Written by Geri Haight and Susan Weller
With the announcement today that the Swedish automaker Saab has filed for bankruptcy, we thought it timely to take a look at what happens to trademarks in the context of a bankruptcy proceeding. SAAB is the owner of nearly 100 U.S. trademark registrations (for SAAB, ECOPOWER, BIOHYBRID, 9-3, among others). Since trademarks are often one of the most valuable assets a company may own, their disposition in a bankruptcy proceeding is of paramount importance. So, what is to become of the SAAB trademarks?
The Lanham Act does not discuss the issue of bankruptcy. Trademarks are also excluded from specific mention in the U.S. Bankruptcy Code. But there is no question that trademarks, and trademark licenses and related agreements, are considered property of a bankrupt estate subject to the control and jurisdiction of the bankruptcy court.
Saab’s filing of a bankruptcy petition does not automatically result in abandonment of its rights in its marks. A trustee or a debtor-in-possession should protect such marks from abandonment or loss of value by continuing to use them or through their sale. If all of Saab’s assets are sold intact to a single purchaser, the trademarks will be included in such a sale. In that case, all of the assets and the goodwill of the company, including the trademarks, move together. It is not uncommon, however, for a debtor’s assets to be sold piecemeal. This is when difficulties may arise. Under trademark law, the sale or assignment of a trademark is not valid unless it includes the goodwill of the business with which the mark is used. Thus, in the context of a bankruptcy case, it is necessary that a sufficient portion of the business be sold with the trademark in order to ensure that the requisite goodwill has passed with the sale. There is no standard for what is “enough,” and often the purchasing party will acquire and rely only upon the residual “goodwill” in the mark that continues to exist.
Purchases of trademarks in bankruptcy by unaffiliated third parties may also create consumer perception problems. The SAAB trademarks may be purchased from bankrupt estates, and the purchasing entities could continue to sell products under the various SAAB marks. If the products being provided under the trademarks are not the same as those originally sold in connection with the marks or are of a different level of quality than were the products provided by the bankrupt debtor, this could be viewed as consumer deception and violate trademark law principles. Potential purchasers of the SAAB marks out of bankruptcy, therefore, must take care in how such marks are used. New owners of marks purchased out of bankruptcy must be certain not to misrepresent their status. The new trademark owner must take care to ensure that consumers are not led to believe that they are the prior or original trademark owner when, in fact, they are not.
Here, Saab has some complicated relationships to contend with in bankruptcy. According to press reports, potential buyers would have to negotiate with the defense and aerospace company Saab Group, a separate company that still owns certain rights to the Saab name and trademark, and with GM, which still maintains an ownership interest in Saab.
For more information about trademarks in bankruptcy proceedings, click here.