United States: Trademarks In Bankruptcy

Last week, in Mission Products, Inc. v. Tempnology, LLC, ___ U.S. ___, Case No. 17-1657 (May 20, 2019), the U.S. Supreme Court resolved a circuit split by clarifying the consequences of a bankruptcy debtor's rejection of a trademark license when the bankruptcy debtor is the trademark licensor. Rejection under such circumstances has the same effect as a breach outside of bankruptcy. When the bankruptcy debtor rejects the trademark license agreement, the licensee may choose to maintain its rights (and obligations) under the agreement or to terminate the agreement (and to seek damages for the breach in either case).

Mission Products, Inc. entered into a marketing agreement with Tempnology, LLC. Under the marketing agreement, Tempnology granted Mission Products a non-exclusive license to use Tempnology's COOLCORE mark. Before the marketing agreement expired, Tempnology filed a petition seeking bankruptcy protection.

Under section 365(a) of the Bankruptcy Code, debtors in bankruptcy may choose to assume or reject executory contracts (subject to the approval of the Bankruptcy Court). Executory contracts are contracts in which neither party has fully performed (i.e., performance is ongoing for both parties). The agreement between Mission Products and Tempnology was an executory contract. Tempnology chose to reject it. Rejecting an executory contract constitutes a breach of the contract that is deemed to have occurred immediately prior to filing the bankruptcy petition. This leaves the non-breaching party with a pre-petition claim against the bankruptcy estate, and places it alongside other unsecured creditors seeking remedies from the bankruptcy debtor.

Section 365 of the Bankruptcy Code gives certain rights to those whose executory contracts have been rejected (and therefore breached) by a bankruptcy debtor. Section 365(n) allows a licensee of intellectual property rights to continue exercising the rights granted to it under the license, so long as it continues to fulfill its corresponding obligations (e.g., royalty payments). However, the definition of "intellectual property" under the Bankruptcy Code covers patents and copyrights (and certain other intellectual property rights), but not trademarks.

Because of trademarks' absence from Section 365(n), different courts have treated the consequences of a bankruptcy debtor/trademark licensor's rejection of a trademark license differently (thus creating a split among the circuits). In this case, the Bankruptcy Court held that Tempnology's rejection of the license meant Mission Products no longer had permission to use Tempnology's trademarks. The Bankruptcy Court reasoned that because trademarks were not included within the scope of Section 365(n), this was an intended consequence of Tempnology's rejection of the marketing agreement. The Bankruptcy Appellate Panel reversed, noting that (according to Section 365(g) of the Bankruptcy Code) rejection of an executory contract is a breach of such agreement. Breaching an agreement does not ordinarily eliminate rights previously conferred by the agreement. However, the U.S. Court of Appeals for the First Circuit agreed with the Bankruptcy Court's original decision, and thus reversed the decision of the Bankruptcy Appellate Panel's decision. In doing so, the First Circuit reasoned that trademark licensors must exercise quality control over the use of their marks by licensees. By allowing the licensee to continue using the marks after the debtor in bankruptcy rejects the license agreement, the Bankruptcy Appellate Panel's decision would impose obligations on the debtor in bankruptcy. This would undermine some of the objectives of the Bankruptcy Code, to relieve debtors in bankruptcy of burdensome obligations. The U.S. Supreme Court accepted Mission Products' petition for certiorari.

The Supreme Court held that a debtor in bankruptcy's rejection of a trademark license agreement constitutes a breach (not rescission) of the agreement. The absence of a specific reference to trademarks in Section 365(n) does not indicate that Congress wanted the trademark licensee to lose its rights. Neither do the specific nuances of trademark law require that rejection of a trademark license result in rescission. Rather, rejection of the trademark license agreement constitutes breach of the agreement. This leaves the licensee with the right of termination (if it chooses) or the right to continue exercising its rights and performing its obligations (and to seek damages for the breach in either case). In this way, the purpose of bankruptcy is preserved. The assets of the debtor in bankruptcy are neither expanded nor contracted merely by virtue of the bankruptcy.

In reaching its conclusion, the Supreme Court addressed Tempnology's primary two arguments. First, the omission of trademarks from Section 365(n) does not warrant an inference that rejection of trademark licenses should result in rescission. Rather, it merely indicates Congress' focus on legislating a provision that would overrule a decision affecting patent licenses. Second, the special requirements imposed on trademark licensors do not justify treating rejection of trademark licenses as a rescission, especially as adopting Tempnology's reasoning would have implications beyond the trademark license context. Thus, the Supreme Court reversed the decision of the First Circuit and remanded for further proceedings consistent with its opinion.

Justice Sotomayor concurred in the opinion, but wrote separately to highlight two issues. First, not every trademark licensee may continue using the mark if the trademark licensor/debtor in bankruptcy rejects the trademark licenses. Rather, one must still look to non-bankruptcy law and the facts of the case at hand, the language of the agreement, and other law to determine whether the trademark licensee may continue to use the mark. Second, the rights of a trademark licensee may be broader than the rights of a licensee of other intellectual property if the limitations of Section 365(n) (such as the one prohibiting deduction of damages from royalty payments) do not apply to trademark licensees.

With this decision, the Supreme Court brings a measure of certainty to the impact the trademark licensor's bankruptcy could have on the relationship between the parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions