Copyright Infringement Claims Get Reduced in Bankruptcy

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By Diane Davis

Oct. 18 — Copyright infringement claims for a scheme to purchase international textbooks at a lower cost and rebind them in the U.S. are allowed by a bankruptcy court. However, the claims are to be reduced to the minimum statutory damage amount under copyright law ( In re Coll. Book Rental Co. , 2016 BL 340308, Bankr. M.D. Tenn., No. 312-09130, 10/12/16 ).

Judge Marian F. Harrison of the U.S. Bankruptcy Court for the Middle District of Tennessee Oct. 12 denied the Chapter 7 trustee’s motion to disallow the claims of five publishers, concluding that the publishers have claims for vicarious infringement against the debtor. Under copyright law, secondary liability is possible where a party profits from direct infringement while declining to exercise a right to stop or limit it, the court said.

This decision addresses the intersection of copyright and bankruptcy law and concludes that statutory damages aren’t a penalty under copyright law and can’t be subordinated to other unsecured claims under the Bankruptcy Code.

Under the Copyright Act, 17 U.S.C. § 504(c), the range for statutory damages is no less than $750 and no more than $30,000 for each infringed title, the court said.

The court only allowed the publishers’ claim in the amount of $361,500, because the publishers didn’t prove why they were entitled to the maximum available damages. It is unclear what role the debtor played in this scheme, the court said. As a result, the publishers are entitled to a claim that represents 482 infringed titles multiplied by $750 (the minimum amount), the court concluded.

Reselling Scheme

Charles A. Jones and David Griffin owned several interrelated companies, including debtor College Book Rental Company, that sold and rented college textbooks.

Jones allegedly masterminded a scheme in which the network of companies purchased textbooks of the publishers’ — Cengage Learning Inc., Pearson Education, Inc., John Wiley & Sons, Inc., Elsevier, Ltd., and McGraw-Hill Global Education Holdings, LLC — internationally at a lower price and then rebound them in the U.S. The publishers identified 482 rebound titles and approximately 20 rebound books that were rented out by the debtor.

Subsequently, Griffin and four other creditors filed an involuntary bankruptcy petition against the debtor, which was later converted to Chapter 7. In Chapter 7 bankruptcy, a debtor’s nonexempt assets are liquidated by a trustee and the proceeds are distributed to creditors.

Statutory Damages Not Penalty

The trustee argued that the publishers’ claims should be disallowed because the debtor isn’t the entity that infringed on the publishers’ copyrights. If the publishers’ claims are allowable, the trustee contended that under Bankruptcy Code Section 726(a)(4) they are subordinated to other unsecured claims because “statutory damages” are a penalty or fine.

Based on the Copyright Act and relevant case law, “statutory damages” are intended to be compensatory and whether to seek actual or statutory damages is left to the discretion of the copyright owner, the court said. Because statutory damages aren’t a penalty, there is no support for the trustee’s subordination argument, the court said.

Debtor College Book Rental Company, LLC, Murray, Ky., represented itself pro se; Petitioning creditor David Griffin, Nashville, Tenn., represented himself pro se; Petitioning creditor Security Bank and Trust, was represented by Klint W. Alexander, Wyatt Tarrant & Combs LLP, Nashville, Tenn.; Chapter 7 trustee Robert H. Waldschmidt, Brentwood, Tenn., represented himself; Assistant U.S. Trustee Beth Roberts Derrick, Office of the U.S. Trustee, Nashville, Tenn.

To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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