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Copyright Damages

Ninth Circuit Narrows Copyright Owner’s Ability to Receive Multiple Statutory Damages Awards

The following post comes from Liz Velander, a recent graduate of Scalia Law and a Research Assistant at CPIP.

a gavel lying on a desk in front of booksBy Liz Velander

A recent Ninth Circuit ruling limits the amount a copyright owner can be awarded in statutory damages. In Desire v. Manna, the court found that the Copyright Act only lets owners collect a single award per infringing work in cases with joint and several liability. It held that the Act does not authorize multiple statutory damages awards where one infringer is jointly and severally liable with all other infringers, but the other infringers are not completely jointly and severally liable with one another. Its decision reduced the district court’s award of statutory damages from $480,000 to $150,000.

The facts of the case are as follows: Desire, a fabric supplier, purchased a floral textile design and registered it with the U.S. Copyright Office in June 2015. A few months later, Desire sold a few yards of fabric bearing the design to Top Fashion, which it used to secure a garment order from a clothing retailer. When Desire and Top Fashion later disagreed on the price for more fabric, Top Fashion took the design to rival supplier Manna. Manna then passed the design along to an independent designer, who in turn gave it to a textile manufacturer with instructions to modify it. Manna registered a copyright in the resulting altered design with the U.S. Copyright Office in December 2015.

Manna began selling fabric bearing the altered design to various manufacturers, which used it to create garments that they sold to various clothing retailers. Desire sued Manna, the manufacturers, and the retailers for copyright infringement. As alleged, Manna infringed Desire’s copyright by selling fabric bearing the altered design to the manufacturer defendants. The manufacturer defendants then each allegedly committed a separate ac of infringement in their sales to the individual retail defendants, who in turn allegedly committed acts of infringement in their sales to consumers. Desire did not allege that the manufacturer defendants infringed in concert, nor that the retail defendants acted in concert to infringe Desire’s copyright.

The district court granted partial summary judgment for Desire. It concluded that Desire owned a valid copyright entitled to broad protection and that there were no triable issues of fact as to Desire’s ownership of the initial design or Manna’s and others’ access to it. But there remained issues of triable fact as to whether the altered design was substantially similar to the original and whether defendants willfully infringed. The district court held that if Desire prevailed on these issues, the supplier would be entitled to seven statutory damages awards with joint and several liability imposed amongst Manna, the manufacturer defendants, and the retail defendants.

A jury returned a verdict for the plaintiff, finding that Manna, Top Fashion, and one other defendant, manufacturer ABN, willfully infringed the initial design, and that two other defendants, manufacturer Pride & Joys and retailer 618 Main, innocently infringed. Desire elected to claim statutory damages in lieu of actual damages, as permitted under 17 U.S.C. § 504(c)(1). Under § 504(c), a statutory damage award is limited to $30,000 for innocent infringement and $150,000 for willful infringement.

The jury awarded Desire statutory damages totaling $480,000 after two defendants settled. The district court divided liability under its pre-trial ruling as follows:

    1. $150,000 against Manna individually, for copying the design and distributing the fabric bearing the altered design to the manufacturer defendants.

 

    1. $150,000 against Manna and Top Fashion jointly and severally, for Top Fashion’s sale of infringing garments.

 

    1. $150,000 against Manna and ABN jointly and severally, for ABN’s sale of infringing garments.

 

    1. $20,000 against Manna and Pride & Joys jointly and severally, for ABN’s sale of infringing garments to 618 Main.

 

  1. $10,000 against 618 Main, Pride & Joys, and Manna jointly and severally, for 618 Main’s display and sale of infringing garments to consumers.

The parties appealed. The Ninth Circuit affirmed in part, reversed in part, and vacated the judgment awarding Desire multiple awards of statutory damages. The court began by affirming the district court’s determinations at summary judgment that Desire owned a valid copyright and that the original design was entitled to broad copyright protection. But the Ninth Circuit concluded that the district court erred by permitting multiple statutory damages awards.

