Supreme Court of the United States

Transcription

1 No IN THE Supreme Court of the United States OCTOBER TERM 2013 IN RE FOODSTAR, INC., DEBTOR FOODSTAR, INC., Petitioner, V. RAVI VOHRA, Respondent. ON WRIT OF CERTIORARI FROM THE THIRTEENTH CIRCUIT COURT OF APPEALS CASE NO BRIEF FOR RESPONDENT R44 Counsel for Respondent

2 QUESTIONS PRESENTED I. Did the Thirteenth Circuit Court of Appeals correctly hold that rejection of the Vohra trademark license agreement under 11 U.S.C. 365 does not terminate Ravi Vohra s right to use the trademark when the plain language of 365, legislative history, public policy, and pending legislation all suggest a licensee s rights should not be terminated? II. Did the Thirteenth Circuit Court of Appeals correctly determine the presumption against extraterritorial application of statutes precludes 11 U.S.C. 365 from applying to the Vohra licensing agreement, where no explicit statutory language indicates congressional intent to apply abroad and the agreement represents the only connection to the United States? i

3 TABLE OF CONTENTS QUESTIONS PRESENTED... i TABLE OF AUTHORITIES... iv OPINIONS BELOW... vi JURISDICTIONAL STATEMENT... vi STATUTORY PROVISIONS INVOLVED... vi STATEMENT OF FACTS...1 SUMMARY OF ARGUMENT...3 ARGUMENT...5 I. THE THIRTEENTH CIRCUIT CORRECTLY HELD REJECTION OF A TRADEMARK LICENSE AGREEMENT UNDER 11 U.S.C. 365 DOES NOT TERMINATE A NON-DEBTOR LICENSEE S RIGHT TO CONTINUED USE OF THE TRADEMARK BECAUSE THE DECISION IS CONSISTENT WITH THE PLAIN LANGUAGE OF 365, LEGISLATIVE HISTORY, PUBLIC POLICY, AND PENDING LEGISLATION...5 A. Rejection of a trademark license agreement does not terminate a non-debtor trademark licensee s rights to use the trademark because the plain language of 365 provides that rejection merely constitutes a breach; not rescission, avoidance, or termination....8 B. Legislative history indicates Congress intended some protection be afforded trademark licensees because Congress explicitly provided the courts develop equitable treatment of rejected trademark licenses and expressed skepticism as to Lubrizol applying in such contexts C. Public policy supports preserving a licensee s rights to use a trademark after the trademark license is rejected because it preserves valuable contract rights while allowing the debtor to receive a fresh start D. Pending Legislation supports the Thirteenth Circuit s holding because it specifically provides that rejection of a trademark license does not terminate a licensee s rights to use the trademark ii

4 II. THE THIRTEENTH CIRCUIT CORRECTLY HELD THAT THE PRESUMPTION AGAINST EXTRATERRITORIAL APPLICATION OF STATUTES PRECLUDES 11 U.S.C. 365 FROM APPLYING TO FOREIGN LICENSING AGREEMENTS BECAUSE CONGRESS DID NOT INTEND EVERY PROVISION IN THE BANKRUPTCY CODE TO APPLY EXTRATERRITORIALLY AND THE AGREEMENT DOES NOT TOUCH AND CONCERN THE UNITED STATES A. There is no clear indication within the statutory text, legislative history, or the statute s purpose that Congress intended the Bankruptcy Code to apply substantive United States law extraterritorially The Statutory Text of 365 does not express a clear intent for the extraterritorial application of that section of the Bankruptcy Code The legislative history of 365 and the Bankruptcy Code does not express a clear intent for extraterritorial application B. Section 365 does not apply extraterritorially because Ravi Vohra has no connection to the United States other than the Burger Bites licensing agreement, which is insufficient to override the presumption against extraterritoriality C. Foodstar should proceed in Eastlandia under the Model Law on Cross-Border Insolvency, which is enacted in the United States as Chapter 15 of the Bankruptcy Code and is also enacted in Eastlandia, in order to secure its rights and still respect the sovereignty of Eastlandia CONCLUSION...29 iii

5 United States Supreme Court Cases TABLE OF AUTHORITIES Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428 (1989)...22 Caminetti v. United States, 242 U.S. 470, 485 (1917)...9 E.E.O.C. v. Arabian American Oil Co., 499 U.S. 244 (1991)... passim Foley Bros, Inc., v. Filardo, 336 U.S. 281 (1949)...18 Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993)...19 Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct (2013)... passim Landreth Timber Co. v. Landreth, 471 U.S. 681 (1985)...8, 9 Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007)...19 Morrison v. Nat'l Australia Bank Ltd., 561 U.S. 247 (2010)...18, 19, 22, 26 Ne. Marine Terminal Co., Inc. v. Caputo, 432 U.S. 249 (1977)...21 Nicholas v. United States, 384 U.S. 678 (1966)...14 NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984)...10 Small v. U.S., 544 U.S. 385, 388 (2005)...18 Sosa v. Alvarez-Machain, 542 U.S. 692 (2004)...21 U.S. v. Ron Pair Enters., Inc., 489 U.S. 235 (1989)...22 United States Court of Appeals Cases In re Columbia Gas Sys. Inc., 50 F.3d 233 (3d Cir.1995)...5 In re Exide Technologies, 607 F.3d 957 (3d Cir.2010)... passim Jaffe v. Samsung Electronics Co., Ltd., 737 F.3d 14 (4th Cir. 2013)...28 Kollias v. D & G Marine Maint., 29 F.3d 67 (2d Cir. 1994)...21 Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985)... passim iv

