High Court Takes Up Circuit Split Over IP in Bankruptcy

WASHINGTON (CN) – The Supreme Court agreed late Friday to resolve a circuit split over licensing rights that pits the bankrupt producer of specialty athletic clothes against its distributor.

Three years before it petitioned for Chapter 11 bankruptcy in September 2015, the company Tempnology LLC executed an agreement by which Mission Product Holdings Inc. was given the exclusive rights to distribute Tempnology’s apparel and accessory products in the United States, as well as a nonexclusive license to use Tempnology’s trademarks as part of such distribution.

Branded Coolcore and Dr. Cool, the products at issue are designed to remain at a low temperature when used during exercise.

Tempnology meanwhile invoked Section 365 of the Bankruptcy Code to reject the distribution agreement after seeking to reorganize under Chapter 11.

To date, Mission has failed to persuade both a bankruptcy court and the First Circuit Court of Appeals that Tempnology’s rejection of the agreement did not deprive Mission of its exclusive distribution rights using the licensed trademarks.

In the ruling from January 2018, U.S. Circuit Judge William Kayatta wrote for majority “that the rejection left Mission with only a prepetition damages claim in lieu of any obligation by [Tempnology] to perform under either the trademark license or the grant of exclusive distribution rights.”

Mission noted in its petition for certiorari that this holding aligned with Fourth Circuit precedent but “expressly disagreed with the Seventh Circuit’s” ruling in the 2012 case Sunbeam Products Inc. v. Chicago American Manufacturing LLC.

The ruling in Tempnology was divided, however, with U.S. Circuit Judge Torruella saying he would find that the debtor’s rejection of the executory contract did not vaporize Mission’s rights to use the trademarks.

Mission is represented by the firms WilmerHale and Bernstein Shur, in Washington and Portland, Maine, respectively.

Per its custom, the Supreme Court did not issue any comment in its Oct. 29 order granting Mission a writ of certiorari. The justices specified only that they would decide whether a debtor-licensor’s “rejection” of a license agreement under Section 365 of the Bankruptcy Code “terminates rights of the licensee that would survive the licensor’s breach under applicable non-bankruptcy law.”

Tempnology, now known as Old Cold LLC, is represented by the Boston firm Nixon Peabody.

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