In the May 2019 issue of Fashion Mannuscript the article entitled “Trademarks, The Supreme court, Fashion and Beauty, we discussed the case of Mission Product Holdings, Inc. v. Tempnology. LLC (Mission Product). The article contained a prediction that this case would decide the most significant unresolved legal issue regarding trademarks. That prediction came true on May 20, 2019 when the Supreme Court decided the case.
Mission Product Holdings, Inc. entered into a contract with Tempnology, LLC, which gave Mission a license to use Tempnology’s trademarks in connection with the distribution of certain clothing and accessories. When Tempnology filed Chapter 11 bankruptcy it sought to reject the agreement with Mission. The Bankruptcy Code allows a debtor to reject any executory contract, meaning a contract that neither party has finished performing.
It further provides that rejection constitutes a breach of the contract. The Bankruptcy Court approved Tempnology’s rejection and further held that the rejection constituted a breach of contract. The First Circuit rejected the judgment and reinstated the Bankruptcy Court’s decision. The Supreme Court reversed.
Prior to that decision courts were divided on the issue of whether the rejection of an executory contract regarding a trademark license in a bankruptcy would result in the licensee of the trademark being unable to continue the use of the mark.
In discussing the implications of this case, Schuyler Moore wrote in his article, New Supreme Court Bankruptcy Decision Has a Big Impact on Hollywood, “In the recent bankruptcy case involving Lantern’s acquisition of the assets of the Weinstein Company, the bankruptcy court held that Lantern did not have to pay any participations that accrued prior to the sale of Lantern, and Mission Product supports that outcome.”
And so it is for all other industries in particular for our purposes, the fashion industry. In our May issue of Fashion Mannuscript we discussed an example of a manufacturer of beauty products who owned a trademark which was licensed to several distributors. We questioned what would happen if the owner of the trademark filed bankruptcy; could the licensees continue to sell the trademarked products or would they be required to cease such sales and incur whatever damages might result?
That question has been answered by Mission Product. The decision stated: “A rejection [of a license agreement by a bankrupt licensor] breaches that contract but does not rescind it. And that means all the rights that would ordinarily survive a contract breach including those conveyed here, remain in place.”
Much of the dispute in this case can be traced back to the Bankruptcy Code which defines “intellectual property” to include patents, copy rights, trade secrets and similar categories but does not include trademarks. Much debate has taken place regarding the reason why trademarks were not included and efforts have been made to revise the Code to include that category.
However, all such efforts have failed. The debate has continued on with court decisions on both sides with regard to how rejection of a trademark license should be treated. That is until Mission Product was decided. Whether that decision will result in an amendment to the Bankruptcy Code, or simply allow for future debates on the issue to be guided by Mission Product remains an open question.
Benjamin S. Seigel, Esq.
Counsel to Greenberg & Bass
818-382-6200
bseigel@gblawllp.com
