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:

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?

Key Notes:

The Supreme Court recently limited the ability of debtors to use contract rejection in bankruptcy to shed unwanted trademark licensees. But the Court acknowledged that the result could change if the trademark licensing agreement had different termination rights. Going forward, parties entering into trademark licensing agreements will need to consider this decision carefully as they negotiate termination rights in the event of a bankruptcy by the licensor.

The U.S. Supreme Court has ruled that bankrupt trademark licensors cannot use federal bankruptcy law to rescind the rights of their trademark licensees to continue use of duly licensed trademarks. The decision settles a long-simmering circuit split on a question that the International Trademark Association has labelled “the most significant unresolved legal issue in trademark licensing.”

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”