When You Don't List Copyright Infringement Claims in Your Bankruptcy Schedules You Lose Standing
"High up in the pristine White Mountains of Northern Arizona, is a place where...truth and honesty are hard to find, if at all.." [Fair use
] So starts Lynnell Levingston's 2008 memoir
of politics in Springerville, Arizona. In 2009, Livingston sued a host of defendants asserting, among other things, that one of them violated her copyright in the book by plagiarizing an excerpt from the book in a police incident report. That initial case was dismissed in 2010, without prejudice. Levingston also maintained a blog called Three Men Make a Tiger
. In August 2012, Levingston filed a second complaint for copyright infringement alleging the defendants made and distributed copies of the book and content from the blog without authority or license.
But, in 2009, after filing her first lawsuit, Levingston had filed a pro-se chapter 7 bankruptcy petition. She had listed the book as an asset, but had not scheduled the blog as an asset, nor had she listed as assets the claims for copyright infringement.
In a short decision
issued in Levingston v. Earle
, 2013 WL 6119036 (D. Ariz. 2013), District Court Judge Teilborg dismissed the copyright claims reasoning that because the copyright infringement claims had not been listed as assets in the bankruptcy case, they remained property of the Chapter 7 bankruptcy trustee. Thus, they were not Levingston's property and she lacked standing to bring the infringement actions.
The case seems to have some fascinating undertones and complications. I can't say I could follow them all, but the underlying legal proposition remains clear - if you think someone has infringed your copyrights, make sure you list them on your bankruptcy schedules.
Qimonda Decision Affirmed But Fourth Circuit Won't Say Whether Denying Section 365(n) Protections Manifestly Contrary to U.S. Public Policy
The Court of Appeals for the Fourth Circuit recently released its decision
in the ongoing debate over whether the Qimonda AG bankruptcy estate gets to ruin the world's semiconductor industry. For those unfamiliar with the complex, but important, Qimonda decisions, I'll refer you to California bankruptcy attorney Robert L. Eisenbach's excellent and comprehensive explanation
of the issues and history, as well as his earlier description
of one of the lower court decisions.
For those who recollect the basic background, when last seen the United States Bankruptcy Court for the Eastern District of Virginia had decided that bankruptcy code section 1522(a) required it to balance debtor and creditor interests in determining whether to apply section 365(n)'s protections to those patent licenses Qimonda AG was terminating, thus allowing the licensees to continue to practice the licensed patents. The bankruptcy court held that denying section 365(n) protections would be unduly detrimental to the licensees, creating a "very real" "risk to the very substantial investment the [Licensees]...[had] collectively made in research and manufacturing facilities in the United States" in reliance on the licenses.
The Court also determined that 365(n) protected a fundamental U.S. public policy promoting technological innovation and, failing to provided the licensees with section 365(n)'s protections would undermine that fundamental public policy. Thus, the U.S. statute needed to be applied in lieu of the default rules under German insolvency law.
On direct appeal to the Fourth Circuit, the Circuit Court affirmed. It noted that 11 U.S.C. 1522(a) allows the court to grant discretionary relief to a foreign representative under section 1521 only if the court determines that "the interests of the creditors and other interested entities, including the debtor, are sufficiently protected." Such discretionary relief can be granted subject to appropriate conditions. It also noted that 11 U.S.C. 1506 prohibits granting relief that is "manifestly contrary to the public policy of the United States."
Addressing first the question of applying section 1522(a), the Court of Appeals agreed with the bankruptcy court that section 1522(a) requires a balancing analysis, and further held that the bankruptcy court had properly exercised its discretion in applying that test. This was sufficient to affirm the decision below.
Turning, in its final pages, to the public policy issue, the Circuit Court stated that "by affirming the bankruptcy court, even though on its section 1522(a) analysis, we too necessarily further the public policy inherent in and manifested by section 365(n)." So, section 365(n) is designed to protect licensee rights as an expression of public policy - but, that was obvious and well known. Restating the fact is meaningless. Is denying section 365(n) rights to a patent licensee "manifestly contrary" to that policy? The bankruptcy court thought so, but the Court of Appeals seems less sure - failing in the final portion of the decision to directly address the question or state an opinion. And, one judge clearly did not want to discuss the point, declining to join in the last few pages of the otherwise unanimous decision on the grounds that it was "unnecessary dictum."
He was right. Perhaps this decision marks the end of the long standing Qimonda patent license debate. Perhaps not. The decision does help define the structures for judicial decision making in Chapter 15 cases, but fails to provide a definitive answer to the question of whether and how IP licensees retain the protection of 11 U.S.C. 365(n) in international insolvency cases.