Case 18-10055-KG Doc 313 Filed 04/01/18 Page 1 of 5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: HOBBICO, INC. et al., 1 Debtors. Chapter 11 Case No. 18-10055 (KG Jointly Administered Re: D.I. 243, 282 OBJECTION OF GENERAL MOTORS LLC TO ASSIGNMENT OF TRADEMARK LICENSE AGREEMENTS WITHOUT CONSENT General Motors LLC ( GM, through its undersigned counsel, makes the following objection (the Objection to the Debtors request to assign certain trademark licenses without GM s prior consent, and states: I. BACKGROUND 1. GM and Axial R/C Inc. ( Axial, a debtor and debtor-in-possession herein, are parties to two trademark license agreements (identified by the Debtors as contract #6006 and #6009 pursuant to which Axial licenses certain trademarks and other intellectual property from GM (the License Agreements. 2 2. GM s intellectual property is extremely valuable to GM and GM vigorously safeguards it. All licensees are thoroughly vetted by GM with the licenses being personal in nature to the licensee with appropriate quality control standards. Accordingly, GM s licensees are not permitted to assign such licenses without GM s consent. 1 The debtors and debtors in possession (collectively, the Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification numbers, are as follows: Hobbico, Inc. (9545, Arrma Durango Ltd; Axial R/C Inc. (0233, Estes-Cox Corp. (2196, Great Planes Model Manufacturing, Inc. (5259; Revell Inc. (8545; Tower Hobbies, Inc. (5185, and United Model, Inc. (5302. 2 GM and Debtor Revell Inc. are also parties to a trademark license agreement ( Revell License Agreement. This license agreement is not identified as an executory contract to be assigned with respect to the sale of either the Hobby Business Lot [D.I. 299] or the Estes-Cox Lot [D.I. 298]. To the extent that the Debtors seek to assign the Revell License Agreement this Objection would equally apply.
Case 18-10055-KG Doc 313 Filed 04/01/18 Page 2 of 5 3. On March 14, 2018, the Court entered an order [D.I. 243] approving bidding procedures with respect to the sale of substantially all of the Debtors assets. 4. On March 28, 2018, the Debtors filed a Notice of Successful Bidder for the Hobby Business Lot (the Sale Notice [D.I. 299]. The Sale Notice identified Horizon Hobby, LLC ( Horizon as the successful bidder for certain of the Debtors assets identified as the Hobby Business Lot. 5. The Asset Purchase Agreement attached to the Sale Notice identifies the License Agreements as contracts to be assigned to Horizon. The Debtors have neither sought nor obtained GM s consent to such assignment. II. OBJECTION 6. GM objects to the assignment of the License Agreements without its consent. GM is not, at this time, foreclosing granting such consent; however, GM first requires the opportunity to vet the proposed assignee and determine any necessary conditions to assignment. 7. Unless GM consents, the Debtors are prohibited from assuming and assigning the License Agreements. 8. Bankruptcy Code 365(c(1 provides that a debtor may not assume or assign an executory contract if applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to an entity other than the debtor, and such [non-debtor] party does not consent to such assumption or assignment. Id. See, e.g., In re West Electronics, Inc., 852 F.2d 79, 83 (3d Cir. 1998 (holding that, pursuant to Bankruptcy Code 365(c(1, assumption and assignment of a contract are precluded if applicable law would render assignment unenforceable absent consent of the non-debtor party. See also, In re Sunterra, 361 F.3d 257 (4 th Cir. 2004. 2
Case 18-10055-KG Doc 313 Filed 04/01/18 Page 3 of 5 9. Under Section 365(c, applicable law is any non-bankruptcy law applicable to the contract. See, e.g., In re XMH Corp., 647 F.3d 690, 695 (7th Cir. 2011 (explaining that under Section 365(c(A(1 [t]he term applicable law means any law applicable to a contract, other than bankruptcy law. ; see also West Electronics, 852 F.2d at 83. 