ANATOMY OF A COPYRIGHT LITIGATION

FROM INCEPTION TO TRIAL

DAVID LEICHTMAN

SEPTEMBER 15, 2017

LITIGATION COUNSEL OF AMERICA

INTELLECTUAL PROPERTY INSTITUTE

LOUISVILLE, KENTUCKY

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JEREMY SPARIG’S STOP AND FRISK PHOTO

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IN IT IAL INFRINGEMENT

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THE INFRINGEMENT GOES VIRAL

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AND YOU TOLD TWO FRIENDS, AND THEY

TOLD TWO FRIENDS….

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AND SO ON, AND SO ON. . .

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S PA R I G V. D I S T R A C T I F Y

( T H E S O C I A L M E D I A L I S T I C L E )

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U N L I C E N S E D U S E O N

D I S T R A C T I F Y, E R R O N E O U S LY

C R E D I T I N G M E T R O . U S

L I C E N S E D U S E O N

M E T R O . U S

Sale of Ads on Distractify:

PLAINTIFF’S INIT IAL CONSIDERATIONS

▪ Is there an existing licensing market for the work?

– Impact on value

– Impact on other defenses such as fair use

– Can I create a licensing program that increases in value over time?

▪ How did the defendants use the photograph?

▪ Are we going to be entitled to statutory damages?– Did the client register the work before the infringement?

• (or, if unpublished, within three months)

▪ How far can we go back for damages if the infringement started more than three years ago?

▪ Venue issues after TC Heartland, BNSF Railway and Bristol-Myers

▪ What other claims might I have besides copyright?

DEFENDANT’S INIT IAL CONSIDERATIONS

• Plaintiff’s counsel reputation

• Quick fix?

• Investigate plaintiff’s conduct

• Verify licenses, registration, deposit copies (especially where multiple works registered together)

• DJ action in response to cease & desist?

• First to file rule; maybe no longer necessary under new venue cases

• Insurance

• Posting on social media; willfulness

• Smoking guns in our closet

• Notation of risk of $150,000 in statutory damages for each violation

STATUTE OF L IMITATIONS ISSUES

▪ A civil action under the Copyright Act must be commenced within three years after the claim accrued. 17

U.S.C. § 507(b).

▪ Claim accrues each time there is an infringement.

▪ But the running of the three-year statute may be tolled in those jurisdictions like NY and California that

follow the discovery rule.

▪ There the statute only begins to run when plaintiff discovers or should have reasonably discovered the

infringement.

▪ So a plaintiff can recover damages for infringements that took place more than three years before the suit

if plaintiff was unaware of those infringements and plaintiff’s lack of knowledge was reasonable under the

circumstances, Psihoyos v. John Wiley, 748 F.3d 120, 124 (2d Cir. 2014).

▪ Discovery rule under attack because of dicta in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962,

1969 (2014)

– Under the Act's three-year provision, an infringement is actionable within three years, and only three years, of its

occurrence. And the infringer is insulated from liability for earlier infringements of the same work.

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SPARIG V. FAMILY LAW CHANNEL

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SPARIG V. FAMILY LAW CHANNEL

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17 U.S.C. SECTION 1202

▪ (a) False Copyright Management Information.—No person shall knowingly and with the intent to induce, enable, facilitate, or conceal infringement—

– (1) provide copyright management information that is false, or

– (2) distribute or import for distribution copyright management information that is false.

▪ (b) Removal or Alteration of Copyright Management Information.—No person shall, without the authority of the copyright owner or the law—

– (1) intentionally remove or alter any copyright management information,

– (2) distribute or import for distribution copyright management information knowing that the copyright management information has been removed or altered without authority of the copyright owner or the law, or

– (3) distribute, import for distribution, or publicly perform works, copies of works, or phonorecords, knowing that copyright management information has been removed or altered without authority of the copyright owner or the law, knowing, or, with respect to civil remedies under section 1203, having reasonable grounds to know, that it will induce, enable, facilitate, or conceal an infringement of any right under this title.

