Tech Bankruptcy
November 24, 2008
Where to sell your patents.
According to the Seattle TechFlash, RPX Corp. is launching a "defensive patent aggregation." This is essentially a capital pool used for purchasing patents from bankrupt companies to keep them out of the hands of patent trolls. Supported by large companies like IBM and Cisco, and venture capital firms like Charles River Ventures, RPX Corp. hopes to reduce the impact of patent trolls by limiting their access to loose patents.
Labels: patents
¶ 9:42 AM 0 comments
November 21, 2008
Predicting bankruptcies by examining patent portfolios
In a recent academic paper out of the University of Connecticut School of Business, professors Assaf Eisdorfer and Po-Hsuan Hsu argue that patent competition is a strong predictor of future insolvency. From the abstract:
This paper establishes a strong relationship between technology competition and corporate bankruptcy. Using a new dataset of firm-level patent applications and issues we show that (i) the competitiveness in patent-intensive industries predicts future bankruptcies better than well-used measures such as Z-score and credit rating; (ii) patent-driven bankruptcies are less related to the business cycle and industry success; and (iii) bankruptcies are significantly more costly if driven by patent competition.¶ 9:04 AM 0 comments
November 16, 2008
Co-owned Patent Fools Mammoth Mart
I'm a little late in writing about an interesting decision from my home court, In re Diomed, Inc., 394 B.R. 260 (Bankr. D. Mass. 2008), which shows how a debtor's clever use of co-owned patent rights helped it get past Mammoth Mart.
The Diomed case deals with a rather unusual fact pattern - one that Judge Rosenthal described as "a scenario caused by the intersection of bankruptcy and patent law not addressed in any published decision." While you are not likely to see this particular pattern again, the decision illuminates an important patent law rule and, for this reason alone, is worth reading.
The debtor, Diomed, had an exclusive patent license from Endolaser Associates, LLC related to the manufacture of a medical laser. The license was exclusive, allowed sublicenses, and gave Diomed the right to bring actions to enforce the patent against infringers. The license required Diomed to pay Endolaser periodic royalties, including a percentage of any recovery from enforcement actions. The twist, however, was that Endolaser apparently did not own the entire patent. It had co-owned the patent with an inventor, Dr. Robert Min. Diomed had purchased this co-owner interest from the inventor.
So, at the time of its bankruptcy filing, Diomed held an exclusive license from Endolaser, but also owned a partial interest in the patent by virtue of the assignment from Dr. Min. The decision does not say how Endolaser was able to grant an exclusive licence when it did not own the entire patent. It also doesn't talk about how Diomed acquired its ownership interest from Dr. Min. I suspect Diomed may have purchased Dr. Min's interest in order to resolve an ownership dispute of some kind. But, that is purely speculation.
Diomed had also brought two infringement lawsuits against two companies, AngioDynamics and Vascular Solutions, Inc., and obtained large multi-million dollar judgments against them.
In March 2008, Diomed filed its chapter 11 petition. I'll leave out some of the procedural history - you can read the decision yourself. Just say that in the end Diomed settled the two infringement actions for multi-million dollar sums and, as part of the settlement, granted a non-exclusive patent license to AngioDynamics. But, first, it rejected its license with Endolaser under 11 USC 365.
Endolaser filed a motion for allowance of an administrative expense. It asked for payment of (a) royalties for the pre-rejection period, (b) royalties payments due as a result of Diomed's sale of equipment during the case, (c) the 25% of patent infringement settlement proceeds due it under the license terms, and (d) some other item not really relevant to this blog.
How, you might ask, could Diomed both reject the up-stream license and still grant a down-stream license? How could it avoid payment of royalties as an administrave expense? It relied on the interest in the patent it had purchased from Dr. Min.
Judge Rosenthal allowed the administrative expense claim for the royalties due pre-rejection. But, he declined to allow as an administrative expense claim the royalty claims arising from the equipment sale and the patent infringement settlement. Why? Because the exclusive license had been rejected by the debtor prior to those events. Thus, the particular benefit to the estate did not arise from the license agreement.
Judge Rosenthal's decision was based on the relatively unknown rules governing the rights of parties who co-own a patent. When parties co-own a patent, either party can make use of the patent without the consent of and without accounting to the other owners. 11 USC 262. This allows a co-owner to grant a non-exclusive license of the entire patent regardless of the co-owner's rights. Thus, once Diomed rejected its license agreement with Endolaser, it became just a co-owner of the patent. Its ability to use, license, and enforce the patent remained - because of its co-ownership position. And, as Judge Rosenthal noted, its generation of proceeds arose not because of the rejected license, but because of its rights as a co-owner of the patent. As a result, the elements of Mammoth Mart were not met and Endolaser was not entitled to payment of an administrative expense claim.
