Mission Product Holdings Inc. v. Tempnology, LLC

Whether, under §365 of the Bankruptcy Code, a debtor-licensor’s “rejection” of a license agreement— which “constitutes a breach of such contract,” 11 U.S.C. §365(g)—terminates rights of the licensee that would survive the licensor’s breach under applicable nonbankruptcy law.

Petitioner, Mission Product Holdings, Inc., and Respondent, Tempnology, LLC, entered into an agreement granting Petitioner a license to use Respondent’s inventions and intellectual property. One provision of the agreement allowed either party to terminate the contractual relationship, while providing a “wind-down” period during which the terms of the agreement would remain in effect. However, after Petitioner terminated the agreement, Respondent failed to meet its obligations during the wind-down period. Respondent subsequently filed for bankruptcy and moved to reject the agreement under Section 365(a) of the Bankruptcy Code. Section 365(a) allows a debtor to reject any executory contract and provides that the rejection constitutes to a breach of contract. The bankruptcy court granted Respondent’s motion to reject the agreement. On appeal, the First Circuit affirmed. There is currently a circuit split as to whether the rejection of an agreement terminates a licensee’s rights under Section 365(a). The Supreme Court granted certiorari to decide this issue. Petitioner argues that rejection of a contract does not change the substantive rights of the parties under the agreement. Petitioner further asserts that Section 365 does not authorize a debtor to reclaim the interests in property that have been conveyed to a licensee. Therefore, Petitioner argues that bankruptcy court’s holding that terminated its rights under the contract conflicted with the text and purpose of the Bankruptcy Code.