Digital learning company files for Chapter 11 protection

Venture backed by Envoy veterans faces possible loss of counsel in long-running patent lawsuit

Email | Print By E. Thomas Wood

After almost two years of patent litigation against an Arizona company, digital learning and training provider DigiScript has filed for reorganization under Chapter 11 of the Bankruptcy Code. 

In apparent response, its attorneys in the lawsuit have asked the judge to let them withdraw from representing DigiScript, which owes them some $395,000.

Nashville-based DigiScript provides software and other technology to aid in training and communications for clients conducting clinical trials in the pharmaceutical and biotech research fields. Founded in 1999, the company garnered investment backing from former Envoy Corp. leaders Fred Goad and Jim Kever as well as Burton Hills-based Claritas Capital.

By 2002, when it was included in a NashvillePost.com roundup of potential initial-public-offering candidates, company officials said it was turning a profit and anticipating annual revenue of roughly $10 million.

In October 2006, Aspen Research Ltd. filed suit against DigiScript claiming patent infringement. Aspen, based in Phoenix, says on its Web site that it has developed "a multi-user, online system for creating, delivering and evaluating multimedia educational and training programs."

Its lawsuit, filed with the U.S. District Court in Dallas (copy available at this link, with DigiScript's answer and counterclaim appended), claims that what DigiScript does is a duplication of Aspen's patented systems.

DigiScript retained McKool Smith, a specialty litigation firm based in Dallas, as defense counsel. The case docket reflects extensive discovery and pleadings over the past 22 months. The court has set a trial date in early November.

On Aug. 25, however – the same day DigiScript filed in Nashville's U.S. Bankruptcy Court – McKool Smith petitioned the court to allow the firm to drop DigiScript as a client. Its grounds for doing so are unknown because both the law firm's motion and Aspen's response to it were filed under seal, but DigiScript's Chapter 11 filing shows McKool Smith as a $395,000 creditor.

Bank of America is the company's largest creditor, with a secured claim of $1.34 million. Among those owed money on an unsecured basis, along with McKool Smith, are Goad and Kever (some $663,000 each), Claritas ($101,000) and Nashville law firm Bass Berry & Sims (about $54,000).

A bankruptcy court hearing is set for Sept. 16 to confirm the debtor-in-possession financing plan that DigiScript has proposed. DigiScript Financing LLC, a company sharing the address of Goad and Kever, would provide a $600,000 loan.

Attorney Elliott Jones of Drescher & Sharp, representing DigiScript in the bankruptcy case, said creditors have been consulted about the plan and that he anticipates its approval.

Asked why the company's backers would not simply make an additional capital contribution instead of going through the bankruptcy process, Jones explained that debtor-in-possession financing "at least gives you some security interest going forward." He said it also tends to be a quicker and less complicated process than buying in additional equity, which might involve negotiations with other shareholders and compliance with securities laws.

After NashvillePost.com sent an e-mail to DigiScript CEO Marshall Graves inquiring about the Aspen case, Goad responded that the firm would have no comment.