Tech Bankruptcy

Turning a Paige on Domain Name Ownership

noreply@blogger.com (Warren Agin) — Wed, 14 Apr 2010 00:54:00 +0000

An unreported decision from the United States Bankruptcy Court for the District of Utah, Paige v. Search Market Direct, Inc., 2009 WL 2591335 (Bankr. D. Utah 2009), provides a fresh look at how to determine ownership of a domain name.

In a case with an unbelievably complex fact pattern (you read it - I just don't have that kind of time), the salient issue was whether the debtor, Mr. Paige, or a company he owned, was the true owner of the domain name "freecreditscore.com" when Mr. Paige filed his bankruptcy case in 2005. At the time of the filing, the name was registered to neither Mr. Paige nor his company - it was registered to a Mr. Conklin (Mr. Conklin did not claim ownership to the name).

Judge Thurman held that because Mr. Paige exercised dominion and/or control over the domain name both prior to and after the bankruptcy filing, that he was the correct owner of the domain name and, thus, the name was property of the bankruptcy estate.

Judge Thurman then addressed whether the domain name could be converted under Utah law. The bankruptcy trustee had argued that a domain name is a form of intangible personal property, subject to a claim for conversion under the 9th Circuit decision in Kremen v. Cohen (applying California law). The defendants argued that the domain name rights were limited to the contract with the registrar. Judge Thurman rejected both arguments. He noted that Utah courts had previously rejected the concept that intangible personal property could be converted. But, following a thread of reasoning so subtle that even I have difficulty understanding it, Judge Thurman held that a domain name is in fact a form of TANGIBLE personal property, and could, thus, be converted.

I will just repeat these two quotes: "...like web pages and software, domain names can be perceived by the senses..." and "unlike a mere idea that can only be stored in a person's mind, domain names can and do have a physical presence on a computer drive."

On the other hand, it is an unreported decision. And I do have to hand it to Judge Thurman for his understanding that general common law principles should be applied to the concept of domain name ownership, rather than a strict examination of domain name registry records.

sex.com bankruptcy

noreply@blogger.com (Warren Agin) — Fri, 19 Mar 2010 12:50:00 +0000

According to the Associated Press, the company that previously purchased the domain name "sex.com" for an estimated $14 million in 2006, has been placed into an involuntary bankruptcy on the eve of a scheduled foreclosure sale of the domain name. Domain name owner Escom, LLC financed the purchase through a secured loan from Domain Capital, LLC. When Escom failed to make its payments, Domain Capital, LLC called the loan and scheduled a foreclosure auction of the domain name. On March 17, three creditors filed a Chapter 11 involuntary in the Central District of California, case no. 10-13001, to stop the auction sale. Counsel for the petitioning creditors is listed as a Mark Chassman.

The first thing we do, let's hire all the lawyers

noreply@blogger.com (Warren Agin) — Tue, 09 Mar 2010 17:47:00 +0000

Anyone who has worked on patent prosecutions knows how the work generally gets done and billed. First, you hire a trusted U.S. firm to handle the overall prosecution effort. Then, that firm lines up the various other firms it works with to handle international work. The local firm coordinates and supervises the international work and also monitors the costs. Fees and costs incurred by the foreign firms are charged back to the primary prosecution firm, which passes the charges along to the client. Generally, these charges are fairly limited - perhaps a few hundred dollars or maybe just a couple of thousand dollars.

This structure serves a number of purposes. First, it makes sure the lead patent prosecution firm is comfortable with how the international work is being handled. Second, it eliminates the need for the client to deal with multiple firms - most of which are performing minor technical tasks that the client does not understand. Third, it allows the lead firm to work with the client to coordinate strategy and translate the foreign activity into terms the client can understand. Overall, the system works pretty well.

Not so fast, according to Judge Tchaikovsky of the U.S. Bankruptcy Court for the Northern District of California. In In re Lipid Sciences, Inc., 2010 WL 234840 (Bankr. N.D. Cal.), Judge Tchaikovsky denied a fee application filed by patent counsel to a Chapter 7 trustee. Pointing out that the fee application included as costs the fees of foreign patent counsel, the Judge stated "this portion of the costs is entirely inappropriate. Fees may be paid only to court appointed professionals." In her view, each of the foreign counsel would have to be separately retained by the Chapter 7 trustee and file their own fee applications.

