The United States Supreme Court issued a decision in the case of Mission Product Holdings, Inc. (“Mission”)
Tempnology utilized the brand name “Coolcore” for its manufactured clothing designed to stay cool during exercise. Mission and Tempnology entered into a non-exclusive licensing agreement for Mission to use the Coolcore trademarks anywhere in the world in 2012. While the agreement would have expired in July 2016, Tempnology filed for Chapter 11 bankruptcy in September 2015. Soon after, Tempnology asked for permission to “reject” the licensing agreement it had with Mission under Section 365(a). 11 U.S.C. § 365(a). Pursuant to Section 365 of the Bankruptcy Code, a debtor may reject any contract that neither party has finished performing. That rejection under Section 365 “constitutes a breach of such contract.” 11 U.S.C. § 365(a).
Both parties agreed that Mission has a claim for damages against Tempnology, however, under 365(g), Mission would be in the same boat as an unsecured creditor and would likely not receive its total damages. Tempnology also believed by rejecting the licensing agreement, Mission would no longer be able to utilize the Coolcore trademarks.
The Bankruptcy Court agreed with Tempnology’s belief that Mission’s rights were revoked with the rejection of the licensing agreement. The Bankruptcy Appellate Panel reversed, relying heavily on the Court of Appeals for the Seventh Circuit decisions, holding that while Mission would have a pre-petition damages claim, it would not terminate the contract or revoke Mission’s rights to continue using the Coolcore trademarks. The Court of Appeals for the First Circuit overturned the Bankruptcy Appellate Panel’s decision and reinstated the Bankruptcy Court’s decision.
The Supreme Court of the United States granted certiorari and resolved the divide between the First and Seventh Circuits in affirming the reasoning from the Seventh Circuit and reversing the decision of the First Circuit. The Supreme Court adopted the view that “a rejection has the same consequence as a contract breach outside bankruptcy: It gives the counterparty a claim for damages, while leaving intact the rights the counterparty has received under the contract.”
While Tempnology argued that not revoking Mission’s rights would force it to choose between “expending scarce resources on quality control and risking the loss of a valuable asset,” which would impede its ability to reorganize. The Supreme Court held that the balance of debtor’s and creditor’s rights in this scenario may impede some reorganizations of those that are trademarks licensors. Further, the Supreme Court found that this conflict between its decision and Tempnology’s view comes from Section 365 having a broader and more complex aim than what Tempnology argued. Justice Sotomayor filed a concurring opinion while Justice Gorsuch filed a dissenting opinion.