TIME IS UP--COPYRIGHT DAMAGES FOR THE TARDY REGISTREE:
WHAT RECOVERY WHEN STATUTORY DAMAGES ARE NOT AVAILABLE?

It is well settled that in the United States, a party must register its copyright prior to bringing a suit for copyright infringement. But many do not know that early registration of a work may entitle a plaintiff to a form of damages called “statutory damages.” Specifically, Section 504(c) of the Copyright Act provides for the election of statutory damages in lieu of actual damages for infringing a registered copyright under certain circumstances. The statutory award can be up to $30,000. Moreover, if the court finds that the defendant's behavior was "willful," the court has discretion "to increase the award of statutory damages to a sum of not more than $150,000" per infringement.

The election of statutory damages can provide a windfall to the plaintiff. For example, in the case of Engel v. Wild Oats, Inc. the plaintiff was awarded $20,000 in statutory damages where the defendant had made only $1200 profit from the sales of t-shirts having infringing photographs printed thereon. However, for a copyright owner of a published work to elect statutory damages, the copyright must have been registered prior to the date of infringement or within three (3) months of publication.

What happens when a plaintiff does not register his work in time to elect statutory damages? The plaintiff must prove actual damages. The following is an overview of copyright and the remedies available for works not eligible for statutory damages.

I. Works Eligible for Protection
Copyrights subsist in original works of authorship fixed in a tangible medium of expression. Section 102 of the Copyrights Act explains that the following items are normally copyrightable subject matter: (1) literary works; (2) musical works; (3) dramatic works; (4) choreographic works; (5) sculptural works; (6) audiovisual works; (7) sound records; and (8) architectural works. A copyright allows the work to be perceived, reproduced, or otherwise communicated either directly or indirectly or with the aid of machine or device.

The design of a useful article can only be considered a pictoral, graphic, or sculptural work if and to the extent that, the design incorporates pictoral, graphic or sculptural features that can be identified separately from and are capable of existing independently of the utilitarian (non-aesthetic) aspects of the article. This means that copyright laws, like trademark and trade dress laws, will generally not protect functional aspects of the product or article. In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery regardless of the form in which it is described, explained illustrated or embodied in such work.

A copyright automatically comes into existence the moment an author fixes his or her work in some tangible form. Although federal registration is not necessary to own a copyright, registration is necessary if one wishes to exercise the right to claim an action. In actions alleging copyright infringement, there are generally three steps to demonstrate infringement. The first step is to prove that the plaintiff is the owner of a valid copyright. The second step is to prove that the defendant copied the work directly or indirectly. The indirect method of copying is the one more commonly proven and generally requires proof of: (1) access to the copyrighted work; and (2) substantial similarity to the copyrighted work. In situations where there has been no access, the courts will normally require a striking similarity to the copyrighted work. The final step includes determining whether the defendant improperly appropriated more of the copyrightable expression than is allowed under the Fair Use Doctrine.

II. Damages for Infringement
Section 504(a) states in pertinent part that “an infringer of copyright is liable for either—(1) the copyright owner’s actual damages and any additional profits of the infringer, as provided by subsection (b); or (2) statutory damages, as provided by subsection (c).

A. Actual Damages
When examining actual damages allowed to the copyright owner, Section 504(b) of the Copyright Act states that the “copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement….” Actual damages, in effect, are predicated upon a hypothetical license that would have been paid for the copyrighted work if the copyright owner had willingly negotiated with the infringer for use of the work in advance of that use. The hypothetical license would necessarily take into account all factors bearing on the value of the copyrighted work at the time of the infringement. Universal Pictures Co. v. Harold Lloyd Co., 162 F.2d 354, 368-371 (9th Cir. 1947) (1909 Act). Under this approach to actual damages, “the primary measure of recovery is the extent to which the market value of the copyrighted work at the time of the infringement has been injured or destroyed by the infringement.