6 Matter of Estate of Medcare HMO, 998 F.2d 436, 440 (7th Cir. 1993)...22 Midway Motor Lodge of Elk Grove v. Innkeepers' Telemanagement & Equipment Corp., 54 F.3d 406 (7th Cir. 1995)...10 Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012), cert. denied, 133 S. Ct. 790 (U.S. 2012)... passim Thompkins v. Lil' Joe Records, Inc., 476 F.3d 1294 (11th Cir.2007)...9 United States District Court Cases Boscorale Operating, LLC. v. Nautica Apparel, Inc., 749 N.Y.S.2d 233 (1st Dep't 2002)...10 In re Garland Corp., 6 B.R. 452, 455 (Bankr. D. Mass. 1980)...14 In re Maxwell Commc'n Corp. plc, 170 B.R. 800 (Bankr. S.D.N.Y. 1994)...12, 21, 26 United States Bankruptcy Court Cases In re Matusalem, 158 B.R. 514, (Bankr.S.D.Fla.1993)...7 Federal Statutes 11 U.S.C. 70 (repealed 1978)...23, U.S.C U.S.C passim 11 U.S.C passim 28 U.S.C , 23, U.S.C , 28 Legislative Materials H.R. Rep. No (1978), reprinted in 1978 U.S.C.C.A.N , 25 S. Rep. No (1978), reprinted in 1978 U.S.C.C.A.N S. Rep. No (1988), reprinted in 1988 U.S.C.C.A.N , 7 v

7 H.R. Rep. No (1984), reprinted in 1984 U.S.C.C.A.N H.R. 3309, 113th Cong. 6(d) (2013)...16 Public Laws Act to establish a uniform Law on the Subject of Bankruptcies, Pub. L. No , 92 Stat Act to amend title 28 of the United States Code regarding jurisdiction of bankruptcy proceedings, to establish new Federal judicial positions, to amend title 11 of the United States Code and for other purposes, Pub. L. No , 98 Stat Other Authority 2 Norton Bankruptcy Law and Practice 46:57 (3d ed. 2008)...9 Bill Summary and Status, 113th Congress ( ), H.R. 3309: Major Congressional Actions, THE LIBRARY OF CONGRESS (2014), Jay Lawrence Westbrook, A Functional Analysis of Executory Contracts, 74 Minn. L. Rev. 227 (1989)...6 Michael T. Andrew, Executory Contracts Revisited, 62 U. COLO. L. REV. 1 (1991)...13 vi

8 OPINIONS BELOW The opinion of the Thirteenth Circuit Court of Appeals is reproduced at App. 3. JURISDICTIONAL STATEMENT The formal statement of jurisdiction is waived pursuant to Competition Rule VIII. STATUTORY PROVISIONS INVOLVED The pertinent statutory provisions are reproduced at App. 1. (As per U.S. Supreme Court Rule 24.1(b)(f): Constitutional Provisions, Statutes, Treaties, etc. verbatim unless lengthy, then can be citation with the pertinent text in an appendix) vii

9 STATEMENT OF FACTS Ravi Vohra (hereinafter Vohra ), a citizen of Eastlandia, obtained an exclusive 20-year license to the rights of the Burger Bites trademark. (R. 4). Subsequent to Vohra s acquisition of the trademark rights, Foodstar, Inc. (hereinafter Foodstar ), a corporation in the United States, acquired the worldwide rights to the trademark. (R. 4). During an attempt to liquidate its assets under Chapter 11 of the United States Bankruptcy Code, Foodstar filed a motion to reject the Vohra license agreement under 365 of the code and to terminate Vohra s rights to the trademark. (R. 5). Vohra challenges Foodstar s ability to terminate his rights to the trademark under the license agreement. (R. 5 6). The trademark s originator, Viraj Deshmukh, established the first Burger Bites restaurant in Eastlandia, where he first developed the Burger Bites concept. (R. 4). The restaurant produces and sells miniature hamburgers, and Vohra operates 32 restaurants in Eastlandia under the exclusive license he received from Deshmukh. (R. 4). Beyond the borders of Eastlandia, Foodstar is the franchisor of the Burger Bites restaurants and enjoys the exclusive rights to the trademark in the United States and 25 other countries. (R. 4). With its focus on miniature hamburgers, Foodstar s chain successfully competed in the fast food hamburger market and ultimately, [h]oping to boost revenues in preparation for an initial public offering of its stock, Foodstar acquired Minicakes, one of several successful miniature cupcake chains. (R. 3). In an attempt to merge the two product lines to create franchise stores serving tiny food items, Foodstar went into debt and quickly found that it lacked sufficient operating capital to run its hamburger franchise. (R. 3). Foodstar entered Chapter 11 bankruptcy as a result of the collapse in demand for miniature cupcakes and the difficulty of producing hamburgers and cupcakes within the same production process. (R. 3). Although Foodstar initially wished to reorganize its 1

10 business under Chapter 11, it later decided to liquidate its assets after failing to obtain necessary financing for reorganization. (R. 3 4). As a part of its liquidation plan, Foodstar now desires to sell the Burger Bites trademark along with an assignment to the buyer of all of the franchise agreements for the stores franchised by Foodstar. (R. 4). Because Foodstar seeks the highest possible sale price for its primary asset the Burger Bites trademark Foodstar rejected the license agreement under 365 of the Bankruptcy Code and is attempting to terminate Vohra s rights to the trademark and enjoin the use of the trademark in Eastlandia even though Eastlandian law, which has adopted the UNICTRAL Model Law on Cross Border Insolvency, governs the license agreement and Vohra has no connection with the United States other than the license agreement. (R. 5). The Bankruptcy Court for the District of Moot found that rejection was appropriate, where it benefited the estate by providing a higher sale price for the trademark. (R. 5). Although Vohra argued before the court that, under Eastlandian bankruptcy law, rejection does not terminate the licensee s rights to use the trademark pursuant to the license and that 11 U.S.C. 365 should not apply extraterritorially, the bankruptcy court determined rejection did terminate Vohra s rights to the trademark. (R. 5 6). The bankruptcy court entered a ruling, enjoining Vohra from using the Burger Bites trademark but stayed the injunction pending appeal. (R. 6). The district court affirmed the bankruptcy court s orders. (R. 6). Upon appeal from those decisions, the Court of Appeals for the Thirteenth Circuit reversed the orders of the courts below on the grounds that (1) rejection does not terminate the licensee s rights to use the trademark and (2) 365 of the Bankruptcy Code does not apply extraterritorially, where no clear congressional intent for such application exists. (R. 6 7). 2

