Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
Supreme Court Rules Rejection of Trademark License Does Not Rescind Rights of Licensee
In Mission Product Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019), the Supreme Court undertakes to resolve a circuit split between the First and Seventh Circuits over the effect of rejection in bankruptcy of a trademark license under section 365 of the Bankruptcy Code. The question is whether a debtor's rejection of its agreement granting a license "terminates rights of the licensee that would survive the licensor's breach under applicable nonbankruptcy law." (Pet. for Cert. i.) Those rights include the right to continue to use the trademarks for the term of the rejected agreement.
Refusing to treat a trademark license agreement any differently from any other executory contract, the Court applies general executory contract principles to resolve the question. It broadly concludes "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." Id. at 1657. Accordingly, the Court holds rejection does not rescind rights the contract previously granted and so cannot revoke the trademark license granted the nondebtor licensee. Id. at 1666.
In reaching this decision, the Court not only resolves the circuit split and an important trademark license issue, but also provides definitive guidance on the effect of rejection. Although rejection is a simple concept, its effect, especially in contracts where the debtor granted valuable property rights, has confused bankruptcy litigants and courts for the last 40 years, ever since the Code was first enacted in 1978. But the Court has now made clear that rejection is a breach, and only a breach. Rejection does not rescind the contract. The counterparty's rights are not terminated by rejection and are governed by how nonbankruptcy law treats breached contracts, subject to any claims of the counterparty under the contract being treated only as general unsecured claims in the debtor's bankruptcy.
Background to Circuit Split
The First and Seventh Circuits split over whether rejection of a trademark license terminates the licensee's rights to use the trademarks after rejection. Section 365(a) of the Bankruptcy Code allows a debtor to "assume or reject any executory contract," subject to court approval. Section 365(g) addresses the effect of rejection. It provides only that rejection of an executory contract "constitutes a breach of such contract." And it further deems that breach to occur "immediately before the filing of the [bankruptcy] petition," which means any rejection damages claim is treated as a prepetition claim.
This premium content is locked for Entertainment Law & Finance subscribers only
ENJOY UNLIMITED ACCESS TO THE SINGLE SOURCE OF OBJECTIVE LEGAL ANALYSIS, PRACTICAL INSIGHTS, AND NEWS IN ENTERTAINMENT LAW.
- Stay current on the latest information, rulings, regulations, and trends
- Includes practical, must-have information on copyrights, royalties, AI, and more
- Tap into expert guidance from top entertainment lawyers and experts
Already a have an account? Sign In Now Log In Now
For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Removing Restrictive Covenants In New York
In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?