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Adventure Creative Group, Inc. v. CVSL, Inc.

United States District Court, D. Minnesota

September 12, 2019

Adventure Creative Group, Inc., Plaintiff,
v.
CVSL, Inc., a Florida corporation d/b/a JRJR Networks; Your Inspiration at Home Pry Ltd, an Australian proprietary limited company; Your Inspiration at Home, Ltd, a Nevada corporation; Inspired Portfolio Pty Ltd., an Australian proprietary limited company; and CVSL YIAH Pty Ltd., an Australian proprietary limited company, Defendants.

          James B. Dickinson, Koenig Dickinson & Dalluge, PLC, Long Lake, MN, for Plaintiff.

          OPINION AND ORDER

          Eric C. Tostrud United States District Judge

         Adventure Creative Group seeks entry of a default judgment in an amount up to $16, 350, 000 against Your Inspiration at Home Pty Ltd ("YIAH"), one of several business organizations it sued in this copyright-infringement case. Adventure arrives at this sum by multiplying the number of works it says YIAH infringed (109) by the maximum statutory damage award available for willful infringement ($150, 000). If a default judgment is entered against YIAH, then Adventure confirmed at the hearing on this motion that it intended to dismiss its claims against all other Defendants. Adventure also seeks recovery of its attorneys' fees and costs incurred in bringing its motion. Adventure's default- judgment motion will be granted, but in an amount much less than Adventure seeks. To summarize, registration is a prerequisite to obtaining statutory damages, and Adventure identifies two registered works in its complaint and submissions-a catalog and a video. Adventure reaches the number of works it says YIAH infringed (109) by separately counting individual photographs and text removed from each registered work. But, as it turns out, the law does not permit this approach on the facts presented here. A default judgment will be entered against YIAH in the amount of $300, 000. Adventure's claims against the remaining defendants will be dismissed, and Adventure's motion for attorney's fees and costs will be granted in the amount requested.

         The basic process for determining whether a default judgment should be entered is straightforward. The entry of default[1] means that "the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true." 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil § 2688.1 (4th ed. & April 2019 Update) (footnotes omitted). Next, it must be determined whether the taken-as-true factual allegations of the complaint "constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law." Marshall v. Baggett, 616 F.3d 849, 852 (8th Cir. 2010) (quoting Murray v. Lene, 595 F.3d 868, 871 (8th Cir. 2010)). If the taken-as-true allegations of the complaint constitute a legitimate cause of action, then the amount of the default judgment must be ascertained. Hagen v. Sisseton-Wahpeton Cmty. Coll., 205 F.3d 1040, 1042 (8th Cir.2000).[2]

         Start with the factual allegations of the complaint that will be taken as true. Adventure is an "advertising agenc[y] in the Twin Cities." Am. Compl. ¶ 9 [ECF No. 21]. Adventure provides "design services including providing its expertise in such areas as brand identity and positioning, photography and style as part of the brand identity, log[o], tagline verbiage, iconography illustrations style, packaging, website and label design and video." Id. Adventure and YIAH executed a contract entitled "Agreement to Provide Marketing Services." Id. at Schedule 1 at 2, 6 ("Agreement") [ECF No. 21-2]; see also Am. Compl. ¶ 10. The Agreement had an effective date June 19, 2012. Agreement at 2. The Agreement required Adventure to "provide YIAH the standard services of an advertising agency, such as consulting, creative design, copywriting, packaging design, public relations, social media and strategic planning." Id. For Adventure's services, the Agreement required YIAH to "pay to Adventure a sum (the "Fee") equal to five percent (5%) of gross sales of YIAH (including sales by any of its affiliates or subsidiaries selling or marketing the same or similar products)." Id. The Agreement required YIAH to pay these sums "within 30 days of the end of each [calendar] quarter." Id. The Agreement also contained a provision regarding the ownership of intellectual property:

Subject to the license below, all written or other expressions of Adventure's work pursuant to this Agreement, whether performed separately or in conjunction with YIAH, including without limitation written copy, photographs, images, graphics, audio, video, means of development, products, designs and derivative works or any other results of the services performed by Adventure in connection with this Agreement ("Work Product"), shall be the property of Adventure[], and YIAH hereby agrees to assign, and does hereby assign, to Adventure all worldwide rights, title and interest in and to the Work Product developed or hereafter developed during this Agreement, provided that: (a) during the Fee Term, so long as YIAH is in compliance with this Agreement, including it is current on paying the Fee, Adventure hereby grants to YIAH a worldwide limited license to use the Work Product for the purposes contemplated by this Agreement and by the parties for the specific Work Product created hereunder; and (b) after the end of the Fee Term, so long as YIAH has complied with all terms of this Agreement, including without limitation paying all Fees due, Adventure agrees to then transfer and assign to YIAH all ownership rights in the Work Product which it prepared exclusively for YIAH hereunder.

         Agreement at 3; see also Am. Compl. ¶¶ 14-16 (summarizing parts of this provision). Adventure developed Work Product as defined in this provision, including two works with registered copyrights: a '"Your Inspiration At Home' Product/Recruiting Catalog which included 29 pages of print materials, including but not limited to text, photograph(s), compilation, editing and artwork, Registration Number: TX0007766577; and 'Your Inspiration At Home' Consultant Recruitment Video, Registration Number: PA0001865255." Am. Compl. ¶ 21. At some point prior to Adventure's commencement of this case, YIAH stopped paying under the Agreement and did not allow Adventure to "conduct an independent audit of [YIAH's] gross sales as provided for in the Agreement." Id. ¶ 28. After it stopped paying under the Agreement, YIAH continued to use Adventure's works. Id. ¶ 29. In particular, YIAH copied all or "selected pieces of Adventure's copyrighted works and published and utilized them "to promote and generate business for their own monetary purposes." Id. ¶¶ 36, 43.

         These taken-as-true allegations constitute a legitimate cause of action for copyright infringement.[3] "The Copyright Act entitles a copyright owner to institute a civil action for infringement of its '"original works of authorship.'" Fourth Estate Pub. Benefit Corp. v. Wall-Street.com, LLC, 139 S.Ct. 881, 887 (2019) (quoting 17 U.S.C. § 102(a); citing 17 U.S.C. § 501(b)). "Before pursuing an infringement claim in court, however, a copyright claimant generally must comply with [17 U.S.C] § 411(a)'s requirement that 'registration of the copyright claim has been made.'" Id. To prevail on a claim of copyright infringement under § 501 of the Copyright Act, a plaintiff must show "(1) ownership of a valid copyright and (2) copying of original elements of the copyrighted work." Warner Bros. Entm't v. X One XProds., 644 F.3d 584, 595 (8th Cir. 2011) (citation omitted). Adventure's complaint plainly and plausibly pleads these elements. The complaint identifies two registered works-a catalog and a video. Am. Compl. ¶ 21. It alleges facts establishing Adventure's ownership of these works. Id., Agreement at 3; see also Am. Compl. ¶¶ 14-16, 21. And it alleges that YIAH copied all or "selected pieces of Adventure's copyrighted works and published and utilized them "to promote and generate business for their own monetary purposes." Id. ¶¶ 36, 43.