11 Foodstar has now petitioned this Court, which has granted a writ of certiorari. (R. 1). Ravi Vohra respectfully requests that this Court affirm the decision of the United States Court of Appeals and find that (1) rejection does not terminate the licensee s rights to use the trademark and (2) 365 of the Bankruptcy Code does not apply extraterritorially, where no clear congressional intent for such application exists. SUMMARY OF THE ARGUMENT The Thirteenth Circuit Court of Appeals correctly held a non-debtor trademark licensee does not lose his right to continued use of a trademark following rejection of the trademark license agreement under 11 U.S.C. 365 because the plain language of the statute, together with legislative history, public policy, and pending legislation support its holding. The plain language of 365 indicates that rejection merely constitutes a breach of the licensing agreement; not avoidance, rescission, or termination. Thus, in bankruptcy, as outside of it, the non-breaching party's rights remain in place. Significantly, when Congress enacted 365(n), it explicitly stated that although trademark licensees were excluded from the protections afforded other intellectual property licensees, there was concern about rejection of trademark licenses because of the Lubrizol court s erroneous interpretation of 365. As such, Congress allowed for the courts to develop equitable treatment of the situation until Congress could specifically address trademark licensees. Furthermore, public policy supports allowing a trademark licensee to continue using a trademark following rejection of the license agreement. Specifically, it protects the licensee s valuable rights under the contract, as well as the licensee s reliance interest, while still allowing the debtor to receive a fresh start by relieving the estate of specific performance. Also, pending legislation on the issue suggests that Congress intended on preserving a licensee s rights where a 3

12 debtor rejects a trademark license agreement. In fact, the legislation, if enacted, will amend 365(n) to include trademark licenses. Because the plain language of 365, legislative history, public policy, and pending legislation all support the conclusion that a trademark licensee s rights are not terminated when a trademark license is rejected, the Thirteenth Circuit Court of Appeals should be affirmed. Second, the Thirteenth Circuit Court of Appeals correctly held that substantive United States bankruptcy law does not apply extraterritorially because there is not a clear showing that Congress intended the entirety of the Bankruptcy Code to apply extraterritorially, the license agreement touches and concerns the United States less than Eastlandia, and the UNICTRAL Model Law on Cross Border Insolvency (which is enacted in the United States and Eastlandia) provides a mechanism for Foodstar to protect its rights while still respecting Eastlandian sovereignty. Only two provisions relating to the Bankruptcy Code mention property "wherever located." Those two jurisdictional, not substantive, phrases are not enough to clearly demonstrate that Congress intended the whole Bankruptcy Code to apply extraterritorially. Likewise, the legislative history behind those two sections shows only that they are jurisdictional in nature and does not address extraterritoriality. Silence cannot be a clear indication of Congressional intent to overcome the presumption against extraterritoriality. Foodstar's rights are, presumably, protected under Eastlandian law and the UNICTRAL Model Law on Cross Border Insolvency provides the process for Foodstar to address these issues in Eastlandia. For the foregoing reasons, this Court should affirm the Thirteenth Circuit s holdings that rejection of a trademark license under 11 U.S.C. 365 does not terminate a non-debtor licensee s rights to use the trademark, and that even if it did, the presumption against extraterritorial application of statutes prevents 365 from applying to foreign licensing agreements. 4

13 ARGUMENT I. THE THIRTEENTH CIRCUIT CORRECTLY HELD REJECTION OF A TRADEMARK LICENSE AGREEMENT UNDER 11 U.S.C. 365 DOES NOT TERMINATE A NON-DEBTOR LICENSEE S RIGHT TO CONTINUED USE OF THE TRADEMARK BECAUSE THE DECISION IS CONSISTENT WITH THE PLAIN LANGUAGE OF 365, LEGISLATIVE HISTORY, PUBLIC POLICY, AND PENDING LEGISLATION. The Thirteenth Circuit correctly held that Mr. Vohra did not lose his rights to use the Burger Bites trademark after the debtor rejected the license agreement under 11 U.S.C. 365 because the plain language of 365, legislative history, public policy, and pending legislation support the Court s conclusion. Section 365(a) allows a debtor or trustee in bankruptcy to assume, reject, or assign executory contracts. 11 U.S.C. 365(a)(1), (f) (2012). An executory contract is a contract between a debtor and another party under performance is due to some extent on both sides. H.R.Rep. No , 347 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5963; see In re Columbia Gas Sys. Inc., 50 F.3d 233, 238 (3d Cir.1995). It is undisputed the trademark licensing agreement in this case is an executory contract. (R. 4). The issue rather, is what effect the rejection had on Mr. Vohra s rights to continued use of the trademark. Thirty years ago, the Fourth Circuit determined that intellectual property licensees rights were terminated when debtors rejected the intellectual property licenses as executory contracts. See Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985). Thus, under Lubrizol s reasoning, a licensee lost its rights to use a trademark if a debtor-licensor rejected the trademark license agreement in bankruptcy. However, Lubrizol devoted scant attention to the issue of whether rejection actually cancels a contract, focusing more on how to identify executory contracts to which the rejection power applies. Lubrizol, 756 F.2d at ; Sunbeam Prods., Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372, 377 (7th Cir. 2012) cert. denied, 133 S. Ct. 790 (U.S. 2012). Intellectual property licenses are often crucial components of a 5

