Opinion ID: 3064577
Heading Depth: 3
Heading Rank: 2

Heading: Exclusion of Evidence of Illegal Operation

Text: The district court properly determined that the jury was to decide the amount of statutory damages. However, the district court did not allow PC Onsite to argue evidence of illegality to the jury. The court concluded that the jury should focus on the conduct of PC Onsite, and that any possible illegal activity by Dream Games was irrelevant to the willfulness or innocence of PC Onsite’s conduct. [7] “Error may not be predicated upon a ruling which admits or excludes evidence unless a substantial right of the party is affected . . . .” Fed. R. Evid. 103(a). The Copyright Act provides that the copyright owner, at his election, is entitled to “an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, . . . in a sum of not less than $750 or more than $30,000 as the court considers just.” 17 U.S.C. § 504(c)(1). The Supreme Court has held that “the Seventh Amendment provides a right to a jury trial on all issues pertinent to an award of statutory damages under § 504(c) of the Copyright Act, including the amount itself.” Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340, DREAM GAMES OF ARIZONA v. PC ONSITE 4005 355 (1998). We have subsequently interpreted Feltner to uphold the constitutionality of the statutory damages provision, provided that at the plaintiff’s election of a jury trial, we replace the term “court” in § 504(c) with “jury.” See Columbia Pictures Television, Inc. v. Krypton Broad. of Birmingham, Inc., 259 F.3d 1186, 1192-93 (9th Cir. 2001). [8] Statutory damages further “compensatory and punitive purposes,” and help “sanction and vindicate the statutory policy of discouraging infringement.” L. A. News Serv. v. Reuters Television Int’l, 149 F.3d 987, 996 (9th Cir. 1998) (internal quotation marks omitted). “If statutory damages are elected, [t]he [jury] has wide discretion in determining the amount of statutory damages to be awarded, constrained only by the specified maxima and minima.” Peer Int’l Corp. v. Pausa Records, Inc., 909 F.2d 1332, 1336 (9th Cir. 1990) (first alteration in original) (internal quotation marks omitted); see also Krypton Broad., 259 F.3d at 1194; Nintendo of Am., Inc. v. Dragon Pac. Int’l, 40 F.3d 1007, 1010 (9th Cir. 1994). The jury is guided by “ ‘what is just in the particular case, considering the nature of the copyright, the circumstances of the infringement and the like . . . .’ ” Peer Int’l Corp., 909 F.2d at 1336 (quoting F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 232 (1952)). Other circuits have also held that the decisionmaker may consider plaintiff’s conduct during litigation. See Warner Bros. Inc. v. Dae Rim Trading, Inc., 877 F.2d 1120, 1126 (2d Cir. 1989) (reducing award of statutory damages due to vexatious, oppressive, and unreasonable manner in which owner conducted infringement action); Bourne Co. v. Hunter Country Club, Inc., 772 F. Supp. 1044, 1052 (N.D. Ill.1990), aff’d 990 F.2d 934, 939 (7th Cir. 1993) (reducing award of statutory damages when plaintiff’s agent delayed eight months in answering inquiries as to whether certain material was copyrighted). [9] Though the jury has wide discretion in setting the award, the district court maintains its role as the evidentiary gatekeeper. The court may exclude evidence when “its proba4006 DREAM GAMES OF ARIZONA v. PC ONSITE tive value is substantially outweighed by the danger of unfair prejudice.” Fed. R. Evid. 403. “ ‘Unfair prejudice’ within [this] context means an undue tendency to suggest decision on an improper basis.” Id., advisory committee’s notes to 1972 proposed rules. Here, because of the “district court’s familiarity with the details of the case and its greater experience in evidentiary matters,” Sprint/United Mgmt. Co. v. Mendelsohn, 128 S. Ct. 1140, 1144-45 (2008), it was not an abuse of discretion to exclude evidence of illegal operations. It was reasonable for the district court to conclude that such evidence might improperly influence the jury to reduce the statutory damages award. Such reduction would have been improper because illegal operation does not diminish copyright protections or undermine the punitive purposes of the statutory damages provision. Further, illegal operation of a work does not provide information relevant to the nature of the copyright, the circumstances of the infringement, plaintiff’s conduct during litigation, or any of the other factors commonly relied upon by decisionmakers in setting statutory damages awards. PC Onsite misrelies upon Advisers, Inc. v. Wiesen-Hart, Inc., 161 F. Supp. 831 (S.D. Ohio 1958). In Advisers, the court found that the copyrighted material at issue, a coupon book, “is fraudulent in nature in that it is used for the sole and express purpose of enticing the gullible into . . . business establishments.” Id. at 834. Finding “that it was not the intent of Congress to award statutory damages of $1 per copy for books which are thus so fraudulent in nature,” the court reduced statutory damages from approximately $23,000 to $2,500. Id. First, Advisers was interpreting the Copyright Act of 1909, Pub. L. No. 349, 35 Stat. 1075 (repealed 1976), which has been superseded by the Copyright Act of 1976, Pub. L. No. 94-553, 90 Stat. 2541 (codified as amended at 17 U.S.C. §§ 101-810 (2000)). The 1976 Act made significant amendments to and expansions of the statutory damages provision. Compare Pub. L. No. 349, ch. 320, 35 Stat. 1075, at 1080 DREAM GAMES OF ARIZONA v. PC ONSITE 4007 (repealed 1976), with 17 U.S.C. § 504(c) (1976). Second, Advisers did not actually explain the basis for its finding of Congressional intent to reduce statutory damages upon evidence of illegal content, and we have not been able to locate one, either in the Copyright Act of 1909 or the Copyright Act of 1976. Third, the Advisers decision predates Belcher and Mitchell, both of which identified policy reasons for rejecting a fraudulent content defense to a claim of copyright infringement. We thus are unpersuaded by the reasoning of the Advisers court, and conclude that the decisionmaker is not required to consider evidence of illegal operation of a copyrighted work in making an award of statutory damages. Because illegal operation of a copyrighted work does not remove copyright protection or foreclose the award of either actual or statutory damages, we uphold the award of statutory damages to Dream Games. We also conclude that the district court did not abuse its discretion in excluding evidence of illegal operation from the jury’s consideration on the ground that it was more prejudicial than probative. C. Dismissal of Garland Pierce on Judgment as a Matter of Law Dream Games appeals the district court’s denial of its motion for a partial new trial on claims against Garland Pierce, which we review in conjunction with the court’s JMOL in favor of Garland Pierce. See, e.g., Neely v. Martin K. Eby Constr. Co., 386 U.S. 317, 322-24 (1967) (holding that an order conditionally granting or denying a motion for new trial under Federal Rule of Civil Procedure 50(c) or (d) is reviewable in conjunction with an appeal from the grant or denial of a renewed motion for judgment as a matter of law under Rule 50(b)). 1. Whether the Appeal Was Timely The district court orally granted PC Onsite’s JMOL motion on November 22, 2006, dismissing Pierce from the suit. Final 4008 DREAM GAMES OF ARIZONA v. PC ONSITE judgment was entered on March 30, 2007. On April 2, 2007, Dream Games timely filed a motion to amend or, alternatively, correct the judgment under Federal Rules of Civil Procedure 59 and 60, requesting the correction of a clerical error in the name of a defendant and seeking a permanent injunction enjoining PC Onsite from infringing copyright in Fast Action Bingo. On April 16, 2007, Dream Games moved under Rules 50(c)(2) and 59, requesting a partial new trial on Pierce’s liability. No timeliness objection was raised by PC Onsite or addressed by the court. Dream Games’s motion for a new trial was denied in a May 2, 2007, order, and an amended judgment was issued the same day. [10] On appeal, PC Onsite attacks the timeliness of Dream Games’s motion for a new trial.6 Rule 59(b) mandates that this motion be filed no later than ten days after the entry of judgment. Under Rule 6(a), because the time limit is less than eleven days, intervening Saturdays, Sundays, and legal holidays are excluded. The untolled deadline was therefore April 13, 2007, three days before Dream Games filed its motion for a new trial. Dream Games’s timely motion to amend or correct the judgment under Rule 59 and 60, however, affected the finality of the March 30, 2007, judgment. See Fed. R. App. P. 4(a)(4)(iv) (providing that a timely motion to amend the judgment under Rule 59 tolls the period for filing a timely notice of appeal). Because the judgment was not yet final when Dream Games filed its motion for a new trial, that motion was timely, and we have jurisdiction to consider the appeal. 2. The Merits of Pierce’s Dismissal “Judgment as a matter of law is proper when the evidence 6 Timeliness is a jurisdictional question, Tillman v. Ass’n of Apartment Owners of Ewa Apartments, 234 F.3d 1087, 1089 (9th Cir. 2000), and therefore, we consider it regardless of whether PC Onsite raised the issue in the district court, see Attorneys Trust v. Videotape Computer Prods., Inc., 93 F.3d 593, 594-95 (9th Cir. 1996). DREAM GAMES OF ARIZONA v. PC ONSITE 4009 permits a reasonable jury to reach only one conclusion.” Quiksilver, 466 F.3d at 755 (internal quotation marks omitted). Dream Games argues on appeal that the district court erred in dismissing Pierce because the evidence could support the conclusion that Pierce was secondarily liable for infringement, either contributorily or vicariously. PC Onsite responds that Dream Games never asserted the secondary liability theory until oral argument on the JMOL motion. [11] First, Dream Games waived its argument that the district court improperly dismissed Pierce on its theory of direct liability by failing to include that argument in its