         A copyright owner who proves infringement may recover either the "owner's actual damages and any additional profits of the infringer," or "statutory damages." 17 U.S.C. § 504(a). Here, Adventure seeks statutory damages. See generally Mem. in Supp. [ECF No. 111]. A copyright owner may elect to recover "statutory damages for all infringements involved in the action, with respect to any one work ... in a sum of not less than $750 or more than $30, 000." 17 U.S.C. § 504(c)(1). If the copyright owner proves the infringement was willful, then the maximum available amount of statutory damages increases to $150, 000 per copyright infringed. 17 U.S.C. § 504(c)(2); see also Pearson Educ, Inc. v. Almgren, 685 F.3d 691, 693 n.3 (8th Cir. 2012). "[W]hen defendant's work copies various separate portions or passages of plaintiff s work, but all those portions are protected under a single copyright, then minimum damages are not to be multiplied by reason of the several, separately copied [portions or] passages." 4 M. Nimmer & D. Nimmer, Nimmer on Copyright § 14.04[E][l][b][i] (2018). "[I]n determining whether more than one 'work' has been infringed for the purpose of multiple statutory damages awards, 'all the parts of a compilation or derivative work constitute one work.'" Id. (quoting 17 U.S.C. § 504(c)(1)). "The prevailing reading in the circuits is . . . [that] under § 504(c) the total number of 'awards' of statutory damages that a plaintiff may recover in any given action against any single defendant depends on the number of works that are infringed and the number of individually liable infringers and is unaffected by the number of infringements of those works." Venegas-Hernandez v. Sonolux Records, 370 F.3d 183, 194 (1st Cir. 2004); see also Nat. Hair Growth Ctrs. of Ariz., LLC v. Edmund, No. 3:19-cv-00026-H-BGS, 2019 WL 2249976, at *6 (S.D. Cal. May 23, 2019) ("[E]ach work infringed may form the basis of only one award, regardless of the number of separate infringements of that work.") (quoting Louis Vuitton Malletier, S.A. v. Akanoc Sols., Inc., 658 F.3d 936, 946 (9th Cir. 2011)).

         Here, Adventure identifies two registered works-the catalog and video-that YIAH infringed. Adventure contends nonetheless that "YIAH has used 71 separate images from the catalog and 38 separate images and text from the video," and that each of these 109 "separate images and text" should be counted as a separate work. Mem. in Supp. at 10. To support this argument, Adventure relies primarily on Playboy Enters., Inc. v. Sanfilippo, No. 97-0670-IEG (LSP), 1998 WL 207856 (S.D. Cal. Mar. 25, 1998). In that case, Playboy alleged that an individual (Sanfilippo) infringed its copyrights in 7, 475 images by publishing and selling access to those images through a website. Id. at *1. Playboy owned registered copyrights "for all of the disputed images," id. at *2, and sought statutory damages with respect to Sanfilippo's infringement of each work, id. at *3-5. Sanfilippo argued that his liability for statutory damages should be reduced because "he did not consider each of the images to amount to a separate copyright violation." Id. at *5. Specifically, Sanfilippo argued "that because the images were collectively included in one of plaintiff s copyrighted magazines, then [he] should only be liable for a singular violation of that particular magazine's copyright and not for separate violations of each image included in that magazine issue." Id. The court rejected Sanfilippo's argument:

Although each of these images may have appeared in a singular issue of one of plaintiffs copyrighted publications, these images are subject to re-use and redistribution in accordance with various licensing arrangements. Furthermore, each image represents a singular and copyrightable effort concerning a particular model, photographer, and location. The fact that many of these images appeared together should not detract from the protection afforded to each individual effort.

Id. Playboy is distinguishable from Adventure's claims in this case. Playboy owned a registered copyright for every one of the 7, 475 sued-upon images. Id. at *2. Adventure alleges only that it has copyright registrations in the catalog and video; there is no evidence Adventure owns copyright registrations for any of the individual images and text used by YIAH. But registration is a prerequisite to an infringement suit. 17 U.S.C. § 411(a); Fourth Estate, 139 S.Ct. at 886-87. There is no evidence showing that the images and text YIAH used are subject to other licensing agreements or that Adventure and YIAH contemplated separate use of these materials. The Agreement suggests otherwise. Had YIAH complied with its terms, the Agreement provided that Adventure would "then transfer and assign to YIAH all ownership rights in the Work Product which it prepared exclusively for YIAH hereunder." Agreement at 3. The law permits an award of statutory damages on the two registered works-the catalog and video-and not on the 109 separate images and text Adventure says YIAH used.

