On Jan. 12, 2018, the First Circuit decided Mission Product Holdings. Inc. v. Tempnology LLC, becoming the first circuit court to align itself with a number of lower court decisions holding that trademark licensees lose their rights to use the debtor’s trademarks when the debtor rejects the license agreement under § 365(a) of the Bankruptcy Code. Although licensees of copyrights, patents and other forms of intellectual property have the option under § 365(n) to retain their rights following rejection, that protection does not apply to trademark licensees. The First Circuit rejected arguments that such protection can be found in the bankruptcy court’s equitable powers or elsewhere in § 365.

There is now a split among the circuits on the issue of a licensee’s post-rejection rights to continue to use licensed trademarks. Prior to Tempnology, the only circuit court to address trademark protections in light of § 365(n) was the Seventh Circuit in Sunbeam Products Inc. v. Chicago American Manufacturing LLC.  In Sunbeam, the court did not draw a negative inference about congressional intent from its omission of trademarks from the intellectual property explicitly protected by § 365(n). Instead, the Sunbeam court held that because rejection is only deemed a breach of the agreement, the agreement itself is not terminated and the other party’s rights under the agreement are unaffected. 

On Feb. 21, 2018, the Delaware Bankruptcy Court in Stanley Jacobs Production Ltd. v. 9472541 Canada Inc., et al. ruled that debtors seeking permission to assume or reject a contract under § 365 of the Bankruptcy Code must file a motion to do so, and assumption or rejection “impliedly” through circumstances or by conduct does not suffice.

After the Delaware Bankruptcy Court authorized Old Thane to sell its assets (relating to consumer products sold in part through infomercials) to New Thane, the producer of an infomercial for Old Thane, pursuant to a pre-sale executory contract (the “production agreement”), sued New Thane to recover pre-sale royalties. The action was filed in federal court in the Central District of California, but because that court had determined that the court that had entered the sale approval order was best suited to determine whether the production agreement had been assumed and assigned by Old Thane to New Thane, the litigation was transferred to Delaware.

The Ninth Circuit Court of Appeals recently joined the Seventh Circuit in adopting what it referred to as the “minority rule” in holding that a free-and-clear sale of property under § 363(f) of the Bankruptcy Code strips a tenant of its statutory right to remain in the premises notwithstanding rejection of the lease pursuant to § 365(h) of the Bankruptcy Code in In the Matter of Spanish Peaks Holdings II, LLC.

In the Matter of Spanish Peaks Holdings II LLC

Spanish Peaks was a 5,700-acre resort in Big Sky, Mont. The project was financed by a $130 million loan held by Citigroup. Citigroup later assigned the note and mortgage to Spanish Peaks Acquisition Partners LLC (the lender). A collection of interrelated entities owned the resort and managed its amenities, including a ski club, a golf course, and residential and commercial real estate sales and rentals. Pre-petition, the debtors entered into two undermarket, long-term commercial leases (99 and 60 years, respectively) with two different commercial tenants.

At this year's Annual Spring Meeting in Washington, D.C., the Bankruptcy Litigation Committee paired with the Young and New Members Committee to host a session titled Stern Revisited: In re Millennium Lab Holdings And Beyond. Speakers for this session included: 

• Patrick M. Birney - Robinson & Cole LLP; Hartford, CT
• Gianfranco Finizio - Kilpatrick Townsend & Stockton; New York
• J. Leland Murphree - Maynard Cooper & Gale, PC; Birmingham, AL
• Shane G. Ramsey - Nelson Mullins Riley & Scarborough, LLP; Nashville, TN
• Nicole Stefanelli - Cullen and Dykman LLP; Newark, NJ