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PROPET USA, INC.’S TRIAL BRIEF - 1

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

ATTORNEYS AT LAW

TELEPHONE: (206) 622-8484

4400 TWO UNION SQUARE

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Honorable Mary Alice Theiler

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

PROPET USA, INC.,

Plaintiff,

v.

LLOYD SHUGART,

Defendant.

Case No. C06-0186 MAT

PROPET USA, INC.’S TRIAL BRIEF

Propet USA, Inc. ("Propet") respectfully submits its Trial Brief. Propet contends

it has a license to use Defendant Lloyd Shugart's (“Shugart”) shoe photographs for reasonable 

business purposes and this license is not limited by the terms and conditions of the "film delivery 

memo." Even if Propet was bound by the “memo,” Propet did not breach the limitations of the 

memo and therefore did not commit copyright or other infringements. Further, Shugart has 

submitted no evidence that Propet knowingly removed any "copyright management information" 

from digital photographs or failed to return any original film or negatives. Similarly, Shugart has 

no evidence that his photographs were "lost" or "stolen." Finally, Shugart's claims are barred by 

his failure to obtain copyright registrations in a timely fashion, waiver, unclean hands, and the 

statute of limitations.

Case 2:06-cv-00186-MAT Document 116 Filed 09/17/2007 Page 1 of 11
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PROPET USA, INC.'S TRIAL BRIEF- 2

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

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A. PROPET RECEIVED AN IMPLIED LICENSE TO USE SHUGART'S 

PHOTOGRAPHS; THE IMPLIED LICENSE PERMITS REASONABLE 

BUSINESS USES; PROPET DID NOT LIMIT THE IMPLIED LICENSE RIGHT

BY AGREEING TO THE TERMS AND CONDITIONS OF THE "FILM 

DELIVERY MEMO"

Over a period of many years Propet paid Shugart over $180,000 to create 

photographs of Propet brand shoes so that Propet could use these materials in Propet’s 

advertising. These photographs would not have been created except that Propet hired Shugart to 

do it. Shugart did not come to Propet offering to sell photographs from an existing Shugart 

portfolio of photographs.

Propet made the mistake of hiring Shugart as an independent contractor and not 

obtaining a writing from him before paying him. A writing would have made Propet the owner 

of the copyright to the photographs Shugart was paid to take. As a consequence of its mistake, 

Propet gave Shugart the opportunity to claim copyright and other kinds of infringements when 

Propet terminated its relationship with Shugart. The dispute among the parties arose when 

Propet asked Shugart to provide an estimate before hiring him for further projects. 

The parties dealt with each other for years on an invoice basis. Until Shugart 

began threatening Propet with copyright infringement, Propet believed it was the legal owner of 

Shugart’s photographs. As Propet previously conceded, because Propet hired Shugart as an 

independent contractor, and not a direct employee, he is the technical copyright holder pursuant 

to law, leaving Propet as an implied licensee. Even so, Propet has an implied nonexclusive 

license to use the photographs for reasonable business purposes. 

Rather than acknowledge Propet’s implied license, Shugart contends that he 

delivered a "Film Delivery Memorandum" ("memo" herein) to Propet that created an express and 

limited license rather than an implied license. Shugart’s delivery of the memo was 

unconventional, however, if he delivered it at all.

Case 2:06-cv-00186-MAT Document 116 Filed 09/17/2007 Page 2 of 11
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PROPET USA, INC.'S TRIAL BRIEF- 3

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

ATTORNEYS AT LAW

TELEPHONE: (206) 622-8484

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According to Shugart, he claims only that he delivered film to Propet with a 

printed “seal” that included verbiage that Propet’s use and license were subject to terms of a 

“film delivery memo” that Shugart did not deliver with the film. The complete statement of 

terms allegedly attached to the film box or film package are set forth below:

Notice:

All film and or images contained herein are the exclusive property 

of Lloyd Shugart, to which Lloyd Shugart retains and holds all 

rights under copyright laws.

Client use and license is subject to all terms of the FILM 

DELIVERY MEMO.

Terms shall be deemed by Client as acknowledged by written 

approval and/or the use of photographs provided by Photographer.

See Dkt. No. 63 at ¶ 8.

Unless Shugart backtracks on his deposition testimony, Shugart provided nothing 

else to Propet when he delivered the film. That is, he did not give Propet the “memo” at the 

same time as the photographs so that its terms could be reviewed before breaking the “seal.” 

There is no evidence that the “film delivery memo” was on the box, in the box, near the box, or 

otherwise given to the Propet employee who received the film. Shugart has never disputed this 

nor indicated otherwise.

