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November 27, 2020

Leaving A Mark: What Mission Products Holdings, Inc. V. Tempnology, LLC May (Or May Not) Mean For Trademark Licenses In Bankruptcy

When it involves financial ruin, what takes place while a debtor physical activities its statutory right to reject a settlement? When it comes to logos, this has been a question that has plagued the intersection of intellectual belongings and financial disaster regulation for many years. Recently, the Supreme Court of the United States (SCOTUS) heard oral arguments in Mission Product Holdings Inc. V. Tempnology, LLC to address this very problem — mainly, “[w]hether, underneath §365 of the Bankruptcy Code, a debtor-licensor’s “rejection” of a licensing settlement which ‘constitutes a breach of such agreement,’ 11 U .S.C. §365(g)-terminates rights of the licensee that would continue to exist the licensor’s breach below applicable non-financial disaster law.” Although this could seem a faraway opportunity on your company or patron, it is a problem that highbrow belongings counsel has to don’t forget when crafting protections for any intellectual property portfolio counting on licenses to crucial highbrow property.

Here is a few contexts that have to help body the issue. As a trendy count number, when an organization enters bankruptcy, all of the assets of that company end up part of the financial ruin property. When the one’s belongings encompass highbrow property licensed to licensees, the trustee in economic disaster (or Chapter 11 debtor-in-possession) “may also assume or reject any executory agreement or unexpired hire of the debtor” under eleven U.S.C. § 365(a). Although special intellectual belongings licenses have usually seemed as executory contracts (i.E., arrangements wherein the phrases are set to be fulfilled at a later date before it becomes wholly done), non-extraordinary licenses are not so easily labeled because the licensor can grant rights inside the difficulty highbrow assets to others through definition, arguably allowing from rejection of ongoing debtor/licensor obligations beneath the license but now not otherwise affecting previously granted highbrow assets rights under the license.

This problem controversially addressed via the Fourth Circuit in Lubrizol Enters., Inc. V. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.) In 1985, preserving that the rejection of a non-extraordinary era license agreement terminated all the licensee’s rights underneath that agreement. This role can considerably affect a licensee that relies upon the licensor to hold the certified generation, and may otherwise pressure the licensee to acquire a license to every other platform (typically at an enormous fee). A contrary role was found through the Seventh Circuit in 2012 in Sunbeam Products v. Chicago Manufacturing LLC., which held that In rejection of the trademark license terminates the debtor-licensor’s obligations underneath the license (including the obligation to police use of the mark), but no longer the licensee’s proper to maintain using the licensed mark beneath the phrases of the license settlement. You can guess where this became heading.

Congress tried to address this issue by the enactment of Section 365(n) of the Bankruptcy Code to make clear that “the rights of an intellectual assets licensee to apply the certified property cannot be unilaterally cut off because of the rejection of the license pursuant to segment 365 inside the event of the licensor’s financial disaster.” The impact? In the occasion of a rejection of the licensing settlement via the trustee/debtor-in-possession, the licensee may want to choose now to retain its rights underneath the license agreement for the rest of the license term, as such rights existed before the initiation of financial disaster court cases. See eleven. U.S.C. Section 365(n)(1)(B). The hassle? Trademarks aren’t listed as “intellectual assets” under the Bankruptcy Code.

Why exclude trademarks? Congress seemed concerned about the licensor’s continued best manipulate obligations under an indicator license that required more look at — if blanketed, a licensee’s retention of rights in emblems submit-rejection could require the licensor to meet such duties although it rejected the license. Under U.S. Law, trademark proprietors have an obligation to police their trademarks to guard towards infringement and thereby shield the viability (and enforceability) of the emblem. Without such pleasant manage, then there’s a “bare license” to the trademark(s), which influences the licensor’s obligation to police its brand (s) which could subsequently render such logo (s) unenforceable. As a result, Congress appears to have left this problem to the courts, and given a break up of authority inside the lower courts, SCOTUS granted certiorari in Mission Products Holdings and might be weighing in soon.

If oral arguments in Mission Product Holdings, Inc. V. Tempnology, LLC is any indication, SCOTUS can be leaning in the direction of permitting licensees to preserve the proper to apply licensed emblems publish-rejection underneath restrained instances. From what I can gather from the oral arguments, there has been an emphasis in thinking regarding nice manage duties of the trademark licensor, and the way logos fluctuate from other types of highbrow assets. In weighing a licensee’s rights being terminated via no fault of the licensee (i.E., because of the licensor’s rejection) as opposed to the licensor’s first-rate manipulate responsibilities, it might seem to me that at the least some of the justices respect the variations between such best manipulate obligation and the licensee’s proper to persevered use of the trademark. This seems to bode nicely for trademark licensees. However, we’ll have to see.

How SCOTUS will rule in this difficulty is each person’s bet — it can draw a clear line for trademark licensors and licensees in the event of bankruptcy (a terrific thing), or leave a blot on the problem by way of finding that the difficulty is moot (a horrific component). No matter which manner SCOTUS rules, but, trademark proprietors and licensees need to take heed — this selection may go either way, but there’s no doubt it’s far sure to depart a mark.

Janet Mason

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