In a decision that could have wide-ranging importance for trademark owners and licensees in Colorado, the Supreme Court has ruled that licensees retain their rights even after the licensor rejects the agreement in a bankruptcy proceeding. Bankruptcy courts have differed on the matter and how trademark licenses can be rejected under section 365 of the U.S. Bankruptcy Code. When a trademark owner files for bankruptcy, it may seek to repudiate its license agreements in order to restructure their rights process or escape obligations under their contracts.
In an 8-1 decision, the nation’s highest court said that bankrupt trademark owners cannot rescind the rights of their licensees through a rejection in the bankruptcy process. Instead, licensees can continue to use the trademark as previously authorized under their license. The debate over the issue arose after a provision was added to the Code’s section 365 that allowed licensees to continue to use intellectual property after a license was rejected in bankruptcy. However, unlike other forms of intellectual property, trademarks were not explicitly named in this provision, leading some courts to decide that they would be treated differently.
The Supreme Court ruled that a licensor can terminate an agreement in bankruptcy. However, it would simply be a breach of the license that would not terminate the rights of the licensee. The licensor can escape its responsibilities under the license; for example, it would not be held responsible for monitoring the licensee’s use of the trademark. However, the licensee would still be obligated to keep up with its commitments, such as making royalty payments.
The high court’s ruling gives trademark licensees a greater sense of certainty when concluding a contract to use another party’s trademark. An intellectual property attorney can help a business negotiate agreements and handle its trademarks, copyrights and other creative assets.