Articles Posted in Damages

Chicago, Illinois – The Seventh Circuit ruled in the ongoing intellectual property litigation between Plaintiff Lightspeed Media Corp. and Defendants Anthony Smith et al.

Attorneys for Lightspeed Media Corp. have filed numerous lawsuits nationwide in an apparent attempt to extract quick settlements from individual users who would rather avoid litigating their pornography consumption in open court. After pushback from Defendants and their internet service providers, as well as the imposition of sanctions by the Central District of California in a similar case, the attorneys began to voluntarily dismiss some of the cases.

The litigation against Defendant Smith was one such dismissed lawsuit. After the dismissal, Smith filed a motion for attorney’s fees. The Southern District of Illinois found that the Lightspeed lawsuit had been frivolous, baseless, and “smacked of bullying pretense,” and imposed sanctions of $261,025.11, jointly and severally, against three lawyers for Lightspeed: Paul Hansmeier, John Steele, and Paul Duffy.

Much legal wrangling ensued. While pleading to the court an inability to pay the sanctions, Steele withdrew over $300,000 from an account that he shared with his wife. Hansmeier withdrew a similar amount from one of his accounts. Each of these transfers was apparently an attempt to conceal the funds from the court and Smith. Other actions, also apparent attempts to conceal the funds, were also taken by the attorneys. Following these actions, Hansmeier filed for bankruptcy and Duffy passed away.

The Seventh Circuit was asked to consider the appropriateness of the sanction against the three attorneys. It declined to hear the matter as to Duffy, stating that because he was deceased he was “beyond [their] jurisdiction.” The appeals court dismissed the appeal as to Hansmeier, noting that, in a liquidation proceeding under Chapter 7 of the bankruptcy code, “only the trustee [of the bankruptcy estate] has standing to prosecute or defend a claim belonging to the estate.”

After a review of multiple instances of discovery misconduct, the appellate court held that the district court had acted within its discretion in imposing a discovery sanction against Steele for what it called a “pattern of vexatious and obstructive conduct” and “obviously egregious behavior.”

The appellate court then turned to the matter of the contempt sanction against Steele. Steele argued that the sanction was in fact criminal in nature, not civil. Thus, he contended, the district court had failed to abide by the enhanced procedural safeguards required for such a sanction.

The Seventh Circuit agreed. It held that, while “civil contempt may be imposed if proven by clear and convincing evidence, and without the full criminal procedural process,” imposing criminal contempt required more. Specifically, it required that the contemnor be “afforded the protections that the Constitution requires of such criminal proceedings.”

The appellate court also held that the fine, as ordered by the district court, was not “designed either to compel the contemnor into compliance with an existing court order or to compensate the complainant for losses sustained as a result of the contumacy,” as was appropriate for a finding of civil contempt. Instead, the sanctions that had been levied against Steele were punitive in nature, and “meant to vindicate the authority of the court.” Thus, they were properly deemed criminal sanctions.

Concluding that the procedures required under the Constitution for criminal contempt had not been applied, the Seventh Circuit vacated the contempt sanction.

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Washington, D.C. – A unanimous decision by the U.S. Supreme Court this week gave district courts more flexibility to award enhanced damage in cases of willful patent infringement.

This decision consolidated two patent infringement lawsuits, Halo Electronics, Inc. v. Pulse Electronics, Inc., et al. and Stryker Corp. et al. v. Zimmer, Inc., et al, in which Indiana-based Zimmer, Inc. was sued. In each lawsuit, the proper interpretation of the statutory language of 35 U.S.C. §284, which permits district courts the discretion to award enhanced damages in cases of patent infringement, was at issue.

The exercise of that discretion is guided by the principle that enhanced damages are to be limited to cases of egregious misconduct. Prior to this week’s decision, it was also guided by a test elucidated by the Federal Circuit, as set forth in In re Seagate Technology, LLC. This test requires a patent owner to show two things by clear and convincing evidence: first, “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and, second, that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.”

In a unanimous opinion written by Chief Justice John Roberts, the Court held that while the Seagate standard reflected an appropriate recognition that enhanced damages were to be awarded only in egregious cases, the test set forth by the Federal Circuit “is unduly rigid” and “impermissibly encumbers the statutory grant of discretion to district courts.”

