## Facts

- Tempnology LLC developed and sold “Coolcore” cooling-fabric products and entered a Co-Marketing and Distribution Agreement with Mission Product Holdings, Inc.
- The Agreement granted Mission: (1) exclusive distribution rights in defined territories, (2) a nonexclusive perpetual license to certain non-trademark intellectual property (e.g., patents and know-how), and (3) a limited license to use Tempnology’s trademarks and logo during the Agreement’s term.
- Mission exercised a contractual termination right without cause, triggering a two-year wind-down period; Tempnology then asserted termination for cause based on alleged breach.
- An arbitrator ruled (phase one) that the Agreement remained in effect; a second phase on breach was not completed because Tempnology filed for chapter 11.
- Tempnology moved to reject the Agreement under 11 U.S.C. § 365(a) and sought approval of an asset sale free and clear of interests.
- Mission objected and elected protections under 11 U.S.C. § 365(n)(1)(B), asserting continued rights in the distribution provisions, the non-trademark IP license, and the trademark license.
- The bankruptcy court approved rejection and ruled that § 365(n) protected only “intellectual property” as defined by the Bankruptcy Code, not trademarks or exclusive distribution rights, and further held Mission’s trademark rights ended upon rejection.
- Mission appealed to the Bankruptcy Appellate Panel for the First Circuit.

## Issues

1. Whether 11 U.S.C. § 365(n) protects only “intellectual property” as defined in 11 U.S.C. § 101(35A), or also extends to trademarks and other contractual rights contained in the same agreement.
2. Whether rejection of a trademark license under 11 U.S.C. § 365(a) and § 365(g) automatically terminates the licensee’s right to use the marks, or instead constitutes a breach leaving the licensee’s rights to be determined under the contract and applicable nonbankruptcy law.
3. Whether rejection extinguishes exclusive distribution rights, or whether such rights may persist as a matter of post-rejection contract remedies.

## Decision

- The B.A.P. affirmed the ruling that § 365(n) applies only to “intellectual property” defined in § 101(35A) and therefore does not, by statute, preserve trademark rights or exclusive distribution rights.
- The B.A.P. reversed the ruling that rejection automatically terminated Mission’s right to use Tempnology’s trademarks.
- The B.A.P. held that rejection under § 365(g) operates as a breach, not a rescission, and does not itself eliminate the nondebtor licensee’s rights; post-rejection rights depend on the Agreement and nonbankruptcy law.
- The matter was remanded for further proceedings consistent with this framework.

## Legal Principles

- Section 365(n) protects a licensee’s rights only in “intellectual property” as defined by § 101(35A); because trademarks are omitted from that definition, § 365(n) does not extend to trademark licenses.
- Rejection of an executory contract under § 365(g) is treated as a breach, not a termination; rejection does not, by its own force, revoke rights previously granted to the nondebtor counterparty.
- Even when an agreement bundles multiple grants (non-trademark IP, trademarks, distribution rights), bankruptcy analysis separates Code-defined “intellectual property” (eligible for § 365(n) election) from trademarks and other contract rights (governed by general rejection-as-breach consequences and applicable nonbankruptcy law).
- Exclusive distribution rights are not “intellectual property” under § 101(35A) and are not independently preserved by § 365(n); any surviving interests depend on ordinary contract remedies after rejection.

## Conclusion

The B.A.P. held that § 365(n) provides election-based protection only for Code-defined intellectual property licenses and does not statutorily preserve trademark or exclusive distribution rights, but it also ruled that rejection of a trademark license is a breach rather than an automatic termination, leaving the licensee’s ability to continue trademark use to be determined by the contract and nonbankruptcy law.


In re Tempnology, LLC, 559 B.R. 809 (B.A.P. 1st Cir. 2016)