This may be correct as a matter of law, but all I can say is good luck getting a firm in London or maybe China to jump through those hoops for what might only be a couple of hundred bucks.

Judge Bufford likes Websites

noreply@blogger.com (Warren Agin) — Tue, 09 Feb 2010 17:48:00 +0000

In In re S & B Surgery Center, Inc., 421 B.R. 546 (Bankr. C.D. Cal. 2009), Judge Samuel L. Bufford addressed the question of whether a creditors' committee MUST maintain an information website in order to comply with bankruptcy code section 1102(b)(3).

The BAPCPA added, at section 1102(b)(3), an affirmative obligation for creditors committees to provide access to case information to their constituencies. In the Refco decision the Bankruptcy Court for the Southern District of New York laid out how a creditor's committee should use a website to satisfy the section 1102(b)(3) requirement, and identified twelve features the website should contain.

In S & B Surgery Center, the creditors committee sought to provide a telephone number that creditors could call for information. They argued that maintaining a Refco compliant website would be too expensive and the number of creditors in the case did not warrant the expense. Judge Bufford disagreed, and held that the committee should maintain a website to provide information to the creditors.

Judge Bufford did not require that the website meet all twelve of the Refco factors, so long as the needs of the creditors were met. This leaves open the possibility that a creditors committee in a smaller case could use much cheaper options (read free), such as a Google Groups site (or maybe even a Facebook page) to communicate basic information about the case.

You've been served

noreply@blogger.com (Warren Agin) — Fri, 22 Jan 2010 21:10:00 +0000

BBC News reported a couple of months ago about a British court allowing service of a court order using Twitter. Twitter is, for those who do not yet know, an on-line network allowing users to post short messages that are then broadcast to a list of subscribers. In the particular case, a political blogger named Donal Blarney sought an order enjoining another user of the Twitter service. Because the target of the court injunction had not yet actually been identified, the court allowed the injunction to be served via a posting on Twitter. The posting gave notice of the court order and, because twitter postings are very limited in length, contained a link to the order itself.

Apparently, according to a story in The Register, the tactic succeeded. The malefactor did in fact receive the notice of the order and agreed to comply with the order.

Would similar tactics work in the U.S. Bankruptcy Court? Perhaps in limited circumstances. Fed. R. Civ. P. 5(b)(2)(D) and Fed. R. Bankr. P. 7005 allow service by "electronic means" when the recipient has previously consented in writing. Service is effective on transmission. This rule was designed to allow service by e-mail through the ECF system, but there really is no reason why other means could not be used as well. The catch is, of course, getting that advance written consent.

A little bit off-topic post about Kindles

noreply@blogger.com (Warren Agin) — Wed, 20 Jan 2010 13:30:00 +0000

I came across the following article yesterday: E-BOOK TRANSACTIONS:

AMAZON “KINDLES” THE COPY OWNERSHIP DEBATE, 12 YALE J.L. & TECH. 147 (2009). It struck a chord, mostly because it cites fairly extensively to an article I wrote back in 2005 on the law surrounding transactions in electronic information. (A Framework for Understanding Electronic Information Transactions, 15 Albany Law Journal of Science & Technology 277 (2005)) I had been under the distinct impression that no one had really read the article, so I was pleased to see that I was, once again, wrong.

This article, written by Yale law school student Michael Seringhaus, posits that Amazon's sale of e-books for use on the Kindle should be classified as a sale of a book rather than a license of information. It also suggests potential ways of applying technological solutions, rather than legal solutions, to enforce single-copy ownership of an e-book.

I, in the meanwhile, have e-mailed Mr. Seringhaus' article off to my Kindle, where I will be able to read it at my leisure along with other law review articles, Westlaw advance sheets, and other miscellaneous documents that I do not have time to read at my desk. As it turns out, the Kindle is well suited for this purpose because you can e-mail a pdf or Word document (as well as many other types of documents) to an e-mail address Amazon provides you, and the document is automatically transferred wirelessly to the Kindle device.

