In Brief: The producer of Silver Linings Playbook won’t see all of the backend.

In Brief:  Terminating a patent license prior to the filing of a bankruptcy doesn’t result in an avoidable fraudulent transfer.

Thru Inc. sued Dropbox for trademark infringement claiming to own the “DropBox” trademark. After a lot of litigation and some really good discovery, Dropbox was able to show that Thru may have had some bare rights to the “DropBox” mark but it never actually used the mark. Thru then sat back and watched as DropBox branded itself and became a household name for shareable file storage. Then Thru continued to drag its heels in litigation to cash in on DropBox’s initial public offering in 2018. DropBox discovered emails from Thru’s CEO which unabashedly chronicled Thru’s strategy. In the end, DropBox obtained a $2.3 million judgment that included attorney’s fees and costs.

TKC thought it had a slam dunk. It had two judgments for trade secret misappropriation. But, bankruptcy is a whole new world. Bankruptcy is designed to give a debtor a fresh start. So non-dischargeability of a debt is strictly construed. TKC’s result can be avoided. A plaintiff can lay the groundwork for non-dischargeability if the defendant happens to file bankruptcy.

Sometimes the long road of Intellectual Property infringement ends up in Bankruptcy Court. Then the normal rules can change. %CUT% Tech Pharmacy Services, who owned patents for pharmaceutical dispensing machines sued Provider Meds LLC and its affiliated companies for patent infringement. The parties ended up settling. As part of the settlement, Tech Pharmacy licensed the patents to Provider Meds. The Provider Meds' companies filed Chapter 11 bankruptcy reorganization cases. The cases were later converted to Chapter 7 liquidation cases and a Chapter 7 trustee was appointed. But, Provider Meds somehow managed to not list the patent license on their bankruptcy schedules. The Chapter 7 trustee had 60 days from the date of conversion of the cases to assume the licenses. Since the trustee didn’t know about the licenses, the trustee didn’t assume them. Since they weren’t assumed, they were deemed rejected by operation of law. Rejection means that Tech Pharmacy would no longer have to honor the license agreements. The Chapter 7 trustee sold Provider Meds’ assets to RPD Holdings. Imagine RPD’s surprise when it realized the sale didn’t include assignment of the Tech Pharmacy patent licenses. RPD appealed. The Fifth Circuit Court of Appeals affirmed the lower court rulings that the rejected licenses couldn’t be resurrected.

When all else fails, file for Chapter 11. %CUT% ATopTech Inc., a software developer and Hampshire Group, Ltd., a menswear supplier, have some things in common. First, they both filed Chapter 11 bankruptcy to sell their assets. Second, Intellectual Property played a significant part in their cases. Their road to Chapter 11 was different, though. ATopTech lost a copyright action brought by Synopsys, Inc. and was facing a $30.4 million it had no hopes of paying. Hampshire Group owed $15 million to its creditors which included $7.4 million to its secured creditor, Salus Capital Partners. Hampshire Group’s primary assets are its trademarks.