10. Federal law is applicable law within the meaning of Bankruptcy Code 365(c. The substantial weight of authority holds that under federal trademark law, trademark licenses are not assignable in the absence of some express authorization from the licensor, such as a clause in the license agreement itself. See In re Trump Entertainment Resorts, Inc., et al., Case No. 14-12103-KG (Bankr. D.Del. 2015 (citing In re XMH Corp., 647 F.3d 690 (7th Cir. 2011. The basis for this restriction on assignability is that a trademark owner/licensor is required by law to control the quality of the goods and services under its mark to avoid risking the loss of its rights. Gorenstein Enter., Inc. v. Quality Care-USA, Inc., 874 F.2d 431 (7th Cir. 1989 ( The owner of a trademark has a duty to ensure the consistency of the trademarked good or service. If he does not fulfill this duty, he forfeits the trademark.. The ability to control the party to whom a trademark owner licenses its marks is a key requirement of the duty to control quality. And a trademark owner must have the right to determine who is an appropriate licensee. 4 McCarthy on Trademarks, n. 47 at 25:33. 11. Therefore, in accordance with Bankruptcy Code 365(c and applicable nonbankruptcy law, the License Agreements may not be assumed or assigned without GM s consent. See In re Kazi Foods of Michigan Inc., 473 B.R. 887, 889-90 (Bankr. E.D. Mich. 2011 (finding federal trademark law to be applicable law and holding that trademark law prohibits the assignment of nonexclusive trademark licenses to a third party without owner s consent; Tap Publications, Inc. v. Chinese Yellow Pages (New York Inc., 925 F. Supp. 212, 218 (S.D.N.Y. 3
Case 18-10055-KG Doc 313 Filed 04/01/18 Page 4 of 5 1996. ( [T]he general rule is that unless the license states otherwise, the licensee s right to use the licensed mark is personal and cannot be assigned to another. (internal citations omitted; In re Travelot Co., 286 B.R. 447, 455 (Bankr. S.D. Ga. 2002 ( The grant of a non-exclusive license is an assignment in gross, that is, one personal to the assignee and thus not freely assignable to a third party.. 12. In addition to GM s due diligence with respect to Horizon, GM s consent, if granted at all, would be conditioned on its receipt of payment in full of all past due amounts owing to GM under the License Agreements (plus GM s attorneys fees and costs. Pursuant to Bankruptcy Code 365(b(1, the Debtors must cure all defaults under the License Agreements before the License Agreements may be assumed and assigned. Any assumption and assignment of the License Agreements must be conditioned upon payment of the cure amount in full to GM. Although GM does not object to the pre-petition cure amounts identified by the Debtors in the Cure Schedule that was attached to the Notice of Potential Assumption and Assignment, i.e., prepetition cure of $4,687.50 (#6006 and $116.80 (#6009, the Debtors have failed to pay postpetition royalties, which must be paid before assumption and assignment may occur. GM estimates that post-petition, unpaid amounts due and owing to GM under the License Agreements equal no less than $46,875 (plus GM s attorneys fees and costs and are continuing to accrue. III. CONCLUSION WHEREFORE, for the foregoing reasons, GM respectfully requests that this Court (i order that any assumption and assignment of the License Agreements is conditional on GM s consent thereto, the provision of adequate assurance of future performance to GM and further subject to payment in full to GM of the appropriate cure amount (including GM s attorneys fees and costs, all as required by Bankruptcy Code 365; and (ii grant GM such other and further 4
Case 18-10055-KG Doc 313 Filed 04/01/18 Page 5 of 5 relief as may be consistent with this Objection and otherwise just and appropriate in the circumstances. Dated: April 1, 2018 Wilmington, Delaware POTTER ANDERSON & CORROON LLP /s/ R. Stephen McNeill Jeremy W. Ryan (DE Bar No. 4057 R. Stephen McNeill (DE Bar No. 5210 1313 North Market Street, Sixth Floor P.O. Box 951 Wilmington, Delaware 19801 Telephone: (302 984-6000 Facsimile: (302 658-1192 Email: jryan@potteranderson.com rmcneill@potteranderson.com -and- HONIGMAN MILLER SCHWARTZ AND COHN LLP E. Todd Sable (MI Bar No. P54956; Glenn S. Walter (MI Bar No. P79853; 2290 First National Building 660 Woodward Avenue Detroit, MI 48226 Telephone: (313 465-7000 Email: tsable@honigman.com gwalter@honigman.com Attorneys for General Motors LLC 5