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).
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