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REMEDIES

▪ Statutory damages:

– BMI v. Crocodile Rock Corp. (3rd Cir. 2015)

• Mere fact that infringement is unprofitable does not prevent award within the

statutory limit

– Warner v. Avelo (8th Cir. Nov. 2016)

• Approving $10,000 per work for 257 works

▪ Injunctions – you can still get one

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“ACTUAL DAMAGES”

EVIDENCE BOTH SIDES WILL WANT TO

ADDRESS

▪ Importance of copyrighted features

– To Plaintiff’s work

– To Defendant’s work

▪ What Drives Demand?

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FACTORS

▪ Nature of the infringement

▪ Defendant’s purpose and intent

▪ Profit the defendant reaped

▪ Expense the defendant saved

▪ Revenue the plaintiff lost as a result of the infringement

▪ Value of the copyright (scarcity)

▪ Duration of the infringement

▪ Defendant’s continuation of infringement after notice or knowledge

▪ Need to deter the Defendant and other potential infringers

▪ Compliance with contractual obligations by the parties (where applicable)

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APPORTIONMENT

▪ “the infringer is required to prove …deductible expenses and the elements of profit attributable to factors other than the copyrighted work”

▪ Apportionment not susceptible to precise measurement

▪ But, not just quantitative, it is qualitative

▪ Some factors:

– Defendant’s marketing prowess and expenses (“brand”)

– Other features driving sales

– Defendant’s market position

• (reputation for quality or “drawing power”)

– Defendant’s creativity (“talent”)

– Fame of the Plaintiff

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FACTORS IN L ICENSES –

COMPARED TO INFRINGEMENT SCENARIO

▪ Are industry licenses based on the component or the entire product?

▪ What factors do industry licenses take into account (demand, content, risk,

rarity, geographical reach, size, exclusivity, duration, credit, rights assignment,

sub-licensing)

▪ Types of payments (lump sum, up-front with running royalty, per use or per unit)

▪ Correlating the industry norms to the defendant’s revenue model

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PROFITS

▪ Lost profits:

– Leonard v. Stemtech (3rd Cir. 2016)

• Fair market value of license fees methodology approved and plaintiff not limited

to its past license fees

• Use of quotes from licensing agencies permitted taking into account various

factors and types of uses

• To account for rarity and scarcity, “premium” multiplier of 3x-5x approved

• To account for exclusivity, multiplier of 3.75x-8.75x approved

• No infringer’s profits because causal connection not proved

– Compare: Grant Heilman Photography v. McGraw-Hill (E.D. Pa. 2015)

• Publisher exceeded use granted by license

• Multiplier cannot be used to calculate “fair market value” of a license

• Apportionment of profits supported by evidence because photo content of

textbooks had no impact on decision to buy

LEONARD V. STEMTECH (3D CIR. 2016)

▪ Leonard is a photographer of stem cells using electron microscopes.

▪ Stemtech "formulates" and sells nutritional supplements through more than

100,000 distributors.

LEONARD V. STEMTECH

▪ Only a few photographers engage in this highly technical type of photography.

▪ Leonard obtains cell samples from doctors, scientists, and researchers and

pays a scientific research institution to use an electron microscope to

photograph the cells.

▪ The images appear in black and white, and Leonard uses his "artistic judgment"

to enhance the photos in color.

▪ Here are two of Leonard’s images reproduced in the 3rd Circuit’s opinion.

LEONARD V. STEMTECH

▪ Leonard licensed one image to Stemtech for $950 for "one-year usage" in two places in a magazine.

▪ After Stemtech failed to pay Leonard the agreed-upon balance of $450, Leonard’s web searches determined that Stemtech was using his image across the web on various of its affiliate sites.

▪ Leonard complained to Stemtech’s Chief Compliance Officer

▪ That person told Leonard that she thought that his image was public because it appeared on the cover of a major publication.

▪ Leonard then sued Stemtech for infringement seeking actual damages and a portion of defendant’s profits.

▪ Leonard’s expert, Jeffrey Sedlik, testified re fair market value of Leonard’s images.

