Although there has been much attention on the Supreme Court this week, a filing made earlier today will draw little popular notice. Yet, the filing could have significant impact on whether the Court decides to accept a case this term which would impact the rights of trademark licensors and trademark licensees.
The filing was made by Tempnology, LLC in opposition to a petition for a writ of certiorari filed by Mission Products Holdings, Inc. in June 2018. Mission filed the petition to seek Supreme Court review of a January, 2018 opinion from the United States Court of Appeals for the First Circuit. In that decision, the First Circuit determined that Mission, a licensee, retained no rights to continue to use trademarks previously licensed from Tempnology upon the rejection of the license agreement by Tempnology in its chapter 11 proceeding. See here for a copy of the petition for writ of certiorari along with a brief in support filed this summer by The International Trademark Association and another brief in support from a group of law professors.
The litigation over the trademark rights has been brewing for quite some time. I wrote about the First Circuit decision in January 2018 as a LinkedIn article here and wrote about the Bankruptcy Appellate Panel opinion which proceeded that for the American Bankruptcy Institute Journal here (co-authored with Andrew Hellman). For the past three years, I have included discussion of the issues in chapters contributed to the Norton Annual Survey of Bankruptcy Law (2018 edition due out soon, 2017 edition, and 2016 edition).
In seeking Supreme Court review of the First Circuit decision, Mission emphasized the existence of a circuit split with the Seventh Circuit’s reasoning in Sunbeam Products Inc. v. Chicago American Manufacturing LLC, which held that although rejection constitutes a breach of contract, rejection does not terminate a trademark license or strip the nondebtor licensee of its post-breach rights under applicable nonbankruptcy law. The First Circuit’s 2-1 decision specifically rejected the Seventh Circuit’s reasoning in Sunbeam.
Today’s filing acknowledges the existence of the circuit split but urges the Court to deny review on three fundamental grounds:
- “First, the Petition overstates the depth and duration of the circuit split by attempting to recast the issue as implicating all types of intellectual property rights including patents. That way, according to the Petition, a 1985 Fourth Circuit decision on patent rights, Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), gets swept into the calculus. But not only is Lubrizol a patent case, the issues it raised were squarely addressed by Congress and put to bed in 1988 by the enactment of 11 U.S.C. § 365(n)(1).”
- “That brings us to the second, perhaps more fundamental, reason that the Court should deny the Petition: Congressional intent. In passing section 365(n)(1) to address issues raised by the decision in Lubrizol, Congress expressly considered the impact of rejection under the then-new statute on other intellectual property rights such as patents, but deliberately chose not to include trademarks at that time, given the disparate and complex issues involving trademarks. Instead, the legislative history reflects that Congress intended to leave issues involving trademarks for further development and evolution in the courts. At the Court of Appeals level, that exploration has only just begun. In the three decades since the enactment of section 365(n)(1), this issue has only arisen a handful of times and only twice at the Court of Appeals. Until the issues are further fleshed out by other Courts of Appeals, it would be premature for the United States Supreme Court to step in and terminate the judicial developments that Congress envisioned.”
- “Third, even assuming a single split of circuit authority warrants the attention of this Court, the present case is not the proper vehicle for the Court to resolve these complex issues. This case is a particularly poor choice for the Supreme Court to forestall either bankruptcy court evolution of the law or appropriate legislative action to try to create new standards, because key points such as the burdens on the debtor of the continued policing of the trademark, the debtor’s balancing of those costs versus any benefits derived from that effort, and the impact of a “stranding” of the trademark were the mark to become “abandoned,” were not litigated on a developed evidentiary record below. If the Court were to take up this abstract question on such a thin evidentiary record, that would likely lead either to new standards based largely on speculation, or a further remand for fleshing out the evidence. Far better to await further development of the issues involving trademark licenses in courts as Congress expressly intended or to allow Congress to address the issue as it also contemplated.”
If the Supreme Court declines review of the First Circuit decision, then confusion will continue to reign about trademark rights in the event of license rejection by a debtor licensor. Although greater clarity might come someday through Congressional action or a future case finding its way to the Supreme Court neither of those paths seem likely at the moment. Well drafted license agreements tailored to the needs of the parties and monitored carefully can help save parties years of litigation given the current legal uncertainty.