Court Opinion

ID: 813319
Source: CourtListenerOpinion
Date Created: 2012-12-10 20:04:24+00
Date Added: 2024-06-11T18:00:48.049608
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 11-2014

TATTOO ART INCORPORATED,

                Plaintiff – Appellee,

           v.

TAT INTERNATIONAL LLC; KIRK A KNAPP,

                Defendants - Appellants.

Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk.    Mark S. Davis, District
Judge. (2:10-cv-00323-MSD-DEM)

Argued:   October 25, 2012                 Decided:   December 10, 2012

Before TRAXLER, Chief Judge, and WILKINSON and AGEE, Circuit
Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Nicholas Shaker Ayoub, WHEELER UPHAM, PC, Grand Rapids,
Michigan, for Appellants. Mark R. Baumgartner, PENDER & COWARD,
PC, Virginia Beach, Virginia, for Appellee.          ON BRIEF:
Christopher Gibbons, DUNN/GIBBONS, Grand Rapids, Michigan, for
Appellants. Kristen R. Jurjevich, PENDER & COWARD, PC, Virginia
Beach, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

            Plaintiff-Appellee              Tattoo         Art,   Inc.    (“Tattoo       Art”)

brought        this        action      against             Defendants-Appellants           TAT

International, LLC (“TAT”) and Kirk A. Knapp, alleging claims

for copyright infringement and breach of a copyright license

agreement.       The district court granted Tattoo Art’s motion for

partial   summary      judgment        as    to       liability     on    both   causes     of

action.     The district court then conducted a bench trial solely

as to damages and awarded actual damages of $18,105.48 on the

breach    of    contract         claim      and       statutory     damages      under    the

Copyright      Act    of    $480,000        on       the   infringement       claim.       TAT

appeals various aspects of the district court’s rulings as to

both liability and damages.               We affirm.

                                              I.

            Tattoo         Art   is   a     Virginia        company      owned   by    Joseph

Dufresne, who uses the trade name J.D. Crowe.                            Tattoo Art holds

copyright registrations for hundreds of colorized “tattoo flash”

art designs created by Dufresne.                       A tattoo flash is an original

drawing or design of a tattoo printed or drawn on a sheet of

paper or a poster and often displayed on the walls of tattoo

parlors   to    give       customers      design       ideas      for   the   tattooist     to

copy.

                                                 2
              To     avoid       the     cost       of    copyright          registration      for

hundreds      of    individual         works,       Tattoo       Art    grouped      its    tattoo

flash designs into “Books” consisting of 50 pages or “sheets.”

Each       sheet,    in    turn,        displayed         numerous          individual      tattoo

designs; Tattoo Art, however, secured only a single copyright

registration         for     each      50-sheet          Book.         Tattoo     Art     licenses

interested         parties       to    use    its      copyrighted          flash    designs   in

tattoos, posters, cell phone covers, and t-shirts among other

things.       In this case, Tattoo Art granted permission to TAT, a

Michigan company owned by Knapp, to use the copyrighted designs.

Among other things, TAT creates and sells stencils for use in

applying temporary airbrush body art.

              In December 2005, Tattoo Art and TAT entered into an

agreement      permitting          TAT      to     use    specified         copyrighted     flash

drawings to create stencils for temporary airbrushed tattoos.

According      to    Tattoo       Art,       the   complete       terms      of     the   parties’

agreement were contained within a 10-page typewritten “License

Agreement” (or “the Agreement”), a signed copy of which Tattoo

Art attached and incorporated into its complaint.                                    The License

Agreement      granted       TAT      the     right      to   use     the    specified      tattoo

designs 1      “for        the        manufacture,            offer      for      sale,      sale,

       1
       The License Agreement identified 711 individual designs,
most of which were unregistered, covered by the license. There
is no dispute that Tattoo Art held copyright registrations for
(Continued)
                                                   3
advertisement,           promotion,      shipment,         and     distribution        of      the

Licensed Articles.”              J.A. 253.           “Licensed Articles,” in turn,

was    defined      as    “Stencils      for    use      in     applying      airbrush        body

art.”       Id.      The    licensing         clause      limited       TAT’s    use     of    the

copyrighted flash designs to “the creation and sale of Stencils

for the application of airbrush body art” and permitted TAT to

“distribute         graphic          representations            (including        photographs

and/or posters)” of the tattoo flash designs only if it did so

“in connection with the sale of Stencils.                         No other use . . . is

granted by this License.”               J.A. 254.

