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Collateral estoppel remains inapplicable to unchallenged IPR claims

by Courtney Seams | Aug 14, 2025 | Patents

Returning to its decision in Kroy IP, the US Court of Appeals for the Federal Circuit denied a petition for panel rehearing and rehearing en banc, leaving undisturbed its prior opinion that collateral estoppel does not apply to the assertion of claims from a patent, even when other patentably indistinct claims from that patent have been found unpatentable in inter partes review (IPR) proceedings before the Patent Trial & Appeal Board. Kroy IP Holdings, LLC v. Groupon, Inc., Case No. 23-1359 (Fed. Cir. Aug. 1, 2025) (per curiam) (Moore, J., concurring) (Dyk, J., dissenting).

Kroy sued Groupon for patent infringement, and Groupon subsequently filed two IPR petitions. The Board ultimately found 21 of the asserted claims unpatentable. Kroy amended its complaint to remove those 21 claims and proceed only with claims that were not at issue in the IPR proceedings. Groupon moved to dismiss the complaint, arguing that Kroy was collaterally estopped from asserting the remaining claims because of the Board’s prior IPR rulings finding other patentably indistinct claims unpatentable. The district court agreed with Groupon, finding that the remaining asserted claims were not materially different from the unpatentable claims in terms of validity and granted the motion to dismiss with prejudice. Kroy appealed.

The Federal Circuit held that a Board determination finding certain patent claims unpatentable under the preponderance of the evidence standard did not collaterally estop Kroy from asserting other unreviewed claims of the same patent in district court litigation against Groupon. Groupon subsequently petitioned for panel rehearing and rehearing en banc, both of which the Federal Circuit denied per curiam.

Chief Judge Moore, joined by Judge Stoll, concurred in the decision. In her concurring opinion, Judge Moore explained that collateral estoppel does not apply where differing standards of proof exist (namely, the preponderance of evidence standard used by the Board versus the clear and convincing evidence standard applied in district courts) because this difference can materially affect a patent’s validity determination. She emphasized that collateral estoppel should apply consistently in patent cases and cautioned against deviating from the established collateral estoppel standards. Judge Moore also noted that policy concerns are mitigated by the ability to file a second IPR petition, because the Board is likely to grant review where a petition raises a substantially similar question of invalidity.

Judge Dyk, joined by Judge Hughes, dissented from the decision. The dissent advocated departing from the traditional burden-of-proof rule applicable in the collateral estoppel context to avoid duplicative litigation regarding patent validity. The dissent argued that the majority opinion conflicted with the Federal Circuit’s 2018 opinion in XY, LLC v. Trans Ova Genetics, which held that collateral estoppel extends between Board decisions and district court proceedings in pending or co-pending actions. According to the dissent, the majority’s approach permits repeated litigation of the validity of patent claims previously found unpatentable in IPR proceedings affirmed on appeal. The dissent expressed concern that applying collateral estoppel in this manner would enable patentees to evade the preclusive effect of adverse IPR [...]

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To kill a derivative: Licensee has no post-termination copyright control

by Rick Evans | Aug 7, 2025 | Copyrights

Addressing a dispute concerning two derivative stage adaptations of Harper Lee’s To Kill a Mockingbird, the US Court of Appeals for the Second Circuit affirmed the district court’s grant of declaratory relief, finding that the plaintiff did not infringe any copyright interest in derivative works following the termination of the defendant’s exclusive licensing grant. Atticus Limited Liability Company v. The Dramatic Publishing Company, Case No. 23-1226 (2d Cir. July 29, 2025) (Wesley, Chin, Perez, JJ.)

In 1969, Harper Lee granted Dramatic an exclusive license to create and license a derivative work stage adaptation of To Kill a Mockingbird for non-first-class productions (e.g., amateur and community theater). Lee terminated that grant in 2011 under the Copyright Act’s termination provisions, effective in 2016. In 2015, Lee granted exclusive rights to develop and perform a second derivative stage adaptation to Atticus.