         Among the factors that may be considered to determine an appropriate statutory-damage award "are the licensing expenses saved and profits reaped by defendants from the infringements, the revenues lost by plaintiffs as a result of defendants' infringements, and the infringers' state of mind, i.e., willful, knowing or innocent." Halnat Publ'g Co. v. L.A.P.A., Inc., 669 F.Supp. 933, 937 (D. Minn. 1987) (MacLaughlin, J.); see also Broad. Music, Inc. v. EdconEnters., LLC, No. 4:11-CV-1950-JAR, 2012 WL 5508485, at *2 (E.D. Mo. Nov. 14, 2012) (same); see also Mango v. BuzzFeed, Inc., 356 F.Supp.3d 368, 374 (S.D.N.Y. 2019) (identifying factors that may be considered to determine an award of statutory damages as "(1) the infringer's state of mind; (2) the expenses saved, and profits earned, by the infringer; (3) the revenue lost by the copyright holder; (4) the deterrent effect on the infringer and third parties; (5) the infringer's cooperation in providing evidence concerning the value of the infringing material; and (6) the conduct and attitude of the parties") (quoting Bryant v. Media Right Prods., Inc., 603 F.3d 135, 144 (2d Cir. 2010)). A copyright holder seeking to establish willful infringement must show that the infringer had knowledge that its conduct constituted infringement or that it recklessly disregarded that possibility. RCA/Ariola Int'l, Inc. v. Thomas & Grayston Co., 845 F.2d 773, 779 (8th Cir. 1988); Broad. Music, Inc. v. City & Country Tavern, LLC, Civil No. 15-3441 (JNE/BRT), 2016 WL 3566209, at *3 n.l (D. Minn. June 27, 2016) (citing RCA/Ariola, 845 F.2d at 779). Courts have found willful infringement when, for example, a defendant engages in infringing activity after receiving warning that the activity constitutes infringement and from the fact of a defendant's default. Chi-Boy Music v. Charlie Club, Inc., 930 F.2d 1224, 1227-28 (7th Cir. 1991); Philpot v. Music Times LLC, No. 16cv 1277 (DLC) (DF), 2017 WL 9538900, at *7 (S.D.N.Y. Mar. 29, 2017), R&R adopted, 2017 WL 1906902 (S.D.N.Y. May 9, 2017); Graphic Styles/Styles Int'l LLC v. Kumar, Civil No. 14-4283, 2016 WL 299083, at *5 (E.D. Pa. Jan. 25, 2016).

         Here, the record establishes that YIAH's infringement was willful. The infringement was widespread, not isolated or sporadic. Am. Compl. ¶ 37; Mitchell Aff ¶¶ 19-21, 23 [ECF No. 109]. The infringement continued after Adventure "made numerous demands" to YIAH to stop. Am. Compl. ¶ 24. YIAH's conduct in this case shows willfulness with respect to the infringement. Though it appeared initially, YIAH (and every other Defendant) has ceased to defend since July 2018. See ECF Nos. 91-92. Though YIAH retained and was represented in this case by several attorneys at various times, it (and the other Defendants) placed all of those attorneys in a position of concluding that it was necessary to file motions to withdraw (and all of those motions were granted). ECF Nos. 56, 63, 66, 69, 74, 91. An order to obtain new representation on or before August 3, 2018 was disregarded, prompting the Clerk's entry of default. ECF No. 91 (Order); ECF No. 95 (entry of default). At the hearing on this motion, Adventure's counsel represented that Adventure's discovery requests were never answered. The licensing fees that were paid under the Agreement suggest that a significant statutory-damages award is appropriate here. The fees paid from the fourth quarter of 2013 through the end of 2015 total $806, 724.25. Mitchell Aff. ¶11; id. Ex. B at 4, ...


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