Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Will I lose my property if I file for bankruptcy ?”
The unraveling of the Crumbs Bake Shop empire has forced a bankruptcy court to cook up some answers to thorny issues regarding trademarks in the bankruptcy context.
The United States Bankruptcy Code does not consider trademarks to be intellectual property for bankruptcy purposes. That is not an accident. The United States Congress omitted trademarks from the definition of “intellectual property” in the Bankruptcy Code because, it reasoned, in order to enforce a trademark, the licensor—or owner of the trademark—must be able to monitor the quality of goods or services associated with the trademark. The goods or services are often sold to the public by licensees—or those with whom an owner of a trademark has contracted to allow use of the trademark in order to sell a product or service.
The House of Representatives passed a bill in 2013 that would include trademarks in the definition of “intellectual property” in the Bankruptcy Code, but the bill did not become law. The American Bankruptcy Institute’s 2014 recommendations on an overhaul of Chapter 11 of the Bankruptcy Code also pushed to consider trademarks to be “intellectual property” for bankruptcy purposes, but those reforms have not been adopted.
For now, trademarks are—at least in the bankruptcy context—creating “uncertainty and resultant litigation[.]”
Crumbs trademark litigation
Well-known New York-area Crumbs Bake Shop, Inc. declared bankruptcy last summer. Like other businesses, Crumbs had licensed its trademarks to other businesses—or licensees—and allowed those businesses to use its trademarks in order to sell cupcakes, baked goods and beverages at retail stores. Pursuant to contracts with Crumbs, licensees could also use the trademarks to provide catering services and wholesale baked goods.
Crumbs filed a motion in July to sell nearly all of its assets to Lemonis Fischer Acquisition Company, LLC. The bankruptcy court approved the sale, but after the approval, Crumbs filed a motion to reject its licensing agreements with licensees. The licensees, represented by Brand Squared Licensing, objected to Crumbs’ motion, arguing that they had the right pursuant to their contracts to continue using the Crumbs trademarks.
Lemonis Fischer filed a motion asking the bankruptcy court to provide guidance to the parties regarding the trademarks. The central issues for the court were whether Brand Squared’s rights under the licensing contracts were extinguished by Crumbs’ sale to Lemonis, and to whom royalties generated via use of the trademarks should be paid.
The United States Bankruptcy Court for the District of New Jersey found that it would be inequitable to strip Brand Squared of its licensing rights, mainly because Brand Squared did not receive adequate notice that its licensing rights were to be stripped as a result of the sale of Crumbs’ assets to Lemonis. Brand Squared could continue to use Crumbs’ trademarks to sell products and services. Lemonis was entitled to royalties earned on sales generated through use of the trademarks that occurred prior to Crumbs’ bankruptcy sale to Lemonis, while Crumbs was entitled to royalties generated after the bankruptcy sale.
Peter C. Bain, a bankruptcy attorney at the law firm of Reinhart, Boerner and Van Deuren in Milwaukee, Wisconsin, found the Crumbs decision to be important because it shows that “under the appropriate circumstances,” licensees can successfully petition to continue using trademarks of a bankrupt licensor, particularly where the licensees “have invested significant amounts to promote and sell a debtor-licensor’s products.”
Given the court’s treatment of royalties, Bain encouraged asset purchasers to insist that trademarks be assigned to them, “otherwise, they risk losing all of the benefits associated with the trademarks.”
If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.
About the Author
Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.
Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.
In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.
Image courtesy of Dan Brian Gerona
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