In 2019, Dramatic initiated arbitration against Lee’s estate asserting continued exclusive rights to non-first-class productions despite the termination. The arbitrator ruled in favor of Dramatic. Subsequently, Atticus, which was not a party to the arbitration, sought declaratory judgment that performances of its play did not infringe any rights held by Dramatic. The district court ruled in favor of Atticus and awarded Atticus more than $200,000 in attorneys’ fees. Dramatic appealed the judgment and the parties cross-appealed the award of fees.

Dramatic argued that its exclusive right to stage non-first-class productions of To Kill a Mockingbird survived Lee’s termination of the 1969 grant under the Copyright Act’s derivative works exception. The Second Circuit rejected this argument, finding that Dramatic improperly equated its rights in the derivative work with ownership rights in the original copyrighted work. While Dramatic could continue using its play under the original grant, it could not prevent the creation or authorization of new adaptations. Those exclusive rights belonged to Lee and reverted to her upon termination of the grant.

Dramatic also argued that:

Lee’s grant to Atticus was invalid because it preceded the effective termination date of Dramatic’s grant.
Atticus’ claim was untimely.
Atticus’ claims were barred by res judicata based on the earlier arbitration.

The Second Circuit disposed of each of these arguments, explaining that:

The grant date was irrelevant because Dramatic no longer held exclusive rights.
The statute of limitations did not toll because Atticus’ claim was for noninfringement, not ownership.
The claims were not barred by res judicata because Atticus was not a party to the arbitration.

Regarding the award of attorneys’ fees, the Second Circuit agreed that Dramatic’s statute of limitations and res judicata defenses were objectively unreasonable, justifying a fee award, but found no basis for fees based on an alleged forfeiture of Dramatic’s statute of limitations defense since it was properly raised in the answer, even if not included in its opposition to Atticus’ pre-answer motion for summary judgment. The Court further found that Atticus was not entitled to attorneys’ fees for Dramatic’s limited discovery efforts to determine Atticus’ involvement in the arbitration or for the current appeal. Accordingly, the [...]

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Dim damages methods can doom bright ideas

by Keval Amin | Aug 7, 2025 | Patents

In a mixed ruling on evidentiary exclusions and damages methodology, the US Court of Appeals for the Federal Circuit affirmed in part, reversed in part, vacated in part, and remanded a district court’s decision that excluded patent validity evidence and granted judgment as a matter of law (JMOL). The Federal Circuit found that the district court erred in blocking the defendant’s invalidity case and directed it to reassess the reliability of the damages expert’s testimony under Rule 702. Jiaxing Super Lighting Co., Ltd. v. CH Lighting Technology Co., Ltd., Case No. 23-1715 (Fed. Cir. July 28, 2025) (Dyk, Chen, Hughes, JJ.)

Jiaxing Super Lighting and its affiliate Obert (collectively, Super Lighting) sued CH Lighting over three patents related to LED tube lamps – two covering structural designs and one addressing electrical safety. CH Lighting admitted infringement but argued that the structural patents were invalid under the America Invents Act’s (AIA) on-sale bar. The district court excluded key evidence, found the remaining expert testimony insufficient, and granted JMOL in Super Lighting’s favor. A jury later found CH Lighting liable and awarded damages, which the district court doubled. CH Lighting’s motions for a new trial and renewed JMOL were denied. CH appealed.

CH Lighting contended that certain 2014 LED tubes met all claim limitations and triggered the on-sale bar. The Federal Circuit disagreed, affirming the district court’s finding that CH Lighting’s expert lacked a proper foundation, having offered no concrete evidence or personal knowledge of the alleged sales. However, the Court found error in the exclusion of two key evidentiary items: testimony authenticating sales documents and an internal presentation showing competitor products predating the patents. The district court excluded the documents for lack of authentication and barred the presentation because of its connection to a dropped inequitable conduct claim, later reasoning that the products shown differed in wattage. The Federal Circuit rejected both rationales, explaining that the relevant inquiry focused on whether the products disclosed patented features, not their wattage. The Federal Circuit deemed these exclusions an abuse of discretion, warranting a retrial on validity.

