Mission Product Holdings, Inc. v. Tempnology, LLC
2019 U.S. LEXIS 3544, 139 S. Ct. 1652, 203 L. Ed. 2d 876 (2019)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A debtor's rejection of an executory contract under § 365 of the Bankruptcy Code constitutes a breach of the contract, not a rescission. The rejection does not terminate rights that the counterparty received under the contract, such as a licensee's right to continue using a trademark.
Facts:
- Tempnology, LLC, manufactured and marketed athletic apparel under the brand name 'Coolcore', using associated trademarks.
- In 2012, Tempnology entered into a contract with Mission Product Holdings, Inc.
- The agreement granted Mission an exclusive license to distribute certain Coolcore products in the United States.
- The agreement also granted Mission a non-exclusive license to use the Coolcore trademarks worldwide.
- The agreement was scheduled to expire in July 2016.
- In September 2015, Tempnology filed a petition for Chapter 11 bankruptcy.
Procedural Posture:
- Tempnology filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of New Hampshire, which approved its motion to reject the licensing agreement with Mission.
- Tempnology then sought a declaratory judgment from the Bankruptcy Court that rejection also terminated Mission's trademark rights.
- The Bankruptcy Court (court of first instance) ruled in favor of Tempnology, holding that rejection terminated Mission's license rights.
- Mission appealed to the Bankruptcy Appellate Panel for the First Circuit (intermediate appellate court).
- The Bankruptcy Appellate Panel reversed, holding that rejection was only a breach and Mission could continue to use the trademarks.
- Tempnology appealed to the U.S. Court of Appeals for the First Circuit.
- The First Circuit reversed the Bankruptcy Appellate Panel, reinstating the Bankruptcy Court's decision and holding Mission's rights were terminated.
- The U.S. Supreme Court granted certiorari to resolve a circuit split on the issue.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a debtor-licensor's rejection of a trademark licensing agreement under § 365 of the Bankruptcy Code terminate the licensee's rights to use the trademark?
Opinions:
Majority - Justice Kagan
No. A debtor-licensor's rejection of a trademark licensing agreement under § 365 does not terminate the licensee's rights because rejection constitutes a breach of the contract, not a rescission. The text of § 365(g) explicitly states that rejection 'constitutes a breach,' which under general contract law does not automatically terminate the non-breaching party's rights under the agreement. A bankruptcy estate cannot acquire greater rights than the debtor possessed pre-petition; if the debtor could not unilaterally revoke the license outside of bankruptcy, it cannot do so through rejection inside bankruptcy. Treating rejection as rescission would improperly equate it with the Code's separate and more stringent 'avoidance' powers. The negative inference drawn from § 365(n), which explicitly protects other intellectual property licensees but not trademark licensees, is unpersuasive because that and similar provisions were enacted piecemeal to correct adverse judicial decisions, not to imply that the general rule for all other contracts is termination.
Dissenting - Justice Gorsuch
The Court should not decide this case. The petition should be dismissed as improvidently granted because the case is likely moot. Since the licensing agreement has already expired by its own terms, no ruling can restore Mission's ability to use the trademarks. Mission's alternative claim for money damages is not clearly viable, as Tempnology's action of petitioning a court for a legal ruling is not typically an actionable wrong that gives rise to damages. Given the significant doubt about whether a live case or controversy exists, the Court is pressing the bounds of its constitutional authority.
Concurring - Justice Sotomayor
No. A debtor's rejection of an executory contract functions as a breach, not a rescission. This holding, however, does not mean every trademark licensee has an unfettered right to continue using a mark post-rejection; the baseline inquiry remains whether the licensee's rights would survive a breach under applicable non-bankruptcy law, which can be affected by specific contract terms or state law. The Court's decision also confirms that the post-rejection rights of trademark licensees are now more expansive in some ways than those of licensees of other intellectual property covered by § 365(n), leaving it to Congress to tailor a specific provision for trademarks if it sees fit.
Analysis:
This decision resolves a significant circuit split regarding the effect of contract rejection in bankruptcy, providing crucial certainty for businesses involved in licensing agreements. The Court clarifies that 'rejection' is not a super-power to rescind contracts but is merely a breach, preserving the non-debtor party's contractual rights as they would exist outside of bankruptcy. This reinforces the fundamental bankruptcy principle that the estate steps into the debtor's shoes, possessing no greater rights than the debtor had pre-bankruptcy. The ruling protects the stability of commercial transactions and the expectations of counterparties, preventing debtors from using bankruptcy to claw back valuable rights they have already granted.
Unlock the full brief for Mission Product Holdings, Inc. v. Tempnology, LLC