Opinion ID: 2967367
Heading Depth: 2
Heading Rank: 2

Heading: NDC and Hillary costumes

Text: On Lyons' claims relating to Morris Costumes' rentals of the NDC and Hillary costumes, the court found that the defendants infringed both Lyons' copyrights and trademarks, though it also found that the infringements were not willful. The court refused, however, to provide Lyons with any remedy because it determined that Lyons' claims were barred by both the applicable statutes of limitations and laches. The court also concluded that, in any event, Lyons did not prove that the infringement was willful and that injunctive relief was no longer necessary because Morris Costumes was no longer renting the infringing costumes. Lyons challenges each of these rulings, and we address them in order.
The limitations period for bringing copyright infringement claims is three years after the claim accrues. See 17 U.S.C. § 507(b); Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199, 202 (4th Cir. 1997). And a claim accrues when one has knowledge of a violation or is chargeable with such knowledge. Hotaling, 118 F.3d at 202 (internal quotation marks and citations omitted). While the Lanham Act itself does not provide an express period of limitations for filing a trademark infringement claim, courts generally assume that Congress intended that courts borrow a limitations period for a federal action at law from an analogous state law. See Reed v. United Transp. Union, 488 U.S. 319, 323-24 (1989); Wilson v. Garcia, 471 U.S. 261, 266-67 (1985); Holmberg v. Armbrecht, 327 U.S. 392, 395 (1946); Kason Indus., Inc. v. Component Hardware Group, Inc., 120 F.3d 1199, 1203 (11th Cir. 1999). In this case, the 5 district court borrowed the four-year statute of limitations provided in the North Carolina Unfair Trade Practices Act, N.C. Gen. Stat. § 7516.2, a provision that the parties agree is appropriately analogous. In applying these statutes of limitations, the district court found that Lyons had knowledge of Defendants' actions regarding NDC in April, 1993, more than four years before it filed the above encaptioned matter. Lyons filed its complaint in this case on May 2, 1997. Because this four-year span exceeded the three- and four-year statutes of limitations for copyright and trademark claims, the court held that the statutes of limitations barred all of Lyons' claims involving the NDC and Hillary costumes. Although Morris Costumes' liability for at least some of the alleged acts of infringement appears to have been shielded by the statute of limitations, the district court ruled that this fact barred even claims based on infringing activity shown to have occurred within the limitations period. In doing so, it assumed that Morris Costumes' actions regarding NDC and Hillary comprise one act of infringement. This assumption, however, is contrary to our holding in Hotaling, see 118 F.3d at 202, in which we made clear that each sale or rental should be considered separately under an infringement analysis. We held that a party does not waive the right to sue for [copyright] infringements that accrue within three years of filing by not asserting related claims that accrued beyond three years. Id. at 202. This well established rule recognizes that the statute of limitations does not shield the defendant from liability for wrongful acts actually committed during the limitations period, and its rationale applies equally to trademark infringement claims brought under the Lanham Act. Thus, although the district court was correct to hold that Lyons could not recover for claims that accrued outside the limitations period[s], Hotaling, 118 F.3d at 202, it erred to the extent that it dismissed Lyons' claims that were premised upon acts that occurred within the applicable periods. Because the parties agree that numerous rentals occurred within the relevant limitations periods, we reverse the district court's ruling that all claims based on the NDC and Hillary costumes were barred by the applicable statutes of limitations. 6
In its brief on appeal, Morris Costumes does not make a serious attempt to defend the district court's statute of limitations analysis. Instead, it relies most heavily on its alternative theory that Lyons' claims were barred by laches because the four-year delay between Lyons' initial contact with Morris and its filing of the lawsuit was unreasonable, inexcusable, and prejudicial. Lyons responds with the argument that the district court misapplied the standards governing the laches doctrine. See generally A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1032-33 (Fed. Cir. 1992) (setting out one statement of the standards); see also Potter Instrument Co. v. Storage Tech. Corp., 641 F.2d 190, 191 (4th Cir. 1981) (noting that invocation of . . . laches . . . is within the sound discretion of the district court and will be reversed only if clearly erroneous). While we agree with Lyons that the district court erred as a matter of law when it found that laches barred Lyons' claims, both legal and equitable, we do so for more fundamental reasons. First, laches is a doctrine that applies only in equity to bar equitable actions, not at law to bar legal actions. Second, we note that, in any event, in connection with the copyright claims, separation of powers principles dictate that an equitable timeliness rule adopted by courts cannot bar claims that are brought within the legislatively prescribed statute of limitations. Finally, even in equity under the Lanham Act, laches does not bar a claim