Mission Product Holdings, Inc. v. Tempnology LLC (In re Tempnology LLC)
559 B.R. 809
1st Cir. BAP2016Background
- Tempnology (Debtor) and Mission Product Holdings entered a 2012 Co‑Marketing & Distribution Agreement granting: (a) exclusive U.S. distribution rights for certain “Exclusive Cooling Accessories,” (b) a perpetual, nonexclusive IP license to the Debtor’s “CC Property” (explicitly excluding Marks and Domain Names), and (c) a limited, term‑bound license to use the Cool‑core trademark/logo.
- Mission terminated the agreement in 2014 (triggering a two‑year wind‑down); the Debtor also asserted termination for cause and arbitration ensued.
- Debtor filed bankruptcy (Ch. 11) and moved to reject the Agreement. Mission timely elected rights under 11 U.S.C. § 365(n).
- Bankruptcy court ruled § 365(n) preserved Mission’s nonexclusive IP license (section 15(b)) but did not protect: (a) exclusive product distribution rights, or (b) trademark/logo rights (because trademarks are not in § 101(35A)). Court also denied requirement that relief be sought by adversary proceeding.
- On appeal the Panel affirmed that distribution rights are not protected by § 365(n), affirmed that § 365(n) does not protect trademarks, but reversed the bankruptcy court to the extent it held rejection terminated Mission’s trademark rights outright — adopting Sunbeam’s view that rejection is a breach, not automatic termination of contractual rights not covered by § 365(n).
Issues
| Issue | Mission's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Whether Mission’s exclusive product distribution rights are preserved by its § 365(n) election | Those exclusivity provisions are enforceable under § 365(n) because § 365(n)(1)(B) preserves rights “including a right to enforce any exclusivity provision” and the products are embodiments of IP | § 365(n) protects only intellectual‑property license rights; distribution exclusivity is a separate contract right, not an IP license | Distribution rights are not protected by § 365(n); affirming bankruptcy court |
| Whether trademarks/logo are protected by § 365(n) or survive rejection | Trademark rights should be preserved either because they are tied to the IP embodiment or courts should use equitable powers per legislative history to protect trademarks | Trademarks are omitted from § 101(35A) definition; § 365(n) therefore does not protect trademarks and rejection ends special protection | § 365(n) does not cover trademarks (affirmed), but rejection does not automatically extinguish contractual trademark rights — rejection is breach, not vaporization (reversed to that extent) |
| Effect of rejection on non‑§365(n) trademark rights | Even if trademarks aren’t covered by § 365(n), contractual trademark rights should not be vaporized by rejection | Rejection terminates the license if not covered by § 365(n) (Lubrizol line) | Rejection constitutes breach under § 365(g) and does not automatically terminate trademark rights; post‑rejection rights governed by contract and nonbankruptcy law (reversed on termination point) |
| Procedural: Whether Debtor had to file an adversary proceeding under Rule 7001 | Mission: Debtor sought declaratory/injunctive relief affecting property rights so Rule 7001 required an adversary | Debtor: Motion was a contested matter under Rule 9014 arising from the rejection motion; no disputed facts or prejudice | No need for adversary; contested‑matter procedure was appropriate and any error in form was harmless (affirmed) |
Key Cases Cited
- Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985) (held rejection terminated IP license; prompted § 365(n) amendment)
- Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012) (rejection is breach, not automatic termination; rights survive subject to damages and contract law)
- In re Exide Techs., 607 F.3d 957 (3d Cir. 2010) (third‑circuit consideration of § 365(n) and trademarks; discussion of equitable treatment; trademark license issues)
- In re Old Carco LLC, 406 B.R. 180 (Bankr. S.D.N.Y. 2009) (concluded trademarks are not "intellectual property" under § 101(35A) and thus not protected by § 365(n))
- In re Crumbs Bake Shop, Inc., 522 B.R. 766 (Bankr. D.N.J. 2014) (advocated case‑by‑case equitable protection for trademark licensees despite omission from § 101(35A))