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As in previous Court documents, Plaintiff DaimlerChrysler Services is referred to

here as “DCS.” Defendant Summit National, Inc., is referred to as “SNI.”

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

DAIMLERCHRYSLER SERVICES,

Plaintiff,

v.

SUMMIT NATIONAL,

Defendant.

 /

Case No. 02-71871

Honorable Nancy G. Edmunds

SUPPLEMENTAL OPINION REGARDING DAMAGES PROOFS

In this Court’s April 8, 2004, Order Denying DCS’s1

 Motion for Summary Judgment,

the Court discussed the potential damages in this case. The Court noted that if Summit

proves a copyright infringement, it can recover “either actual damages plus any nonduplicative profits made by the infringer, or statutory damages.” (Doc. 213.) These

theories of damages are provided by 17 U.S.C. § 504(b) and § 504(c), respectively. The

Court went on briefly to discuss Section 504(b) damages, and concluded by finding that

summary judgment in favor of DCS was inappropriate. This Supplemental Opinion is

intended to provide guidance for the parties as they prepare for trial. It addresses the two

areas of damages under Section 504(b)--actual damages and profits. While it does not

address any one particular motion, the discussion below supplements the Court’s rulings

on the parties’ motions in limine, many of which touch upon or depend upon the following

issues.

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I. Actual Damages

If successful in its copyright infringement action, SNI is entitled to recover from DCS

“actual damages suffered by him or her as a result of the infringement . . . .” 17 U.S.C. §

504(b). Professor Nimmer’s copyright treatise points out an important limitation of this

section of the Copyright Act, however: “[N]either its text nor the Committee Reports attempt

to define the nature of those actual damages.” Nimmer on Copyright § 14.02.

In the present case, DCS has admitted that ALAS was so critical to its business that

without ALAS (or some suitable substitute), it would have had to shut down. SNI points out

the obvious fact that ALAS was worth more to SNI than it was worth on the open market.

Thus, SNI argues, actual damages should not be measured by the market value of ALAS,

but should rather be measured by the value of ALAS to DCS.

DCS frames the issue differently. It contends that the actual damages computation

should have nothing to do with the unique facts of this case, and that SNI’s actual damages

should be limited to what it reasonably would have charged for ALAS--in other words, fair

market value. In DCS’s words, SNI “is arguing that it had DaimlerChrysler over a barrel,

and that this subjective factor should be taken into account in calculating its ‘reasonable

royalty.’” (Doc. 296 at 27.)

The Court is satisfied that DCS’s description of actual damages is most consistent

with the purposes of the Copyright Act and the case law interpreting it. In one leading

case, the Second Circuit stated, “The question is not what the owner would have charged,

but rather what is the fair market value.” Davis v. The Gap, Inc., 246 F.3d 152, 166 (2d Cir.

2001). In another, the Seventh Circuit described the appropriate inquiry as “the amount a

willing buyer would have been reasonably required to pay a willing seller at the time of the

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infringement for the use . . . .” McRoberts Software, Inc. v. Media 100, Inc., 329 F.3d 557,

569 (7th Cir. 2003). 

Neither of these formulations permit the sort of actual damages recovery SNI now

seeks. The Court holds that SNI may not rely on its own subjective estimate as to the price

it would have charged DCS given DCS’s predicament. To recover actual damages, SNI

must introduce evidence of the fair market value of ALAS at the time of the infringement.

In other words, “the amount a willing buyer would have been reasonably required to pay

. . . .” McRoberts Software, 329 F.3d at 569 (emphasis added). 

II. Profits

In addition to actual damages, Section 504(b) provides that SNI may recover “any

profits of the infringer that are attributable to the infringement and are not taken into

account in computing the actual damages.” 17 U.S.C. § 504(b). The Copyright Act goes

on to describe a burden-shifting analysis: 

In establishing the infringer’s profits, the copyright owner is required to

present proof only of the infringer’s gross revenue, and the infringer is

required to prove his or her deductible expenses and the elements of profit

attributable to factors other than the copyrighted work.

Id. 

SNI relies on this language for the proposition that it needs only to allege DCS’s gross

revenue, and that the burden then shifts to DCS to show what portions of revenue are not

attributable to the alleged copyright infringement. SNI fails to recognize, however, that

what sets this case apart from most typical Section 504(b) damages questions is that DCS

is not alleged to have sold the infringing product. Rather, DCS is only alleged to have used

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ALAS to make money through other means--namely, automobile financing. In other words,

any profits attributable to DCS’s alleged infringement are indirect profits. 

SNI relies largely on McRoberts Software, in which the court upheld a large damages

award against the defendant, applying the straightforward burden-shifting analysis for

profits damages. 329 F.3d at 568-69. But while SNI describes McRoberts as a “recent

decision in the computer software area” (Doc. 297 at 19), it fails to mention that the

defendant in that case had sold the infringed software itself. Id. at 562-63. McRoberts

does not address the precise issue of indirect profits.

SNI also relies on Stenograph L.L.C. v. Bossard Associates, Inc., 144 F.3d 96 (D.C.

Cir. 1998), a case in which the defendant had used the plaintiff’s transcription software

without license. Id. at 97. On appeal, the court held that the profits awarded were

appropriate, based on the following discussion: “The amount . . . presumably represents

Brossard Associates’ total revenues . . . minus an estimation of expenses related to the use

of [different, non-infringing] software . . . . [A]fter Stenograph introduced the statement

containing Brossard Associates’ gross revenues for the relevant time period . . . , the

burden shifted to Bossard under 17 U.S.C. § 504(b) . . . .” Id. at 103. 

