The facts of Lubrizol are relatively straightforward, but the decision changed the face of both bankruptcy and intellectual property law.

In 1982, Richmond Metal Finishers (RMF) granted Lubrizol Enterprises (Lubrizol) a nonexclusive license to certain metal coating processes and technologies. RMF had certain duties with respect to management of the underlying intellectual property, including defending any claims of patent infringement. The parties also agreed to a “most favored nation” clause in which RMF was obligated to reduce Lubrizol’s royalty rate if RMF granted other licensees more favorable rates. Lubrizol, for its part, had duties of accounting and payment of royalties for the use of the licensed intellectual property.

Just over one year later, RMF filed a petition for bankruptcy. As part of its reorganization plan, RMF sought to reject the Lubrizol agreement. The bankruptcy court used a two-step analysis to determine whether to approve rejection. It had to determine: (1) whether the contract was executory; and (2) if it was, whether rejection of the agreement would be advantageous to the debtor. The bankruptcy court determined that both requirements had been met and approved RMF’s petition to reject the agreement.

Lubrizol appealed to the U.S. District Court for the Eastern District of Virginia, which overturned the bankruptcy court’s determination. Applying the same two-step analysis, the district court found that neither condition was satisfied and therefore disallowed the rejection. RMF appealed that decision to the Fourth Circuit.

The circuit court once again applied the same two-step test. The court first applied the Countryman test and determined that both parties had sufficient unperformed obligations that a failure of either party to complete performance would constitute a material breach of the agreement sufficient to excuse the performance of the other party. While the court’s analysis of the parties’ obligations is instructional, this is not what makes the Lubrizol decision stand out.

In the second prong of the test, the court first established that, in considering whether rejection of a contract is advantageous to the bankruptcy estate, the trustee’s decision should be afforded significant deference by the court under the sound business judgment rule.23 The circuit court found that the district court improperly substituted its own business judgment in place of that of the debtor-in-possession. If the court’s analysis ended there, Lubrizol would have been a routine (and correct) reversal of a district court’s error. However, the circuit court did not stop there.

The court decided to refute the district court’s finding that rejection could not reasonably be found to be beneficial to RMF because “rejection could not deprive Lubrizol of all its rights to the technology.”24 The court’s interpretation of the intent and requirements of § 365 is what makes Lubrizol such a significant decision:

Under 11 U.S.C. § 365(g), Lubrizol would be entitled to treat rejection as a breach and seek a money damages remedy; however, it could not seek to retain its contract rights in the technology by specific performance even if that remedy would ordinarily be available upon breach of this type of contract. Even though § 365(g) treats rejection as a breach, the legislative history of § 365(g) makes clear that the purpose of the provision is to provide only a damages remedy for the non-bankrupt party. For the same reason, Lubrizol cannot rely on provisions within its agreement with RMF for continued use of the technology by Lubrizol upon breach by RMF. Here again, the statutory “breach” contemplated by § 365(g) controls, and provides only a money damages remedy for the non-bankrupt party. Allowing specific performance would obviously undercut the core purpose of rejection under § 365(a), and that consequence cannot therefore be read into congressional intent.25

The court further rejected Lubrizol’s argument that burdens imposed on the contracting party by rejection should be given equitable consideration when determining whether to approve rejection. While recognizing that “allowing rejection in this and comparable cases could have a general chilling effect upon the willingness of such parties to contract at all with businesses in possible financial difficulty,”26 the court held that § 365(a) permitted no such equitable consideration. The court pointed out that Congress had enacted provisions offering special treatment to certain forms of real estate and collective bargaining agreements, but had not done so for intellectual property licenses.

Many courts chose not to follow the Lubrizol rule forbidding a balancing of the equities when approving contract rejection.27 However, the harsh result of the Lubrizol rule, and in particular the possibly chilling effect on the nascent technology industry, led Congress to act.

Section 365(n) Protections for Intellectual Property Licensees

Following Lubrizol, the intellectual property community lobbied Congress to protect licensees of intellectual property facing rejection by a bankrupt licensor. Proponents of a legislative fix argued that the possibility of losing a license due to a licensor’s bankruptcy would have exactly the chilling effect predicted by the Lubrizol court.

