Opinion ID: 772795
Heading Depth: 4
Heading Rank: 5

Heading: Commentators

Text: 72 Commentators on copyright law are divided on the question whether actual damages may be calculated based on lost license or royalty fees. Professor Goldstein's treatise regards an award to the copyright owner representing the fair market value of the royalty payment that the defendant avoided by infringing as clearly included within the concept of the copyright owner's actual damages. See II Goldstein § 12.1, at 12:4. Indeed this discussion is prominently featured in opening discussion of Damages and Profits. At the outset of his discussion of damages, Professor Goldstein offers the illustrative hypothetical in which Publisher B publishes an unauthorized French translation of Publisher A's novel. The treatise postulates: 73 If, instead of infringing,... B had negotiated with... A for a license..., the parties would probably have agreed upon a license fee giving... A royalties roughly equal to the royalties that some other translator would have been willing to pay for the license and, at the same time, offering the prospect of profit to... B. The negotiated license fee that Publishers A and B would have agreed upon represents the damage that Publisher A will suffer when Publisher B publishes its translation without obtaining a license. 74 Id. (emphasis added) (footnote omitted). 75 In exploring the subject in greater detail, Goldstein remarks: 76 If the infringer occupies the same market as the copyright owner, courts usually employ [the owner's] lost sales as the measure of damages on the assumption that every sale made by the defendant is one that the plaintiff otherwise could have made. If the infringer occupies a market that the copyright owner has not yet entered, courts usually employ a market value or reasonable royalty measure of damages on the assumption that the value of the copyrighted work in defendant's market corresponds to the sum that the copyright owner and the infringer would have agreed upon for licensing the work's use in that market. 77 II Goldstein § 12.1.1.1, at 12:7 (emphasis added) (footnote omitted). 78 In cases where, before the infringement, the copyright owner had licensed the infringer or a third party..., courts will generally employ the [hypothetical] negotiated license fee as the measure of the copyright owner's damages from the infringement. 79 II Goldstein § 12:1.1.1, at 12:11. Goldstein thus justifies such an award by the fact that the infringer has illegally taken something of value and may properly be required to pay for its fair market value. 80 The Nimmer treatise takes the opposite view, expressing the opinion that a reasonable royalty measure of actual damages should not be regarded as authorized by § 504(b). See 4 Nimmer § 14.02[A], at 14-13 to 17. The argument proceeds as follows. First it postulates that such damages were not available under the 1909 Act. See id. at 14-16. Under the terms of that Act, discretionary statutory damages were easily available to all plaintiffs. Because of the availability of statutory damages, courts shied away from awards of actual damages that were impossible or difficult to quantify. 81 [G]iven the availability of statutory damages, the courts under the 1909 Act rejected the reasonable royalty standard, a patent measure of damages that looks to the royalties customarily paid for the type of use to which the defendant has put the infringing material.... 82 Id. 83 Nimmer recognizes that under the 1976 Act, Congress altered the availability of statutory damages, making them much less widely available. See id. Nonetheless, Nimmer assserts that use of the term actual damages in the 1976 Act does not encompass the loss of the royalties payable by the infringer. See id. 84 To justify this conclusion, Nimmer discusses Deltak, in which the Seventh Circuit found the owner entitled to an award of the value of use the infringer had for free. The court believed this value could constitute the owner's actual damages. Nimmer contends that the court's logic relies on the most transparent of fictions - if not for the infringement, there would have been no saved acquisition costs to [the defendant] and a fortiori no losses to [the plaintiff]. Id. at 14-16 to 17. The reason that it would be a transparent fiction to postulate the price at which the defendant might have purchased a license from the plaintiff was that the defendant in Deltak, being the plaintiff's competitor seeking to steal business from the plaintiff, would not have paid the plaintiff's price to buy each of the copies the defendant subsequently sold. Seeid. at 14-16 to 17. Had the infringer not taken by infringement, it would not have taken at all, and the owner would have earned no additional revenue. 85 Recognizing that the unavailability of reasonable royalties as a measure of actual damages, combined with the absence of statutory damages for owners who failed to register their copyrights would, in certain circumstances, deprive copyright owners of all compensation, Nimmer suggests that perhaps Congress intended to leave such copyright owners remediless to create an incentive to owners to register their copyrights so as to qualify for statutory damages. See id. at 14-17. 