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Uncompleted Building Sold in Bankruptcy Doesn’t Infringe Architect’s Copyright

by Jodi Benassi | Aug 24, 2023 | Copyrights

The US Court of Appeals for the Eighth Circuit affirmed a district court’s ruling that there was no actionable infringement where an uncompleted building sold under the authority of a bankruptcy court was later completed. Cornice & Rose International, LLC v. Four Keys, LLC et al., Case No. 22-1976 (8th Cir. Aug. 11, 2023) (Loken, Shepard, Kelly, JJ.) (per curiam). The Court explained that the architectural copyright claims were precluded by the bankruptcy court’s order approving the sale.

McQuillen Place Company retained Cornice & Rose, an architectural firm, to design a building. Cornice created technical drawings for the building and obtained copyrights for its drawings and for the building itself, the tangible embodiment of its design work. When the building was 90% complete, McQuillen halted construction and filed for bankruptcy. During liquidation proceedings, the trustee moved to sell the building to the lender, First Security Bank & Trust Company. Cornice objected to the sale on various grounds, including that its copyright protection in the building itself would be infringed by an order authorizing the sale. In response, First Security Bank suggested language to protect the parties, which the court incorporated into its order authorizing the sale of the uncompleted building, as follows:

Copyright: So long as the Purchaser, or its assignee, or its architect or agents do not use the Plans or Drawings or any work in which Cornice & Rose International, LLC (“C & R”) holds a valid copyright (the C & R Intellectual Property), the Purchaser, or its assignee, may use and occupy the Property, develop the Property, and complete the existing interior and exterior of the Property, free and clear of existing and future claims of C & R, whether for copyright infringement or otherwise. The Purchaser, or its assignee, or its architect or agents may not use the C &R Intellectual Property without first making arrangements satisfactory to C & R for the use of the C & R Intellectual Property. Nothing contained herein shall preclude future claims of copyright infringement resulting from the improper or unauthorized use of the C & R Intellectual Property by the Purchaser, or its assignee, or any third parties.

Cornice filed a motion to reconsider, arguing that under its contract with McQuillen, the license for the use of the building was conditioned on full, complete and timely payment. Because that had not occurred, there was no license for the construction of the building and, therefore, the building was an infringing copy of the architectural work. The following day the bankruptcy court denied the motion. Cornice filed an appeal, which the bankruptcy court dismissed under 1 U.S.C. §363(m) because the sale had been completed.

While the appeal was pending, the trustee sold the building, and First Security Bank assigned its interest to Four Keys, which hired various companies to finish the building. Cornice then sued First Security Bank, its president, Four Keys and others for copyright infringement by finishing the building as an infringing derivative work. Cornice sought a declaratory judgment [...]

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Ninth Circuit Provides Clarity on the Scope of Receiverships

by Jennifer Schein | Sep 22, 2022 | Copyrights

The US Court of Appeals for the Ninth Circuit affirmed an order denying the defendants’ motion to discharge a receiver who had been appointed to aid in the execution of a judgment for violations of the Copyright Act. WB Music Corp et al. v. Royce International Broadcasting Corp., Case No. 21-55264 (9th Cir. Aug. 31, 2022) (Tashima, Watford, Friedland, JJ.)

The receivership in this appeal arises from litigation that commenced in 2016 in the US District Court for the Central District of California by a cohort of music publishers for broadcasting the plaintiffs’ music on radio networks in violation of the Copyright Act. In 2017, the district court found the defendants jointly and severally liable for copyright infringement.

A jury awarded the plaintiffs statutory damages totaling $330,000 and the district court entered a judgment in that amount. The defendants continuously refused to satisfy the judgment, and after much litigation, the court entered an amended judgment for an additional $1.25 million and attorneys’ fees of more than $900,000.

The defendants’ only assets were their Federal Communications Commission (FCC) licenses. The district court ultimately appointed a receiver who was entrusted with “the power and authority to take charge of and manage [the defendants’] [r]adio stations’ assets, businesses, and affairs,” as well as the ability to solicit offers for the sale of the stations. The court’s order also provided that the receiver would incur a monthly fee and a commission on the sale of any of the radio stations.

The defendants moved ex parte for an order to compel the plaintiffs to accept payment of the amended judgment—asserting that they were prepared to wire funds in the amount sufficient to cover the amended judgment and post-judgment interest—but refused to agree to pay costs incurred by the plaintiffs’ post-judgment proceedings. Per the district court’s order, the defendants were to deposit with the court funds sufficient to satisfy the amended judgment. The order further provided that the receivership would not terminate unless the defendants paid all costs incurred post-judgment. The court entered a second amended judgment approximately four months later, which included additional unpaid sanctions and fees.

The defendants ultimately deposited the required funds with the district court; however, the funds were never released to the plaintiffs. The defendants then filed a motion to terminate the receivership and enjoin the sale of their radio stations on three grounds: (1) the receiver did not take an oath as required under California law; (2) the court lacked the discretion to refuse to terminate the receivership and (3) the court abused its discretion in denying the motion. The motion was opposed by the plaintiffs, who argued that the receivership should not be terminated without ensuring that the receiver was compensated for his services. The receiver opposed the motion, arguing that terminating the position would enable the defendants to “evade a range of liabilities” as there were still large creditors with outstanding judgment liens. The district court denied the defendants’ motion and the defendants appealed.

