No. 02 C4701 Page 4

bankruptcy estate. Notably, the debtor did not list the patent application in the specific space
provided in Schedule B in which to disclose “patents, copyrights, and other intellectual
property.” Rather, he categorized it as other personal property.

At the creation of the bankruptcy estate the debtor had submitted an application to the
PTO; the application had been rejected and the debtor had filed a formal response to the
rejection with modifications to the application conforming with the PTO’s objections. The
debtor argued before the bankruptcy court, and appears to argue before us, that his
application was no longer active at the time he filed for bankruptcy. But the fact that the
application continued on in its modified form and ultimately manifested in a patent
undermines this contention. The patent application was still before the PTO in its modified
form at the commencement of the estate, The more difficult issue is whether it was property
of the estate,

The debtor relies on the 1904 case, In re Dann, 129 F. 495 (N.D.IIL), to support his
assertion that the patent application is outside the scope of bankruptcy administration. Dann
held that under the bankruptcy laws at that time a debtor’s incorporeal interest in a pending
patent application does not pass to the bankruptcy estate, only any rights acquired in
executing contracts regarding rights to use the fature patent to a third party. Id, at 496, While
Dann does support debtor’s position, it has been called into question by subsequent caselaw,
Myers-Wolf Mfg. Co. Kuhn v. Guild, 205 F. 289 (3TM Cir, 1913); Rosenthal v. Goldstein, 183
N.Y.S. 582 (Sup.Ct..N.Y, 1920), and under the current bankruptcy code the reach of the
bankruptcy estate over intangible property has broadened. Yonikus, 974 F.2d at 904; 11

U.S.C. § 541 (a)(1).


No, 02 C4701 : Page 3

requested that a telephone Jine be made available so that debtor’s attorney, John O. Scott
(Scott), could participate by phone. The bankruptcy court had previously agreed to permit
Scott to appear telephonically at proceedings related to the case. The motion for rehearing was
fully briefed by the parties on June 7, 2002. On June 12, 2002, counsel for the parties
appeared before the court, including local counsel for debtor, who requested that the hearing
be held at the end of the call so that Scott could participate telephonically, The court ruled
that further oral argument was not necessary and denied the motion for rehearing, also
denying the request to hear from Scott,
DISCUSSION
This appeal presents two issues. First, whether the bankruptcy court was correct in
finding that the patent application was property of the estate subject to administration. We
review this conclusion of law de novo. Matter of UNR Industries, Inc., 986 F.2d 207, 208 (7th
Cir, 1993). Second, whether the bankruptcy court’s decision to deny debtor’s counsel oral
argument on a motion for rehearing was an abuse of discretion, See North American Printing
Ink. Co. y. Regensteiner Printing Co., 140 B.R. 474 (N,D.II. 1992).
A bankruptcy estate includes, with limited exception, all legal or equitable interests of
a debtor in property as of the commencement of his case, 11 U.S.C. § 541(a)(1). To facilitate
the bankruptcy process, then, a debtor must list all interests he has in property in his petition,
even if he believes the assets are worthless or unavailable to the bankruptcy estate. In re
Yonikus, 974 F.2d 901, 904 (7% Cir. 1992). In this case, the debtor asserts that he included the
patent application in his amended list of assets to conform with the general principles of

Yonikus, but argues that the patent application was both worthless and unavailable to the


No, 02 C 4701 Page §

Under the current code, patent applications are subject to bankruptcy administration
“to the extent [they are] protected by applicable non-bankruptcy law.” 11 U.S.C, § 101(35A).
If the debtor had licensed the rights to the invention described in the patent application to a
third party before filing for bankruptcy, the benefit of that license agreement would go to the

estate. See Chesapeake Fiber Packaging Corp. v. Serbo Packaging Corp., 143 B.R. 360,

(D.Md., 1992), aff'd 8 F.3d 817 (4% Cir, 1993), This would be the outcome under Dann as well.

But here, there was no license agreement contemplated or executed, just a pending application,

Once a patent application js filed, an inventor has the right to assign rights and licenses
under his potential patent, as well as collecting royalties for use of the invention. Krampe v.
Ideal Industries, Inc,, 347 F.Supp. 1384, 1386 (N.D.IIL. 1972). Even before a patent is issued,
the rights afforded to a patent applicant put him in a strong bargaining position, Meehan y.

PPG Industries, Inc., $02 F.2d 881 (7% Cir. 1986). The contracting rights available to debtor

relating to his active application before the PTO could hypothetically never have been
exercised or the patent never issued. Regardless, the patent application was still valuable in
that it carried with it those rights and the corresponding legal protections. This is enough to
bring it under the broad definition of bankruptcy property.

The debtor alternatively asserts that if the patent application is bankruptcy property,
it is exempted from the estate. On his amended petition he claims this exemption under 11
U.S.C. 522(b)(2), which provides that if a state opts out of the federal exemption scheme, a
debtor may claim an exemption under state law. The petition cites 735 LLCS 5/12-1001(b) as
the specific law providing the exemption. Unfortunately for debtor, the cited law only allows

for exemptions up to $2,000, an amount already met by debtor’s other claimed exemptions, In.


Minute Grdes*Farm (06/97)

(Ie)

: Al United States District Court, Northern District of Iinois
f Assigned Judy 4 Sitting J Other
nar Maclate ‘judge James B. Moran hanged Judge
CASE NUMBER 02 € 4701 DATE 5/16/2003
CASE Keen, Inc. et al. Vs. Frances Gecker etc.
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.]

