Mission Product Holdings, Inc. v. Tempnology, LLC

2019-05-20

Headline: Bankruptcy ruling says rejecting a trademark licensing agreement is a breach, not a cancellation, allowing licensees to keep trademark rights while debtors escape future contractual duties.

Holding: The Court held that when a debtor rejects an executory contract in bankruptcy, that rejection constitutes a breach but does not revoke a trademark license, so the licensee may retain rights the contract had conveyed.

Real World Impact:

Allows trademark licensees to keep using marks if their rights would survive an ordinary contract breach.
Gives licensees a money-claim for damages against the bankruptcy estate for lost use.
Limits debtors’ ability to unilaterally cancel previously granted trademark rights in bankruptcy.

Topics: trademark licenses, bankruptcy law, intellectual property, business reorganizations

Summary

Background

A company that owned the Coolcore brand licensed trademarks and distribution rights to another company. The brand owner then filed for Chapter 11 bankruptcy and asked the bankruptcy court to reject the licensing agreement. The bankruptcy court said rejection ended the license; a Bankruptcy Appellate Panel and a later appeal panel disagreed in part, and the First Circuit reinstated the rule that the rejection terminated the license. The licensee also seeks money damages for lost profits from the period it could not use the marks.

Reasoning

The Court posed the central question plainly: does a debtor’s rejection of an executory contract in bankruptcy take away rights already granted by that contract, here a trademark license? The Court relied on Section 365(a) and 365(g) of the Bankruptcy Code and on ordinary contract law to conclude that rejection “constitutes a breach” but does not rescind the contract. Breach outside bankruptcy normally leaves the injured party’s contract rights intact unless that party elects otherwise. The Court rejected arguments drawn from special statutory exceptions and trademark law concerns, and it emphasized that allowing rejection to cancel previously granted rights would improperly let debtors undo transfers that Congress kept tightly limited.

Real world impact

The decision means a trademark licensee may continue using marks that would survive a nonbankruptcy breach, while the debtor still escapes future performance obligations and the licensee’s damages claim is treated as a pre-petition claim in the bankruptcy. The Court limited its decision to trademark rights and noted that other kinds of intellectual property are governed by different statutory rules. The opinion reverses the First Circuit and sends the case back for further proceedings.

Dissents or concurrances

A concurring Justice agreed but stressed that post-rejection rights depend on whether nonbankruptcy law would let the license survive and noted statutory differences for other IP; a dissent argued the case might be moot and should have been dismissed.