Copyright Law Updates | New Judicial Opinions

June 30, 2008

Ninth Circuit Reverses Statutory Damage Award against Apparel Company, But Remands Attorneys’ Fees Award

Derek Andrew, Inc. v. Poof Apparel Corp.
No. 07-35048, U.S. Court of Appeals for the Ninth Circuit, 6/11/2008

Ninth Circuit Reverses Statutory Damage Award against Apparel Company, But Remands Attorneys’ Fees Award

Holding:

The U.S. Court of Appeals for the Ninth Circuit resolved a novel issue: whether the Copyright Act, particularly 17 U.S.C. § 412, bars an award of statutory damages for post-registration infringements when the initial act of infringement occurred prior to the effective copyright registration date. Here, plaintiff-appellee, Derek Andrew, Inc. (“Andrew”), accused defendant-appellant, Poof Apparel Corp. (“Poof”), of copyright and trademark infringement relating to its garment hang tags. The District Court awarded default judgment against Poof, along with statutory damages and attorneys’ fees. On appeal, the Ninth Circuit reversed the District Court’s $15,000 statutory damages award because the infringing activity occurred before the effective registration date of the copyright at issue; similarly, the Ninth Circuit reversed the District Court’s award of attorney’s fees under the Copyright Act for the same reason. Separately, the Ninth Circuit upheld the District Court’s award of attorneys’ fees related solely to Lanham Act claims.

Detailed Summary:

Andrew and Poof are in the apparel business. This case involved Andrew’s “Twisted Heart” clothing line - a line of casual sportswear for women aged 14-70. Andrew’s Twisted Heart line is identified by its label and, in particular, its “hang-tag” featuring its “Heart Design” and “Twisted Heart” trademarks.  Developed and first used in 2003, the Twisted Heart hang-tag hangs from the garment by a small, satin ribbon. The tag, including its configuration and the artwork in the label, was registered with the U.S. Copyright Office on June 15, 2005.

Similarly, Poof sells women’s clothing to retail stores throughout the United States. Most of its clothes are manufactured abroad and are shipped throughout the United States to lower-end retail stores such as T.J. Maxx, The Wet Seal, and Marshall’s. Affixed to certain clothing sold by Poof are hang-tags nearly identical to Andrew’s “Twisted Heart” hang-tags;  the only difference being the word “Poof!” in place of the words “Twisted Heart.”

The dispute arose in May, 2005, when a garment bearing Poof’s hangtag came into Andrew’s possession, prompting Andrew’s counsel to send a cease and desist letter to Poof on May 17, 2005. From there, the parties engaged in a letter-writing campaign, which culminated in a complaint for copyright and trademark infringement, in addition to state law claims, filed by Andrew against Poof in the U.S. District Court for the Western District of Washington.

Despite having counsel, Poof failed to respond to Andrew’s complaint, and on August 8, 2005, a default judgment was entered against Poof.  The District Court denied Poof’s later motion to set aside the entry of default.

After a bench trial, the District Court rendered an assailed judgment.  On the Lanham Act and Washington state law claims, the District Court found that disgorgement of profits was the appropriate measure of damages and awarded Andrew $685,307.70.  On the copyright claim, Andrew was awarded $15,000 in statutory damages.  Further, because the trial court was of the opinion that this was an exceptional case, Andrew was awarded attorneys’ fees in the amount of $296,090.50, plus $6,678.60 in costs.  Poof was also permanently enjoined from further infringing upon Andrew’s trademarks.  Poof timely appealed.

The dispute involved interpretation of Section 412(2) of the Copyright Act which provides that “no award of statutory damages or of attorneys’ fees, as provided by sections 504 and 505, shall be made for any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work.”  Section 412 was designed to implement two fundamental purposes. First, by denying an award of statutory damages and attorneys’ fees where infringement takes place before registration, Congress sought to provide copyright owners with an incentive to register their copyrights promptly. Id., p. 6667, citing H.R. Rep. No. 94-1476 at 158 (1976), as reprinted in 1976 U.S.C.C.A.N. 5659, 5774. Second, Section 412 encourages potential infringers to check the Copyright Office’s database.  Id., citing Johnson v. Jones, 149 F.3d 494, 505 (6th Cir. 1998). Accordingly, the Ninth Circuit found that the first act of infringement in a series of ongoing infringements of the same kind marks the commencement of one continuing infringement under Section 412.  Id., citing Mason v. Montgomery Data, Inc., 967 F.2d 135, 142-44 (5th Cir. 1992).  Because Andrew waited nearly two years from the date of first publication to register its copyright, the Ninth Circuit held that Andrew should not receive the reward of statutory damages.  Id., p. 6668, citing Johnson, 149 F.3d at 505-06.

