Decision is a Win for Trademark Licensees

On May 20, 2019, the United States Supreme Court issued its decision in Mission Product Holdings Inc. v. Tempnology LLC (In re Tempnology) ("Tempnology"), 587 U.S. ___, 2019 WL 2166392 (U.S. May 20, 2019), which finally resolved an issue that has created confusion and uncertainty for more than 30 years regarding the consequences flowing from a debtor licensor's rejection of a trademark license in bankruptcy.

In Mission Product Holdings, the Supreme Court Endorses “Rejection-as-Breach” Rule and Interprets Broadly the Contract Rights that Survive Rejection

In Mission Products Holdings, Inc. v. Tempnology, LLC, the U.S. Supreme Court resolved a question that vexed the lower courts and resulted in a circuit split: does the rejection by a debtor-licensor of a trademark license agreement terminate the licensee’s rights under the rejected license?

In Mission Product Holdings Inc. v. Tempnology LLC,1 the Supreme Court, in an 8-to-1 decision, held that bankrupt trademark owners cannot use bankruptcy law to unilaterally revoke a trademark license. The Court summarized the question at issue and held that:

Executive Summary

Last week, the Supreme Court (the “Court”) ruled a debtor in bankruptcy cannot use the Bankruptcy Code to cut off a licensee’s rights under a license to use the debtor’s trademarks. This ruling resolves a Circuit split and brings the treatment of trademark licenses from a bankrupt debtor in line with patent and copyright licenses, which are protected statutorily by Bankruptcy Code section 365(n).

Bankruptcy protection under Section 365 does not give brand owners/debtor-licensors the unilateral right to rescind trademark licensing agreements.

On May 20, 2019, the United States Supreme Court ruled that a debtor-licensor’s ‘rejection’ of a trademark license agreement under section 365 of the Bankruptcy Code does not terminate the licensee’s rights to continue to use the trademark. The decision, issued in Mission Product Holdings, Inc. v. Tempnology, LLC, resolved a split among the Circuits, but may spawn additional issues regarding non-debtor contractual rights in bankruptcy.

The Court Tells Debtors, “No Take Backs”

Holders of trademark licenses can breathe a sigh of relief after the Supreme Court issued its decision on May 20, 2019, in Mission Product Holdings, Inc. v. Tempnology, LLC[1] holding that a debtor-licensor’s rejection of a trademark licensing agreement under section 365 of the bankruptcy code does not automatically terminate the licensee’s right to continue using the trademark.

For almost 30 years, owners and licensees of intellectual property had no firm answer to this important question: if the owner of a trademark rejects a license agreement in bankruptcy, does the licensee then lose its right to use the mark? The United States Supreme Court has now settled that question in favor of licensees in Mission Product Holdings, Inc. v. Tempnology, LLC (U.S. May 20, 2019), by ruling that the owner may not, by rejecting the license, extinguish the licensee's right to use the licensed mark.