Addressing the issue of discharging debts under bankruptcy laws, the U.S. Bankruptcy Appellate Panel for the Ninth Circuit affirmed the bankruptcy court’s decision holding that statutory damages based on willful copyright infringement are not dischargeable when the infringer had the requisite intent to injure another’s property interest. In re Albarran, BAP No. SC-05-1398-MaSPa (9th Cir., July 24, 2006) (Marlar, J.).

The plaintiff, New Form, acquired exclusive rights to manufacture, sell and distribute 10 Spanish language films known as the India Maria Pictures. Defendants duplicated and distributed Spanish language films, including the India Maria Pictures. After sending three cease-and-desist letters to the defendant, New Form filed a civil action for willful copyright infringement in the District Court for the Central District of California. The district court’s jury returned a verdict holding that defendants willfully infringed New Form’s copyrights and awarded statutory damages to New Form.

Shortly after the district court decision, the defendants voluntarily filed for bankruptcy. New Form moved that the district court’s statutory damages verdict be declared nondischargeable as willful and malicious under bankruptcy law, 11 U.S.C. § 523(a)(6). The bankruptcy court concluded that statutory damages, like punitive damages, support the injury prong of § 523(a)(6), and, that defendants actions were willful in accordance with § 523(a)(6). The defendant appealed.

Under bankruptcy law a debtor remains responsible for debts incurred due to willful and malicious actions that cause "injury" to the property of another. A bankruptcy debtor’s actions are considered willful when the debtor "intends the consequences of his action(s)." The Appellate Bankruptcy court addressed (1) whether statutory damages "injury" in accordance with bankruptcy laws and (2) whether, when willful copyright infringement is shown willful intent (under bankruptcy law) is present.

On appeal, the Appellate Bankruptcy Court affirmed the lower court’s decision, concluding that a willful copyright infringer met the requisite willful intent factor and that New Form’s statutory damages award constituted an injury under bankruptcy law, even though there was insufficient evidence to make a calculation of actual damages.

Practice Note

Although this case related to the area of copyright law, it may affect intellectual property damages decisions in other areas of law. The Albarran court expressly acknowledged the applicability of this decision to patent law cases, stating "[i]t is appropriate to look to patent law for guidance because of the kinship between it and copyright law." Further, where there is willful infringement, there is a strong argument that the defendant has willfully and maliciously accrued the resulting benefits of that infringement and thereby should be held responsible for the resulting damages. Arguably, damages based on willful infringement, whether it be trademark, copyright or patent infringement, will (at least in the Ninth Circuit) constitute a willful and malicious debt and therefore not be nondischargeable under bankruptcy laws.

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