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High Court Wrestles With Bankruptcy Fallout for Trademark Licensees - ABI

Supreme Court justices grappled yesterday with a question at the intersection of bankruptcy and trademark law that has split the circuits and stumped Congress, the National Law Journal reported.  The question posed by Mission Product Holdings v. Tempnology is what happens when a bankrupt entity “rejects” its trademark licenses. New Hampshire-based Tempnology LLC argues that the licenses are swept into the bankruptcy estate as would any other “executory” contract, leaving the licensee with a pre-petition claim for damages that’s typically worth pennies on the dollar. New York-based Mission Products Holdings Inc. and a squadron of amici curiae are calling on the Supreme Court to adopt the Seventh Circuit’s position that licensees should be free to continue using the marks they’ve bargained for and, in many cases, invested their own money in. Assistant to the Solicitor General Zachary Tripp asked the justices to imagine a McDonald’s franchisee who spends millions developing a restaurant. Under the rule adopted by the First Circuit in this case, “they can pull the rug out from under every single one of its franchisees and basically put them to an extortionate choice between paying a higher royalty payment or shutting down their business and firing all their workers.”

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