The Anatomy of a Copyright Case - By Joshua Kaufman

The phone rang, and it was a client of mine with whom I had worked on a number of projects for many years. However, this time, she was not seeking advice on structuring a deal or negotiating a contract. Instead, she was very distraught. This particular artist had resisted licensing her works for many years. She was successful and received many opportunities and offers but had decided that she wanted to limit her art work to her original paintings, limited edition prints, and books. Therefore, when she found her works on tee shirts, she was doubly dismayed, not only because someone had reproduced her image without her permission, but they had put it on a commercial product which she strongly believed was inappropriate for her art.

As with most clients, she wanted immediate action — she wanted it stopped, she wanted all the infringer works destroyed, and a good deal of money to make the infringer feel the pain that she

was feeling. The first step for me was to gather the facts, specifically, what image had been infringed upon, where they found the tee shirt, and did they have a copy of the actual tee shirt or had she just heard, as is often the case from a third party, that her work appeared on a tee shirt. Since one cannot protect an idea but only the expression of an idea, many times we find people believing their works have been infringed upon when in fact somebody created something similar in a stylistic sense or takes a mere creative idea and creates a new expression.

While these acts may be knocking off the original artist, they may not be a copyright violations. So it was important for us to see one of the tee shirts and the original work. The tee shirt had been purchased on the other coast, and it took a few days to have it shipped to us. It arrived, along with a receipt from the store where it was purchased. At the same time, my client sent me a

print of the work. Sure enough, it was an infringing work. It wasn't a matter of being similar; someone had simply, through a photomechanical process, reproduced the exact work on the tee shirt. The quality suffered in every way possible from lack of detail, colors shifting, poor cropping. To add insult to injury, the infringers had put their name and their copyright notice on the tee shirt.

My client didn't know whether to be more upset that the infringer had put their name on the work as she didn't want people to think it was her work, but she thought it was added audacity to put their name on it and the height of Chutzpah to put a copyright notice on the work. Fortunately for my client, she had previously registered the image with the Copyright Office. If there's one thing

we try to hammer into our clients, it's the importance of copyright registration. While registration is voluntary and copyright is valid without it, when it comes to mounting an infringement case, registration adds very important arrows to the artist's quiver. If the artist is successful, they can obtain attorney's fees from the other side (at the court's discretion), and instead of being limited to actual damages, they can seek statutory damages, which can be as much as $150,000 per infringement (again, based on the court's discretion). Actual damages are the losses suffered by the artist and the profits of the infringer. Lost profits in a case like this would be what a reasonable royalty might have been. In this case, it would probably have been about 5-8% of the

gross sales. The profits of the infringer would be the profits attributable to the infringement (profits, not gross revenues). In a copyright case, the plaintiff artist has to show the gross revenues of the infringing product, and the infringer then has to try to convince the judge or jury of appropriate deductions to show net profits.

In this case, we knew the name of the store that had sold the work but were not familiar with the infringer's name. An Internet search did not reveal the infringer's identity either. In copyright, everyone in the stream of commerce is liable from the actual infringer to the publisher to the distributor to the retail stores that sell the work. Granted, an "innocent infringer" may look for indemnity(reimbursement for expenses and losses) from the person from whom they acquired the infringing work, and they in turn can then seek relief from the person from whom they acquired the work, all the way upstream until they get to the infringer. However, everyone is individually liable, to the copyright owner and if one of the parties has a deeper pocket than the other, they very well may get stuck footing the bill, even though they may not have been the original infringer.

Since we did not know who the infringer was, we sent a cease and desist letter to the retailer, which happened to be a fairly large chain, demand that they immediately cease and desist from the sale of the infringing work, that they provide us with an accounting of any and all sales, that they further provide us with the identity of the distributor from whom they obtained the tee shirts. The letter was sent to the President of the chain. Not surprisingly, within a day or two, we got a call from the General Counsel's office of the retail chain. They were very helpful and promptly provided us with the name of the manufacturer who sold them the shirts. They stated that they assumed that the manufacturer would cover them and would hope that whatever actions were taken would be taken against the distributor. We advised them that we wanted their sales records, but had no particular bone to pick with them if the manufacturer covered the damage portion of the case that would have applied to them. Whereupon, we contacted the manufacturer, who initially acted very indignantly and told us that they didn't know what we were talking about, that they had been in business for 30 years, they don't infringe upon anybody's work, that we must be mistaken. They were outraged that we had contacted their client and threatened to sue. At that point I suggested that they look at my client's work and their tee shirt more closely and contact an attorney. A few days later, we heard from an attorney representing the manufacturer with quite a different tone. The attorney assured us that his client was a reputable, honorable company and that they had obtained the art work from an independent artist whom they thought was reputable.