▪ Sedlik collected quotes from Getty Images and other photo licensing agencies and obtained a range of licensing fees for various uses similar to those involved in the case,

▪ The average was $1,277. Sedlik then applied the average of these fees to the 92 infringing uses identified at trial, yielding a fee of $215,767.

▪ Sedlik then adjusted this figure upward three to five times from the benchmark to account for the "scarcity or rarity" of Leonard's images.

LEONARD V. STEMTECHU S E O F E X P E R T T E S T I M O N Y T O D E T E R M I N E A C T U A L D A M A G E S

▪ In addition, he adjusted the benchmark figure up for "exclusivity" by adding a

premium of 3.75 to 8.75 times the benchmark.

▪ Sedlik testified the adjustment was to account for Stemtech "overuse” or near

exclusive use of Leonard’s images

▪ After adding the adjustments together, he concluded the appropriate damages

would range from $1.4 million to nearly $3 million.

▪ Stemtech neither cross-examined Sedlik about his use of these premiums nor

presented its own expert.

▪ Stemtech asserted Leonard's past licensing history supported an award of

$1,804.

▪ The jury returned a $1.6 million verdict in actual damages in Leonard's favor.

LEONARD V. STEMTECH

▪ On appeal, Stemtech argued that the expert’s method for calculating Leonard's

actual damages should have relied on Leonard's past licensing history, not fair

market value.

▪ 3rd Circuit held there is no requirement that actual damages be calculated

based on a plaintiff's own history of licensing fees (which here were much lower

than market value). The benchmark is instead fair market value.

▪ 3rd Circuit also rejected Stemtech’s arguments that the multipliers for scarcity

and exclusivity were impermissible akin to punitive damages not recoverable

under the Copyright Act, holding that the stock photo agency rates Sedlik used

did not represent a full calculation of the fair market value of Leonard's images;

therefore the need for multipliers.

LESSONS FROM STEMTECH

▪ It’s always better to pay a $450 bill you earlier agreed to pay than risk a $1.6 verdict plus

an undetermined amount of pre-judgment interest and the publicity that follows.

▪ Good experts make a difference. Sedlik’s analysis increased lost licensing fees from

$215,767 to $1.6 million.

▪ Defendants are often reluctant to submit through experts their own damage calculation

for fear of suggesting to the jury that any amount of damage may be due. But if

defendant fails to offer an alternative damage calculation, the jury and appellate

court will have only the testimony of plaintiff’s expert to guide them.

▪ Multipliers in actual damage calculations are available for factors such as scarcity, the

impact of unauthorized exclusivity, historical significance and unique depiction.

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ATTORNEYS’ FEES:

KIRTSAENG V. JOHN WILEY & SONS

▪ Kirtsaeng won merits case based on 6-3 Supreme Court decision after losing in district court and Second Circuit

▪ On remand, district court and Second Circuit denied attorneys’ fees primarily on basis that Wiley’s case was not objectively unreasonable

▪ Kirtsaeng appealed to Supreme Court; argued that if the winning party advances the purposes of the Copyright Act by winning on a close or new issue, that should factor into the analysis

▪ Supreme Court rejected Kirtsaeng’s approach, affirmed importance of objective reasonableness of the losing party, but remanded for “tweaks” to the multi-factor nonexclusive factors that should inform a court’s decision: “frivolousness, motivation, objective unreasonableness, and the need in particular circumstances to advance considerations of compensation and deterrence

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FAIR USE DEFENSE

▪ Fair use doctrine is a means of balancing “the interests of authors and

inventors in the control and exploitation of their writings and discoveries on the

one hand, and society’s competing interest in the free flow of ideas, information,

and commerce on the other hand.” Sony Corp. of American v. Universal City

Studios, Inc., 464 U.S. 417, 429 (1984).

HYPOTHETICAL USE OF SPARIG’S STOP &

FRISK PHOTO IN HISTORICAL POSTS

Other sites used the stop and frisk images and several of the images of the demonstrators in historical posts

about how the Civil Rights Act of 1964 has failed to end police brutality

HYPOTHETICAL USE IN

BULLSEYE POSTER

Another social media site superimposed a bullseye on the back of the arrested

African-American man depicted in one of the stop and frisk images and placed the

image on a Black Lives Matter poster:

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THE TRANSFORMATIVE USE DOCTRINE

Supreme Court in Campbell v. Acuff

Rose (1994)

Second Circuit in Authors Guild v.

