The U.S. Supreme Court held today in Mission Product Holdings, Inc. v. Tempnology, LLC that a trademark licensee may retain certain rights under a trademark licensing agreement even if the licensor enters bankruptcy and rejects the licensing agreement at issue. Relying on the language of section 365(g) of the Bankruptcy Code, the Supreme Court emphasized that a debtor’s rejection of an executory contract has the “same effect as a breach of that contract outside bankruptcy” and that rejection “cannot rescind rights that the contract previously granted.”

The United States Bankruptcy Court for the District of Connecticut recently examined a question at the heart of an existing circuit split regarding the consequences of trademark license rejection in bankruptcy: can a trademark licensee retain the use of a licensed trademark post-rejection? In re SIMA International, Inc., 2018 WL 2293705 (Bankr. D. Conn. May 17, 2018).

Trademark licensees that file for bankruptcy protection face uncertainty concerning their ability to continue using trademarks that are crucial to their businesses. Some of this stems from an unsettled issue in the courts as to whether a licensee can assume a trademark license without the licensor’s consent. In In re Trump Entertainment Resorts, Inc., 2015 BL 44152 (Bankr. D. Del. Feb. 20, 2015), a Delaware bankruptcy court reaffirmed that the ongoing controversy surrounding the “actual” versus “hypothetical” test for assumption of a trademark license has not abated.

On October 31, 2014, Bankruptcy Judge Kaplan of the District of New Jersey addressed two issues critically important to intellectual property licensees and purchasers: (i) can a trademark  licensee use section 365(n) of the Bankruptcy Code to keep licensed marks following a  debtor-licensor’s rejection of a license agreement?; and (ii) can a “free and clear” sale of  intellectual property eliminate any rights retained by a licensee? In re Crumbs Bake Shop, Inc., et  al., 2014 WL 5508177 (Bankr. D.N.J. Oct. 31, 2014).

A debtor's decision to assume or reject an executory contract is typically given deferential treatment by bankruptcy courts under a "business judgment" standard. Certain types of nondebtor parties to such contracts, however, have been afforded special protections. For example, in 1988, Congress added section 365(n) to the Bankruptcy Code, granting some intellectual property licensees the right to continued use of licensed property, notwithstanding a debtor's rejection of the underlying license agreement.