Does a bankruptcy decree discharge all debts? For a discharge of debt from damages for copyright infringement, the answer is “not always.” A recent bankruptcy appellate court of the 8th circuit affirmed a district bankruptcy court that refused to discharge royalties due to copyright owners in bankruptcy. In re Walker, — B.R. —-, 2014 WL 3882494 (8th Cir. BAP (Mo.)), 59 Bankr.Ct.Dec. 237.
There is an exception for discharging debts under the bankruptcy laws. If an injury results from behavior that is willful and malicious, a debt is not discharged. Section 523(a)(6) of the Bankruptcy Code.
Doug Walker owned the Twister’s Iron Horse Saloon. Walker would play music at the saloon by various copyright holders, but would not pay the copyright holders or take a license. He was contacted 44 times by ASCAP, but ignored all communications (including a settlement agreement). ASCAP finally brought suit against Walker almost three years after first contacting Walker. Walker and Twister’s moved for bankruptcy protection. The bankruptcy court refused to discharge the copyright damages.
In the present case, the appellate court cited the fact that Walker’s ignored 44 messages from ASCAP to find “willfulness.” Further, Walker admitted having knowledge of copyright laws. The appellate bankruptcy court concluded that Walker intended to harm the copyright holders by failing to pay royalties for copyrighted works. And found that the harm and injury was “malicious.” Thus, it was an easy leap to come to the conclusion that Walker’s behavior was willful and malicious that met the exception to a discharge of debt in bankruptcy.
So what are the takeaways?
Well, for one, don’t ignore legitimate requests for relief from copyright (and arguably other IP) owners. Second, if you dispute a copyright (or IP owner’s) legitimate rights, address it and create a paper trail. Third, if you take a strong “head in the hole” approach and know of the liabilities, continue the infringing action, but refuse to take a license; bankruptcy courts may not protect you.