The Supreme Court has ruled that the rejection of a trademark license under section 365 of the Bankruptcy Act constitutes a violation of the license agreement, which gives rise to damages, and against any remedy negotiated by the licensee under the terms of the license or available under the applicable law on non-bankruptcy, but does not automatically terminate the license. Equally important, the Supreme Court`s decision will have implications that go far beyond trademark licenses and affect counterparties` remedies for all enforceable contracts if their agreements are rejected in the event of bankruptcy. As discussed below, counterparties to such contracts, including trademark licenses, need more than ever to consider whether and how to structure their agreements in such a way as to preserve remedies after rejection. Importing Tempnology is briefly discussed below. To clarify that a debtor should not be allowed to use its breach to deny a contractual right under a contract to the consideration of a non-debtor, the court asked the following hypothetical question, which involves renting a photocopier: A law firm rents a photocopier to a concessionaire, and leasing requires the concessionaire to provide monthly services and the law firm to pay a monthly fee. The merchant subsequently violates the agreement by refusing to provide the service. The law firm is faced with a choice (provided there is no special contractual clause or state law): (A) the law firm could keep the copier, continue to make the service payments, and sue the merchant for damages; or (B) the law firm could suspend payments, return the copier to the merchant, and claim damages.17 As the court noted, the law firm must decide to terminate the lease and return the copier. The merchant cannot unilaterally terminate the lease and claim the copier because the breach is deemed to have occurred immediately before the bankruptcy.18 Similarly, if the merchant files a chapter 11 bankruptcy application, the merchant cannot use the refusal to terminate the lease and claim the copier. The court argued that something else would mean giving the debtor appeal powers that are not set out in the Bankruptcy Code. As the court noted, ”if trustees (or debtors) could use the rejection to void interest previously granted, then rejection would become functionally synonymous with avoidance. Both, that is, would reverse a previous transfer. And this result would undermine everything the code does to keep avoidances in check.
19 Paragraph 365(f) follows from H.R. 8200 as adopted by the House. The deletion of the wording of section 365(f)(3) of the Senate amendment is for reasons of style. Restrictions on the assignment of an outstanding contract or an unexpired lease are superfluous because the debtor may assign a performed contract or an unexpired lease of the debtor only if that contract is previously accepted in accordance with Article 364 (f) (2) (A) of the change of domicile. This paragraph shall not restrict the application of an ipso facto or bankruptcy clause where a new insolvency or receivership occurs after the closure of the insolvency proceedings. That is, the clause is not declared invalid in toto, but only rendered inapplicable during the proceedings for the purposes of the provision of the contract accompanying the performance or the rental contract not yet expired. However, if the debtor is manifestly unable to perform its obligations under the contract, it is preferable for a creditor to be better off if the contract is rejected. This will free up the creditor`s resources by freeing him from the obligations arising from the contract so that the creditor`s time and money can be used for more productive purposes. When deciding whether or not to reject a collective agreement under Chapter 11, the trustee or self-employed debtor must apply the balance of action standard, which requires weighing the consequences of the acceptance or refusal to the detriment of the debtor, its creditors and employees, and other interested parties. Subsection (c). Hrsg. L.
98–353, § 362(a), subsection (c) general as amended, replacing para. (1) (A) ”applicable law exempts a party other than the debtor of such a contract or lease from accepting or providing the service of any entity other than the debtor or self-administered debtor or an assignee of such contract or lease, whether such a contract or lease prohibits or restricts the transfer of rights or the transfer of obligations” for ”applicable law” exempts any party, other than the debtor, of such a contract or lease of the acceptance or performance of the service to the trustee or assignee of such a contract or lease, that such a contract or lease prohibits or restricts the transfer of rights or the transfer of obligations,” adds paragraph . . .