Bankruptcy court is the “court of broken promises,” and that’s especially true, it seems, when intellectual property is among the assets that go up for grabs as a company founders.

That’s according to U.S. Bankruptcy Judge C. Ray Mullins of the Northern District of Georgia, who spoke at a continuing legal education seminar at the Four Seasons Hotel in
Atlanta on Wednesday.

Mullins, along with King & Spalding intellectual property partner Katrina M. Quicker and certified public accountants Brian Lee Blonder and Keith F. Cooper from FTI Consulting, dissected what happens to a company’s copyrights, patents and trademarks during a reorganization.

The valuation and disposition of intellectual property and other intangible assets such as customer lists and goodwill is an increasingly relevant issue for attorneys and their clients as the nation’s weak economy pushes more and more companies into bankruptcy.

In the past, Mullins said, companies “had to really justify to a court … that [they] had to do a [Section] 363 sale [of assets], because Chapter 11 was supposed to be a reorganization.”

Now, he said, in a bad economy where the debtor-in-possession financing need to keep a company afloat is almost impossible to get, companies are going out of existence and selling off their assets very quickly.

He cited Circuit City, which sold its e-commerce business and ceased to exist in a matter of weeks, as an example.

Cooper, the FTI consultant moderating the discussion, cited companies such as The Sharper Image, London Fog, Mervyns and The Bombay Company, all of which chose to sell their assets rather than reorganize them. The purchasers of those assets then relaunched the brands online or now market them—without a brand-specific brick-and-mortar presence—through retailers such as Wal-Mart.

But when reorganizing companies sell their intellectual property—which may include not just what they own but also what they have licensed—a number of thorny legal issues arise.

As King & Spalding’s Quicker said, “There’s a definite tension between bankruptcy law … and intellectual property law.

“What happens in bankruptcy law is free assignability and that’s contrary to intellectual property law … because the innovator loses control over who has access to technology,” she said.

As an example, FTI’s Cooper asked, what happens when a debtor has a license to manufacture and sell a product and, during bankruptcy, wants to assign the rights to that intellectual property to one of the licensor’s competitors?

The answer, the panelists all agreed, is complex because under the bankruptcy code, the ability to assign or assume such rights is subject to non-bankruptcy law. Also, the answer differs depending on the type of intellectual property—copyright, trademark, patent—involved, and on whether the license is exclusive or not.

Depending upon which test the court applies, Cooper said, a company’s license could effectively end if the licensor—regardless of the original agreement—refuses to allow the bankrupt company to continue to use or assign the license.

“In technical terms,” Mullins said, “you’re hosed.”

And that, he went on, is part of what makes bankruptcy court the court of broken promises. “So,” he said, “look at whether there’s anything you can do ahead of time to protect your client in anticipation of bankruptcy.”

When four of Georgia’s leading health care and research centers wanted to join forces to establish a medical device creation and marketing consortium, lawyer Phillip H. Street was there to help them give birth to their brainchild.

The result is the Global Center for Medical Innovation, which unites Georgia Tech, St. Joseph’s Translational Research Institute, Piedmont Healthcare and the Georgia Research Alliance via contracts and operational guidelines that Street, a partner with Kilpatrick Stockton, drafted and is still developing.

“The goal of the entity is to leverage the research done both locally and nationally,” said Street. “It will work as a conduit to help … [get] research to viable commercial outlets. The legal framework … deals with intellectual property issues, commercial licensing, corporate issues, tax issues.

“There’s a lot of legal work yet to be done.”

That’s not surprising given the Global Center’s focus on getting medical devices to market.

Wayne Hodges, the acting vice provost of Georgia Tech’s Enterprise Innovation Institute and one of the primary people behind the founding of the Global Center, said a central motivation for launching it was to move intellectual property out of the university setting and into an arena that allowed for more aggressive development, specifically of medical devices related to cardiology, orthopedics and pediatrics.

“Look at the hospitals—some of the leading clinicians in the country and the world are here in Atlanta. But some of these organizations did not have intellectual property development, so we sat down and started talking about that,” Hodges said. “How could we better support this? How could we speed up the process of commercializing these devices?”

His conclusion: “Infrastructure is important” in order to attract the attention of large companies and large investments.

According to Dr. Jay Yadav, chairman of the Piedmont Innovation Center and founder of medical device company CardioMEMS, the infrastructure that the Global Center proposes is rare, and doesn’t exist even in biotech epicenters such as Minneapolis and the San Francisco Bay area.

