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.

The United States Supreme Court in Mission Product Holdings, Inc. v. Tempnology, LLC (No. 17-1657) (May 20, 2019) resolved a deep circuit split and held that a licensees’ rights under trademark licenses survive a debtor-licensor’s rejection in bankruptcy, resolving an ambiguity presented in the intersection of intellectual property law and bankruptcy law that has plagued courts for decades.

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.”

Trademark licensors and licensees, as well as their stakeholders (including lenders), should heed the U.S. Supreme Court’s decision in Mission Product Holdings, Inc. v. Tempnology, LLC n/k/a Old Cold, LLC, No. 17-1657. The Justices resolved a long-standing question arising from the intersection of bankruptcy and trademark law: whether a debtor/licensor’s rejection of a trademark license terminates the licensee’s right to use a trademark after rejection.

Trademark licensors and licensees, as well as their stakeholders (including lenders), should heed the U.S. Supreme Court’s decision in Mission Product Holdings, Inc. v. Tempnology, LLC n/k/a Old Cold, LLC, No. 17-1657. The Justices resolved a long-standing question arising from the intersection of bankruptcy and trademark law: whether a debtor/licensor’s rejection of a trademark license terminates the licensee’s right to use a trademark after rejection.

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

On May 20, 2019, an 8-1 majority of the United States Supreme Court held that a bankruptcy debtor’s rejection of a trademark license agreement does not constitute a rescission of the license under the Bankruptcy Code. This resolved a split among federal circuit courts previously addressing the issue. Mission Product Holdings, Inc. v. Tempnology, LLC, No. 17-1657 (May 20, 2019).

The US Supreme Court, in an 8-1 decision authored by Justice Kagan, reversed a decision of the First Circuit and held that the rejection of a trademark license agreement under Bankruptcy Code Section 365 (11 U.S.C. § 365) constitutes a breach of the license agreement that has the same effect as a breach outside bankruptcy. Therefore, the licensor’s rejection of the license agreement does not rescind or terminate the licensee’s rights under the license agreement, including the right to continue using the mark. Mission Product Holdings Inc. v. Tempnology, LLC, Case No.