Chapter 11 Trustee appointed in SCO Bankruptcy

noreply@blogger.com (Warren Agin) — Tue, 25 Aug 2009 06:54:00 +0000

Every now and then I'm reminded that the SCO bankruptcy remains pending. You might recall SCO as the company that sued Novell and a number of other companies claiming that it owned copyrights to code found in the LINUX open source operating system. Almost two years ago, SCO filed a Chapter 11 petition in order to protect the company while the litigation continued. SCO is represented by Laura Davis Jones of Puchulski Stang Ziehl & Jones, LLP.

In May, the U.S. Trustee's Office in Delaware filed a motion to convert the long-standing Chapter 11 case to Chapter 7. Declining to institute such a drastic remedy, Judge Gross instead ordered a Chapter 11 bankruptcy trustee appointed. More detailed information about the decision can be found here on Groklaw. Although the order has not been appealled, a trustee has not yet been appointed.

Meanwhile, Steven Vaughan-Nichols' blog in Computerworld reports that SCO actually won a minor victory of sorts in its litigation with Novell, as the Court of Appeals reverses a prior summary judgment decision against SCO.

Supreme Court Denies Cert in NCP Marketing Case - Kennedy and Breyer Signal Preference for Actual Test

noreply@blogger.com (Warren Agin) — Sun, 19 Apr 2009 17:42:00 +0000

About a month ago the U.S. Supreme Court denied certiorari in the NCP Marketing Case. A link to the denial is here. Robert Eisenbach provides a detailed analysis of why this is significant in a March 26, 2009, post on his In the Red Blog.

In a nutshell, the NCP Marketing case dealt with the ability of a debtor to assume a trademark license. The bankruptcy court held that the license had been terminated pre-petition, and therefore could not be assumed. It also stated, in dicta, (and in my opinion incorrectly) that the trademark license was not assignable as a matter of common law and therefore, under applicable law in the 9th circuit, not assumable. Appeals ensued and the decision was affirmed at each step.

What makes the denial of certiorari in this case interesting is that two justices, Kennedy and Breyer, felt the need to issue a statement on the matter. While they agreed that denial of certiorari was appropriate in this particular case, they welcomed the opportunity to hear a case on the issue of whether the actual test or the hypothetical test is the correct test for analyzing section 365(c). And, from Judge Kennedy's comments, it seemed likely that they would support adoption of the actual test.

I would note that these are only two justices and they are among those more likely to support the policy driven reasons for adopting the actual test as opposed to the strict statutory construction theories behind the hypothetical test. On the other hand, only four Justices are needed to grant certiorary and it seems likely that Kennedy and Breyer would not have signaled their interest in taking a case on this issue if they expected the outcome to go against their viewpoints.

Article on IP Licenses and Bankruptcy

noreply@blogger.com (Warren Agin) — Fri, 10 Apr 2009 17:59:00 +0000

Two Seattle bankruptcy lawyers, Marc Barreca of K&LGates and John Knapp of Cairncross & Hemplemann, recently teamed up to author a useful article on the current state of intellectual property licenses and bankruptcy.

The article provides an introduction to the basic legal issues. With each topic, the article lists a number of useful practice tips. The practice tips might be the best part of the article, since they are easy to understand (even when the underlying legal concepts are not), and provide practical, not legalistic, advice. Some of these tips address issues relevant to the initial license negotiations, while others focus on what to do when the other party to the license actually files a bankruptcy petition.

Charter Communications

noreply@blogger.com (Warren Agin) — Tue, 31 Mar 2009 22:41:00 +0000

Cable giant Charter Communications, Inc. filed a chapter 11 petition on Friday in the Southern District of New York. According to the firm's press release, the company has already negotiated a restructuring plan, which it filed along with its other first day motions.

Moving out: Azteca Mobile; Skyward Mobile; North American Scientific; Progressive Games

noreply@blogger.com (Warren Agin) — Sat, 21 Mar 2009 10:43:00 +0000

Mobile virtual network operator Azteca Mobile filed a Chapter 7 petition in Kansas City at the beginning of the month. Azteca sold prepaid phone cards for the Sprint Nextel network, and focused on the US to Mexico market.

Closer to my home, Skyward Mobile, LLC filed a chapter 7 petition in Massachusetts. Skyward built mobile applications, including games, for use on cell phones.

Yesterday, Reuters reported that Progressive Gaming International Corp., which makes technology products for the casino industry, filed a chapter 7 petition. The petition was filed in the District of Nevada. The bulk of its assets were apparently foreclosed on in January.

