Trademark Licensee's Rights Not Rescinded Upon Debtor/Licensor's Rejection of the License

The Supreme Court of the United States (SCOTUS) resolved a circuit split when it recently held in Mission Product Holdings, Inc. v. Tempnology, LLC, No. 17-1657 (May 20, 2019) that the debtor's rejection of Mission's license agreement did not terminate Mission's rights to use the debtor's trademarks because outside of bankruptcy, a licensor's breach cannot revoke the licensee's continuing rights. The SCOTUS focused on the language in Section 365(a) of the Bankruptcy Code that rejection constitutes a breach. Since breach is not defined in the Bankruptcy Code, the SCOTUS looked to the result of a licensor's breach outside of bankruptcy, which is that "a licensor's breach cannot revoke continuing rights given to a counterparty under a contract." In other words, "rejection breaches a contract but does not rescind it" when breach is deemed to have occurred pre-petition. 

This holding is not surprising in the Ninth Circuit because in the Ninth Circuit, rejection has long been described as only a breach and not a termination of rights. Further, other subsections of Section 365 speak directly to certain types of contracts where the counterparty retains specified rights even after rejection. See, 11 U.S.C. 365(i), (n).

For the full opinion, click here.

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