The Federal Circuit separately upheld the jury’s findings on a different patent where the jury found the patent not invalid for anticipation and infringed. CH Lighting had argued that a prior art reference anticipated the asserted claims and that the accused chips could not infringe if the reference did not. The Court found, based on the conflicting testimony of the parties’ expert witnesses, that the jury was free to credit one expert over the other and therefore had substantial evidence supporting the jury’s no invalidity verdict. Similarly, the parties’ experts presented conflicting evidence on infringement and that Jiaxing’s expert’s theory was not necessarily inconsistent with the validity ruling. The Court thus affirmed the findings of validity and infringement.

Turning to damages, the Federal Circuit emphasized that expert testimony must be based on reliable methodology and sufficient factual grounding, reinforcing standards articulated in the recent EcoFactor, Inc. v. Google en banc decision. Because the jury [...]

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Federal Circuit lacks jurisdiction over award that doesn’t raise issue of patent law

by Katherine Pappas | Aug 7, 2025 | Patents

The US Court of Appeals for the Federal Circuit determined that it lacked appellate jurisdiction over a district court judgment confirming an arbitration award stemming from a dispute over royalties paid under patent license and supply agreements. The Court concluded that the petition did not “necessarily raise” a substantial issue of patent law. Acorda Therapeutics Inc. v. Alkermes PLC, Case No. 2023-2374 (Fed. Cir. July 25, 2025) (Taranto, Hughes, Stark, JJ.)

Acorda Therapeutics, the developer of Ampyra®, a treatment for multiple sclerosis, licensed a patent from Alkermes covering Ampyra’s active ingredient. In exchange, Acorda paid running royalties and sourced the active ingredient directly from Alkermes. Although the patent expired in July 2018, Acorda continued making royalty payments for two years without formal protest.

In July 2020, Acorda challenged the ongoing payments and initiated arbitration. Acorda sought a declaration that the licensing royalty provision was unenforceable after the patent’s expiration and sought recovery of royalties paid after July 2018, invoking unjust enrichment. The arbitration tribunal agreed that the royalty provision was unenforceable after the patent’s expiration. However, it limited Acorda’s recovery to payments made under formal written protest, which only started in July 2020. This ruling relied on a state law principle that payments made with full knowledge of the facts, even if under a mistake of law, are not recoverable unless accompanied by written protest.

Acorda filed suit in federal district court under the Federal Arbitration Act, invoking diversity jurisdiction. It sought confirmation of the tribunal’s findings, except for the denial of recoupment of more than $65 million in unprotested payments made between 2018 and 2020. Acorda argued that the tribunal’s refusal to allow full recoupment constituted “manifest disregard” of the law and offered two alternative theories: the tribunal improperly applied state law in derogation of federal patent law, and the award effectively enforced an illegal licensing agreement. The district court upheld the tribunal’s award. Acorda appealed.

The Federal Circuit declined to reach the merits and instead examined its jurisdiction. Under the “well-pleaded complaint” rule, the Federal Circuit’s jurisdiction applies only if patent law creates the cause of action or the plaintiff’s right to relief necessarily depends on resolving a substantial question of patent law.In its 1988 decision in Christianson v. Colt Industries and 2013 decision in Gunn v. Minton, the Supreme Court made clear that situations falling within the “special and small” second category (where right to relief necessarily depends on resolution of a substantial question of patent law) are “extremely rare.”

Here, Acorda’s complaint did not assert a patent cause of action. The request to confirm the arbitration award could be resolved without judicial interpretation of patent law. The Federal Circuit also noted that even the modification request, although it was premised on the award’s finding of unenforceability, presented two alternative arguments, only one of which involved patent law. Because the district court could have ruled for Acorda without addressing patent law, the Federal Circuit concluded that patent law was not “necessarily raised.” As a result, the Federal [...]

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It’s not monkey business: NFTs can be trademarked

by Ashley K. Justice | Jul 31, 2025 | Trademarks

The US Court of Appeals for the Ninth Circuit concluded that a non-fungible token (NFT) is a “good” under the Lanham Act but reversed the district court’s grant of summary judgment for trademark infringement because the owner did not prove as a matter of law that the defendants’ use was likely to cause confusion. The Ninth Circuit also affirmed the district court’s dismissal of the defendants’ counterclaim for declaratory relief regarding copyright ownership. Yuga Labs, Inc. v. Ryder Ripps and Jeremy Cahen, Case No. 24-879 (9th Cir. July 23, 2025) (Bade, Forrest, Curiel, JJ.)

