claire-anderson-60670-unsplash-1While most of the country only looks to the Supreme Court when matters of broad national importance are on the docket, it's worth observing the court on more under-the-radar issues that could still have a significant impact on businesses or individuals around the country. One recent case could have massive repercussions in bankruptcy cases for years to come.

At issue in the case of Mission Product Holdings, Inc. v. Tempnology, LLC is the matter of licensing in the instance of bankruptcy. In the case at hand, Tempnology had licensed trademarks to Mission Product Holdings for use with its athletic apparel products. At a later date, Tempnology filed for Chapter 11 bankruptcy and attempted to reject the executory contract on the grounds that they could no longer perform quality control over their trademark. Mission Product Holdings soon filed suit, and the matter worked its way through the lower courts, with Tempnology winning the original decision and reversals by the U.S. Court of Appeals and the First Circuit and Mission Products Holdings winning their appeal in the Bankrupcy Appellate Court.

In the ruling by the Supreme Court, the justices went 8-1 in favor of Mission Products Holdings, asserting that under bankruptcy law the rejection of the licencing contract on the part of Tempnology would amount only to a breach of the contract and not a revocation, thus allowing the licensee to retain the rights.

The ruling has potentially huge implications for any industries that rely on the licensor/licensee relationship. As Schuyler Moore points out in his breakdown for Forbes:

"Most importantly, if a bankrupt licensee rejects a license, the licensee should be able to retain the licensed rights even without making any further payments to the licensor unless the contract expressly permits the licensor to terminate (which is rare). Thus, in most cases, a bankrupt licensee can reject a license, not pay anything further to the licensor, and retain the rights!"

While legal scholars and bankruptcy experts might debate on the merits and points of the decision, it is nevertheless significant for the court to determine the seeming immutability of licensing contracts even in the face of such a change in circumstance as bankruptcy. How this will affect the business of licensing at large remains to be seen.

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