The Court yesterday issued an opinion on trademark licenses in bankruptcy that has immense implications for publishing. Implications, because they're not entirely clear… and can/could be contracted around in a subtle manner actually intended for different purposes. But that's for a later installment.
In Mission Product Holdings, Inc., v. Tempnology, LLC, No. [20]17–01657 (PDF) (20 May 2019), the Court (Ginsburg, J.) held 5–4 that "Rejection of a contract—any contract—in bankruptcy operates not as a rescission but as a breach" (slip op. at 8). In this particular instance, the debtor was the licensor of a trademark that had both exclusive and nonexclusive elements (id.. at 1–2). During the bankruptcy process, the Trustee for the licensor moved for permission to reject the license pursuant to bankruptcy proceedings, which the Bankruptcy Court granted (id. at 2–3). The key point, though is whether that rejection by the licensor also ended (terminated/rescinded — terms frequently sloppily interchanged but with some nuanced differences in meaning that have real-world consequences, cf. 17 U.S.C. § 203 (stating "terminate" when it means "rescind")). The Court answered "No, the statute says it's a breach."
What the Court did not do is say what to do if the license makes a noncontinuation of use a material breach, or requires licensor approval to transfer the license… or, as most relevant to authors, what happens when it's the licensee — the publisher perforce under the 1976 Act, notwithstanding what any publishing contract calls it — who is the debtor and it attempting to deal with the license. (As tough as authors have it, publishers declare bankruptcy at a much higher rate… and ordinarily tangle up a lot more authors when they do. See, e.g., United States v. Ivery, No. [20]05-00251, and its appended bankruptcy matter, No. [20]02-14014 (both unreported, N.D.N.Y.); In re Byron Preiss Visual Pubs., No. [20]06-bk-10299 (unreported, S.D.N.Y.); United States v. Van Treese and its appended bankruptcy matters, No. [19]96-22890 (unreported, D.Utah). And the less said about bookstore bankruptcies — Crown, Borders, and the looming B&N — the better.)
Two of these will take more explanation, but one of those unconsidered cases can be disposed of fairly quickly. If the terms of the license require approval of the licensor for the transfer, remember that the Bankruptcy Trustee is the debtor. So if the license requires such approval, the Bankruptcy Trustee can — and, indeed, is the only party who can — provide that approval. The solution for the author-debtor is to move for abandonment of the asset (the publishing license for which the author is the licensor) during and inside of the bankruptcy proceeding. That probably requires the assistance of experienced, specialist bankruptcy counsel (and the Bar can bit me regarding use of the word "specialist"), especially since that implicates the Supreme Court's decision that's under discussion here.
Pathetic cliffhanger alert: That's all for the moment. Next time, we'll talk about one of the other two (no spoilers!).