On June 6, 2014, in In re Interstate Bakeries Corp. v. Interstate Brands Corp., the US Court of Appeals for the Eighth Circuit, sitting en banc, reversed an Eighth Circuit panel decision that a trademark license agreement executed as part of an asset sale was an executory contract (No. 11-1850, (8th Cir. June 6, 2014)). The court found that a proper analysis must consider both the asset purchase agreement and the license agreement and concluded that, in that context, the trademark license agreement was not executory.

In December, 1996, Interstate Brands Corp. (IBC), a subsidiary of Interstate Bakeries Corp., agreed to transfer certain of its operations to Lewis Brothers Bakeries, Inc. (LBB). The parties entered into two agreements to effect the transfer:

Of a $20 million purchase price, the parties allocated $8.12 million to intangible assets, including the trademarks.

In 2004, Interstate Bakeries and several of its subsidiaries, including IBC, filed for voluntary bankruptcy under Chapter 11 of the Bankruptcy Code. In 2008, Interstate Bakeries sought to assume the license agreement as an executory contract. LBB filed for a declaratory judgment that the license agreement is not an executory contract. Interstate Bakeries then sought a declaration that the license is an executory agreement, and both parties moved for summary judgment. The bankruptcy court, looking exclusively at the license agreement, found that it was an executory contract because both parties still had material unperformed obligations. Both the district court and the Eight Circuit panel affirmed the ruling on appeal. Following the Eighth Circuit decision, LBB petitioned for rehearing en banc. For additional background and an analysis of the earlier decisions, see Legal Update, Trademark License Agreement Qualifies as Executory Contract: Eighth Circuit.

On rehearing, the Eighth Circuit found that the license agreement was not an executory contract. As an initial matter, the court found that the agreement at issue is the integrated agreement that includes both the APA and the license agreement, and that the earlier decisions had erred in looking only to the license agreement. Noting that the general rule under Illinois law is that in the absence of evidence to the contrary, two agreements executed by the same parties in the same transaction should be considered together, the court found that the APA and the license agreement should be considered together as an integrated agreement. Key considerations included that:

Evaluating the APA and the license agreement as an integrated agreement, the Eight Circuit concluded that the license agreement is not an executory contract under Section 365(a) of the Bankruptcy Code. In the Eighth Circuit an executory contract is one where both parties have so far unperformed that a failure of either to complete performance would be a material breach excusing the other's performance. The Eighth Circuit found that the essence of the APA and license agreement was the sale of IBC's bread business to LBB, not merely the licensing of the trademarks. The court found that the remaining obligations under the license agreement are relatively minor in the context of the entire agreement, where they: