October 29, 2008
Dischargeability of Copyright Infringement Claims
The Court of Appeals for the Ninth Circuit recently issued a decision discussing the ability of a debtor to discharge a copyright infringement claim, In re Barboza, 2008 WL 4307451 (9th Cir. 2008).
Claims for copyright infringement are brought under 17 U.S.C. sec. 502, et. seq., and the damages can be quite serious. Willful copyright infringement comes with a statutory damages price tag of up to $150,000 per incident, plus attorneys fees. In many contexts, the statutory damages claim can be astronomical.
In the bankruptcy context, creditors with copyright infringement claims will claim that because the infringement was willful, the damages are not discharged. Section 523(a)(6) of the bankruptcy code provides that the Chapter 7 and Chapter 11 discharges do not discharge claims for willful and malicious injury by the debtor to another entity or its property.
In Barboza, the debtors ran a video distribution business and purchased a large quantity of videotapes from Million Dollar Video Corp., including ten Spanish language films. The plaintiff held an exclusive right to copy and distribute those ten films, and so informed the debtors. The debtors, however, made 500 copies of the ten films, and started selling them. The plaintiff sued the debtor, the jury ruled in its favor, and awarded statutory damages of $75,000 a film. The total judgment for the ten films, including legal fees - $893,077. Million Dollar video indeed. The debtors then filed for bankruptcy. The plaintiff objected to dischargeability of the debt and won on summary judgment based on the prior jury finding of willful infringement.
The Ninth Circuit held that the willfulness standards were different for copyright infringement and for non-dischargeability purposes. The standard for willful copyright infringement was whether the infringing act was intentional or reckless.
The non-dischargeability standard had two separate prongs. The injury had to be both willful and malicious. For an injury to be willful, there must be a deliberate or intentional injury - not just a deliberate or intentional act that led to an injury. Kawaahau v Geiger, 523 U.S. 57 (1998). So, right there, the standard under the Bankruptcy Code is stricter than the standard under the Copyright Act. For an injury to be malicious, a four part test had to be met. The act must involve (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.
Thus, a claim for willful copyright infringement is not automatically non-dischargeable. The Court of Appeals remanded the case for further findings. The take away from this case is the same as for the earlier California bankruptcy court decision on the subject, In re Chan. Claims for willful violations of copyright infringement will not automatically be dischargeable or non-dischargeable in bankruptcy, but the facts surrounding settlement or trial of the claims may determine whether or not a non-dischargeability action can be won on summary judgment. Counsel involved in a copyright dispute should pay heed to Barboza, and think about the ability to enforce a settlement or judgment in a subsequent bankruptcy case.
Claims for copyright infringement are brought under 17 U.S.C. sec. 502, et. seq., and the damages can be quite serious. Willful copyright infringement comes with a statutory damages price tag of up to $150,000 per incident, plus attorneys fees. In many contexts, the statutory damages claim can be astronomical.
In the bankruptcy context, creditors with copyright infringement claims will claim that because the infringement was willful, the damages are not discharged. Section 523(a)(6) of the bankruptcy code provides that the Chapter 7 and Chapter 11 discharges do not discharge claims for willful and malicious injury by the debtor to another entity or its property.
In Barboza, the debtors ran a video distribution business and purchased a large quantity of videotapes from Million Dollar Video Corp., including ten Spanish language films. The plaintiff held an exclusive right to copy and distribute those ten films, and so informed the debtors. The debtors, however, made 500 copies of the ten films, and started selling them. The plaintiff sued the debtor, the jury ruled in its favor, and awarded statutory damages of $75,000 a film. The total judgment for the ten films, including legal fees - $893,077. Million Dollar video indeed. The debtors then filed for bankruptcy. The plaintiff objected to dischargeability of the debt and won on summary judgment based on the prior jury finding of willful infringement.
The Ninth Circuit held that the willfulness standards were different for copyright infringement and for non-dischargeability purposes. The standard for willful copyright infringement was whether the infringing act was intentional or reckless.
The non-dischargeability standard had two separate prongs. The injury had to be both willful and malicious. For an injury to be willful, there must be a deliberate or intentional injury - not just a deliberate or intentional act that led to an injury. Kawaahau v Geiger, 523 U.S. 57 (1998). So, right there, the standard under the Bankruptcy Code is stricter than the standard under the Copyright Act. For an injury to be malicious, a four part test had to be met. The act must involve (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.
Thus, a claim for willful copyright infringement is not automatically non-dischargeable. The Court of Appeals remanded the case for further findings. The take away from this case is the same as for the earlier California bankruptcy court decision on the subject, In re Chan. Claims for willful violations of copyright infringement will not automatically be dischargeable or non-dischargeable in bankruptcy, but the facts surrounding settlement or trial of the claims may determine whether or not a non-dischargeability action can be won on summary judgment. Counsel involved in a copyright dispute should pay heed to Barboza, and think about the ability to enforce a settlement or judgment in a subsequent bankruptcy case.
Labels: barboza, copyright, geiger, infringement
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