The new group, he said, will offer a prototyping center and an animal research facility.

“Right now, what happens is if you have a new device, you have to go all over the country to make parts of it,” he said. For animal research, he added, companies usually need to travel to the West Coast or North Carolina. “You can do it all here, now. It’s just very streamlined.”

The Global Center is financed by $400,000 in seed money—$100,000 from each of the four founding institutions. Yadav said millions more will be needed and acknowledged that this could be a challenge in the current economic environment.

Still, he added, the market is there. “The potential is very large. The medical device industry in the United States is almost a $100 billion industry.”

As for Street’s role in the ongoing development of the Global Center, Yadav jokingly adds, “It should generate plenty of legal work.”

The Aflac duck sure knows how to take a calculated risk.

This Saturday, the obnoxiously loudmouthed fowl is slated to appear in a commercial touting not just insurance but also the new Disney-Pixar film “Up,” which involves the rather dangerous idea of a flying house. He’ll also grace driver Carl Edwards’s racecar as it speeds around the track at the Southern 500 NASCAR race at Darlington Raceway the same day.

But it’s neither airborne disaster nor road rage the duck needs protection from. It’s anything that might, ahem, foul his image.

And supplying that kind of protection, in this multiparty promotional deal involving Aflac, Disney-Pixar, Roush Fenway Racing, Ford Motor Co. and driver Edwards, was Aflac Associate Counsel Jensen Melton’s job.

As sole counsel for Aflac, she worked with in-house lawyers from Disney-Pixar on contract, licensing and trademark issues surrounding the famous fowl.

“This [deal] was a little more complex than I’m used to in that we were taking some of our intellectual property, namely, the duck—and for me, my job is protecting the duck—and we were taking this beloved piece of property to another company and letting them animate it according to their process,” says Melton. “So from my standpoint, from an ownership standpoint, it was sort of a frightening thing.”

Easy to see why: Since the duck took flight as Aflac’s prime marketing tool in 2000, the $16.6 billion company’s brand recognition has grown from 11 percent to around 94 percent.

In the commercial, the duck is shown offering financial help to the hero of “Up,” Disney’s first 3-D film, about a balloon salesman who ties thousands of balloons to his house and, with an 8-year-old stowaway aboard, flies to South America.

“We had … creative control over the content of the commercial, so we knew, even though we were partnering with Pixar for custom animation … what the duck was going to be doing and what the voiceover theme would be,” she says.

Melton says Aflac has a license from Disney for the commercial. “There really isn’t a specific fees portion,” she says. “We addressed it from more of a promotional tie-in angle, as in what could we give each other, as opposed to a license fee issue. … A lot of it has not been monetarily based.”

According to Nielsen statistics cited in Adweek, Aflac spent about $80 million on U.S. media in 2008.

Aflac also has a deal with Roush Fenway to “wrap,” as the lingo goes, the Aflac 99 Ford Fusion racecar that Edwards will drive at the Southern 500 in duck- and Up-related graphics.

“When you get companies the size of Aflac and Disney-Pixar together, I thought this would be difficult,” Melton says. “But this was one of the easier contract negotiations we’ve had for it to be such a major deal.”

“Up” is scheduled to open in theatres May 29.

Earlier this week, we noted that Alston & Bird is still owed an estimated $47,311 by a bankrupt client.

Now word comes that King & Spalding holds an I.O.U. from a bankrupt client, and its bill is much higher. Semiconductor maker Spansion Inc. owes $1,637,609 to lawyers in King & Spalding’s Silicon Valley office, the Am Law Daily blog reports.

Spansion also owes $1,584,395 to Sonnenschein Nath & Rosenthal.

The Sunnyvale, Calif. company’s voluntary petition in federal bankruptcy court in Delaware doesn’t identify which practice group of the law firms provided the heretofore-unpaid work. The petition also describes both amounts as “disputed.”

King & Spalding’s Web site says that counsel Rowena Young in Redwood Shores, Calif. has represented Spansion “in a Section 337 Investigation in the United States International Trade Commission brought by Spansion against Samsung … involving four Spansion patents.”

King & Spalding had not filed a notice of appearance with the court as of Tuesday afternoon.

Our friends at the Am Law Daily blog point out today that while some law firms are raking in the dollars from their bankruptcy practices, the rise in bankruptcy filings also cuts both ways. Many law firms—Atlanta’s Alston & Bird among them—are still owed money by some bankrupt companies.

