Today, the Supreme Court issued two decisions, described below, of interest to the business community.


Bankruptcy Code—Structured Dismissals

Czyzewski v. Jevic Holding Corp., No. 15-649

A business may file for bankruptcy under either Chapter 7 or Chapter 11.  In a Chapter 7 bankruptcy, a trustee liquidates the debtor's assets and distributes those assets to the creditors.  In a Chapter 11 bankruptcy, the debtor and creditors try to negotiate a plan that permits the company to operate as a going concern.  If a confirmable plan cannot be reached, a court may convert the case to a Chapter 7 proceeding or dismiss the Chapter 11 petition.

The dismissal of a Chapter 11 petition typically aims to return the parties to the prepetition status quo.  But a bankruptcy court may, "for cause," alter the ordinary restorative consequences of a Chapter 11 dismissal.  Invoking this power, bankruptcy courts will sometimes approve so-called "structured dismissals," which provide agreed-upon distributions and releases.

Today, the Supreme Court held that, in approving a structured dismissal, a bankruptcy court may not approve distributions to lower-priority claimants without the consent of the affected, higher-priority creditors.  In a majority opinion for six Justices, Justice Breyer cited the fundamental nature of the Bankruptcy Code's priority system—and the lack of evidence that Congress intended to authorize priority-violating distributions of estate value through Chapter 11 dismissals.

Justice Thomas, joined by Justice Alito, dissented.  Without taking a position on the merits of the case, he contended that the petition should have been dismissed as improvidently granted, as he viewed the question answered by the Court to differ from the question posed by the petition for a writ of certiorari.


Copyright Act—Useful Articles

Star Athletica, LLC v. Varsity Brands, Inc., No. 15-866

The Copyright Act does not protect the "design of a ... useful article," but the "pictorial, graphic, or sculptural features" of a useful article can be copyrighted if they can be "identified" and "exist[] independently of the utilitarian aspects of the article." 17 U.S.C. § 101. In Star Athletica, LLC v. Varsity Brands, Inc., No. 15-866, the Supreme Court granted review to settle a circuit split over the appropriate test for determining when a design feature of a useful article qualifies for copyright protection, arising in the context of cheerleading uniforms.

In an opinion for five Justices authored by Justice Thomas, the Court held that a feature incorporated into the design of a useful article is eligible for copyright protection if the feature "(1) can be perceived as a two- or three-dimensional work of art separate from the useful article and (2) would qualify as a protectable pictorial, graphic, or sculptural work—either on its own or fixed in some other tangible medium of expression—if it were imagined separately from the useful article into which it is incorporated."  Applying that standard to the cheerleading uniforms at issue, the Court found them to be copyrightable, as the decorations could be separated from the practical utility of the uniforms.

Justice Ginsburg concurred in the judgment.  She would have skipped the separability analysis altogether, on the theory that the designs at issue were copyrightable works that were reproduced on useful articles, as opposed to designs of useful articles.  Justice Breyer, joined by Justice Kennedy, dissented.  Although he agreed with much of the Court's framework, he did not think that the uniform designs could be perceived as works of art separate from the useful article because they were tailored to the shape of the uniform, such that replicating the design of the uniform would entail replicating the uniform itself.

Please visit us at www.appellate.net

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2017. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.