631 B.R. 670
Bankr. D. Mont.2021Background:
- Everlog owns U.S. Patent No. 9,695,598 (the “598 Patent”) covering cementitious simulated log siding; it sued Better Than Logs, Inc. (BTL) for patent infringement and false advertising in federal court.
- During discovery BTL produced drawings (Exhibit 51) showing later designs (dated 08/2018 / manufactured April 2019) that add a rigid foam core and a cementitious backing; BTL continued making those products after the district-court proceedings.
- BTL participated in the district-court case for over a year, but its counsel withdrew; BTL failed to obtain new counsel and default judgment entered for Everlog, including $978,909 in damages and a permanent injunction forbidding BTL from making/using/advertising/selling products that infringe the 598 Patent; $179,116 of the judgment was disgorged profits for willful false advertising (country of origin).
- BTL later filed a Subchapter V bankruptcy; Everlog filed an adversary to except from discharge (11 U.S.C. § 523(a)(6)) the $179,116 disgorgement and to declare nondischargeable damages for BTL’s continued infringement of the 598 Patent.
- The bankruptcy court (this opinion) held: (1) Everlog is entitled to summary judgment on Count One — the $179,116 disgorgement is nondischargeable under § 523(a)(6) via issue preclusion; (2) Everlog is entitled to partial summary judgment on Count Two — BTL’s Exhibit 51 products infringe the 598 Patent and violate the injunction and that infringement is willful and malicious; (3) damages for the ongoing infringement remain for trial.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district-court finding that BTL’s false advertising was “willful” precludes relitigation and satisfies § 523(a)(6) (“willful and malicious”) | District-court findings + default judgment are entitled to issue preclusion and establish willful and malicious injury; debt nondischargeable. | District court did not explicitly analyze "malice" under § 523(a)(6), so its willfulness finding alone should not preclude re-litigation here. | Issue preclusion applies: district court’s findings satisfy willfulness and malice; $179,116 disgorgement is nondischargeable under § 523(a)(6). |
| Whether BTL’s post-pleading modified products (Exhibit 51) fall outside the district-court judgment / injunction under Civil Rule 54 | Exhibit 51 was presented in district-court proceedings or, regardless, the added foam/backing does not avoid infringement; products are covered by the injunction. | Civil Rule 54 limits default-judgment relief to pleaded claims; Exhibit 51 products were not pleaded, so judgment/injunction shouldn’t be read to reach them. | Although Exhibit 51 was not pleaded, the district court expressly found “no way” to make noninfringing simulated siding and entered a broad injunction; court finds Exhibit 51 products infringe and violate the injunction. |
| Whether BTL’s continued manufacture/sale of Exhibit 51 products is willful and malicious under § 523(a)(6) | BTL had notice of the judgment and injunction, yet intentionally continued infringing conduct; willful and maliciousness therefore established. | BTL argues the design changes avoid infringement and therefore negate willfulness/malice. | Willfulness and malice are established: service of the judgment/injunction + continued manufacture/sale show intentional, wrongful conduct causing injury and lacking justification. |
| Whether Everlog proved amount of nondischargeable damages for ongoing infringement as a matter of law | Uses district-court lost-profit formula to claim $238,902.50 in nondischargeable damages. | Challenges accuracy/applicability of the district-court formula and underlying sales/capacity data; material factual disputes remain. | Damages not resolved on summary judgment: genuine issues of fact remain; a limited trial is required to quantify nondischargeable damages. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (Sup. Ct. 1991) (creditor bears burden to prove nondischargeability by preponderance)
- Kawaauhau v. Geiger, 523 U.S. 57 (Sup. Ct. 1998) (§ 523(a)(6) requires intent to cause the consequential injury)
- Ormsby v. First Am. Title Co., 591 F.3d 1199 (9th Cir. 2010) (willfulness requires subjective motive or substantial certainty of injury)
- In re Barboza, 545 F.3d 702 (9th Cir. 2008) (maliciousness test: wrongful act, intentional, necessarily causes injury, without just cause or excuse)
- SunTiger, Inc. v. Sci. Research Funding Grp., 189 F.3d 1327 (Fed. Cir. 1999) (adding elements does not avoid infringement if all claim elements are still present)
- Instituform Techs., Inc. v. Cat Contracting, Inc., 99 F.3d 1098 (Fed. Cir. 1996) (adding elements can avoid literal infringement where claims are specific and added elements eliminate an inherent feature)