The U.S. Supreme Court ruled Monday that trademark licensees can generally keep their rights to use the marks even if the company that owns those trademarks goes bankrupt.
In Mission Product Holdings Inc. v. Tempnology LLC, the high court’s majority found that if a company that licensed its trademarks goes bankrupt and decides to reject the licensing agreement, it doesn’t necessarily strip the licensee of their right to keep using the mark under the contract.
The ruling gives trademark licensees more certainty when pursuing such agreements, which are increasingly common in fashion and retail, where brands use licensing to diversify their offerings of apparel and accessories, said attorneys.
“Trademarks are incredibly valuable in the retail industry, because the name brand carries a lot of weight in the market,” said Annette Jarvis, a partner at Dorsey & Whitney LLP who has advised on retail and other bankruptcies.
“A company with a valuable trademark can’t take away the rights of their current licensees — it can’t wipe the slate clean when it goes into bankruptcy,” she said.
New Hampshire-based Tempnology, which filed for bankruptcy in September 2015, had made chemical-free cooling fabrics meant for exercise clothing, which it promoted under the Coolcore name. Mission markets sports technologies, according to court documents. The dispute between Tempnology and Mission stemmed from an agreement that gave Mission the right to sell some Coolcore products and to use Coolcore trademarks. They ended up sparring over the agreement and Tempnology wound up filing for bankruptcy.
The bankruptcy code generally gives debtors the right to reject contracts and their obligations under them. Writing for the majority, Justice Elena Kagan wrote in her opinion that such a rejection simply amounts to a breach of contract, and doesn’t negate the contract itself.
“A rejection breaches a contract but does not rescind it,” she wrote in the opinion of the court. “And that means all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”
An attorney for Tempnology framed the outcome as having some positive implications for the company more narrowly in its dispute with Mission, which involved an agreement that would expire in 2016, but acknowledged its advantages for licensees more generally.
“For Tempnology, the most critical aspect of today’s holding was that the Supreme Court clearly rejected Mission’s attempt to revive its assertion that it had an ongoing exclusive license to Tempnology’s trademarks,” said Douglas Hallward-Driemeier of Ropes & Gray LLP, who represented Tempnology before the Supreme Court.
“More broadly, the decision will enhance the negotiating leverage of trademark licensees and make it more difficult for trademark licensors to reorganize without assuming the debtors’ trademark licenses,” he said.
An attorney for Mission could not immediately be reached for comment Monday.
One potential concern in these cases may be that someone may need to keep the trademark registration active. A trademark owner who has gone bankrupt may find themselves lacking the incentive or financial resources to keep up the registration, which may require them to monitor the quality of the products produced under the trademark. But that doesn’t necessarily mean licensees are at the mercy of trademark holders’ upkeep of the registration, as long as the licensees continue using the marks, trademark attorneys said.
“Trademark rights exist independently of trademark registration,” said Ken Parker, a partner in Haynes and Boone LLP’s intellectual property litigation practice group.
“Trademark registrations provide some additional rights in court, but generally speaking, as long as the licensees use the mark in commerce, they can use the trademark and exclude others from using it, even if the registration has lapsed,” he said.