Supreme Court Rules Trademark Licenses Survive Bankruptcy

Earlier this month, the Supreme Court tied up loose ends in a case that is being called “the most significant unresolved legal issue in trademark licensing.” The Court ruled 8-1 in the case of Mission Product Holdings, Inc. v. Tempnology, LLC (Supreme Court May 2019) that, if a trademark owner goes bankrupt, they cannot take away the rights of licensees to use trademarks that were already licensed.

This is the last piece of a puzzle that was created by the Bankruptcy Code in its 1988 amendments. The amendments say that if a company files for a Chapter 11 bankruptcy, licensees can still use copyrights and patents that they had been given prior to the bankruptcy. The Bankruptcy Code purposefully left out trademarks.

The issue arose in 2015 after Tempnology, LLC, filed for bankruptcy. As part of the reorganization, Tempnology rejected a license that it had previously given to Mission Product Holdings, Inc. to use the trademark on clothing items. The Bankruptcy Court originally approved the rejection and did not allow Mission Product Holdings to use the trademark anymore.

A separate court ruled differently. In Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F. 3d 372 (7th Cir. 2012), the court ruled that, while the rejection was a breach of contract, it did not terminate the license. Licensees could still use the trademark to sell goods.

When the issue was brought up to the Supreme Court, the justices agreed with the latter. Justice Elena Kagan said, “A rejection breaches a contract but does not rescind it. And that means all the rights that would ordinarily survive a contract breach… remain in place.”

Companies who have received trademark rights from companies with an unsure future, fear not. This recent ruling clears up a lot of proceedings regarding bankruptcy and intellectual property. Licensees can still use a company’s patents, copyrights, and trademarks once they have been granted, even if the licensor is under bankruptcy reorganization.