Supreme Court Rules Trademark License Survives Bankruptcy
May 20, 2019
In Mission Product Holdings Inc. v. Tempnology LLC, case number 17-1657, the U.S. Supreme court ruled that a brand owner cannot use bankruptcy law to unilaterally revoke a trademark license, resolving a longstanding circuit split on the effects of bankruptcy in trademark licensing.
In an 8-1 vote, the Court held that a bankrupt company’s decision to reject an existing contract during bankruptcy has the same effect as a breach of contract outside of bankruptcy and therefore cannot rescind rights previously granted by the contract. In delivering the opinion of the Court, Justice Kagan wrote, “The question is whether the debtor-licensor’s rejection of that contract deprives the licensee of its rights to use the trademark. We hold it does not. A rejection breaches a contract but does not rescind it. And that means all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”
Generally bankruptcy law gives debtors the right to reject most contracts, but circuit courts have split on the issue of whether a defunct trademark owner can use bankruptcy law protections to revoke a license. The Seventh Circuit had previously held that a licensee can keep using a trademark even after the licensor declares bankruptcy while the First Circuit ruled that allowing a license to survive would burden the debtor with the obligation of monitoring how a trademark was being used – a type of obligation that bankruptcy law is intended to void.
In the meantime, if you have any questions regarding the above, please feel free to contact us.
Stephen B. Samlan
Knechtel, Demeur & Samlan
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