Supreme Court to Decide Whether Rejection Terminates Use of a Trademark

November 7, 2018

On October 26, the Supreme Court granted the petition for certiorari in Mission Product Holdings Inc. v. Tempnology LLC, 17-1657 (Sup. Ct.), and agreed to decide whether rejection of a trademark license bars the licensee from continuing to use the mark.

In deciding Mission Product, the Supreme Court will resolve a circuit split dating back to 1985 when the Fourth Circuit handed down Lubrizol Enterprises Inc. v. Richmond Metal Finishers Inc., 756 F.2d 1043 (4th Cir. 1985).

In Lubrizol, the Fourth Circuit held that rejection of an executory license for intellectual property precludes the non-bankrupt licensee from continuing to use the license. The decision prompted Congress three years later to add Section 365(n) and the definition of “intellectual property” in Section 101(35A). Together, they allow a non-debtor to continue using patents, copyrights and trade secrets despite rejection of a license.

However, Congress did not add trademarks to the list of intellectual property that a licensee may continue to use despite rejection. Most courts interpreted the omission to mean that rejection cuts off the right to use trademarks.

With regard to trademarks, Lubrizol carried the day until the Seventh Circuit spoke in Sunbeam Products Inc. v. Chicago American Manufacturing LLC, 686 F.3d 372 (7th Cir. 2012), and ruled that rejection does not preclude the continued use of a mark. Seventh Circuit Judge Frank Easterbrook held that “nothing about this process [of rejection] implies that any other rights of the other contracting party have been vaporized.” He observed that Lubrizol had been “uniformly criticized” by scholars and commentators.

The circuit split crystalized when the First Circuit handed down Tempnology in January. Mission Product Holdings Inc. v. Tempnology LLC (In re Tempnology LLC), 879 F.3d 389 (1st Cir. Jan. 12, 2018).

The majority in the 2/1 Mission Product decision sided with Lubrizol and criticized Sunbeam for “largely [resting] on the unstated premise that it is possible to free a debtor from any continuing performance obligations under a trademark license even while preserving the licensee’s right to use the trademark.” The majority favored “the categorical approach of leaving trademark licenses unprotected from court-approved rejection, unless and until Congress should decide otherwise.”

The licensee filed a petition for certiorari in June. The Supreme Court agreed to resolve the circuit split on October 26. The high court’s order granting certiorari limited review to the question of whether rejection of a trademark license “terminates rights of the licensee that would survive the licensor’s breach under applicable nonbankruptcy law.”

Counsel for the petitioner-licensee includes Danielle Spinelli, a former Supreme Court clerk who argued on the winning side in two recent bankruptcy cases, Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2017), and Clark v. Rameker, 134 S. Ct. 2242 (2014).

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