On May 20, 2019, the U.S. Supreme ruled a trademark licensee can continue to use the trademark after a bankrupt licensor rejects the license agreement. The case is Mission Product Holdings, Inc. v. Tempnology, LLC. Some lower courts had ruled that rejection of trademark license agreement terminated the licensee’s rights to use the trademark.

Yesterday the U.S. Supreme Court ruled that bankrupt trademark licensors cannot unilaterally rescind trademark license rights previously granted, resolving a longstanding split among the circuits and providing much needed certainty to intellectual property (IP) licensors and licensees. In fact, the International Trademark Association had dubbed this "the most significant unresolved legal issue in trademark licensing."

Prior to Monday, May 20, 2019, the rights of a trademark licensee to continue to use the mark after the licensor “rejected” the license in bankruptcy remained an unresolved legal issue with licensees left scrambling. If the Chapter 11 Debtor “rejects” the license contract, then must the licensee immediately stop all sales of products bearing the mark and “get in line” with other unsecured creditors for its damages? Or, can they continue to sell products bearing the mark when the trademark owner expressed to desire to monitor the proper and effective use?

Yesterday, in Mission Product Holdings v. Tempnology LLC, the Supreme Court held that a trademark licensee may continue using a licensed trademark after its licensor files for bankruptcy and rejects the relevant license agreement. While a debtor-licensor may "reject" a trademark license agreement under Section 365 of the Bankruptcy Code, such rejection is only a breach of the agreement and does not allow the licensor to revoke the licensee's rights.

On Monday, the U.S. Supreme Court finally resolved a trademark law issue that had remained unsettled for years: whether a bankrupt trademark owner may revoke a trademark licensee’s rights to a licensed trademark by “rejecting” the license agreement under a specific provision of the Bankruptcy Code. The Court, in an 8-1 decision, held that the Code provided a bankrupt trademark owner with no such right, and thus a trademark licensee maintains its right to continue using the trademark per the terms of the license.

The Supreme Court’s decision today in Mission Product Holdings, Inc. v. Tempnology LLC resolved longstanding uncertainty at the intersection of trademark and bankruptcy law. In particular, the Court determined whether the rejection of a trademark license in a bankruptcy case deprives the trademark licensee of its rights under the license for which it had likely paid a lot of money.

On May 20, 2019, United States Supreme Court settled a circuit split, deciding that a bankrupt company’s decision to reject an existing contract does not revoke a trademark licensee’s right to continue using the licensed mark.

Earlier today, the Supreme Court finally answered the question of whether a trademark licensee is protected when the trademark owner/licensor files a bankruptcy petition and rejects the trademark license in accordance with section 365 of the Bankruptcy Code. To cut to the chase, trademark licensees won.

On Monday, May 20, 2019, the United States Supreme Court issued an 8-1 decision holding that a bankrupt company’s decision to reject an existing license of its trademarks does not terminate a licensee’s right to continue using the licensed trademarks.

Mission Product Holdings, Inc. v. Tempnology, LLC, No. 17-1657

Today, the Supreme Court held in an 8-1 decision that when a debtor, acting under Section 365 of the Bankruptcy Code, rejects a contract licensing its trademarks, the contract is not rescinded and the debtor thus cannot revoke the trademark license.