A creditor of in-store media provider Muzak and parent company Mood Media told a New York bankruptcy court on Friday that the companies' bid for Chapter 15 protection should fail to the extent that it will disrupt pending patent infringement claims potentially worth up to $130 million.
In an effort to continue prosecuting a 6-year-old suit over a patent for telephonic on-hold music, Info-Hold Inc. filed a multiprong objection to Mood Media Corp.'s petition for coverage under Chapter 15 of the Bankruptcy Code while it restructures $650 million in outstanding debt in Canada.
Among its contentions, Info-Hold said Mood Media's U.S.-based debtors should not be afforded legal protections that are strictly reserved for foreign entities because those companies have no offices or assets in Canada. Absent the court's refusal to recognize Muzak's restructuring proceedings north of the border, it should be made explicitly clear that the patent infringement claims are not affected and cannot be stayed, Info-Hold argued.
"Info-Hold respectfully submits that the interests of creditors are not protected by the relief proposed in the verified petition for recognition," the company said, asking the court to clarify its right to pursue pending litigation.
Info-Hold filed its patent suit against Muzak in 2011, saying the background music distributor's products infringed its patent for the remote control of a message delivery system for on-hold and overhead music applications.
The patent for Info-Hold's remote control system was issued in 1999 to the company's president and CEO, Joey C. Hazenfield, who later assigned the patent's rights to the company, according to court documents.
The suit was filed more than a month after a $345 million March 2011 acquisition deal announced by South Carolina-based Muzak and Toronto-based Mood Media.
Though the suit was tossed by an Ohio federal court on a motion for summary judgment, the Federal Circuit revived the case in April 2015, ruling there was evidence that Info-Hold had made several attempts to notify Muzak of infringement concerns, which created “a genuine issue of material fact as to Muzak's subjective belief regarding its infringement."
Info-Hold said that several motions are now pending before the district court, and it is prepared to file a motion for summary judgment concerning all remaining claims.
"Depending on the anticipated decisions from the Ohio district court on the various motions, the parties are ready to proceed to trial, if necessary," the company said.
The one apparent snag in Info-Hold's plan to finish litigating $44 million in damage claims that it seeks to treble is Mood Media's Chapter 15 filing last month and request for automatic stay protections.
Perhaps known best for providing instrumental background music for department store shoppers, Mood Media is looking to keep its in-store media business afloat after suffering setbacks caused by emerging media technologies, increased competition for licensing popular songs and music piracy, the company said.
With the assistance of a $315 million first-lien credit facility, Mood Media plans to restructure by implementing a debt-for-equity conversion that will provide compensation for unsecured creditors holding $350 million worth of notes, while leaving other bondholders unimpaired.
A hearing for recognition is scheduled for Friday.
An attorney for Mood Media did not immediately respond to a request for comment Monday evening.
The foreign representative is represented by Edward O. Sassower, Joshua A. Sussberg, James H.M. Sprayregen, Adam C. Paul, Bradley Thomas Giordano and Whitney C. Fogelberg of Kirkland & Ellis LLP.
The case is In re: Mood Media Corp. et al., case number 1:17-bk-11413, in the U.S. Bankruptcy Court for the Southern District of New York.
REPRINTED WITH PERMISSION FROM THE JUNE 19, 2017 EDITION OF LAW360 © 2017 PORTFOLIO MEDIA INC. ALL RIGHTS RESERVED. FURTHER DUPLICATION WITHOUT PERMISSION IS PROHIBITED. WWW.LAW360.COM