In the fall of 2018, the United States Supreme Court agreed to review the January 2018 decision of the First Circuit Court of Appeals in Mission Product Holdings, Inc. v. Tempnology, LLC (In re Tempnology, LLC). In Tempnology, the First Circuit ruled that a trademark owner that files for bankruptcy can deprive a nondebtor licensee from any rights to use trademarks of the owner licensed to the licensee.
Although the First Circuit’s opinion cites with approval the Fourth Circuit’s 1985 decision in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. as supporting the stripping away of a licensee’s rights, more recent authority from the Seventh Circuit in 2012 in Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC cut the other way and provided protection to a trademark licensee.
Last Friday, the Supreme Court set February 20, 2019 as the date for oral argument in the Tempnology case. Within the past month, no fewer than six briefs have been filed by various neutral parties urging the Court to reverse the First Circuit and protect the rights of a trademark licensee upon rejection by a debtor licensor. Briefs have been filed by the Intellectual Property Owners Association, American Intellectual Property Law Association, International Trademark Association and New York Intellectual Property Law Association. In addition to those organizations, the United States of America also weighed in with a brief as did a group of several law professors. Copies of all the briefs and other documents pending before the Supreme Court are available here.
An example of the practical issue before the Supreme Court is evident in an opinion issued by the United States Bankruptcy Court for the District of Connecticut in May, 2018. In In re SIMA International Inc., a chapter 7 trustee sought to reject a debtor licensor’s trademark license on the grounds that rejection would benefit creditors by yielding a higher sale price for the trademarks if no continued rights existed for the licensee. Not surprisingly, the licensee argued that it should have continued rights to the trademarks it had previously licensed. In ruling for the licensee, the Bankruptcy Court in Connecticut (which is located in the Second Circuit and not bound by opinions from the First Circuit) rejected the First Circuit’s Tempnology decision. The SIMA decision cited with approval the Seventh Circuit’s Sunbeam decision that rejection did not “abrogate” the licensee’s right to use the trademarks or somehow make the license agreement “disappear.”
In sum, in agreeing to review the Tempnology case, the Supreme Court is poised to deliver much needed clarity to all parties with an interest in trademarks in distressed situations including licensors, licensees, buyers, creditors and others. In addition to resolving the particular dispute that has divided the lower courts, the Supreme Court decision may also shed light on what role equity can or should play in the context of interpreting plain statutory language concerning intellectual property issues in insolvency matters.