The Court primarily took issue with the requirement that objective recklessness be found, holding that such a threshold “excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent–with no doubts about its validity or any notion of a defense–for no purpose other than to steal the patentee’s business.”

The Court also noted that the Seagate test improperly allowed ex post facto defenses in considering culpability. Specifically, under the Seagate test, an infringer could rely on a defense at trial, even if he had been unaware of that defense at the time he had acted. This, the Court held, ignored the general rule that culpability is to be determined by an actor’s knowledge at the time of the conduct in question.

Finally, the Court rejected the requirement that recklessness be proved by clear and convincing evidence, finding it to be inconsistent with §284. Instead, it stated that enhanced damages are no different from patent infringement litigation in general, which “has always been governed by a preponderance of the evidence standard.”

The Court vacated the judgments of the Federal Circuit in both cases and remanded them for further proceedings consistent with the Court’s opinion.

Although this was a unanimous opinion, Justice Breyer authored a concurring opinion, in which Justices Alito and Kennedy joined.

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Indianapolis, Indiana – An Indiana copyright lawyer for Defendant Wrightspeed, Inc. of San Jose California filed a notice of removal in the Southern District of Indiana on the basis of both federal-question jurisdiction and diversity-of-citizenship jurisdiction.

Plaintiff Precision Rings, Inc. of Indianapolis, Indiana had filed its lawsuit in Marion County Superior Court seeking declaratory relief, injunctive relief, unspecified damages and attorney’s fees. Among Plaintiff’s contentions was the breach of a nondisclosure agreement. Included in this alleged breach was the misappropriation of Plaintiff’s trade secrets, which involved the use or disclosure by Defendant of certain copyrighted drawings that Plaintiff had registered with the U.S. Copyright Office.

Defendant Wrightspeed contended that federal-question jurisdiction was proper and asked that the federal court in the Southern District of Indiana hear and decide all further matters in the litigation. Defendant asserted that the complaint arose under copyright law because Plaintiff’s complaint included a claim that would require construction of the Copyright Act. Consequently, subject matter jurisdiction rested exclusively in federal court.

Defendant Wrightspeed also asserted that diversity-of-citizenship jurisdiction was a proper basis for the Indiana federal court to hear the litigation. The parties were completely diverse, it stated, with Plaintiff being a citizen of Indiana and Defendant being a citizen of both Delaware and California. Defendant contended further that, considering the potential damages, fees and costs, the amount at stake was well in excess of the $75,000 threshold necessary for diversity-of-citizenship jurisdiction.

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Washington, D.C. -The United States Supreme Court has agreed to hear appeals in two separate lawsuits, Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., Case No. 14-1513, and Stryker Corp, et al. v. Zimmer, Inc., et al., Case No. 14-1520, on the issue of willfulness as a prerequisite for awarding enhanced damages in patent infringement litigation. The two cases were consolidated.

Under 35 U.S.C. § 284 of the Patent Act, a district court “may increase … damages up to three times the amount found or assessed.” Despite this language, which on its surface is permissive and discretionary, the Federal Circuit imposes a stricter test. For a district court to award enhanced damages under § 284, this test requires that a patentee prove by clear and convincing evidence that infringement was “willful.” A determination of willfulness requires a finding of both (1) an objectively high likelihood that the infringer’s actions constituted infringement, and (2) that this likelihood was either known or so obvious that it should have been known to the accused infringer.

The questions presented to the Supreme Court are:

1. Has the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases?

2. Does a district court have discretion under 35 U.S.C. § 284 to award enhanced damages where an infringer intentionally copied a direct competitor’s patented invention, knew the invention was covered by multiple patents, and made no attempt to avoid infringing the patents on that invention?

The Court granted motions by Independent Inventor Groups and Nokia Technologies OY, et al. to file briefs as amici curiae.

Practice Tip: In December 2014, the Federal Circuit overturned the decision of the Western District of Michigan to triple the damages awarded to Stryker, reducing the amount from $228 million to $70 million.

