On February 20, 2015, in In re Trump Entertainment Resorts, Inc., the US Bankruptcy Court for the District of Delaware held that, under 11 U.S.C.A. § 365(c)(1), Section 365(c)(1) of the Bankruptcy Code, trademark license agreements are not assumable or assignable by a debtor licensee without the trademark owner's consent because they are not assignable under federal trademark law (No. 14-12103, (Bankr. D. Del. Feb. 20, 2015).

Under a Second Amended and Restated Trademark License Agreement (TLA), Trump AC Casino Marks, LLC (licensor) granted Trump Entertainment Resorts, Inc. and certain of its affiliates (collectively, licensees) a royalty-free, exclusive (as to six states) license to use Donald and Ivanka Trumps' names, likenesses and other specified marks in connection with the operation of three hotel casinos in Atlantic City, NJ. Subject to certain limited exceptions, the TLA prohibits licensees from assigning these rights. In 2014, licensor filed suit in the Superior Court of New Jersey to terminate the TLA for the licensees' failure to comply with quality standards and certain other breaches. Shortly thereafter, licensees filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code, which resulted in an automatic stay of licensor's state court action to terminate the TLA. Licensees' proposed chapter 11 plan of reorganization contemplated assumption of the TLA.

Licensor moved to lift the automatic stay under Section 362(d)(1) of the Bankruptcy Code, arguing that the TLA is not assumable or assignable by licensees under Section 365(c)(1) and therefore licensor was entitled to relief from the automatic stay to seek termination of the non-assumable license.

The court agreed with licensor. It began by finding that the TLA is an executory contract that generally would be subject to assumption under Section 365(a). However, the court explained that licensees' right to assume the TLA is limited by Section 365(c)(1), which provides that a debtor may not assume or assign an executory contract if assignment is prohibited by applicable non-bankruptcy law.

Applying Section 365(c)(1) to the contemplated assumption of the TLA, the Delaware Bankruptcy Court followed the US Court of Appeals for the Seventh Circuit's decision in In re XMH Corp., 647 F.3d 690 (7th Cir. 2011) in finding that:

The court further found that this default rule applies equally to exclusive and non-exclusive trademark licenses, because a trademark owner would have the same concerns regarding the identity of the licensee and the quality of products bearing its trademark in both cases.

Accordingly, the court held that under Section 365(c)(1), licensees are prohibited from assuming or assigning the TLA and lifted the automatic stay.

In this decision, the Delaware Bankruptcy Court joined the US Circuit Courts of Appeals for the Seventh and Ninth Circuits, as well as the US District Court for the District of Nevada, in holding that trademark owners have consent rights over assignment of trademark licenses by debtor licensees in bankruptcy.