14 licensee s business, and the Lubrizol decision left these licensees vulnerable and effectively without protection because any patent or trademark licensor could go into Chapter 11 and invalidate a license perfectly valid under contract law. Jay Lawrence Westbrook, A Functional Analysis of Executory Contracts, 74 Minn. L. Rev. 227, 307 (1989). Congress promptly responded to these concerns. In fact, a mere three years after Lubrizol was decided, Congress enacted the Intellectual Property Bankruptcy Act of 1988, adding 365(n) to the Bankruptcy Code, which afforded intellectual property licensees special protections. Specifically, 365(n) of the Bankruptcy Code provides that a licensee under a rejected intellectual property license can elect to retain its rights to the intellectual property under the contract, including a right to enforce exclusivity provisions, as well as any rights under any agreement supplementary to the license. 11 U.S.C. 365(n)(1)(B) (2012). However, the debtor is relieved of specific performance under the license, and licensees are required to continue making royalty payments to the estate. 365(n)(1)(B), (2). Taken together, these provisions protect a licensee from being stripped of its rights to continue to use the licensed intellectual property. Indeed, the Senate Report explicitly states that Congress felt [c]ertain recent court decisions interpreting 365 have imposed a burden on American technological development that was never intended by Congress in enacting Section 365. Id. As such, the purpose of the bill was to make clear that the rights of an intellectual property licensee to use the licensed property cannot be unilaterally cut off as a result of the rejection of the license pursuant to 365 in the event of the licensor's bankruptcy. See S. Rep , 1-2, (1988) reprinted in U.S.C.C.A.N. 3200, Thus, Congress amended 365 to remove any burdens on intellectual property licensees and to make clear that Congress did not intend 365 to eliminate a non-debtor licensee s rights. Id. 6

15 However, when Congress enacted 365(n), it defined intellectual property so as to exclude Trademarks. 11 U.S.C. 101(35A) (2012). But sometimes an omission is just an omission. Sunbeam, 686 F.3d at 375. In fact, legislative history suggests that Congress actually intended courts to afford trademark licensees protection when trademark licenses are rejected under 365. See S. Rep , 1-2, (1988) reprinted in U.S.C.C.A.N. 3200, Indeed, the Senate Report explicitly states that rejection of trademark licenses were of concern because of the interpretation of 365 by the Lubrizol court and others and as such, Congress was allowing for the development of equitable treatment of [rejection of trademark licenses] by bankruptcy courts. Id. In fact, there is nothing in that legislative history indicating Congress intended through omitting trademarks from the definition of intellectual property for courts to continue applying Lubrizol to the trademark licensing context. Id. This is perhaps the reason why, in the nearly thirty years since Lubrizol was decided, no appellate court has been willing to extend its reasoning to trademark licensing agreements. Instead, modern federal circuit courts faced with the task of applying 365 to trademark licenses have either determined (1) that trademark licensing agreements are not executory contracts and as such cannot be rejected in bankruptcy; or (2) that trademark licensing agreements are indeed executory contracts, but that rejection does not terminate the licensee s rights to use the trademark. See e.g. In re Exide Technologies, 607 F.3d 957, (3d Cir.2010) (holding a trademark license agreement is not an executory contract and as such, could not be rejected under 365); Sunbeam, 686 F.3d at 378 (holding a trademark licensee does lose its rights to use a trademark following rejection of a trademark licensing agreement); see also In re Matusalem, 158 B.R. 514, (Bankr.S.D.Fla.1993) (suggesting that rejection of a trademark license would not deprive a licensee of its rights in the licensed mark). 7

16 Moreover, in Sunbeam, the Seventh Circuit, after acknowledging its decision created a conflict among the circuits, stated its decision had been circulated to all active judges and not one judge favored a hearing en banc. Sunbeam, 686 F.3d at 378. Instead, it agreed with Judge Ambro s concurring opinion in Lubrizol and unequivocally rejected the Third Circuit s interpretation of 365, focusing instead on the plain language of 365 to determine a licensee s rights remain in place following a rejection. Id. at What is more, this Court denied the petition for writ of certiorari in the case. See Sunbeam Prods., Inc. v. Chicago Am. Mfg, LLC, 133 S. Ct. 790 (2012). Based on that result, modern federal appellate courts have joined Congress s reluctance in applying Lubrizol s interpretation 365 to trademark licensing agreements. Accordingly, in the trademark-licensing context, Lubrizol simply should not apply. This argument is bolstered by the plain meaning of 365(g); legislative history, public policy, and pending legislation on the issue. These sources, when considered together, indicate that Lubrizol does not apply to trademark licensing agreements and support only one conclusion: the Thirteenth Circuit correctly held that rejection of a trademark license in bankruptcy does not terminate a licensee s rights to continued use of the trademark. A. Rejection of a trademark license agreement does not terminate a non-debtor trademark licensee s rights to use the trademark because the plain language of 365 provides that rejection merely constitutes a breach; not rescission, avoidance, or termination. A trademark licensee does not lose its right to use the trademark when the trademark license agreement is rejected in bankruptcy because the plain language of 365 states that rejection of an executory contract merely constitutes a breach. As such, a trademark licensee s rights remain because consistent with the law outside of bankruptcy, a breach does not terminate the non-breaching party s rights under a contract. In resolving disputes over the meaning of a statutory provision, a court s inquiry must begin with the plain language of the statute. Landreth 8

