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The debtor had pre-petition, licensed the rights to use the trademark "Tae Bo" in the sale of
products and services. Also, pre-petition, the debtor failed to pay royalties due under the license and, after arbitration, was ordered to pay $2.1 million in past due royalties. The licensor filed a motion to compel the debtor to reject the license, arguing that the license was terminated prepetition and was, in any case, not assumable.
The District Court agreed that the license had terminated. While the license agreement did provide the debtor with some rights to use the trademark post-termination, the debtor no longer had the right to sub-license the right to use the "Tae Bo" trademark.
However, the District Court also examined whether 11 U.S.C. § 365(c)(1) prevented debtors from assuming trademark licenses in the same manner as it prevents assumption of patent and copyright licenses. In a rather thin analysis that by turns misconstrued the purpose and basis of trademark rights and confused transfers of trademarks with transfers of trademark licenses, the Court concluded that "trademark rights are personal to the assignee and not freely assignable to a third party." Thus, the Court held, a federal common law exists that prevents assignment of trademark licenses absent consent, and 11 U.S.C. § 365(c)(1) prohibits a debtor's assignment or assumption of a trademark license.