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Indianapolis, Indiana – Plaintiff and Indiana copyright attorney Richard Bell of McCordsville, Indiana was ordered by Judge Tanya Walton Pratt of the Southern District of Indiana to pay almost $34,000 in attorney’s fees and costs to Defendant Charles Lantz, whom Bell had sued on unsupported allegations of copyright infringement.

Indiana copyright attorney Richard Bell, who is also a professional photographer, has sued hundreds for copyright infringement. The lawsuits began in 2011. At issue in Bell’s spate of litigation were allegations of unauthorized use of his copyrighted photograph of the Indianapolis skyline, which had been registered at the U.S. Copyright Office. The ongoing saga of this multiplicity of copyright lawsuits took an interesting, if unsurprising, turn last week.

According to an article in The Indiana Lawyer, Bell has said that most Defendants whom he has sued have settled early. Acknowledging the expense of litigation – and the relative ease of escaping litigation by simply paying a settlement without any finding of liability – Bell said, “A responsible lawyer and their clients, they obviously know it’s going to be far more expensive to try it.”

A current copyright-infringement lawsuit, filed January 8, 2013 by Bell, named forty-seven Defendants. Forty-six of those Defendants were dismissed from the lawsuit, including some who settled and some against whom a default judgment was issued. Default judgments of $2,500 were awarded in this litigation.

One Defendant, Charles Lantz, refused to pay for copyright infringement that he had not committed and hired Indiana intellectual property attorney Paul Overhauser (publisher of this blog) to defend him. In December 2014, Lantz’s perseverance paid off and the court granted an unopposed motion for voluntary dismissal of the litigation against Lantz. Last week, Lantz’s perseverance paid off again when Overhauser, on behalf of Lantz, sought and was awarded $33,974.65 in attorney’s fees and costs from Plaintiff Bell.

The court explained that, because Bell’s copyright litigation against Lantz had been dismissed with prejudice, Lantz became the “prevailing party” under the Copyright Act. Under 17 U.S.C. § 505, in any civil copyright action, the district court may award litigation costs, including attorney’s fees, to the prevailing party.

In evaluating whether to exercise its discretion to award such costs to Lantz, the court stated, “Defendants who defeat a copyright infringement action are entitled to a strong presumption in favor of a grant of fees.” The court looked to the Fogerty factors, which are so named after Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), a U.S. Supreme Court case involving the shifting of costs in copyright litigation. These factors are nonexclusive and include: “(1) the frivolousness of the action; (2) the losing party’s motivation for filing or contesting the action; (3) the objective unreasonableness of the action; and (4) the need to advance considerations of compensation and deterrence.”

The court found that each of these factors weighed against Bell. It stated that Bell had possessed no evidence against Lantz that would prove either a conversion or a copyright claim. It also characterized Bell’s motivation for filing the lawsuit as “questionable,” noting that Bell had attempted to save himself “extensive filing fees” by improperly joining defendants and had “sued forty-seven defendants and then quickly offered settlements to defendants who were unwilling to pay for a legal defense.”

Regarding the third and fourth factors, the court held that the litigation was objectively unreasonable, given that Lantz had been sued “without any evidence to support the claims.” The court then turned to the last of the Fogerty factors, the need to advance considerations of compensation and deterrence. It noted that Bell had leveraged his status as a practicing attorney “to file meritless suits and to attempt to outmaneuver the legal system” (which was perhaps a hat tip to the now-famous opinion written by Judge Otis D. Wright III, who employed similar language against another copyright plaintiff widely regarded as a copyright troll).

Finally, the court was not swayed by Bell’s assertions that Lantz had failed to inform Bell that the wrong defendant had been sued and that Lantz had incurred unnecessary attorney’s fees. In response to these claims, the court noted that Lantz had “denied liability at his first opportunity.” The court also opined that, while defense counsel is not required to take the most economical defense strategy in defending a copyright lawsuit, it appeared that the “most economical approach feasible” may have been taken.

With all Fogerty factors weighing against Bell and no viable opposition permitting either an escape from fees and costs or a lessening of the amount, the court awarded to Defendant Lantz $33,974.65, the full amount requested.