17 Timber Co. v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 2301, 85 L.Ed.2d 692 (1985). If the language is clear, this is also where the court s inquiry should end, because in those situations, the sole function of the courts is to enforce it according to its terms. Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 194, 61 L.Ed. 442 (1917). Here, the plain language of 365(g) which specifies the consequences of rejection under 365(a) states that rejection of an executory contract constitutes a breach of such contract if it has not been assumed. 11 U.S.C. 365(g)(1) (2012). Thus, using established principles of statutory construction, rejection only serves as a breach; it does not serve to nullify, rescind, or vaporize the contract or terminate the rights of the parties. In re Bachinski, 393 B.R. 522, 544 (Bankr. S.D. Ohio 2008). Indeed, unlike avoidance powers under the Bankruptcy Code, which may lead to rescission or termination of an agreement, rejection is not the functional equivalent of a rescission, rendering void the contract and requiring that the parties be put back in the positions they occupied before the contract was formed. Thompkins v. Lil' Joe Records, Inc., 476 F.3d 1294, 1306 (11th Cir.2007). Rather, it merely frees the estate from the obligation to perform' and 'has absolutely no effect upon the contract's continued existence. Id. (internal citations omitted); see also 2 Norton Bankruptcy Law and Practice 46:57 (3d ed. 2008) ( The Bankruptcy Code instructs us that rejection is a breach of the executory contract. It is not avoidance, rescission, or termination. (footnotes omitted)). Indeed, a breach may have several consequences, but terminating a non-breaching party s rights is not one of them. Sunbeam, 686 F.3d at Rather, under bankruptcy law, a breach of contract gives the non-debtor a right to payment that is converted into a bankruptcy claim and paid its share of the estate. See 11 U.S.C. 101(5) (2012). Moreover, where the non-debtor has been granted a right other than a right of 9

18 payment, which, under non-bankruptcy contract law continues after the debtor breaches, that same right will continue under bankruptcy law following a breach. See, e.g. 11 U.S.C. 365(h) (2012). In other words, a right that survives a breach under non-bankruptcy contract law also survives a breach under bankruptcy law when the contract is rejected. For instance, outside of bankruptcy, a licensor's breach does not terminate a licensee's right to use intellectual property. Sunbeam, 686 F.3d at 376. It follows then, that so long as a trademark licensee continues to perform its obligations and continues to pay royalties under the licensing agreement, the licensee may continue use of the trademark following the licensor s breach. See, e.g. Boscorale Operating, LLC. v. Nautica Apparel, Inc., 298 A.D.2d 330, 749 N.Y.S.2d 233 (1st Dep't 2002). Accordingly, [w]hat 365(g) does by classifying rejection as a breach is establish that in bankruptcy, as outside of it, the other party's rights remain in place, [and that] after rejecting a contract, a debtor is not subject to an order of specific performance. Sunbeam, 686 F.3d at 377; see also NLRB v. Bildisco & Bildisco, 465 U.S. 513, 531 (1984); Midway Motor Lodge of Elk Grove v. Innkeepers' Telemanagement & Equipment Corp., 54 F.3d 406, 407 (7th Cir. 1995). Using this reasoning, the impact of rejecting a trademark license agreement under 365(g) converts a debtor s unfulfilled obligations to damages. Sunbeam, 686 F.3d at 377. More specifically, when a debtor does not assume the [trademark licensing agreement] before rejecting it, [the] damages are treated as a pre-petition obligation, which may be written down in common with other debts of the same class. Id. Notably, nothing about this process implies that any rights of the other contracting party here, the trademark licensee have been vaporized. Id. Rather, as is the case outside of bankruptcy, the non-breaching party s rights remain in place. This result is consistent with the effect rejection has on other contractual relationships. For instance, 365 treats rejection of a lease as a breach as well, which, in the case of the lessee 10

19 rejecting the lease, requires the debtor-lessee to pay damages for abandoning the premises, but which does not abrogate the lease altogether. 11 U.S.C. 365(h)(1)(A)(ii); Sunbeam, 686 F.3d at 377. If rejection served to rescind the lease the debtor-lessee would be absolved from paying damages. 11 U.S.C. 365(h)(1)(A)(i); Sunbeam, 686 F.3d at 377. Similarly, where the lessor rejects the lease, the debtor-lessor cannot terminate a tenant s right to possession just to reacquire premises that the debtor may rent out for a higher price. 11 U.S.C. 365(h)(1)(A)(ii); Sunbeam, 686 F.3d at 377. Indeed, a lessor might substitute damages for an obligation to make repairs, but not rescind the lease altogether. Sunbeam, 686 F.3d at 377. Thus, rejection of a lease under 365 constitutes a breach for which the non-debtor can collect damages, but it does not terminate the non-debtor s rights under the lease. Because rejection of a trademark license also constitutes a breach under 365, this same logic and plain meaning of breach should also apply to trademark licenses. As such, a non-debtor trademark licensee should be entitled to damages for the debtor s breach and its rights to use the trademark should remain unaffected. Because the plain language of 365 states rejection merely constitutes a breach, and because a breach does not terminate a non-debtor s rights under the contract, Mr. Vohra s rights to use the Burger Bites trademark should remain intact. However, even if this court determines the plain language of 365 does not support such a finding, legislative history indicates that Lubrizol should not apply in this case and that at a minimum, courts should use their equitable powers to protect Mr. Vohra s rights to continued use of the Burger Bites trademark. B. Legislative history indicates Congress intended some protection be afforded trademark licensees because Congress explicitly provided the courts develop equitable treatment of rejected trademark licenses and expressed skepticism as to Lubrizol applying in such contexts. Legislative history supports the conclusion that rejection of the trademark license agreement did not terminate Mr. Vohra s rights to continue using the Burger Bites trademark 11

