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21 February 2019Trademarks

SCOTUS examines TM licensing post-bankruptcy

The US Supreme Court yesterday heard  oral arguments in Mission Product Holdings v Tempnology in which it will consider whether a debtor-licensor’s rejection of a trademark licence agreement in bankruptcy results in complete termination of the licence agreement.

Daniel Lowenthal, a partner at  Patterson Belknap Webb & Tyler in New York, said yesterday’s argument showed that “justices are grappling to find the right answer to a question that has split lower courts”.

One topic the court explored was the decision of the US Court of Appeals for the 4th Circuit to amend the Bankruptcy Code during a case in 1985 ( Lubrizol Enterprises v. Richmond Metal Fin).

The amendment determined that the licensee of a patent could retain its rights even if the licensor rejects the licence in bankruptcy, but did did not cover trademark licenses.

Yesterday’s arguments before the court explored the significance of the amendment, and why the appeals court did not include trademarks in its changes to the code.

Mission Product argued that the court did not reject the possibility of amending the code for trademarks. It said Congress did not include trademarks because it “was dealing with an emergency with respect to patent licenses because the situation was described as urgent”.

The court “recognised that trademarks do have some differences from patents, and it thought that further study was required in order to shape the federal rules that would govern the parties' relationship,” Mission Product argued.

Robert Gerstein, a partner at  Marshall, Gerstein & Borun in Chicago, said Mission Product had “a difficult time explaining why the lower court partially overruled Lubrizol, creating an exception for patent and copyright licenses, but intentionally left trademarks out of that statutory fix”.

One justice, Ruth Bader Ginsburg, agreed with Mission Product. Ginsburg said the court “didn’t take any position on Lubrizol one way or another in the trademark context. It did quite specifically in the patent context, but it didn’t either approve or disapprove” Lubrizol as applied to trademark licenses.

The justices were also concerned by what happens to the trademark if the debtor-licensor is not able to monitor quality control of the mark.

Patrick Dinardo, a partner at  Sullivan & Worcester in Boston, said “some members of the court seemed to accept the distinction between the obligation to maintain the mark (which they all agreed could be rejected by the debtor-licensor) and the right to use it”.

Dinardo said this seemed favourable to Mission Product, who argued that “even if the licensor rejects the contract, it should not be able to take back by reason of its own breach, the license rights already granted pre-petition”.

The court also heard arguments from Tempnology on whether a debtor-licensor can terminate a licence by rejecting it in bankruptcy.

Gerstein said Tempnology’s counsel had a “difficult time convincing the court that a debtor-licensor could terminate a license by rejecting it in bankruptcy”, when the statute says rejection is “simply a breach of the contract freeing the debtor from performing” its duty.

“This is almost universally recognised in other contexts as distinct from termination,” Gerstein said.

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18 November 2020   Successfully maintaining the licensee-licensor relationship through a crisis means both sides making concessions, Aislinn Burton explains.
Trademarks
19 February 2019   On Wednesday, the US Supreme Court will hear arguments in a case between athletic-wear maker Mission Product Holdings and Tempnology, a company which previously sold cooling fabrics.