In Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___ (2019), the Supreme Court held that a debtor's rejection of a trademark license does not eliminate the licensee's right to use the trademark through the completion of the contract, settling a split in the Circuits. The Supreme Court also ruled that the case was not moot, despite the bankruptcy estate's distribution of all of its assets, which may have important implications for the developing jurisprudence on mootness in bankruptcy cases.
In Mission Product, Tempnology LLC was a Chapter 11 debtor that owned a variety of intellectual property (IP) related to certain athletic products designed to keep the user cool during exercise. Tempnology entered an agreement with Mission Product Holdings Inc. that included a nonexclusive license for Mission Product to use its trademark. A few years later, before the agreement expired, Tempnology sought bankruptcy court approval to reject the agreement with Mission Product and a declaratory judgment ruling that rejection terminated the trademark license. The bankruptcy court held that Tempnology's rejection resulted in termination of the license and that Mission Product could only recover pre-petition damages for breach of contract as a result. The Bankruptcy Appellate Panel for the First Circuit reversed, but the First Circuit reinstated the Bankruptcy Court's rulings on appeal.
Justice Elena Kagan, writing for a majority of the Court, reversed the First Circuit. The Supreme Court held that under Section 365 of the Bankruptcy Code, "a debtor's rejection of an executory contract in bankruptcy has the same effect as a breach outside bankruptcy" and "[s]uch an act cannot rescind rights that the contract previously granted..." In this case, this meant that the debtor-licensor's rejection did not take away Mission Product's right to continue using the trademark until the end of the contract term.
This case resolved an issue that had divided the First and Seventh Circuits. The Supreme Court rejected the argument that Congress's failure to include trademarks within the purview of 365(n)'s special licensee protections gives rise to a "negative inference" that a trademark licensee may not retain its license rights...