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Supreme Court: Trademark Licensee Maintains Rights to Use Mark When Bankrupt Licensor Rejects the License

A trademark licensee is now protected from the license being rescinded if the licensor goes into bankruptcy and rejects the license agreement. The Supreme Court ruled this week in Mission Product Holdings, Inc. v. Tempnology, LLC that a rejection of the license agreement as allowed by the Bankruptcy Code is considered a breach of the contract, not a rescission. As a result, unless the agreement provides otherwise, the licensee will not lose the right to use the mark after rejection. The issue of the effect of rejection arose because the Bankruptcy Code allows debtors or trustees to assume or reject an “executory contract”. An “executory contract” is generally defined as one under which there are material unperformed obligations of each party as of the date of bankruptcy. While the Code specifically protects holders of patents and copyrights from losing their right to use their property after rejection of the license agreement, the Code’s definition of “Intellectual Property” does not include trademarks. Notwithstanding this omission the Supreme Court observed that since outside of bankruptcy a breach of a license agreement by a licensor does not give to it the right to terminate the licensee’s use of the intellectual property licensed to it, the same result should govern the effect of a rejection of the contract in bankruptcy.