Agreeing with First Circuit [...]

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Old Dawg, Still the Same Tricks: Bankruptcy Asset Successor is Also Inter Partes Re-Exam Successor

by Paul Devinsky | Apr 29, 2021 | Patents

The US Court of Appeals for the Federal Circuit issued a modified opinion correcting certain facts relating to a decision in which it originally concluded that because a plaintiff was a successor in bankruptcy, it was a successor in an inter partes re-examination. Mojave Desert Holdings, LLC v. Crocs, Inc., Case No. 20-1167 (Fed. Cir. Apr. 21, 2021 (modified), Feb. 11, 2021 (original)) (Dyk, J.)

In its original decision, the Court found that Mojave should be substituted for the original requestor following the sale of the original re-examination requestor’s right, title and interest in, to and under its assets to a holding company, which further assigned such assets and interests to Mojave. After the decision, Crocs moved for reconsideration because the original opinion incorrectly found that Mojave was the original requestor’s successor-in-interest. Instead, Crocs argued that Mojave had simply acquired assets from the original requestor, including litigation claims. Crocs argued that this distinction necessitated reconsideration of the original decision.

In response, the Federal Circuit issued a modified opinion that, while clarifying the facts, did not change the ultimate outcome. The Court found that the transfer of assets, including rights and claims of past acts of infringement, provided necessary Article III standing to maintain the proceeding. Accordingly, the Court allowed Mojave to be substituted for the original requestor.

Old Dawg, New Tricks: Bankruptcy Successor Is Also Inter Partes Re-Exam Successor

by Paul Devinsky | Feb 18, 2021 | Patents

Reversing the Patent Trial and Appeal Board, the US Court of Appeals for the Federal Circuit concluded that because a plaintiff was a successor in bankruptcy, it was a successor in an inter partes re-examination. The Court held that the plaintiff should be substituted for the original requestor following the sale of the original re-examination requestor’s right, title and interest in, to and under its assets to a holding company, which further assigned such assets and interests to the plaintiff. Mojave Desert Holdings, LLC v. Crocs, Inc., Case No. 20-1167 (Fed. Cir. Feb. 11, 2021) (Dyk, J.)

The dispute originated in 2012 when Crocs sued Dawgs for patent infringement. Dawgs responded by filing a third-party request for inter partes re-examination, which the US Patent & Trademark Office granted. The examiner rejected Crocs’ challenged patent claim as anticipated, and Crocs appealed to the Board.

While the appeal was pending, Dawgs filed a petition under chapter 11 of the Bankruptcy Code. Dawgs moved the bankruptcy court to approve the sale of all of its assets to a recently formed entity, Dawgs Holdings, free and clear of all liens, claims and encumbrances pursuant to Bankruptcy Code. The relevant provision of the Asset Purchase Agreement assigned Dawgs Holdings:

[a]ll of [Dawgs’] right, title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including intellectual property and goodwill) . . . .

The sale order carved out from the free and clear language “any Claims [Crocs] . . . may hold for patent infringement occurring post-Closing.” Shortly after the closing, Dawgs Holdings assigned all rights, including explicitly the claims asserted by Dawgs in the district court action and the inter partes re-examination, to Mojave.

Months later, Mojave moved the Board to change the real party-in-interest from Dawgs to Mojave. The Board dismissed and expunged the request because:

The sale from Dawgs to Dawgs Holdings was silent with respect to the inter partes re-examination.
Mojave was not a party to the inter partes re-examination proceeding.
Mojave did not have standing to update the real party-in-interest.
Mojave did not file its submission within 20 days of any change of the real party-in-interest as required by 37 CFR § 41.8(a).

Subsequently, the Board reversed the examiner’s rejection of Crocs’ patent claim, which decision Dawgs appealed to the Federal Circuit, while simultaneously filing a motion to substitute Mojave.

In granting the substitution motion, the Federal Circuit noted the broad language describing the sale of all of Dawgs’ assets to Dawgs Holdings. The Court distinguished the sale language from the sale language in other cases where a buyer in bankruptcy may only acquire “substantially all” of the assets of another entity. Because the language describing the transfer from Dawgs to Dawgs Holdings was so broad, the Federal Circuit concluded that the transfer from Dawgs Holdings to Mojave included the interests in Dawgs’ claims and its successor-in-interest requestor status in the inter [...]

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Willfulness Allegation, Failure to Appear Lead to Nondischargeable Judgment

by Paul Devinsky | May 19, 2020 | Trade Secrets
The US Court of Appeals for the Sixth Circuit affirmed that a state court’s finding of “willful and malicious injury” in connection with the misappropriation of trade secrets entitled the plaintiff, in the defendant’s subsequent bankruptcy proceeding, to summary judgment of nondischargeability on collateral estoppel grounds. In re Hill, Case No. 19-5861 (6th Cir. May 4, 2020) (Donald, J.).

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