20 because it indicates Congress intended courts to afford protection to trademark licensees using the courts equitable powers, when it could have simply codified Lubrizol s interpretation of 365 to the trademark licensing context. When Congress enacted 365(n), it was cognizant of the negative impact Lubrizol s interpretation of 365 could have on trademark licensees. See S. Rep , 1-2, (1988) reprinted in U.S.C.C.A.N. 3200, In fact, even though Congress enacted a limited definition of intellectual property so as to exclude trademarks from 365(n) s protections, the section s legislative history indicates that Congress was not only cognizant of the risks facing trademark licensees, but that Congress in fact intended trademark licensees to receive protection from the courts. Id. Indeed, when Congress enacted 365(n), it explicitly explained why it excluded trademark licensees from the protection afforded to intellectual property licensees: [T]he bill does not address the rejection of executory trademark, trade name or service mark licenses by debtor-licensors. While such rejection is of concern because of the interpretation of 365 by the Lubrizol court and others, see, e.g., In re Chipwich, Inc., 54 Bankr. Rep. 427 (Bankr.S.D.N.Y.1985), such contracts raise issues beyond the scope of this legislation. In particular, trademark, 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 , at 5, reprinted in 1988 U.S.C.C.A.N. at Furthermore, the Senate Report states that the bill did not address, nor did it intend any inference to be drawn concerning the treatment of executory contracts which are unrelated to intellectual property. Id. Taken together, these Congressional statements indicate that Congress, rather than affirming and codifying Lubrizol s interpretation of 365 for trademark licenses, expressed concern over its application to trademark licenses. Id. However, because of the unique and complex nature of trademark licenses, Congress determined the new provisions under 365(n) 12

21 would not be appropriate for such licenses. Id. Rather, the issue required more extensive research before Congress could adequately address the concerns. Id. In the meantime, trademark licensees needed protection from the harshness of what would surely come should courts continue to apply Lubrizol. Id. Thus, while Congressional action on the matter was postponed, Congress explicitly stated that it was allowing for the development of equitable treatment of the situation by the courts. Id. at In light of these direct congressional statements of intent, it is simply more freight than negative inference will bear to read rejection of a trademark license to effect the same result as termination of that license. Michael T. Andrew, Executory Contracts Revisited, 62 U. Colo. L. Rev. 1, 11 (1991). Indeed, the Senate Report expresses concern with, and disapproval of Lubrizol and subsequent courts interpretation of 365. Instead, the Senate Report suggests that, at a minimum, courts should use their equitable powers to give a debtor such its fresh start without stripping the non-debtor licensee of his fairly procured trademark rights. To do otherwise and allow rejection to extinguish a trademark licensee s rights would be to go against the weight of congressional intent. Following this clear Congressional directive, equity can lead to only one result Mr. Vohra retaining his rights to use the Burger Bites trademark. In this case, it would be inequitable to allow Foodstar to terminate Mr. Vohra s rights to the Burger Bites trademark by rejecting the trademark license agreement under 365 because Mr. Vohra would lose valuable rights that he bargained for. Indeed, if rejection of the license agreement effectively terminates Mr. Vohra s rights to use the Burger Bites trademark, it will surely result in financial ruin for him. This is because there are currently thirty-two Burger Bites hamburger restaurants operating in Eastlandia, all of which are under franchise agreements with Mr. Vohra. (R. 3). Accordingly, Mr. Vohra will face significant losses should his rights to the 13

22 trademark be terminated. This significant loss is compared to the mere 10 to 15 percent less Foodstar may receive should it sell the worldwide Burger Bites trademark subject to Mr. Vohra s license rather than if Mr. Vohra s rights were extinguished. (R. 4). It would be inequitable, and Mr. Vohra would face a significant injustice, if Foodstar were permitted to terminate Mr. Vohra s rights by rejecting the license just because it decided the license was unfavorable and a better deal could be made under a new license agreement with someone else. This would not only prevent Mr. Vohra from receiving the benefit of the bargain, it would also allow Foodstar to take back trademark rights that were bargained away, making bankruptcy a sword, rather than a shield, and puts Foodstar in a catbird seat it does not deserve. See In re Exide, 607 F.3d at 968 (Ambro, J., concurring). As such, on equitable grounds, Foodstar s rejection of the license agreement should not terminate Mr. Vohra s right to use the Burger Bites trademark. Congress specifically provided for courts to use their equitable powers in this context, and by doing so, the only just and equitable result is to preserve Mr. Vohra s rights. Furthermore, public policy considerations also militate towards preserving Mr. Vohra s rights to continued use of the Burger Bites trademark. C. Public policy supports preserving a licensee s rights to use a trademark after the trademark license is rejected because it preserves valuable contract rights while allowing the debtor to receive a fresh start. Preserving Mr. Vohra s rights to continued use of the Burger Bites trademark is consistent with public policy because it protects Mr. Vohra s valuable contract rights and reliance interests while still allowing Foodstar to get a fresh start. The policy behind Chapter 11 of the Bankruptcy Code is the ultimate rehabilitation of the debtor by giving the debtor a fresh start. Nicholas v. United States, 384 U.S. 678, 687, 86 S.Ct. 1674, 16 L.Ed.2d 853 (1966); In re Exide, 607 F.3d at 962. Indeed, the bankruptcy s goal is to serve as a shield to those 14