1. Actual Damages via Proximate Cause
Section 504(b) provides that a copyright owner is only entitled to recover the actual damages sustained “as a result of the infringement.” 17 U.S.C. §504(b). Thus, the copyright owner must establish “with reasonable probability the existence of a causal connection between the infringement of the defendant and some loss of anticipated revenue. Key West Hand Print Fabrics, Inc. v. Serbin, Inc., 269 F. Supp. 605, 613 (S.D. Fla. 1966), aff’d 381 F.2d 735 (5th Cir. 1967) (1909 Act).

If the copyright owner fails to establish any causal connection, then “damages may be denied as too speculative as a matter of law.” Jarvis v. A & M Records, 827 F. Supp. 282, 293 (D.N.J. 1993). In certain instances, courts will deny a copyright owner’s actual damages because the calculation of those damages proferred is too speculative. Pfanenstiel Architects, Inc. v. Chouteau Petroleum Co., 978 F.2d 430, 433 (8th Cir. 1991). A court, however, may engage in a limited amount of speculation, especially when the inability to determine the exact amount of damages is “attributable to the defendant’s wrongdoing. Stevens Linen Associates, Inc., v. Mastercraft Corp., 656 F.2d 11, 14 (2d Cir. 1981); Bundy Corp. v. Teledyne Industries, Inc., 748 F.2d 767, 771 (2d Cir. 1984).

2. Jointly & Severally Liable Tort-Feasors
Defendants who engage in concerted action which infringes the rights of a copyright owner are jointly and severally liable for the copyright owner’s actual damages, but not for each of the defendant’s profits, if they are found to be contributorily or vicariously liable for the copyright infringement. Pfanenstiel Architects, Inc. v. Chouteau Petroleum Co. at 433.

3. Measuring Actual Damages
Depending upon whether the copyright owner and the infringer occupy the same market or a different market, courts will measure a copyright owner’s actual damages by one of two measures: (1) if the copyright owner and the infringer occupy the same market, then the courts will generally use a lost sales measurement to compensate for the sales that would have been made, but for the defendant’s infringement; or (2) if the parties occupy different markets, then the courts will attempt to use a reasonable royalty or market value test to determine the hypothetical fee that the copyright owner would have received for the defendant’s use.

i. Lost Sales Measure
The first of the two measures of a copyright owner’s actual damages, the lost sales measure, equates the copyright owner’s damages with the profits that would have been received from each of the sales “lost” to the infringing product. Although rare, an infringer’s sales can be used as a measure of the copyright owner’s lost sales when the infringer’s product occupies the same market as the copyrighted product, at the same price. Because of differences in pricing and marketing between the copyrighted product and the infringing product, the infringer’s sales usually cannot be used as a measure of the copyright owner’s lost sales. Nevertheless, under this measure, the court will multiply the copyright owner’s profit on one sale by the number of sales made by the defendant to arrive at the copyright owner’s actual damages. In determining the copyright owner’s lost profits, however, it is generally necessary to deduct “overhead” expenses that the copyright owner would have incurred if extra sales had been made. Taylor v. Meirick, 712 F.2d 1112 (7th Cir. 1983).

ii. Reasonable Royalty & Market Value Tests
When the copyright owner and infringer occupy different markets, a lost sales measure of damages is not available. Instead, the second of the two measures of a copyright owner’s actual damages will employ either a reasonable royalty or market value test.

iii. Other Possible Elements of Actual Damages
In situations where the preceding measures may not fully compensate for the damages sustained, courts have recognized other compensable elements of actual damages, including: (1) loss of value being credited as author of work, and the loss of good will derived therefrom; (2) value of sales lost on non-infringed items; and (3) additional costs due directly to defendant’s infringement.

B. Infringer’s Profits Attributable to the Infringement
In addition to actual damages, Section 504(b) provides that the copyright owner is entitled to “any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.” Under the 1976 Act, unless it is duplicative, recovery of both actual damages and defendant’s profits is allowed.