Practice Tip: The Indiana Lawyer wrote an interesting piece regarding Judge Pratt’s order. That article may be viewed here.

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Coach-Picture.jpgSouth Bend, IndianaChief Judge Philip P. Simon of the Northern District of Indiana ordered Defendants The Treasure Box, Inc. and Heather Hiatt, both of Elkhart, Indiana to pay statutory damages, attorney’s fees and costs to Coach, Inc. of New York, New York and Coach Services, Inc. of Jacksonville, Florida for trademark infringement and counterfeiting.

By way of summary judgment, the court had earlier determined in this Indiana trademark and counterfeit litigation that Defendants The Treasure Box and Hiatt were liable for the trademark infringement and trademark counterfeiting of Plaintiff Coach’s trademarks. The court’s summary judgment determinations also included a finding that “The Treasure Box and Heather Hiatt acted with knowledge and intent” that was sufficient to support enhanced statutory damages. In this opinion and order, the court fixed the amount due to Coach from Defendants.

Instead of requesting actual damages resulting from Defendants’ trademark infringement and counterfeiting within Indiana, Coach opted for statutory damages under §1117(c). It asked the court for damages of $100,000 for each of the 15 infringing marks, for a total of $1,500,000. The Treasure Box and Hiatt, unrepresented by counsel at the time, filed no response or opposition to Coach’s damages request.

The court first addressed the proper measure of damages. Statutory damages for trademark infringement and trademark counterfeiting under 15 U.S.C. §1114 are limited to:

(1) not less than $1,000 or more than $200,000 per counterfeit mark per type of goods…, as the court considers just; or
(2) if the court finds that the use of the counterfeit mark was willful, not more than $2,000,000 per counterfeit mark per type of good…, as the court considers just.

Because the statute provides little guidance regarding what constitutes a “just” award, the court referred to the relevant factors under the analogous statutory damages provision in the Copyright Act, 17 U.S.C. §504(c). These considerations include: the profits reaped by the infringer; the revenues lost by the plaintiff; the value of the trademarks; whether the infringing conduct was willful; the duration of the infringement; and the potential deterrent effect on the defendant and others.

The court considered each factor in turn. It found that, because The Treasure Box’s operations were both brief and “even trivial” in scale, neither Defendants’ profits nor Coach’s lost revenue supported a large statutory damages award. Instead, the court cited Nimmer on Copyright for the proposition that statutory damages “should be woven out of the same bolt of cloth as actual damages.” “Statutory damages,” said the court, “should represent some approximation of actual damages and are not to represent a windfall to a prevailing plaintiff.”

In contrast, the factors of “value of the trademarks” and “willful conduct” weighed against Defendants. The court acknowledged that the Coach trademarks were valuable and noted that, in determining statutory damages, other courts had valued the trademarks at between $2,000 per mark and $30,000 per mark, for an average of approximately $14,000 per mark. Moreover, it characterized Hiatt’s infringement as having been pursued with “bold willfulness” with regard to her efforts to sell what she knew was knock-off Coach merchandise.

The last two considerations – duration of infringement and potential deterrent effect on Defendant and others – weighed against a large award of damages. The Treasure Box had operated for only three months, closing in late 2011. Such a brief term of infringement, as well as the court’s conclusion that Hiatt and the defunct The Treasure Box were now apparently beyond deterrence, militated in favor of lower damages. Regarding deterrence for others, the court stated, “Mom & Pop operators such as the Hiatts could doubtless be deterred from similar conduct by much less frightful sums than the $1.5 million Coach requests.”

The court concluded that an award of $3,000 per trademark for each of the 15 counterfeited trademarks at issue, for a statutory damages award of $45,000, was appropriate.

The court was also asked to award to Coach attorney’s fees of $14,780 pursuant to §1117(a)(3). This section permits a court “in exceptional cases” to award reasonable attorney’s fees to the prevailing party. The court first noted the ambiguity inherent in the placement of §1117(a)(3) within the statute. Specifically, subsection (a) addresses recovery for actual damages, while subsection (c) allows a plaintiff to opt for statutory damages. Here, Coach chose an award of statutory damages under subsection (c), which raised the question of whether the provision for attorney’s fees under §1117(a)(3) could be applied.

