Congratulations to Firm Attorneys, Jennie Malloy, Peter Matos, John Cyril Malloy III, Oliver Ruiz, and John Fulton, Jr., on being named to this year’s list of SuperLawyers, and to W. John Eagan on being named a Rising Star. Of note, this is Mr. Malloy’s tenth anniversary of inclusion among Super Lawyers. Relying on a patented process of nominations, research, peer evaluation, and final selection of less than 5% of all attorneys, this Thompson-Reuters company produces one of the more reliable attorney rankings available.
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The Supreme Court Holds that the Rights of Trademark Licensees Survive Even After A Bankrupt Licensor’s Trustee Rejects the Licensing Contract Pursuant to §365(a) of the Bankruptcy Code
In Mission Product Holdings Inc. v. Tempnology LLC, the Supreme Court addressed a Circuit Split on whether a bankruptcy trustee can terminate a trademark license agreement, thereby allowing a trademark licensee to lose their rights to continue using the trademark under the license contract. The Supreme Court held that the debtor-licensor’s rejection of the contract does not deprive a trademark licensee of its rights to use the trademark thereafter.
Section 365(a) of the Bankruptcy Code allows a bankruptcy trustee to assume or reject a debtor’s pre-bankruptcy executory contracts, depending on whether the benefits of continued performance of the contract outweigh the burdens to the bankruptcy estate. Section 365 of the Bankruptcy Code enables a debtor to “reject any executory contract,” which is a contract that neither party has finished performing. The section provides that a debtor’s rejection of a contract under that authority “constitutes a breach of such contract.” At issue in this case were the implications of a breach of such contract. While it was acknowledged that the licensee would have the right to a claim for damages for such a breach of contract, which may perhaps be valueless in light of the bankrupt state of the licensor, it was not clear whether the trademark licensee still had the right to use the trademark after such breach.
In interpreting the meaning of a breach of the contract, some lower circuits took the position that a rejection has the same consequence as a contract rescission, which allows a damages claim, but terminates the whole agreement along with all rights it conferred. However, the Supreme Court disagreed with this position, and held that such rejection does not mean that a trademark licensee will lose their rights to use the trademark under the contract. Specifically, Justice Kagan in her majority opinion stated, “A rejection breaches a contract but does not rescind it. And that means all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”
In May 2019, Tom Brady’s company filed two intent-to-use trademark applications, seeking to register the nickname TOM TERRIFIC in connection with apparel, posters, and playing cards. In those filings were declarations that Brady had a legitimate, good faith intent to use the TOM TERRFIFIC mark in commerce. However, after receiving some criticism by loyal New York Mets fans – who claim that the nickname “Tom Terrific” has long belonged to famed pitcher Tom Seaver – Brady attempted to ease the pushback from critics, stating to reporters that he “didn’t like the nickname,” and was actually trying to “keep people from using it” in filing the underlying trademark applications. Further, when asked whether the name would be used for merchandise, Brady answered, “I hope not.” It will be interesting to see what unfolds relative to the underlying trademark applications in light of these events.
Today, the Supreme Court ruled that Section 2(a) of the Lanham Trademark Act is unconstitutional because it violates the First Amendment’s protection of freedom of speech. The Section 2(a) provision bans the issuance of trademark registration to marks that the U.S. Patent and Trademark Office (“PTO”) deems are “immoral” or “scandalous,” based on ordinary and common meanings of the proposed mark. The high court ruled that this immoral or scandalous bar discriminated on the basis of a viewpoint and therefore conflicts with the First Amendment.
The Lanham Act provides for the administration of federal trademark registration. While registration of a mark is not mandatory, and a mark can still be used in commerce and enforce it against infringers, federal trademark registration gives trademark owners valuable benefits. For example, a valid federal trademark registration gives prima facie evidence of the mark’s validity, and serves as constructive notice to others of the registrant’s claim of ownership of that mark.
Here, in the case of Iancu v. Brunetti, Erik Brunetti sought these benefits by applying for federal registration for the trademark “FUCT” for use in connection with his clothing lines, but the PTO refused this application for violation of Section 2(a). The Examining Attorney assessed his proposed mark as a “total vulgar” mark and therefore unregistrable, and the Trademark Trial and Appeal Board agreed, stating that the mark was “highly offensive,” “vulgar,” and that it had “decidedly negative sexual connotations.”
Upon review, the Supreme Court struck down this provision for being unconstitutional. The Court emphasized a core foundation of freedom of speech law: that the government may not discriminate against speech based on the ideas or opinions it conveys. The Court concluded that this provision of the Lanham Act “allows registration of marks when their messages accord with, but not when their messages defy, society’s sense of decency or propriety.”
Writing for the majority, Justice Elena Kagan illustrated this content-based discrimination with four made-up marks: “Love Rules” “Hate Rules” “Always Be Good” and “Always Be Cruel.” The Court contended that the statute would favor marks such as “Love Rules” and “Always Be Good” but disfavor a mark such as “Hate Rules” and “Always Be Cruel.” This favoring or disfavoring based on content results in viewpoint-discriminatory application. Under this provision, the statute “on its face, distinguishes between two opposed sets of ideas: those aligned with conventional moral standards and those hostile to them; those inducing societal nods of approval and those provoking offense and condemnation.” Therefore, the Supreme Court struck down this ban on federal registration of these “scandalous” or “immoral” marks.