License could be used after brand’s bankruptcy

What happens with the license when a company fails? At the time a corporation collapses, the brands’ licensees will be able to keep exploiting them. This is the decision that the Supreme Court of the United States has ruled on the case of sportive clothes brand Coolcore. The brand’s owner company, Tempnology, failed three years after subscribing an agreement to hand over a license with the sportive complements’ American company Mission, to allow them to manufacture and sale Tempnology’s clothes.

When the company declared itself bankrupt and entered into the courts, it broke the license agreement with Mission unilaterally. That move provoked the company’s appeal to justice for the contract’s breach for depriving it to commercialize Tempnology’s brands.

The sentence, with eight votes in favour and one against, points that if a company in bankrupt rejects a license contract in force, this cannot deprive right’s licensee to use the registered brand.

The sentence offers certainty for licensee companies to sign agreements with other corporations to exploit their brands

“The rejection (of Tempnology) violates the contract and this cannot be rescinded”, so “all the rights are maintained”, states the resolution written by the judge Elena Kagan, in representation of the majority of the court.

Tempnology, bases on the state of New Hampshire, declared itself in bankruptcy in September 2015, after not reaching an agreement with Mission to exploit some of the products of sportive brands’ Coolcore.

The American legislation in arrangement with creditors (bankruptcy code) tends to grant the right to the debtors of breaking with the contracts and its obligations. The decision of the Supreme Court, now, will offer more certainty to licensee companies at the time of signing agreements with other companies to exploit its brands.

It is something very frequent on fashion business and retail commerce, because the companies normally use the licenses to diversify its products range. It is the case, for instance, of brands like Chanel, Prada or Versace, that license their glasses to Luxottica or the beauty products of Gucci to Coty and Armani with L’Oréal.