by Dennis Crouch
Today’s Supreme Court trademark case has several important nuggets for intellectual property owners. Here are two: First, TM licensing is somewhat clarified with the holding that a bankrupt mark-holder cannot simply cancel prior licenses as part of the bankruptcy. Second, the court’s holding here treats a TM license effectively as a property right that has been transferred rather than a contract with ongoing mutual obligations. In bankruptcy proceedings, ongoing contracts can ordinarily be rejected by the bankruptcy trustee while prior property transfers are only rarely rolled-back.
Mission Product Holdings Inc. v. Tempnology, LLC (Supreme Court 2019)
The details of this case are fairly obscure bankruptcy issues, but basically begin with the most interesting rule of bankruptcy law that allows the trustee to reject prior executory contracts and leases.
Here, the trademark owner has filed for bankruptcy and rejected a prior trademark license. The question in the case is whether “rejection” under the statute also rescinds the already-granted license. Here, the court holds no – if the rights would survive a contract breach by the licensor then they also survive rejection under the bankruptcy code. Writing for an 8-1 majority, Justice Kagen explains:
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.
Entering into property-like language, the court explains the holding as based upon “the general bankruptcy rule that the estate cannot possess anything more than the debtor did outside bankruptcy.”
I’ll note here that the court alludes to the possibility of drafting trademark licenses in ways that they could be rescinded in bankruptcy. So, be cautious about that language.
Justice Gorsuch wrote in dissent – arguing that the case should be dismissed because there is no longer any live controversy since. The license expired during litigation.