Are you seeing a trend here? For all you real bankruptcy lawyers, all is not lost.

According to the Associate Press, North American Scientific, Inc., a provider of products and services for cancer treatment, filed a chapter 11 petition in the Central District of California on March 12. The company plans to reorganize.

Can't Gamble With Your Domain Names!

noreply@blogger.com (Warren Agin) — Sun, 15 Mar 2009 14:36:00 +0000

In October I reported on a rather unusual decision by a Kentucky Judge holding that domain names were "gambling devices" under Kentucky law. In the case, Kentucky v. 141 Internet Domain Names, Judge Wingate considered a request by the Commonwealth of Kentucky that he order in rem seizure of several domain names under a state statute allowing seizure of gambling devices. Judge Wingate granted the request, finding that the domain names (which led to on-line gambling websites) were gambling devices, and that the state had in rem jurisdiction over the names despite the fact that the defendants, registrars and registries were all located outside the state. He ordered the relevant registries (most of the registrars being located outside the United States) to turn control of the domain names over to the Commonwealth of Kentucky.

If you like to play poker online, you can now breath easy. On January 20, 2009, an appellate panel held in a four to one opinion that "it stretches credulity to conclude that" a domain name could be a gambling device under the state's statutory definition. Thus, the lower court lacked in rem jurisdiction over the domain names. Interactive Media Entertainment v. Wingate, 2009 WL 142995 (Ky App. 2009). One judge, more credulous that the others, disagreed, stating that the entire compilation of the gambler's computer, gambling site's computers, software and domain name constituted a gambling device and the court could exercise jurisdiction over just the domain name portion of the "device."

The conclusion was clear enough though. You can't gamble with your domain name.

Customer data just goes out the door at bankruptcy auctions.

noreply@blogger.com (Warren Agin) — Tue, 03 Mar 2009 12:51:00 +0000

CIO Magazine recently published an interesting article about the sometimes loose treatment of business and customer data in liquidations. It talks about improper disposition of sensitive customer data and the habit of trustees and liquidators of auctioning off computers without first scrubbing them of data.

This kind of problem certainly exists. I'm personally aware of one case where a weight-loss franchisee's employee threw customer records in the trash without shredding them first, and a reporter found them. This resulted in an investigation by the state attorney general's office. In another case, the data back-up disks for the debtor's on-line website were in a cardboard box, in a corner, and disappeared during the course of the furniture and equipment auction.

With a failing business, data controls are fairly important. One of the items on the checklist definitely has to be identifying both sensitive data (such as payroll information and consumer information) and key data (such as financial information and asset related data) and developing a plan to ensure such data is properly preserved or disposed of, as needed.

The article includes a quote by Michael Fleming, a friend of mine who practices technology law in Minneapolis. Way to go Mike.

Failing Chip Makers and Others: Spansion, Visteon, Dynogen Pharmaceuticals

noreply@blogger.com (Warren Agin) — Mon, 02 Mar 2009 14:17:00 +0000

On Sunday, chip maker Spansion, Inc. filed a chapter 11 petition in the District of Delaware, case number 09-10690. I haven't heard of them, but this is a big one - more than a billion in assets. Spansion is the world's largest manufacturer of flash memory solutions, particularly for cell phones. According to the AP story, Spansion's problems are related to the decline in demand for consumer electronics.

Crain's Detroit Business predicts that Visteon will file for bankruptcy sometime before the end of April. Visteon provides technology and electronics systems for the automotive industry, so no great surprise there.

Last Monday, Dynogen Pharmaceuticals filed a chapter 7 petition in Massachusetts. Among the creditors, about six law firms owed more than $250,000. Debtor's counsel received payments for about the same sum prior to filing the petition. Nice work for a chapter 7 case.

More: Qimonda again,BroadRamp

noreply@blogger.com (Warren Agin) — Mon, 23 Feb 2009 14:23:00 +0000

About February 20, 2009, Qimonda Richmond, LLC, and its parent, Qimonda North America Corp., filed chapter 11 petitions in Delaware. The docket number is 09-10589. I wrote about Qimonda previously.

Online video delivery company, BroadRamp, Inc., filed a Chapter 7 bankruptcy recently, according to My San Antonio. I notice the website is still up and running. I also notice that they stopped issuing press releases back in April 2008. When a tech start-up stops issuing press releases it is usually a pretty clear sign that something is amiss with the cash flow.

