On May 20, 2019, the Supreme Court decided Mission Product Holdings, Inc. v. Tempnology, LLC, No. 17-1657. In an 8-1 decision, and in a majority opinion authored by Justice Kagan, the Court held that the debtor-licensor’s rejection of a trademark license under Section 365 of the Bankruptcy Code “has the same effect as a breach outside bankruptcy” and, as such, the debtor, through such a rejection, could not rescind the non-debtor’s licensee’s right to continue to use the trademarks; in short, the debtor-licensor’s rejection of the license “cannot revoke the license.” Slip Op. at 16-17.
The U.S. Supreme Court provided much-needed clarity on the effect bankruptcy has on the licensor’s right to revoke a trademark license. On May 20, 2019, SCOTUS decided, in an 8-1 decision, that “A debtor’s rejection of an executory contract under Section 365 of the Bankruptcy Code has the same effect as a breach of that contract outside bankruptcy. Such an act cannot rescind rights that the contract previously granted.” Mission Product Holdings, Inc. v. Tempnology, LLC NKA Old Cold LLC No. 17-1657 (U.S. May 20, 2019).
In an 8-1 decision, the Supreme Court settled a long-standing circuit split regarding the impact of bankruptcy filings on trademark licenses. Until May 20th, brand owners in some jurisdictions could use bankruptcy protections to terminate the rights of third parties to use its licensed trademarks. Now, it is clear that a bankrupt licensor cannot rescind trademark license rights. Licensees can continue to do whatever their trademark licenses authorize, even if the licensor has filed for bankruptcy.
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
Previously published in Bankruptcy Law News, Vol. XXIV, No.28.
Courts possess inherent authority to regulate conduct in their courtrooms and to enforce their orders. All litigants who are unsuccessful in civil litigation are disappointed. Fortunately, after they have exhausted their remedies, virtually all of them recognize the binding nature of the adverse ruling and move on. But not everyone is so sanguine and accepting. Certain litigants refuse to accept the court’s ruling, and indeed, will objectively and affirmatively refuse to abide by such decrees.