Rather than provide the memo to the employee who received the film, Shugart 

instead claims that he mailed the memo to Propet with Shugart’s business invoices – which 

means that the terms were mailed to Propet’s general address after the box was delivered. 

Shugart testified under oath that he delivered the memo to Propet in that way. See Dkt. No. 45, 

Ex. B at 36-37. Shugart’s business invoices make no mention of the memo or other limitations 

imposed on Propet. While copies of the invoices exist, neither party has copies of invoices that 

were accompanied by the alleged memo.

The memo spells out material terms and conditions, not on the “seal,” that 

Shugart now seeks to impose on Propet. These terms include limits on time and whether Propet 

Case 2:06-cv-00186-MAT Document 116 Filed 09/17/2007 Page 3 of 11
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PROPET USA, INC.'S TRIAL BRIEF- 4

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

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had the right to provide product pictures to third parties for their use in advertising Propet’s shoe 

products. By physically separating the delivery of material contract terms and conditions (in the 

form of the more detailed memo) from the alleged act of implied assent to those terms (opening 

the film box provided to the Propet employee earlier), Shugart also separated this case from all

others.

In software licensing cases, for example, it is clear that the party who was to be 

bound by the act of implied assent at least had the opportunity to review the terms and conditions 

of the contract at the time the act of implied assent occurred. Having the opportunity to review 

terms and conditions at the same point in time as the act of assent means that the party bound by 

the assent had the opportunity to reject unreasonable terms and conditions as well as accept 

them.

If, for example, the Propet employee had been provided with a copy of the “film 

delivery memo” at the same time he received the film, he would have had an opportunity to note 

things like time limits, purported limits on third party use, and those parts of the memo that 

might be appropriate for some kinds of things but not appropriate for shoe pictures intended for 

catalogs.

Shugart argues that the terms of the memo control while ignoring the case law 

that states that such licenses are not enforceable if their terms are objectionable or 

unconscionable. ProCD Inc. v. Zeidenberg, 86 F. 3d 1447,1449 (7th Cir. 1996). Anyone who 

reads the "memo" will instantly recognize one-sided and unreasonable terms that no business 

person would agree to.

Shugart does not dispute the fact that Propet never signed the memo. He also 

concedes the fact that he never asked Propet to acknowledge its terms:

Q. Have you ever received any written approval from Propet 

for the film delivery memo?

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PROPET USA, INC.'S TRIAL BRIEF- 5

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

ATTORNEYS AT LAW

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A. No. All I -- All I received was the continued use and hiring to do 

future jobs.

See Shugart Dep. Transcript at 71 and 162. 

Shugart, at his deposition, also testified, under oath:

Q. Mr. Shugart, the limitations of use, do you believe that it is 

the photographers obligation to inform the purchaser of the images 

of any limitations of use?

A. No. I believe it is my responsibility to tell them what they

can use them for....

Id. at 135-36. Shugart concedes he never informed Propet of the limitations of use. Id. at p. 162.

This point is critical because as the Court in Specht v. Netscape Communications 

Corp., 150 F. Supp. 2d 585 (S.D.N.Y. 2001) held, in a similar situation:

The case law on software licensing has not eroded the importance 

of assent in contract formation. Mutual assent is the bedrock of 

any agreement to which the law will give force. Defendants’ 

position, if accepted, would so expand the definition of assent as to 

render it meaningless.

Id. at 596. 

Rendering assent meaningless is precisely what Shugart is attempting to do in this 

case. 

The factual circumstances relating to whether the “memo” is enforceable is 

different from the factual circumstances present in Arizona Retail Systems, M.A. Mortensen Co. 

and the other cases that have been cited in this litigation. See e.g., Arizona Retail Sys. v. 

Software Link, Inc., 831 F. Supp. 759 (D. Arizona 1993); M.A. Mortenson Co. v. Timberline 

Software Corp., 93 Wn. App. 819 (1999). In general, these cases involve situations where 

parties sought to enforce contract terms by implying assent to terms because a party used a 

product, or broke open a package, or did something similar. Id.

Because these cases indicate that assent can be implied by “breaking open the 

package” or “breaking the seal,” and because there may be evidence that a Propet employee 

Case 2:06-cv-00186-MAT Document 116 Filed 09/17/2007 Page 5 of 11
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PROPET USA, INC.'S TRIAL BRIEF- 6

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

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broke open a seal on a box of film delivered by Shugart, he claims that the act of “breaking the 

seal” binds Propet to the terms and conditions of a contract (the “film delivery memo”) that he 

alleges he subsequently delivered to Propet with his billing invoice.