The only Court of Appeals to have addressed the question was the Second Circuit. That court concluded that subsection (c) offers an election as to the basis for damages, but not an election regarding remedies, including attorney’s fees. Thus, it concluded, a court could award attorney’s fees in conjunction with an award for either actual or statutory damages. Chief Judge Simon adopted the Second Circuit’s reasoning. He also determined that the definition of an “exceptional” case – for example, one in which “the losing party was the defendant and had no defense yet persisted in trademark infringement” – was also met, given the willfulness of Defendants’ knowing sale of counterfeit Coach goods and that Defendants had no viable defense.

In addition to the statutory damages award of $45,000, the court awarded attorney’s fees of $14,780 as well as expenses and costs of $1,076.16 to Coach. The judgments were entered against Treasure Box, Inc. and Heather Hiatt jointly and severally.

Practice Tip: Chief Judge Simon noted that Coach had a history of requesting statutory damages that were considerably in excess of what was eventually awarded by the courts in other cases. In Coach, Inc. v. Paula’s Store Sportwear LLC, 2014 WL 347893 (D.N.J. Jan. 31, 2014), Coach requested $800,000 in statutory damages – $100,000 for each of eight counterfeited marks – at a shop from which four counterfeit Coach wallets and two counterfeit Coach handbags had been seized. In that litigation for counterfeiting, the court noted that the retail value of the six counterfeit items was less than $1500 and awarded $5000 for each of the eight marks that had been counterfeited, multiplied by the two types of goods, for a total statutory damages award of $80,000.

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Indianapolis, Indiana – In Bell v. Glacier International, District Judge Tanya Walton Pratt (pictured) ofJudgePratt.jpg the Southern District of Indiana granted default judgments against three defendants, DiamondIndyLimo.com, Lon Dunn and Glacier International. In the three nearly identical opinions, the three defendants were each ordered to pay statutory damages of $2,500 for infringing a copyrighted photograph.

In January 2013, Indiana copyright attorney and professional photographer Richard N. Bell, acting as his own copyright lawyer, sued alleging copyright infringement under the Copyright Act and conversion under Indiana statutory law as a result of the allegedly unauthorized use of a photograph he had taken. This photograph had been registered with the United States Copyright Office.

In this lawsuit, Bell sued forty-eight Defendants: Jerry Gordon; Demand Media, Inc.; Bryce Welker; Royal Corniche Travel Ltd.; VRBO.com, Inc.; Experience Credit Unions, LLC; Jaclothing.com; Glacier International; ABNHotels.com; 1&1 Internet, Inc.; Conde Nast Digital; Flixter, Inc.; Financing-USA.com; SodaHead, Inc.; NuMedia Marketing, Inc.; Jynell Berkshire; Tzvetelin Petrov; Los Pentecostales del Area de la Bahia; 10Best, Inc.; Keyes Outdoor Advertising; Zoom Communications Inc.; Christine Nevogt; Zarzar, Inc.; Hydro-Gear; Tam T. Dang; Lon Dunn; William McLaws, Trustee; Natl-electronic Residential Payment History Recording Agency; CVI; Constant Contact, Inc.; Charles Lantz; Schumacher Cargo Logistics; Eventbrite, Inc.; Celebrity Entertainment Corp.; Association of Equipment Manufacturers; Yardi Systems Inc.; DiamondIndyLimo.com; Marcelo Santos; National Rural Recruitment & Retention Network; Anbritt Stengele; Pinnacle Sports Equipment, Inc.; Marygrove College; RunAnyCity.com; Buzzle.com, Inc.; Charles Onuska; University of Indianapolis; and PersephoneMagazine.com.

Bell alleged that each Defendant, independent of each other Defendant, “created a website to promote and advertise its own business” and placed Bell’s copyrighted photo on each of the Defendants’ respective websites. In addition to asserting copyright infringement, Bell also alleged criminal misconduct under Indiana statutory law. Bell requested an injunction and a declaratory judgment. He also asked the court for damages for copyright infringement under the Copyright Act as well as treble damages under an Indiana criminal statute prohibiting conversion.

