A recent ruling from the U.S. Supreme Court addressed an important question that may impact many commercial entities considering Chapter 11 bankruptcy. For (potential bankruptcy debtor) entities that are also trademark licensors, what happens to the licensee’s rights if the license is rejected in bankruptcy? While the court’s ruling limited power of rejection somewhat, providing some good news for licensees, it stopped well short of giving licensees unfettered rights after a rejection. In other words, if your entity is a holder and licensor of trademarks and is considering bankruptcy, Chapter 11 may be a viable option. Consult a knowledgeable South Florida bankruptcy attorney to help you make the best choice for your business.
The case upon which the high court ruled this spring involved a manufacturer of athletic wear with cooling technology. The manufacturer also held several trademarks which it had licensed. One of the licenses the manufacturer had issued, as part of a co-marketing and distribution agreement, was to a New York-based provider of cooling towels and other cooling items for athletes.
The manufacturer filed for Chapter 11 bankruptcy in 2015. At that time, the New York licensee still possessed its license to use the manufacturer’s trademark. The manufacturer sought to reject the New York licensee’s rights under the distribution agreement as part of its bankruptcy action.