In May 2019, with its ruling in Mission Products Holding Inc. v. Tempnology, the US Supreme Court resolved a nationwide circuit split regarding what happens to a trademark license when the trademark owner and licensor declares bankruptcy. In an 8–1 decision, the Supreme Court held that rejection of a trademark license in bankruptcy constitutes a breach of the license agreement, which has the same effect as a breach outside bankruptcy in that a licensor’s rejection of a trademark license agreement does not rescind or terminate the licensee’s rights under the agreement, including the right to continue using the mark.
Section 365(n) of the Bankruptcy Code clarifies that the rights of an intellectual property licensee to use the licensed IP cannot be unilaterally cut off after the rejection of the license in bankruptcy. Under the Code, however, the definition of “intellectual property” does not include trademarks. Courts were thus split as to whether a trademark licensee retains the ability to use a debtor-licensor’s marks after the corresponding license is rejected in bankruptcy. The SCOTUS majority provided necessary clarification, holding that the debtor-licensor’s rejection cannot revoke the trademark license.
Heading into 2020, the high court’s interpretation of Section 365 of the Bankruptcy Code provides trademark licensees with some certainty regarding their rights to a licensed trademark in the event of the licensor’s bankruptcy. Nevertheless, open issues remain post-Mission Products. For example, because trademarks continue to fall outside of the Section 365(n) definition of “intellectual property,” the SCOTUS decision may not apply to every trademark license and licensee, since a party’s rights may be impacted by “applicable non-bankruptcy law,” such as special contract terms in a license agreement, or certain applications of state law. It also remains unclear as to whether a trademark licensee with exclusive rights can maintain such exclusivity after rejection of the license. As economists continue to forecast a recession in the year or two ahead, the Mission Products decision and remaining open questions regarding the treatment of trademark agreements in instances of bankruptcy may continue to build relevant jurisprudence and guide the drafting of trademark license agreements going forward.