Yuga Labs is the creator of the Bored Ape Yacht Club (BAYC) NFT collection. Yuga created this collection through a smart contract recorded on the blockchain Ethereum. Each BAYC NFT has a cartoon of a bored ape and a sequential unique identifier called an ape ID. Per its terms and conditions, BAYC NFT consumers receive commercial and personal rights free of royalty fees.

Ryder Ripps and Jermey Cahen created the Ryder Ripps Bored Ape Yacht Club (RR/BAYC) using the same ape images and ape IDs. The collection was also hosted on an Ethereum blockchain smart contract. They criticized Yuga for “using neo-Nazi symbolism, alt-right dog whistles, and racist imagery” and alleged that they created RR/BAYC as satire and criticism. Ripps made the RR/BAYC smart contracts’ names “Bored Ape Yacht Club” and made the smart contract symbol “BAYC.” Ripps’ website includes an artist statement that the artwork is a “new mint of BAYC imagery.” NFT marketplace websites for RR/BAYC displayed a large header “Bored Ape Yacht Club” and in a smaller text “@ryder_ripps.”

Yuga sued Ripps and Cahen for several claims, including trademark infringement based on a false designation of origin theory, false advertising, and cybersquatting. In response, the defendants asserted that Yuga did not have enforceable trademark rights, and even if it did, the defendants’ use was protected by fair use and the First Amendment. The defendants asserted several counterclaims, including knowing misrepresentation of infringing activity under the Digital Millenium Copyright Act (DMCA), and sought declaratory judgment of no copyright ownership.

The district court granted Yuga’s motion for summary judgment on its false designation of origin and cybersquatting claims. Yuga withdrew its remaining claims, so the trial proceeded only for equitable remedies on the false designation of origin and cybersquatting. At trial, the district court found that Yuga’s BAYC marks were unregistered trademarks. The district court awarded Yuga disgorgement of the defendants’ profits, maximum statutory damages, and attorneys’ fees after finding that the case was exceptional due to the defendants’ willful infringement, bad faith intent to profit, and litigation conduct. The defendants were also permanently enjoined. The defendants appealed the grant of summary judgment and sought vacatur of the remedies.

The Ninth Circuit first addressed the defendants’ argument that NFTs are not goods protected by the Lanham Act. The Court concluded that NFTs are goods under the Lanham Act based on a US Patent & Trademark Office report that determined them as such. The Court also [...]

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Kissing cousins? SUNKIST and KIST deemed confusingly similar

by Sydney E. McDermott | Jul 31, 2025 | Trademarks

The US Court of Appeals for the Federal Circuit reversed a Trademark Trial & Appeal Board decision, concluding that there was a likelihood of confusion between the marks KIST and SUNKIST when used in connection with soft drinks. Sunkist Growers, Inc. v. Intrastate Distributors, Inc., Case No. 24-1212 (Fed. Cir. July 23, 2025) (Prost, Taranto, Stark, JJ.)

For at least 90 years, Sunkist has offered soft drinks under the SUNKIST trademark both directly to consumers and through its licenses. Intrastate Distributors Inc. (IDI) purchased the KIST brand and proceeded to use the KIST mark for soft drink and sparkling water products. The KIST mark was active for about a decade before being cancelled in 2013. In 2019, IDI filed intent-to-use trademark applications for the KIST mark both in standard characters and in a stylized character form for “[s]oft drinks, namely, sodas and sparkling water; concentrates and syrups for making soft drinks.” Sunkist opposed the registration, arguing the KIST mark was likely to cause confusion with the SUNKIST mark.

Focusing its analysis on the SUNKIST standard character mark, the Board determined that all DuPont factors other than similarity of the marks favored likelihood of confusion. The Board found that the marks were not sufficiently similar because they conveyed different commercial impressions. According to the Board, while SUNKIST referenced the sun, the KIST mark referenced a kiss, relying on the image of lips that appear next to the KIST mark. The Board therefore found no likelihood of confusion between IDI’s marks and the registered SUNKIST marks. Sunkist appealed.

