IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks -- August 22, 2012

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Table of Contents

Pearson Education Inc. v. Almgren, USCA 8th Circuit, July 13, 2012
 
Click here for a copy of the full decision.

  • Eighth Circuit affirms bankruptcy court’s order striking textbook publishers’ demand for jury trial on copyright infringement damages, granting minimum statutory damages of $14,250 and denying award of attorney fees.

While pursuing an MBA degree at Augsburg College in Minneapolis, Joel Almgren obtained unlicensed copies of instructors’ solution manuals over the Internet. After using the manuals for his coursework, Almgren decided to try to make a profit for himself. Holding himself out as a professor, he contacted textbook publishers to obtain more manuals. He sold the manuals over the Internet for a gross profit of $5,000. About a month after Almgren began selling the manuals, the publishers, in the course of routinely policing the internet to prevent the trafficking of unlicensed solution manuals, discovered Almgren. Without sending a preliminary cease-and-desist letter, the publishers filed copyright infringement claims against Almgren in the district court in New York. Although Almgren initially denied that he sold the manuals, claiming in an affidavit and in a deposition that his roommate was the culprit, he eventually admitted he made the sales. The cost of defending against the claims forced Almgren to file for Chapter 7 bankruptcy protection in Minnesota. After filing proofs of claim in the bankruptcy action, the publishers brought an adversarial proceeding against Almgren, seeking a finding of willful infringement, requesting a jury trial on the issue of damages, asking that the damages not be dischargeable in bankruptcy and seeking $90,000 in attorneys’ fees. Although it found Almgren liable for willful infringement, the bankruptcy court struck the publishers’ request for a jury trial and awarded only minimal statutory damages of $14,250, which the court deemed non-dischargeable. The court also denied the publishers’ request for $90,000 in attorneys’ fees, finding that the publishers could have taken a more conciliatory (and less expensive) approach with Almgren to stop the infringing activity but instead chose to make an example of him through litigation. On appeal, the district court affirmed the bankruptcy court’s decision, ruling that by filing proofs of claim in bankruptcy court, the publishers had waived their right to a jury trial on liability and damages and that the bankruptcy court’s denial of attorneys’ fees was appropriate. The publishers then filed an appeal with the Eighth Circuit, which also affirmed the district court’s decision.

Acknowledging the publishers’ general right to have a jury determine the amount of statutory damages, if any, awarded to a copyright owner, the Eighth Circuit found that, under Supreme Court precedent, the publishers relinquished that right when they filed claims against Almgren’s bankruptcy estate. The bankruptcy court, a court of equity, exercises exclusive control over claims “integral to the restructuring of the debtor-creditor relationship.” Because no Seventh Amendment right to a jury trial exists in a court of equity, the publishers were not entitled to a jury trial in bankruptcy court on the issue of damages. The Eighth Circuit likewise rejected the publishers’ contention that their case was distinguishable from the Supreme Court precedent because those cases involved a trustee’s action to recover a voidable preference rather than a creditor’s action. The court had not limited its rationale to preference actions and, according to the appeals court, the publishers had failed to explain why their claims of non-dischargeability were any less “integral to the restructuring of the debtor-creditor relationship.” The court also noted that the Second, Third, Seventh and Ninth Circuits, and the Maryland bankruptcy court, had applied the Supreme Court’s reasoning in non-dischargeability actions.

The court of appeals also affirmed the lower court’s denial of the publishers’ request for prevailing party attorneys’ fees. The bankruptcy court determined that a fee award would be inappropriate because (1) prior to bringing an action, the publishers could have used the less-expensive cease-and-desist letter to stop Almgren’s conduct; (2) the publishers purposely chose to file the action in the largest, busiest and furthest court from Almgren to “scare” him, (3) the publishers resisted the bankruptcy court’s efforts to encourage settlement prior to litigation; and (4) the publishers’ “spare-no-expense” strategy was “unreasonable” because of “no actual damages.” The Eighth Circuit rejected the publishers’ argument that the bankruptcy court abused its discretion by both discounting their need to act forcefully to deter willful infringement and leaving them with a financial loss from enforcing their rights against a willful infringer who prolonged the litigation and perjured himself. The publishers had the freedom to employ whatever litigation strategy they desired within the bounds of law but were not “guaranteed that the attorney’s fees generated by their strategy of choice would be compensated.” Noting that while a different court might have weighed the factors differently, the court concluded the bankruptcy court had not made a clear error in judgment in holding that an award of attorneys’ fees in this case would not “advance considerations of compensation and deterrence.”

