Trademarks

Rejection Is Breach, Not Rescission: Mission Product Holdings v. Tempnology and the Survival of Trademark Licenses in Bankruptcy

The Supreme Court held that a debtor-licensor's rejection of a trademark license in bankruptcy breaches the contract but does not strip the licensee of its right to keep using the mark.

April 9, 2026
Athletic apparel hang tags bearing a licensed brand logo
A non-exclusive COOLCORE apparel license became the vehicle for the Supreme Court's clearest statement yet on what bankruptcy rejection does — and does not — do to a licensee. Shutterstock
Educational content, not legal advice. This article explains general legal concepts. It does not create an attorney–client relationship. For your specific situation, consult a licensed attorney.

When a brand owner that has licensed its mark to a distributor slides into Chapter 11, the licensee faces an existential question: does the debtor’s power to “reject” the license under Section 365 of the Bankruptcy Code simply free the debtor from its own promises, or does it also vaporize the licensee’s right to keep selling goods under the mark? In Mission Product Holdings, Inc. v. Tempnology, LLC, No. 17-1657, 587 U.S. ___, 139 S. Ct. 1652 (May 20, 2019), the Supreme Court answered decisively. Writing for an eight-Justice majority — Justice Kagan delivered the opinion, Justice Sotomayor concurred, and Justice Gorsuch dissented only on mootness — the Court held that rejection of an executory trademark license “constitutes a breach of [the] contract,” not a rescission, and therefore “cannot rescind rights that the contract previously granted.” Argued February 20, 2019, the decision reversed the First Circuit’s contrary ruling (In re Tempnology, LLC, 879 F.3d 389 (1st Cir. 2018)) and resolved a circuit split that had unsettled trademark-licensing practice for years.

At a glance

  • Case: Mission Product Holdings, Inc. v. Tempnology, LLC, No. 17-1657, 587 U.S. ___, 139 S. Ct. 1652.
  • Court: Supreme Court of the United States. Argued Feb. 20, 2019; decided May 20, 2019.
  • Vote: 8-1. Majority by Kagan, J.; concurrence by Sotomayor, J.; dissent by Gorsuch, J. (on mootness only).
  • Holding: A debtor-licensor’s rejection of a trademark license under 11 U.S.C. § 365 is a breach, treated as if it had occurred outside bankruptcy. The breach does not terminate the licensee’s right to continue using the licensed mark for the remaining term.
  • Why it matters: Trademark licensees finally have a uniform federal answer — rejection is not a license-killer — even though Congress left trademarks outside the protective scheme of Section 365(n).

The statutory puzzle: rejection, breach, and the gap Congress left

Section 365(a) lets a bankruptcy trustee or debtor-in-possession “assume or reject any executory contract.” Rejection is a core tool: it relieves the estate of burdensome future performance. Section 365(g) then supplies the crucial characterization — rejection “constitutes a breach of such contract.” The dispute in Tempnology turned on what “breach” does to the counterparty’s rights.

Tempnology made athletic apparel and accessories under the brand COOLCORE and granted Mission Product Holdings a non-exclusive license to use the COOLCORE trademarks. When Tempnology entered Chapter 11 and rejected the agreement, it argued that rejection did more than excuse its own performance — it extinguished Mission’s license, leaving Mission with nothing but a prepetition damages claim. The First Circuit largely agreed, reasoning that special features of trademark law justified treating rejection as a termination of the licensee’s rights.

The doctrinal backdrop made this more than an academic quarrel. In Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), the Fourth Circuit had held that rejection stripped a technology licensee of its right to use the licensed intellectual property. Congress responded in 1988 by enacting Section 365(n), which lets licensees of “intellectual property” elect to retain their rights after rejection. But the Bankruptcy Code’s definition of “intellectual property” in 11 U.S.C. § 101(35A) lists patents, copyrights, and trade secrets — and conspicuously omits trademarks. That omission generated years of argument over whether Congress meant to exclude trademark licensees from protection, or simply deferred the question. Tempnology pressed the negative-inference reading: because trademarks were left out of Section 365(n), trademark licensees must lose their rights on rejection.

The Court’s answer: breach means breach

Justice Kagan’s majority rejected that inference and grounded the decision in a single, general principle she called the “rejection-as-breach rule.” Outside bankruptcy, when one party breaches a contract, the breach does not rescind the agreement or claw back rights the other party already holds. A licensor who simply stops performing — who breaches — cannot thereby revoke a license it already granted; the licensee may sue for damages, but it may also continue to do what the contract entitled it to do. Section 365(g)‘s instruction that rejection “constitutes a breach” imports exactly that ordinary meaning into bankruptcy. As the Court put it, rejection “has the same effect as a breach outside bankruptcy,” and “[s]uch an act cannot rescind rights that the contract previously granted.”

