Recently, Apple Inc. ("Apple") requested a bankruptcy court's permission to sue Eastman Kodak Co. ("Kodak") for patent infringement. Generally, filing for bankruptcy (in this case, Chapter 11 bankruptcy) does not prevent another company from bringing an infringement suit in district court, but Apple is acting cautiously.
What court cases are put on hold during bankruptcy?
If bankruptcy does not prevent an infringement case, what court cases does it halt? Probably the most important actions that bankruptcy stops are creditors' actions to collect on their debts. During bankruptcy, all judgments, collection activities, foreclosures and repossessions of property are suspended unless the court grants a creditor relief from this "automatic stay."
There are also a number of exceptions, or cases that can continue during bankruptcy, such as:
- Many domestic cases, including paternity establishment, child support cases, child custody cases, divorce (though the division of property is put on hold until the conclusion of the bankruptcy)
- Driver's license suspension hearings
- Tax audits
- Some rental eviction actions
- Criminal actions
Kodak filed for Chapter 11 bankruptcy in January due to its failure to sell digital cameras (even though it invented them). According to court filings, the company has $5.1 billion in assets and $6.8 billion in debt.
Through a Chapter 11 bankruptcy, a business can reorganize under the U.S. bankruptcy laws. During the bankruptcy, the debtor usually remains in control of the business and the business' debts and assets are reorganized. The debtors and creditors may propose plans to allow the debtor to repay creditors over a certain period of time.
Source: Bloomberg, "Apple Asks for Court Approval to Sue Bankrupt Kodak in N.Y. Over Patents," Joel Rosenblatt, Feb. 15, 2012.