Trade Secret Dispute in Bankruptcy Court?

When most people think of trade secret disputes, they envision the dispute being in a state-level or federal-level trial court. However, it is possible and not entirely unusual for IP disputes to occur in bankruptcy court, like in this Texas bankruptcy case involving the bankrupt nursing home chain Genesis Healthcare. 

In bankruptcy cases, the company going through bankruptcy or its trustees are entrusted with finding every available resource to pay off the debts. Sometimes that means the company or the trustee will seek to enforce its intellectual property. In this case, Genesis is alleging that its former executives stole its business-oriented trade secrets to form a competing company. This trade secret dispute will likely be decided in bankruptcy court in front of a bankruptcy judge, rather than before a regular trial court judge or jury.   

One of the challenges for the parties involved in this case will be to educate the bankruptcy judge on trade secret law in addition to all the usual battles about whether the trade secrets were really protected as secrets, whether the trade secrets are distinguishable from general industry knowledge, and whether the allegedly stolen trade secrets really caused any harm to Genesis. This likely means that the legal teams for both sides will feature both bankruptcy specialists and trade secret or IP specialists to juggle and balance both legal issues in the case.  

Farella Braun + Martel has had experience doing exactly this – litigating and prevailing on IP issues in bankruptcy cases. If your company confronts such a complex issue, please reach out to us, and we may be able to help.

Former executives for a subsidiary of bankrupt nursing home chain Genesis Healthcare have told a Texas bankruptcy judge they didn't steal trade secrets to start a new business, accusing their former employer of trying to quash a competitor in the courts.

In a filing Wednesday, Kristen Krzyzewski, the former acting president of Genesis subsidiary LTC ACO, and the other former Genesis executives she hired say their new company, True LTC, used only publicly available information to compete with Genesis for Medicare dollars and should not be subject to a preliminary injunction to shut down that competition.

"Plaintiffs' motion is a thinly veiled attempt to both weaponize the bankruptcy process and the automatic stay to stifle legitimate competition by former executives who left voluntarily and lawfully," Krzyzewski said.

www.law360.com/...