for prospective injunctive relief. The doctrine of laches is based on the maxim that equity aids the vigilant, not those who sleep on their rights.22 See Ivani Contracting Corp. v. City of New York, 103 F.3d 257, 259 (2d Cir. 1997). Laches may be applied by a court to bar a suit in equity that has been brought so long after the cause of action accrued that the court finds that bringing the action is unreasonable and unjust. See id. The fuzziness of these equitable principles and the softness of their application, see Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982); Holmberg, 327 U.S. at 396 (Frankfurter, J.) (Equity eschews mechanical rules; _________________________________________________________________ 2 Vigilantibus non dormientibus aequitas subvenit. But also note, aequitas ignorantiae opitulatur, oscitantiae non item (equity assists ignorance, but not carelessness). 7 it depends on flexibility), while maybe apropos for the apparently soft and fuzzy Barney, nonetheless provide no defense of laches for his actions at law. See County of Oneida v. Oneida Indian Nation, 470 U.S. 226, 244 n.16 (1985) ([A]pplication of the equitable defense of laches in an action at law would be novel indeed); United States v. Mack, 295 U.S. 480, 489 (1935) (Cardozo, J.) (Laches within the term of the statute of limitations is no defense at law); Ivani Contracting, 103 F.3d at 260; Ashley v. Boyle's Famous Corned Beef Co., 66 F.3d 164, 168-69 (8th Cir. 1995). And the fact that Federal Rules of Civil Procedure 1 and 2 merged law and equity for procedural purposes -- Rule 2, for example, provides that [t]here shall be one form of action to be known as `civil action' -- does not alter the substantive rights inherent in law and equity. See Commercial Nat'l Bank v. Parsons, 144 F.2d 231, 240-41 (5th Cir. 1944) (noting that despite the rules' merger of law and equity as to form, the substantive difference in federal judicial power between law and equity remains embedded in federal law). Moreover, because laches is a judicially created doctrine, whereas statutes of limitations are legislative enactments, it has been observed that [i]n deference to the doctrine of separation of powers, the [Supreme] Court has been circumspect in adopting principles of equity in the context of enforcing federal statutes. Oneida Indian Nation, 470 U.S. at 262 n.12 (Stevens, J., dissenting in part) (relying generally on Weinberger, 456 U.S. 305); see also Holmberg, 327 U.S. at 395 (If Congress explicitly puts a limit upon the time for enforcing a right which it created, there is an end of the matter. The Congressional statute of limitation is definitive). Consequently, when considering the timeliness of a cause of action brought pursuant to a statute for which Congress has provided a limitations period, a court should not apply laches to overrule the legislature's judgment as to the appropriate time limit to apply for actions brought under the statute. Separation of powers principles thus preclude us from applying the judicially created doctrine of laches to bar a federal statutory claim that has been timely filed under an express statute of limitations. See Ivani Contracting, 103 F.3d at 260; Ashley, 66 F.3d at 168-69; Miller v. Maxwell's Int'l, Inc., 991 F.2d 583, 586 (9th Cir. 1993). And this principle is equally relevant when Congress creates a cause of action for traditional equitable remedies, such as injunctions, and specifies a statute of limitations for that action. Thus, when Congress creates 8 a cause of action and provides both legal and equitable remedies, its statute of limitations for that cause of action should govern, regardless of the remedy sought. A relevant example is provided by the Copyright Act, where Congress created a civil action by which plaintiffs may seek both damages and injunctive relief. See 17 U.S.C. §§ 502, 504. And in a limitations provision, it provides, No civil action shall be maintained under the provisions of this Title unless it is commenced within three years after the claim accrued. Id. § 507(b) (emphasis added). In view of such a provision, a court is not free to shorten the limitations period, even when a plaintiff seeks equitable relief. But, of course, the doctrine of laches may be applied to equitable claims brought under the Lanham Act, which contains no express limitations provision. See Holmberg, 327 U.S. at 395. When federal courts, in the exercise of their equitable power, consider laches, they are guided by the limitations period that they would borrow for actions at law and presume that if an equitable claim is brought within the limitations period, it will not be barred by laches. See Sara Lee Corp. v. Kayser-Roth Corp., 81 F.3d 455, 461 (4th Cir. 1996); Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 821 (7th Cir. 1999); Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 191 (2d Cir. 1996); Tandy Corp. v. Malone & Hyde, Inc., 769 F.2d 362, 365-66 (6th Cir. 1985). But if the claim is one for injunctive relief, laches would not apply. A prospective injunction is entered only on the basis of current, ongoing conduct that threatens future harm. Inherently, such conduct cannot be so remote in time as to justify the application of the doctrine of laches. See Sara Lee, 81 F.3d at 461 ([I]n consideration of the public interest, estoppel by laches may not be invoked to deny injunctive relief if it is apparent that the infringing use is likely to cause confusion (citing 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, § 31.04[1] (3d ed. 1995))).