              Under      the    terms    of     the      License    Agreement,         TAT     was

required to make quarterly royalty payments of 12.5 percent of

its gross sales, if any, of licensed articles created pursuant

to    the   License      Agreement,       and       no   less    than    $6,000     annually,

regardless of gross sales.                    TAT was also obligated under the

Agreement to provide Tattoo Art with quarterly sales reports.

              Finally,         the    License       Agreement      provided       an   initial

term of three years, after which it would continue on a year-to-

year basis unless one party elected not to renew, in which case

the Agreement would expire at the end of the 12-month period

during      which    notice      of     nonrenewal        was     given.         The     License

212 of these designs                  which     came      from     24    of     Tattoo    Art’s
registered Books.

                                                4
Agreement also reserved exclusively for Tattoo Art the option of

terminating “in the event of a breach” by TAT.                            J.A. 254.         If

the Agreement was not renewed by either party, TAT was permitted

to “dispose of finished Licensed Articles on hand or in process

. . . for a period of twelve (12) months thereafter.”                            J.A. 256.

That    is,    TAT    could      continue     to    promote         and   sell      existing

inventory derived from the copyrighted designs.                              If, however,

Tattoo Art terminated based on TAT’s breach, TAT was obligated

under the License Agreement to “immediately cease all sales.”

J.A. 257.

              TAT concedes that an agreement exists but denies that

the written License Agreement constituted the final agreement.

Instead, TAT claims that Knapp and Dufresne orally modified some

of its terms after Knapp received a fax from Tattoo Art of the

proposed License Agreement on December 29, 2005.                              The alleged

modifications included the right for TAT to sell all existing

licensed inventory in the event of termination, regardless of

the    reason,      and   the    elimination       of    the    $6000     minimum     annual

royalty      payment.        According      to    TAT,     Tattoo     Art    promised       to

prepare a revised License Agreement to reflect the alleged oral

modifications.            TAT concedes that Knapp signed the signature

page    on    its   behalf      and   faxed   it    back       to   Tattoo    Art    on   the

understanding that the signature page would be attached to the

“revised”      License      Agreement.        TAT       contends,     however,       that    a

                                              5
revised Agreement was never prepared or sent and that TAT did

not    receive    a    complete    copy    of   the     signed      License   Agreement

until the lawsuit was underway.

              Following     the    execution       of    the     signature        page    by

Knapp, TAT made three of the four required quarterly royalty

payments in 2006, the total of which was $653.                       The last royalty

payment was made in October 2006, after which time TAT sent no

further royalty payments or sales reports.                     In fact, the parties

apparently had no further contact until February 2009.                             In the

meantime, TAT had changed the coloring of Tattoo Art’s designs

and was displaying these re-colored images on TAT’s website to

promote its stencils.             TAT also removed the copyright notice

from    the      re-colored       images     and      referred       to     the     images

collectively as its “Original Collection.”

              After    having     remained      silent    for    two      years    despite

TAT’s failure to send royalty payments or reports, Tattoo Art

contacted TAT in February 2009.                  TAT promised to come current

with the missed royalty payments and reports but failed to do

so.    On May 14, 2009, Tattoo Art sent TAT a termination letter,

advising TAT to cease any further use of licensed property and

demanding an accounting of all sales up to that date.                                    The

termination      was    based     on   TAT’s    “failure       to    pay   the     minimum

royalties and/or report royalties.”                J.A. 835.         Nonetheless, TAT

continued to sell stencils derived from the licensed property

                                           6
and to use altered designs and artwork in the sale and promotion

of these items on its website.

            In July 2009, Tattoo Art filed an action for breach of

the License Agreement and copyright infringement.                     Relying on a

mandatory    mediation     provision     in      the   License      Agreement,     TAT

argued that Tattoo Art was required to submit any dispute to

mediation before filing an action to enforce the Agreement.                        The

district court agreed and granted TAT’s motion to dismiss.                         The

parties then submitted the case to mediation but were unable to

achieve a resolution.

            In July 2010, Tattoo Art re-filed the action, again

asserting       claims   for   breach    of      the    License     Agreement      and

copyright infringement.          TAT pled the affirmative defenses of

fraudulent      inducement,    unclean       hands     and   equitable      estoppel.

Tattoo    Art    subsequently    filed       a   motion      for   partial    summary

judgment as to liability.           The district court granted Tattoo

Art’s    motion    for   summary   judgment,         concluding      that    TAT   had

breached the Agreement and infringed on the copyrights held by

Tattoo Art.       The district court then held a bench trial as to

damages, after which it entered an order awarding Tattoo Art

$18,105.48 on the breach of contract claim and statutory damages

under the Copyright Act of $480,000 on the infringement claim.

