Under section 365 of title 11 of the United States Code (the “Bankruptcy Code”) a trustee or a debtor-in-possession may reject an executory contract. Rejection has the same effect as a breach outside of bankruptcy; rejection does not rescind the rights that the contract previously granted or terminate the contract. Under section 365(n) of the Bankruptcy Code, a licensee of intellectual property may retain the right to use such intellectual property notwithstanding the rejection of such license provided it is an executory contract. A contract is executory when there is performance due, to some extent, from both parties. A licensing contract is executory because the licensor grants the license and provides associated goods or services during the licensed term, and the licensee, in return, pays continuing royalties or fees. Said otherwise, in a licensing contract, performance is due from both sides until the very end of the contract term, and therefore the contract is considered executory. When an executory contract licenses out trademark rights, there was a question as to whether or not those rights are terminated when the contract is rejected.
Circuit Courts consulted previous case law, Congressional intent, and statutory interpretation to decide whether a license to use a trademark in an executory contract remains after rejection. After a circuit split as to this question, the Supreme Court, in Mission Products Holdings, Inc. v. Tempnology, LLC (“Mission”), finally attempted to create a legal standard to apply to rejected trademark executory contracts, however the holding in this case left some lingering ambiguities. What remains ultimately clear from the holding in Mission is that rejection does not rescind the trademark rights previously granted by an executory contract. This memorandum explores (1) the legal standard and confusion that led to the circuit split prior to Mission, (2) the current law as articulated in Mission, and (3) some of the remaining ambiguities post Mission.