Notably, the Ninth Circuit found no legally significant difference between Poof’s pre- and post-registration infringement.  Poof first distributed garments bearing the infringing hang-tag on May 9, 2005, if not earlier, and continued to do so - albeit with the hang-tag attached to different garments - after the June 15, 2005 copyright registration. Thus, Poof began its infringing activity before the effective registration date, and it repeated the same act after that date each time it used the same copyrighted material.  According to the Ninth Circuit, the mere fact that the hang-tag was attached to new garments made and distributed after Andrew’s copyright registration did not transform those distributions into many separate and distinct infringements. Id., p. 6669, citing Mason, 967 F.2d at 144.  Poof simply engaged in an ongoing series of infringements that commenced with the first distribution prior to Andrew’s copyright registration.  Therefore, the Ninth Circuit held Andrew was not entitled to statutory damages under the Copyright Act, and the District Court’s award of $15,000 was reversed.

Poof also challenged the district court’s award of attorneys’ fees.  In particular, Poof argued that, in addition to precluding recovery of statutory damages, Andrew’s failure to timely register its copyrights precluded it from recovering attorneys’ fees.  The Ninth Circuit sustained Poof’s position, stating that 17 U.S.C. § 412(2) of the Copyright Act precludes an award of attorneys’ fees for the same reason it reversed Andrew’s statutory damages against Poof under the Copyright Act.  Because Poof’s infringement commenced prior to Andrew’s June 15, 2005 registration date, Andrew was similarly not entitled to its attorneys’ fees to the extent they were based upon a violation of the Copyright Act.

Poof likewise challenged the District Court’s award of attorneys’ fees under the Lanham Act.  Under the Lanham Act, an award of reasonable attorneys’ fees and costs is expressly provided for in “exceptional cases” of trademark infringement.  Id., p. 6670, citing15 U.S.C. § 1117(a). The Ninth Circuit noted that “(w)hile the term ‘exceptional’ is not defined in the statute, attorneys’ fees are available in infringement cases where the acts of infringement can be characterized as malicious, fraudulent, deliberate, or willful.” Id., citing Rio Props., Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1023 (9th Cir. 2002).  Because the District Court entered a default judgment against Poof, whereby Poof essentially conceded to a complaint that pled willfulness, all factual allegations in the complaint were deemed true, including the allegation of Poof’s willful infringement of Andrew’s trademarks. This default sufficiently established Andrew’s entitlement to attorneys’ fees under the Lanham Act.

Nevertheless, the Ninth Circuit declared that remand was proper because it was unclear whether the District Court’s award of attorneys’ fees may have included fees related to Andrew’s Copyright Act claim. On remand, the Ninth Circuit left the District Court to recalculate the fees award taking into account that Poof prevailed as a matter of law on Andrew’s Copyright Act claim.

On the basis of the foregoing, the Ninth Circuit reversed Andrew’s award of statutory damages and attorneys’ fees under the Copyright Act against Poof, but remanded the attorneys’ fee award to allow the District Court to award Andrew attorneys’ fees related to only the Lanham Act claims against Poof.

View a PDF of the judicial opinion

Companies Mentioned

Derek Andrew, Inc.

Poof Apparel Corp.

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Companies Mentioned

Copyright Law

The following companies are mentioned in Copyright Law Updates:

MGA Entertainment (HK) Ltd.

Mattel, Inc.

American Society of Composers, Authors, and Publishers

MGA Entertainment Inc.

UMG Recordings, Inc.

Affordable Video Systems, Ltd.

Bad Boy Entertainment, Inc. d.b.a. Bad Boy Records

Dream Games of Arizona, Inc.

Yahoo! Inc.

Frank Diana City Entertainment

Television Music License Committee

PC Onsite

SESAC, Inc.

RealNetworks, Inc.

AOL LLC f.k.a. America Online, Inc.

Northern Lights Products, Inc. d.b.a. GlowProducts.com

Litecubes, LLC

Poof Apparel Corp.

Derek Andrew, Inc.

Metro-Goldwyn-Mayer Pictures, Inc.

Geoffrey Productions, Inc.

Universal City Studios LLLP

Twentieth Century Fox Film Corp.

Turner Network Television LP, LLLP

Turner Network Sales, Inc.

Turner Classic Movies, LP, LLLP

Simon & Schuster, Inc.

Turner Broadcasting System, Inc.

The Cartoon Network LP, LLP

Paramount Pictures Corp.

NBC Studios, Inc.

Disney Enterprises, Inc.

Veoh Networks, Inc.

CSC Holdings, Inc.

CBS Broadcasting Inc.

Cablevision Systems Corp.

Cable News Network LP, LLLP

American Broadcasting Companies, Inc.

Kamind Associates, Inc. a.k.a. KAM Industries

Westbound Records, Inc.

All Headline News Corp.

Janice Combs Publishing, Inc. d.b.a. Justin Combs Publishing

American Software Development Company, Inc.

Bad Boy Records LLC

Shelter Venture Fund LP

ASP. Consulting Group

National Writers Union

Penguin Group (USA), Inc.

Shelter Capital Partners LLC

Sony ATV Tunes, LLC

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