                                         7
                                            II.

                                            A.

             TAT     first   challenges          the    district    court’s        grant    of

partial summary judgment in favor of Tattoo Art as to liability

on its breach of contract claim.                  We review the district court’s

grant of summary judgment de novo.                        See Temkin v. Frederick

Cnty. Comm’rs., 945 F.2d 716, 718 (4th Cir. 1991).                                  Summary

judgment shall be granted if the movant shows that there is “no

genuine dispute as to any material fact” and that it is entitled

to judgment as a matter of law.                    Fed. R. Civ. P. 56(a).                  The

proponent      initially      bears     the       burden     of    demonstrating           the

absence of any genuine issue of material fact.                          See Temkin, 945

F.2d   at   718.       If    the   proponent           succeeds    in   doing      so,     the

opposing party must present facts sufficient to create a triable

issue.      See id. at 718-19.           Tattoo Art fulfilled this initial

obligation      by    producing       the        signed    License       Agreement         and

presenting evidence that TAT failed to pay royalties or provide

quarterly sales reports required by the Agreement.

             TAT responds that the question of whether the parties

orally   modified      the    License       Agreement       presented        an    issue    of

material fact that was not amenable to resolution at the summary

judgment stage.         We disagree.          A party asserting the existence

of a genuine issue of material fact must support its assertion

by   “citing    to    particular      parts       of    materials       in   the    record,

                                             8
including        depositions,          documents,      electronically          stored

information,        affidavits    or     declarations,     stipulations        .   .    .

admissions, interrogatory answers or other materials.”                        Fed. R.

Civ. P. 56(c)(1)(A).            TAT failed to point to anything in the

record   or     proffer   any    evidence      that   would   create     a   material

dispute of fact about the terms of the Agreement.                            The sole

support TAT offered for its claim that various terms of the

Agreement had been modified was a copy of the License Agreement

displaying some handwritten margin notes regarding a few of the

disputed provisions.             TAT, however, offered no deposition or

affidavit testimony verifying who made the notes or when they

were made.       Because TAT failed to “point to [any] document that

contains what [it] contend[s] are the definitive terms of the

Agreement,” J.A. 370, the district court had no choice but to

conclude that the version of the License Agreement incorporated

into Tattoo Art’s complaint was definitive.

              The   district     court    found   other    bases   for       rejecting

TAT’s    oral    modification      claim,      including    the   existence        of   a

merger clause in the License Agreement.                    This clause provided

that the written “Agreement constitutes the entire agreement and

understanding between the parties” and that any modifications of

its written terms were invalid unless contained in “a written

document signed by both parties.”               J.A. 259.     The district court

concluded that the signed signature page reflected TAT’s assent

                                           9
that       no    oral     modifications           could       be   made       to    the    License

Agreement, and TAT has not argued on appeal that the merger

clause was not part of the License Agreement. 2                           We agree with the

district         court       and    find    no     error      in   the    district         court’s

rulings.         Accordingly, we affirm the grant of summary judgment

on Tattoo Art’s breach of contract claim.

                                                  B.

                 “[T]he       Copyright      Act        grants     the    copyright         holder

‘exclusive’ rights to use and to authorize the use of his work

in     five       qualified          ways,        including        reproduction            of    the

copyrighted           work     in   copies,”           Sony   Corp.      v.    Universal        City

Studios, Inc., 464 U.S. 417, 432-33 (1984), and the right “‘to

display         the   copyrighted          work    publicly,’”        N.Y.         Times   Co.     v.

Tasini,         533   U.S.     483,    496       n.4    (2001)     (quoting         17    U.S.C.    §

106(5)).         Under the Copyright Act, “[a]nyone who violates any of

       2
       The district court also concluded that under Virginia law,
the alleged oral modifications would have been invalid under the
statute of frauds in view of the License Agreement’s initial
term of 36 months.    See Va. Code § 11-2 (mandating that “any
agreement that is not to be performed within a year” must be “in
writing and signed” to be enforceable).            Under certain
circumstances “where there has been part performance,” however,
equity requires that the statute of frauds be avoided and the
oral agreement enforced. T.G. Slater & Son, Inc. v. Donald P. &
Patricia A. Brennan, L.L.C., 385 F.3d 836, 841 (4th Cir. 2004).
We need not address this basis for the district court’s ruling
in light of our disposition on other grounds.

