Actions
arising from the infringement or misappropriation of intellectual property may
come into play in a bankruptcy case by several paths. The debtor, of course,
may sue or be sued for infringement or misappropriation. The debtor may be
subject to a preexisting suit for infringement or misappropriation implicating
the automatic stay. Or, the debtor may seek to discharge a judgment of
infringement or misappropriation. In this Analysis, Eric E. Bensen provides an
overview of the remedies available for infringement and misappropriation and of
the jurisdiction of federal, bankruptcy and state courts to hear such claims. He
also covers the impact of the automatic stay as pertinent to intellectual
property actions and the discharge of damages awards arising from infringement
and misappropriation. Mr. Bensen writes:
Monetary
Recovery
In
intellectual property litigation, the term "damages" is often used to
generally describe any form of monetary recovery. Such use is not incorrect, but
it is at times not helpful because it lumps together true "damages,"
i.e., the intellectual property owner's losses, "profits," i.e., the
infringer's gains, and other forms of recovery. For the purpose of this
section, "damages" is used to refer to the intellectual property
owner's losses.
"Damages"
may come in the form of lost profits on sales lost to the infringer, lost
profits resulting from price reductions taken to maintain sales in the face of
infringing competition, or, where the intellectual property owner has
established a royalty for the intellectual property, the royalties lost on the
sales made by the infringer. Where the intellectual property owner has not
licensed the property sufficiently to establish a royalty for it, the owner may
recover a reasonable royalty, i.e., an approximation of a fair market value of
a license for the property. As a general rule, assuming the intellectual
property owner can meet its burden of showing a loss resulting from
infringement or misappropriation, it may recover damages as compensation.
....
Jurisdiction
of the Bankruptcy Court
United
States District Courts have original and exclusive jurisdiction over Bankruptcy
Code "cases" and original (but not exclusive) jurisdiction over
"all civil proceedings arising under title 11, or arising in or related to
cases under title 11." A "case" includes all of the proceedings
that follow the filing of a bankruptcy petition. A proceeding that "arises
under" title 11, i.e., a "core" proceeding, is one that arises
from a claim made under a provision of title 11. A proceeding is "related
to" a case under title 11 if its outcome would conceivably have an impact
of the bankruptcy estate. The district court's exclusive jurisdiction of cases
and nonexclusive jurisdiction over related proceedings means, in effect, that a
bankruptcy case must be instituted in federal district court and the court may
hear related disputes arising in connection with that case even if such
disputes would normally be in the exclusive jurisdiction of another court, but
the decision to hear a related dispute is within the discretion the court. Bankruptcy
courts, as units of district courts, generally handle the day-to-day
administration of bankruptcy cases.
Intellectual
property infringement and misappropriation claims arise under various bodies of
law other than the Bankruptcy Code, and thus, are not "core"
proceedings. Intellectual property disputes, however, can proceed in the
bankruptcy court as a related proceeding if the outcome of the proceeding will
impact the estate. Upon motion of a party, a bankruptcy or district court will
abstain from hearing a related proceeding that could not be heard in federal
court absent jurisdiction under the Bankruptcy Code if the proceeding is
commenced and can be timely adjudicated in state court. Because trade secrets
are a creature of state law, a trade secret misappropriation claim may be
subject to abstention in the absence of an independent basis for federal
jurisdiction. A dispute regarding the dischargeability of a monetary award for
infringement or misappropriation arises under the Bankruptcy Code and is
therefore a "core" proceeding that must be heard in the bankruptcy
court.
....
Dischargeability
of Damages Awards for Infringement and Misappropriation
One
effect of an order confirming a reorganization plan is the discharge of the
debts of a non-individual debtor that arose before the confirmation of the
plan. That discharge applies to debts even where no proof of claim was filed. However,
the Bankruptcy Code provides for a number of exceptions to the dischargeability
of the debtor's debts. Of particular pertinence to intellectual property
disputes is the exception for debt arising from the "willful and malicious
injury by the debtor to another entity or to the property of another
entity" under 11 U.S.C. § 523(a)(6). A creditor must show by a
preponderance of the evidence that it is entitled under section 523(a)(6) to
have a debt deemed nondischargeable.
For
a debt arising from a "willful and malicious injury" to be
nondischargeable under section 523(a)(6), it is the injury that must be
willful, not merely the act leading to the injury. That is, the debtor must
have had a subjective intent to inflict injury or believed that injury was
substantially certain to result from its conduct. The debtor's subjective
belief may be inferred from the debtor's actions.
(footnotes
omitted)
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