IP Law Daily In dispute over oil industry newsletters, failure to mitigate was not a complete defense
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Thursday, January 16, 2020

In dispute over oil industry newsletters, failure to mitigate was not a complete defense

By Thomas Long, J.D.

After a jury found that a newsletter publisher established infringement and DMCA violations by an investment firm, but that the publisher could have avoided the violations, a district court erred by awarding no damages for them.

A publisher’s failure to mitigate the harm it sustained from an investment firm’s unauthorized copying and distribution of copies of the publisher’s oil industry newsletter was not a complete defense precluding awards of statutory damages under Section 504(c) of the Copyright Act and Section 1203 of the Digital Millennium Copyright Act (DMCA), the U.S. Court of Appeals in New Orleans has held. Because statutory damages served a deterrent purpose as well as a compensatory one, failure to mitigate could not preclude liability altogether, although it was a factor affecting the amount of damages to be awarded. The appellate court vacated the district court’s judgment and remanded for determination of copyright damages, as well as awards of attorney fees and costs. The appellate court determined that the publisher was entitled to over $1 million for the DMCA violations (Energy Intelligence Group, Inc. v. Kayne Anderson Capital Advisors, L.P., January 15, 2020, Duncan, A.).

Plaintiffs Energy Intelligence Group, Inc. and Energy Intelligence Group (UK) Limited (together, "EIG") publish information and news relevant to the global energy industry. One of EIG’s publications is Oil Daily, a daily subscription newsletter about the North American petroleum industry. Defendants Kayne Anderson Capital Advisors, LP and Kayne Anderson Fund Advisors, LLC (together, "KA") collectively are a boutique investment firm that deals with energy securities as a substantial part of its business. EIG alleged that KA purchased a single annual subscription to Oil Daily for one of its employees. The employee routinely copied and forwarded the newsletter to other KA employees who were not subscribers. EIG filed suit against KA for copyright infringement and violations of the DMCA.

KA’s defense rested on two theories: (1) EIG learned of KA’s infringement in 2007 but did nothing to investigate or dissuade KA; and (2) EIG knew that many of its subscribers improperly distributed its newsletters but consciously declined to crack down on such sharing because litigating copyright claims against large clients was more profitable. The district court rejected KA’s equitable estoppel and unclean hands defenses at summary judgment but allowed KA to proceed with a mitigation defense. The district court held that "a reasonable fact-finder could infer ... that the subsequent alleged infringement could have been avoided."

Shortly thereafter, EIG confirmed to KA that it would seek statutory damages, and it filed a pretrial memorandum arguing that KA could not invoke mitigation as a complete defense. During trial, the district court orally overruled EIG’s argument.

KA argued that EIG’s copyright registrations contained inaccuracies and moved the court to refer the matter to the Copyright Register. The district court found no inaccuracies and denied the motion for referral.

At trial, KA persuaded the jury that EIG could reasonably have avoided almost all the copyright and DMCA violations at issue. EIG took nothing for those violations and received $15,000 in statutory damages for 39 infringed works. Based on the Copyright Act’s and DMCA’s fee-shifting provisions, as well as KA’s Rule 68 motion, the district court awarded EIG $2.6 million in attorney fees and $21,000 in costs. Both parties appealed.

Mitigation defense. The appellate court explained that EIG’s appeal presented an issue of first impression: whether failure to mitigate is a complete defense to liability for statutory damages under the Copyright Act and the DMCA. The parties agreed that the defense was a factor in deciding the amount of statutory damages, but they disagreed over whether failure to mitigate could preclude liability altogether. EIG contends that the district court erred by declining to award any damages for the 1,607 works that EIG could reasonably have protected from infringement.

The Fifth Circuit held that failure to mitigate was not a complete defense to copyright or DMCA claims for statutory damages. The court concluded that statutory damages under Section 504(c) of the Copyright Act may not be remitted based on a plaintiff’s unreasonable failure to prevent copyright infringement. For similar reasons, statutory damages under DMCA Section 1203 may not be remitted based on a plaintiff’s unreasonable failure to prevent alteration of copyright management information (CMI).

The appellate court assessed the viability of KA’s mitigation defense by examining (1) the common-law principle of mitigation and (2) whether the Copyright Act contained a statutory purpose to the contrary. The Fifth Circuit took guidance from the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663, 668 (2014), which held that Congress precluded the equitable defense of laches in copyright cases by providing a three-year statute of limitations. In that case, the High Court found that "the copyright statute of limitations, § 507(b), itself takes account of delay," so the Court perceived "‘little place’ for a doctrine [laches] that would further limit the timeliness of a copyright owner’s suit." On the nature of the common law defense, the Court declared that was is "gap-filling, not legislation overriding."