The Federal Circuit began by emphasizing that the KIST mark was not a design mark and the image of lips did not always appear beside the mark. The Court relied on the following image in its opinion, noting that “[n]one of the bottles include a lips image or reference a kiss” and instead “emphasize flavors.”

The Federal Circuit noted that the record contains no evidence concerning the degree of consumer exposure to the mark with the image of lips versus without lips. The Court found that the Board relied too heavily on the KIST mark’s appearance alongside an image of lips, and ultimately determined that substantial evidence did not support the finding that the mark referenced a kiss. The Court noted that while some of the SUNKIST marks contained a sun, many were standard character marks that did not include a sun. The Court thus concluded that substantial evidence did not support a finding that the similarity of the marks favored no likelihood of confusion.

Since the Board had previously found that the remaining DuPont factors favored likelihood of confusion and the Federal Circuit determined that the similarity of the marks also favored likelihood of confusion, the only remaining consideration was actual confusion. Although Sunkist had not proven instances of actual confusion, the Court noted that its precedents had never required actual confusion, primarily because [...]

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Sound the alarm: Fourth Circuit affirms $190 million verdict based on deceptive trade practices

by Dexter Hamilton | Jul 31, 2025 | Uncategorized

The US Court of Appeals for the Fourth Circuit affirmed a $190 million verdict based on deceptive trade practices, concluding that the district court performed well within its discretion in making the procedural ruling and that the jury verdict was fully supported by the evidence. CPI Security Systems, Inc. v. Vivint Smart Home Inc., Legacy Vivint Smart Home, Inc., Case No. 24-1120 (4th Cir. July 22, 2025) (Benjamin, Berner, Niemeyer, JJ.)

CPI Security Systems and Vivint Smart Home are competitors in the home security industry. CPI sued Vivint in 2020 alleging violation of the Lanham Act and North Carolina Unfair and Deceptive Trade Practices Act (UDTPA), and the common law torts of unfair competition and tortious interference with contracts. CPI’s claims were based on allegations that Vivint used deceptive tactics for door-to-door sales that caused CPI customers to confuse Vivint’s salespeople with CPI representatives. CPI alleged that those customers “unwillingly found themselves with Vivint’s alarm systems installed in their homes and with contractual obligations to both Vivint and CPI.”

During trial, CPI presented testimony from customers who had been solicited by Vivint salespeople. The customers all testified to deceptive tactics. For example, one customer testified that a Vivint representative told her Vivint was acquiring CPI and that she would therefore “no longer have CPI for [her] security company.” The customer was “scared and worried” and signed a contract with Vivint. Another customer testified that a Vivint sales representative claimed to be “with CPI” and was “one of the guys that installed [his] CPI system.”

CPI presented additional evidence to show that these practices were “widespread and systematic,” and that Vivint sales representatives had similarly targeted customers of other competitors. Vivint was aware of the conduct, because, for example, “16 state attorneys general had brought enforcement actions against Vivint for its sales agents’ conduct.”

The jury found in favor of CPI and awarded a combination of compensatory and punitive damages totaling nearly $190 million. Vivint appealed.

Vivint argued that CPI failed to prove reliance on the false statements made to CPI customers, which it claimed was an essential element of a UDTPA claim. Vivint argued that CPI itself must have relied on the false statements, rather than just the customers. The Fourth Circuit rejected Vivint’s argument, in part because:

The UDTPA “is broader and covers more than” fraud.
CPI’s claim was “grounded on unfair competition.”
Unfair competition claims do not require a showing of reliance.

Vivint also argued that CPI had not presented sufficient evidence to support the damages award. CPI had presented evidence to support four distinct categories of damages, and the jury did not specify which category or categories were included in each award. The Fourth Circuit explained that CPI was not required “to show an exact dollar amount with mathematical precision” and had presented evidence that “considered as a whole, was sufficient to allow the jury to reasonably estimate that CPI’s [compensatory] damages were $49.7 million.”

Vivint argued that “at minimum, judgment should be vacated and [...]