Google Books (2015)

whether the new work “adds

something new, with a further

purpose or different character,

altering the first with new

expression, meaning, or message.”

where the new form of the existing

work “communicates something

new” or “expands its utility.”

Providing a new way of accessing

works or “information about” them

is transformative; no alteration of

the work necessary; no new

expression, meaning or message

required.

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CARIOU V. PRINCE ( 2 D C I R . 2 0 1 3 ) :

TRANSFORMATIVE AS A MATTER OF LAW?

▪ Add photos

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CARIOU V. PRINCE: REMANDED IMAGE

TCA TELEVISION CORP. V. MCCOLLUM( 2 D C I R . 2 0 1 6 )

▪ Hand of God play on Broadway – used “Who’s On First” routine performed by main character and a sock puppet

▪ The district court failed to explain how defendants‘ extensive copying of the routine was necessary to express the Play’s dark comedic message, much less how defendants' use transformed the character of the routine

▪ The focus of [the fair use] inquiry is not simply on the new work, i.e., on whether that work serves a purpose or conveys an overall expression, meaning, or message different from the copyrighted material it appropriates

▪ Rather, the critical inquiry is whether the new work uses the copyrighted material itself for a [new] purpose, or imbues it with a character, different from that for which it was created

▪ Otherwise, any play that needed a character to sing a song, tell a joke, or recite a poem could use unaltered copyrighted material with impunity, so long as the purpose or message of the play was different from that of the appropriated material. There is "nothing transformative" about using an original work "in the manner it was made to be" used

▪ Such unaltered use of an allegedly copyrighted work, having no bearing on the original work, requires justification to qualify for a fair use defense (distinguishing Google Books as being about “data” and acknowledging criticism that Cariou may have swung the pendulum too far towards fair use)

▪ In other words, the focus of the fair use inquiry is on the copyrighted work as used in the new work, not on the new work in which the copyrighted work appears

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DISNEY ET AL V. V IDANGEL ( 9 T H C I R . 2 0 1 7 )

▪ VidAngel created a service that allowed users to stream films without nudity

and violence.

▪ The court wrote that this would be a massive violation of copyright were it

allowed to continue – because it “would create a giant loophole in copyright law,

sanctioning infringement so long as it filters some content and a copy of the

work was lawfully purchased at some point.”

▪ Recent district court opinion in the SDNY concurs:

– Penguin v. Moppet Books (Children’s versions of classic books): “exercise in

sophistry” to say that abridging the works, removing adult themes and tacking on

quiz questions “transformed” the works

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FOX NEWS V. TV EYES:

TV EYES: TESTING THE BOUNDARIES OF

‘TRANSFORMATIVE FAIR USE’▪ Mixed district court decision about whether TVEyes’ clipping service is a fair

use. Some components of the service -- including a feature that allows users to

archive clips for later viewing for searching and indexing purposes -- are

protected by fair use principles. But the service isn’t protected by fair use when

it offers downloads of news clips.

▪ Injunction entered allowing TVEyes to continue to stream Fox News clips to its

subscribers, but may no longer allow people to download those clips to their

own computers, in order to watch them offline.

▪ TVEyes must take steps to block people from sharing clips on social media

services, and to prohibit subscribers from emailing clips to more than five

recipients at other organizations.

▪ Appeal to Second Circuit pending for nearly a year.

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R I C H AR D P R I N C E I N S TAG R A M E X H I B I T: T E S T I N G T H E

B O U N D A R I E S O F ‘ T R A N S F O R M AT I V E FA I R U S E ’ ( G R A H A M V. P R I N C E , S . D . N . Y. , P E N D I N G , M T D D E N I E D )

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THANK YOU

David Leichtman

315 Madison Avenue, Suite 3011

New York, New York 10017

212-419-5210