However, after they looked at the tee shirt, the original work of art, and the copyright registration, it was clear that the artist from whom they obtained it had copied the work. They suggested that we should go after the artist, whose name they provided to us and realized, of course, that an individual, small-time artist who was knocking off my client probably did not have the wherewithal to make this whole matter worthwhile we told the manufacturer that we would be happy to sue the artist as well, but that any financial responsibility was going to be theirs, and they could look to the artist for indemnification. We demanded copies of all their sales records so that we could calculate a number from which to negotiate a settlement. It took several letters and much prodding, but eventually, we received enough documentation so that we could piece together the sales records of the manufacturer. We calculated their sales to the six chains to which they had sold the works. (We had only uncovered one-sixth of the infringing retail outlets with the initial tee shirt purchase.) We then calculated, based on their gross sales, what the client's royalty would have been, and we looked at the gross revenues that they had generated and calculated a 20% profit margin and looked at the retail sales of the retailers and calculated a 20% profit margin for them as well and came up with a rather substantial number which we asserted was their financial exposure. We told their counsel that we would not contact the other five retailers unless we were not able to resolve this matter and that all works were going to have to be recalled. However, if we settled the case, we would allow them to figure out how to get the infringing goods back from the retail stores in a manner that would cause them the least amount of embarrassment.

When we made our financial demand, the manufacturer was stunned, not understanding that they were liable to my client not only for the royalty owed, but also for all their profits and the profits of the retailers. (In a strict legal sense, the manufacturer is not responsible for the retailers profits; and we could have sued each of them individually. Good business would generally dictate that the manufacturer would cover the losses of its customers. In any event, if we sued the retailers they would turn around and sue the manufacturer so in the end they would be paying anyway.) The initial counteroffer from the manufacturer came back at roughly the amount of royalties my client would have earned on a licensed transaction. They said, "This will make your client whole", and they thought they were being quite generous. At that point, after one or two phone conversations, we realized we were getting nowhere, so we prepared suit papers naming not only the manufacturer, but all of their customers. We then filed the lawsuit against the manufacturer. We did not serve the retail stores (yet). The filing of the suit and serving it on the manufacturer gave them a rude awakening that my client was serious and had the wherewithal, financial and emotional resources to go after them and all their customers. By not immediately serving the suit paper on the retail stores it left us one final negotiating leverage point. The last thing the manufacturer wanted was its six best customers to be sued. We made it perfectly clear that not only were we going to sue their clients, but we were going to depose their clients, we were going to look at all their clients' financial records. They quickly realized that if we proceeded, they would probably lose their six best customers, not only for the sale of this tee shirts, but for their whole product line. When they saw that we were serious and that they were just days away from having their best customers sued because of their error, they started to negotiate in earnest. Negotiations then moved quickly, and the case was settled shortly thereafter.

My client, while happy that the matter was resolved, that the manufacturer stopped selling the work, that whatever was left on the shelves was recalled, and that she collected a sizable sum of money, but she was still left feeling empty at the end, because thousands and thousands of the tee shirts with her art work on them had been sold. Even though they had the other artist's name on them, she felt that her distinct style would have caused many people to think that these works were hers, something she is upset about to this day.

This case didn't go to trial, as few of these type of cases ever do. Most get settled during pre-trail negotiations right after suit is filed or after the discovery process of the suit is concluded when the exposure of the defendants is clearly nailed down and reasonable settlement numbers can be negotiated. Had this case gone to trial, it would not have been a difficult for my client to prevail. We would have clearly shown that she created the original work, that she had a valid copyright in it, and that it had been registered. We would have then presented the evidence of the gross sales of the six stores and of the manufacturer, and they would have had the burden of showing deductions. There would have been a battle of accounting experts arguing what was a bona fide

deduction and what was not. In the end, the judge and jury would have come up with a damages award.

My guess is that the award number would have been fairly close to the one that we received, maybe a bit higher. And what happened to the infringing artist? Who knows? While named in the suit, we dealt with him very little. He was small-time and sold his image to the art department of the manufacturer and clearly did not have the financial ability to pay the sums that my client had recovered. What the department store did in terms of attempting to recoup its losses from the artist, I don't know. However, if they had really gone after him, I'm sure he would have declared bankruptcy (perhaps they did and he did). His name was certainly ruined in the industry, and it is doubtful that he sold his art work, original or otherwise, in the marketplace again. My client, by having registered her copyright early on, helped ensure that she gave us the negotiating clout that we needed during the negotiations. Having collectors and friends keep an eye out for her helped her to identify the infringement early on, and to a great extent, that's really all you can do: register the copyrights and police the marketplace.

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Joshua Kaufman is one of the country's leading art and licensing lawyers. Based in Washington DC he has a national practice. Many of his published arts on art law, copyright, licensing and e-commerce.