In September 2013, the court entered default judgments against each of the three Defendants. Last week, the court issued three new opinions addressing the damages to be assessed against those Defendants.

The court first discussed the issue of damages for copyright infringement. Under 17 U.S.C. § 504(c)(1), statutory damages, in lieu of actual damages and profits, may be awarded “in a sum not less than $750 or more than $30,000” for each finding of infringement. A determination of willful copyright infringement permits the court in its discretion to increase the award of statutory damages up to $150,000 per infringement.

In determining the appropriate measure of statutory damages, the court considers factors including: (1) the infringer’s state of mind; (2) the expenses saved, and profits earned, by the infringer; (3) the revenue lost by the copyright holder; (4) the deterrent effect on the infringer and third parties; (5) the infringer’s cooperation in providing evidence concerning the value of the infringing material; and (6) the conduct and attitude of the parties.

The court declined to find the copyright infringement to be willful, in part because Bell requested statutory damages well under $30,000.00 per instance of infringement. Instead, the court found that $2,500 per Defendant was an appropriate measure of damages. An injunction was also granted, as it would serve the public interest by protecting copyrighted material and encouraging compliance with federal law. The injunction will be lifted upon payment of the award of statutory damages.

A claim of conversion under Indiana state law, and treble damages awarded pursuant to such a claim, was denied as preempted by the Copyright Act. Indiana code § 35-43-4-3(a) provides that a “person who knowingly or intentionally exerts unauthorized control over property of another person commits criminal conversion.” However, section 310 of the Copyright Act preempts “all legal or equitable rights that are the equivalent to any of the exclusive rights within the general scope of copyright” and that “no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.” The court held that the photograph in question was clearly under the scope of the Copyright Act and that Bell had not sufficiently alleged a right apart from the Act. Thus, no damages were available under Bell’s state law conversion claim.

Practice Tip:

Deciding to simply ignore a complaint, as these defendants apparently did, can be a costly error. Failing to present the defendants’ versions of the facts and arguments results in the court considering only the plaintiff’s side of the story. Here, because the defendants chose to leave the complaint unanswered, the well-pled allegations of the plaintiff relating to liability were taken as true.

After the entry of default judgment, the court then conducted an inquiry to ascertain the amount of damages. Again, in such circumstances, it serves a defendant well to plead his case – to present the court with reasons that the plaintiff should not get 100% of what he requests.

Under 17 U.S.C. § 504(c)(1), a copyright owner may elect actual or statutory damages. Statutory damages range from a sum of not less than $750 to not more than $30,000. The determination of the exact amount is left to the discretion of the court. In this case, Richard Bell asked the court for no less than $5,000. In some cases, courts in determining damages in cases of default judgment have granted the entire amount. In this case, the court took the additional step of considering the cost to purchase Plaintiff Bell’s picture – $200 – and incorporated that into its determination of the proper amount of damages to be awarded.

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Washington, D.C. – Public meetings called for in U.S. Commerce Department’s Green Paper on “Copyright Policy, Creativity, and Innovation in the Digital Economy” will be held in Tennessee, Massachusetts and California.

The U.S. Department of Commerce’s Internet Policy Task Force will host roundtable discussions in cities around the country on several copyright Internet policy topics, as part of the work envisioned in the Green Paper. The purpose of the roundtables is to engage further with members of the public on the following issues: (1) the legal framework for the creation of remixes; (2) the relevance and scope of the first sale doctrine in the digital environment; and (3) the appropriate calibration of statutory damages in the contexts of individual file sharers and of secondary liability for large-scale infringement.

The roundtables, which will be led by the U.S. Patent and Trademark Office (“USPTO”) and the National Telecommunications and Information Administration (NTIA), will be held in Nashville, Tennessee on May 21, 2014, Cambridge, Massachusetts on June 25, 2014, Los Angeles, California on July 29, 2014, and Berkeley, California on July 30, 2014.