The parties subsequently settled the case. Diomed agreed to pay Endolaser about $700,000 and transfer to Endolaser the patent rights held by Diomed.
The Diomed case deals with a rather unusual fact pattern - one that Judge Rosenthal described as "a scenario caused by the intersection of bankruptcy and patent law not addressed in any published decision." While you are not likely to see this particular pattern again, the decision illuminates an important patent law rule and, for this reason alone, is worth reading.
The debtor, Diomed, had an exclusive patent license from Endolaser Associates, LLC related to the manufacture of a medical laser. The license was exclusive, allowed sublicenses, and gave Diomed the right to bring actions to enforce the patent against infringers. The license required Diomed to pay Endolaser periodic royalties, including a percentage of any recovery from enforcement actions. The twist, however, was that Endolaser apparently did not own the entire patent. It had co-owned the patent with an inventor, Dr. Robert Min. Diomed had purchased this co-owner interest from the inventor.
So, at the time of its bankruptcy filing, Diomed held an exclusive license from Endolaser, but also owned a partial interest in the patent by virtue of the assignment from Dr. Min. The decision does not say how Endolaser was able to grant an exclusive licence when it did not own the entire patent. It also doesn't talk about how Diomed acquired its ownership interest from Dr. Min. I suspect Diomed may have purchased Dr. Min's interest in order to resolve an ownership dispute of some kind. But, that is purely speculation.
Diomed had also brought two infringement lawsuits against two companies, AngioDynamics and Vascular Solutions, Inc., and obtained large multi-million dollar judgments against them.
In March 2008, Diomed filed its chapter 11 petition. I'll leave out some of the procedural history - you can read the decision yourself. Just say that in the end Diomed settled the two infringement actions for multi-million dollar sums and, as part of the settlement, granted a non-exclusive patent license to AngioDynamics. But, first, it rejected its license with Endolaser under 11 USC 365.
Endolaser filed a motion for allowance of an administrative expense. It asked for payment of (a) royalties for the pre-rejection period, (b) royalties payments due as a result of Diomed's sale of equipment during the case, (c) the 25% of patent infringement settlement proceeds due it under the license terms, and (d) some other item not really relevant to this blog.
How, you might ask, could Diomed both reject the up-stream license and still grant a down-stream license? How could it avoid payment of royalties as an administrave expense? It relied on the interest in the patent it had purchased from Dr. Min.
Judge Rosenthal allowed the administrative expense claim for the royalties due pre-rejection. But, he declined to allow as an administrative expense claim the royalty claims arising from the equipment sale and the patent infringement settlement. Why? Because the exclusive license had been rejected by the debtor prior to those events. Thus, the particular benefit to the estate did not arise from the license agreement.
Judge Rosenthal's decision was based on the relatively unknown rules governing the rights of parties who co-own a patent. When parties co-own a patent, either party can make use of the patent without the consent of and without accounting to the other owners. 11 USC 262. This allows a co-owner to grant a non-exclusive license of the entire patent regardless of the co-owner's rights. Thus, once Diomed rejected its license agreement with Endolaser, it became just a co-owner of the patent. Its ability to use, license, and enforce the patent remained - because of its co-ownership position. And, as Judge Rosenthal noted, its generation of proceeds arose not because of the rejected license, but because of its rights as a co-owner of the patent. As a result, the elements of Mammoth Mart were not met and Endolaser was not entitled to payment of an administrative expense claim.
The parties subsequently settled the case. Diomed agreed to pay Endolaser about $700,000 and transfer to Endolaser the patent rights held by Diomed.
Labels: diomed, patent license, patents
¶ 9:32 AM 0 comments
November 14, 2008
Bankruptcy fraud doesn't pay (again)
Intellectual property attorney Pamela Chestek posted a blog entitled "You Still Have to Own the Copyright" about a painter whose copyright infringement case was dismissed because she had transferred her copyrights to family members prior to filing a 1997 Chapter 7 bankruptcy petition.
In Giddings v. Vision House Production, Inc., 2008 WL 4700903 (D. Ariz. 2008), Giddings accused the defendants of violating her copyrights in several paintings by making and distributing prints without a license. In their defense, the defendants produced evidence that Giddings had, in 1996, executed written assignments of the copyrights in the paintings to various relatives just prior to filing her Chapter 7 bankruptcy petition in 1997. The copyrights were not assigned back to Giddings until February 2008 (more than two years after Giddings filed the infringement complaint.) Because Giddings did not hold the copyrights at the time of the claimed infringement, the District Court ruled that she lacked standing to bring the infringement action and dismissed the case on the defendants' motion for summary judgment.
In their pleadings, the defendants claimed Giddings "transferred all her copyrights to keep them out of bankruptcy proceedings and away from her creditors." While Giddings disputed this characterization, she did not dispute the fact that her 1997 bankruptcy schedules did not include any interest in intellectual property, and failed to disclose all but one of the transfers. Since Giddings apparently felt, when she brought the complaint in 2005, that she owned the copyrights even though they had never been reassigned to her, an observer could wonder whether the prior assignments were in fact a sham designed to conceal her assets from her bankruptcy trustee.