86 We are not persuaded by Nimmer's reasoning. First, but perhaps least important, the Nimmer treatise's assertion that the courts under the 1909 Act rejected the 'reasonable royalty standard,' id. at 14-16, seems overstated. Nimmer cites only one case which so held. 7 See Widenski v. Shapiro, Bernstein & Co., 147 F.2d 909 (lst Cir. 1945). However, other courts, including ours, took the contrary position under the 1909 Act. See, e.g. Szekely, 242 F.2d at 268-69 (assessing damages based on the hypothetical license fee the infringer avoided paying); Nucor, 513 F.2d at 153 & n.3 (defendants liable for market value of infringed architectural plans). 87 Second, even if under the 1909 Act Widenski's ruling had been universally accepted, it would not necessarily follow that courts should similarly decline to award such damages under the 1976 Act. Nimmer does not argue that the Widenski ruling was required by the definitional terms of the 1909 Act. To the contrary, the treatise explains that the reason underlying reluctance to award such damages under the 1909 Act was that courts could more easily accomplish the same result, avoiding problems of speculative proof, by making a discretionary award of statutory damages which were then freely available. But when the 1976 Act made statutory damages less widely available, explicitly denying them to copyright owners who had not registered their copyright at the time of the infringement, see 17 U.S.C. § 412, the reason supporting the Widenski court's ruling disappeared. 88 Third, Nimmer's argument with respect to Deltak, that an effort to estimate the royalty the defendant might have paid had it negotiated with the owner rests on the most transparent of fictions, 4 Nimmer, § 14.02[A], at 14-16 to 17, may be pertinent to the peculiar facts of that case, but for two reasons does not justify a general rule denying damages based on the market value of the use appropriated by the infringer. 89 As the Goldstein treatise explains, whether the infringer might in fact have negotiated with the owner or purchased at the owner's price is irrelevant to the purpose of the test. See II Goldstein § 12.1.1.1, at 12:13. The pertinence of the test is not premised on the fictive belief that the copyright owner is worse off than if the infringer, instead of infringing, had done nothing. It proceeds on a different basis. The hypothesis of a negotiation between a willing buyer and a willing seller simply seeks to determine the fair market value of a valuable right that the infringer has illegally taken from the owner. The usefulness of the test does not depend on whether the copyright infringer was in fact himself willing to negotiate for a license. The honest purchaser is hypothesized solely as a tool for determining the fair market value of what was illegally taken. 90 Furthermore, even if the larcenous intentions of the Deltak infringer furnished a valid reason to decline to award damages in that case for the fair market value of what the infringer took for free, that circumstance, as noted above, would not apply to all copyright infringement cases. Honest users can infringe by reason of oversight or good faith mistake. The infringer may have mistakenly believed in good faith that the work was in the public domain, that his licensor was duly licensed, or that his use was protected by fair use. On the record before us, there is no reason to believe the Gap had any intention to infringe a copyright. 91  92 We conclude that Section 504(b) permits a copyright owner to recover actual damages, in appropriate circumstances, for the fair market value of a license covering the defendant's infringing use. Davis adduced sufficiently concrete evidence of a modest fair market value of the use made by the Gap. The Gap's use of the infringed matter was substantial. If Davis were not compensated for the market value of the use taken, he would receive no compensation whatsoever. C. Punitive Damages 93 The district court correctly held that Davis is not entitled to punitive damages under the Copyright Act. See Davis I, 1999 WL 199005, at . As a general rule, punitive damages are not awarded in a statutory copyright infringement action. See 4 Nimmer § 14.02[B], at 14-23 to 24; Oboler v. Goldin, 714 F.2d 211, 213 (2d Cir. 1983). The purpose of punitive damages - to punish and prevent malicious conduct - is generally achieved under the Copyright Act through the provisions of 17 U.S.C. § 504(c)(2), which allow increases to an award of statutory damages in cases of willful infringement. See 4 Nimmer § 14.02[B], at 14-23 to 24; Kamakazi Music Corp. v. Robbins Music Corp., 534 F. Supp. 69, 78 (S.D.N.Y. 1982). In any event, the question need not detain us long because Davis has failed to show willfulness on the Gap's part. D. De Minimis Use 94 The Gap contends that even if we find fault with the district court's reasons, its dismissal should be affirmed under the doctrine de minimis non curat lex because any copying of protected matter was trivial. The de minimis doctrine essentially provides that where unauthorized copying is sufficiently trivial, the law will not impose legal consequences. Ringgold, 126 F.3d at 74. See also Knickerbocker Toy Co. v. Azrak-Hamway Int'l, Inc., 668 F.2d 699, 703 (2d Cir. 1982) (denying relief under de minimis doctrine where defendant had made a copy of plaintiff's work, but copy was never used); American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 916 (2d Cir. 1994) (suggesting that if photocopying for individual use in research is de minimis, it would not constitute an infringement); Pierre N. Leval, Nimmer Lecture: Fair Use Rescued, 44 U.C.L.A. L. Rev. 1449, 1457-58 (1997). 