 

Monge v. Maya Magazines, Inc., USCA 9th Circuit, August 14, 2012
 Click here for a copy of the full decision.

  • Ninth Circuit holds that Spanish-language gossip magazine’s unauthorized publication of plaintiffs’ secret wedding photographs did not constitute fair use.

Plaintiffs, Latin American celebrities Noelia Lorenzo Monge and Jorge Reynoso, married in a secret ceremony in Las Vegas in January 2007. The couple took photographs of the wedding ceremony and the wedding night. In February 2009, defendant Maya Magazines, Inc., a Spanish-language celebrity gossip magazine, obtained from plaintiffs’ driver a disk containing 400 of plaintiffs’ photographs, including six photographs of the wedding and wedding night. Maya published those six wedding photographs in an issue of one of its magazines, TVNotas.

Following publication of the photographs, plaintiffs registered copyrights in the photographs and sued Maya for copyright infringement as well as statutory and common law misappropriation of likeness. The district court dismissed the misappropriation of likeness claims and granted summary judgment in Maya’s favor on the copyright infringement claim, finding that Maya’s publication of the photographs was a fair use under the Copyright Act. Plaintiffs appealed the district court’s finding of fair use.

On appeal, the Ninth Circuit reversed, finding that Maya’s publication of the photographs did not constitute fair use. The Copyright Act directs courts to consider four nonexclusive factors in determining fair use: (1) the purpose and character of the use, (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 on the potential market for or value of the copyrighted work.

Maya argued that the purpose and character of its publication supported a finding of fair use, because its use of the photographs was both newsworthy and transformative, in that Maya used the photographs for an “exposé” of plaintiffs’ clandestine wedding. The court disagreed, finding that newsworthiness alone does not require a finding of fair use and that Maya added nothing new to the character, meaning, purpose, or message of the photographs. Although reprinting controversial photographs as part of an exposé may be transformative, Maya was not publishing controversial photographs but rather using the photos to report plaintiffs’ clandestine wedding. According to the court, the pictures were not the controversy, and the controversy surrounding the wedding—that the couple had secretly married and kept the secret for two years—had little to do with the pictures and could have been reported using other means, including the marriage certificate, which was a public record (and which Maya did not include in its story). Maya did not transform the photos into a new work or incorporate the photos as part of a broader work, because the entirety of the “article” was the six photographs with a few added headlines and captions, and the publication left the inherent character of the images as wedding photos unchanged. The court also found that, being a gossip magazine, Maya’s purpose in using the pictures was undisputedly commercial, militating against a finding of fair use Acknowledging the newsworthiness of Maya’s reporting on plaintiffs’ clandestine wedding, the court concluded that, at best, the purpose and character of Maya’s publication were a neutral factor and did not support its claim of fair use.

The court found that the remaining factors also militated against fair use. In determining the nature of the works, the court found that while plaintiffs’ photographs were only marginally creative, they were previously unpublished, and plaintiffs’ right to control their first publication outweighed Maya’s claim of fair use. Maya had also used the entirety of plaintiffs’ copyrighted works—all the photographs of the wedding and almost all the photographs of the wedding night, and with minimal change to the photos themselves. Noting that Maya could have broken the story with other documentation instead of the couple’s pictures and that, even absent official documentation of the marriage, only one photo of the couple in their wedding garb would have sufficed to tell the story, Maya used far more of the copyrighted works than was necessary. Finally, Maya’s use of the photographs undermined the market for plaintiffs’ photographs. Noting “little doubt” about the existence of an actual market for these wedding photos, because the plaintiffs were in the business of marketing images of themselves and, in fact, Maya had paid them for photographs in the past, the court found that “the bottom literally dropped out of the market—neither Maya nor anybody else is likely to purchase these pictures from the couple” after Maya’s first, exclusive publication. After considering the four factors separately, the Ninth Circuit “put them in the judicial blender to find the appropriate balance” and concluded: “Without a single factor tipping in its favor, Maya has not met its burden [to establish fair use]. Because Maya’s affirmative defense of fair use fails as a matter of law, the district court erred by granting summary judgment in favor of Maya on the basis of fair use. Instead, the district court should have granted the couple’s summary judgment motion on this issue.” 

For more information, please contact Jonathan Zavin at jzavin@loeb.com or at 212.407.4161.

Westlaw decisions are reprinted with permission of Thomson/West. If you wish to check the currency of these cases, you may do so using KeyCite on Westlaw by visiting http://www.westlaw.com/.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

Published In: Art, Entertainment & Sports Updates, Bankruptcy Updates, Civil Remedies Updates, Intellectual Property Updates, Privacy Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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