The US Supreme Court ruled Monday that if a trademark license would survive a breach outside bankruptcy, it may survive a debtor’s rejection in bankruptcy.
The case, Mission Product Holdings, Inc. v. Tempnology, LLC, came about after Tempnology filed for bankruptcy in 2015. Tempnology was licensing its trademarks to Mission Product Holdings for use on athletic apparel. After Tempnology filed for Chapter 11 bankruptcy, Tempnology issued a rejection of the current trademark license agreement, which would ordinarily result in a breach. Tempnology argued that they could no longer maintain quality control over the trademark and as such could not support the continuation of the agreement. Mission Product Holdings filed suit in bankruptcy court to determine whether the breach by Tempnology could in effect revoke their existing trademark rights. Tempnology won the initial case, but it was reversed by the Bankruptcy Appellate Panel. The Appellate panel was then reversed by the US Court of Appeals for the First Circuit.
The court ruled 8-1 in favor of Mission Product Holdings asserting that under applicable nonbankruptcy law, a breach would not have resulted in revocation of the trademark. Justice Sonia Sotomayor wrote a concurring opinion to note that the court’s opinion here is not a blanket right for every trademark holder to continue using trademarks, but rather leaves open the door for review of the individual license terms on a case by case basis of the individual license terms. Justice Neil Gorsuch argued in a dissenting opinion that the case should never have been accepted because any claim of relief was mooted when the license expired during litigation.