The U.S. Supreme Court recently resolved whether, pursuant to Section 365 of the Bankruptcy Code, a debtor-licensor's rejection of a trademark license terminates rights of the licensee that would survive the licensor's breach under relevant non-bankruptcy law. In Mission Product Holdings, Inc. v. Tempnology, LLC, the Court ruled that rejection does not terminate the licensee's rights on the grounds that a "rejection breaches a contract but does not rescind it."
As explained more fully in a Cadwalader memorandum, the Court adopted what it called a "rejection-as-breach" rule and rejected what it called a "rejection-as-rescission" rule. The attorneys noted that the Court's expansive reading of the "rejection-as-breach rule" could have ramifications that extend beyond the trademark or intellectual property context because the rule indicates that contractual rights under a rejected contract may survive in a more robust form than was often assumed.
The Mission decision aims to (i) bring the bankruptcy treatment of trademark licenses into line with the bankruptcy treatment of other forms of intellectual property, and (ii) prevent opportunism on the part of debtor-licensors who could use bankruptcy as a way to free themselves of existing licenses in order to remarket their intellectual property in a lucrative manner.
The memorandum was authored by Ingrid Bagby, Eric Waxman and Casey Servais.
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