On May 20, 2019, the Supreme Court decided Mission Product Holdings, Inc. v. Tempnology, LLC, No. 17-1657.  In an 8-1 decision, and in a majority opinion authored by Justice Kagan, the Court held that  the debtor-licensor’s rejection of a trademark license under Section 365 of the Bankruptcy Code “has the same effect as a breach outside bankruptcy” and, as such,  the debtor, through such a rejection, could not rescind the non-debtor’s licensee’s right to continue to use the trademarks; in short, the debtor-licensor’s rejection of the license “cannot revoke the license.”  Slip Op. at 16-17.   Tempnology, of course, has immediate ramifications for structured finance vehicles involving trademarks licenses.  While Section 365(n) of the Bankruptcy Code gives the non-debtor licensee the option to retain the benefits of a rejected lease of intellectual property in return for continued royalty payments and the waiver of setoff and other rights, the Bankruptcy Code does not include trademarks within its definition of intellectual property;  until today, there has been a circuit split as to whether non-debtor licensees of trademarks had a similar option or whether the debtor effectively could rescind the license through rejection.  In Tempnology, the Court clearly holds that a debtor licensor cannot revoke a trademark license through rejection.
Continue Reading Not so distant ripples in the pond: The Supreme Court’s Tempnology decision and equipment leasing