Miami, Florida – The Third District Court of Appeal for the State of Florida heard the appeal of Gulliver Schools, Inc. (“Gulliver”) and School Management Systems, Inc. in the age-discrimination and retaliation lawsuit of Patrick Snay. Appellants prevailed on their claim that Mr. Snay had breached the confidentiality clause of the settlement agreement, thus gulliver Stamp picture.jpgeliminating Gulliver’s obligation to pay portions of the settlement amount.

Patrick Snay, formerly the headmaster of Gulliver, sued for age discrimination and retaliation when Gulliver did not renew his contract for the 2010-2011 school term. The dispute was settled and the parties executed a release for the full and final settlement of Snay’s claims. Under the settlement, the school would pay $10,000 in back pay and $80,000 to Snay to settle the matter, as well as $60,000 for Snay’s legal fees.

As part of the settlement, Snay agreed to a detailed confidentiality clause, which provided that the existence and terms of the agreement between Snay and the school were to be kept strictly confidential and that, should Snay or his wife breach the confidentiality provision, a portion of the settlement proceeds (the $80,000) would be disgorged by Snay to Gulliver. This provision read, in pertinent part: “[T]he plaintiff shall not either directly or indirectly, disclose, discuss or communicate to any entity or person, except his attorneys or other professional advisors or spouse any information whatsoever regarding the existence or terms of this Agreement . . . A breach . . . will result in disgorgement of the Plaintiffs [sic] portion of the settlement Payments.”

Shortly after the agreement was signed, Snay informed his daughter that his lawsuit against Gulliver had been settled and that he was happy with the result. Snay’s daughter posted news of the agreement on Facebook, “Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer.” This Facebook post was available for viewing by approximately 1,200 of Snay’s daughter’s Facebook friends, many of whom were either current or past Gulliver students.

Gulliver learned of the Facebook post. Four days after the agreement was signed, Gulliver notified Snay that it considered the Facebook post to be a material breach of the agreement. Gulliver stated that, while it would pay the amount of the settlement which constituted attorneys’ fees, it would not pay any of Snay’s portion as a result of the breach of the confidentiality clause.

Snay moved to enforce the settlement agreement, arguing that his statement to his daughter and her comment on Facebook did not constitute a breach. The trial court agreed, finding that neither Snay’s comments to his daughter nor his daughter’s Facebook comments constituted a breach of the confidentiality agreement.

Gulliver appealed. The appellate court held that the plain language of the contract prohibited the disclosure that Snay had made, stating “before the ink was dry on the agreement, and notwithstanding the clear language . . . mandating confidentiality, Snay violated the agreement by doing exactly what he had promised not to do.” Moreover, the court noted that the significance of confidentiality to Gulliver was evinced by the fact that the majority of the proceeds of the settlement agreement expressly hinged on compliance with the confidentiality provision.

Based on the clear and unambiguous language of the parties’ agreement and Snay’s subsequent testimony that he had, in fact, breached the confidentiality provision, the appellate court found for Gulliver and reversed the trial court’s order granting the Snays’ motion to enforce the settlement agreement.

Practice Tip:

It’s not hard to see how this happened. As parents, the Snays recognized that it was important to inform their daughter of the resolution of this matter. Not only was this settlement significant to Mr. Snay, but the news that a satisfactory resolution had been reached also was presumably intended to assist his daughter in dealing with the difficulties she had apparently encountered as a result of the dispute with Gulliver. According to Mr. Snay, these difficulties had left his daughter with “quite a few psychological scars which forced [him] to put her into therapy.” It is also not difficult to imagine that, feeling vindicated, the Snays’ college-aged daughter would do what many people that age do with big news: she posted it on Facebook.

In situations such as these, contract attorneys must take special care to provide whole-picture legal counseling to their clients, both during settlement negotiations and after. It was not unforeseeable that Mr. or Ms. Snay would inform their daughter of the settlement. Nor was it unforeseeable that she would, in turn, want to share the news with her friends. Presumably, the Snays’ daughter had not realized the importance of confidentiality.