As an example, a computer manufacturer may license microchip technology from another company and use it in the computers it manufactures. Proponents of the bill told the subcommittee at its hearing that the Lubrizol decision means that, if the licensor files bankruptcy, the licensor could reject its license agreement with the computer manufacturer and take back its technology, leaving the manufacturer without the technology necessary to make its product. In some fields, the licensee may not be able to obtain adequate substitute technology.28

Congress responded in 1988 by adding § 365(n) to the Bankruptcy Code, which provides as follows:

(n)(1) If the trustee rejects an executory contract under which the debtor is a licensor of a right to intellectual property, the licensee under such contract may elect—
(A) to treat such contract as terminated by such rejection if such rejection by the trustee amounts to such a breach as would entitle the licensee to treat such contract as terminated by virtue of its own terms, applicable nonbankruptcy law, or an agreement made by the licensee with another entity; or
(B) to retain its rights (including a right to enforce any exclusivity provision of such contract, but excluding any other right under applicable nonbankruptcy law to specific performance of such contract) under such contract and under any agreement supplementary to such contract, to such intellectual property (including any embodiment of such intellectual property to the extent protected by applicable nonbankruptcy law), as such rights existed immediately before the case commenced, for—
(i) the duration of such contract; and
(ii) any period for which such contract may be extended by the licensee as of right under applicable nonbankruptcy law.29

Because an intellectual property license is almost always an executory contract, § 365(n) generally will apply when a trustee rejects an intellectual property license in which the debtor is the licensor. Had this relief been available prior to the Lubrizol decision, when RMF rejected the license, Lubrizol could have exercised its rights under § 365(n)(1)(B) to retain its rights to the technology at the cost of giving up the indemnity protections and price protection clause that constituted RMF’s ongoing obligations under the agreement.

Significantly, § 365(n)(1)(A) appeared to codify a legal position that rejection of an intellectual property license should equate to termination of the agreement. This is arguably at odds with § 365(g), which provides that rejection of an executory contract constitutes only a breach of the agreement and entitles the creditor to seek monetary damages. The Lubrizol court stretched § 365(g) by finding that monetary damages are the exclusive remedy for the legislated breach created by rejection and that specific performance is not available to the rejected licensee. However, even Lubrizol did not go so far as to hold that rejection of the license necessarily caused a termination of the contract. The Fourth Circuit’s restraint in avoiding that last step comports with general contract law principles. A breach of contract (even a material breach) does not cause an automatic termination of the agreement, but merely gives the nonbreaching party the option to terminate (with or without seeking damages).

By requiring the rejected licensee to accept termination of the license agreement in order to claim damages, Congress followed the same approach as in § 365(h), which provides relief to real property lessees. On the surface, this consistency of approach appears rational. However, it fails to account for one of the unique characteristics of intellectual property. Unlike real property that can be occupied by only one tenant at a time, multiple licensees can simultaneously have rights to the same intellectual property.

If the licensee elects to retain its license rights under § 365(n)(1)(B), the licensee must waive any rights and claims to future performance of affirmative obligations by the licensor (including maintenance and indemnity obligations), but is still required to make all royalty payments due under the contract without setoff for any loss of the value of the waived obligations. In some cases, that waiver may be a small price to pay to retain the license and preserve the viability of the business. In other cases, the loss of the ancillary services from the licensor may make the retained license rights virtually worthless.

One significant limitation of § 365(n) is that it applies to “intellectual property” only as defined by the Bankruptcy Code, a definition that is narrower than one might ordinarily expect. “Intellectual property” is defined in § 101(35A) to include patents, copyrights, trade secrets, and semiconductor chip mask works.30 However, § 101(35A) intentionally omits trademarks or service marks31 from the definition of intellectual property.32 Congress indicated at the time that the protection of trademarks and service marks required additional study and might be addressed by further congressional action at a later time, but that has never come to pass.33

Sunbeam Products, Inc. v. Chicago American Manufacturing

With the harsh consequences of Lubrizol mitigated by § 365(n), the question of whether the breach created by rejection effectively terminates the contract and all of the licensee’s underlying rights went largely unchallenged—that is, until the Seventh Circuit Court of Appeals took up the issue in Sunbeam.

Chicago American Manufacturing (CAM) licensed from Lakewood Engineering & Manufacturing the right to practice certain patents to manufacture box fans and to sell such fans under the “Lakewood” trademark. When Lakewood was forced into an involuntary bankruptcy proceeding, Sunbeam Products, through a subsidiary, purchased the assets of the company, including the patents and trademarks that were licensed to CAM. Lakewood’s trustee rejected the CAM license. The bankruptcy court ruled that CAM’s patent license was entitled to the protection of § 365(n) and CAM could (and did) elect to retain such license. However, as trademark licenses are not subject to § 365(n), the status of CAM’s rights under the trademark license was unclear. The bankruptcy court’s decision to permit CAM to continue use of the trademarks on equitable grounds was the subject of the appeal.

