United States: Supreme Court: Licensee May Use Trademark After Bankruptcy Rejection, Subject To License

Last Updated: July 2 2019
Article by Ethan W. Marks and John L. Strand

On May 20, the Supreme Court issued its decision in Mission Product Holdings Inc. v. Tempnology LLC, No. 17-1657, 2019 WL 2166392 (U.S. 2019), resolving a long-standing issue at the center of trademark and bankruptcy law: whether a trademark licensee can continue to use a licensed mark when the debtor-licensor rejected the license in bankruptcy.

The court held that such a rejection does not deprive the licensee of its right to use the mark.

Although the court found in favor of the licensee, the decision appears to have left the door open for parties to enter into contractual arrangements that place some limits on licensee rights post-rejection.

The court referred repeatedly to "special contract term[s]" that might impact whether a licensee may continue to use the trademark following rejection.

Moreover, Justice Sonia Sotomayor authored a concurring opinion in which she stated that "the court does not decide that every trademark licensee has the unfettered right to continue using licensed marks post-rejection" and "[s]pecial terms in a licensing contract ... could bear on that question in individual cases."

In light of Mission Product, both licensors and licensees should consider ways in which they might draft trademark licenses to preserve their respective rights in the event of the licensor's bankruptcy.


Chapter 11 of the Bankruptcy Code provides a framework for a business to reorganize its debt while continuing its operations.

A Chapter 11 case begins when a bankruptcy petition is filed with the bankruptcy court. This creates a bankruptcy estate consisting of the assets that will be used to satisfy the claims of creditors.

Under Section 365(a) of the Bankruptcy Code, 11 U.S.C.A. § 365(a), a debtor who has filed for bankruptcy can "reject any executory contract" — in other words, any contract that requires the contracting parties to perform ongoing obligations, including a trademark or other intellectual property license.

Section 365(g) of the code, 11 U.S.C.A. § 365(g), provides that rejection "constitutes a breach" of the contract, deemed to occur immediately before the filing date of the bankruptcy petition.

Section 365 thus allows a debtor to avoid further performance under a contract that the debtor determines is no longer in its interest. However, it subjects the debtor's estate to a claim for damages resulting from the nonperformance.

Section 365(n) of the code, 11 U.S.C.A. § 365(n), specifies that for certain types of intellectual property licenses, the licensee can continue to use the IP notwithstanding the debtor's rejection, so long as the licensee continues to fulfill its own obligations under the license.

The Bankruptcy Code defines "intellectual property" to include patents, copyrights and trade secrets — but not trademarks.1

The legislative history indicates that Section 365(n):

does not address the rejection of executory trademark, trade name or service mark licenses by debtor-licensors. ... 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 and to allow the development of equitable treatment of this situation by bankruptcy courts.2


In 2012, Tempnology entered into an agreement with Mission Product Holdings. The agreement gave Mission an exclusive license to distribute certain Tempnology products in the United States and a nonexclusive license to use Tempnology's "Coolcore" trademarks around the world.

Before the agreement's expired, Tempnology filed a petition for Chapter 11 bankruptcy. It then filed a motion to "reject" the Mission license pursuant to Section 365(a).

The Bankruptcy Court granted the motion and held that Tempnology's rejection of the licensing agreement revoked Mission's right to use the Coolcore marks. In re Tempnology LLC, 541 B.R. 1 (Bankr. D.N.H. 2015).

Citing legislative history, the Bankruptcy Court determined that trademark rights are not afforded any protection under Section 365(n).

The Bankruptcy Appellate Panel reversed. In re Tempnology LLC, 559 B.R. 809 (B.A.P. 1st Cir. 2016).

The panel relied on the 7th U.S. Circuit Court of Appeals' opinion in Sunbeam Products Inc. v. Chicago American Manufacturing LLC, 686 F. 3d 372 (7th Cir. 2012).

The 7th Circuit had held in Sunbeam that although Section 365(n) "does not affect trademarks one way or the other," Section 365(g) "establish[es] that in bankruptcy, as outside of it, the other party's rights remain in place" following rejection.

The panel applied the reasoning from Sunbeam and concluded that Mission could continue using the Coolcore trademarks.

The 1st U.S. Circuit Court of Appeals reversed the BAP and reinstated the Bankruptcy Court decision. Mission Prod. Holdings Inc. v. Tempnology LLC (In re Tempnology), 879 F.3d 389 (1st Cir. 2018).

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