Mission Product Holdings, Inc. v. Tempnology, LLC
879 F.3d 389
1st Cir.2018Background
- Tempnology, LLC (Debtor) granted Mission Product Holdings a 2012 Co‑Marketing & Distribution Agreement: nonexclusive perpetual IP license (excluding trademarks), a limited trademark license, and exclusive U.S. distribution rights for certain "Exclusive Cooling Accessories."
- Mission exercised a contractual termination option triggering a two‑year Wind‑Down Period; an arbitrator later held the Agreement remained effective through that Period. Debtor filed Chapter 11 on Sept. 1, 2015 and moved to reject the Agreement under 11 U.S.C. § 365(a).
- Mission elected protection under 11 U.S.C. § 365(n) and argued it could retain (1) the exclusive distribution rights and (2) the trademark license despite rejection.
- Bankruptcy court held § 365(n) preserved Mission’s prepetition nonexclusive IP license (excluding trademarks) but did not protect the exclusive distribution rights or the trademark license; treated the dispute as a contested matter under Rule 9014.
- The Bankruptcy Appellate Panel affirmed as to exclusive distribution rights but reversed on trademarks (following the Seventh Circuit’s Sunbeam approach). First Circuit affirms bankruptcy court: neither exclusive distribution rights nor trademark license survive rejection.
Issues
| Issue | Mission's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Whether § 365(n) protects Mission’s exclusive distribution rights | The parenthetical in § 365(n)(1)(B) (“including a right to enforce any exclusivity provision”) covers any exclusivity in the contract, so Mission’s exclusive distribution rights survive rejection | § 365(n) protects exclusivity only as an attribute of licensed intellectual property; an exclusive right to sell products is not IP and thus not protected | Held: § 365(n) does not protect the exclusive distribution rights; rejection converts obligations into a prepetition damages claim |
| Whether § 365(a) rejection extinguishes Mission’s trademark license | Mission: Even if § 365(n) omits trademarks, § 365(g) treats rejection as breach, which (like ordinary contract law) does not automatically terminate a license; trademark rights can survive rejection (Sunbeam approach) | Debtor: Trademarks are omitted from § 101(35A)/§ 365(n); permitting trademark use to survive would force the debtor to retain burdensome quality‑control obligations and undermine § 365(a)’s purpose | Held: Trademark licenses are not protected by § 365(n) and do not otherwise survive rejection; allowing them to survive would impose ongoing burdens and risk trademark abandonment |
| Whether a Rule 7001 adversary proceeding was required | Mission: Determination of rights in property (trademark license) requires an adversary proceeding under Rule 7001(2) | Debtor: The rejection/dispute was appropriately resolved as a contested matter under Rule 9014; no prejudice from proceeding as such | Held: Even if Rule 7001 applied, any error was harmless; the dispute turns on contract/ statutory interpretation and no additional factual record would change the outcome |
Key Cases Cited
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (U.S. 1984) (§ 365 permits debtor to assume or reject executory contracts to aid reorganization)
- Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985) (rejection of IP license terminates license; led Congress to enact § 365(n))
- Sunbeam Products, Inc. v. Chicago American Mfg., LLC, 686 F.3d 372 (7th Cir. 2012) (rejection treated as breach but licensee’s trademark rights may survive; court declined to automatically terminate license)
- In re FBI Distrib. Corp., 330 F.3d 36 (1st Cir. 2003) (discusses executory contracts and § 365 framework)
- Law v. Siegel, 134 S. Ct. 1188 (U.S. 2014) (bankruptcy courts’ equitable powers are limited by the Bankruptcy Code)