There’s nothing like a good procedural end run. Some people think it’s not sporting, but they are often very efficient.
In re Hansen is a bankruptcy case with a history. Karl Hansen owned some US and foreign patents that he licensed to PixArt Imaging Inc. in 2008. Karl and Lisa Hansen filed for Chapter 7 bankruptcy on June 11, 2012. The PixArt license terminated on September 20, 2012. The bankruptcy case was closed on January 2, 2013 after the section 341 meeting, with no dividend to creditors and all assets abandoned back to the debtor. Karl Hansen then formed SyncPoint Imaging LLC and assigned the patents to it. On February 20, 2015 SyncPoint sued PixArt, Nintendo and some retailers for infringement of one of the patents. On September 3, 2015 the bankruptcy case was reopened. The motion by the United States Trustee said “Debtors’ counsel, Attorney Dahar, has recently brought to [the Chapter 7 trustee’s] attention that the Debtors may have rights to pursue patent infringement litigation against a third party, for actions that took place prior to the Debtors’ chapter 7 filing.”
The Chapter 7 trustee indeed had a bit of a problem with the fact that a supposedly bankrupt party with no assets was now claiming that he had a breach of contract/patent infringement case worth, by the debtor’s estimate, $28 million.1 The debtor had a problem with the trustee trying to sell the patents to PixArt. (There’s no mention in the case, but one sees the hand of Nintendo or PixArt behind all of this. To their credit, SyncPoint and/or Hansen are the ones who raised the issue with both the U.S. Trustee and the court hearing the patent infringement case.) As a result, Hansen and the trustee entered into a stipulation. It essentially boiled down to an agreement that the Chapter 7 trustee could decide which of two choices was in the best interest of the estate: sell the patents to PixArt for $150,000, which meant that the Hansen creditors would be fully repaid, or allow SynPoint to continue its patent infringement suit and the Hansen creditors would get paid if the suit was successful. The trustee chose the bird-in-hand option, that the court should accept PixArt’s offer, which meant the end of the patent infringement lawsuit.
The procedural posture is important here; the bankruptcy court only reviews whether the trustee’s decision is reasonable. Consider that the patent was in reexamination and all the claims were found invalid, the infringement case had to decide whether the same CMOS chips that PixArt sold to Nintendo before, during and after the license were covered by the patent when it never came up during the term of the license, a number of colorable defenses (including whether SyncPoint actually owned the patent and had standing), and that the damages claim would have to be arbitrated. The court approved the trustee’s decision:
Given the Trustee’s many years of experience, and her and her counsel’s professional competence, the Court will defer to the Trustee’s business judgment that it is in the best interests of the parties to effectively settle the Patent Case by selling the Patent Assets to PixArt in order to provide a certain and immediate recovery to the Debtors’ creditors. The Court agrees that the settlement of the Patent Case reasonably reflects the value of resolving any claim SyncPoint has for royalties and securing funds to pay creditors without the time, cost, and risk of further litigating the Patent Case. The Court also finds that the Jeffrey factors weigh in favor of approving the Trustee’s settlement. While the Debtor’s possibility of receiving a surplus will be lost, in the Court’s view, SyncPoint’s possibility of recovery in the Patent Case is slim. The Court is certain that the SyncPoint Offer and the Patent Case do not provide a recovery to unsecured creditors that exceeds what they will recover from the PixArt Offer in just seven days. For those reasons, the Court shall enter a separate order authorizing the Trustee to sell the Patent Assets to PixArt pursuant to the terms of the PixArt Offer. This opinion constitutes the Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
An elegant escape to a patent infringement lawsuit.
In re Hansen, Bk. No. 12-11907-JMD (Bankr. D.N.H. April 25, 2017).
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- If you’re wondering how the trustee missed the patents the first time around, Hansen had not listed the patents under the “Patents, copyrights, and other intellectual property” category in Schedule B. Instead, under the “Stock and interest in incorporated and unincorporated businesses” category he listed his “100% Stock Ownership in Brilliant Consulting Service; Service oriented business. Has 3 U.S. Patents but subject to fees/costs/expenses of use in France, Great Britain, Germany, Canada, Japan, and Australia” and he listed the value as zero. He did not list his interest in the then-existing PixArt license agreement on Schedule B nor any claims against PixArt, Nintendo, or others. ↩