If so, she certainly got what she deserved.
In Giddings v. Vision House Production, Inc., 2008 WL 4700903 (D. Ariz. 2008), Giddings accused the defendants of violating her copyrights in several paintings by making and distributing prints without a license. In their defense, the defendants produced evidence that Giddings had, in 1996, executed written assignments of the copyrights in the paintings to various relatives just prior to filing her Chapter 7 bankruptcy petition in 1997. The copyrights were not assigned back to Giddings until February 2008 (more than two years after Giddings filed the infringement complaint.) Because Giddings did not hold the copyrights at the time of the claimed infringement, the District Court ruled that she lacked standing to bring the infringement action and dismissed the case on the defendants' motion for summary judgment.
In their pleadings, the defendants claimed Giddings "transferred all her copyrights to keep them out of bankruptcy proceedings and away from her creditors." While Giddings disputed this characterization, she did not dispute the fact that her 1997 bankruptcy schedules did not include any interest in intellectual property, and failed to disclose all but one of the transfers. Since Giddings apparently felt, when she brought the complaint in 2005, that she owned the copyrights even though they had never been reassigned to her, an observer could wonder whether the prior assignments were in fact a sham designed to conceal her assets from her bankruptcy trustee.
If so, she certainly got what she deserved.
Labels: copyright
¶ 9:07 AM 0 comments
November 12, 2008
Who owns a trademark?
Who really owns a trademark? The company that holds the registration or the company that uses the trademark?
That's going to be the issue in In re Goen Technologies, Inc., the bankruptcy case for the distributor of the TrimSpa diet pill. Originally filed in New Jersey as a Chapter 11 case, the case converted to Chapter 7 in September. Now, according to a news story in NJ.com, the Chapter 7 trustee has a million dollar offer to purchase the TrimSpa mark. There is a catch however. The mark itself is registered to an affiliated company, Nutrimerica, which is not in bankruptcy.
The chapter 7 trustee has filed a complaint with the New Jersey bankruptcy court asking the Court to determine that the bankruptcy estate, which used the mark, is the proper owner of the mark. Since trademark rights are acquired through use, its possible that under the right set of facts the trustee may have something to sell.
That's going to be the issue in In re Goen Technologies, Inc., the bankruptcy case for the distributor of the TrimSpa diet pill. Originally filed in New Jersey as a Chapter 11 case, the case converted to Chapter 7 in September. Now, according to a news story in NJ.com, the Chapter 7 trustee has a million dollar offer to purchase the TrimSpa mark. There is a catch however. The mark itself is registered to an affiliated company, Nutrimerica, which is not in bankruptcy.
The chapter 7 trustee has filed a complaint with the New Jersey bankruptcy court asking the Court to determine that the bankruptcy estate, which used the mark, is the proper owner of the mark. Since trademark rights are acquired through use, its possible that under the right set of facts the trustee may have something to sell.
Labels: trademarks, TrimSpa
¶ 8:38 AM 0 comments
November 10, 2008
Free CLE on Bankruptcy and Intellectual Property [humorous]
The blog for the Bankruptcy Bill comic strip, promises a free (I assume) "...CLE course on the intersection of bankruptcy and intellectual property laws" for those who post the latest Bankruptcy Bill comic strip without proper attribution. But, be warned: they claim the course will be "...so painfully dull as to violate several major provisions of the Geneva Convention."
I've given a few talks like that.
¶ 1:17 PM 0 comments
I've given a few talks like that.
¶ 1:17 PM 0 comments
November 05, 2008
Footstar shuts down
According to an article in the NJ Biz Journal, Footstar, Inc. is going to shut down at the end of the month.
Footstar filed a chapter 11 petition in 2004, in the Southern District of New York, and reached some level of fame resulting from that court's 2005 decision allowing the debtor to assume its operational leases with Kmart over Kmart's objection. That decision defined the now somewhat popular "Footstar Test."
The contracts with Kmart run out at the end of of this year, and they will not be renewed. According to the article, Kmart will pay $13 million for Footstar's intellectual property, buy its inventory, and employ some of its employees.
Footstar filed a chapter 11 petition in 2004, in the Southern District of New York, and reached some level of fame resulting from that court's 2005 decision allowing the debtor to assume its operational leases with Kmart over Kmart's objection. That decision defined the now somewhat popular "Footstar Test."
The contracts with Kmart run out at the end of of this year, and they will not be renewed. According to the article, Kmart will pay $13 million for Footstar's intellectual property, buy its inventory, and employ some of its employees.
Labels: footstar
¶ 5:39 PM 0 comments
