On May 20, 2019, the Supreme Court held in Mission Products Holdings, Inc. v. Tempnology, LLC that a debtor-licensor's rejection of a trademark license agreement does not "deprive the licensee of its rights to use the trademark." This holding resolves a longstanding circuit split in the Federal Courts of Appeal about the effects of bankruptcy on trademark licenses.

Background

On May 20, 2019, in Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___ (2019), the Supreme Court resolved an area of ongoing concern for parties to trademark licenses. The court addressed a circuit split on whether a trademark licensee may continue to use a trademark for the term of the license, after the license has been rejected in bankruptcy.

On May 20, 2019, the U.S. Supreme Court issued its long-awaited decision in Mission Products Holdings, Inc. v. Tempnology, LLC nka Old Cold LLC, (Case No. 17-1657, U.S. Supreme Court, May 20, 2019) ("Tempnology"). The U.S. Supreme Court decided that a trademark licensee can continue to use a trademark license even when a bankrupt trademark licensor rejects the license agreement.

On 20 May 2019 the Supreme Court resolved a significant issue of trademark and bankruptcy law that was decades in the making. Until then, a circuit split with no grey area dictated one of two outcomes when a trademark licensor files for bankruptcy and either the bankruptcy trustee (or debtor in possession) rejects a trademark licence: the licensee's rights terminate as a result of the rejection or they survive.

The Supreme Court reminded bankrupt debtors on Monday that mere rejection of a contract does not turn back the clock to avoid contractual obligations. This was the thrust of its holding in Mission Product Holdings, Inc. v. Tempnology, LLC, which held that a rejection of an executory contract—in this case, a trademark license—under Section 365(a) constitutes a breach of the contract, not a rescission.

Can a trademark licensee continue using a licensed trademark (legally, that is) even after the licensor has declared bankruptcy and—as allowed by the Bankruptcy Code—rejected the licensing agreement? As the Supreme Court has now said, the answer is yes.

The U.S. Supreme Court clarified that a trademark licensor’s bankruptcy may not give it the right to extinguish the licensee’s continued right to use the trademark in accordance with the terms of the license agreement.

THE STATUTE

Several provisions in Section 365 of the Bankruptcy Code (11 U.S.C.) were relevant:

In Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___ (2019), the Supreme Court held that a debtor’s rejection of a trademark license does not eliminate the licensee’s right to use the trademark through the completion of the contract, settling a split in the Circuits. The Supreme Court also ruled that the case was not moot, despite the bankruptcy estate’s distribution of all of its assets, which may have important implications for the developing jurisprudence on mootness in bankruptcy cases.

The United States Supreme Court in an 8-1 decision issued on May 20, 2019, settled a split among the Circuits in holding a debtor’s rejection of a trademark license agreement under Bankruptcy Code Section 365 did not rescind the rights of the trademark licensee under the agreement. In Mission Product Holdings, Inc. v. Tempnology, LLC, the Court adopted what is known as the “rejection-as-breach” approach, which holds that post-contract rejection a trademark licensee still retains its rights under applicable state law.

Decision is a Win for Trademark Licensees