Opinion ID: 2977764
Heading Depth: 2
Heading Rank: 1

Heading: background/procedural history

Text: Plaintiff-Appellee Digital Filing Systems, Incorporated (hereafter Plaintiff or Digital Filing Systems), is a corporate citizen of Michigan; Harish L. Verma is its President. On January 31, 2003, Digital Filing Systems sued Defendants-Appellants Akhilesh Agarwal, a citizen of New Delhi, India, and the sole proprietorship he operates, Aditya International (hereafter Defendants or Aditya International) in the Eastern District of Michigan. Appellants proceeded pro se before the trial court and before this Court.1 Digital Filing Systems owns a trademarked computer software product “ProFile,” registered under U.S. Copyright Reg. No. TX-5-551-436. In 1999 it contracted with Defendants to enhance, add, modify, and debug its ProFile product. That Agreement provided that Plaintiff maintained all rights to ProFile, including any work done by Defendants, to which Defendants gave up any and all rights. It further provided that Defendants would not market, sell, or distribute in the United States any document management software using any aspect of imaging technology. Digital Filing Systems alleges Defendants have marketed and sold software called “DigiFile,” registered under U.S. copyright Reg. No. TX 5-389-304, that is either derived from, or incorporates, ProFile. 1 As we have previously noted, this pro se status is acceptable, given that Agarwal is the sole proprietor of the unincorporated business Aditya International. See N.L.R.B. v. Consol. Food Servs., Inc., 81 F. App’x 13, 14 n.1 (6th Cir. 2003) (unpublished decision). -2- Upon discovery of DigiFile’s existence, Plaintiff sued Defendants in federal district court for breach of the Agreement; for unlawful conversion of Plaintiff’s property for which it sought to strike Defendants’ registration; and for actual and statutory damages, and injunctive relief under the Copyright Act, 17 U.S.C. § 101, et seq. Defendants’ Answer asserts that they have thus far developed three software programs popular in the United States: DigiFile (document scan/image software), DigiCourt and DigiRecord (both used as case management software). Defendants contend they own a U.S. Copyright Registration No. TX5-389-304 issued May 18, 2001, on their product DigiFile, formerly known as ProFile. Defendants maintain that it was Plaintiff who approached them in 1997 about testing and evaluating ProFile; and that Defendants continued to make changes and improvements to ProFile over the next few years then entered into a Value Added Reseller (VAR) Agreement after Plaintiff requested a nonexclusive contract to market and sell the product. Aditya International contends Plaintiff unlawfully applied for and was issued a U.S. copyright registration for ProFile on February 26, 2002, when in fact ProFile originated with Defendants and was now registered by them under the name DigiFile. Digital Filing Systems filed a detailed responsive pleading in the New Delhi action, maintaining Defendants perpetrated a fraud on the New Delhi court by their filing of false information and a forged VAR Agreement. According to Digital Filing Systems, it encountered Agarwal while he was working as a programmer for a company Plaintiff contracted with in 1999 to render programming refinement services on ProFile. Plaintiff subsequently started working directly with Agarwal in 1999 for programming and development services; with all property rights retained by Plaintiff. Digital Filing Systems -3- maintains that upon return of its ProFile software, Defendants retained a copy without permission and labeled it DigiFile, and also planted a bug in the source code before returning ProFile, so as to receive copies of Plaintiff’s client communications and information. At Defendants’ request, the district judge initially stayed the Michigan federal court action in May of 2003, while a copyright infringement lawsuit filed by Defendants in New Delhi proceeded. The stay was lifted after Plaintiff represented the Indian case had been dismissed. In February of 2005 Defendants moved to clarify Plaintiff’s intention to proceed in Michigan federal court, claiming that the Indian case was not dismissed as Plaintiff had erroneously reported, and that the Indian court’s ruling on Defendants’ contempt petition restrained Plaintiff from proceeding further with the Michigan district court action. After a series of events that the district court viewed as willful hindrance of the proceedings in her court, on April 22, 2005, the district judge entered a Default Judgment against Defendants on the underlying infringement claims alleged in Plaintiff’s Complaint. The district court concluded Defendants had actively avoided prosecution by refusing to comply with discovery and a court order compelling them to do so, and had avoided service of documents and communications from opposing counsel and the court, culminating in Defendants’ failure to participate in a court-scheduled conference call despite being expressly informed by chambers that the call would occur as scheduled. Default Judgment was therefore entered for Defendants’ active and unreasonable delay in the proceedings. Defendants timely appealed that ruling. Concluding the district court had not abused its discretion by entering a default judgment under the circumstances described above, this Court on April 28, 2006, affirmed entry of that default judgment, based upon -4- its consideration of the factors identified in Bank One of Cleveland, N.A. v. Abbe, 916 F.2d 1067, 1073 (6th Cir. 1990). This Court reviewed in detail the difficulties in prosecuting the case, the efforts of counsel and the lower court to procure Defendants’ participation so that the litigation could be advanced, and Defendants’ lack of participation and