SCOTUS Sides with Trademark Licensees in Circuit Split over Contract Rejection

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The Supreme Court has ruled that trademark owners cannot use bankruptcy law to reject an existing contract and thereby rescind a licensee’s right to continue using their marks.

Mission Product Holdings v. Tempnology, LLC involved Tempnology’s licensing of its “Coolcare” trademarks to Mission, a sports company specializing in the manufacture of athletic apparel designed to stay cool during exercise. When Tempnology filed bankruptcy, it terminated the licensing agreement under bankruptcy law and claimed Mission could no longer use its marks. While the Seventh Circuit has held a licensee’s rights subsist after a bankruptcy debtor’s contract rejection, the First Circuit disagreed and ruled Tempnology was entitled to terminate Mission’s rights by rejecting the license. The Supreme Court elected to resolve the division between the First and Seventh Circuits.

In an 8-1 decision authored by Justice Kagan, the Supreme Court recognized that Section 365 of the Bankruptcy Code enables a debtor to reject an executory contract, and its plain text states this rejection “constitutes a breach of such contract.” Because the Bankruptcy Code does not define a “breach” of contract—and it is not a specialized term in the bankruptcy context—the high Court reasoned a breach of contract means exactly the same thing in the Bankruptcy Code as it does in contract law outside bankruptcy. Since a breach of contract is fundamentally distinct from a rescission of rights granted by contract, the Court proclaimed “all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”

The lone holdout, Justice Gorsuch, dissented from the majority opinion believing the Court had improvidently granted the petition for certiorari. He deemed the entire case moot because the licensing agreement had already expired by its own terms, and the Supreme Court “is not in the business of deciding abstract questions, no matter how interesting.”

While Mission must eventually demonstrate its entitlement to money damages, the Supreme Court has nevertheless provided certainty to trademark licensees that an owner cannot unilaterally revoke their contractual rights in bankruptcy.

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