                                                  10
the    exclusive           rights      of    the       copyright       owner      .   .    .    is     an

infringer of the copyright.”                       17 U.S.C. § 501(a).                “A licensee

infringes the owner’s copyright if its use exceeds the scope of

its license.”              ITOFCA, Inc. v. MegaTrans Logistics, Inc., 322

F.3d    928,        940     (7th      Cir.       2003)         (internal       quotation            marks

omitted)).            Thus,        “[o]ne        who    obtains        permission         to    use    a

copyrighted” work “may not exceed the specific purpose for which

permission was granted,” Gilliam v. Am. Broad. Cos., 538 F.2d

14,     20    (2d     Cir.       1976),          and    “unauthorized          editing         of     the

underlying          work    .    .    .     constitute[s]         an    infringement            of    the

copyright in that work similar to any other use of a work that

exceeded       the         license         granted        by     the     proprietor            of     the

copyright,” id. at 21.

               The district court determined that TAT’s alteration of

the    coloring       of        Tattoo      Art’s       designs    for       display       on       TAT’s

website       was     beyond         the     scope       of    TAT’s     license          under       the

Agreement and therefore constituted copyright infringement prior

to termination of the License Agreement by Tattoo Art in May

2009.        The district court concluded further that because Tattoo

Art    terminated          the       License      Agreement       as     a   result        of       TAT’s

breach,       TAT    was     prohibited           under    the    terms      of   the      Agreement

from     any    further           use       of    the     copyrighted          works       following

termination.

                                                   11
              We    agree.       TAT     was    given    license          to     use    the

copyrighted tattoo flash artwork to create stencils and to use

copies of the artwork to promote the stencils.                            The Agreement

did not license TAT to edit, modify or alter the copyrighted

works it was licensed to display for marketing purposes, and

therefore such use constituted copyright infringement.                               In the

post-termination           context,    TAT’s     continued       display         of     the

copyrighted        works   constituted    infringement         for    the      additional

reason that TAT was contractually required to “immediately cease

all sales” of the stencils in light of Tattoo Art’s notice of

termination for breach.

              On appeal, TAT argues that the district court should

have permitted it to pursue its equitable estoppel affirmative

defense at trial.          To establish an estoppel defense to copyright

infringement, TAT must show that Tattoo Art “(1) misrepresented

or concealed material facts, (2) intended or expected that [TAT]

would act upon those misrepresentations or concealments, and (3)

had      actual       or     constructive        knowledge           of        the     true

facts.”       Service & Training, Inc. v. Data General Corp., 963

F.2d 680, 690 (4th Cir. 1992).                 TAT has not directed us to any

record    evidence     suggesting      that     Tattoo   Art    misrepresented           or

concealed material facts that would have caused TAT, in reliance

upon   such    misrepresentations,         to    infringe.           Accordingly,        we

                                          12
affirm the grant of partial summary judgment as to liability on

Tattoo Art’s copyright infringement claim.

                                           III.

               Following a bench trial on the issue of damages, the

district court issued a 77-page order ruling on numerous issues.

After concluding that TAT owed a total of $20,250 in royalties,

plus    pre-    and     post-judgment       interest            but       less    any    payments

previously made, the district court considered the appropriate

amount    of    damages       to   award    for       the       copyright         infringement.

Under 17 U.S.C. § 504(a), “an infringer of copyright is liable

for    either—(1)       the   copyright        owner’s          actual      damages      and     any

additional      profits       of   the   infringer          .    .    .    or    (2)    statutory

damages, as provided by [§ 504(c)].”                             Tattoo Art elected to

recover    statutory      damages        under       17   U.S.C       §     504(c)(1),      which

permits    the    offended         copyright         owner       to       recover      between     a

minimum of $750 and a maximum of $30,000 per infringement of a

given work, “as the court considers just.”                                In cases where the

copyright       owner    shows      that       the     infringement              was    committed

willfully,       the    Copyright        Act        authorizes        enhanced          statutory

damages of up to $150,000 per infringed work.                                See 17 U.S.C. §

504(c)(2).

               The district court concluded that Tattoo Art was not

entitled to enhanced damages even though there was some evidence

                                               13
of willfulness.         The court found that even were it to accept the

explanation offered by TAT at trial for changing the coloration—

that the modified color scheme was a more effective marketing

tool   for     the    stencils—“any         potential        legitimacy          that   such   a

business justification might have had was entirely overshadowed

by the illegitimacy of the circumstances. . . . The very name

chosen    by        [TAT]    for    [its]       derivative          [licensed      products]-

the Original Collection is particularly telling.”                                   J.A. 706.

