The Supreme Court’s recent decision in Mission Product Holdings, Inc. v. Tempnology, LLC (2019) ruled on the effect of a rejection of trademark licenses in bankruptcy.
What happens when a trademark license is rejected as an executory contract, as is permitted by Chapter 11 of the Bankruptcy Code? Can the licensee continue using the trademark?
The Supreme Court resolved a Circuit split on that question, holding that the licensee may continue to use the license.
Counsel for parties involved with trademark licenses now need to take this decision into account when drafting these agreements. If one of the parties seeks bankruptcy protection, then the license terms will become important both in preserving the trademark (by providing for quality control and maintenance of trademark registrations) and regulating the parties’ continuing relationship.
On the licensor side, the license could provide, in the case of financial insolvency or bankruptcy, that the licensor would either have to commit in writing to continue the license (including quality control) or agree to assign the trademark. Provisions for maintenance of any trademark registrations could also be included.
On the licensee side, the license could provide, in the case of financial insolvency or bankruptcy, that the licensee would have to commit in writing to continuing to pay royalties and cooperate in quality control, or terminate the license.