The Supreme Court recently held that a trademark licensor cannot rescind a trademark license by rejection in bankruptcy.
A trademark license conveys rights to the licensee, such as rights to use a particular trademark(s). These rights survive a breach of contract by the licensor, and so also survive rejection under the bankruptcy code. According to the Supreme Court, “rejection of a contract – any contract – in bankruptcy operates not as a rescission but as a breach.”
This recent decision clarifies that trademarks should be treated the same as other forms of intellectual property in bankruptcy cases, according to Section 365(n) of the Bankruptcy Code.
When a debtor files bankruptcy, they may seek to reject executory (ongoing) contracts to which they are a party, including licenses, to have them excluded from the bankruptcy estate. In Mission Product Holdings Inc. v. Tempnology, LLC, the United States Supreme Court was asked whether rejecting a trademark license by a debtor-licensor during bankruptcy rescinds the license. The Supreme Court answered no. Section 365(g) of the Bankruptcy Code clearly states that rejecting an executory contract constitutes a breach of contract, and “breach” has the same meaning in bankruptcy as it does in contract law. Rejection of a license as an executory contract therefore is a breach of the license but does not rescind it.
This distinction is important because it means that trademark licensees may continue to use the trademarks and perform any other actions authorized by the license even when the trademark owner/licensor files for bankruptcy. The bankruptcy of the trademark owner does not negate or cut off the existing rights of the trademark licensee.
This post was written by Jessica Hauth Mozingo.