NO. 12-431 In the Supreme Court of the United States SUNBEAM PRODUCTS, INC., DOING BUSINESS AS JARDEN CONSUMER SOLUTIONS, Petitioner, v. CHICAGO AMERICAN MANUFACTURING, LLC, Respondent. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Seventh Circuit REPLY BRIEF FOR PETITIONER JOSEPH D. FRANK JEREMY C. KLEINMAN FRANKGECKER LLP 325 North LaSalle Street Suite 625 Chicago, IL 60654 (312) 276-1402 jfrank@fgllp.com jkleinman@fgllp.com LEONARD J. FELDMAN Counsel of Record J. WILL EIDSON STOEL RIVES LLP 600 University Street Suite 3600 Seattle, WA 98101 (206) 624-0900 ljfeldman@stoel.com jweidson@stoel.com Counsel for Petitioner November 16, 2012 Becker Gallagher Cincinnati, OH Washington, D.C. 800.890.5001
i CORPORATE DISCLOSURE STATEMENT The corporate disclosure statement included in the petition for writ of certiorari remains accurate.
ii TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT... i TABLE OF AUTHORITIES... iii ARGUMENT... 1
iii TABLE OF AUTHORITIES FEDERAL CASES Page(s) In re Exide Technologies, 607 F.3d 957 (3d Cir. 2010)... 3, 4, 5 Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. 756 F.2d 1043 (4th Cir. 1985)... 2, 3, 6 TRW Inc. v. Andrews, 534 U.S. 19 (2001)... 2, 3 FEDERAL STATUTES 11 U.S.C. 365... 3, 4 11 U.S.C. 365(a)... 2, 6 11 U.S.C. 365(g)... 2, 5 11 U.S.C. 365(n)... 2, 3, 6 RULES Supreme Court Rule 10... 1
1 ARGUMENT Jarden s petition clearly establishes that there is an inter-circuit conflict regarding whether a licensee retains the ability to use a debtor s trademarks after the corresponding intellectual-property license is rejected in bankruptcy. Indeed, the Seventh Circuit (Easterbrook, J.) expressly recognized that its opinion creates a conflict among the circuits. App. 10. Jarden further established in its petition that this matter raises important issues that merit the Court s review. That is because, absent such review, the opinion below will undermine the integrity of trademark rights and interfere with the bankruptcy process. In a subsequent amicus filing, the International Trademark Association ( INTA ) echoes these arguments and urges the Court to review and resolve the existing inter-circuit conflict at this time rather than wait for another petition raising the same issue (which INTA notes is unlikely because of the cost and time required to present the issue for this Court s review). INTA Br. 17-18. On this record, Rule 10 s criteria for certiorari are easily satisfied. 1. In response, CAM blithely asserts that the Court should deny Jarden s petition because CAM invested significant funds and made substantial changes to its operations so that it could manufacture Lakewood fans. Opp. 17. In this respect and others, CAM improperly conflates patent rights and trademark rights. To be sure, licensees can and do make substantial investments to practice a licensor s patent rights. But unlike changes required to practice patent rights, affixing a trademark is neither expensive nor difficult and can easily be discontinued after rejection. CAM
2 repeatedly overlooks this critical distinction, both in its factual discussion and in its argument. 2. CAM also claims that the conflict identified by the Seventh Circuit below does not warrant this Court s review because the Fourth Circuit in Lubrizol misapplied Section 365(g). Opp. 18. That is incorrect. Section 365(a) expressly states that the trustee, subject to the court s approval, may assume or reject any executory contract. 11 U.S.C. 365(a) (emphasis added). Under Section 365(g), the rejection of an executory contract of the debtor constitutes a breach of such contract. 11 U.S.C. 365(g). As the Fourth Circuit correctly noted in Lubrizol, and as the plain language of Section 365(g) confirms, the purpose of Section 365(g) is to provide only a damages remedy for the non-bankrupt party. 756 F.2d at 1048 (emphasis added). Allowing the non-bankrupt party to retain all rights under the rejected contract by way of specific performance would undercut that purpose. Id. Indeed, if CAM s arguments regarding Lubrizol (and rejection generally) were correct, Congress s decisive action following Lubrizol would make no sense. As Jarden noted in its petition, Congress enacted Section 365(n) following Lubrizol to ensure that licensees of patents, copyrights, and trade secrets can continue using those intellectual property rights after rejection in bankruptcy. But if CAM is correct that the non-bankrupt licensee can continue to use these intellectual property rights after rejection under Section 365(g) because the license agreement was rejected rather than terminated (Opp. 21-22) then Section 365(n) is mere surplussage. That cannot be correct. See TRW Inc. v. Andrews, 534 U.S. 19, 31
3 (2001) ( It is a cardinal principle of statutory construction that a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant. (citation omitted)). But even crediting CAM s analysis of this issue, INTA correctly notes that [t]his case provides an opportunity for the Court to clarify the effect of rejection as a general matter. INTA Br. 14. Jarden agrees. Finally, CAM also claims that Lubrizol is inapposite because no trademark license was at issue in Lubrizol. Opp. 16. That argument ignores the underlying logic of Lubrizol, which applies equally to all intellectual property rights, including trademarks. In addition, while Congress has expressly authorized licensees of patents, copyrights, and trade secrets to continue using those intellectual property rights after rejection, it did not include trademarks in that same statutory provision (11 U.S.C. 365(n)). Thus, Lubrizol remains good law in the Fourth Circuit as applied to trademark rights. That, of course, is why the Seventh Circuit below concluded that its opinion creates a conflict among the circuits. App. 10. 3. CAM s argument that there is no possible conflict with Exide (Opp. 26) similarly misses the mark. As Jarden explained, Judge Ambro s concurring opinion in Exide is the only guidance available from the Third Circuit. Significantly, Judge Ambro s concurrence sets forth an interpretation of Section 365 that conflicts with both the Fourth Circuit s analysis in Lubrizol and the Seventh Circuit s analysis here. Judge Ambro relied on equitable principles in reaching his decision. 607 F.3d at 967. In contrast, the Seventh
