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How does bankruptcy impact trademark rights?

The Supreme Court of the United States settled a complex question regarding trademark rights in bankruptcy. The case, Mission Product Holdings, Inc. v. Tempnology, LLC, arose out of Tempnology filing Chapter 11 bankruptcy in 2015. The company said in light of its bankruptcy that it could no longer guarantee quality control of the trademark, and thus it would cancel a current licensing agreement with Mission Product Holding. Mission Product responded by filing suit in bankruptcy court, essentially questioning whether Tempnology’s breach of contract could actually revoke Mission Product’s license.

Rulings go both ways

On its way to the Supreme Court, the case saw rulings go both ways:

  • Tempnology won the initial case.
  • The Bankruptcy Appellate Panel reversed that ruling in favor of Mission Product.
  • The Court of Appeals for the First Circuit reversed the appellate ruling to favor Tempnology.

The Supreme Court Rules

While the U.S. Bankruptcy Code did offer some protections for intellectual property licensees in this context, it did not explicitly protect trademark licensees. Therefore, the Supreme Court based its ruling on contract law and ruled 8-1 in favor of Mission Products. The court said that the rejection of a contract in bankruptcy is no different from a classic breach of contract. In a typical breach of contract case, the license would not end up being revoked.

In other words, a breach of contract does not lead the trademark licensee to lose their right to continue using the trademark, but it is not an overarching right to continue to exercise it. This last point suggests that license terms are to be reviewed on a case by case basis. Overall, the licensees can enjoy the use of the mark that is consistent with the agreement and for its stated duration, even after a breach of contract or bankruptcy.

Possible impacts on negotiations

This decision could change how parties license a trademark:

  • The licensors may want shorter terms with contingencies to terminate the agreement if there is bankruptcy.
  • Some believe that licensors may accept less-than-optimal agreements because there would be obligations to monitor the mark anyway.

Legal guidance can address these issues

Licensors and licensees with questions regarding a licensing agreement are advised to speak with knowledgeable intellectual property attorney with experience handling trademarks, drafting contracts and trademark litigation. Because each case is different, these legal professionals can provide insight based on the unique details of each case.

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