This week, the US Supreme Court resolved a division among circuit courts as to whether a trademark license agreement remains in effect when a trademark owner files a bankruptcy petition and rejects the trademark license in accordance with the Bankruptcy Code.
Section 365 of that code lets a debtor either assume or reject any “executory contract,” which is a contract that neither party has finished performing.
In some parts of the country, courts had held that such a rejection of a license agreement allowed the licensee to continue using the trademark. Courts in other areas, however, held that rejection terminated the license, so the licensee could no longer use the mark.
The case decided by the Supreme Court, Mission Product Holdings, Inc. v. Tempnology LLC, involved a license that Tempnology had granted, allowing Mission Product to use Tempnology’s trademarks in connection with clothing and accessories.
After Tempnology filed for bankruptcy reorganization, it rejected the trademark license agreement and treated that rejection as a termination of the agreement.
Mission Product, however, argued that the rejection of the license agreement under Section 365 didn’t terminate the agreement, but only freed Tempnology from future performance.
The Bankruptcy Court approved the rejection and held that the rejection terminated Mission Product’s right to use the Tempnology marks. Although the Bankruptcy Appellate Panel reversed that decision, the Court of Appeals for the First Circuit held that the rejection terminated the license.
The Supreme Court held that rejection of a trademark license is a breach of the license, not a rescission or termination of the license. This rejection allows the licensor to stop performing under the license, but the license to use the mark remains in effect.
“A rejection breaches a contract but does not rescind it,” wrote Justice Kagan. “And that means all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”
In other words, the licensee may continue using the mark in accordance with the license, even after the bankrupt licensor has rejected the license.
Please feel free to contact us if you have any questions about the Mission Product case, trademark licensing or trademark protection.
Photo by Melinda Gimpel on Unsplash
