The court noted that the DOJ might prosecute cannabis-related businesses under the CSA, notwithstanding plan confirmation. Thus, Garvin may have foreclosed any future DOJ CSA-based noneconomic objections to cannabis reorganizations.
In Mission Product Holdings Inc. v. Tempnology LLC, No. 17-1657, the Supreme Court has held that a debtor’s rejection of an executory contract does not abrogate the rights others enjoy under that contract. Although the Court’s ruling specifically dealt with rights to a trademark license, the reasoning appears broader than that. The Supreme Court has in effect done away with a debtor’s right to reject any lease, concession, license, or agreement and then prevent a counterparty from enjoying the use of the rights previously granted.
The question regarding whether a trademark licensee may continue to use a license after a debtor-licensor rejects the license in its bankruptcy case has now been answered. On Monday, May 20, 2019, the Supreme Court handed down an 8-1 opinion in Mission Product Holdings, Inc. v.
The US Supreme Court has reversed the First Circuit’s ruling in Mission Products (Mission Prod. Holdings v. Tempnology, LLC (In re Tempnology, LLC), 879 F.3d 389 (1st Cir. 2018)), thereby allowing the trademark licensee in that case to continue using the licensed trademark despite the debtor trademark licensor’s rejection of the underlying trademark agreement in its bankruptcy case.
United States District Court, C.D. California, May 21, 2019
The Supreme Court’s recent decision in Mission Product Holdings, Inc., v. Tempnology, LLC clarifies that a debtor-licensor’s rejection of a trademark license under § 365(a) of the Bankruptcy Code is treated as a breach, and not as a rescission, of that license under § 365(g). The Court held that if a licensee’s right to use the trademark would survive a breach outside of bankruptcy, that same right survives a rejection in bankruptcy.
In Part 1, we discussed how, despite widespread usage, termination in the event of bankruptcy clauses (“ipso facto” clauses) are generally unenforceable pursuant to the bankruptcy code. In this second part, we discuss why these clauses are still prevalent in commercial transactions and the exceptions that allow for enforceability in certain situations.
Why Do Ipso Facto Clauses Remain in Most Contracts?
If ipso facto clauses are generally not enforceable, then why do practically all commercial agreements continue to include them? There are several reasons.
On May 20, 2019, the U.S. Supreme Court ruled in Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___, that a debtor’s ability to reject executory contracts under Section 365(a) of the Bankruptcy Code does not permit the debtor to rescind trademark licenses. In concluding that trademark licensees cannot unilaterally be deprived of their rights to use a debtor’s mark, the Court resolved a long-standing circuit split that the International Trademark Association had referred to as “the most significant unresolved legal issue in trademark licensing.”
On Monday, May 20, 2019 the Supreme Court settled a decades-long circuit split regarding a licensee’s ongoing trademark usage rights following the rejection of a trademark license agreement under the U.S. bankruptcy code. In an eight to one decision, the Court found that “rejection breaches a contract but does not rescind it. And that means all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”