907 F.3d 845
5th Cir.2018Background
- Tech Pharm held a patent for a remote pharmaceutical-dispensing system and in 2010 settled infringement litigation with several OnSite entities by a License Agreement granting a "non-exclusive perpetual license" and imposing ongoing obligations (quarterly reports, per-machine fees, and a release of claims except as reserved by the agreement).
- Six related OnSite entities later filed separate bankruptcies; five were parties to the License Agreement but none listed the License or Tech Pharm on their bankruptcy schedules.
- RPD, a secured creditor, bought certain assets from three debtor estates (Grapevine, Waco, Western Pennsylvania) via APAs and sale orders; sale orders stated that any executory contracts among the sold property were "ASSUMED . . . AND ASSIGNED to RPD under section 365." RPD learned of the License only after some sales motions were filed but before the last sale order entered.
- The Chapter 11 cases converted to Chapter 7; under 11 U.S.C. § 365(d)(1) executory contracts not assumed within 60 days of conversion are deemed rejected. Trustees did not assume the License within that period.
- Tech Pharm sued debtors for alleged failures to report/pay; RPD intervened claiming it had acquired the License via the bankruptcy sales. Bankruptcy and district courts held the License was an executory contract deemed rejected by operation of law before the sales, so it was not part of the estates and could not have been transferred to RPD. This Court affirmed.
Issues
| Issue | RPD's Argument | Tech Pharm's Argument | Held |
|---|---|---|---|
| Was the License Agreement an executory contract? | License was non-executory because dismissal with prejudice made Tech Pharm’s obligation illusory. | License imposed ongoing mutual obligations (no-suit promise, reporting, fees), so it was executory. | Held: Executory — both sides had material ongoing obligations. |
| Did §365(d)(1)’s 60-day deemed-rejection rule not apply because debtors failed to schedule the License and trustees were unaware? | Toll the 60-day period when the contract was unscheduled/unnoticed; trustees lacked notice so rejection should not be automatic. | Trustee has affirmative duty to investigate; statute contains no notice exception; absent concealment deemed rejection is conclusive. | Held: §365(d)(1) applies; failure to schedule without concealment does not prevent deemed rejection. |
| Did final sale orders/Global Agreement effectuate transfer of the License to RPD (collateral attack claim)? | Sale orders that assumed/assigned executory contracts and the global agreement’s incorporation established RPD’s ownership; bankruptcy orders are final and protect against collateral attack. | The License had been deemed rejected and thus left the estate before the sales; trustees lacked power to assume/assign it, so sale orders could not transfer it. | Held: No collateral attack — License was outside the estates at sale time and could not have been transferred to RPD. |
| Could RPD acquire limited machine-use rights under a License provision by purchasing specific machines? | Even if not assigned the License, RPD argued it could rely on a License clause permitting third-party operation of machines it bought. | RPD failed to prove it bought specific licensed machines and the License limited third-party operation to the same facility/location. | Held: RPD did not prove entitlement to limited third-party rights; bankruptcy court properly addressed and rejected the claim. |
Key Cases Cited
- Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275 (Fed. Cir. 2017) (post-judgment infringement claims are not precluded when the alleged infringing acts occurred after the earlier suit)
- Brain Life, LLC v. Elekta Inc., 746 F.3d 1045 (Fed. Cir. 2014) (claim preclusion does not bar method-patent claims based on post-judgment acts)
- Lawlor v. Nat’l Screen Serv. Corp., 349 U.S. 322 (1955) (a prior judgment cannot extinguish claims that did not yet exist and could not have been sued on in the prior case)
- Kessler v. Eldred, 206 U.S. 285 (1907) (doctrine limiting relitigation of identical questions involving the same patented article or device)
- Hallco Mfg. Co. v. Foster, 256 F.3d 1290 (Fed. Cir. 2001) (addressing preclusion consequences of dismissing patent-related claims with prejudice)
- Nano-Proprietary, Inc. v. Canon, Inc., 537 F.3d 394 (5th Cir. 2008) (contract interpretation recognizing distinction between "perpetual" and "irrevocable" licenses)