The Court was emphatic that this is not a trademark-specific rule but a default principle running through the whole of Section 365. The chapter, Kagan wrote, “reflects a general bankruptcy rule: The estate cannot possess anything more than the debtor itself did outside bankruptcy.” A debtor that wanted to end Mission’s right to use COOLCORE would have had to terminate the agreement under its own terms before bankruptcy; it could not use rejection to accomplish what an ordinary breach never could.

The majority also dismantled the negative inference drawn from Section 365(n). Congress enacted that provision to correct Lubrizol, not to ratify its logic for every contract type left off the list. The Court refused to read a series of targeted, history-specific amendments as a backdoor endorsement of the very rule Congress was repudiating. “[A] rejection does not terminate the contract,” Kagan explained; “it gives the counterparty a claim for damages, while leaving intact the rights the counterparty has received under the contract.”

Quality control and the “naked licensing” worry

The most substantial counterargument — and the one the First Circuit had embraced — was rooted in trademark law itself. A licensor must exercise quality control over goods sold under its mark; a licensor that abandons supervision risks a finding of “naked licensing” and, ultimately, abandonment of the mark. Tempnology argued that forcing a debtor to leave a license in place would saddle the estate with an ongoing duty to monitor the licensee’s goods, draining resources that bankruptcy is meant to conserve. Letting the licensee keep using the mark, on this view, would either burden the debtor or endanger the mark.

The Court acknowledged the tension but declined to let it override the statute. Kagan observed that the quality-control concern, however real for trademark owners, is a problem of the licensor’s own contractual design and ongoing business judgment — not a reason to rewrite Section 365’s uniform breach rule for one species of intellectual property. Rejection relieves the debtor of affirmative contractual obligations going forward; it does not follow that the licensee’s separate, already-vested right to use the mark must disappear to protect the estate. The majority effectively told licensors that the answer to the quality-control dilemma lies in how they write and police their licenses, not in an expansive reading of bankruptcy rejection. In other words, the risk that a debtor-licensor might neglect supervision and edge toward naked licensing is a consequence licensors must manage on the front end through carefully drafted quality-control provisions — not a justification for stripping licensees of bargained-for rights on the back end.

Open questions

  • What survives, exactly? The Court held that rejection leaves “intact the rights the counterparty has received,” but the precise contours of those surviving rights depend on the license’s own terms — scope, exclusivity, sublicensing, territory, and duration all still matter. Litigants will continue to fight over which provisions amount to vested “rights” versus the debtor’s excused future “performance.”
  • Affirmative obligations after rejection. If a license requires the licensor’s continuing cooperation — supplying artwork, approving products, defending the mark — rejection excuses those duties. How a licensee exercises a surviving right when the licensor no longer performs remains practically thorny.
  • Quality control in practice. The opinion left licensors to solve the naked-licensing problem themselves, but did not say how a debtor estate should balance supervision costs against abandonment risk once a license has been rejected.
  • Franchise agreements. Tempnology involved a distribution-style trademark license, not a full franchise. Franchise relationships bundle trademark rights with operating systems, ongoing support, and regulatory overlays, so the survival of a franchisee’s mark rights after a franchisor’s rejection raises questions the Court did not directly reach.

Implications

  • Trademark licensees gained durable protection. A licensor’s bankruptcy no longer threatens to extinguish the right to use the mark; the licensee keeps that right for the term, subject to the deal’s own provisions.
  • Licensors must draft for the downside. If a licensor wants the ability to cut off use on insolvency, it should build clear termination triggers into the agreement — rejection alone will not do the work.
  • Section 365(n)‘s gap is now far less dangerous. Even though trademarks remain outside the statutory definition of “intellectual property,” the general rejection-as-breach rule supplies functionally similar protection.
  • Diligence on licensed brands is more reliable. Acquirers, lenders, and distributors can value trademark licenses with greater confidence that a counterparty’s bankruptcy will not erase them overnight.
  • Quality-control clauses carry more weight. Because the Court pushed the naked-licensing problem back onto private ordering, robust, enforceable supervision provisions are now a central risk-management tool, not boilerplate.

Frequently asked questions

Does a trademark licensee always get to keep using the mark after the licensor’s bankruptcy? Generally yes for the remaining term, but only to the extent the license actually granted those rights. Rejection is treated like an ordinary breach, so the licensee retains rights already vested under the contract — but the agreement’s scope, duration, and termination provisions still govern what those rights are.

Why did Congress leave trademarks out of Section 365(n)? Section 365(n) was a targeted 1988 fix for the Fourth Circuit’s Lubrizol decision and covers patents, copyrights, and trade secrets. The Supreme Court refused to read that omission as a deliberate choice to deny trademark licensees protection; instead, it applied the Code’s general breach rule to reach a comparable result.

Can a debtor-licensor still stop a licensee from using the mark? Not through rejection alone. A debtor can end the relationship only by exercising a contractual termination right that would have been available outside bankruptcy. Absent such a right, rejection leaves the licensee’s use rights in place and converts the debtor’s unmet obligations into a damages claim.

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