Posts Tagged: "Mission Product Holdings Inc. v. Tempnology"

During periods of widespread economic disruption such as the present, operating businesses must be able to identify and respond to threats to the financial health of their contracting counterparts in order to protect key company assets. For companies that license intellectual property from third parties, such as copyrights, trademarks or patents, the bankruptcy of a licensor could have a serious impact on the company’s ability to use those assets, which in turn could materially impair the value of the company assets or significantly hinder a company’s ability to serve its clients. This article will describe the consequences of bankruptcy on licensed intellectual property and outline steps licensees can take to protect their intellectual property rights in the face of a licensor’s insolvency.

Two things are true about the world of trademarks—it is rarely boring, and something is always on the horizon. The following are some of the significant trademark decisions of 2019, as well as two critical cases to watch as 2020 begins: 1. The Supreme Court’s ruling in Iancu v. Brunetti rejected the Lanham Act’s ban on offensive marks on the grounds that such a ban violates the First Amendment Right of Free Speech. The case involved clothing brand FUCT, which stands for “Friends You Can’t Trust,” and its founder, Erik Brunetti, who sought to register the brand’s name with the U.S. Patent and Trademark Office (USPTO). The USPTO refused to register the name, determining it was immoral and scandalous. Brunetti argued to the Trademark Trial and Appeal Board (TTAB) that the mark was not vulgar, and that Section 2(a) of the Lanham Act was unconstitutional because it violated the First Amendment. However, the TTAB affirmed the USPTO’s refusal and Brunetti appealed to the U.S. Court of Appeals for the Federal Circuit (CAFC).

In order for rights in a trademark to persist, the mark must be used in commerce continuously. Wallack v. Idexx Labs., Inc., No. 11CV2996-GPC(KSC), 2015 WL 5943844, at *4 (S.D. Cal. Oct. 13, 2015). Abandonment of a mark is, therefore, an affirmative defense to a trademark infringement claim. One form of trademark abandonment is non-use of the mark. A second form of trademark abandonment is uncontrolled or “naked” licensing of one’s trademark. The policy behind prohibiting uncontrolled licensing is reflected in 15 U.S.C. § 1127, which states that “[a] mark will be deemed abandoned … [w]hen any course of conduct of the owner, including acts of omission as well as commission, causes the mark to …  lose its significance as a mark.” 15 U.S.C. § 1127 (emphasis added); Already LLC v. Nike Inc., 568 U.S. 85, 99 (2013). “Naked licensing is an uncontrolled licensing of a mark whereby the licensee can place the mark on any quality or type of goods or services, raising a grave danger that the public will be deceived by such a usage.” Doeblers’ Penn. Hybrids, 442 F.3d at 823 (internal quotations and citations omitted). The way to protect against this danger to the consuming public is to require the licensor to actively police use of the licensed mark.

As predicted, the U.S. Supreme Court has ruled that a debtor’s rejection of a license agreement in bankruptcy proceedings does not mean the licensee no longer retains rights to the mark. Instead, the Court said that rejection of the contract – and therefore the trademark license – constitutes a breach of the contract/ license, not a revocation. In Mission Product Holdings, Inc. v. Tempnology LLC, the High Court was asked to determine whether a trademark licensor’s rejection of a licensing agreement during bankruptcy proceedings terminates the rights of the licensee which would otherwise survive a licensor’s breach of contract under applicable non-bankruptcy law. In an 8-1 decision, the Court held that the rejection of an executory contract during bankruptcy has the same effect as breach of that contract outside of bankruptcy and thus cannot rescind rights previously granted by the contract. As a result, Tempnology’s rejection in bankruptcy of its agreement to license trademarks to Mission Product Holdings didn’t rescind Mission’s rights to continue using those trademarks.

Mission Product Holdings v. Tempnology was argued last week at the Supreme Court and seeks to solve a circuit split regarding the effects of bankruptcy proceedings on trademark licenses. The case asks the nation’s highest court to determine if the rejection of a license in bankruptcy terminates the licensee’s right to to the trademarks or whether that license rejection only constitutes a breach by the licensor, in which case the licensee can still use the marks. The International Trademark Association (INTA) has dubbed the issue presented as “the most significant unresolved legal issue in trademark licensing.” Following our in-depth guest report on the oral argument, IPWatchdog asked those following the case to provide their take on the import of the case, the oral argument, and potential implications of the justices’ questioning.

On Wednesday, February 20, the U.S. Supreme Court heard oral arguments in Mission Product Holdings, Inc. v. Tempnology, LLC, where the Court was asked to address one of the most important issues at the intersection of trademark law and bankruptcy law: whether a debtor-licensor’s rejection of a trademark license terminates the rights of the licensee to use that trademark. Taking seriously the language of the question presented, and generally acknowledging that 11 U.S.C. § 365(g) provides that rejection constitutes a “breach” of the contract, the justices focused on the remedies for breach outside of bankruptcy law and whether, because trademarks (and quality control issues) are involved, deviation from ordinary, contract law principles is warranted. Both the advocates and the justices returned to whether analogies, including with respect to breaches of apartment and photocopier leases, are apposite. The question of whether the case was moot also received some attention, though it seems unlikely that the case will be dismissed on that ground.

This week is quiet on Capitol Hill with Presidents’ Day on Monday, after which the House of Representatives enters a district work period and the Senate is out of session for the rest of the week. However, Washington, D.C., will still host a series of events related to intellectual property, innovation, and technology. Counsel and amici appearing before the U.S. Supreme Court in Mission Product Holdings Inc. v. Tempnology, LLC on Tuesday will offer post-oral argument reflections this Wednesday at the American University Washington College of Law. Earlier that same day, the Information Technology & Innovation Foundation looks at the policy debate surrounding the U.S. Postal Service in the e-commerce era. This week in IP, business and tech policy wraps up on Thursday with a look at lunar tech commercialization and other legal matters related to Moon exploration by the Washington Space Business Roundtable.

This week in Other Barks & Bites: the USPTO appoints a new Chief Information Officer; Apple uses Qualcomm chips in Germany while American professors urge the ITC to deny exclusion of iPhones found to infringe Qualcomm patent claims; two important IP cases will be heard by the U.S. Supreme Court next week; the EU approves copyright reforms, including the hotly-debated Article 13; Fresh Prince of Bel-Air star Alfonso Ribeiro runs into issues at U.S. Copyright Office; Facebook could owe billions in fines for consumer data practices; a jury verdict dings Walmart for nearly $100 million in trademark infringement case; and Google announces multi-billion dollar plan to expand offices and data centers across the United States.

On February 20, the Supreme Court will hear oral argument in Mission Product Holdings Inc. v. Tempnology, LLC on appeal from the Court of Appeals for the First Circuit. The case presents the question of whether a debtor-licensor’s rejection of an executory trademark license agreement in bankruptcy, pursuant to 11 U.S.C. § 365, results in the agreement’s complete termination, including loss of the licensee’s right to use the licensed trademark. Given that trademarks are the most widely used form of registered intellectual property, and trademark rights often are among a debtor’s key assets, the treatment of the debtor’s licenses of those rights is an issue that arises frequently in the bankruptcy context. For this reason, among others, the issue presented by this case has been hailed by the International Trademark Association (INTA) as “the most significant unresolved legal issue in trademark licensing.”