Nonetheless,           the     district           court        could        not     “conclude

definitively”          that        TAT     willfully           engaged       in     copyright

infringement.           J.A.       709.         Thus,    the      court     determined      the

appropriate         statutory      damages       range      was     $750   to     $30,000    per

infringement, as prescribed by § 504(c)(1).

               In     determining         the     number       of    infringements          that

occurred, the district court rejected Tattoo Art’s argument that

the display of each individual recolored image was a separate

copyright violation; instead, the district court decided that

each     of     Tattoo        Art’s       registered         “Books”        constituted        a

compilation.           See    17    U.S.C.       §   101.         “Although       parts   of   a

compilation . . . may be regarded as independent works for other

purposes, for purposes of statutory damages, they constitute one

work.”        Xoom, Inc. v. Imageline, Inc., 323 F.3d 279, 285 (4th

Cir.     2003)         (internal          quotation          marks         and     alteration

omitted), abrogated on other grounds, Reed Elsevier, Inc. v.

                                                14
Muchnick, 130 S. Ct. 1237 (2010).                         Thus, the district court

concluded that Tattoo Art was entitled to only one award of

statutory damages for each book that was infringed.                            Because the

images    used    by     TAT   came    from     24   of    Tattoo     Art’s     registered

books,     the    district       court    determined           that    Tattoo    Art      was

entitled     to     24     statutory      damage       awards.           Neither       party

specifically challenges the court’s method of determining the

number of infringements committed by TAT.

            Finally, as to where the district court should fix the

amount of statutory damages for each infringement within the

$750 - $30,000 range, see 17 U.S.C. § 504(c)(1), the district

court    found    that     Tattoo      Art’s       conduct     fell    “closer       to   the

willful end of the spectrum than the innocent end,” J.A. 719,

and set the amount at $20,000, yielding a total of $480,000 for

the 24 infringements, plus pre- and post-judgment interest.

            On appeal, TAT does not specifically challenge how the

district    court      arrived    at     this      $20,000     figure.        Rather,     TAT

broadly challenges the total amount of the award, contending

that    it was    grossly      disproportional            to   the    amount    of    actual

damages    Tattoo        Art   could     have      recovered      under    the       Minimum

Royalty payment provision of the License Agreement (purportedly

25 times more) or the amount of unpaid royalties due for TAT’s

actual sales (purportedly 68 times more).                       TAT cites State Farm

Mutual Automobile Insurance Company v. Campbell, 538 U.S. 408

                                              15
(2003), and BMW of North America, Inc. v. Gore, 517 U.S. 559

(1996), to support its argument that the statutory damages award

is subject to proportionality review.                     Those cases, however,

involve proportionality review of punitive damages awards, not

statutory damages awards where Congress has limited the district

court’s discretion by establishing a statutory range.                          TAT is

essentially arguing that these awards within the statutory range

were     constitutionally       excessive.            This     is     an    unavailing

argument.      We review for clear error any factual finding that

would    determine     the    appropriate       level    of   copyright      statutory

damages, but we review an award of those damages within the

statutory range for abuse of discretion.                  See Lyons Partnership,

L.P.    v.   Morris   Costumes,      Inc.,      243   F.3d    789,    799   (4th   Cir.

2001).        In   this      case,   the     district        court    articulated    a

reasonable basis for fixing statutory damages at $20,000, and we

perceive no abuse of discretion or constitutional error in the

district court’s conclusions.

             Finally, we reject TAT’s contention that the district

court improperly awarded both actual damages for breach of the

License      Agreement        and    statutory          damages       for   copyright

infringement under 17 U.S.C. § 504(c)(1).                       The Copyright Act

permitted     Tattoo      Art   to   elect       to   recover        “either—(1)    the

copyright owner’s actual damages and any additional profits of

the infringer . . . or (2) statutory damages, as provided by [§

                                           16
504(c)].”     See 17 U.S.C. § 504(a).        Tattoo Art elected and

received statutory damages on its infringement claim; the award

of actual damages was not for the infringement claim but for

TAT’s failure to pay royalties under the License Agreement.          The

election required by the Copyright Act pertains to infringement

claims,   i.e.,   an   infringement   plaintiff   cannot   recover   both

actual and statutory damages for the same act of infringement.

That is not what occurred in this case, however, because the

district court awarded actual damages only for TAT’s breach of

the License Agreement, not for copyright infringement.

                                  IV.

            For the foregoing reasons, we affirm the orders of the

district court.

                                                               AFFIRMED

                                  17