inadequate explanations for that lack of participation. Defendants were given opportunities by the district court to cure and explain their acts and omissions, and were warned that continued failure to prosecute could result in severe sanctions. The district court found that Defendants’ actions prejudiced Plaintiff, an American business, in its ability to reasonably advance its litigation for copyright infringement at a time when, if the allegations proved true, the infringement was continuing to occur. While that appeal was pending, Plaintiff proceeded to move the district court for an award of fees, injunctive relief, and damages on its infringement claim. By Opinion and Order of July 20, 2005, the lower court granted Plaintiff’s motion and entered a judgment awarding attorneys’ fees and filing costs totaling $27,870.55, as well as $67,500.00 in statutory damages under 17 U.S.C. § 504(c)(1). In awarding this sum, the district court examined the considerations pertinent to determining a damage figure within the statutorily specified range. First, it looked at whether sufficient evidence had been put forth to show that the infringement was willful, thereby allowing an increase in the maximum statutory award, or whether the infringement was innocent, in which case a decrease in the statutory minimum is permitted. It found that “[t]he evidence presented by Plaintiffs establishes that Defendants did not act innocently, but it does not sufficiently establish that Defendants acted willfully.” Therefore, pursuant to § 504(c)(1), the damages for each infringement were required to be in a sum of not less than $750.00 or more than $30,000.00, as the -5- court determined would be just so as to deter and discourage wrongful conduct under the Copyright Act. The district court awarded Plaintiff $67,500.00 in statutory damages, without further elaboration aside from noting that “Plaintiff has identified 90 copies of the infringing software product in 30 identified locations within the United States. The court will multiply each of the works by the statutory minimum of $750 and award Plaintiff $67,500.” It appears these 90 infringements were based upon an attachment to Plaintiff’s motion listing 30 purchasers who purportedly had 90 copies of software infringing on its copyrighted ProFile software. The district court awarded injunctive relief, imposing an injunction pursuant to 17 U.S.C. § 502 “restraining Defendants from offering for sale, selling, reproducing, preparing derivative works, distributing copies of, or otherwise using the software product DIGIFILE, DIGICOURT, PROFILE . . . .” It also granted injunctive relief under § 503(b) by ordering that “all copies of any software identified as DIGIFILE, DIGICOURT, or similar software obtained from Defendants or a reseller or distributor of Defendants be impounded by Plaintiff and destroyed at Plaintiff’s discretion . . . .” Defendants also timely appealed that Judgment. In an Order dated May 15, 2006, we affirmed the lower court’s award of attorneys’ fees. This Court’s review focused not on the fact that statutory damages had been awarded, since Plaintiff had been granted a Default Judgment and that determination had been affirmed on appeal, but rather on the scope of that statutory damage award. Noted in our Order was that injunctive relief and the number of infringements had been calculated based upon Defendants’ sales of DigiCourt, a product Defendants pointed out was developed by them and protected by a separate copyright. As to this point, this Court noted that: -6- The proposed order [attached to Plaintiff’s motion] awarded relief not only with respect to DigiFile, but also as to a previously unmentioned product known as DigiCourt. The defendants filed a response, generally denying liability and asserting that DigiCourt had been developed by the defendants and was protected by a third copyright, Copyright Reg. No. TX 5-917-734. Furthermore, the defendants alleged that the purchasers listed in the motion were purchasers of DigiCourt, not DigiFile. The plaintiff filed a reply, but did not address the defendants’ argument concerning DigiCourt. Without holding a hearing, the district court granted the plaintiff’s motion and awarded statutory damages in the amount of $750 for each copy of infringing software product, . . . . The district court likewise did not address the defendants’ arguments concerning DigiCourt. The district court’s award of statutory damages was therefore vacated. In our Order, we emphasized that “plaintiff clearly is entitled to statutory damages for each sale of a software product impermissibly derived from ProFile,” but remanded the matter for additional findings of fact by the district court with respect to its award of statutory damages. Our May 15, 2006, Order also noted the same problem with the scope of injunctive relief awarded to Plaintiff. The Judgment included DigiCourt as an offending product that Defendants were restrained from selling, distributing copies of, or using. Once again, the evidentiary support for the district court’s conclusion that DigiCourt is an infringing software was absent, necessitating remand for further fact-finding on including DigiCourt within the injunctive relief. On remand, the district court directed the parties to file supplemental briefs in support of their positions on the issue of whether DigiCourt was an infringing software that should also be enjoined. The district court entered formal Findings of Fact and Conclusions of Law by Order of February 16, 2007, and reinstated in full its original Opinion and Order awarding statutory damages and injunctive relief, thereby including -7- DigiCourt software within the scope of that ruling. Defendants moved for reconsideration, which was denied by Order of April 3, 2007. This appeal followed.