Midway Games files Chapter 11

noreply@blogger.com (Warren Agin) — Fri, 13 Feb 2009 13:59:00 +0000

As predicted back in December, Midway Games, Inc. filed its Chapter 11 petition on February 12, 2009, in Delaware. The case number is 09-10465. A maker of computer games available through retail outlets and on-line, Midway Games claims in its press release that its fundamental business is stable, but that obligations related to stock repurchase agreements forced it to seek Chapter 11. European operations will not be affected.

A number of its titles, such as Mortal Kombat v. DC Universe depend on licensing deals and it will be interesting to see if Midway runs into problems assuming those licenses.

Some Recent Thoughts on Selling Patents

noreply@blogger.com (Warren Agin) — Wed, 11 Feb 2009 01:04:00 +0000

Yesterday, I received the following e-mail from John Lynn, the president of a patent incubator of sorts called Discovery Alliance:

Do you have any patents or patent applications that you are interested in liquidating?

I am writing to you as a Chapter 7 trustee. If any of your Chapter 7 clients have intellectual property you need to liquidate, we can help. Discovery Alliance is purchasing patents and patent applications.

We are a subsidiary of Capital Southwest, a well respected, publicly traded investment company (NASDAQ; CSWC) and we are experts on patents. Accordingly, we can quickly make a decision on the potential value of your patents or patent applications

I have to admit that in my role as a chapter 7 trustee, good patents don't come across my desk all that often. Occasionally, I get a gig liquidating one for some other trustee. I have marketed and sold a couple over the years, and finding buyers can be tough. More and more though, I am hearing about this kind of buyer - the company that for profit or otherwise is interested in picking up patents for speculative or other reasons.

There are a few patent exchanges out there. Tynax and Ocean Tomo come to mind. Neither seems quite suitable for use by the chapter 7 trustee trying to liquidate a relatively valueless patent owned by some small start-up or investor.

Patent trolls exist, but the patent better have some serious value to interest them. They have no use for the patent unless it provides the prospect for at least a few million in licensing fees. Similarly, the consortiums developed to keep key patents away from the trolls (such as RPX Rational Patent and Allied Security Trust) are only interested in the key patents.

Discovery Alliance seems a little different. According to a September 2008 press release, the company plans to identify and invest in IP for the purpose of commercializing the technology. It will focus primarily on patents that fit the existing business plans of its parent's affiliates. And, reaching out to chapter 7 trustees seems a little entrepreneurial, so perhaps they will find a role acting as a stalking horse bidder.

Other failed tech: Qimonda, FakeTown, Charter Communications, Brighter Minds Media

noreply@blogger.com (Warren Agin) — Thu, 05 Feb 2009 19:48:00 +0000

According to the Yrsys Technology Blog, Qimonda, a chipmaker based in Germany who had a 10% share of the DRAM (those things in your computer that remember everything) market in Q3 2008 became the first major memory chip maker to file for bankruptcy following the rapid dive in memory chip prices. Doesn't say where.

Does it seem sometimes that the whole world is heading for insolvency? In the case of Faketown, a virtual world, that's exactly what happened. Faketown shut down in July due to financial troubles according to an article I recently came across in Virtual Worlds News. Looks like it was a Chapter 7 case.

Reuters reports that cable company, Charter Communications is preparing a bankruptcy petition.

If that wouldn't create a sticky mess, how about the fact that Brighter Minds Media, the publisher of software title "World of Goo," filed a Chapter 11 petition on January 28, 2009.

Incentra Solutions files Ch 11

noreply@blogger.com (Warren Agin) — Thu, 05 Feb 2009 13:27:00 +0000

IT outsourcing and datacenter firm, Incentra Solutions, Inc., filed a Chapter 11 petition in Delaware yesterday. The lead case is named In re Managed Storage International, Inc., case no. 09-10368. According to the company press release, they have DIP funding and a buyer already lined up.

Tech in BR: UIQ Technology, nTag, Motorola(?)

noreply@blogger.com (Warren Agin) — Sat, 17 Jan 2009 16:43:00 +0000

Mobile UI developer UIQ Technology, recently filed for insolvency relief in Sweden.

nTag Interactive Corp. filed a chapter 7 petition in Massachusetts at the end of December, according to an article in the Boston Business Journal. nTag sold systems that allowed vendors at trade shows to better interact with attendees through the use of electronic name tags.