23 in need. See In re Garland Corp., 6 B.R. 452, 455 (Bankr. D. Mass. 1980) (citing Jackson v. Star Sprinkler Corp., 575 F.2d (8th Cir. 1977) (noting that a court has a duty to see that bankruptcy remains a shield for those in need as Congress and the Constitution see that need, not a sword). In the context of rejected trademark licenses, this goal can be accomplished without destroying licensees valuable contract rights. Indeed, when a debtor rejects a contract, 365 relieves the trustee of specific performance under an executory contract. 11 U.S.C. 365(g). By doing so, 365 protects the debtor s rights and ensures contractual duties under the contract do not burden the estate or hinder the debtor s reorganization. In other words, it allows the debtor to get a fresh start. This remains true whether the non-debtor licensee retains its rights under the executory contract or not. Thus, were rejection to terminate a non-debtor licensee s rights, the party that is truly hurt is the licensee. In fact, courts have recognized that terminating a licensee s rights under a trademark license agreement following the debtor s rejection of the license agreement could have a general chilling effect upon the willingness of... parties to contract at all with businesses in possible financial difficulty. See e.g. Lubrizol, 475 U.S. at This is because any trademark licensor could go into Chapter 11 and unilaterally invalidate a license perfectly valid under contract law. Id. In effect, the licensee would then lose all of its rights it bargained for, preventing it from receiving the benefit of its bargain and precluding it from realizing its reliance interests in the contract. Without reassurance of having the protections contract law would normally provide it, the licensee would be hesitant to contract with the business, and economic growth would be stifled. This reality would have the effect of pushing more businesses to the brink of insolvency business in financial difficulty would have troubles finding parties to 15

24 contract with for fear their rights would be terminated should the business ultimately end up in bankruptcy proceedings. Thus, public policy would be best served by allowing licensees to retain their rights to use trademarks following a debtor s rejection of the trademark license. In doing so, courts may use 365 to free a bankrupt trademark licensor from burdensome duties that hinder its reorganization. However, courts should not be able to use 365 to let a licensor take back trademark rights it bargained away. This makes bankruptcy more a sword than a shield, putting debtor-licensors in a catbird seat they often do not deserve. Based on this reasoning, Foodstar s rejection of the license agreement should not terminate Mr. Vohra s rights to use the Burger Bites trademark. Not only does public policy support this conclusion, but pending Legislation on the issue indicates it may be the conclusion intended by Congress. D. Pending Legislation supports the Thirteenth Circuit s holding because it specifically provides that rejection of a trademark license does not terminate a licensee s rights to use the trademark. The House of Representatives recently passed significant legislation that supports the Thirteenth Circuit s holding because it provides that rejection of a trademark license does not terminate a licensee s rights to use the trademark. Indeed, the Innovation Act addresses, inter alia, the effects of a rejected trademark license under 365. H.R. 3309, 113th Cong. 6(d) (2013). If enacted, the Innovation Act would make major changes to 365(n) with respect to trademark licensing agreements. Id. Specifically, the Innovation Act would extend 365(n) s protections to licenses of trademarks, service marks, and trade names by amending 101(35A) of the Bankruptcy Code s definition of intellectual property to include such licenses. Id. Although the Senate still needs to pass the bill and the President needs to sign it into law, its overwhelming support in the House of Representatives passing with a large bipartisan majority 16

25 on a vote suggests a very real possibility of it succeeding. Bill Summary and Status, 113th Congress ( ), H.R. 3309: Major Congressional Actions, THE LIBRARY OF CONGRESS (2014), Accordingly, following rejection of a trademark license, a trademark licensee would be able to elect either (1) to treat the contract as terminated by the rejection; or (2) to retain its rights to use the trademark and any other rights to intellectual property under the contract, which would include the right to enforce any exclusivity provision in the contract. See 11 U.S.C. 365(n)(1)(A),(B) (2012). Therefore, this pending legislation indicates Congress did indeed intend trademark licensees be afforded protection when their licenses are rejected under 365. This pending legislation, together with public policy, legislative history, and the plain language of 365 support the conclusion that a trademark licensee s rights are not terminated when a debtor rejects the trademark license. Therefore, the Thirteenth Circuit correctly held that Mr. Vohra s rights to continued use of the Burger Bites trademark were not terminated when Foodstar rejected the license agreement and should be affirmed. However, even if this Court determines that rejection of a trademark license terminates a licensee s rights to continued use of a trademark, it should not apply to Mr. Vohra because the presumption against extraterritorial application of statutes precludes 365 from applying to foreign licensing agreements such as the Vohra licensing agreement. 17

26 II. THE THIRTEENTH CIRCUIT CORRECTLY HELD THAT THE PRESUMPTION AGAINST EXTRATERRITORIAL APPLICATION OF STATUTES PRECLUDES 11 U.S.C. 365 FROM APPLYING TO FOREIGN LICENSING AGREEMENTS BECAUSE CONGRESS DID NOT INTEND EVERY PROVISION IN THE BANKRUPTCY CODE TO APPLY EXTRATERRITORIALLY AND THE AGREEMENT DOES NOT TOUCH AND CONCERN THE UNITED STATES. Section 365 of the Bankruptcy Code does not apply to the Vohra licensing agreement because the presumption against extraterritoriality precludes such application, where no clear congressional intent exists. When a statute gives no clear indication of an extraterritorial application, it has none. Morrison v. Nat l Australia Bank Ltd., 561 U.S. 247, 130 S. Ct. 2869, 2878 (2010). Thus, whenever the issue of the extraterritorial application of a statute is brought before the Court, the proponent must face the presumption against extraterritoriality. See E.E.O.C. v. Arabian American Oil Co., 499 U.S. 244 (1991) (hereinafter Aramco ). Congress is assumed to legislate against the backdrop of the presumption against extraterritoriality. Id. at 248. Thus, while Congress has the authority to enforce its laws beyond the territorial boundaries of the United States, Congress is presumed to apply laws only within the territory of the United States unless a contrary intent appears. Id. (citing Foley Bros, Inc., v. Filardo, 336 U.S. 281, (1949)). This presumption that Congress ordinarily intends its statutes to have domestic, not extraterritorial application arises from the commonsense notion that Congress generally legislates with domestic concerns in mind. Small v. U.S., 544 U.S. 385, (2005) (citations omitted). The presumption against extraterritorial application helps ensure that the Judiciary does not erroneously adopt an interpretation of U.S. law that carries foreign policy consequences not clearly intended by the political branches. Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659, 1664 (2013) (internal citation omitted). Thus, this presumption is not only a 18

