IP Law Daily $3.6M statutory damages award vacated in dispute over use of ad illustrations
Thursday, August 22, 2019

$3.6M statutory damages award vacated in dispute over use of ad illustrations

By Thomas Long, J.D.

District court erred in failing to determine whether illustrations infringed by herbal supplement company were each "one work" for purposes of 17 U.S.C. §504(c)(1), or whether the plaintiff could recover only two awards for infringements of two "compilations."

Addressing a question of first impression on the scope of statutory damages recoverable under the Copyright Act, the U.S. Court of Appeals in Chicago has determined that a district court erred in permitting separate jury awards of statutory damages for each of an artist’s 33 illustrations, which were found to have been infringed by herbal supplement company Flora, Inc. Without a finding of whether each or any of the 33 illustrations constituted "one work" within the meaning of 17 U.S.C. §504(c)(1), it was improper to instruct the jury that the artist could receive separate awards for 33 acts of infringement on 33 separate illustrations, for a total of $3.6 million, rather than only two awards for infringement of two broader compilations of works, as Flora argued was appropriate. The judgment in the artist’s favor was vacated, and the case was remanded for further proceedings. On remand, the district court was directed to determine whether the illustrations at issue had value only in and through their composite whole or instead had standalone value at the level of "one work"—that is, whether they each had distinct and discernable value to the artist (Sullivan v. Flora, Inc., August 21, 2019, Scudder, M.).

In 2013, Flora hired freelance production specialist Joseph Silver to produce two animated videos promoting Flora’s supplement products. Silver contacted Amy Lee Sullivan, an independent graphic design artist, to provide illustrations that would be animated for use in the advertisements. In Sullivan’s contract with Silver, she granted Flora exclusive rights to use her illustrations in the two specified advertising campaigns. For each project, Silver sent Sullivan preliminary sketches and a script. For both projects, in addition to providing the illustrations in JPEG file format, Sullivan provided her original, multi-layered source art. Sullivan registered the illustrations for the projects with the Copyright Office as two collections, in sets of 17 and 16 separate listed illustrations, respectively. Sullivan alleged that the 33 illustrations that she created for the Flora videos were used in other promotions and advertisements in violation of her copyrights in those works. She filed suit against Flora for copyright infringement and unjust enrichment.

Procedural history. In an October 2016 opinion, the court denied a motion for summary judgment filed by Flora, which had argued that Sullivan and Silver were joint owners of the works at issue and that Sullivan therefore could not proceed with infringement claims as the sole author. The jury ultimately rejected Flora’s joint ownership argument in a verdict rendered on April 18, 2017. In an April 17 order, the court ruled that the 33 individual illustrations constituted individual works—rather than two collections each comprising a single work—thereby entitling Sullivan to seek 33 separate statutory damages awards under 17 U.S.C. §504(c)(1) instead of two. On April 19, 2017, the jury decided that Sullivan proved that Flora had infringed her copyrights and that Sullivan did not grant Flora an implied license to use her illustrations outside of the original videos. The jury also found in favor of Sullivan on the unjust enrichment claim. After the damages phase of the trial, the jury awarded Sullivan $143,500 in actual damages and $3.6 million in statutory damages for Flora’s copyright infringement. Sullivan declined the actual damages award and opted for the larger statutory damages award. Flora appealed.

Statutory damages. On appeal, Flora challenged the district court’s ruling on statutory damages. The appellate court first rejected Sullivan’s argument that Flora had waived the issue, stating that Flora had made its position on statutory damages clear throughout the litigation.

One award per work infringed. Proceeding to the merits, the court noted that Section 504(c)(1) limits a plaintiff’s recovery to one award of statutory damages for each work infringed. That is, the issue is the number of protected works infringed, not the number of infringements. Congress also imposed the additional limitation that, in awarding statutory damages, each part of a compilation was to be considered "one work." Therefore, the Seventh Circuit said, it was essential to determine not only what constituted "one work"—a term that was not defined in the Copyright Act—but also when multiple works combine to form a "compilation"—which also was not defined in the Act.