The software licensing cases indicate that assent to contract terms can be implied 

when a party breaks open a package. However, the Court will note that these cases have a 

common thread: in each of these cases, the contract terms and conditions were physically printed 

on the package that contained the product, or were physically delivered with the package that 

contained the product, or were inside the box with the product when it was delivered. Unlike the 

present case, the party breaking open the package had an opportunity to review the terms of the 

contract beforehand. See e.g. Arizona Retail Sys. v. Software Link, Inc., 831 F. Supp. 759 (D. 

Arizona 1993) (provisions in a license agreement accompanied each delivery of software); M.A. 

Mortenson Co. v. Timberline Software Corp., 93 Wash. App. 819 (1999) (a form license 

agreement that is shipped with the diskettes); Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 

91, 93 (3rd Cir. 1991) ("The 'Limited Use License Agreement' printed on a package containing a 

copy of a computer program raises the central issue in this appeal."); Puget Sound Fin. v. 

Unisearch, 146 Wash. 2d 428 (2002)("We are now asked to determine whether limitations on

consequential damages presented in regular invoices for the purchase of commercial services 

can be enforced against a business purchaser.")(emphasis added); I. Lan Sys. v. Netscout Serv. 

Level Corp., 183 F. Supp. 2d 328, 330 (D. Mass. 2002) (terms of "click wrap" license were 

contained on the software itself and had to be scrolled through before clicking "accept"); ProCD, 

Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)( the license was "encoded on the CD-ROM 

disks as well as printed in the manual, and which appears on a user's screen every time the 

software runs...").

In the present case, Shugart wishes to impose the terms of the "memo" on Propet 

via a contracting mechanism that is close to fraud. Rather than give terms with product delivery

he physically separated terms from delivery by providing them at a later time. If he ever 

Case 2:06-cv-00186-MAT Document 116 Filed 09/17/2007 Page 6 of 11
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PROPET USA, INC.'S TRIAL BRIEF- 7

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

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provided the memo at all, he created a situation where the alleged act of assent was physically 

separated from the assenter’s ability to view material terms and conditions. If this Court holds 

that this type of contracting mechanism is viable it will open a Pandora's box.

Propet agrees that Shugart is the copyright owner of the photographs Propet paid 

him to take under the applicable legal guidelines - because Propet failed to obtain a writing that 

transfers Shugart’s works to Propet. However, Propet should be allowed to continue using 

photographs it paid Shugart to take (i.e., a nonexclusive license) according to the 9th Circuit’s 

holding in Eclipse Associates v. Cohen, 908 F.2d 555 (9th Cir. 1990). Propet also acknowledges 

that Shugart has the right to sell or license to others his copyright rights, whatever they are, 

because Propet did not execute a written contract with Shugart. However, Propet should still 

keep its right of use, even if Shugart is somehow able to convey his ownership rights to others or 

license others.

Propet's president will testify that Propet has produced every document it has in 

connection with its relationship with Shugart. Propet has no signed or other executed 

agreements with Shugart. Propet was unaware of seals attached to boxes or film delivery 

memos. Propet was unaware of special limits Shugart intended to impose on Propet. Propet 

would not have agreed to the terms of the memo, or other special limitations, if Propet had 

known about them.

Finally, even if Propet is bound by the memo, Shugart has produced no evidence 

that Propet breached it. According to Shugart, his memo limits Propet’s use of Shugart 

photographs to two years. It is undisputed that Propet terminated its relationship with Shugart in 

2005. Even though Propet had license rights for another two years (until 2007), Propet promptly

proceeded to hire other photographers and replace photographs taken by Shugart.

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PROPET USA, INC.'S TRIAL BRIEF- 8

(C06-0186 MAT)

SEADOCS:292414.1

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B. SHUGART HAS NO EVIDENCE THAT PROPET KNOWINGLY REMOVED 

ANY "COPYRIGHT MANAGEMENT INFORMATION" FROM DIGITAL 

PHOTOGRAPHS

Shugart has no evidence that demonstrates how he applies “copyright 

management information” to his works. No “copyright management information” seems to 

appear on his trial exhibits. Shugart has no evidence that Propet knowingly or intentionally

removed “copyright management information” - which is a requirement for liability under the

Digital Millennium Copyright Act ("DMCA"). Propet's president will testify that Propet lacks 

knowledge about these matters.

C. PROPET HAS RETURNED ALL PHOTOGRAPHS AND NEGATIVES IN ITS 

POSSESSION TO SHUGART

Propet's president will testify that Propet has returned to Shugart all film Propet 

could locate. Propet still has certain digital photographs that are on a Propet computer. Propet 

printed all of these images and made them available for Shugart’s inspection in the Fall 2006. 