Chief Judge Easterbrook, writing for the court, first found that the bankruptcy court’s exercise of equitable powers to permit continued use of the trademarks was improper. He then turned to the effect of rejection on the underlying rights of the parties under the contract and, in so doing, addressed the Lubrizol analysis head-on and found it lacking. “Outside of bankruptcy, a licensor’s breach does not terminate a licensee’s right to use intellectual property.”34 The court went on to explain that, outside of bankruptcy, a breach of contract does not necessarily terminate the rights of the nonbreaching party. “[O]utside of bankruptcy, Lakewood could not have ended CAM’s right to sell the box fans by failing to perform its own duties”35 but might have had other remedies available to it. By classifying rejection as a breach, § 365(g) converted the debtor’s unfulfilled obligations into damages but did not otherwise eliminate the creditor’s rights under the contract. The opinion went on to distinguish the trustee’s rejection powers under § 365(a) from the trustee’s avoidance powers in other parts of the Bankruptcy Code, which do, in fact, have the effect of rescinding contractual obligations, and it concluded that “rejection is not ‘the functional equivalent of a rescission.’”36

Can Lubrizol, § 365(n), and Sunbeam Be Reconciled?

At the conclusion of the Sunbeam opinion, Chief Judge Easterbrook points out that this decision creates a conflict among the circuits.37 However, the U.S. Supreme Court declined to address the circuit split when it denied a petition for certiorari.38

Possibly more difficult than reconciling the circuit split, however, is reconciling § 365(n) and the two competing court decisions. Neither Lubrizol nor § 365(n) recognizes how intellectual property licenses differ from contracts for other types of personal or real property. Because intellectual property can be used by multiple parties simultaneously without any active performance from the licensor, rejection or preservation of license rights is more complex than with other types of contracts. Thus, a licensor’s breach of an intellectual property license, whether inside or outside of bankruptcy, is less likely to result in the licensee choosing to terminate the contract and more likely to focus on damages and injunctive relief while keeping the underlying license rights alive.

Congress attempted to mitigate the harshness of Lubrizol with the enactment of § 365(n). However, while § 365(n) succeeds in creating consistency of treatment for the contracts that it covers, it presents the licensee with a difficult choice to either: (1) accept termination of the agreement in exchange for a damages claim, or (2) retain license rights at the expense of waiving damages and setoff rights. Either way, the licensee is largely at the mercy of the debtor and will not be made whole if the debtor rejects the contracts. Perhaps this is justifiable based on the Bankruptcy Code’s goal of maximizing the bankrupt estate even at the expense of the rights of licensees or other creditors. The question, however, is whether Congress chose wisely to enact § 365(n) in lieu of a narrower provision to overcome and effectively overrule Lubrizol. Leaving trademark licenses ineligible for the protection of § 365(n) exacerbated the inconsistent treatment between types of intellectual property. On the other hand, that omission opened the door to Sunbeam.

Sunbeam takes a significant step toward remedying this discrepancy. By recognizing that intellectual property licenses are frequently left standing even in the face of a licensor’s breach, the Sunbeam decision better balances the debtor’s rights and protections under the Bankruptcy Code with the creditor-licensee’s need to continue its business with a minimum of interruption. Had Sunbeam been decided before Lubrizol, there might be no § 365(n) today.

Unfortunately, the combination of § 365(n) and Sunbeam creates a new split—not between circuits but between “intellectual property” as defined by the Bankruptcy Code and trademarks and other types of intellectual property that fall outside that definition. This split may not be readily reparable by the courts without congressional intervention. Among the unanswered questions is how a single contract comprising licenses of both statutory and nonstatutory intellectual property should be treated if rejected by the licensor. If a single contract licenses both patents and trademarks, does the patent license force the licensee to choose between the two § 365(n) options, or does the trademark license permit the licensee to choose the Sunbeam path of accepting the breach while preserving the contract?

The search for answers to these questions should keep courts busy for some time to come.


1. Peter N. Barnes-Brown, Morse, Barnes-Brown, Pendleton PC, Licensing Intellectual Property from and to Distressed Companies (2005), www.mbbp.com/resources/iptech/pdfs/ip_distressed.pdf.

2. Id.

3. 756 F.2d 1043 (4th Cir. 1985).

4. 11 U.S.C. § 365(n).

5. 686 F.3d 372 (7th Cir. 2012).

6. 11 U.S.C. §§ 101–1130.

7. Id. § 541.

8. For simplicity, this article generally refers to the powers or actions as being those of a trustee, but they are the same for a DIP.

9. See 11 U.S.C. § 362.

10. Id. § 365(a).

11. Mark A. Broude, Address at the 1998 Annual Conference of the International Bar Association: Licenses of Intellectual Property under the United States Bankruptcy Code, Vancouver (Sept. 1998); see, e.g., Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095 (2d Cir. 1993).

12. Stuart M. Riback, Intellectual Property Licenses: The Impact of Bankruptcy, in Understanding the Intellectual Property License 2006, at 607, 617 (Practising Law Inst. 2006).

