Under the Copyright Act, an owner of a copyright suing for infringement may elect to seek statutory damages instead of actual damages. The amount of statutory damages under the Copyright Act are limited to $30,000 for innocent infringement and up to $150,000 for willful infringement. In Desire, LLC v. Manna Textiles, Inc., et al. (decided February 2, 2021), the Ninth Circuit was confronted with the issue of whether a plaintiff is entitled to multiple statutory damage awards where some of the defendants are found to be jointly and severally liable with each other.
Desire is a fabric supplier that had obtained and registered with the Copyright office “a two dimensional floral print textile design.” Shortly thereafter, a woman’s clothing manufacturing, Top Fashion, purchased a couple of yards of the fabric from Desire in order to secure a clothing order with Ashley Stewart, Inc., a woman’s clothing retailer. Unfortunately, Top Fashion and Desire had a dispute over the fabric’s price. Top Fashion then showed the design to Manna, a fabric designer, who in turn used a Chinese textile design firm to modify the design. That designer changed approximately 30-40% of the original design, and Manna subsequently registered the “new” design with the Copyright Office.
Between late 2015 and Spring 2016, Manna sold this fabric to at least three manufacturers, who in turn created garments that were then sold to at least three retailers. Desire then sued Manna, the manufacturing defendants and their retailer defendants, for copyright infringement. Desire did not allege that the three manufacturing defendants acted in concert with one another or that the three retail defendants acted in concert with one another to infringe on Desire’s copyright. (The Ninth Circuit’s opinion contains a diagram on page 8 showing the manufacturer/distribution chain if the reader is interested.)
The trial court granted summary judgment to Desire on the issues that it was the owner of a valid copyright and that Manna, and at least two manufacturing defendants, had access to the subject design. The Court also concluded that Desire’s copyright design “was entitled to broad copyright protection.” The Court then held that although the jury would determine whether copyright infringement had occurred, if it did so, the Court held that it would award up to seven statutory damages awards under a theory that some of the defendants were jointly and severally liable.
After a trial, the jury returned a verdict in Desire’s favor and found that Manna and two of the manufacturer defendants had willfully infringed on Desire’s copyright and that a third manufacturer and one retailer had innocently infringed on the copyright. After totaling up the seven separate statutory awards, the trial court awarded Desire $480,000 in statutory damages, with 100% of that amount assessed jointly and severally against Manna. The defendants appealed the ruling to the Ninth Circuit. (This article will not address the issue of the copyright infringement liability that is discuss in the Court’s opinion.)
On appeal, the defendants argued that the district court had adopted “an erroneous view of joint and several liability” and the interplay with the Copyright Act’s statutory damages scheme. The argued that because joint and several liability results where two or more defendants have contributed to the harm that the plaintiff suffered, even if they do so independently, “the Copyright Act permits only one award of statutory damages.” Desire, on the other hand, argued that where the joint and several liability is only between some of the defendants as opposed to all of them completely, the Copyright Act should be read to allow for multiple statutory damage awards. The Ninth Circuit decided to adopt the defendants’ approach to statutory damages under the Copyright Act given the facts of the case.
The Ninth Circuit began by noting that the district court had properly apportioned joint and several liability between the upstream defendants, i.e., the manufacturers, and the downstream defendants, i.e., the retailers. The Ninth Circuit did reject the defendants’ argument that joint and several liability should rest on a single indivisible injury, i.e., Desire’s loss of compensation. The Ninth Circuit concluded that this view ignored that Desire’s damages were in fact divisible because each “upstream infringer” was a cause of the harm emanating from its chain of distribution because no downstream infringer would have received any infringing item “but for” the acts of the upstream infringers. However, each downstream infringer, i.e., retailer, would have only been the cause of harm resulting from its own actions and not for those of the other retailer defendants in other distribution chains.
The Ninth Circuit then turned to the actual language of the Copyright Act that “permits a copyright owner to elect an award of statutory damages in lieu of actual damages and profits.” Citing, 17 U.S.C. §504(c)(1). This section allows the recovery of “an award of statutory damages for all infringements involved in the action with respect to any one work for which any one infringer is liable individually or for which any two or more infringers are liable jointly and severally.” Thus, the number of awards for infringement do not focus on each separate infringement, but rather, on “(1) the number of individual `works’ infringed; and (2) the number of separate infringers.” The Ninth Circuit found that there was no dispute that only a single work, i.e., the floral design, was alleged to have been infringed. Thus, the issue became whether multiple statutory damage awards can issue “where one infringer is jointly and severally liable with all other infringers but the other infringers are not completely, jointly and severally liable with one another.” The Ninth Circuit concluded that this was not permissible.
The Court turned its attention to statutory interpretation, which holds that “when the statutory language is unambiguous, the plain meaning controls.” The Court concluded that the plain language of section 504(c)(1) precluded multiple awards of statutory damages where there was only one work involved and the defendants have partial joint and several liability among them through a single tortfeasor, who is jointly and severally liable with all of them.
Desire argued that all of the defendants must be jointly and severally liable with each other for the infringement to constitute a single statutory damage award. However, the Ninth Circuit held that such an approach would render the word “any” to be superfluous and essentially rewrite it as meaning “all.” This would go against the intent of the statute.
The Ninth Circuit recognized that the whole purpose of a statutory damages award under the Act was to be an alternative to actual damages, and that the election always belonged to the copyright owner. The Ninth Circuit concluded that Congress did not intend to create a windfall statutory award in cases such as the one before it. For instance, although it is of dispute whether Manna’s actual profit on the subject design was no more than $5,000, the Ninth Circuit noted that adopting Desire’s result would result in an award “nearly 100 times its profits” if that were the case.
The Ninth Circuit also found that the statutory damage award in the Copyright Act had to fulfill the two remedial provisions of the Copyright Act, “to provide adequate compensation to the copyright holder and to deter infringement.” It was not, as the Ninth Circuit had previously noted, to create a windfall for copyright owners. The Ninth Circuit was mindful that, by adopting its approach, it might encourage copyright owners to file separate actions against various defendants to try to get around a single statutory damages award where there was joint and several liability. The Court reasoned, however, that there were procedural mechanisms, such as consolidation or transfers, that would allow such attempts to be frustrated by having all the claims joined in a single action. Moreover, the Ninth Circuit concluded that it was their job to interpret the statutory language as opposed to weighing the possible benefits of alternative interpretations or policies.
Justice Wardlaw dissented and would have adapted Desire’s interpretation that would allow for multiple statutory damage awards. Justice Wardlaw’s primary concern was that it would encourage copyright owners to bring actions that cut out the “common source defendant at the top of the chain” and seek multiple statutory damage awards against those lower on the chain of distribution through separate actions.
The Ninth Circuit’s decision in the Desire case is a reminder to copyright infringement plaintiffs of the availability to elect statutory damage, especially where actual damages are hard to prove or nominal. However, the Desire ruling serves to place some restraint on a plaintiff’s ability to turn such an election into a windfall.