Opinion ID: 660173
Heading Depth: 2
Heading Rank: 1

Heading: Sweater Retail Price

Text: 9 Hukafit presented evidence that the 52,800 sweaters were offered for sale at an initial retail price of $19.97 per sweater. The trial court multiplied these two numbers to find that K-Mart's gross revenue on the sale of the sweaters was $1,054,416. K-Mart offered evidence that due to sale prices and markdowns many of the sweaters sold at prices substantially lower than $19.97 each. According to the retailer, its gross revenue from the Damask sweaters only amounted to $901,915. The trial court refused to consider this evidence. K-Mart contends that the district court erroneously placed the burden of proving gross revenue as required by Sec. 504(b) on K-Mart, and insists that its evidence of reduced sweater prices was the only proof offered on the issue of gross revenue, so it must be credited. K-Mart also asserts that it was error for the trial court to refuse to consider its evidence of markdowns. 10 We address these arguments in turn. Hukafit presented a prima facie case when it established the number of sweaters sold and their initial retail price. The copyright holder cannot realistically be required to offer more proof than this since the facts and figures of the sales and markdowns is a subject exclusively within the infringer's knowledge. Once a prima facie case of gross revenue was established, the burden shifted to K-Mart to prove its deductible expenses. See 17 U.S.C. Sec. 504(b). In discharging that burden it is not necessary for K-Mart's proof to be precise and perfect because, absent bad faith, reasonable approximations constitute satisfactory evidence. See Nimmer & Nimmer, supra, Sec. 14.03[B], at 14-35 to -36. Any doubts resulting from an infringer's failure to present adequate proof of its costs are resolved in favor of the copyright holder. See Gaste v. Kaiserman, 863 F.2d 1061, 1070-71 (2d Cir.1988). 11 As a discount retailer, a large portion of K-Mart's business involves the sale of merchandise at less than its initial offering price. K-Mart attempted to prove the extent of its discounting with regard to the Damask sweaters by introducing three flash reports. These reports are internal business documents that showed the number of Damask sweaters in inventory. The retailer also introduced evidence of two nationwide off-price sales on sweaters in its stores, and disclosed statements that purported to reflect its automatic policy of permanent markdowns on Damask sweater prices after December 16, 1987. 12 The trial court was unimpressed with the flash reports and refused to consider them. It found these weekly reports unpersuasive because K-Mart produced only three of them, though the Damask sweaters sold for 11 weeks. It criticized, in addition, the fact that only one page from each flash report--the page concerning the Damask style sweater, instead of the entire report--was produced. The trial court dismissed K-Mart's records showing automatic price markdowns because the flash reports were not complete enough for it to calculate how many sweaters were sold during the markdown period. It also rejected K-Mart's evidence of national off-price sweater sales because the advertisements did not show that the Damask sweaters were sold in the regions where the advertising appeared. 13 It was clear error for the district court to reject summarily the entire body of evidence indicating that K-Mart discounted the sweaters. While it is true the retailer's evidence was not ideal, some allocation should have been made for the obvious reductions from the original retail price. See Sygma Photo News, Inc. v. High Soc'y Magazine, Inc., 778 F.2d 89, 93 (2d Cir.1985). For example, each of the three flash reports reflected inventory levels for a three-week period. The report pages offered were those dealing only with the Damask sweaters. Hence, K-Mart's inventory levels for nine of the 11-week sales period for Damask sweaters are documented. The two-week gap should simply have been resolved in the copyright holder's favor, rather than refusing to give credence to any of the information contained in the infringer's reports. 14 Had the district court examined this proof with respect to K-Mart's inventory level for the subject sweaters, it could then have considered K-Mart's business records showing progressive merchandise markdowns and by that means have more closely estimated the sweaters' sales prices. Hukafit criticizes K-Mart's markdown evidence--a progressive markdown chart--because it is dated March 19, 1984. But K-Mart controller Eugene Philips testified that the 1984 chart was still in effect in 1987, the district court made no credibility finding adverse to Philips' testimony, and K-Mart produced documentary evidence of sweater price reductions dated December 1987. By the same token, although K-Mart's advertising proof, announcing nationwide sweater sales, does not compel the conclusion that the sale prices applied in every U.S. market, such evidence, if credited, justifies some estimated allowance for discount pricing. 15 In sum, by failing to credit appropriate deductions from the original selling price of the Damask sweaters, the computation of gross revenues was overstated. This led, in turn, to an incorrect figure for net profits. Giving the copyright holder the benefit of the doubt does not mean that the infringer's evidence should be entirely ignored. Recognizing that actual calculation of profits is a matter ordinarily best performed by the trial court, Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd., 885 F.2d 1, 7 (2d Cir.1989), cert. denied, 494 U.S. 1029, 110 S.Ct. 1477, 108 L.Ed.2d 614 (1990), we remand this aspect of the case for a recalculation of K-Mart's net profits, one which takes into consideration such evidence as is credited by the district court that many of the sweaters retailed for far less than $19.97.