1. Deductible Expenses
The Copyright Act provides that, in establishing the infringer’s profits, “the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.” The court interpreted “the term ‘gross revenue’… to mean gross revenue reasonably related to the infringement, not unrelated revenues. Davis v. The Gap., 246 F.3d 152, 160 (2d Cir. 2001). The infringer’s proof of deductible expenses, though, need not be “precise and perfect because, absent bad faith, reasonable approximations constitute satisfactory evidence.” Id. at 564.

An infringer’s direct costs consist of expenses incurred directly attributable to production, distribution, performance, or display of the infringing work. Indirect costs of the infringer include those expenses which, though not directly related to the infringing product, were expended by the defendant in connection with the product, such as overhead expenses. The calculation of a defendant’s deductible expenses allowed under Section 504(b) is an issue of fact in all cases. Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45, 54 (2d Cir. 1939).

2. Infringer’s Profit via Proximate Cause
A copyright owner must establish the existence of a causal link between the infringement and the infringer’s profits before those profits can be recovered by the copyright owner. The “profits” of an infringer have been defined as the “[g]ain realized from business or investment over and above expenditures and in distinction from the wages of labor.” MCA, Inc. v. Wilson at 186. The “gain realized” has been traditionally considered income calculated from revenues, commissions, and receipts, but, in certain instances, intangibles such as business good will have also been factored into profit measurements.

i. Apportionment of Profits
When an infringer’s profits are attributable to factors in addition to use of the copyrighted work, an apportionment of profits is proper. Frank Music Corp. v. Metro Goldwyn Mayer, Inc., 772 F.2d 505, 518 (9th Cir. 1985). Congress, during the legislative history of the 1976 Copyright Act, clearly intended to permit apportionment, but placed on the infringer the burden of proving “the element of profit attributable to factors other than the copyrighted work.”

ii. Indirect Profits
Section 504(b) provides for the recovery of profits “attributable to the infringement.” Courts have held that infringers can be liable for indirect profits, beyond those directly attributable to the sales, performance, or display of the infringing product. Mackie v. Rieser, 296 F.3d 909, 914-916 (9th Cir. 2002). Courts concentrate on any enhancement of the infringer’s business, such as non-infringing products, that are a proximate cause of the infringement. Courts will deny profits claimed by a copyright owner if the infringer’s profits “are only remotely or speculatively attributable to the infringement.” Frank Music Corp. v. Metro Goldwyn Mayer at 517.

3. Several Liability
Insofar as there is liability for illegal profit, the liability is several; one defendant is not liable for the profit made by another. MCA, Inc. v. Wilson, 677 F.2d 180, 186 (2d Cir. 1981). The two exceptions to this general rule are: (1) when the defendants engaged in a corporate joint venture; or (2) when the defendants willfully engaged in copyright infringement. Abeshouse v. Ultragraphics, Inc. 754 F.2d 467, 474 (2d Cir. 1985).

IV. Conclusion
While non-statutory damages are available to those owners who did not register in time to elect statutory damages, it is still better practice to federally register a copyright as soon as possible. Although federal registration is not necessary in acquiring copyright, registration is necessary if one wishes to litigate an alleged infringement. Today, copyright notices are also not necessary but may at least serve to weaken the defense of an alleged innocent infringer.

Likewise, today there is no limit on when one may register their copyright. However, registering a copyright within five years of first publication will secure a valid prima facie copyright, while a copyright registered after five years of first publication will not. After this five-year period, the copyright owner cannot rely on the registration alone in a court of law, but must actually prove ownership.

As with any asset, it is better to play it safe and protect yourself from the potentials of a legal nightmare, in a timely manner. Knowing the right steps to take when protecting intellectual property is not always an easy task but, with sound advice and experience, it can be a promising investment for the future.

© HASEEB R. JABBAR, 2003