Collective work registration. In its analysis of the statutory damages issue, the district court observed that Sullivan had registered her two illustration collections as a collective or group work under Section 408(c)(1) and implementing regulations, and concluded that the copyrighted works were collective works, "in which contributions, constituting separate and individual works in themselves, are assembled into a collective whole." The district court instructed the jury that it could consider each illustration in the two collections as an independent, copyrighted work.

"One work." In the appellate court’s view, the district court "drifted off course" in deeming the 33 illustrations as "collective works" without first asking—as required by Section 504(c)(1)—whether each illustration constituted "one work" or instead combined to form a "compilation." The Seventh Circuit noted that Section 101 of the Act defined "compilation" to include "collective works. Characterizing the 33 illustrations as "collective works" and also a "compilation"—and thus "all the parts of a compilation," per Section 504(c)(1)—was at odds with the district court also determining that the Act authorized the jury to return 33 separate awards of statutory damages for infringement of each of the 33 illustrations, the appellate court said.

The matter was further complicated, in the Seventh Circuit’s view, by the language of Section 504(c)(1), in which the key distinction was not between a compilation and a collective work, but instead between "one work" and a "compilation." In this case, therefore, the proper framing of the issue was whether Sullivan’s 33 illustrations constituted 33 individual works or instead were parts of two compilations. The district court did not resolve this question or put it to the jury. To reach a conclusion on this question required parsing the language of Section 504(c)(1), the court said.

After examining the mixed approaches taken by various other circuits, the Seventh Circuit favored the approach taken by the First, Ninth, Eleventh, and D.C. Circuits, that Section 504(c)(1) requires courts confronted with circumstances with multiple works and multiple infringements to determine whether the protected works had value only in and through their composite whole (thus meeting the definition of a "compilation") or instead had standalone value at the level of "one work." A protected work has "standalone value" if it has distinct and discernable value to the copyright holder.

"The inquiry and fact finding demanded by § 504(c)(1) is more functional than formal," the appellate court said, "taking account of the economic value, if any, of a protected work more than the fact that the protection came about by an artist registering multiple works in a single application." The court went on to explain that the necessary finding required a focus on where the market assigns value.

The record as it presently stood in this case did not allow the court to resolve as a factual matter whether all or part of Sullivan’s 33 illustrations were separate works with distinct and discernable value or part of two broader compilations. Therefore, the appellate court vacated the judgment in Sullivan’s favor and remanded for further proceedings.

Unpublished works—timing issue. Flora also argued that Sullivan was not entitled to statutory damages with respect to infringements of unpublished works that commenced before the effective dates of registration, pursuant to Section 412(1). However, the court held that Flora waived this challenge by raising it much too late at trial. Flora did not raise the Section 412 timing issue until the third phase of trial—the damages phase—and even then only in a sidebar conference on a different issue. Flora took the district court judge by surprise, the appellate court noted, because it marked a shift from Flora’s emphasis on the defense of joint authorship. Flora also failed to mention the Section 412 issue at the jury instruction conference, so the question was never put to the jury. The appellate court stated that the district court did not err in concluding that Flora had waived any Section 412 timing defense.

Joint authorship. Finally, Flora argued that the district court should have set aside the jury verdict finding that Silver and Sullivan were not joint authors. Again Flora ran into a waiver roadblock, as it did not present this challenge to the district court in response to the jury’s adverse verdict. Even if it had not waived the challenge, the Seventh Circuit said that it "would be quick to conclude that the jury reasonably found Sullivan was the sole author of the 33 illustrations in question."

This case is Nos. 17-2241 and 18-2534.

Attorneys: Harry E. Van Camp (DeWitt LLP) for Amy Lee Sullivan d/b/a Design Kit. Steven P. Fallon (Greer, Burns & Crain) and Christopher W. Carmichael (Henderson Parks, LLC) for Flora, Inc.

Companies: Design Kit; Flora, Inc.

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