Ashley H. Wilkes, in Re Gucci: the Lack of Goodwill in Matters Regarding Bankruptcy, Trademarks, and High Fashion

• Publication year: 2011

IN RE GUCCI: THE LACK OF GOODWILL IN MATTERS REGARDING BANKRUPTCY, TRADEMARKS, AND HIGH FASHION

INTRODUCTION

This Comment will use one case, Licensing by Paolo, Inc. v. Sinatra (In re Gucci),¹to examine the Bankruptcy Code's treatment of trademarks as assets of the estate in a chapter 11 filing. While the definition of intellectual property traditionally includes trademarks as a subset of the intellectual property field, the Bankruptcy Code²treats only patent, copyright, and trade secret assets as intellectual property and consequently denies to licensees of trademarks specific protections afforded to licensees of those other intellectual property assets.³As a result, the outcome of a chapter 11 filing by a debtor licensor of intellectual property assets varies greatly depending on whether those licenses are for the use of patents, copyrights, and trade secrets on the one hand or trademarks on the other.⁴The legislative history behind the Intellectual Property Bankruptcy Protection Act ("IPBPA")⁵does not provide a clear reason why Congress excluded trademarks from intellectual property protection. The history indicates that Congress specifically wanted to exclude trademarks from the protection granted to other types of intellectual property through the IPBPA and also that Congress wanted the bankruptcy courts to sort out trademark licenses independently.⁶Looking at the In re Gucci case, however, one can see the fascinating and happenstance result of the omission and how the situation allowed a fashion powerhouse to destroy its rival in one final legal battle.⁷

After examining the case, this Comment will propose a solution to this problem.⁸There has been a great deal of scholarly discussion about amending the Bankruptcy Code to include trademarks within the definition of intellectual property, an amendment which would avoid the result of In re Gucci.⁹A simpler and more practical solution to the problem, however, is to impute the relevant trademark law requirements for the sale of a trademark into the Bankruptcy Code's requirement that a purchaser of the assets from a bankrupt estate be a "good faith purchaser."¹⁰This would prevent a company from purchasing a mark with the clear and acknowledged intent of destroying that mark.¹¹By imputing relevant trademark law into the meaning of "good faith,"¹²the court could have saved the "Paolo Gucci" trade name and licensees of that name from destruction by refusing the sale to Guccio Gucci, and could have preserved the mark to be sold to a company that would continue to use the name and the goodwill established by the "Designed by Paolo Gucci" trademark.¹³

Part I of this Comment will look at the history of the Gucci family and the dispute between Paolo Gucci, who left the family business to develop his own line of products, and the Guccio Gucci company, the owner of the "Gucci" trademark.¹⁴Historically, trademark law has been regarded as a subset of intellectual property. Part II explores trademark law in general and compares it to how the Bankruptcy Code treats trademarks differently than other intellectual property.

In Part III this Comment considers the treatment of trademarks under the bankruptcy system and specifically the impact of that treatment on trademark licensees when the licensor files for bankruptcy (as happened in In re Gucci).¹⁵

Bankruptcy law, primarily through the Bankruptcy Code's definition of intellectual property, explicitly excludes trademarks from the protection afforded to other types of intellectual property.¹⁶As a result, when a trustee rejects a license in a situation where the debtor is a licensor of a trademark asset, the licensee can be barred from using that licensed asset any longer.¹⁷

Often the entire business model of the licensee is built around the right to use that mark to promote its product, therefore the loss of a mark results in the collapse of the licensee's business through no fault of its own.¹⁸While the Bankruptcy Code protects licensees of other forms of intellectual property from this result, it denies such protection to trademark licensees; the reason for doing so is somewhat lost in the legislative history of the IPBPA.¹⁹This

Comment attempts to examine and reconcile that gap in the protection afforded to trademark licensees. Imputing fundamental trademark law principals, such as the notion of goodwill, into the Bankruptcy Code's and the bankruptcy courts' treatment of trademarks would sufficiently resolve that gap in protection. Short of congressional action to amend the IPBPA, this resolution is practical and effective in providing protection to trademarks equal to the protection provided to other intellectual property assets.

