In an 8-1decision issued on May 20, the Supreme Court held that rejection of an executory trademark license agreement in a bankruptcy of the licensor is merely a breach, and not a termination or rescission, of the agreement. The licensee retains whatever rights it would have had upon a breach of the agreement prior to bankruptcy and can continue to use the trademarks pursuant to its contractual rights under applicable law. Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___, No. 17-1657 (May 20, 2019).
Background
What Is the "Rule in Gibbs"?
The rule in Gibbs is a long-established common law principle in which the Court of Appeal determined that a debt governed by English law cannot be discharged or compromised by a foreign insolvency proceeding(Anthony Gibbs and Sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399). The rule in Gibbs remains a fundamental tenet of English insolvency law.
Why Does the Rule in Gibbs Matter?
In a brief but significant opinion, the United States District Court for the District of Delaware reversed a decision by the United States Bankruptcy Court for the District of Delaware and allowed more than $30 million in unsecured, post-petition fees incurred by an indenture trustee ("Indenture Trustee").1 In reversing, the District Court relied upon a uniform body of Court of Appeals opinions issued on the subject.
In this tumultuous retail climate, a string of recent conflicting court decisions remind retailers that the potential impact of a licensor bankruptcy on a trademark licensee’s rights may vary dramatically depending on the location of the licensor’s bankruptcy proceedings.
Although the legal community eagerly awaits the California Supreme Court’s decision on advance waivers in Sheppard, Mullin, Richter & Hampton v. J-M Mfg. (Cal. No. S232946), a recent decision in the Bankruptcy Court for the Southern District of New York in the case of In re: Relativity Media, LLC, has addressed similar issues and provides some guidance.
Toys “R” Us filed for bankruptcy in September 2017, with hopes that a strong holiday season would facilitate a successful reorganization.
On October 20, 2017, in In re MPM Silicones, LLC ("Momentive"), Nos. 15-1682, 15-1771, 15-1824, the Second Circuit Court of Appeals, considering the Supreme Court's opinion in Till v. SCS Credit Corp., 541 U.S. 465 (2004), adopted the Sixth Circuit's two-step approach to determining an appropriate cramdown interest rate that, in certain circumstances, results in the application of a market rate of interest. In doing so, the Second Circuit reversed the bankruptcy and district court holdings on the cramdown interest rate issue.
On June 22, Sears Canada Inc. ("Sears Canada") and certain affiliates1 (collectively, the "Sears Canada Group") sought and obtained insolvency protection under the Companies' Creditors Arrangement Act (CCAA) from the Ontario Superior Court of Justice (Commercial List) (the "Court"), which in turn appointed FTI Consulting Canada Inc. (FTI or the "Monitor") as monitor.
For many litigants, the decision whether to prosecute or defend a lawsuit vigorously boils down to a rather basic calculus: What are my chances of success? What is the potential recovery or loss? Is this a "bet the company" litigation? And, how much will I have to pay the lawyers? In many respects, it is not all that different from a poker player eyeing his chip stack and deciding whether the pot odds and implied odds warrant the call of a big bet.
For many litigants, the decision whether to prosecute or defend a lawsuit vigorously boils down to a rather basic calculus: What are my chances of success? What is the potential recovery or loss? Is this a “bet the company” litigation? And, how much will I have to pay the lawyers? In many respects, it is not all that different from a poker player eyeing his chip stack and deciding whether the pot odds and implied odds warrant the call of a big bet.