The Ninth Circuit looked at the text of § 504(c)(1) to determine whether it authorizes multiple statutory damages awards where one infringer is jointly and severally liable with all other infringers, but the other infringers are not completely jointly and severally liable with one another. § 504(c)(1) permits an owner to recover “an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally.”

The Court concluded that the plain meaning of § 504(c)(1) precludes multiple awards of statutory damages when there is only one work infringed by a group of defendants that have partial joint and several liability among themselves through a prime tortfeasor that is jointly and severally liable with every other defendant. It reasoned that “an award” clearly means one award, and the use of the word “any” means that, if all infringers in the action were jointly and severally liable with at least one common infringer, then all defendants should be treated as one unit.

In this case, Manna was alleged to be the tortfeasor lynchpin. Because “‘an award’ clearly means one award,” and Manna was jointly and severally liable with every other defendant, Desire was entitled to only one statutory damage award per work. The court concluded that its interpretation was most consistent with the Copyright Act’s goal of providing adequate compensation for infringement without giving copyright owners a windfall. However, it acknowledged that its ruling could also run afoul of the purposes of the Act if a copyright owner decided to sue separate infringers in separate actions.

The court wrote in a footnote that “if Manna were not involved at all and Pride & Joys, ABN, and Top Fashion had independently infringed, there could be three awards, even though Pride & Joys, ABN, and Top Fashion were each jointly and severally liable with others in their separate distribution chains. . . . This view treats groups of jointly and severally liable defendants that are not jointly and severally liable with other groups identically to individually liable infringers.”

In a lengthy dissent, Judge Wardlaw disagreed with the majority’s interpretation of § 504(c)(1). She explained that the majority’s decision means “a copyright plaintiff can seek only one award of statutory damages when it joins in a single lawsuit members of independently infringing distribution chains that trace back to a common infringing source. But if the plaintiff brings separate lawsuits against each infringer, or it simply cuts the common source defendant at the top of the chain out of the case, a separate statutory damages award is available against each defendant.”

The majority ultimately decided that such risk was outweighed by the potential for disproportionate awards and the fact that multiple lawsuits could still be filed (and consolidated), regardless of the Court’s ruling on this point. “But even if we are wrong in our appraisal of the multiple-lawsuit risk, as our approach is the only one consistent with the text of Section 504(c)(1), it is not our job to reweigh the merits of several possible approaches.” Given the stark differences in the majority and the dissent regarding the language of § 504(c)(1), this decision could form the basis for further splits and result in an en banc or certiorari petition.

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Copyright Innovation International Law Uncategorized

The European Union Extends Copyright in Design—and Critics Balk (Yet Again)

dictionary entry for the word "innovate"The European Union recently decided to support the productive labors of designers by extending legal protections of their works in all areas of copyright, design, and patent law. Just as past legislation in the United States extending copyright terms was attacked with histrionic allegations that this was merely rent-seeking behavior by politically powerful corporations, the EU’s extension of protections for designs have come under similar attack. In the US, the specter of Disney trying to keep “the Mouse” alive has become a stale trope trotted out in opposition to any sensible copyright protections. Thus, it is not a surprise that the same trope is being used to attack the EU’s new law. In both cases, the attack misses its target because it is rooted in a false assumption about why property rights are secured to innovators and creators.

First, a word about the change in European Union law. This law is important both in making creators’ rights more effective throughout the EU and in bringing those rights closer in harmony with EU intellectual property (IP) law as a whole. As of July 28, 2016, the Copyright, Designs and Patents Act extends the copyright for a designer’s work from 25 years to 70 years. (A six-month grace period in the UK has been granted to allow retailers to clear their stock of works that might be in question under the new Act.)

According to David Woods, a British lawyer, the EU’s changes aligned its copyright laws with those governing literature and music, providing uniform legal protections for all products of creative labors. Further, as Mr. Woods properly points out, “[t]he intent of the change to the legislation is to stop ‘exact’ copies of existing industrially designed artistic works”—a measure that he predicts will result in the closure of websites producing bargain basement, mass-produced copies of furniture, “as after all, this was their business model.” In sum, the legislation is directly aimed at illegal internet operations whose deliberate “business model” is to steal the fruits of the labors of those working in the design industries.