Part IV considers the good-faith requirement under 11 U.S.C. Sec. 363(m) of the Bankruptcy Code and how that requirement might factor into the treatment of a trademark asset of a bankruptcy estate.²⁰The good faith requirement under Sec. 363(m) protects purchasers of an asset from reversal of that purchase on appeal of the authorization order if the purchase was made in good faith.²¹

The Bankruptcy Code itself does not provide a definition of "good faith" to assist in determining whether a purchaser of assets from a bankruptcy estate is a good-faith purchaser.²²Trademark law mandates that an owner of a trademark who wishes to sell that mark also must sell the goodwill associated with the mark itself.²³When a mark is sold as an asset of a chapter 11 bankruptcy estate, courts consistently fail to consider whether the goodwill of the mark is being sold along with the mark itself, and only consider the "good faith" requirement within the context of the Bankruptcy Code.²⁴By imputing the requirements of trademark law into the sale of a mark, the bankruptcy courts could easily adopt the goodwill requirement into the sale of a mark in bankruptcy.

In Part V this Comment evaluates the outcome of the Bankruptcy Code's treatment of trademarks as outside the protection of intellectual property specifically in the In re Gucci case. Because the Bankruptcy Code does not afford similar protection to trademarks as it does to copyrights, patents, and trade secrets, the Guccio Gucci company was able to purchase a mark with the intent to destroy that mark, and negatively affect many licensees that depend on the mark for their businesses.²⁵The court specifically addressed whether

Guccio Gucci's intent to destroy the mark after purchase of it constituted bad faith within the meaning of the Bankruptcy Code and concluded that the intent to destroy was irrelevant.²⁶

Part VI of this Comment explores the implications of imputing the goodwill requirement of trademark law into the good-faith purchaser requirement of Sec. 363(m) of the Bankruptcy Code. Specifically, in the In re Gucci case, doing so could have prevented the sale of the trademark to a company whose sole intent in purchasing the mark was to completely destroy the existence of the mark and all uses of it. Many scholars argue for amendment of the IPBPA to include trademarks within the definition of intellectual property.²⁷In the meantime, absent congressional action,²⁸there is a commonsense solution to this oversight by which bankruptcy courts can easily impute the goodwill requirement into the meaning of a good-faith purchaser of trademark assets.

I. HISTORY OF THE GUCCI FAMILY DISPUTE OVER THE MARK

The history of the Gucci family is an intriguing tale of jealousies and rivalries. Guccio Gucci founded the family business in 1921 when he opened a small leather goods shop in Florence, Italy.²⁹By the mid-1950s the family had shops in major cities around the world including New York and London.³⁰

When Guccio Gucci died in 1953, his son Aldo sought to transform the business into a globally recognized brand.³¹At this time the family disputes began, with sons Aldo and Rodolfo taking over the business and reportedly resorting to slapping one another over disagreements about the brand.³²Over the next decade, Aldo, Rodolfo and the four grandsons of Guccio Gucci- Paolo, Roberto, Giorgio, and Maurizio-would fight over the Gucci mark physically, legally and, in the case of Paolo and Maurizio, to their deaths.³³

Paolo Gucci became the chief designer of almost all Gucci products³⁴and afterwards there was a divide between Paolo and the other Gucci family members.³⁵Paolo wanted to expand the Gucci brand to a larger market than that provided by the Gucci family shops alone.³⁶The other family members, including his father Aldo, wanted to maintain a sense of exclusivity by making the Gucci products available in only limited markets and on a smaller array of products.³⁷Paolo, on the other hand, wanted the Gucci logo on everything from fine leather shoes and bags to coffee mugs and key chains.³⁸At the height of the tension between Paolo and the other Gucci family members, Paolo was allegedly assaulted with a tape recorder by his cousin Maurizio, supposedly at the request of Paolo's father, Aldo, at a company board meeting in Florence in 1982.³⁹Shortly before this, Paolo, in a disagreement with his father and uncle over a licensing agreement, reported his father to authorities in the United States for tax evasion.⁴⁰

Maurizio, son of Rodolfo, struck the final blow to Paolo Gucci in his involvement in the family business. Once Rodolfo died in 1983, Maurizio inherited fifty percent of the family business.⁴¹Persuading Paolo to join him, together the two joined with a third party investment consortium called Investcorp to overthrow the Gucci board.⁴²Once the overthrow was complete, Maurizio ousted Paolo and hired Giorgio as his vice president instead.⁴³This set the course for Paolo Gucci to come to America and attempt to set up a rival firm in his own name.⁴⁴Maurizio was murdered by a hit man hired by his ex- wife in 1995,⁴⁵and the Gucci brand passed entirely out of the hands of the Gucci family.⁴⁶The Bahrain-based company, Investcorp, acquired half of the business belonging to Aldo Gucci...