- Posts by Joseph LeeAssociate
Joseph K. Lee is a member of the Commercial and Complex Litigation Practice Group and the firm’s Intellectual Property Team. Mr. Lee represents private companies in contract and business tort litigation, intellectual property ...
October marks the opening of the new Supreme Court 2019-2020 term and there is one case in particular that trademark practitioners are anxiously awaiting for the Court to weigh in on to resolve a longstanding circuit split and definitively answer the question whether willful infringement is a prerequisite for an award of an infringer’s profits in an action for trademark infringement.
On September 12, 2019, the United States Court of Appeals for the Federal Circuit held for the first time that “claim language can limit the scope of a design patent where the claim language supplies the only instance of an article of manufacture that appears nowhere in the figures.” The Federal Circuit’s order affirming the dismissal of a complaint for design patent infringement based on a narrowed construction of the patent-in-suit makes clear that words matter in a design patent.
On May 20, 2019, the United States Supreme Court resolved a circuit split and answered a significant previously unresolved legal issue in trademark licensing. The Supreme Court held in Mission Product Holdings, Inc. v. Tempnology, LLC, No. 17-1657, 587 U.S. __ (2019), that a debtor-licensor’s rejection of an executory trademark licensing agreement in bankruptcy has the same effect as a breach of contract outside bankruptcy and therefore does not rescind the licensee’s rights or revoke the trademark license.
Section 365 of the Bankruptcy Code allows a debtor to “reject any executory contract”—meaning a contract that neither party has finished performing. The issue before the Court was whether a debtor-licensor’s rejection of a trademark license agreement, which “constitutes a breach of such contract” under Section 365(g) of the Bankruptcy Code, resulted in a rescission of the license even though a breach of contract in a non-bankruptcy context would not automatically terminate the license.
In its 8-1 decision authored by Justice Kagan (and joined by every justice except Justice Gorsuch), the Supreme Court reversed the First Circuit’s January 2018 decision that had ruled that a licensee loses its right to use licensed trademarks if the debtor-licensor rejects the trademark licensing agreement in bankruptcy. Instead, the Supreme Court sided with the Seventh Circuit’s reasoning from Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, 686 F.3d 372 (7th Cir. 2012), where the Seventh Circuit construed Section 365 and held to the contrary.
Prior to the Supreme Court’s decision, the circuits had been divided as to the effect of a debtor-licensor’s rejection of a license. Some circuits, including the Seventh Circuit, had held that a rejection of a license agreement was simply a breach of contract, in which case the licensee’s rights under the contract remained intact and the licensee could continue to use the trademark. Other circuits, such as the First Circuit, held that a rejection of a license agreement was a termination of the license, thereby prohibiting the licensee from continuing to use the trademark. The debate has now been settled.
The Supreme Court’s decision significantly enhances the bargaining strength of trademark licensees because there is now certainty that a licensor’s rejection in bankruptcy does not revoke the licensee’s rights under a pre-existing license agreement. Potential debtors are also affected because trademark licenses granted prior to bankruptcy remain valid and the debtor-licensor’s obligations under the license agreement continue.
Justice Sotomayor issued a concurring opinion in part to highlight the special treatment of a trademark licensee’s post-rejection rights and remedies under Section 365.
Parties who now find themselves negotiating agreements, including trademark licenses in particular, must carefully consider what terms and obligations will survive bankruptcy before entering such agreements. Because the Supreme Court’s ruling implicates many business and drafting issues, it is important to consult with experienced intellectual property counsel before negotiating and entering into a trademark license agreement.
AALRR has a dedicated group of attorneys on its Intellectual Property Team who can assist you with negotiating and drafting license agreements. Contact the authors for assistance with navigating the complicated intersection of intellectual property and insolvency.
Other AALRR Blogs
- Substantial Performance When Time Is (Not) Of The Essence
- Anti-SLAPP Statute Does Not Apply to Actions to Enjoin Administrative Proceedings
- New California Court of Appeal Decision Provides a Basis for Finding Insurance Coverage of Wage and Hour Lawsuits under Employment Practices Liability Insurance Policies
- Infringers Profits and Willfulness: Supreme Court Set to Resolve Circuit Split Regarding Trademark Damages
- There Can Only Be One “Prevailing Party” Under A Contractual Attorney’s Fees Provision
- Words Matter in Design Patents: Federal Circuit Rules that Claim Language Can Limit the Scope of a Design Patent
- U.S. v. Connolly and the Importance of Independent Counsel When Cooperating with Government Investigations
- California Supreme Court Holds that Employment Claims Are Subject to Anti-SLAPP Law
- California Unemployment Insurance Appeals Board Confirms That Interpreters and Translators Are Independent Contractors
- Court of Appeal Holds An Employee May Be A Managing Agent Even If The Decision-Making Authority Only Informally Sets Corporate Policy