Here is one man's opinion that Motorola may soon follow Nortel. The product cycle for communications hardware is both maturing and morphing at the same time. The hardware market was mostly finding expansion through overseas markets, particularly in the far east. This market is going to stop growing for a while. At the same time, the technologies are changing - telephony, television, internet access - the methods by which we receive these content forms are changing. Hardware manufacturers that can't adopt are going to fall by the wayside.

Tech disasters: Nortel Networks

noreply@blogger.com (Warren Agin) — Wed, 14 Jan 2009 14:00:00 +0000

I've probably missed a few recent tech failures since I've been too busy the last few weeks to track this stuff, but this one is too big to ignore.

Nortel Networks, Inc. filed a chapter 11 petition this morning in the District of Delaware. The main case number is 09-10138. I suspect there is also a related Canadian proceeding of parent company Nortel Networks Corporation. Cleary Gottlieb is lead counsel.

Tech in Trouble: Nortel Networks; Midway Games; eToys

noreply@blogger.com (Warren Agin) — Wed, 31 Dec 2008 17:37:00 +0000

FierceWireless reports: "Nortel Networks, despite having $2.6 billion in cash, is contemplating bankruptcy because of uncertainty about some of its long-term financial problems as well the future market for its voice-only wireless equipment, which has seen a steep drop in demand recently."

According to Gamasutra, Midway Games, the maker of Mortal Kombat, is facing a potential chapter 11 bankruptcy filing and NYSE delisting.

Word on The Street is that the parent of eToys.com, Parent Company (clever, huh?) filed a Chapter 11 petition in Delaware two days ago. The original Etoys filed for Chapter 11 in 2001, and was sold to KB Toys, which recently filed its own Chapter 11 petition.

Have a good New Year everyone.

Tech Filings: NetVersant, Hawaii Telecom, Charter Comm.

noreply@blogger.com (Warren Agin) — Thu, 18 Dec 2008 13:39:00 +0000

According to the Houston Business Journal:

"NetVersant Solutions Inc., once a high-flying player in the wireless network infrastructure industry, has filed for Chapter 11 bankruptcy protection and is planning to sell off its assets to New York-based Patriarch Partners LLC, its largest lender."

Hawaii Telecom filed a Chapter 11 bankruptcy petition in the District of Delaware on December 1, 2008. More information is available at its webpage. According to the Communications Technology Blog, Hawaii Telecom is now trying to move the case's venue to the District of Hawaii. Hopefully, in time for February school vacation week.

According to Moody's, Charter Communications is likely to file for bankruptcy in 2009.

Recent Tech Filings: Neonode, Nortel, Equity Media Holdings

noreply@blogger.com (Warren Agin) — Fri, 12 Dec 2008 14:13:00 +0000

Neonode, Inc.'s Swedish subsidiary, Neonode AB, filed a petition for bankruptcy in compliance with the Swedish Bankruptcy Act (1987:672) December 9, 2008. Neonode is a cell phone manufacturer, with patented touch screen technology according to this article posted at IntoMobile.

Nortel Networks Corp. is exploring the possibility of a bankruptcy filing, according to the Associated Press and the Wall Street Journal.

Equity Media Holdings, Corp. filed a chapter 11 petition December 8, 2008, in the United States Bankruptcy Court for the Eastern District of Arkansas. The case is In re Equity Media Holdings Corp, 4:08-bk-17646, U.S. Bankruptcy Court, Eastern District of Arkansas (Little Rock). According to the company's press release, "Equity Media's proprietary Centralized Automated Satellite Hub (C.A.S.H.) system provides centralized content distribution services which Equity Media believes are unique within the media industry."

Where to sell your patents.

noreply@blogger.com (Warren Agin) — Mon, 24 Nov 2008 14:42:00 +0000

According to the Seattle TechFlash, RPX Corp. is launching a "defensive patent aggregation." This is essentially a capital pool used for purchasing patents from bankrupt companies to keep them out of the hands of patent trolls. Supported by large companies like IBM and Cisco, and venture capital firms like Charles River Ventures, RPX Corp. hopes to reduce the impact of patent trolls by limiting their access to loose patents.