95 The de minimis doctrine is rarely discussed in copyright opinions because suits are rarely brought over trivial instances of copying. Nonetheless, it is an important aspect of the law of copyright. Trivial copying is a significant part of modern life. Most honest citizens in the modern world frequently engage, without hesitation, in trivial copying that, but for the de minimis doctrine, would technically constitute a violation of law. We do not hesitate to make a photocopy of a letter from a friend to show to another friend, or of a favorite cartoon to post on the refrigerator. Parents in Central Park photograph their children perched on Jose de Creeft's Alice in Wonderland sculpture. We record television programs aired while we are out, so as to watch them at a more convenient hour. 8 Waiters at a restaurant sing Happy Birthday at a patron's table. When we do such things, it is not that we are breaking the law but unlikely to be sued given the high cost of litigation. Because of the de minimis doctrine, in trivial instances of copying, we are in fact not breaking the law. If a copyright owner were to sue the makers of trivial copies, judgment would be for the defendants. The case would be dismissed because trivial copying is not an infringement. 96 The Gap seeks to avail itself of the de minimis rule. It argues that even in advertising, it is a trivial matter for persons to be shown wearing their eyeglasses or wristwatches. The Gap's argument may well be valid in other circumstances, but does not fit these facts. 97 Here, the combination of circumstances convinces us that the de minimis doctrine is not applicable. In the fast advertisement, the infringing item is highly noticeable. This is in part because Davis's design and concept are strikingly bizarre; it is startling to see the wearer peering at us over his Onoculii. Because eyes are naturally a focal point of attention, and because the wearer is at the center of the group - the apex of the V formation - the viewer's gaze is powerfully drawn to Davis's creation. The impression created, furthermore, is that the models posing in the ad have been outfitted from top to bottom, including eyewear, with Gap merchandise. All this leads us to conclude that the Gap's use of Davis's jewelry cannot be considered a de minimis act of copying to which the law attaches no consequence. E. Fair Use 98 Finally, the Gap contends its advertisement was protected by the fair use doctrine, and that the dismissal could be affirmed on that basis. Fair use is a judicially created doctrine dating back nearly to the birth of copyright in the eighteenth century, see Burnett v. Chatwood, 2 Mer. 441, 35 Eng. Rep. 1008 09 (Ch. 1720); Gyles v. Wilcox, 26 Eng. Rep. 489 (Ch. 1740), but first explicitly recognized in statute in the Copyright Act of 1976. See 17 U.S.C. § 107 (1994). 9 99 We review the Gap's claim of fair use in light of the Supreme Court's clarification in Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994), of the relationship among the four factors specified in the statute as appropriate for consideration. 100 The heart of the fair use inquiry is into the first specified statutory factor identified as the purpose and character of the use. 17 U.S.C. § 107(1). This formulation, as the Supreme Court observed in Campbell, 510 U.S. at 578, draws on Justice Story's famous reference in Folsom v. Marsh, 9 F. Cas. 342, 348 (C.C.D. Mass. 1841) (No. 4901), to the nature and objects of the selections made. As the Campbell Court explained, 101 The central purpose of this investigation is to see, in Justice Story's words, whether the new work merely supersede[s] the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message..., in other words, whether and to what extent the new work is transformative. Although such transformative use is not absolutely necessary for a finding of fair use, the goal of copyright, to promote science and the arts, is generally furthered by the creation of transformative works. Such [transformative] works thus lie at the heart of the fair use doctrine's guarantee of breathing space.... 102 Campbell, 510 U.S. at 579 (emphasis added) (alteration in original) (citations omitted). 103 Pausing for the moment at that inquiry, we find nothing transformative about the Gap's presentation of Davis's copyrighted work. The ad shows Davis's Onoculii being worn as eye jewelry in the manner it was made to be worn - looking much like an ad Davis himself might have sponsored for his copyrighted design. 104 The first factor, as spelled out in the statute, goes on to mention whether such use is of a commercial nature or is for nonprofit educational purposes. 