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Game over: Prior interference doesn’t preclude IPR proceeding

by Joshua Revilla | Jul 31, 2025 | Patents

The US Court of Appeals for the Federal Circuit affirmed a Patent Trial & Appeal Board unpatentability determination during an inter partes review (IPR) proceeding, concluding that the Board’s decision to not apply interference estoppel fell within the general rule of unreviewability. IGT v. Zynga Inc., Case No. 23-2262 (Fed. Cir. July 22, 2025) (Prost, Reyna, Taranto, JJ.)

IGT owns an expired patent that addresses the need for gaming machines, such as slot machines and video poker machines, to securely communicate over a public network. The patent was issued in January 2007 from an application filed in April 2002 and published in August 2002. Zynga filed a patent application on August 21, 2003, that included claims copied from IGT’s published application.

In March 2010, the US Patent & Trademark Office (PTO) Board of Patent Appeals & Interferences (predecessor of the Patent Trial & Appeal Board, which Congress created in 2011) declared an interference proceeding between Zynga’s application and IGT’s patent. During the interference proceeding, Zynga argued IGT’s patent was obvious over three pieces of prior art. IGT argued that Zynga lacked standing because the claims in Zynga’s application were unpatentable for a lack of written description. The Board granted IGT’s motion for judgment on the “threshold issue” that Zynga’s application lacked adequate written description support, terminated the interference with a judgment against Zynga, and dismissed the motion that the claims were unpatentable as moot.

In April 2021, IGT sued Zynga alleging infringement of six patents, including the patent that was subject to the interference proceeding. Zynga filed an IPR petition for that patent, asserting obviousness based on new prior art. In its preliminary response, IGT argued that the Board should deny institution based on interference estoppel under 37 C.F.R. § 41.127(a)(1) because Zynga could have raised the newly asserted art in the interference proceeding. The Board rejected IGT’s interference estoppel arguments because:

The interference was terminated based on the “threshold issue” of lack of written description and therefore the Board did not analyze or decide any issues of unpatentability.
It would be unfair to estop Zynga, and to the extent that estoppel applied, the Board waived its application under 37 C.F.R. § 42.5(b).

IGT requested rehearing and precedential opinion panel review, arguing that interference estoppel barred institution. The PTO Director affirmed the Board’s decision, stating that interference estoppel under § 41.127 did not apply because IPR proceedings are governed by 37 C.F.R. pt. 42, which does not incorporate Part 41 or its estoppel provisions. The PTO Director also noted that the Board’s termination was based on a threshold issue. The Board proceeded with the review and ultimately concluded that all the challenged claims were unpatentable as obvious. IGT appealed.

IGT argued that the Board and PTO Director erred in ruling that interference estoppel did not bar the petition and challenged the Board’s holding that the claims would have been obvious over the newly asserted prior art.

The Federal Circuit concluded that the interference estoppel determination fell within the [...]

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Don’t get too comfy: Prosecution disclaimer also applies to design patents

by Connor M. Larson | Jul 24, 2025 | Patents

Concluding that the principles of prosecution history disclaimer apply to design patents, the US Court of Appeals for the Federal Circuit reversed a district court’s denial of judgment as a matter of law and entry of a jury verdict that found liability for design patent infringement. Top Brand, LLC v. Cozy Comfort Company, LLC, Case No. 24-2191 (Fed. Cir. July 17, 2025) (Dyk, Reyna, Stark, JJ.)

Top Brand and Cozy Comfort compete in the market for oversized hooded sweatshirts. Cozy Comfort owns a design patent directed to “the ornamental design for an enlarged over-garment with an elevated marsupial pocket.” It accused Top Brand of infringing the patent through its sale of certain hooded sweatshirts and wearable blankets. In response, Top Brand filed a declaratory judgment action seeking findings of noninfringement and invalidity. Cozy Comfort counterclaimed for design patent and trademark infringement.

During prosecution, Cozy Comfort overcame an anticipation rejection by distinguishing the prior art under the ordinary observer test, pointing to specific features such as the shape and placement of the marsupial pocket and the bottom hem line. Top Brand argued that these statements constituted a clear disclaimer of claim scope, and that the accused products fell within the surrendered subject matter.