Mitigation of statutory damages for copyright infringement. With the Petrella holding in mind, the Fifth Circuit considered the Copyright Act’s statutory purpose and the nature of the mitigation defense. The court noted that the modern Copyright Act’s statutory damages regime went beyond compensation and also had a significant deterrent and potentially punitive purpose. Mitigation applied to post-injury consequential damages, the court said, reasoning that the doctrine of mitigation provided little support for KA’s contention that EIG could not recover statutory damages for infringement that EIG failed to reasonably prevent. The "duty to mitigate" referred to methods of apportioning damages in light of a plaintiff’s reasonable efforts to reduce loss after an injury occurs, not before. While actual damages and defendant’s profits under the Copyright Act are a form of consequential damages, EIG did not seek such damages. Statutory damages under the Copyright Act, the court reiterated, were not solely intended to approximate actual damages. Therefore, they were distinct from the type of damages that were typically calculated according to rules of mitigation. It was appropriate, the court explained further, that the district court instructed the jury to consider EIG’s lost revenues and mitigation in determining the amount of statutory damages, due to their partial purpose in compensating the plaintiff. However, because damages also serve an independent deterrent purpose, mitigation rules did not wholly preclude recovery of statutory damages, the court said. The district court erred when it concluded otherwise.

Mitigation of DMCA damages. The jury concluded that KA’s alteration of Oil Daily’s digital filename violated the DMCA’s prohibitions on altering CMI. The jury found 425 alterations, imposed the minimum amount of statutory damages ($2,500), and concluded that EIG could reasonably have avoided all 425 alterations. Based on the jury’s mitigation findings, the district court awarded EIG nothing on its DMCA claims.

For the same reasons that mitigation was not a complete defense to copyright statutory damages, the Fifth Circuit held that mitigation was not a complete defense to DMCA statutory damages. "Like statutory damages under § 504(c), the structure of statutory damages under § 1203 indicates an intent to deter, not just compensate," the court said. Nothing in the text of Section 1203 required statutory damages to be linked to actual damages, and Section 1203 damages could be trebled at the court’s discretion in cases involving repeat offenders.

The court also rejected KA’s argument that PDF file names could not be CMI. The names could, in the court’s view, be CMI if they were "conveyed in connection with copies" of the underlying work and contained a "title and other information identifying the work." The PDF file names at issue consisted of "DE" followed by the date of the newsletter. EIG presented evidence at trial indicating that the "DE" naming convention was information identifying each Oil Daily newsletter.

Denial of referral to Register. In its appeal, KA argued that the district court erred by denying its motion under 17 U.S.C. §411 for referral to the Copyright Register. The Fifth Circuit rejected this argument, holding that the district court properly denied KA’s referral motion. The court held that Section 411(b) did not require immediate referral to the Copyright Office to determine the materiality of alleged inaccuracies. Before referring a case to the Register, the trial court has discretion to determine whether inaccuracies were knowingly included in copyright registrations. The Fifth Circuit also held that the district court did not clearly err when it concluded that EIG did not knowingly include inaccuracies in its copyright registration applications. In particular, the court said that the district court did not err in finding that Oil Daily was not a compilation. Therefore, it affirmed the district court’s denial of KA’s motion for referral.

Post-offer attorney fees. KA argued that, pursuant to Rule 68, it should have received an award of fees and costs incurred after it made an offer of judgment to EIG in the amount of $5 million, plus $300,000 to fund a copyright infringement ad campaign. Rule 68(d) provided, "If the judgment that the offeree finally obtains is not more favorable than [an] unaccepted [settlement] offer, the offeree must pay the costs incurred after the offer was made." The judgment awarded EIG only $585,000, and KA had made a Rule 68 offer of settlement for $5 million. Therefore, the district court found that EIG was responsible for paying its own post-offer costs and attorney fees, as well as KA’s post-offer costs. However, the district court decided that EIG was not responsible for KA’s post-offer attorney fees.

The appellate court held that the district court properly denied KA’s post-offer attorney fees under Rule 68. Whether EIG must pay KA’s post-offer attorney fees depended on whether KA’s attorney fees were "properly awardable" under the Copyright Act or DMCA. Under the Copyright Act and DMCA, attorney fees are not "properly awardable" to a non-prevailing party, such as KA. However, the court stated that KA’s appeal on this issue was mooted by the vacatur of the district court’s judgment.

Remand to determine damages. Remand was necessary to determine copyright damages because the appellate court could not determine whether the jury intended to award EIG $15,000 per infringed work. Remand was also necessary to re-calculate appropriate awards, attorney fees, and costs. If total damages ultimately amount to more than $5 million, KA may no longer be eligible to recover post-offer costs, the court explained. Accordingly, the copyright infringement judgment was vacated and remanded, as well as the fees and costs determinations.

Remand was not required with respect to the DMCA violations because the parties agreed that if mitigation was not a complete defense, the court should enter judgment for EIG. Therefore, the appellate court entered judgment in favor of EIG in the amount of $2,500 for each of KA’s 425 DMCA violations, or $1,062,500.

This case is No. 18-20350.

Attorneys: Robert L. Powley (Powley & Gibson, PC) for Energy Intelligence Group, Inc. and Energy Intelligence Group [UK] Ltd. Jason E. Mueller (Sheppard Mullin Richter & Hampton, LLP) and Edward Louis Friedman (Baker & Hostetler, LLP) for Kayne Anderson Capital Advisors, L.P. and K.A. Fund Advisors, LLC.

Companies: Energy Intelligence Group, Inc.; Energy Intelligence Group [UK] Ltd.; Kayne Anderson Capital Advisors, L.P.; K.A. Fund Advisors, LLC

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