Contractual Copyright Attorneys Fees in the Ninth Circuit

In a case of first impression for the Ninth Circuit Court of Appeals, the court reviewed whether the Copyright Act of 1976 would preclude enforcement of a contractual attorneys fees provision in copyright-based litigation. The case of Victoria Ryan v Editions Limited West, Inc. (9th Cir. May 19, 2015)(available here) tackled this issue, as well as whether the court abused its discretion in calculating the fees.

Ryan is a pastel artist who entered into an agreement with Editions Limited West, Inc. (ELW) to receive a license to publish a limited number of her works in exchange for royalties. The agreement permitted ELW to produce posters of Ryan’s original works, it was silent on subsequent use of those posters for production of derivative works. Ryan believed that her works were improperly being used as derivatives, and made inquires to ELW. Those inquires allegedly went unanswered and she initiated th lawsuit.

In separate motions, ELW filed and was awarded summary judgment on all of Ryan’s claims. However, Ryan filed competing motion for summary judgment seeking afinding that she was the prevailing party within the meaning of the Agreement, despite the fact that ELW obtained judgment on all claims.  Ryan appealed once, and the Court affirmed all summary judgment orders, except for the contributory and vicarious copyright infringement claims, with the instruction: “I the district court finds that ELW is liable for contributory or vicarious infringement, it should reconsider whether Ryn is the prevailing party under the broad language of the contract, and whether she is entitled to a permanent injunction against ELW.”

    Upon return to the District Court, and prior to the bench trial, Ryan filed motion for sanctions based on alleged spoilation by ELW of evidence. This was denied by the lower court. After the bench trial, th court found in favor of Ryan on her contributory infringement claim, but that she could not substantiate a claim to any portion of ELW’s profits or any other damages award. The lower court also ruled that she was the prevailing party under the Agreement. She submitted an affidavit of fees from her counsel, and the court apportioned her request of $328k down to $51k, claiming this represented those fees in connection with the contributory infringement claim.  

    Ryan conceded that she was not entitled to fees under 17 U.S.C. 412, and instead sought fees under the fee shifting provision of the Agreement. The 9th Circuit began its review by discussing preemption. Specifically, the Court discussed whether the Copyright Act would preempt the state law allowing for the execution and enforcement of contractual fee-shifting provisions. The Court concluded the Copyright Act did not preempt Ryan’s rights under th Agreement and in accordance with California state law.

False Endorsement Under the Lanham Act – Unauthorized Use of Bob Marley Image

In Fifty-Six Hope Road Music, Ltd. et al. v. A.V.E.L.A., Inc. et al., Case No. 12-17502, Feb. 20, 2015 (9th Cir.) the Ninth Circuit Court of Appeals found that the district court did not err in denying defendant’s motion for judgment as a matter of law on plaintiff’s Lanham Act Section 43(a) false endorsement claim.  Defendants were found to have (a) used Bob Marley’s image (b) on their t-shirts and other merchandise and (c) in a manner likely to cause confusion as to plaintiff’s sponsorship or approval of the t-shirts or merchandise.  The Ninth Circuit recognizes a § 1125(a) (Lanham Act § 43(a)) claim for misuse of a celebrity’s persona.  

The likelihood of confusion factors considered in celebrity cases include: (1) the level of recognition that the celebrity has among the segment of the society for whom the defendant’s product is intended, (2) the relatedness of the fame or success of the celebrity to the defendant’s product, (3) the similarity of the likeness used by the defendant to the actual celebrity, (4) evidence of actual confusion, (5) marketing channels used, (6) likely degree of purchaser care, (7) defendant’s intent on selecting the celebrity and (8) likelihood of expansion of the product lines.  The evidence in this case supported a finding of a likelihood of confusion.  The Ninth Circuit stated that the § 43(a) claim did not establish a “federal right of publicity,” rather a false endorsement claim, which requires that the use be likely to confuse as to the sponsorship or approval of defendant’s goods.  

