Summary of a Recent
Judicial Development in
Bankruptcy

Pre-Petition Patent Infringement
Judgment Nondischargeable

Harrison M. Pittman
Staff Attorney

Summary of Decision

The Bankruptcy Appellate Panel for the Sixth Circuit held that a pre-petition patent infringement judgment entered against a debtor-farmer was nondischargeable in the debtor's Chapter 7 bankruptcy proceedings. In re Trantham, No. 03-8010, 2004 WL 178977 (B.A.P. 6th Cir. January 30, 2004).

Background

Monsanto Company (Monsanto) holds patents on technology that allows seed producers to manufacture cottonseeds and soybeans that are resistant to glyphosate herbicides, commonly referred to as Roundup Ready® seeds, and certain insects, commonly referred to as Bollgard® seeds. See id. at *2. The United States District Court for the Western District of Tennessee determined that William Trantham, a Tennessee farmer, infringed these patents, and a jury subsequently determined that Trantham's infringement was willful. See id. at *3. The parties agreed that Trantham would pay to Monsanto approximately $90,000.00 in damages, but soon thereafter the district court awarded treble damages, attorneys' fees, and prejudgment interest to Monsanto and entered a final judgment of $592,677.89 against Trantham. See id. Trantham then filed a Chapter 7 bankruptcy petition, seeking to discharge the pre-petition patent infringement judgment under Bankruptcy Code § 523(a)(6). See id.

Monsanto filed a summary judgment motion, arguing that based on the collateral estoppel effect of the district court's prior decisions, the bankruptcy court should not allow the patent infringement judgment to be discharged. See id. Monsanto asserted that the jury "had already decided that Trantham intentionally infringed Monsanto's patent," that "Trantham knew that his intentional acts would harm Monsanto because Trantham utilized Monsanto's technology without paying the required fees," and that "Trantham admitted that he could not or did not want to pay the price Monsanto charged." Id. Monsanto also asserted that the judgment was nondischargebale because the jury's determination that Trantham willfully infringed Monsanto's patents and the district court's decision to award attorneys' fees and treble damages established that an intentional tort had occurred. See id.

Trantham argued that the doctrine of collateral estoppel was inapplicable because the district court did not find that he acted with malice. See id. Trantham argued in the alternative that "the bankruptcy court should give collateral estoppel effect to the district court's findings that there was no evidence that Trantham was motivated by an intent to harm Monsanto and no evidence of fraud or any other gross injustice on Trantham's part." Id. (citation omitted).

The bankruptcy court explained that it was required "'to determine whether the debtor subjectively desired to intend the harm or had knowledge that harm is substantially certain to occur or result from the debtor's actions'" and that Congress intended that the terms "willful" and "malicious" "'be treated differently and possess entirely separate and distinct legal significance under section 523(a)(6).'" Id. (quoting In re Markowitz, 190 F.3d 455, 464 (6th Cir. 1999)). Noting the district court's findings that Trantham was not motivated by an intent to harm Monsanto and that there was no evidence that Trantham committed fraud, the bankruptcy court ruled that the patent infringement judgment was dischargeable. See id. Monsanto appealed the bankruptcy court's decision to the Bankruptcy Appellate Panel for the Sixth Circuit. See id.

Analysis and Holding

The bankruptcy appellate panel explained that under Bankruptcy Code § 523(a)(6) "an individual debtor is not discharged from any debt 'for willful and malicious injury by the debtor to another entity or to the property of another entity.'" Id. at *6 (citation omitted). See In re Markowitz, 190 F.3d 455, 463 (6th Cir. 1999) (stating that "'[f]rom the plain language of the statute, the judgment must be for an injury that is both willful and malicious. The absence of one creates a dischargeable debt.'"); Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998) (holding that "nondischargeability of a debt under § 523(a)(6) 'takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.'"); Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir. 1986) (holding that under § 523(a)(6) "''[m]alicious' means in conscious disregard of one's duties or without just cause or excuse; it does not require ill-will or specific intent.'"). Recognizing that it was bound to follow Sixth Circuit precedent, the panel explained that in Markowitz the Sixth Circuit held that unless "'the actor desires to cause the consequences of his act, . . . or believes that the consequences are substantially certain to result from it,' he has not committed a 'willful or malicious injury' as defined under § 523(a)(6)." Id. at *7.

Noting the district court's findings that Trantham admitted that his infringement "was solely for the purpose of avoiding the payment of the license fee to Monsanto . . . and . . . that there was some evidence that Trantham tried to conceal his infringement by using a false name," the panel determined that Trantham believed that Monsanto was substantially certain to suffer economic damage as a result of his refusal to pay for using Monsanto's technology. Id. at *8. Recognizing that patent infringement has traditionally been viewed as an intentional tort and that the district court determined that Trantham's actions were willful, the panel held that his actions "constitute an intentional tort which . . . could lead to nondischargeability under § 523(a)(6)." Id. See Geiger, 523 U.S. at 63 (stating that the § 523(a)(6) formulation "triggers in the lawyer's mind the category of 'intentional tort,' as distinguished from negligent or reckless torts. Intentional torts generally require that the actor intend 'the consequences of an act,' not simply, 'the act itself.'").

The panel concluded that

Trantham must have believed that the consequences of his refusal to pay the license fee would be financial injury to Monsanto because, in the zero-sum situation inherent wherever something is reserved to the use of a particular entity, Trantham could only profit if Monsanto lost its reservation without proper compensation . . . . Thus, the Markowitz standard of "willful" injury is met. In addition, because Trantham acted in conscious disregard of his duty to Monsanto, the requirement of a "malicious" injury is also met. Moreover, patent infringement, being the invasion of a protected interest, is a tort.

Id. (citation omitted).

The case was decided on Jan. 30, 2003; this summary was posted Feb. 9, 2004.