What happens to a trademark license when the brand owner goes bankrupt? This is a question to be addressed by the Supreme Court in Mission Product Holdings, Inc. v. Tempnology, LLC, which is a question the International Trademark Association, who filed an amicus brief in support of the petition for certiorari, called “the most significant unresolved legal issue in trademark licensing.” The Court will seek to resolve a split in circuits as to whether a debtor-licensor can terminate a trademark license agreement by “rejection,” thereby taking back the trademark rights it licensed and precluding a licensee from using the trademark.
In the case, Tempnology, LLC had a contract with Mission Product Holdings providing it with non-exclusive licenses to certain intellectual property rights and exclusive U.S. distribution rights to certain products. In 2015, Tempnology filed bankruptcy (Chapter 11) and rejected its license agreements with Mission. The First Circuit Court of Appeals held that Mission’s trademark license and exclusive distribution rights were terminated with the bankruptcy.
Although the Bankruptcy Code allows a debtor to “reject” contracts in order to free itself from obligations (e.g. a real property lease), there is an exemption for intellectual property. The problem is that the Bankruptcy Code does not include trademarks in its definition of intellectual property. As a result, the courts are divided. In the Seventh Circuit’s decision of Sunbeam Products, Inc. v. Chicago Manufacturing, LLC, the court held that the licensee maintained its rights in the trademarks, which were not “vaporized” by the debtor’s rejection of the licensing agreement. The First Circuit Court of Appeals, however, declined to follow Sunbeam and instead held in Mission Product Holdings that trademarks are not intellectual property within the meaning of the Bankruptcy Code and the non-debtor licensee cannot continue to use the trademarks.
As it stands, the circuit split has created a great deal of commercial uncertainty because trademark rights often are granted on a long-term basis, wherein a licensee undertakes a significant financial investment in promoting and building a business around the trademarked goods or services. The Supreme Court’s docket can be found here.