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Federal Trademark Law Trumps A Licensee’s Right to Assume in Bankruptcy

By: Olivia Cheung

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re Trump Entertainment Resorts, Inc., the United States Bankruptcy Court for the District of Delaware held that trademark licenses are not assignable by a debtor licensee without the consent of the licensor.[1] In interpreting applicable federal trademark law, the court noted that exclusive or non-exclusive trademark licenses are precluded from assignment by a licensee without the licensor’s consent, even if the original license agreement did not expressly prohibit such an assignment.[2] In this instance, the trademark license agreement granted Trump Entertainment Resorts (“TER”) a royalty-free license to use the names and likenesses of Donald and Ivanka Trump in connection with three casinos in Atlantic City, New Jersey.[3] The license was subject to termination if TER failed a quality assurance review and did not cure the deficiencies within a specific period of time.[4] If TER failed the review, the licensor would have the right to start proceedings to terminate the license in New Jersey state court.[5] TER allegedly failed a quality assurance review, and the licensor sued in New Jersey state court seeking to terminate the agreement.[6] The state court action was stayed automatically when TER filed petitions for relief under chapter 11.[7] Pursuant to TER’s proposed plan of reorganization, TER would cure any defaults and assume the license agreement.[8] Subsequently, the licensor filed a motion in the bankruptcy court seeking to have the stay lifted so that the licensor could proceed with the state court termination action.[9]