Dischargeability and Trademarks: Injury to the Trademark Results in Non-Dischargeable Judgment


 

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Intellectual property is a cornerstone of modern-day commerce.  In the past century, we’ve seen an explosion not only in the number of protected intellectual property rights but the type, too.  As the diversity of intellectual property increases, so do the risks that such property will be misappropriated and the accompanying rights damaged.  One of the growing areas of law involving intellectual property rights is in bankruptcy law.  A recent case highlights and defines the rights and protections afforded to intellectual property rights’ owners by solidifying that injurious actions by a debtor will result in a non-dischargeable judgment under 11 U.S.C. Sec. 523(a)(6)’s “willful and malicious injury” standard.

In Goaz v. Rolex  Watch U.S.A. (In re Goaz), Case No. 13-10282 (5th Cir. Mar. 19, 2014), the Fifth Circuit Court of Appeals recently ruled that “[k]nowingly selling merchandise bearing counterfeit trademarks necessarily causes injury to the trademark,” thereby affirming the bankruptcy court’s summary judgment of non-dischargeability under 11 U.S.C. 523(a)(6).  The Court went on to reject the debtor’s argument that the bankruptcy court erred in applying the “condensed approach” to the “willful and malicious injury” requirement set forth in that subsection.

The debtor had knowingly sold between 120 and 150 “fake” Rolex watches, and Rolex Watches U.S.A. argued that these actions resulted in “willful and malicious injury” to its intellectual property, i.e., the “Rolex” brand and trademark.  Rolex Watches U.S.A. filed a federal lawsuit against the debtor seeking an award of damages for the misappropriation of its intellectual property.  Subsequently, the debtor filed bankruptcy and Rolex Watches U.S.A. seeking to except any damage award ultimately rendered in the federal lawsuit from discharge.

As with most intellectual property disputes, the owner of the rights cannot rest on its laurels, and must take steps to protect its interests.  Most creditors think that bankruptcy ultimately results in a “zero” sum result that will net them little to nothing  but this is not necessarily true in the context of bankruptcy case.  Intellectual property owners should take note that there is a limited time period in a bankruptcy case to commence a dischargeability action, and should consult with counsel as soon as they learn of a bankruptcy filing. To view the opinion in its entirety, please click here.

For more information or for help with any bankruptcy issue, please do not hesitate in contacting Ronn Steen.  He can be reached at (615) 465-6010 or [email protected].  Thompson Burton is a full-service law firm committed to innovative and practical legal solutions for clients.