Property, intangible

a blog about ownership of intellectual property rights and its licensing

The Sexy World of Trademarks in Bankruptcy

I know there are few legal topics sexier than bankruptcy, but we’ve now reached the pinnacle of sexiness – bankruptcy AND trademark. I mean, how much more fulfilled will my life get?!

Pending before the Supreme Court and set for hearing on February 20 is Mission Product Holdings, Inc. v. Tempnology, LLC. I wrote about the case when it was decided and then forgot about it. But to my surprise, the Supreme Court has granted certiorari. A group of bankruptcy professors and the International Trademark Association filed briefs supporting the grant of certiorari, expressly disagreeing with the court of appeals’ decision in the case.

In general, a bankruptcy trustee (or debtor-in-possession) can “reject” executory contracts, which gives the bankrupt estate more latitude in its recovery or in maximizing the value of the estate for creditors. If a contract is rejected, the rejection is treated as if the bankrupt party breached the contract immediately before the petition for bankruptcy was filed. The debtor also cannot be forced to perform its contractual obligations, like delivering goods. But what if the contract, say a license, offers some benefit to the non-bankrupt party that doesn’t require performance by the bankrupt licensor?

There is a special statutory section that provides that copyright and patent licensees have the option of continuing to use the licensed right. But there is no special provision for trademarks. This wasn’t an oversight; Congress said

[T]he bill does not address the rejection of executory trademark, trade name or service mark licenses by debtor-licensors.… In particular, trademark, trade name and service mark licensing relationships depend to a large extent on control of the quality of the products or services sold by the licensee. Since these matters could not be addressed without more extensive study, it was determined to postpone congressional action in this area to allow the development of equitable treatment of this situation by bankruptcy courts.

S. Rep. No. 100-505, at 5 (1988).

Mission Products was a patent and trademark licensee of Tempnology, LLC. Tempnology filed for bankruptcy, the bankruptcy court terminated the trademark license, and the First Circuit affirmed. This was contrary to the outcome of a similar case in the 7th Circuit, Sunbeam Prod., Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012) (Easterbrook, J.), thus creating a circuit split.

The question presented is “Whether, notwithstanding a trustee’s rejection of a trademark ‘license agreement,’ that license agreement remains enforceable against the estate.”

There were six amici briefs filed: four in favor of Mission Products (the United States, a group of Law Professors, the International Trademark Association (INTA), and the New York Intellectual Property Law Association (NYIPLA)) and two in support of neither party (the American Intellectual Property Law Association (AIPLA) and the Intellectual Property Owners Association (IPO)). No one filed a brief in favor of Tempnology, that is, no one agreed with the First Circuit that the license should have terminated.

The case is really a statutory interpretation question, but with policy undertones. The policy argument is that the uncertainty of contracting with a trademark licensor, and the transactional costs of trying to contract around the possibility of a bankruptcy, outweigh the interest in relieving the bankrupt licensor of the licensing burden.

The United States, INTA, NYIPLA, and the Law Professors hue to the 7th Circuit’s Sunbeam view. The IPO and the AIPLA agreed with Sunbeam in principle, but added more. The IPO agreed with the dissent in Tempnology, advocating for a presumption that the licensee may continue to use the licensed mark, but giving the bankruptcy cout discretion to craft a resolution given the equities of the case. The AIPLA agreed with the reasoning in Sunbeam, but also elaborated on avenues available to a licensor under non-bankruptcy law that might allow a licensor to nevertheless relieve itself of the burdens of the contract.

I had the privilege of participating in the drafting of the AIPLA brief. It required both bankruptcy and trademark lawyers, who all gave a significant amount of time on short notice during the holiday season. It was an honor to be a part of such dedication to our profession.

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