Shugart did not bother to inspect them.

D. SHUGART'S CLAIMS ARE BARRED BY WAIVER, UNCLEAN HANDS, AND 

THE STATUTE OF LIMITATIONS. 

Propet’s president will testify that Propet made use of Shugart’s photographs for 

about five years without complaint. Shugart never raised issues relating to his memo or other 

alleged breaches until after Propet terminated its relationship with Shugart.

E. SHUGART HAS NO DAMAGES

At the Court’s direction, the parties have provided the Court with a brief on 

damages. To summarize Propet’s brief on damages, Shugart has never provided to Propet a 

calculation of his damages on any of his counterclaims. Shugart has no evidence of actual

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PROPET USA, INC.'S TRIAL BRIEF- 9

(C06-0186 MAT)

SEADOCS:292414.1

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damage on any of his counterclaims. Shugart has no evidence that Propet profited from the sale 

of his copyrighted images or the like. Shugart has no evidence of a causal relationship between 

Propet’s use of Shugart’s photographs and the profits Propet made from shoe sales. Even if he 

can prove that Propet does not have an implied license, Shugart is not entitled to statutory 

damages for copyright infringement because he did not seek copyright registrations until after 

this action commenced. Shugart apparently has copies of all the photographs which are the 

subject of this action and therefore cannot claim actual damage based on “loss.” This leaves 

Shugart with the DMCA as Shugart’s last claim for any damages in this case.

As explained in Propet’s brief on damages, under the DMCA, if Shugart can 

prove that he embedded “copyright management information” in digital files that he supplied to 

Propet, and if he can prove that Propet knowingly and intentionally removed or altered his 

“copyright management information,” then Shugart may be entitled to statutory damages for 

each act of removal that he can prove. However, Shugart has no evidence that supports a DMCA 

claim.

F. DECLARATORY JUDGMENT

Even thought Propet has taken steps to remove all Shugart photographs, Propet 

cannot account for all uses of Shugart photographs. Accordingly, Propet seeks a declaratory

judgment that Propet is licensed to use the photographs Propet paid for and use them in all 

reasonable ways related to Propet's business, including the right to provide Shugart's photographs 

of Propet shoes to third party users for the purpose of advertising Propet shoes. 

G. A PERMANENT INJUNCTION SHOULD ISSUE

Propet seeks an injunction that (1) prohibits Shugart from selling or offering for 

sale any Propet photographs in any way that disparages Propet; and (2) prohibits Shugart from

threatening customers with copyright infringement actions. 

Case 2:06-cv-00186-MAT Document 116 Filed 09/17/2007 Page 9 of 11
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PROPET USA, INC.'S TRIAL BRIEF- 10

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

ATTORNEYS AT LAW

TELEPHONE: (206) 622-8484

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DATED this 17th day of September, 2007.

/s/ Bruce A. Kaser

Bruce A. Kaser

WSB No. 13532

Vantage Law PLLC

355 N.W. Gilman Blvd., Suite 203

Issaquah, Washington 98027

bruce@vantagelaw.net

(425) 391-8741

Attorneys for Plaintiff

Propet USA, Inc.

Case 2:06-cv-00186-MAT Document 116 Filed 09/17/2007 Page 10 of 11
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PROPET USA, INC.’S TRIAL BRIEF - 1

(C06-0186 MAT)

SEADOCS:292414.1

MILLER NASH LLP

ATTORNEYS AT LAW

TELEPHONE: (206) 622-8484

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I hereby certify that on this 17th day of September, 2007, I electronically filed 

PROPET USA, INC.’S TRIAL BRIEF with the Clerk of the Court using the CM/ECF system 

which will send notification of such filing to:

Philip P. Mann

MANN LAW GROUP

1420 Fifth Avenue, Suite 2200

Seattle, Washington 98101

(206) 274-5100

mannlaw@comcast.net

phil@mannlawgroup.com

eryn@mannlawgroup.com

John Whitaker

WHITAKER LAW GROUP

755 Winslow Way East, Suite 304

Bainbridge Island, WA 98110

john@wlawgrp.com

(206) 319-1575

Executed at Seattle, Washington, this 17th day of September, 2007.

/s/ James L. Phillips

James L. Phillips, WSB No. 13186

MILLER NASH LLP

Email: james.phillips@millernash.com

Attorneys for Plaintiff

Propet USA, Inc.

Case 2:06-cv-00186-MAT Document 116 Filed 09/17/2007 Page 11 of 11