Originally created 01/08/98

Company files for Chapter 11after loss to Procter & Gamble



ATLANTA -- Diaper-maker Paragon Trade Brands Inc. has filed for federal bankruptcy protection to help against further financial spillovers from a patent infringement court loss to Procter & Gamble.

The company, based in suburban Norcross, Ga., said Wednesday that the Chapter 11 bankruptcy filing will enable it to carry on business, propose a reorganization plan to restructure financial obligations, and to pursue appeals of last week's ruling by a federal judge that Paragon infringed on P&G's patents for leak-preventive Pampers and Luvs disposable diapers.

Paragon estimates it could face a liability of up to $200 million.

"The decision to file under Chapter 11 was a difficult and painful one," said Bobby Abraham, chief executive officer of Paragon. "We continue to believe that the patents asserted by P&G are invalid and not infringed by our products."

The filing late Tuesday came after discussions with P&G "in an attempt to resolve the issues proved fruitless" and raised Paragon's concerns that P&G would start placing liens against it, said Alan Cyron, Paragon's executive vice president and chief financial officer.

"This company was a healthy company with very healthy cash flows ... except for the events of last week, we had a very vibrant business," Mr. Cyron said.

P&G said in a statement it was "very surprised" by Paragon's filing and said it had pursued settlement efforts and even had a meeting scheduled for Wednesday before Paragon canceled it late Tuesday.

"P&G has repeatedly offered to license Paragon to practice the patents which the courts recently upheld," the Cincinnati-based company said. "These same patents have been respected and licensed by other competitors."

P&G said it is "absolutely convinced" the judge's ruling will be upheld.

U.S. District Judge Joseph Longobardi of Wilmington, Del., ruled Dec. 30 that Paragon infringed upon P&G patents for improving the fit and comfort of disposable diapers by using an "inner leg gather" to prevent leaks. He ordered Paragon to pay P&G lost-profit damages and other damages that Paragon estimated could total $160 million to $200 million.

The judge also rejected a Paragon counterclaim, which the company said it also will continue to pursue.

The products, marketed under store brand names by grocery chains, toy stores, drug stores and warehouse clubs, usually sell for less than national brands.