This past May, in a highly-anticipated decision, the Supreme Court held in Mission Product Holdings, Inc. v. Tempnology, LLC that a debtor’s rejection of an executory contract under Section 365 of the Bankruptcy Code has the same effect as a breach of contract outside of bankruptcy.
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”
The Supreme Court this week resolved a long-standing open issue regarding the treatment of trademark license rights in bankruptcy proceedings. The Court ruled in favor of Mission Products, a licensee under a trademark license agreement that had been rejected in the chapter 11 case of Tempnology, the debtor-licensor, determining that the rejection constituted a breach of the agreement but did not rescind it.
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The decision provides some additional, though limited protection for licensees of trademarks in bankruptcy proceedings
Introduction
In In re Tempnology LLC,1 the Bankruptcy Appellate Panel (the BAP) for the First Circuit provided additional clarity regarding the rights of intellectual property licensees under section 365(n) of the United States Bankruptcy Code,2 particularly with respect to trademark licenses. In Tempnology, the First Circuit BAP concluded that:
Section 365(n) extends only to licenses of "intellectual property" as defined in the Bankruptcy Code,3
Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC20 In the Sunbeam Products case, the Seventh Circuit held that a trademark licensee could continue to use a trademark after the license was rejected by the debtorlicensor, even though the protections of section 365(n) of the Bankruptcy Code do not extend to licensees of trademarks.
In re Exide Technologies5
In 1991, Exide Technologies sold substantially all of its industrial battery business to EnerSys Delaware, Inc. (then known as Yuasa Battery (America), Inc.).
In light of the current uncertainty surrounding the rights of trademark licensees when a debtor-licensor seeks to reject the underlying license agreements in bankruptcy, licensees may wish to consider strategies to protect their rights.
Recent bankruptcy appellate rulings have addressed the issue of what rights a trademark licensee has after a debtor-licensor rejects its trademark license in bankruptcy.