The Journal of The DuPage County Bar Association

Back Issues > Vol. 30 (2017-18)

Copyright Infringement: Recovery of Actual Damages
By Patrick Boland

If successful in proving copyright infringement, the plaintiff-copyright holder may recover statutory damages or actual damages. Though the Copyright Act (“Act”)1 defines the calculation of statutory damages, it does not explain how actual damages should be calculated or proven by the successful plaintiff. This article’s purpose is to explain what may be recovered as actual damages and methods for recovering the same.

The Basics: Statutory Damages vs. Actual Damages. In addition to injunctive relief, a copyright infringer is liable for either “the owner’s actual damages and any additional profits of the infringer” or statutory damages.2 A plaintiff may only recover statutory damages if it has timely registered its copyright.3 An award of statutory damages allows a successful plaintiff to recover between $750.00 and $30,000.00 for all infringements for which any one infringer is individually liable. If the infringement is willful or done with a justifiable unawareness, the court may substantially increase or decrease an award of statutory damages.4

Without timely registration, though, the copyright owner is left to recover its actual damages or the infringer’s profits. The purpose of this statutory scheme is to compensate the owner for losses attributable to the infringement and prevent the unjust enrichment of the infringer. Yet, the copyright owner cannot recover the sum of his losses and the infringer’s profits.5 There is no basis in copyright law to force the infringer to disgorge himself of more than its gain. Unlike statutory damages, the Act provides no guidance as to the computation of actual damages. Rather, a plaintiff’s actual damages must be determined on a case-by-case basis.

Caselaw shows that a copyright owner’s actual damages may be calculated by showing lost profits or imputing a hypothetical copyright license fee to assess the market value of the copyright. Also, plaintiff’s may recover for various indirect damages as a result of the infringement.

Burden of Proof and Certainty. Prior to calculating damages, the plaintiff has the burden to establish with reasonable probability the existence of a causal connection between infringement and loss of expected revenue. 6 If the plaintiff meets its burden, then the infringer can show as a defense that the loss of revenue would have existed even without appropriation of the copyrighted work. Once the causation requirement is established, Plaintiff must produce evidence, direct or indirect, that proves the copyright owner would have accrued profits but for the infringement. This is a task inherently based in speculation and subject to many challenges. Nonetheless, lack of certainty as to the amount of damages does not preclude recovery of actual damages.7 Courts acknowledge that lost profit may be based upon “opinion and probable estimates.” 8

Lost Profits. One method of recovering actual damages is to recover profits lost because of the infringement. This measure is distinct from the copyright owner’s right to recover the infringer’s profits. After all, due to market factors, such as differing costs, sales techniques, experience, and goodwill, the copyright owner’s profit may differ greatly from the infringer’s profit. This, therefore, may allow the plaintiff to recover the difference of its lost profits and defendant’s actual profits so long as there is no cumulative double taking of plaintiff ’s profits and the infringer’s profits.

When it comes to calculating lost profits, plaintiffs frequently present evidence of past gross revenue of sales and attribute a decline in those sales to the alleged infringement. This requires a deduction of costs from gross revenue to determine plaintiff’s profit. Taylor v. Meirick, 712 F.2d 1112 (7th Cir. 1983), an oft cited case, highlights how to derive a plaintiff or an infringer’s lost profits.

In Taylor, the plaintiff sought recovery of his projected $19,300.00 in lost profits and defendant’s alleged profits of $3,300.00 from the sale of maps. At the outset, the 7th Circuit Court of Appeals disagreed with plaintiff’s calculation because it included an impermissible double counting of the owner’s and infringer’s profits.9 Moreover, the plaintiff’s supposed profit was in fact lost sales, not lost profit. The Court found that plaintiff’s calculation failed to attribute any costs saved because of lost sales, and, absent evidence to the contrary, would not accept the implication that it made sales without incurring any costs. Likewise, the plaintiff’s calculation of defendant’s gross profit failed to subtract other costs (rent, commission, transportation) and overhead incurred by the defendant as a result of the infringement. Because of these failings, the appellate court remanded the case for a new trial on damages. Taylor is a useful reminder that a mere showing of revenue generated or lost by infringement will not suffice to prove actual damages.

The Value of An Imputed License Fee. The infringement of a copyright may cause a copyrighted work to lose its market value. Accordingly, a copyright owner may recover the full value of the copyright at the time of the infringement or the difference in its value before and after infringement. Market value is often characterized as “what a willing buyer would have been reasonably required to pay to a willing seller for plaintiff’s work.”10 Note that the plaintiff’s actual willingness to license or sell the copyrighted work is irrelevant to a determination as to its market value.11 Sometimes, a court must determine the value of copyright even though there is no discernible market before and after infringement. In those circumstances, a court will not prevent a plaintiff from recovering the value of its copyrighted work simply because it has refused to sell it in the past. Indeed, to do so would penalize a copyright owner merely because it elected to keep its copyrighted product exclusive.12

Much like the hypothetical lost profits described above, courts grapple with the speculative nature of the market value of a hypothetical license. To identify what the fair market value of a copyrighted work may be, courts examine the cost to the seller to obtain the copyrighted product and the benefit to the buyer of the copyright license. The Court reasoned that the full market value of a copyright license should fall between the range of seller’ cost and buyer’s benefit.13

In one recent case, Oracle Corp. v. SAP AG, 765 F.3d 1081, 1089 (9th Cir. 2014), a jury awarded $1.3 billion as the fair market value of a hypothetical license fee for its copyrighted software. This district court however entered judgment as a matter of law in favor of the defendants due to lack of evidence as to the price of the license. The Ninth Circuit Court of Appeals affirmed the district court and found that the jury’s award was based on an undue speculation. In reaching this conclusion, the Court analyzed the benefit of the sale of a hypothetical license to the copyright infringer There, the copyright holder presented evidence only of the infringer’s internal financial estimates relating to $900 million dollars of revenue from the infringement. However, the $900 million figure derived from the infringer’s projections which were the infringer labeled as assumptions on its own financial analysis. Those assumptions appeared unlikely to materialize given that by the time of trial the infringer only converted a small percentage of the customers expected as a result of the infringement and only outlaid a fraction ($10 million) to undertake the infringement scheme. In the court’s view, the $1.3 billion judgment did not align with the reasonable benefit to the infringer and thus appeared unduly speculative.