The district court disagreed, instructing the jury to compare the accused products to the design as claimed (without considering any prosecution disclaimer). The jury found infringement, and the court entered judgment accordingly, denying Top Brand’s motion for judgment as a matter of law. Top Brand appealed.

Top Brand argued that the district court erred by failing to apply prosecution history disclaimer, asserting that the accused design was within the scope of the subject matter Cozy Comfort had disclaimed. Cozy Comfort responded that the disclaimer doctrine does not apply to design patents and, even if it did, Cozy Comfort’s prosecution statements were not sufficiently clear to constitute a disclaimer.

The Federal Circuit disagreed, concluding that prosecution history disclaimer applies to design patents. The Court reasoned that allowing patentees to recapture disclaimed subject matter in litigation would undermine the integrity of the patent system. The Court emphasized that Cozy Comfort’s statements during prosecution clearly surrendered the identified features as supporting a finding of overall similarity. Because the accused design incorporated those surrendered features, the Court concluded that no reasonable jury could find infringement.

Accordingly, the Federal Circuit reversed the district court’s denial of judgment as a matter of law and vacated the jury’s verdict.

Eleventh Circuit sides with Fourth, Fifth Circuits on bankruptcy discharge exception split

by Deanna D. Boll | Jul 24, 2025 | Uncategorized

Addressing a split among bankruptcy courts in their interpretation of whether a corporate debtor, like an individual debtor, is subject to the exceptions to discharge outlined in 11 U.S.C. § 523(a) when confirming a nonconsensual Subchapter V plan, the US Court of Appeals for the Eleventh Circuit reversed a US Bankruptcy Court for the Middle District of Florida decision. The Eleventh Circuit held that the cross-reference in 11 U.S.C. § 1192 to 11 U.S.C. § 523(a)’s exceptions to discharge applies to both corporate and individual debtors. BenShot, LLC v. 2 Monkey Trading, LLC, Lucky Shot USA, LLC, Case No. 23-12342 (11th Cir. July 9, 2025) (Branch, Lagoa, JJ.) (Luck, J., dissenting).

Prior to filing for chapter 11 protection under Bankruptcy Code Subchapter V, 2 Monkey Trading and Lucky Shot (together, the debtors) were sued by BenShot for violations of the Lanham Act in connection with the debtors’ false advertising that their competing products were produced in the United States. The jury found in favor of BenShot and awarded punitive damages, determining that the debtors acted “maliciously toward” BenShot or “in an intentional disregard” of BenShot’s rights. Following this decision, the debtors filed for bankruptcy and attempted to discharge the jury award owed to BenShot. BenShot argued that the jury award constituted an exception to discharge under § 523(a)(6) for claims involving “willful and malicious injury by the debtor to another entity.” The bankruptcy court, like many bankruptcy courts in other jurisdictions, found in favor of the debtors, holding that § 523(a)’s discharge exceptions exclude corporate debtors and therefore the debtors could discharge BenShot’s debt.

On appeal, the Eleventh Circuit reversed and extended the application of § 523(a) in nonconsensual Subchapter V cases to corporate debtors. It observed that § 1191(c) of Subchapter V enables a debtor, if certain conditions are met, to confirm a nonconsensual plan without adhering to the absolute priority rule, thereby allowing a debtor to receive a discharge and retain assets even when all unsecured creditors are not paid in full. The discharge granted under a confirmed Subchapter V nonconsensual plan is governed by § 1192, which includes an exception to discharge in the form of a cross-reference to § 523(a). The question of whether the exception applies to corporate debtors arises from the text of § 523(a)’s preamble, which uses the term “individual debtor” before listing the exceptions to discharge.

In reaching its decision, the Eleventh Circuit engaged in a plain reading of the language of § 1192, which makes no distinction between individual and corporate debtors. The statute uses the word “debtor,” a term applied elsewhere in the Bankruptcy Code to both individuals and corporate entities. The Court also acknowledged that § 1192 states that the discharge is of a “debt,” which does not distinguish between an individual and a corporation. The Court noted that Congress could have used the term “consumer debt” if it wanted the discharge to apply only to individuals.

The Eleventh Circuit also interpreted the language in § 1192(2) that references [...]

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