By Brian S. Hermann, Alan W. Kornberg, and Erica G. Weinberger (Paul, Weiss, Rifkind, Wharton & Garrison LLP).
Last month, the United States Court of Appeals for the First Circuit addressed two questions critically important to trademark licensees: (1) can a trademark licensee use section 365(n) of the Bankruptcy Code to retain licensed trademarks (and exclusive distribution rights) following a debtor-licensor’s rejection of its license and (2) if not, can a licensee otherwise continue to use the licensed trademarks post-rejection? In re Tempnology, LLC, 879 F.3d 389 (1st Cir. 2018). The Court held that section 365(n) does not apply to trademarks (or distribution rights) and, in a split (two-to-one) decision, ruled that a licensee’s right to use licensed trademarks terminates upon rejection of its license. In so ruling, the Court expressly rejected a contrary decision by the United States Court of Appeals for the Seventh Circuit in Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, 686 F.3d 372 (7th Cir. 2012), establishing a clear circuit split regarding the consequences of trademark license rejection for licensees. This Memorandum discusses the First Circuit’s decision in Tempnology, as well as the scope of section 365(n) of the Bankruptcy Code and the consequences of rejection more generally.
The First Circuit’s decision in Tempnology may not be the last word on these important trademark license issues. Given the split in Court of Appeals rulings, the Supreme Court could weigh in, if asked. If not, it remains to be seen whether other courts will adopt Tempnology or Sunbeam or craft an entirely different rule.
The full article is available here.