Here, this problem might have been avoided. First, in drafting the confidentiality clause, release of the information to the daughter could have been included. Thus, Mr. Snay would not have signed an agreement that he presumably knew – as he was signing it – that he would soon violate. Second, an explicit and dire warning by the settlement attorney representing Mr. Snay should have been given to anyone privy to the settlement to lessen the chance of an inadvertent breach of the contract, for example: “You, your wife and your daughter absolutely must adhere to the provisions of the confidentiality clause or you could lose some or all of the benefits of this settlement agreement.”

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Indianapolis, Indiana – The United States District Court for the Southern District of Indiana has granted a motion by Malibu Media of Los Angeles, California for default judgment against Kenny Griffith for infringement of the copyrighted work “Slow Motion” which has been registered by the U.S. Copyright Office.

In its complaint, Malibu Media alleged that Griffith and others directly and contributorily infringed its copyrighted work when they downloaded and disseminated without authorization, all or a portion of a movie owned by Malibu Media titled “Slow Motion” using BitTorrent, a peer-to-peer file sharing protocol.  The initial complaint was served upon eight defendants but was later severed.  Discussed in this opinion are the allegations, findings and judgments against Griffith only.

Malibu Media served Griffith with a summons and complaint on January 5, 2013.  He did not respond.  On April 1, 2013, default was entered as to Griffith by Southern District of Indiana Judge William T. Lawrence.  By virtue of this entry of default, it was established as a factual matter that Griffith had uploaded and downloaded all or a portion of the copyrighted work without authorization, and had also enabled countless unknown others to obtain the work in the process.

In the current default-judgment opinion, the court addressed requests by copyright attorneys for Malibu Media for two separate injunctions, for damages, for attorney’s fees and for costs.

The first injunction sought injunctive relief pursuant to 17 U.S.C. §§ 502 and 503.  The court noted that, under § 503(b), a court may order the destruction of all copies made or used in violation of the copyright owner’s exclusive rights.  Given the nature of the infringement that occurred in this case — participating in a “swarm” and downloading and uploading copyrighted work — the court found that this injunction was particularly appropriate.

The second injunction sought asked the court to prohibit Griffith “from directly, contributorily or indirectly infringing [Malibu Media’s] rights under federal or state law in the Work, including, without limitation, by using the internet, BitTorrent or any other online media distribution system to reproduce (e.g., download) or distribute the Works, or to make the Work available for distribution to the public, except pursuant to a lawful license or with the express authority of [Malibu Media].”  The court held that such an injunction was simply a mandate that Griffith follow copyright laws and that the injunction was therefore unnecessary.

The court also denied Malibu Media’s request for attorney’s fees and costs, noting that the fees submitted seemed to reflect legal work done not only in the furtherance of the lawsuit against Griffith, but also seemed to pertain to other related lawsuits involving the previously joined defendants.  As a result of these ambiguities, the court denied Malibu Media’s request for costs and attorney’s fees but indicated that it would be willing to entertain such motions — for attorney’s fees incurred as to Griffith only — upon the entry of final judgments as to all defendants in related cases.

Finally, Malibu Media sought statutory damages in the amount of $20,000.  The court cited “Congress’s recognition of the ‘disturbing trend’ of internet piracy” and found that amount to be just under the circumstances.

Practice Tip:

Deciding to simply ignore a complaint, as Kenny Griffith apparently did, can be a costly error.  Failing to present the defendant’s version of the facts and arguments results in the court considering only the plaintiff’s side of the story.  Here, because the defendant chose to leave the complaint unanswered, the well-pled allegations of the plaintiff relating to liability were taken as true.

After the entry of default judgment, the court then conducted an inquiry to ascertain the amount of damages with “reasonable certainty.”  Again, in such circumstances, it serves a defendant well to plead his case — to present the court with reasons that the plaintiff should not get 100% of what he requests.

Under 17 U.S.C. § 504(c)(1), a copyright owner may elect actual or statutory damages.  Statutory damages range from a sum of not less than $750 to not more than $30,000.  The determination of the exact amount is left to the discretion of the court.  In this case, Malibu Media asked the court for $20,000 and the court, having no arguments from the defendant to suggest that this was excessive, granted the entire amount.

Overhauser Law Offices, the publisher of this website, has represented several hundred persons and businesses regarding copyright infringement and similar matters.          

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