The Supreme Court settled a longstanding issue in trademark/bankruptcy law earlier this year. In Mission Product Holdings, Inc. v. Tempnology LLC, the Supreme Court held that the rejection of a trademark license by a debtor-licensor in bankruptcy constituted a breach of that license. More importantly, the Court also held that a licensee could continue using the trademark-at-issue throughout the term of the license agreement.
The Mission Product decision represented a rare intersection of trademark law and bankruptcy law. Trademark issues of this nature can arise in bankruptcy because of an ambiguity in the bankruptcy code concerning executory contracts.
The bankruptcy code gives debtors the ability to cancel certain executory contracts, which can present a special problem to trademark licensees. See, e.g., 11 U.S.C. § 365(a). The bankruptcy code includes a special provision with respect to executory contracts relating to certain forms of intellectual property. See 11 U.S.C. §365(n). The provision provides certain intellectual property licensees, including patent licensees, with the ability to use the relevant forms of intellectual property even after a debtor-licensor cancels an intellectual property license.
The statutory provision, 11 U.S.C. §365(n), does not include trademarks, expressly. This is unfortunate because trademarks are usually unique source identifiers that are associated with a considerable amount of goodwill. A trademark licensee usually desires to exploit that goodwill. As a result, the cancelation of a trademark license can cause a substantial hardship to a licensee in many instances.
The Supreme Court rejected the Mission Product debtor’s argument that the failure to include trademarks in Section 365(n) was meant to ensure that a debtor could cancel trademark licenses without consequences. Rather, the Court considered the general principles set forth in Section 365(g) and drew an analogy to a copier contract before concluding that a licensee should be allowed to continue to use a licensed trademark after the licensor declares bankruptcy.