The Court further found that defendants waived several defenses to the plaintiffs’ claims by failing to properly raise them in the district court.  These defenses included aesthetic functionality (raised in its answer but never developed at trial), Copyright Act defense under Dastar Corp. v. Twentieth Century Fox Film, Corp. (that the Bob Marley image had fallen into the public domain and could not be resurrected under federal unfair competition law) and the First Amendment defense under Rogers v. Grimaldi.

Further, the Ninth Circuit found that the trial court did not err in calculating and awarding to plaintiffs the net profits of defendants.  Defendants willfully infringed, because the vice president of licensing knew that plaintiffs had the right to merchandise Marley’s image before defendants began selling similar goods.  A claim for profit disgorgement under §1117(a) is equitable in nature and a jury traditionally does not calculate these profits.  The trial court correctly awarded to plaintiffs, defendants’ profits ($781,427) from Marley merchandise.  AVELA failed to meet its burden to prove deductions from its gross profits, as its claimed royalty fee arrangement was not an arm’s length transaction.  Rather the sole shareholder of the licensor was a girlfriend of one of the defendants.  The Appeals Court also found that the district court did not err by denying plaintiffs an increased award of profits as generally, actual, proven profits will adequately compensate the plaintiff.  

The Ninth Circuit found that the district court did not abuse its discretion in ordering defendants AVELA to pay plaintiffs’ attorneys’ fees ($1.5 M) because (a) plaintiffs were the prevailing party and (2) the case was exceptional as defendants’ conduct was willful.  There was significant evidence that AVELA defendants were aware their conduct conflicted with plaintiffs’ rights.  The court did not abuse its discretion in denying attorneys’ fees as to defendants Jem and Freeze, because the evidence of their willfulness was too weak to merit an award of attorneys’ fees.

In support of defendants’ positions, the Ninth Circuit affirmed the trial court’s grant of summary judgment to defendants on the right of publicity claim, because the state statute clearly provides that a publicity right successor waives its publicity rights when it fails to timely register its rights.

For Criminal Copyright Infringement You Must Know That Act Is Unlawful

The Ninth Circuit Court of Appeals in a criminal copyright infringement case found that “willfully” under the Copyright Act required actual knowledge of the illegality of the act, and to “knowingly” traffic counterfeit labels required knowledge that the labels were counterfeit.  U.S. v. Liu, Case No. 10-10613 (9th Cir. October 1, 2013) (available here).  Defendant Liu appealed his criminal conviction for copyright infringement and trafficking in counterfeit labels.  Liu’s company, Super DVD, commercially copied CDs and DVDs without permission from the copyright holders.  The Appeals Court vacated Liu’s convictions and remanded, finding that the lower court had improperly instructed the jury.

The issue was whether Liu acted “willfully” and “knowingly.”  “We hold that the term ‘willfully’ requires the government to prove that a defendant knew he was acting illegally rather than simply that he knew he was making copies. Similarly, to ‘knowingly’ traffic in counterfeit labels requires knowledge that the labels were counterfeit.” Liu, Slip Op. P. 3.  Liu’s commercial replication of the CDs and DVDs is different than an individual “burning” recorded content onto a blank CD or DVD.  Liu would take pre-recorded discs that had their content stamped onto them, which requires a molding machine and a stamper.  The creation of a CD stamper is called “mastering.”

In 2003, federal agents executed a search warrant on Liu’s Super DVD warehouse.  The search resulted in the discovery of thousands of unauthorized DVDs and CDs.  Liu testified that Super DVD did manufacture copies of the movie “Crouching Tiger, Hidden Dragon” for a company called R&E Trading.  R&E had given Super DVD a stamper with the name “Tiger” on it, and it was only later that Liu realized R&E did not have the rights to duplicate the movie.  He denied knowledge and involvement in replicating the other works found in the warehouse.  Liu was charged with and convicted on three counts of criminal copyright infringement under 17 U.S.C. § 506(a)(1)(A) and 18 U.S.C. § 2319(b)(1), and one count of trafficking in counterfeit labels under 18 U.S.C. § 2318(a).  He was sentenced to four years in prison and three years of supervised release.