Because not all of the claims relating to the NDC and Hillary costumes are time-barred, we must consider whether Lyons is entitled to a remedy in connection with these claims. 9 At trial, Lyons did not seek to prove actual damages and does not, therefore, press any claim for such damages. It did, however, elect statutory damages under the Copyright Act, which provides that the copyright owner is entitled to either actual damages or statutory damages. See 17 U.S.C. § 504(a). The election for statutory damages must be made before final judgment is rendered. See id. § 504(c)(1). In its complaint, Lyons demanded statutory damages, and it apparently never abandoned that claim, because at trial it not only chose not to present evidence of actual damages, but it also sought to prove that the defendant's conduct was willful, thereby entitling it to enhanced statutory damages. See id. § 504(c)(2). Under 17 U.S.C. § 504(c)(1), a copyright owner is entitled to statutory damages of not less than $500 or more than $20,000 for infringement of any one work, as the court considers just. If the copyright owner, however, is able to prove that infringement was committed willfully, the court is given discretion to increase the award of statutory damage to a sum not more than $100,000. See id. § 504(c)(2). On the other hand, if the copyright owner is only able to prove that such infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court, in its discretion, may reduce the award of statutory damages to a sum not less than $200. Id. While we review for clear error any factual finding that would determine the appropriate level of statutory damages, we would review an award of those damages within the statutory range for abuse of discretion. See Superior Form Builders, Inc. v. Chase Taxidermy Supply Co., 74 F.3d 488, 496 (4th Cir. 1996). In this case, the district court found that the defendant's infringement was not willful, and we conclude that the court's finding is not clearly erroneous. Although the Copyright Act does not define willful infringement, other circuits have held that infringement is willful if the defendant has knowledge, either actual or constructive, that its actions constitute an infringement, Fitzgerald Publ'g Co. v. Baylor Publ'g Co., 807 F.2d 1110, 1115 (2d Cir. 1986), or recklessly disregards a copyright holder's rights, see N.A.S. Import Corp. v. Chenson Enterprises, 968 F.2d 250, 252 (2d Cir. 1992); see also RCA/Ariola Int'l, Inc. v. Thomas & Grayston Co., 845 F.2d 773, 779 (8th Cir. 1988) (holding that a defendant does not act willfully within the meaning of the statute if he believes in good faith that his conduct is 10 innocent). In this case, substantial evidence supports the district court's finding that Morris Costumes neither knew nor should have known that it was infringing Lyons' copyrights. For example, an investigator hired by Lyons was repeatedly told by a Morris Costumes employee that Morris Costumes did not rent Barney costumes. Perhaps more significantly, evidence in the record established that Morris Costumes ceased distribution of the NDC costumes in 1994 and replaced that costume with the modified version-- the Hillary costume -- a work that, while eventually found to be infringing, was also found by the district court to reflect a serious attempt to create a new work with clearly identifiable female characteristics, such as a dress, red cheeks, and long eyelashes. Despite the presence of evidence pointing toward the opposite conclusion, such as Morris Costumes' receipt of Lyons' cease-and-desist letter, the district court did not clearly err when it held that the distribution of the NDC and Hillary costumes was not willful infringement. Even with our affirmance of the district court's willfulness ruling, however, in view of our rulings on limitations and laches, the district court is left with the determination of whether lesser statutory damages should be awarded under 17 U.S.C. § 504(c).
Lyons also appeals the district court's decision not to issue an injunction prohibiting Morris Costumes from distributing infringing costumes in the future. The court wisely did not rely on laches to bar injunctive relief because laches may not be invoked to deny injunctive relief that otherwise would appear appropriate. Rather, the district court concluded that Morris Costumes' voluntary cessation of all activities concerning the costumes at issue rendered the injunction unnecessary. We believe that this statement misconstrues the legal principles applicable to the issuance and denial of injunctions. As we have noted in the past, it is well established that the voluntary discontinuance of challenged activities by a defendant does not necessarily moot a lawsuit. United States v. Jones, 136 F.3d 342, 348 (4th Cir. 1998) (citing Iron Arrow Honor Soc'y v. Heckler, 464 U.S. 67, 71-72 (1983) (per curiam)). That rule is subject to the caveat that an injunction is unnecessary when there is no reasonable expectation 11 that the wrong will be repeated. United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953) (emphasis added) (quotation marks and footnote omitted); see also County of Los Angeles v. Davis, 440 U.S. 625, 631 (1979). But this exception is just that -- an exception -- and defendants face a heavy burden to establish mootness in such cases because otherwise they would simply be free to `return to [their] old ways' after the threat of a lawsuit has passed. Iron Arrow, 464 U.S. at 72 (alteration in original) (quoting W.T. Grant, 345 U.S. at 632). In the case before us, the defendants did not meet this heavy burden. Philip Morris testified that the reason why he stopped renting the Hillary costume several months before this action was commenced was because of the suit that Lyons filed against the manufacturer of the NDC costume, the costume on which Hillary was based. Even though he stopped renting to see how that litigation fared, he continued to maintain that the Hillary costume was in fact not an infringing costume. Morris Costumes did not make an affirmative showing that continuing infringement was, practically speaking, nearly impossible. Despite this state of the record, the district court, in finding an injunction unnecessary, required no more than the defendants' bald assertions that they would cease distributing the costumes and would hand over those costumes remaining in their possession following the termination of the litigation. In the context of an infringement action, such assertions, standing alone, cannot eliminate the plaintiff's reasonable expectation that the alleged violation will recur in the absence of a court order. Davis, 440 U.S. at 631 (internal quotation marks omitted). Accordingly, Lyons was entitled to an injunction. We therefore reverse the district court's ruling denying Lyons an injunction in the face of its findings of infringement and remand with instructions that the district court enter an injunction prohibiting the illegal conduct.