17 U.S.C. § 107(1). By reason of dicta in the Supreme Court's opinion in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 451 (1984), to the effect that commercial uses of a copyrighted work are presumptively... unfair, courts have sometimes given dispositive weight to whether the secondary use was commercial. Campbell, 570 U.S. at 584 (criticizing Acuff-Rose Music, Inc. v. Campbell, 972 F.2d 1429 (6th Cir. 1992)). The Supreme Court in Campbell rejected the notion that the commercial nature of the use could by itself be a dispositive consideration. The Campbell opinion observes that nearly all of the illustrative uses listed in the preamble paragraph of § 107, including news reporting, comment, criticism, teaching, scholarship, and research... are generally conducted for profit, and that Congress could not have intended a rule that commercial uses are presumptively excluded. Id. at 584 (internal quotation marks and citation omitted). The commercial objective of the secondary work is merely a factor. [T]he more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use. Id. at 579. 105 In this case, as in Sony, the secondary use is not transformative. The question whether the new use is commercial thus acquires an importance it does not have when the new work is transformative. In Sony, however, the copied work was saved by its private, noncommercial character. See Sony, 464 U.S. at 449. Here the work, being an advertisement, is at the outer limit of commercialism. See Campbell, 510 U.S. at 585 (The use, for example, of a copyrighted work to advertise a product... will be entitled to less indulgence under the first factor... than the sale of [the new work] for its own sake.). 106 The second statutory factor, the nature of the copyrighted work, see 17 U.S.C. § 107(2), is rarely found to be determinative. Campbell explained that [t]his factor calls for recognition that some works are closer to the core of intended copyright protection than others, with the consequence that [with the former] fair use is more difficult to establish. Campbell, 510 U.S. at 586. In this case, as in Campbell, the plaintiff's copyrighted work is in the nature of an artistic creation that falls close to the core of the copyright's protective purposes. Id. 107 The third factor, which looks at the amount and substantiality of the portion used in relation to the copyrighted work as a whole, 17 U.S.C. § 107(3), recognizes that fragmentary copying is more likely to have a transformative purpose than wholesale copying. In this case, the Gap's ad presents a head-on full view of Davis's piece, centered and prominently featured. The Gap cannot benefit from the third factor. 108 The fourth factor looks at the effect of the use upon the potential market for or value of the copyrighted work. Id. § 107(4). Although the Supreme Court had observed in dictum in Nation Enters., 471 U.S. at 566, that this is perhaps the most important of the factors, Campbell made clear that this dictum, if misunderstood, was capable of causing confusion. As the Campbell opinion explained, if the secondary work harms the market for the original through criticism or parody, rather than by offering a market substitute for the original that supersedes it, it does not produce a harm cognizable under the Copyright Act. Campbell, 510 U.S. at 592. [T]he role of the courts is to distinguish between biting criticism that merely suppresses demand and copyright infringement, which usurps [the market for the original]. Id. (internal quotation marks omitted) (alterations in original unmarked). 109 Thus, when secondary uses harms the market for, or value of, the original, courts must examine the source of the harm. If the harm resulted from a transformative secondary use that lowered the public's estimation of the original (such as a devastating review of a book that quotes liberally from the original to show how silly and poorly written it is), this transformative use will be found to be a fair use, notwithstanding the harm. If, on the other hand, the secondary use, by copying the first, offers itself as a market substitute and in that fashion harms the market value of the original, this factor argues strongly against a finding of fair use. 110 Campbell explains that the market effect must be evaluated in light of whether the secondary use is transformative. 111 [W]hen a commercial use amounts to mere duplication of the entirety of an original, it clearly'supersede[s] the objects,' Folsom v. Marsh [9 F. Cas. at 348], of the original and serves as a market replacement for it, making it likely that cognizable [actionable] market harm to the original will occur. But when, on the contrary, the second use is transformative, market substitution is at least less certain, and market harm may not be so readily inferred. 112 Campbell, 510 U.S. at 591 (citation omitted). Notwithstanding harmful effect, the use may be a fair use. 113 In this case, as noted, the Gap's use is not transformative. It supersedes. By taking for free Davis's design for its ad, the Gap avoided paying the customary price Davis was entitled to charge for the use of his design. See Nation Enters., 471 U.S. at 562. Davis suffered market harm through his loss of the royalty revenue to which he was reasonably entitled in the circumstances, as well as through the diminution of his opportunity to license to others who might regard Davis's design as preempted by the Gap's ad. 114 In our view, all the fair use factors favor Davis. We cannot accept the Gap's claim that its use of Davis's design is protected by the fair use doctrine.