Opinion ID: 772795
Heading Depth: 4
Heading Rank: 2

Heading: Our decision in Business Trends

Text: 33 The district court believed our decision in Business Trends interprets § 504(b) to foreclose actual damages to compensate a plaintiff for the defendant's failure to pay for the reasonable value of what the defendant took. We believe this was a misreading of the holding in Business Trends. The district court decision under review in that case had not made an award of actual damages under this theory. The award we reviewed and rejected in that case was fashioned under the other prong of § 504(b) - the infringer's profits. See Business Trends, 887 F.2d at 402. While there is indeed some language in our Business Trends decision expressing disfavor for Davis's theory of actual damages, it was not at issue in that case. Furthermore, our decision did not purport to lay down an absolute rule; the decision made clear that our ruling depended on the particular factual circumstances - circumstances that are not present here. Finally, as we discuss below, both before and after Business Trends, we have either awarded such damages or implied that they were appropriate. See Rogers v. Koons, 960 F.2d 301, 310-13 (2d Cir. 1992); Abeshouse v. Ultragraphics, Inc., 754 F.2d 467, 470-72 (2d Cir. 1985); Szekely v. Eagle Lion Films, Inc., 242 F.2d 266, 268-69 (2d Cir. 1957). Moreover, other courts have adopted the same analysis, and the Supreme Court has suggested, albeit obliquely, that such a measure of damages is appropriate. See Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562 (1985). 34 In Business Trends, the plaintiff and defendant were competitors in the publication of economic analyses and forecasts - not a relationship where the defendant was a potential licensee of the plaintiff. Each produced a study of the robotics industry. The plaintiff BTA marketed copies of its study for $1,500. The defendant TFG produced a similar study which it initially offered at the same price as BTA's study. In response to slow sales, defendant TFG cut its price by 90% to $150 during a three-month special-offer period. It sold 37 copies at the reduced price. Plaintiff BTA registered its study with the Copyright Office but only after the defendant had begun selling its version. See Business Trends, 887 F.2d at 401. 35 BTA sued TFG alleging that TFG's report included portions that were copied from BTA's. The district court found copying and substantial similarity. It awarded damages of $54,028.35. The damages were found solely for the infringer's profits under the second prong of § 504(b). No damages were awarded under the first prong for the actual damages suffered by the owner. In fact, the district court expressly found that plaintiff failed to establish actual damages as a consequence of defendants' infringement of BTA's robotics study. Business Trends Analysts, Inc. v. Freedonia Group, Inc., 700 F. Supp. 1213, 1233 (S.D.N.Y. 1988). 36 The infringer's profits awarded were derived from two components: a smaller component consisting of TFG's cash profit (revenues minus expenses) on its sale of the robotics study, and a larger amount consisting of non-cash profit attributed in part to the value of acquired goodwill (a value of use) deriving in part from TFG's giving the report to customers at a 90% markdown. See Business Trends, 700 F. Supp. at 1237-41. In justifying the proposition that the profits of the infringement could properly include non-cash benefits to the infringer resulting from the infringement, the district court referred to the Seventh Circuit's conclusion in Deltak, Inc. v. Advanced Sys., Inc., 767 F.2d 357 (7th Cir. 1985), that 'saved acquisition cost is a measure of damages or profit' when calculating value of use under the statute, where cash was not generated. Business Trends, 700 F. Supp. at 1238 (quoting Deltak, 767 F.2d at 362 n.3). 37 We affirmed the award insofar as it was based on TFG's cash profit from the sale of the infringing report. However, insofar as the district court had attributed profits to the defendant based on non-cash elements consisting either of goodwill achieved by giving the infringing study to customers at a heavily discounted price, or the value of use the defendant achieved by acquiring for free material for which it might otherwise have paid the plaintiff, we found such attribution of profit to the defendant inappropriate. See Business Trends, 887 F.2d at 404-407. 38 We noted that the district court had based its analysis of the non-cash elements of the defendant's profits in part on Deltak's reasoning. See Business Trends, 887 F.2d at 404-405. We declined to adopt Deltak's approach, relying primarily on two reasons. See id. at 405. First, we believed the instructions of § 504(b) relating to the proof of the infringer's profits indicated that Congress means 'profits' in the lay sense of gross revenue less out-of-pocket costs, not the fictive purchase price that TFG hypothetically chose not to pay to BTA. Id. at 405-06. Second, given the defendant's larcenous intent and the competitive relationship between the plaintiff and the defendant, we believed it was unreasonable to find that the defendant profited within the meaning of the statute by copying for free rather than paying the price it might have negotiated with the plaintiff. See id. at 405 (TFG no more priced the BTA study and then decided to copy than a purse-snatcher decides to forego friendly negotiations.). 39 The sole issue before us was whether either the expenses saved by the infringer resulting from its decision to infringe rather than purchase or the goodwill the defendant generated by offering the infringing material to its customers at a greatly reduced price can be considered infringer's profits recoverable under § 504(b). The decision did not involve the question we now consider - whether the amount the owner failed to collect as a reasonable royalty or license fee could be considered as constituting the owner's actual damages under § 504(a) and (b). 3 40 It is true that the Business Trends decision, in a digression, observed that [actual damages] is hardly a reasonable description of the entirely hypothetical sales to TFG lost by BTA. Id. at 405. The opinion also quoted a lengthy passage from the Nimmer treatise which asserts it is open to question whether Deltak's value of use standard fits within the statutory limits for either actual damages or infringer's profits. See Business Trends, 887 F.2d at 406. 41 For two reasons, we believe Business Trends does not foreclose the use of the owner's loss of a reasonable royalty as its actual damages under § 504(a) and (b). First, as noted, that issue was not before the court. Whatever comments we made about actual damages were dicta. Second, we went to pains in Business Trends to make clear that we were not laying down an absolute rule, but rather making a ruling that was heavily influenced by the particular facts of that case. We rejected the defendant's argument that a value of use standard is always impermissible, saying we see no legal barrier to such an award under Section 504(b) so long as the amount of the award is based on a factual basis rather than 'undue speculation.' Id. at 404. Again at the conclusion of the opinion we emphasize[d] that we are not rejecting as a matter of law a recognition of the value of use theory. Id. at 407. We held only that the proof in the instant case is inadequate to support such an award. Id. 4 42 To the extent that the Business Trends decision was based on its observation that the defendant before it was no more inclined to negotiate a purchase price than a purse snatcher, the facts of our case are significantly different. The Gap was not seeking, like the Business Trends defendant, to surreptitiously steal material owned by a competitor. There is no reason to suppose that the Gap's use of Davis's copyrighted eyewear without first receiving his permission was attributable to anything other than oversight or mistake. To the contrary, the facts of this case support the view that the Gap and Davis could have happily discussed the payment of a fee, and that Davis's consent, if sought, could have been had for very little money, since significant advantages might flow to him from having his eyewear displayed in the Gap's ad. Alternatively, if Davis's demands had been excessive, the Gap would in all likelihood have simply eliminated Davis's eyewear from the photograph. Where the Business Trends decision was motivated by its perception of the unrealistic nature of a suggestion that the infringer might have bargained with the owner, see887 F.2d at 405, such a scenario was in no way unlikely in the present case. 43