One of those companies is Dynogen Pharmaceuticals Inc., which on Monday filed for Chapter 7 in U.S. Bankruptcy Court in Boston. The Waltham, Mass. company listed more than $10 million in liabilities and a paltry $18,393 in assets.

Among those holding I.O.U.’s from Dynogen is Alston & Bird. Alston’s Raleigh, N.C. office is owed $47,311.73 for patent and intellectual property legal services handled in 2008, according to a court filing. The filing doesn’t specify which Alston attorneys performed the work. Alston has a dozen attorneys in its Raleigh office, virtually all of them in the firm’s IP practice group. Alston's home office, of course, is One Atlantic Center in Atlanta. [photo, right]

Jones Day and McCarter & English are among the other law firms still owed by Dynogen.

Deals can still be made, even in this brutal economy.

In a deal involving companies that make anti-counterfeiting technology, New York private equity firm Lindsay Goldberg LLC acquired a Alpharetta company’s subsidiary, which had been put on the auction block.

The Alpharetta company, Nanoventions Holdings LLC, turned to longtime outside counsel at Bryan Cave-Powell Goldstein for advice on corporate and intellectual property matters.

Nanoventions sold its Visual Physics unit to Lindsay Goldberg for undisclosed terms. Lindsay Goldberg will combine Visual Physics with its portfolio company Crane & Co. of Dalton, Mass.

Visual Physics makes micro-optic security films used for anti-counterfeiting and brand protection applications, according to the company. Crane makes fine stationery and counterfeit-deterrent banknote papers.

Bryan Cave-Powell Goldstein partner Todd Wade advised Nanoventions on corporate matters, and partner Scott Killingsworth advised on intellectual property. Bryan Cave-Powell Goldstein partner Rick Miller sits on Nanoventions’ board but wasn’t involved in providing legal advice, Wade said.

Thomas Kayden Horstemeyer & Risley partner Todd Deveau serves as patent counsel to Visual Physics, Wade said. Choate Hall & Stewart partner James Hackett in Boston advised Lindsay Goldberg.

Lindsay Goldberg lined up financing for its acquisition of Visual Physics, but the companies aren’t disclosing terms of the financing, Wade said. Cleveland investment bank Brown Gibbons Lang & Co. ran the auction for Nanoventions.

Latex products developer Vystar Corp. of Gwinnett County tapped longtime counsel Greenberg Traurig partner Gerald Baxter for work on its plans to issue stock to a venture capital company.

Universal Capital Management Inc., a publicly traded venture capital company based in Wilmington, Del., is an investor in Vystar, according to regulatory documents. UCM also provides management services, strategic planning, investment banking consultation and other services to Vystar. As payment for those services, Vystar intends to issue 600,000 shares of common stock to UCM.

The transaction is described in Vystar’s prospectus as an initial public offering. Baxter declined to comment, citing the Securities and Exchange Commission’s “quiet period” rules for companies in the midst of preparing for an IPO.

Vystar, based in Duluth, owns the rights to a technology used to make natural rubber latex products. The technology, which is branded under the name Vytex, reduces “antigenic protein in natural rubber latex products made with Vytex to virtually undetectable levels,” according to the company’s prospectus. “Allergic reactions to untreated latex are a significant detriment affecting numerous individuals globally,” the company said.

In April, Vystar signed a contract with a Malaysian company to commercially manufacture its products.

Ballard Spahr Andrews & Ingersoll partner Kean DeCarlo in Atlanta and Dergosits & Noah partner Michael Dergosits in San Francisco are listed in U.S. Patent & Trademark Office records as intellectual property counsel to Vystar.

About a year ago, Baker, Donelson, Bearman, Caldwell & Berkowitz partner Robert Brazier settled patent-infringement litigation that had been filed against his client, River’s Edge Pharmaceuticals LLC. Now, Brazier said he has negotiated a new marketing deal for his client.

River’s Edge in August signed a non-exclusive patent license agreement with DUSA Pharmaceuticals Inc., which allows the Suwanee, Ga., company to manufacture and market a prescription product similar to DUSA’s Nicomide acme medication. In exchange, DUSA will receive a share of the sales of the River’s Edge product, according to a regulatory filing made by DUSA. Reed Smith advised DUSA on the patent license agreement.

