In re Tempnology LLC

Tempnology LLC (debtor) made chemical-free cooling fabrics for use in consumer products under the brand name Coolcore. Tempnology granted Mission Product Holdings, Inc. (Mission) exclusive distribution rights to some of its products, as well as a limited license during the term of the parties’ agreement to exploit the Coolcore brand and logo and a nonexclusive but perpetual license to exploit Tempnology’s other intellectual property. A dispute arose after Mission gave notice that it was terminating the agreement, and Tempnology argued that Mission had breached the contract. An arbitrator determined that the contract remained in effect, but the second phase of the arbitration as to whether either party was in breach was interrupted by Tempnology’s filing of a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. Tempnology filed a motion to reject certain of its executory contracts, including the agreement with Mission. Mission objected and gave notice under 11 U.S.C. § 365(n)(1)(B) that it was electing to retain its exclusive product-distribution rights and rights under the intellectual-property licenses (§ 365[n] election). The bankruptcy court ruled that the § 365(n) election protected Mission’s interest only as to patents, trade secrets, and copyrights and not as to trademarks, trade names, or exclusive distribution rights. The bankruptcy court also found that Mission’s rights in the trademark and logo terminated upon Tempnology’s rejection of the agreement. Mission appealed.