4 Circuit refused to apply such principles, stating: What the Bankruptcy Code provides, a judge cannot override by declaring that enforcement would be inequitable. App. 5 (internal quotation marks omitted). Thus, contrary to CAM s contention, Judge Ambro s opinion in Exide adds to the circuit split, providing a third interpretation of Section 365. Significantly, CAM acknowledges (as it must) that the Court below and other courts have cited approvingly to Judge Ambro s concurrence. Opp. 27. 4. CAM s argument that [t]he bankruptcy court cases cited by Jarden create no conflict (Opp. 28) is no better. To be clear, Jarden has never asserted that these cases create an inter-circuit conflict. Rather, the courts opinions in those cases illustrate the existing conflict and confusion regarding whether, under Section 365, a licensee retains the ability to use a debtor s trademarks after the corresponding intellectual-property license is rejected in bankruptcy. CAM, in its opposition, cites yet another bankruptcy court decision that conflicts with the Seventh Circuit s analysis below. Opp. 28 n.5. INTA, for its part, cites many others and, indeed, notes that Jarden s petition if anything understates the level of confusion. INTA Br. 10. This conflict and confusion is a compelling reason to grant Jarden s petition. 5. Finally, CAM asserts that this case presents no issues of national importance. Opp. 30. CAM asserts five points, each of which fails: a. CAM claims that the Seventh Circuit s opinion below does not undermine the integrity of trademark rights because the debtor or trustee can
5 continue to police the mark. Opp. 30. CAM does not explain (nor can it) how or why a debtor or trustee could do so upon rejection. Nor would a debtor or trustee have the necessary resources (quality auditors, accountants, and others) to do so. As a result, licensees can affix a trademark to products without fear of liability, thus weakening the inherent value of the trademark and harming consumers who rely on the trademark. b. CAM gives short shrift to a trustee s duty to maximize the estate (Opp. 31), which as noted in Jarden s petition is undermined by the Seventh Circuit s decision below and by Judge Ambro s concurrence in Exide. As INTA notes, the existing lack of clarity harms blameless creditors because potential purchasers of trademark rights will be unwilling to pay the bankruptcy estate full value for the trademark. INTA Br. 13. CAM s only response is that a trustee cannot abrogate a trademark licensee s rights under Section 365(g). That assertion, for the reasons set forth in point 2 above, is incorrect. c. CAM similarly ignores or understates the significance of the existing uncertainty regarding what rights a purchaser in bankruptcy is acquiring from the bankruptcy estate. Rather than squarely address that issue, CAM claims that the Seventh Circuit s opinion in this case resolves any such uncertainty by recognizing that Section 365(g) has long answered the question. Opp. 32. That assertion simply ignores the fact that other courts applying that same statutory provision have reached diametrically opposite results. Absent this Court s review, the existing confusion will continue unabated.
6 d. CAM s response to Jarden s argument that the Seventh Circuit s opinion undermines a fundamental purpose of Section 365(a) to relieve the debtor or trustee from burdensome obligations is confusing at best. Opp. 32. Elsewhere in its brief, CAM asserts that a debtor following rejection retains its license rights to police the mark. Opp. 30. Under the Fourth Circuit s opinion in Lubrizol, a trustee can eliminate that obligation. Under the Seventh Circuit s opinion below, as CAM itself admits, a trustee must continue to police the use of the trademark by the licensee so as to safeguard, monetize, and maximize the assets of the estate. These are burdensome obligations that should be relieved by rejection. e. Finally, responding to Jarden s argument that this case also presents an exceptional vehicle to address the legal significance of legislative silence, CAM argues that [t]here is no legislative silence. Opp. 33. As noted above, that is simply wrong with regard to trademark rights because when Congress enacted Section 365(n) in the wake of Lubrizol it legislatively overruled that decision as applied to patents, copyrights, and trade secrets, but not as applied to trademark rights. In addition to the many other reasons to grant Jarden s petition, this case presents an exceptional vehicle to provide needed guidance to lower courts regarding what meaning, if any, can be given to Congress s decision to address certain legal issues (here, patents, copyrights, and trade secrets) while leaving other closely related issues (here, trademark rights) untouched.
7 Respectfully submitted, LEONARD J. FELDMAN Counsel of Record J. WILL EIDSON STOEL RIVES LLP 600 University Street Suite 3600 Seattle, WA 98101 (206) 624-0900 ljfeldman@stoel.com jweidson@stoel.com Counsel for Petitioner