Liu requested a jury instruction mimicking the language of 17 U.S.C. § 506(a)(2), that “[e]vidence of reproduction or distribution of a copyrighted work, by itself, shall not be sufficient to establish willful infringement of a copyright.”  17 U.S.C. § 506(a)(2).  This language was not included in the government’s proposed jury instruction, although the government informed the lower court that it had no problem with Liu’s requested jury instruction.  The night before closing arguments, the lower court emailed out a draft of the jury instructions.  The next morning, the court stated that it made some unsubstantial changes to the jury instructions.  However, the Ninth Circuit determined that the changes were substantive.  For example, the court added a definition of the term “knowingly.”  The lower court defined “knowingly” as follows: “An act is done ‘knowingly’ if the Defendant is aware of the act and does not act through ignorance, mistake or accident. The government is not required to prove that the defendant knew that his act was unlawful. You may consider evidence of the Defendant’s words, acts, or omissions, along with all the other evidence, in deciding whether the defendant acted knowingly.”  Liu, Slip Op. P. 9.  The lower court did not allow objections to the jury instructions.

The Ninth Circuit noted that the term “willfully” is ambiguous.  “To infringe willfully could simply mean to intentionally commit the act that constitutes infringement. Alternatively, it could mean that the defendant must act with a bad purpose or evil motive in the sense that there was an intentional violation of a known legal duty.”  Liu, Slip Op. P. 12 (internal citations omitted).  Liu was charged with criminal copyright infringement, and therefore, the Ninth Circuit determined, “willful” infringement required the government to prove that Liu acted with knowledge that his conduct was illegal.  In other words, “willfully” infringing on a copyright under the Copyright Act § 506(a) means “voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 U.S. 192, 201 (1991) (internal quotation marks omitted).  The Ninth Circuit supported its reasoning by stating that in order to infringe a copyright, one must actually copy the protected work.  Thus, if willfulness under § 506(a) was met by an intent to copy, there would be no difference between criminal and civil copyright liability in most cases.

In this case, the parties agreed to include a jury instruction that evidence of a reproduction of a copyrighted work was not, by itself, sufficient to establish willfulness.  However, the lower court failed to include this language.  The lower court defined willful infringement but omitted the knowledge component, thereby instructing the jury to use the civil liability standard for copyright infringement and not the criminal liability standard.  The Ninth Circuit concluded that this error was not harmless.  Liu’s state of mind was critical to his criminal convictions.  As a result, the Ninth Circuit vacated Liu’s convictions and sentence for criminal copyright infringement, and remanded them to the lower court.

Liu also challenged the jury instructions on the count for trafficking in counterfeit labels, which required that Liu acted “knowingly.”  “Like ‘willfully,’ the word ‘knowingly’ is susceptible to more than one meaning in this context. It could mean either that the defendant knew that he was trafficking or that he knew that the labels were counterfeit. We hold that ‘knowingly’ in this context means the latter, and thus the government must prove that Liu knew the labels were counterfeit.”  Liu, Slip Op. P. 21.  The lower court’s jury instruction included a statement that instructed the jury that the government did not have to prove that Liu knew his act was unlawful.  Instead, the lower court instructed the jury that Liu only needed to know that he trafficked the counterfeit labels.  “This instruction was at best ambiguous as to whether Liu needed to know that the labels were counterfeit or merely needed to know that he trafficked in labels that later turned out to be counterfeit—a strict liability standard.”  Liu, Slip Op. P. 24.  As a result, the lower court’s error was not harmless.  The Ninth Circuit vacated and remanded Liu’s conviction and sentence for trafficking in counterfeit labels.

“Oh What A Night!” Ed Sullivan’s Charisma Not Enough To Overcome Fair Use Defense For The Jersey Boys’ Use Of A Seven-Second Clip

The Ninth Circuit affirmed the lower court’s summary judgment and award of attorneys’ fees in a copyright infringement case finding that a 7-second clip from The Ed Sullivan Show used in the musical Jersey Boys constituted fair use because of its historical significance.  SOFA Entertainment, Inc. v. Dodger Productions, Inc., Case No. 10-56535 (9th Cir. March 11, 2013) (available here).  The clip was from the introduction of the band the Four Seasons on The Ed Sullivan Show and was used in the Jersey Boys musical about the Four Seasons.  SOFA owns the copyrights to the entire Ed Sullivan Show, including the clip in which Ed Sullivan introduces the Four Seasons.  Dodger produced the musical Jersey Boys, which is a historical dramatization about the Four Seasons.  The clip portrayed Ed Sullivan in his “signature pose” introducing the Four Seasons to his studio and television audiences.

