When a person files for personal bankruptcy, certain debts (non-dischargeable debts) aren't permitted to be forgiven. Copyright infringement has typically been one of those debts that bankruptcy filers couldn't shake off.
But a recent ruling by a district appeals court has made an exception to that filing bankruptcy rule.
Last week, a Ninth U.S. Circuit Court of Appeals ruled that a judgment based on "willful" copyright infringement is not always considered a "willful or malicious" injury that would be forbidden to be discharged through bankruptcy, according to the Metropolitan News Enterprise.
The appeals court reversed a bankruptcy court's judgment against a husband and wife who were seeking to discharge a jury award debt they received because they allegedly copied and sold Spanish-language, copyrighted movies in 1999.
The major legal issue at hand was whether the jury award was a willful or malicious injury under current bankruptcy laws because it could have been based on reckless-not intentional-conduct.
The husband and wife were notified by the company that owned the exclusive rights to the films, New Form Inc., and they responded saying they didn't know of the company's exclusive rights, were selling preexisting inventory legally and were willing to negotiate.
However, after they received the letter, they allegedly continued to manufacture an additional 500 copies.
When the boot-legged films were continuing to be sold, New Form sued the couple for willful copyright infringement in the U.S. District Court for the Central District of California.
The case went to trial and a jury sided with New Form and awarded the company an $893,000 verdict.
After being ordered to pay the large verdict, the husband and wife filed a Chapter 7 in a U.S. bankruptcy court. New Form filed a complaint against the couple's Chapter 7 bankruptcy filing, hoping that the bankruptcy court would recognize the debt as a non-dischargeable debt based on the district court proceedings.
The couple argued that they didn't intentionally produce the additional copies, saying that their brother ordered and received the 500 copies without their knowledge.
The bankruptcy judge sided with New Form, deciding that the debt was indeed non-dischargeable, meaning the couple would still be responsible to pay the damages.
On appeal, a Bankruptcy Appellate Panel affirmed the decision, finding that "an award of statutory damages based on willful copyright infringement is a debt for an injury to the owner's property interest," according to the news report.
However, on the couples appeal to a Ninth Circuit Court, the judge found that the previous judgment was unsuitable because the bankruptcy court "had no way to determine whether the jury found the willful infringement based on a reckless disregard or a knowing violation" of the copyright, according to the newspaper.
The judge noted that the couple had evidence that their brother ordered the additional copies, which meant that the original jury could have ruled differently. He also said the bankruptcy court failed to question whether the copyright infringement was malicious.
Because of the judge's decision and as it currently stands, the couple will likely get the jury verdict discharged through their Chapter 7 bankruptcy filing.
As mentioned earlier, some debts are not dischargeable through bankruptcy. That means that after you file bankruptcy-in some circumstances-you may still owe on certain debts.
Some examples of non-dischargeable debts include:
It's important to know that there are some exceptions to the rules, as we can see in this copyright infringement case. For more information on dischargeable and non-dischargeable debts, please visit Total Bankruptcy's Debts Not Dischargeable in Bankruptcy section.
Should you have questions about whether some of your debt would be considered dischargeable or non-dischargeable, one of our sponsoring bankruptcy lawyers may be able to help you.
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