27 result of the separation of powers doctrine, but also one of institutional competence. Simply put, courts are not equipped to make foreign policy decisions and therefore should refrain from making those decisions. Further, this canon of construction is based on the presumption that United States law governs domestically but does not rule the world. Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454 (2007). As the Executive branch has pointed out, Foreign conduct is [generally] the domain of foreign law. Id., at 455 (citing Brief for United States as Amicus Curiae, 28, brackets in original). This may be especially true where foreign law may embody different policy judgments from those the United States would make. Microsoft, 550 U.S. at 455 (citing Brief for United States as Amicus Curiae, 28). This presumption serves to protect against unintended clashed between our laws and those of other nations which could result in international discord. Kiobel, 133 S. Ct. at 1664 (citing Aramco, 499 U.S. at 248). Therefore, the presumption against extraterritoriality applies regardless of whether there is an actual conflict of laws. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 813 (1993). This Court has explained that the presumption is not defeated just because [a statute] specifically addresses [an] issue of extraterritorial application. Microsoft, 550 U.S. at (citing Smith v. U.S., 507 U.S. 197, 204 (1993), brackets in original). Addressing the issue specifically remains instructive in determining the extent of the statutory exception. Microsoft, 550 U.S. at 456 (citations omitted, emphasis in original). However, the presumption may be rebutted if the statute evinces a clear indication of extraterritoriality. Kiobel, 133 S. Ct. at 1664 (citing Morrison, 130 S. Ct. at 2883). The Bankruptcy Code does not demonstrate a clear congressional indication of extraterritorial application in its text, legislative history, or statutory purpose. 19

28 A. There is no clear indication within the statutory text, legislative history, or the statute s purpose that Congress intended for the Bankruptcy Code to apply substantive United States law extraterritorially. Section 365 of the Bankruptcy Code does not apply extraterritorially because Congress did not clearly express an intent for extraterritorial application. Courts rely on the canon of construction that statutes passed by Congress only apply domestically; in other words, there is a presumption against extraterritorial application of United States statutes. A statute only applies domestically even where congressional intent for a statute to apply extraterritorially seems plausible upon consideration of a statute s text, history, and purpose. Extraterritorial application requires Congress s unambiguously expressed intent to apply abroad. For instance, Title VII of the Civil Rights Act does not apply to violations that occur outside the United States because Congress did not unambiguously express the intent for extraterritorial application. Aramco, 499 U.S. at 259. In that case, although the statute s text gave some indication of the intent to apply extraterritorially, with its broad definition of commerce, congressional intent was only plausible but no more likely or persuasive than opposing interpretations. Id. at 250. The Court noted that if it was to permit possible, or even plausible, interpretations of language... to override the presumption against extraterritorial application, there would be little left of the presumption. Id. at 253. Similarly, where no unambiguous expression of extraterritorial intent exists within the Alien Tort Statute, it does not apply to violations that arise outside the United States. Kiobel, 133 S. Ct. at While the statutory language in that case expressly stated that the statute applies to any civil action, such language failed to present an unambiguous intent for extraterritorial application. Id. The Court explained that general boilerplate words such as any or every are insufficient to overcome the presumption against territoriality because the potential [foreign policy] implications... of recognizing... causes [under the Alien Tort Statute] should make 20

29 courts particularly wary of impinging on the discretion of the Legislative and Executive Branches in managing foreign affairs. Id. at 1664 (quoting Sosa v. Alvarez-Machain, 542 U.S. 692, 695 (2004)). On the other hand, when a statute gives specific language that applies the law beyond the territorial sovereignty of the United States, the presumption against extraterritoriality is overcome. Kollias v. D & G Marine Maint., 29 F.3d 67, 74 (2d Cir. 1994). There, the Longshore and Harbor Workers Compensation Act applied extraterritorially because the statute expressly stated that the law applies to any injury or death occurring on the high seas. Id. at 73. Rather than using general, boilerplate language, the statute could not have had any other reasonable meaning, where it specifically stated high seas, which is defined as those waters beyond the territorial reach of the United States. Id. at 74. Furthermore, the Kollias court concluded that unambiguous congressional intent overcame the presumption because the principal purpose of the statute was to fill the void created by the inability of the States to remedy injuries on navigable waters. Id. (quoting Ne. Marine Terminal Co., Inc. v. Caputo, 432 U.S. 249, 257 (1977)). Conversely, the text, history, and purpose of 547 of the Bankruptcy Code does not show an unambiguous intent for extraterritorial application. In re Maxwell Commc'n Corp. plc, 170 B.R. 800, 814 (Bankr. S.D.N.Y. 1994) aff'd sub nom. In re Maxwell Commc'n Corp. plc by Homan, 93 F.3d 1036 (2d Cir. 1996). In that case, the court looked to the Bankruptcy Code as a whole to determine whether any unambiguous congressional intent supported extraterritorial application of 547, which deals with preferential transfers. Id. at 811. Although the statutory language of 541 specifically includes property wherever located and by whomever held within the meaning of property of the estate, evidence simply does not exist to indicate an intent 21