opening brief. We “will not ordinarily consider matters on appeal that are not specifically and distinctly argued in appellant’s opening brief.” Miller v. Fairchild Indus., Inc., 797 F.2d 727, 738 (9th Cir. 1986). Dream Games spent the entire relevant portion of its opening brief arguing that the district court erred because the evidence supported its new theory of secondary liability. [12] Second, Dream Games failed to raise its theory of secondary liability at trial, and cannot now raise it on appeal. Dream Games’s complaint against all defendants claimed only direct copyright infringement and did not mention vicarious or contributory liability. Neither did the February 7, 2006, joint pretrial order. Dream Games proposed a jury instruction regarding secondary liability, but on PC Onsite’s objection, Dream Games deleted it, and did not include it in its own set of submitted instructions. It was only during oral argument on PC Onsite’s JMOL motion that Dream Games argued for the first time that “even if [the evidence at trial] didn’t support a direct infringement claim, it certainly supports a claim of inducement to infringe.” The theory of secondary liability is distinct from the theory of direct infringement. While direct infringement requires proof of unlawful copying, contributory infringement requires proof that a defendant “(1) has knowledge of a third party’s 4010 DREAM GAMES OF ARIZONA v. PC ONSITE infringing activity, and (2) induces, causes, or materially contributes to the infringing conduct.” Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788, 795 (9th Cir. 2007) (internal quotation marks omitted). Vicarious infringement requires proof that “that the defendant exercises the requisite control over the direct infringer and that the defendant derives a direct financial benefit from the direct infringement.” Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701, 729 (9th Cir 2007). We cannot entertain now Dream Games’s argument that the district court erred by dismissing Pierce because he was secondarily liable. If Dream Games had intended to assert a theory of secondary liability, it should have done so either in the original or an amended complaint, following proper procedure. Instead, the original complaint failed to provide “fair notice” to defendants of such liability, see Yamaguchi v. U.S. Dep’t of the Air Force, 109 F.3d 1475, 1481 (9th Cir. 1997), and Dream Games failed to amend the complaint under Rule 15(a) to allege that theory. [13] Nor was the issue of secondary liability tried by implied consent. See Fed. R. Civ. P. 15(b) (“When an issue not raised by the pleadings is tried by the parties’ express or implied consent, it must be treated in all respects as if raised in the pleadings.”). PC Onsite expressly objected to Dream Games’s proposed jury instructions regarding secondary liability. See 6A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1493 (2008) (“[W]hen a party has objected to the introduction of evidence on a new issue, the opposing party cannot later seek to amend the pleadings to conform to the evidence on the ground that the party impliedly consented to the trial of that issue.”). Implied consent is also ruled out because the evidence introduced at trial, to the extent it was relevant to secondary liability, was also relevant to direct liability for infringement. See id. (“[W]hen the evidence that is claimed to show that an issue was tried by consent is relevant to an issue already in the case, . . . and there was no indication at trial that the party DREAM GAMES OF ARIZONA v. PC ONSITE 4011 who introduced the evidence was seeking to raise a new issue, the pleadings will not be deemed amended under . . . Rule 15(b).”). Allowing Dream Games to argue secondary liability in response to a JMOL motion and on appeal would unduly prejudice PC Onsite by not giving it fair notice of the claims at trial. See Crawford v. Lungren, 96 F.3d 380, 389 n.6 (9th Cir. 1996) (finding that plaintiff waived equal protection and due process claims when the complaint contained only a “passing reference” to those claims, and the arguments were “newly minted” on appeal); see also 6A Wright, Miller & Kane, Federal Practice and Procedure § 1491 (“An amendment will be allowed only if the parties have received actual notice of an unpleaded issue and have been given an adequate opportunity to cure any surprise that might result from the change in the pleadings.”). [14] Finally, to prevent prejudice, parties are typically considered bound by the statements of claims made in their pretrial order. See Fed. R. Civ. P. 16(e) (2006) (“This order shall control the subsequent course of action unless modified . . . to prevent manifest injustice.”). As discussed above, the pretrial order contained no mention of secondary infringement liability. Because direct and secondary liability theories have such distinct elements and require different forms of proof, it would be unduly prejudicial to require PC Onsite to defend its JMOL motion or this appeal on a theory of secondary liability.