Mission Product Holdings, Inc. v. Tempnology, LLC

139 S.Ct. 1652 (2019)

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Nature of the Case

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Facts

Tempnology, LLC, (D) manufactured clothing and accessories designed to stay cool when used in exercise. It marketed those products under the brand name “Coolcore,” using trademarks to distinguish the gear from other athletic apparel. D entered into a contract with Mission (P) giving P an exclusive license to distribute certain Coolcore products in the United States. It granted P a non-exclusive license to use the Coolcore trademarks, both in the United States and around the world. The agreement was to expire in July 2016. In September 2015, D filed a petition for Chapter 11 bankruptcy. And it soon afterward asked the Bankruptcy Court to allow it to “reject” the licensing agreement. The Bankruptcy Court approved D’s proposed rejection of its executory licensing agreement with P. D could stop performing under the contract and P could assert a pre-petition claim in the bankruptcy proceeding for damages resulting from D’s nonperformance. D claims that its rejection of the contract also terminated the rights it had granted P to use the Coolcore trademarks. Section 365(n) nor any similar provision covers trademark licenses. D reasoned that a different rule must apply wherein D's rejection must extinguish the rights that the agreement had conferred on the trademark licensee. The Bankruptcy Court held that D’s rejection of the licensing agreement revoked P’s right to use the Coolcore marks. The Appellate Panel reversed. It focused on Section 365(g)’s statement that rejection of a contract “constitutes a breach.” Obviously, a breach of an agreement does not eliminate rights the contract had already conferred on the non-breaching party. So neither could a rejection of an agreement in bankruptcy have that effect. A rejection converts a “debtor’s unfulfilled obligations” to a pre-petition damages claim. P could thus continue to use the trademarks. The Court of Appeals reinstated the Bankruptcy Court decision terminating P’s license. It reasoned that special features of trademark law counsel against allowing a licensee to retain rights to a mark after the licensing agreement’s rejection. The goal was to release the debtor’s estate from burdensome obligations and forcing the debtor to continue the transaction would work against that goal. The Supreme Court granted certiorari.