MOTION:
Memorandum Opinion and Order
DOCKET ENTRY;
(1) QO Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due ___
QB) o Answer briefto motionduc_____. Reply to answer briefdue__
@4 oO Ruling/Hearingon___—_set for at,
(5) a Status hcaring[held/continued to] [set for/re-set for]on__—sset for all
(6) a Pretrial conference(held/continued to] [set for/re-sct for]on__—s set for_ at
(7) im) Trial[sct for/re-set for] on at
(8) oO [Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agrecment/pursuant to]

OFRCP4(m) Cl Local Rule 41.1 OFRCP41(a)(1) 0 FRCP41(a)(2).

(10) MM — (Otherdockct entry] Enter Memorandum Opinion and Order. For the above reasons, we affirm the

orders of the bankruptcy court.

di) ff {For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required.

umber of dotices
Notices mailed by judge's staff. M |AY 1 9 7003
Notified counsel by telephone, dave docketed

ov | Docketing to maif notices.

av | Mail AO 450 tonn. ducking deputy otal

Copy to judge/magistrate judge. Ve . 0G

: date mailed notice

courtroom
WAIL deputy's
initials

+: PDate/time received in... «7 . 7
“central Clerk's Offite’; “_ mailing deputy initials



No. 02 C 4701 Page 6

re Doyle, 209 B.R. 897, 903 (Bankr.N.D.II. 1997), The patent application is part of the estate,
and royalties from the license agreement constitute “[p|roceeds, product, offspring, rent or
Profits of or from property of the estate” which also belong to the estate. 11 U.S.C. 541(a)(6).

We next turn to the bankruptcy court’s denial of debtor’s motion for rehearing of the
ratification order, It is fully within a bankruptcy court’s discretion to decide a motion without
hearing oral argument, Kaufman y. S and C Corp., 171 B.R. 38, 40 (S.D.Tex. 1994); North
American Printing Ink Co. v. Regensteiner Printing Co., 140 B.R. 474 (N.D.IIL 1992). The
debtor argues that this is not a case in which a hearing or oral argument was denied but rather
a situation in which only one attorney was not allowed to participate. But it is evident from
the court transcripts that the bankruptcy court did not hear substantive arguments from any
of the attorneys on this motion (including local counsel for debtor who was present at the
time). The bankruptcy court chose to rule on the motion based on the briefs alone. There is
nothing manifestly erroneous about that decision or the decision to announce the ruling
without waiting until attorney Scott could be present telephonically.

CONCLUSION

For the above reasons, we affirm the orders of the bankruptcy court.

JAMES B. MORAN

Sentidr Judge, U. 8. District Court

Hg 16, 2003.



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS :
EASTERN DIVISION DOCKETER

MAY 19 20n3
KEEN, INC., et al., .

Appellant,
No. 02 C 4701

vs.

FRANCES GECKER, not individually, Chapter 7
trustee for the estate of Steven C. DuVal,

wee ever

Appellee,

MEMORANDUM OPINION AND ORDER

On April 15, 2002, the bankruptcy court for the Northern District of Iltinois ratified
a contract which substituted Frances Gecker (trustee) in place of Stephen C, DuVal (debtor)
as payee of patent license royalties (ratification order). On Jane 12, 2002, the bankruptcy
court denied debtor’s motion for rehearing of the ratification order (rehearing order). The
debtor has filed an appeal with this court seeking review of the ratification and rehearing

orders. For the following reasons, we affirm the bankruptcy court’s orders.

BACKGROUND
On August 9, 1995, the debtor submitted an application to the United States Patent and
Trademark Office (PTO) seeking a patent for a “Method and Apparatus for an Anonymous
Voice Communication System.” On June 23, 1997, the PTO rejected all of the claims in the
application. On December 22, 1997, the debtor filed a formal response to the rejection, in
which he modified his application.

On March 9, 1998, the debtor filed a voluntary Chapter 7 bankruptcy petition in the


No. 02 C 4701 Page 2

bankruptcy court. The petition made no reference to the patent application. On March 18,
1998, the PTO issued a Notice of Allowance accepting debtor’s modified claims, conditioned
upon submission of a new drawing and payment of an issue fee of $660. Debtor fulfilled these
requirements and sent in his fee during April 1998. The debtor received a discharge of
indebtedness on July 30, 1998, and an order closing his case was entered on August 4, 1998.

On October 6, 1998, the patent application was issued as U.S. Patent No. 5,818,836 (‘836
patent). On June 6, 2001, InfoRocket.com, Inc. (InfoRocket) and debtor entered into a license
agreement for the patent (license agreement), under which all royalty payments were placed
in escrow pending resolution of any issues related to debtor’s omission of the patent
application in his prior bankruptcy proceedings. At debtor’s request, the bankruptcy court
reopened his case on August 8, 2001. On September 13, 2001, debtor modified Schedule B of
his petition to include the patent application as an asset under the category, “other personal
property of any kind not already listed.” Debtor also modified Schedule C to include the
patent application as property claimed as exempt under 11 U.S.C. 522(b)(2).

On January 11, 2002, the trustee entered into an agreement with InfoRocket to amend
the license agreement by substituting the debtor’s estate as payee of royalties and filed a
complaint with the bankruptcy court seeking turnover of the escrowed funds. On April 15,
2002, the bankruptcy court entered its ratification order granting trustee’s request for
turnover of funds and approving the contract amendment. At a hearing on the motion, the
court specifically found that the patent application was property of the estate, subject to the
trustee’s action,

On April 26, 2002, the debtor moved for rehearing on the ratification order and