Trademark Licensees May Gain Additional Rights
By: Jen Horn
What happens if you’re a trademark licensee – and your licensor declares bankruptcy? The U.S. Supreme Court will finally be tackling that question in 2019, as it has agreed to hear the case Mission Product Holdings, Inc. v. Tempnology, LLC.
The issue before the First Circuit in Mission Product Holdings was whether a trademark licensee could take advantage of rights that were granted to intellectual property licensees under Section 365 of the Bankruptcy Code. Currently, trademarks are not included in the defined categories of “IP” that receive bankruptcy protection.
Under the Bankruptcy Code, if the debtor (the licensor) rejects an IP license, the licensee has the following options: it can (a) elect to treat the license as terminated, and file a proof of claim for damages, or (b) it can retain its rights to use the IP under the license for the term of the license, as well as any remaining renewal terms that are provided.
To date, lower courts have been split on whether a trademark licensee can continue to use the trademark regardless of a licensor’s bankruptcy filing. Some courts have ruled that it is not permissible, and Congress did not intend to protect a trademark licensee the same way that licensees of other forms of IP, such as patents, are protected. Other courts, though, have held in favor of the trademark licensee.
In re Tempnology ruled against the trademark licensee, with the First Circuit stating that the licensor should be released from any continuing obligations that would interfere with its reorganization. The First Circuit further ruled that it should be up to Congress to expand Section 365 of the Bankruptcy Code to include trademarks.
With the Supreme Court agreeing to hear the appeal, however, parties should finally receive guidance on what happens to a trademark licensee if a licensor rejects the license agreement because of a bankruptcy filing. Regardless of what the Court decides, the ruling is certain to have an impact on the rights and obligations of both trademark licensors and licensees. Stay tuned for updates!