Indeed, Stenograph supports SNI’s position. But the court makes no mention of the

precise issue now facing this Court: Whether all of the defendant’s profits are “attributable

to the infringement,” 17 U.S.C. § 504(b), merely because the plaintiff’s software was an

essential component of a larger profit-generating process. The reasoning as to indirect

profits in Stenograph is unpersuasive.

The most persuasive case that SNI cites is Andreas v. Volkswagen of America, 336

F.3d 789 (8th Cir. 2003), in which the defendant wrongfully used the plaintiff’s artwork in

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a television commercial for the Audi TT coupe. The court recognized that the profits

generated by sales of the TT coupe were not entirely attributable to the commercial alone,

much less role played by the plaintiff’s artwork. Id. at 797. Nevertheless, the court held

that whether profits are “indirect” as opposed to “direct” is beyond the concern of Section

504(b):

Although cases distinguish between direct and indirect profits, the statute

does not. We agree that in an indirect profits case the profits “attributable”

to the infringement are more difficult to quantify. But that difficulty does not

change the burden of proof established by the statute. The burden of

establishing that profits are attributable to the infringed work often gets

confused with the burden of apportioning profits between various factors

contributing to the profits . . . . The nexus requirement exists in both direct

and indirect profits cases . . . . Once that nexus is established in either a

direct or indirect profits case, if “an infringer’s profits are attributable to factors

in addition to use of plaintiff's work, an apportionment of profits is proper.

The burden of proving apportionment (i.e., the contribution to profits of

elements other than the infringed property), is the defendant’s.”

Id. at 796 (internal citations omitted).

DCS urges the Court to take a different approach, arguing that although it could not

likely have carried on business without ALAS (or some suitable substitute), it does not

follow that every cent of profit DCS generated was attributable to ALAS. Its analogy is

helpful in this respect: DCS could not operate without its toilets either, but that does not

mean that all of its profits are attributable to commodes.

DCS cites (among other cases) Lowry's Reports, Inc. v. Legg Mason, Inc., 271 F.

Supp. 2d 737 (D. Md. 2003), a factually analogous case. There, the defendant had

wrongfully used the plaintiff’s stock reports to give advice to its own customers. Id. at 751.

The court reasoned, 

In the case of “direct profits,” such as result from the sale or performance of

copyrighted material, the nexus is obvious. In the case of “indirect profits,”

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the nexus may be too attenuated. The court “must conduct a threshold

inquiry into whether there is a legally sufficient causal link between the

infringement and the subsequent indirect profits.” It may deny recovery if the

profits “are only remotely or speculatively attributable to the infringement.”

Id. Applying the facts before it, the court denied the plaintiff’s claim for profits as too

speculative: 

Although it seems that some of [the defendant’s] profits “should” relate to its

infringing use of [the plaintiff’s] Reports, the appearance defies reason . . . .

[The plaintiff] has articulated no more than a speculative correlation. It is

utterly implausible that all of [the defendant’s] profits resulted from its

infringing use of the Reports. 

Id. at 752. 

The same analysis was followed in what appears to be the only case out of this Court

to address the issue of indirect profits. In Rainey v. Wayne State University, 26 F. Supp.

2d 963 (E.D. Mich. 1998), the defendant wrongfully used plaintiff’s design in its advertising

brochures. The Court pointed out that profits damages “must be based on credible

evidence, not speculation,” and that “in cases where profits cannot be traced only to the

infringing work but rather to a complex income stream, courts have required that plaintiff

introduce detailed evidence linking gross revenues to the infringement.” Id. at 971-72. The

court held that because the plaintiff “failed to submit any credible evidence from which the

fact finder could apportion profits attributable to the infringement,” an award of the

defendants profits was inappropriate. Id. at 972. 

The Court recognizes the difficulty with reconciling the above approaches. The Court

also recognizes that the text of Section 405(b) offers limited guidance. But while the statute

does not explicitly mention “indirect profits,” it very clearly requires that recoverable profits

be “attributable to the infringement.” 17 U.S.C. § 405(b). In the absence of direct

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mandatory authority, the Court is persuaded by those cases placing a heightened initial

burden on the copyright holder where profits are indirect. 

To recover DCS’s profits as provided by Section 504(b), SNI must do more than

merely point to DCS’s balance sheet. To meet its initial burden, SNI must “establish[] a

causal nexus between the infringing conduct and the infringer’s gross revenue.” Lowry's

Reports, 271 F. Supp. 2d at 751 (citing Walker v. Forbes, Inc., 28 F.3d 409, 412 (4th Cir.

1994); Mackie v. Rieser, 296 F.3d 909, 915 (9th Cir. 2002); On Davis v. The Gap, Inc., 246

F.3d 152, 160 (2d Cir. 2001)). Clearly, DCS’s entire gross revenue is not attributable to

ALAS source code. It is therefore incumbent upon SNI to make a threshold showing of the

nexus between DCS and those profits generated by the infringement of ALAS.

s/Nancy G. Edmunds 

Nancy G. Edmunds

United States District Judge

Dated: January 26, 2006

I hereby certify that a copy of the foregoing document was served upon counsel of record

on January 26, 2006, by electronic and/or ordinary mail.

s/Carol A. Hemeyer 

Case Manager

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