Distributor Could Not Retain Exclusivity or Trademark License after Debtor's Rejection of Distribution Agreement: Bankr. D.N.H. | Practical Law

Distributor Could Not Retain Exclusivity or Trademark License after Debtor's Rejection of Distribution Agreement: Bankr. D.N.H. | Practical Law

In In re Tempnology LLC, the US Bankruptcy Court for the District of New Hampshire held that a distributor's exclusive rights to distribute a Chapter 11 debtor’s patented products are not intellectual property license rights that could remain intact under section 365(n) of the Bankruptcy Code following the debtor’s rejection of the parties' marketing and distribution agreement. The court further held, joining the majority of bankruptcy courts that have considered the issue, that the Bankruptcy Code's protections for intellectual property licensees do not extend to trademarks.

Distributor Could Not Retain Exclusivity or Trademark License after Debtor's Rejection of Distribution Agreement: Bankr. D.N.H.

by Practical Law Bankruptcy and Practical Law Intellectual Property & Technology
Published on 19 Nov 2015 • USA (National/Federal)
In In re Tempnology LLC, the US Bankruptcy Court for the District of New Hampshire held that a distributor's exclusive rights to distribute a Chapter 11 debtor’s patented products are not intellectual property license rights that could remain intact under section 365(n) of the Bankruptcy Code following the debtor’s rejection of the parties' marketing and distribution agreement. The court further held, joining the majority of bankruptcy courts that have considered the issue, that the Bankruptcy Code's protections for intellectual property licensees do not extend to trademarks.
On November 12, 2015, in In re Tempnology LLC, the US Bankruptcy Court for the District of New Hampshire held that a distributor's exclusive rights to distribute a Chapter 11 debtor’s patented products are not intellectual property license rights that could remain intact under section 365(n) of the Bankruptcy Code following the debtor’s rejection of the marketing and distribution agreement between the parties ( (Bankr. D.N.H. Nov. 12, 2015)). The court further held that the distributor was not entitled to retain the license to the debtor’s trademarks and logos post-rejection because trademarks are not a form of intellectual property covered by the Bankruptcy Code.
Debtor Tempnology LLC argued:
  • Distributor Mission Product Holdings, Inc.’s exclusive right to distribute Tempnology’s patented products is not a right to its intellectual property and therefore is not protected following the debtor's rejection of the agreement in bankruptcy.
  • Mission does not retain any rights to Tempnology’s trademarks following the rejection of the agreement because trademarks are not included in the definition of intellectual property covered by the Bankruptcy Code.
Mission argued:
  • Section 365(n) of the Bankruptcy Code permits an intellectual property licensee to retain its right to enforce any exclusivity provision of a rejected executory contract and explicitly applies to any embodiment of intellectual property.
  • Mission's exclusive right to distribute Tempnology's patented products falls within the protections of section 365(n) of the Bankruptcy Code because the products are the embodiment of Tempnology's intellectual property subject to patents.
  • The court should use its equitable powers to allow Mission to retain its license rights to Tempnology's trademarks post-rejection, following the approach of the US Bankruptcy Court for the District of New Jersey in In re Crumbs Bake Shop, Inc. (522 B.R. 766, 772 (Bankr. D.N.J. 2014).
The court found that Mission did not retain its exclusive distribution rights to Tempnology’s patented products or rights to Tempnology’s trademarks because:
  • The exclusivity provisions under the distribution agreement do not rise to the level of an exclusive license to Tempnology’s intellectual property, and therefore are not entitled to protection under section 365(n), because the exclusivity only covers the right to sell and distribute specific products.
  • Agreeing with the majority of bankruptcy courts, the omission of trademarks from the definition of intellectual property in the Bankruptcy Code indicates that Congress did not intend for them to be treated the same as the forms of intellectual property identified in the definition, and therefore trademark licensees are not entitled to the protections of section 365(n).