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    Archive for August, 2011

    Proposed Amendments to the Federal Rules of Bankruptcy Procedure

    Tuesday, August 30th, 2011

    Last week, the Judicial Conference Advisory Committees on Appellate, Bankruptcy, Civil, Criminal, and Evidence Rules proposed amendments to their respective rules and made them available for public comment.

    Seal of the Supreme Court of the United States

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    Though it frequently makes for less-than-scintillating reading, the proposed amendments are always worth a look-through.  This is especially the case in an environment such as Bankruptcy Court, where procedure can drive courtroom tactics.

    Proposed revisions to the Federal Rules of Bankruptcy Procedure (FRBP) and Official Bankruptcy Forms include:

    • FRBP 1007 — relieves individual debtors of the obligation to file Official Form 23 if the provider of a personal financial management course notifies the court that the debtor has completed the course.

    • FRBP 3007 — allows the use of a negative-notice procedure for claim objections and clarifies the manner for serving them.

    • FRBP 5009 — reflects the amendment to FRBP 1007 by providing that the Clerk of Court is not required to send notice to a debtor if a course provider has already provided notice that the debtor completed a personal financial management course.

    • FRBP 9006 — makes various changes to draw attention to the fact that the rule prescribes default deadlines for serving motions and written responses; and applies deadlines to any written response to a motion.

    • FRBPs 9013 and 9014 — conform to the amendments to FRBP 9006.

    • Official Form 6C — reflects the Supreme Court’s decision in Schwab v. Reilly by permitting the debtor to state the value of the claimed exemption as the “full fair market value of the exempted property.”

    • Official Form 7 — makes the definition of “insider” consistent with the definition in the Bankruptcy Code.

    • Official Forms 22A and 22C — align the allowable deduction for telecommunication expenses with the IRS list of Other Necessary Expenses; also amends Form 22C to conform to the Supreme Court’s decision in Hamilton v. Lanning, by directing an above-median-income chapter 13 debtor to list any changes in the reported income and expenses that have already occurred or are virtually certain to occur during the 12 months following the filing of the petition.

     The draft amendments, along with the Committee’s comments, are available here.

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    What’s In a Name?

    Sunday, August 21st, 2011

    After a brief hiatus, we’re back – and just in time to discuss a recent decision of some import to trademark owners and licensors.

    Judge Richard Posner at Harvard University

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    For many years, insolvency practitioners have recognized the value of the Bankruptcy Code in permitting a reorganizing firm to assign contractual rights to a third party, even where the contract itself prohibits assignment.  That power is limited, however, where “applicable [non-bankruptcy] law” prohibits the assignment without the non-bankrupt party’s consent.

    In recent years, the “anti-assignment” provisions of federal copyright and patent law have limited the transfer of patent and copyright licenses through bankruptcy.   Whether the transfer of trademark licenses is likewise limited has been an open question, at least amongst the Circuit Courts of Appeal.

    Until now.

    In late July, the Seventh Circuit Court of Appeals found in In re XMH Corp. that trademarks were not assignable.

    XMH Corp. involved the former Hartmarx clothing company’s Chapter 11, along with the related filings of several subsidiaries.  XMH ultimately sold its assets and assigned contracts to a group of third-party purchasers.  Those assets included certain trademark licenses for jeans held by one of the XMH subsidiaries.  The trademarks were owned by a Canadian firm.

    The Canadian firm objected to the trademark assignment, and the bankruptcy court agreed.  The District Court reversed, and the licensor appealed to the Seventh Circuit.

    In a succinct, 15-page decision, Judge Posner found that where “applicable law” prohibits the assignment of a trademark, it cannot be assigned through a bankruptcy proceeding absent the trademark owner’s consent.

    Judge Posner apparently reached this decision despite a lack of either party to articulate which “applicable law” actually prohibited the assignment:

    Unfortunately the parties haven’t told us whether the applicable trademark law is federal or state, or if the latter which state’s law is applicable (the contract does not contain a choice of law provision)—or for that matter which nation’s, since [the licensor] is a Canadian firm. ([The licensee's] headquarters are in the State of Washington.)  None of this matters, though, because as far as we’ve been able to determine, the universal rule is that trademark licenses are not assignable in the absence of a clause expressly authorizing assignment. Miller v. Glenn Miller Productions, Inc., 454 F.3d 975, 988 (9th Cir. 2006) (per curiam); In re N.C.P. Marketing Group, Inc., 337 B.R. 230, 235-36 (D. Nev. 2005); 3 McCarthy on Trademarks § 18:43, pp. 18-92 to 18-93 (4th ed. 2010).

    But the Seventh Circuit then turned to the question of whether the contract actually contained a valid trademark license - and found that though the agreement appeared to provide a relatively short-term license of the trademark, what remained at the time of the proposed assignment was merely a contract for services.

    Despite its brevity, XMH Corp. is instructive in two respects:

    • Trademarks cannot be assigned – at least not in the 7th Circuit.
    • Contract drafters and negotiators must be careful to identify and preserve the trademark rights at issue.
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