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Statutory Copyright Claims not a Penalty in Bankruptcy Case, Judge Rules

Bankruptcy Lawyer Bryan W. Stone answers the question: “What are North Carolina’s exemptions?”


Charles Jones may have made his living reselling textbooks, but his resulting bankruptcy case is turning out to be anything but a textbook one.

Stack of Books Charlotte Bankruptcy Debt LawyerThe case involves a unique intersection of both copyright and bankruptcy law, and the impact an (alleged) violation of the former can have on the latter.

Together with David Griffin, Jones owned several interrelated companies that sold and rented college textbooks. With the ever-increasing costs of textbooks for university students, the rental business seems like a fail-proof business plan.

Such was not the case for Jones.

He allegedly hatched a scheme in which his network of companies bought many of the textbooks internationally at a lower price, rebound the books, and then sold and rented them at higher prices in the United States. According to the books’ original publishers, however, Jones had not paid the dues he owed them to do this under copyright law.

The publishers—Pearson Education, Inc., McGraw-Hill Global Educations Holdings, LLC, Elsevier, Ltd., Cengage Learning Inc., and John Wiley & Sons, Inc.—identified 482 rebound titles and about 20 rebound books that Jones had rented out.

Subsequently, Griffin and several of the publisher creditors to whom Jones owed money filed an involuntary bankruptcy petition against Jones. It was later converted to a Chapter 7 liquidation bankruptcy proceeding, where a debtor’s nonexempt assets are liquidated and the proceeds are distributed to the creditors to whom the debtor owed money.

Under copyright law, if a party profits from directly infringing on another’s copyrighted material and does nothing to limit or stop the infringement, that party is liable to the rightful holder of the copyright.

The decision addresses the intersection of bankruptcy and copyright law, and concludes that statutory damages like the ones being addressed here are actually not a penalty under copyright law.

In the world of copyright law, “statutory damages” are intended to compensate the copyright’s rightful holder, whereas “actual damages” address the direct economic losses the copyright holder suffered because of the breach.

When suing for breach of copyright, the copyright owner has the discretion whether to seek statutory or actual damages. Because the publishers opted to seek statutory damages for Jones’ alleged breach, the trustee on the case argued that the damages the publishers sought should classify as a penalty, and therefore should be disallowed. The trustee also argued that Jones was not the entity to infringe on the publisher’s copyrights.

If the publishers’ claimed damages had classified as a penalty, their claims would have been subordinate to other creditors. Although it may seem counterintuitive, the money you owe other unsecured creditors trumps the money you owe to non-government parties as a result of legal penalties in bankruptcy.

The bankruptcy judge disagreed with the trustee, holding that the statutory damages were not a penalty and were therefore allowed in the bankruptcy. However, the judge did hold that the publishers’ claims should be reduced to the minimum statutory damage amount available under copyright law.

The potential damage range is $750 to $30,000 for each infringement under applicable copyright laws. Because 482 titles were alleged to have been infringed in this case, the only damages the judge will allow is $750 for each of these claims, totaling $361,500.

If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.


About the Author

Kyle Frost Bankruptcy Lawyer Student loan attorneyKyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology.  He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.

Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.

In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.







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