In an 8-1 decision, the Supreme Court ruled that a company’s bankruptcy does not allow it to rescind a trademark licensing agreement it had entered with a licensee. In so ruling, the court settled an issue that had split the federal appellate circuits and congress over the handling of trademarks licenses in bankruptcy.
The case stems from a 2012 license agreement between New Hampshire-based Tempnology LLC and New York-based Mission Product Holdings Inc. over the exclusive rights for U.S. distribution of Tempnology’s apparel and accessory products, which were designed to stay cool when worn during exercise. The products, chemical-free towels, socks, and headbands, were sold under the brand names Coolcore and Dr. Cool. The license also included the nonexclusive right for Mission Product Holdings to use Tempnology’s trademarks.
In 2014, the parties’ relationship soured, which led to the filing of arbitration. In arbitration, the arbitrator ruled that Mission Product Holdings was entitled to maintain its distribution and trademark rights through July 2016, even though it did not intend to place any further orders with Tempnology. In 2015, Tempnology filed for Chapter 11 bankruptcy, claiming that Mission Product Holdings had “starved” it of income. In bankruptcy, Tempnology attempted to rescind the license agreement under Section 365 of the Bankruptcy Code.
At the time Tempnology made the request to rescind the license agreement, the law in the various circuits was not settled, which likely prompted the high court to take on the issue in the first place. The First Circuit had long followed the Fourth Circuit’s 1985 ruling in Lubrizol Enterprises v. Richmond Metal Finishers, Inc., which held that a debtor-licensor could abrogate a licensee’s rights by rejecting the license agreement pursuant to Section 365(a) of the Bankruptcy Code. Congress later overruled Lubrizol as it related to patents and copyrights but refused to do so with regard to trademarks, insisting that more study of the issue was required due to the unique ongoing obligations of mark owners in policing their marks. Continue reading ›