SOFA Entertainment, Inc. (“SOFA”) sued Dodger Productions, Inc. (“Dodger”) alleging copyright infringement.  Dodger argued that the use constituted fair use under the U.S. Copyright Act (17 U.S.C. § 107).  Both parties moved for summary judgment and the lower court granted it in favor of Dodger.  The lower court then awarded Dodger attorneys’ fees and costs, finding SOFA’s lawsuit unreasonable.  SOFA appealed.  The Ninth Circuit affirmed.  “By using the clip for its biographical significance, Dodger has imbued it with new meaning and did so without usurping whatever demand there is for the original clip.”  SOFA, Slip Op. P. 3.

The fair use doctrine allows the use of copyrighted works without the permission of the copyright owner for purposes such as criticism, comment, news reporting, teaching, or research.  The Copyright Act lists four factors to aid courts in their fair use analysis: “(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.”  17 U.S.C. § 107.

In analyzing the purpose and character of the use, the Ninth Circuit noted that Dodger’s use of the Ed Sullivan clip was to mark an important moment in the Four Season’s career as a band.  “At that point in rock & roll history, many American bands were pushed into obscurity by the weight of the “British Invasion,” which was kicked off by the Beatles’ performance on The Ed Sullivan Show. The Four Seasons, however, thrived. Being selected by Ed Sullivan to perform on his show was evidence of the band’s enduring prominence in American music.”  SOFA, Slip Op. P. 9.  As a result, even though Jersey Boys is a commercial production, Dodger transformed the clip by citing to its historical significance and therefore met the first prong of the fair use test.

In looking at the nature of the Ed Sullivan clip, the Ninth Circuit stated that “[a]n alleged infringer will have a more difficult time establishing fair use when he appropriates a work [creative in nature]. While the entire episode of The Ed Sullivan Show or the individual performances may be near to the core of copyright, the clip conveys mainly factual information – who was about to perform. Therefore, the second factor also favors Dodger.”  SOFA, Slip Op. P. 9.

For the third prong, SOFA did not challenge the conclusion that the 7-second clip was insignificant compared to the length of an Ed Sullivan episode, but argued that Dodger attempted to capitalize on the favorite part of the Ed Sullivan Show, when Ed would introduce the bands.  However, the Ninth Circuit rejected this argument for two reasons.  First, the 7-second clip is not qualitatively significant because Ed Sullivan simply identifies the Four Seasons and it is unlikely that the clip would be copyrightable on its own.  Second, SOFA was incorrect in arguing that Ed Sullivan’s signature pose and style are copyrightable because, while movements and intonations are elements that can be protected, SOFA sought to protect Sullivan’s personality as well.  “Charisma, however, is not copyrightable.”  SOFA, Slip Op. P. 10.

Finally, in examining Dodger’s use of the clip on the market for the Ed Sullivan Show, the Ninth Circuit concluded that the factor weighed in favor of Dodger.  When the use is not a substitute for the original and allows the copyright holder a derivative use, the factor weighs in favor of fair use.  “Jersey Boys is not a substitute for The Ed Sullivan Show. The clip is seven seconds long and only appears once in the play. Dodger does not reproduce Jersey Boys on videotape or DVD, which would allow for repeated viewing of the clip. Dodger’s use of the clip advances its own original creation without any reasonable threat to SOFA’s business model.”  SOFA, Slip Op. P. 11.

Turning to attorneys’ fees, the Ninth Circuit found that an award of attorneys’ fees would further the purpose of the Copyright Act, which is to “encourage the production of original literary, artistic, and musical expression for the good of the public.” Fogerty v. Fantasy, Inc., 510 U.S. 517, 524 (1994).  The Ninth Circuit affirmed the summary judgment in favor of Dodger under the fair use doctrine and affirmed the award of attorneys’ fees.