Trademark Licenses Declared "Safe" after Bankruptcy
The U.S. Supreme Court finally rules in Mission Product Holdings, Inc. v. Tempnology, LLC that a debtors ability to reject executory contracts under Section 365(a) of the Bankruptcy Code does not permit the debit to rescind trademark licenses.
Thus, trademark licensees cannot unilaterally be deprived of their rights to use a debtor’s mark. In plain English that decision means that trademark licenses will survive bankruptcy. This Supreme Court’s decision rests at the intersection of trademark and bankruptcy law, and it will have broad implications in both areas. The case in Mission Product Holdings, LLC v. Tempnology, LLC, No. 17-1657 (2019) resolved a long-standing circuit split that the International Trademark Association (INTA) had referred to as “the most significant unresolved legal issue in trademark licensing.”
As a background, in 2012, Tempnology, LLC, owner of the COOLCORE trademark, entered into a license agreement with Mission Product Holdings, Inc. that gave Mission two rights: the non-exclusive right to use the COOLCORE trademark in the United States and around the world, and the exclusive right to distribute certain COOLCORE products in the United States. The COOLCORE license was to expire in July 2016 but Tempnology filed for bankruptcy in September 2015. The COOLCORE license was an “executory contract” (a contract that neither party had finished performing), so Tempnology could either “assume” the COOLCORE license, obligating both parties to continue performing as agreed, or “reject” it, relieving Tempnology of its obligations but “breaching” the agreement and allowing Mission to sue for damages. Despite nearly a three-year gap between the expiration of the COOLCORE license (July 2016) and the Supreme Court’s opinion (May 20, 2019), the Court found that the case was ripe for determination based on Mission’s lost-profits claim arising from Mission’s inability to use the COOLCORE trademark after Tempnology rejected the COOLCORE license. While Justice Gorsuch dissented, believing the case was moot because the license had expired, the majority disagreed and proceeded to the merits. The decision provides much-needed certainty both for debtors and licensees regarding how ongoing trademark licenses will be treated during restructuring. Trademark licensees will have additional comfort that their reliance on a licensed trademark in building a business will not be eviscerated by an untimely bankruptcy by the licensor.