13. S. Rep. No. 95-989, at 58 (1978).

14. Vern Countryman, Executory Contracts in Bankruptcy Law: Part I, 57 Minn. L. Rev. 439, 460 (1973).

15. In re Exide Techs., 607 F.3d 957 (3d Cir. 2010).

16. See Enter. Energy Corp. v. United States ex rel. I.R.S. (In re Columbia Gas Sys., Inc.), 50 F.3d 233, 239 (3d Cir. 1995).

17. Riback, supra note 12, at 614; see also Jacob Maxwell, Inc. v. Veeck, 110 F.3d 749, 753 (11th Cir. 1997) (copyright license); In re Access Beyond Techs., Inc., 237 B.R. 32, 43 (Bankr. D. Del. 1999) (patent license); Elaine D. Ziff, The Effect of Corporate Acquisitions on the Target Company’s License Rights, 57 Bus. Law. 767, 769 (2002).

18. See In re Exide Techs., 607 F.3d 957, in which the Third Circuit found the licensee’s remaining obligations under a fully paid-up, perpetual, exclusive trademark license granted in connection with the purchase of a business were not sufficient to outweigh the licensee’s substantial completion of performance. The license therefore was not executory and could not be rejected. Certain facts clearly influenced the court’s decision (e.g., while the licensee had quality control requirements under the agreement, the licensor had never enforced such provisions), but the decision set the stage for licensees to argue that not all licenses are executory.

19. 11 U.S.C. § 365(b)(1); see Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1310 (5th Cir. 1985).

20. 11 U.S.C. § 365(c)(1).

21. See Marcelo Halpern, Bankruptcy Issues in Intellectual Property Licensing, in 2 Understanding the Intellectual Property License 2012, at 245, 271 (Practising Law Inst. 2012); Riback, supra note 12, at 641.

22. 11 U.S.C. § 365(g).

23. Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1046 (4th Cir. 1985).

24. Id. at 1047.

25. Id. at 1048 (citations omitted).

26. Id.

27. See, e.g., In re Chi-Feng Huang, 23 B.R. 798 (B.A.P. 9th Cir. 1982); Infosystems Tech., Inc. v. Logical Software, Inc., No. 87-0042 (D. Mass. June 25, 1987); In re Petur U.S.A. Instrument Co., 35 B.R. 561 (Bankr. W.D. Wash. 1983).

28. H.R. Rep. No. 100-1011 (1988).

29. 11 U.S.C. § 365(n).

30. 11 U.S.C. § 101(35A).

31. See Raima UK Ltd. v. Centura Software Corp. (In re Centura Software Corp.), 281 B.R. 660 (Bankr. N.D. Cal. 2002). But see In re Matusalem, 158 B.R. 514 (Bankr. S.D. Fla. 1993) (holding that where a trademark is integrally linked to other intellectual property, § 365(n) controls). See also Circuit Judge Ambro’s concurring opinion in In re Exide Techs., 607 F.3d 957 (3d Cir. 2010), in which he argues that the omission of trademarks from the definition of intellectual property in the Bankruptcy Code should not automatically give the debtor-licensor the ability to terminate a licensee’s trademark rights.

32. “Intellectual property” also may exclude foreign registered intellectual property rights. The § 101(35A) definition includes an invention, process, design, or plant “protected under title 35” (patents and trademarks), and a work of authorship “protected under title 17” (copyrights). Read literally, foreign intellectual property is not protected under these particular U.S. laws and is therefore not subject to § 365(n). See Raima UK Ltd. v. Centura Software Corp. (In re Centura Software Corp.), 281 B.R. 660 (Bankr. N.D. Cal. 2002); Peter S. Menell, Bankruptcy Treatment of Intellectual Property Assets: An Economic Analysis, 22 Berkeley Tech. L.J. 733 (2007), available at http://ssrn.com/abstract=969521.

33. “[T]rademark, trade name and service mark licensing relationships depend to a large extent on control of the quality of the products or services sold by the licensee. Since these matters could not be addressed without more extensive study, it was determined to postpone congressional action in this area and to allow the development of equitable treatment of this situation by bankruptcy courts.” S. Rep. No. 100-505, at 5 (1988).

34. Sunbeam Prods., Inc. v. Chicago American Mfg., LLC, 686 F.3d 372, 376 (7th Cir. 2012).

35. Id. at 377.

36. Id.

37. Id. at 378.

38. Sunbeam Prods., Inc. v. Chicago American Mfg., 133 S. Ct. 790 (2012).

Marcelo Halpern is a partner at Perkins Coie LLP in Chicago, Illinois, and a member of the firm’s technology transactions and privacy group. He focuses his practice on technology and intellectual property transactions.