The plaintiff also attempted to prove the value of its hypothetical license by showing that it would lose $1.3 billion in revenue because of the infringement. However, that evidence was based upon the assumptions made by the infringer in its own financial analysis and could not be relied upon. The plaintiff juxtaposed the $1.3 billion lost revenue with the eleven-figure price it paid to acquire the entities that created the intellectual property at issue in an attempt to inflate the value of the hypothetical licensee fee. The court deemed both these methods of “proof” unsatisfactory because neither spoke to the valuation of a hypothetical license. The Ninth Circuit Court of Appeals agreed with the district court’s ruling that the plaintiff failed to present evidence of market value to support the $1.3 billion award. However, in doing so, the court noted that if the plaintiff had a history of granting licenses or presented evidence of similar benchmark licenses in the industry, then it may have been able to establish an acceptable value of the license. Without a previous history of selling licenses, the plaintiff would have faced an uphill battle to support its claimed license fee.

Oracle offers at least two valuable lessons. If trying to prove the value of a license to use a copyright, rely on plaintiff’s previous sales of licenses. If plaintiff has never sold licenses before, then refer to other similar sales in the industry or, perhaps, seek to recover lost profits instead of the value of a license. Failure to produce reliable evidence as to the value of a hypothetical license may prevent an award to plaintiff despite provable infringement.

Indirect Damages. Even after discussing the prospect of a $1 billion judgment, you may feel as if the calculation of actual damages for copyright infringement fails to recoup the plaintiff for all of its injuries. After all, how do you particularize a judgment when the item infringed may never have been for sale? In addition to the recovery described above, courts have also entered judgments awarding plaintiffs for the value of lost goodwill, reimbursement of travel and research expenses, or even the time developing the copyrighted work.14

In one notable case, Harold Stores, Inc. v. Dillard Department Stores, 82 F.3d 1533, (10th Cir. 1996), a retail clothing store recouped actual damages to its goodwill totaling $312,000.00 due to a larger competitor’s infringing sale of a skirt. To prove its loss of goodwill, the plaintiff provided testimony from a corporate officer with knowledge of financial statements, company history, and customer relations, who estimated that the infringement harmed plaintiff in the amount of $225,000.00 to $500,000.00. In addition to that testimony, the plaintiff’s expert proffered opinion testimony that shoppers who saw the infringing skirts on sale at the infringer’s store were 33.1% less likely to purchase garments at the plaintiff’s store. To reach this opinion, the expert conducted a survey of women who shopped at plaintiff’s store prior to infringement and at defendant’s store during the infringement. Conveniently in line with the corporate officer’s testimony, plaintiff’s expert opined that plaintiff suffered between $226,367.00 and $517,809.00 in loss of goodwill, reputation, and future sales. On this basis, the reviewing court held that there was “substantial evidence” to support the jury’s award of damages. Harold Stores is an example of willingness to provide recovery to a plaintiff whose copyrighted work has been wrongfully taken and the creative, but inexact, methods to establish the recovered damages.

Conclusion. Obtaining an award of actual damages for copyright infringement is less certain than the well-traveled path to recover statutory damages. The Act offers little guidance as to what may constitute actual damages and how to establish proof of the same. Nonetheless, case law has provided multiple means for a copyright holder to establish actual damages. A practitioner should not be deterred from seeking recovery of actual damages for copyright infringement simply because its damage calculation is uncertain. As the case law shows, where there is a wrong, a court and jury are oftentimes willing to provide a remedy.

1. 17 U.S.C.A §101 et seq.
2. 17 U.S.C.A. § 504
3. 17 U.S.C.A. § 412
4. 17 U.S.C.A. § 504(c)
5. Bucklew v. Hawkins, Ash, Baptie & Co., LLP., 329 F.3d 923, 931 (7th Cir. 2003)
6. Similarly, once a copyright holder establishes with reasonable probability the existence of a causal connection between the infringement and a loss of revenue, the burden properly shifts to the infringer to show that this damage would have occurred had there been no taking of copyrighted expression. Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 567 (1985)
7. Fournier v. Erickson, 242 F. Supp. 2d 318, (S.D.N.Y. 2003)
8. Baldwin Cooke Co. v. Keith Clark, Inc., 420 F. Supp. 404, 407 (N.D. Ill. 1976)
9. Taylor v. Meirick, 712 F.2d 1112 (7th Cir. 1983),
10. Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 512 (9th Cir. 1985)
11. Oracle Corp. v. SAP AG, 765 F.3d 1081, 1089 (9th Cir. 2014)
12. On Davis v. The Gap, Inc., 246 F.3d 152, 165 (2d Cir. 2001), as amended (May 15, 2001)
13. Oracle Corp. v. SAP AG, 765 F.3d 1081, 1089 (9th Cir. 2014)
14. Smith v. Little, Brown & Co., 273 F. Supp. 870 (S.D.N.Y 1967);

Patrick Boland is an attorney at Momkus McCluskey Roberts LLC and practices general civil and commercial litigation. Mr. Boland has a range of legal experience including, but not limited to, litigating breach of fiduciary duty claims, closely held business disputes, construction lawsuits, and trust and estate contest.

 
 
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