Summary of a Recent
Judicial Development in
Bankruptcy

Court Considers Dischargeability of
Patent Infringement Judgment

Harrison M. Pittman
Staff Attorney

Summary of Decision

In In re Wood, No. 02-0597, 2004 WL 1089209 (Bankr. W.D. Tenn. Apr. 14, 2004), the United States Bankruptcy Court for the Western District of Tennessee held that damages incurred as a result of a debtor's patent infringement of a seed technology was a nondischargeable debt, while the debtor's infringement of another seed technology was dischargeable.

Background

Debtor James Wood filed a Chapter 7 bankruptcy petition while a patent infringement claim brought against him by Monsanto Company (Monsanto) was before the United States District Court for the Western District of Tennessee. See id. at *1. Monsanto alleged that the debtor infringed the patent rights it held in Roundup Ready® soybean seed and Bollgard® with Roundup Ready® cottonseed when he saved and replanted the patent-protected seeds. See id. at *5. The district court held that the debtor infringed Monsanto's patents. See id. It did not, however, determine whether damages should be awarded to Monsanto or whether the debtor acted willfully or maliciously when he saved and replanted the patent-protected seeds. See id. Monsanto subsequently brought an adversary proceeding in the bankruptcy court alleging that the debtor's "conduct and resulting injury to Monsanto was willful and malicious . . . ." Id.

Arguments

Monsanto contended that it should be awarded damages for injuries it suffered as a result of the debtor's patent infringement and that the damage award should be a nondischargeable debt. See id. The debtor argued that his saving and replanting of the patent-protected seeds was inadvertent and that he "lacked the intent necessary to cause a willful and malicious injury sufficient to except any damage award from discharge." Id. This summary does not discuss the court's holding as it relates to the awarding of damages.

Analysis and Holdings

The bankruptcy court explained that Bankruptcy Code § 523(a)(6) excepts from discharge those debts that are incurred "'for willful and malicious injury by the debtor to another entity or to the property of another entity.'" Id. at *6 (citation omitted). The court also explained that a finding that a debtor has committed a willful or malicious injury requires "'a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.'" Id. (quoting Kawaahau v. Geiger, 523 U.S. 57 (1998)). See also id. (stating that courts have had difficulty applying the Geiger definition to particular case facts). The court further explained that under Geiger a determination that a debtor acted willfully or maliciously requires a court "to look into the debtor's mind, subjectively." Id.

The court held that the debtor's patent infringement was willful. See id. at *7. It based this determination primarily on findings made by the district court, including the finding that the debtor saved cottonseeds from cotton produced on a part of the debtor's farm that was planted with Bollgard® with Roundup Ready® cottonseed and that he attempted to conceal the fact that he was saving the patent-protected cottonseed by using an alias to pay a company to delint the seeds so that they could be saved. See id. See also id. at 3-4 (detailing the district court's findings).

The court also held that the debtor's actions were malicious. See id. at *8. It stated that based upon "the totality of the proof" the debtor "subjectively knew that the consequences of his unauthorized saving of the cottonseed would be financial harm to Monsanto." Id. The court also stated that the evidence established that the debtor "intended to deprive Monsanto of profits from the sale of its patented seed by intentionally saving and replanting Monsanto's Bollgard® with Roundup Ready® cottonseed, and he knew that such a consequence was substantially certain to result." Id. It further stated that the debtor "clearly intended to avoid paying Monsanto's price for the seed and the technological license when he saved the patented cottonseed from his 1999 crop and replanted it, in knowing violation of Monsanto's restrictions." Id. The court pointed to, among other things, the facts that the debtor attempted to conceal his act of seed saving by using an alias and his "admission that he knew that Monsanto's seed was not to be saved." Id. The court reasoned that these facts demonstrated that the debtor "knew what he was doing, that it was wrong, and that it would harm Monsanto." Id.

The court held that there was not sufficient proof to determine whether the debtor's act of planting Roundup Ready® soybeans was a willful and malicious injury. See id. It explained that "there simply is no proof upon which this Court can find that Monsanto's detection of Roundup Ready® soybeans in Mr. Wood's 2000 fields establishes a willful and malicious injury." Id. The court therefore concluded that any damages that resulted from the debtor's patent infringement as it related to the soybean crop were not excepted from discharge. See id.

The case was decided on April 14, 2004; this summary was posted June 10, 2004.