This copyright legislation secures to creators their highly-valued furniture design and thwarts piracy. As in the protection of all property rights, this spurs creativity and sustains livelihoods of professional creators. This is an example of how securing property rights of all types is a key requirement in a growing innovation economy and flourishing society.

Who could object to this? Surprisingly, some ersatz advocates for property rights, such as some libertarian academics like Alex Tabarrok. Tabarrok recently attacked the new EU design law with the tread-worn criticism that one hears from ideologically committed IP skeptics: “The point” of the revamped EU regulations, he declares, is “not to spur creativity but to protect the rents of a handful of people whose past designs turned out to have lasting value.” (One can hear the echoes of the rhetorically appealing, but false, claim that Disney was solely responsible for capturing Congress in keeping Mickey Mouse under legal wraps.)

In the abstract and without regard to recognizing how property rights function in the free market, Tabarrok’s criticism might seem plausible. But there’s a key mistake in it. The fallacy over which Tabarrok stumbles is assuming that the sole purpose of copyright is only to spur the creation of new works—no more, no less. According to Tabarrok, copyright is merely a carrot dangled in front of creators, who like Pavlov’s dog are supposed to be sparked into creative activity. Certainly, this is a function of IP rights, as it is with all property rights—promising to secure the fruits of productive labors, whether in a farm, books, or inventions, spurs people to create more of these valued assets.

But, like all property rights, copyright is not merely an incentive to create. All property rights serve the central function of securing to their owners the free use and disposition of the property, which is what leads to contracts and other exchanges in the free market that enhance everyone’s lives. Thus, copyright is vital to sustaining creators’ rights in reaping the rewards of their creative and valuable labors—when the works are disseminated in the market and purchased by consumers for their enjoyment and use.

Ironically, Tabarrok hints at this when he says, in what is meant to derogate copyright extension, that “the actual argument for copyright runs—We have lots of popular designs and we need to keep selling them at a high price.” Indeed, the argument for copyright as such could be restated in the same way: “we have lots of popular designs and we should be allowed to sell them at the price they command in the market,” irrespective of whether that price seems “high.”

Tabarrok looks to support his argument with the example of mid-century design classics, such as Charles Eames chairs and Arco lamps. These works have become familiar to the public through the sale of replicas sold by furniture retailers, such as Design Within Reach in the US and Swivel in the UK. Another classic example is the Barcelona chair, an exquisite and iconic work designed by Ludwig Mies van der Rohe. While the officially licensed version of the Barcelona chair sells at the Conran Shop in the UK for around £5,755, a replica can be found on websites such as Swivel for around £455.

The stark difference in price illustrates vividly why high-level furniture and “lifestyle” designers such as Sir Terence Conran, and fashion designers such as Stella McCartney, support the new EU law: their professional livelihood—their ability to benefit from specialization and division of labor, which Adam Smith taught us is the key to a flourishing free market—rests on their ability to profit from the fruits of their creative labors in a commercial economy. Their right to sell their designs at the prices they seek in the marketplace does not preclude the design and dissemination of new, original articles of design that are inspired by the inimitable works of the mid-century moderns referenced by Tabarrok. But their property rights should preclude the sale of pirated knock-offs, which bring nothing to the table in terms of originality, inspiration, or hard work and are simply cheap copies.

It is not surprising that Tabarrok and others of his ilk continue to resort to ill-founded and unsubstantiated attacks upon IP rights on the dubious grounds that at some point these rights do not directly encourage innovation. This is highly misleading, because the same can be said about all property rights. This rhetorical move also makes it seem like Tabarrok is on the “pro” side of creation and innovation, which is dissembling rhetoric at its best.

Tabarrok’s critique, however, rests on a misconceived view of the function of property rights as solely incentivizing creation. Patents and copyrights are property rights, and like all property rights, they do not merely incentivize creation and innovation. They serve the important function of enabling creators to earn a livelihood from their productive labors by securing to them the same rights of all property owners to control the conditions in which their property is sold in the marketplace. This reflects the longstanding economic principle that a growing free market and flourishing society requires securing to property owners the fruits of their labors – surely a central tenet of libertarianism!