By Robert B. Barnett Jr., J.D.
"There is some support within copyright law for a common sense approach to excessive awards of profits," said the Sixth Circuit.
In a copyright infringement case involving a stolen house design, in which a jury awarded the copyright holder $296,208.75 in damages against a builder and $14,440.50 against a real estate agent, the U.S. Court of Appeals in Cincinnati has reversed and remanded the damages award against the builder but not the real estate agent, because giving the copyright holder the full cost of the house without deducting any building expenses "shocks the conscience." One judge, who wrote a separate opinion, concurring in part and dissenting in part, would have affirmed the full amount on both defendants, on the theory that the award was made in compliance with the Copyright Act’s burden-shifting damages analysis, under which the builder should be forced to accept his failure to convince the jury of the legitimacy of his expenses (Singletary Construction, LLC v. Reda Home Builders, Inc., June 1, 2020, Moore, K.).
Background. Reda Home Builders, Inc., was hired by a client, acting through a real estate agent, Rae Gleason, to "build [the] same house as Lot 353 Farmington." The house at 353 Farmington, Clarksville, Tennessee, was owned by Singletary Construction, LLC, which had a copyright on the design. Singletary sued Reda and Gleason for copyright infringement, winning a jury verdict of $296,208.75 in damages against Reda and $14,440.50 against Gleason. The builder and the real estate agent appealed to the Sixth Circuit, but only on the issue of the reasonableness of the damages awarded.
Reda judgment. The Copyright Act contains a burden-shifting framework for determining recoverable profits. The copyright holder is first required to establish the infringer’s gross profits. The infringer then proves its deductible expenses. In this case, the jury accepted the copyright holder’s proof that the developer’s gross profits were $296,208.75. The jury also, however, rejected the developer’s proof of its costs, largely because the proof offered was disorganized and "far from compelling." The result was a rejection of the deductible expenses and a $296,209.75 verdict for the full gross profits.
Even though the jury complied with the Copyright Act burden-shifting analysis, the Sixth Circuit said that its review was guided not just by that framework but also by Tennessee common law, citing the Seventh Amendment to the Constitution. Although the jury was entitled to disbelieve the builder’s evidence of deductible expenses, the result was "contrary to all reason." The verdict meant that the builder built a $296,209.75 house with virtually no expenses for building materials, subcontractors, etc. The profit amount awarded, therefore, was "plainly absurd."
The copyright common law typically requires that infringers prove their expenses with particularity. The reason is that, in many copyright infringement cases, the infringer’s costs could actually be minimal, such as where a book is republished without permission or an architect steals a design but is not involved in the actual building. In the absence of that required particularity, courts have often awarded the full amount of the gross costs. These cases, however, "have questionable applicability to this case" because significant costs were presumably incurred in this case by the builder. As a result, the Copyright Act’s rigid burden-sharing rules "do not offer much guidance here." Instead, the appellate court identified with those cases that have recognized the problems of ignoring inherent expenses. "[T]here is some support within copyright law for a commonsense approach to excessive awards of profits." Thus, even if the builder failed to carry its burden of proof on deductible expenses, the copyright holder cannot be permitted to collect the full amount of gross revenue when the result "simply defies common sense."
As a result, the court concluded that the jury’s award "shocks the conscience" and that the lower court erred in denying the builder’s motion for a new trial or, in the alternative, a remittitur.
Gleason’s profits. The court was less forgiving on the verdict against the real estate agent. She failed to supply any documents setting forth her expenses, despite being requested to do so. Although she claimed she split the amount with others, she provided no documentary evidence supporting that claim. As a result, the court affirmed the lower court’s decision denying her motion for a new trial or a remittitur.
The court, therefore, affirmed the decision on the real estate agent and reversed and remanded the decision on the builder.
Concurring and dissenting opinion. One judge on the panel filed a part-concurrence, part-dissent. Circuit Judge Eric E. Murphy concurred with the decision to affirm the decision on the real estate agent. Judge Murphy, however, would also have affirmed the decision on the builder and given the copyright holder the full amount. "The statute’s plain text decides this case," Judge Murphy said, pointing out that the jury did nothing more in awarding the verdict than comply with the Copyright Act requirements. He saw no error in the lower court’s refusal to grant a remittitur. The builder should be required to live with its failure to convince the jury of its expenses with legal sufficient evidence. The jury’s failure to reduce the damages because of the builder’s inadequacies did not shock the conscience or merit a reversal. As an additional concern, Judge Murphy wondered how the lower court judge was supposed to arrive at a remittitur without any legitimate evidence of the builder’s costs.
This case is No. 19-5491.
Attorneys: Stephen J. Zralek (Bone McAllester Norton PLLC) for Singletary Construction, LLC. Sheri S. Phillips (Turner & Phillips) for Reda Home Builders, Inc. and Rick Reda. Mark Robert Olson (Olson & Olson LLP) for Rae Gleason.
Companies: Singletary Construction, LLC; Reda Home Builders, Inc.
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