In conjunction with its patent license agreement with River’s Edge, Wilmington, Mass.-based DUSA announced that it was exploring options to sell Nicomide and its related patent. Nicomide is available in cream, gel and tablet form.

The patent license agreement came after DUSA had sued River’s Edge, claiming that the company had infringed its Nicomide patent. That suit was settled in October 2007. Brazier and Baker Donelson of counsel Joshua Tropper represented River’s Edge in the litigation.

In separate litigation, Graceway Pharmaceuticals LLC filed a suit against River’s Edge in March, claiming false advertising. Graceway argued that River’s Edge falsely promotes its benzoyl peroxide gel products as being “generically equivalent” to its own Benziq acne medication, according to a news release. That case, in U.S. District Court for the Northern District of Georgia, is ongoing. Brazier and Tropper are representing River’s Edge in that litigation. Arnall Golden Gregory partners Andrew Flake and Clark Sullivan are representing Graceway.

Hunton & Williams partner Robert Lockwood says his law firm has developed a symbiotic relationship with Denmark’s trade commission.

Danish companies looking to break into the U.S. market rely on Lockwood and his Hunton colleagues for legal advice on setting up shop in America. Hunton relies on its partnership with the Trade Commission of Denmark for a stream of new clients.

Consider the case of Mosbaek A/S, a Danish manufacturer of regulators used to control the flow of water in wastewater treatment plants. After handling some of Mosbaek’s legal work with the U.S. Patent and Trademark Office, Hunton is now taking on new work for Mosbaek, which wants to expand its sales in the U.S. Lockwood and partner Eric Hanson are exploring whether it makes more sense for Mosbaek to go it alone in its American strategy, or whether the company should form a strategic partnership or a formal joint venture with a U.S. company.

Mosbaek first set up shop in America through the Danish trade council’s Accelerator program, which provides Danish companies with pre-established office space and a contact sheet for U.S.-based business advisers. Hunton is one of those advisers and the firm is frequently called upon by the trade office to provide a bevy of legal services to these Danish entrepreneurs, ranging from intellectual property to software licensing agreements to employment to privacy law.

“These are established Danish companies that already had a product or service in place,” Lockwood said. “They’re not looking for funding. They’re looking to penetrate the U.S. market.”

Other companies with whom Hunton developed a relationship through the Danish trade office include Celenia Software A/S, which develops applications for Microsoft software; shoemaker Euro-Dan Sko A/S; and Get Inside A/S, which makes software that creates three-dimensional visuals of real estate properties.

The Trade Commission of Denmark is an agency attached to Denmark’s Ministry of Foreign Affairs. The commission is based in Atlanta.

Eva Graham founded Nioxin Research Laboratories Inc. in her garage in 1987. Since then, Graham and others have built the company into the best-known brand name for products that help improve the appearance of thinning hair, said Powell Goldstein partner Bill Shearer.

Graham cashed out on her successful venture this month, selling the company to Procter & Gamble Co. Shearer was lead corporate counsel to Nioxin on the deal. Terms weren’t disclosed, but The Wall Street Journal, citing unnamed sources, reported the sale price was about $300 million.

PoGo has handled Nioxin’s corporate work for a number of years, as well as its intellectual property work. PoGo also advised Nioxin on the IP aspects of its sale to P&G, reviewing its numerous trademarks and patents.

Nioxin, headquartered in Lithia Springs, makes scalp cleansers, conditions and other treatment products under its own brand name. Nioxin also makes other types of hair-care products like liquid sculpting gel and thickening spray. Nioxin’s products are sold in North America in national chain hair salons like Regis, as well as in independently owned salons. Nioxin’s products are also sold in Asia, Australia, Europe and South America.

P&G plans to integrate Nioxin into its operations over a two-year period, said Shearer [see photo, left]. P&G makes some of the world’s best-known consumer brands, including Crest toothpaste, Gillette razors and Tide detergent.

Jones Day lawyers from the firm’s New York office was counsel to P&G, Shearer said. Chorey, Taylor & Feil partner John L. Taylor Jr. said he is Nioxin’s outside general counsel.

Nioxin took financial advice on its sale to P&G from Paris-based Michel Dyens & Co. Shearer said Michel Dyens is one of the best-known investment banks in the niche of selling companies that manufacture and market consumer-branded products. Michel Dyens advised Sidney Frank when his company sold its Grey Goose vodka brand to Bacardi.