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BankruptcyFeaturesIntellectual PropertyLitigationThe Bankruptcy StrategistTrademarks

The Ripple Effect of Rejecting Trademark Licenses

By Mark W. Page

In In re Tempnology, LLC, 879 F.3d 389 (1st Cir. 2018), the First Circuit held (in a 2-1 decision) that the debtor's rejection of a trademark license strips the nondebtor licensee of any right to continue to use the trademarks. In so doing, the court takes the same approach as the Fourth Circuit in its controversial Lubrizol decision and rejects the approaches advocated by Judge Ambro of the Third Circuit in his Exide concurrence and the Seventh Circuit in its Sunbeam decision. Tempnology thus deepens the circuit split between the Fourth and Seventh Circuits over this issue, and highlights the general confusion that still remains 40 years after enactment of the present Bankruptcy Code over the effect of rejection.

Tempnology also addresses whether exclusive product distribution rights are covered by §365(n) of the Bankruptcy Code, concluding they are not. Section 365(n) was added to the Code in 1988 to counter Lubrizol and protects the rights of nondebtor licensees of “intellectual property” (not including trademarks) to continue to use the licensed property after rejection of the license. Tempnology is one of only a few appellate court decisions to examine §365(n) in any depth and provides valuable guidance on the scope of the licensee's rights under the statute to enforce “any exclusivity provision” and to access “embodiments” of intellectual property.

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