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Understanding the Supreme Court's Latest Rulings Regarding Trademark Licenses and Chapter 11

We know how confusing the ever-changing world of law can be. While it's important to consult with an experienced bankruptcy law attorney and other specialist legal professionals to help you navigate the law in your situation, it can also help to stay on top of what's going on in the legal world.

Recently, the Supreme Court resolved ongoing concerns regarding trademark licenses. On May 20, 2019, they addressed a split in the circuit court regarding whether or not a someone who holds a trademark can continue to use it until their license expires after a bankruptcy rejected the license. The debtor who licensed the trademark rejected a license agreement and wanted to terminate the licensee's right to use the trademark owned by the debtor. 

Bankruptcy Code section 365(a) allows a bankrupt party the right to reject contracts where both parties have obligations relating to performance remaining. According to the code, rejecting these contracts is a breach of the original contract. 

The Supreme Court was tasked with determining what effects a debtor rejection of a trademark license. As it stood, a rejection could pave the way for a damage claim. But, could the trademark licensee continue to use their trademark that it received under the original contract, or does the rejection terminate the entire agreement?

The Supreme Court ruled that a rejection of the trademark licensing agreement by the licensor or debtor does not mean they forfeit the non-debtors licensee's rights to the trademark. However, a rejection by the debtor allows the debtor-licensor to stop giving the debtor any additional services like quality control or maintaining the trademark's certain image. 

The Bankruptcy Code lets a patent or copyright licensee treat the license as terminated in the case of a rejection. The licensee can either retain their intellectual property rights under the license, or they can assert a claim for damages. "Intellectual property" includes copyrights and patents, but it doesn't include trademarks. 

When the Supreme Court reached this decision, the majority focused on the rejection's general rules in sections 365(a) G of the Bankruptcy Code. They mainly focused on how rejection could affect all executory contract and not just trademarks. They pointed out that the provisions in section 365(n) of the Bankruptcy Code do not include trademarks. Also, it does not change the rule that rejecting an executory contract doesn't take the rights away that were previously granted under said contract. This means that the ruling doesn't necessarily mean that every trademark licensee would be able to use their trademark after the rejection. 

The question still remains whether or not a licensee has rights to use the trademark for the length of the license. It's also unsure whether it would survive a breach under any non-bankruptcy law. You have to take into account state laws and any applicable special terms to get a solid answer. 

Since intellectual property licensing agreements are a large part of many commercial arrangements, this ruling sheds a little light on a practice that can be subject to different analyses depending on which jurisdiction the dispute arose in. This means that when people negotiate intellectual property licenses, they should keep all of these pieces in mind. In turn, they'll be able to cover themselves in the event of a licensor bankruptcy. 

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