Mission Complete: Supreme Court Rules In Favor Of Trademark Licensees

May 20, 2019 | Michael C. Cannata | Frank M. Misiti | Stuart I. Gordon | Stephen J. Smirti, Jr. | Intellectual Property

Trademark licensees no longer need to fear the possibility of losing the right to use their licensed marks if the licensor files for bankruptcy. On May 20, the United States Supreme Court issued its decision in Mission Product Holdings, Inc. v. Tempnology, LLC nka Old Cold LLC, 587 U.S. __ (2019), holding that a licensor’s rejection of a trademark license agreement in bankruptcy does not terminate the licensee’s continued right to use the licensed trademarks.

In an 8-1 decision authored by Justice Kagan, the Court resolved a long standing dispute between Tempnology, LLC n/k/a Old Cold LLC (“Tempnology”), a licensor, who attempted to preclude its licensee, Mission Product Holdings, Inc. (“Mission Products”), from continuing to use certain trademarks after Tempnology filed for bankruptcy and requested that the license agreement be rejected under 11 U.S.C. § 365(a).

The Court reasoned that “[a] rejection breaches a contract but does not rescind it.  And that means all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”  The Court began its analysis with 11 U.S.C. § 365(a), which provides a debtor with the ability to assume or reject any executory contract.  The Court next examined 11 U.S.C. § 365(g) which describes what it means to reject an executory contract.  Juxtaposing these provisions, the Court held that “rejection is a breach” that is “deemed to occur immediately before the date of the filing of the petition.”  As a result, the Court held that:

The debtor can stop performing its remaining obligations under the agreement.  But the debtor cannot rescind the license already conveyed.  So the licensee can continue to do whatever the license authorizes.

The Court next addressed Tempnology’s argument that the failure of 11 U.S.C. § 365(n)  – – the provision that allows licensees of certain types of intellectual property to retain contractual rights post-rejection – – to include trademarks means that trademark licensees do not have such rights.  The Court rejected this argument reasoning that “no negative inference arises [from the failure to include trademarks in Section 365(n)].  Congress did nothing in adding Section 365(n) to alter the natural reading of Section 365(g) – that rejection and breach have the same results.”

In addition, the Court rejected Tempnology’s argument that to allow a licensee to continue to use a trademark post-rejection would require a licensor to expend its scarce resources to maintain quality control of the trademark or otherwise risk losing it.  The Court refused to acknowledge such a trademark-specific distinction under Section 365 which, in effect, would “allow the tail to wag the Doberman.”

Finally, the Court rejected Tempnology’s argument that the case was moot concluding that Mission Products presented a claim for monetary damages in the form of lost profits based on its inability to use the trademarks at issue.

The case was closely monitored by Michael C. Cannata, Frank Misiti, Stuart I. Gordon, and Stephen J. Smirti, Jr., who filed an amicus brief in the case on behalf of the New York Intellectual Property Law Association.  The position advanced by our Firm on behalf of the Association was the position ultimately adopted by the Court.

 

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