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IP/Entertainment Case Law Updates

Erickson Productions, Inc. v. Kast

In copyright infringement case over unauthorized display of plaintiff’s photographs on defendant’s website, uploaded by web developer hired by defendant, Ninth Circuit vacates jury’s vicarious copyright liability verdict, finding defendant did not receive direct financial benefit from such use; affirms jury’s contributory liability verdict; and remands on the issue of willfulness.

Plaintiff Erickson Productions, Inc., the copyright owner of three stock photos licensed to Wells Fargo for use on their website, sued Kraig Kast for copyright infringement, alleging direct, vicarious and contributory infringement for the unauthorized use of the photos on a website for one of Kast’s various businesses.

Kast hired a website developer in 2010 to update his business’s website, entering into an agreement that required Kast’s approval on all work, “including the design, development, and finalization of the website.” Kast closely managed the website development process, reviewing designs and requesting changes. Kast’s updated website included the three stock photos at issue that were copied from Wells Fargo’s website, a competitor whose website Kast asked his developer to mimic. As the Ninth Circuit noted in a footnote, the record contains no indication as to whether Kast directed the developer use the photos or whether the developer made the decision unilaterally. After discovering the use of his photos, Erickson sent a cease and desist letter to Kast demanding that they be removed and demanding damages for copyright infringement. While Kast immediately directed the developer to remove the photos, he declined to pay damages.

Erickson sued both Kast and the website developer, against which he secured a default judgment. At trial, the jury found Kast had vicariously and contributorily infringed on Erickson’s photos. The district court instructed the jury that he could be liable for enhanced damages as a willful copyright infringer if Kast “should have known that [his] acts infringed plaintiffs’ copyright.” The jury found that Kast willfully infringed and awarded enhanced statutory damages of $150,000 for each photograph.

On appeal, the Ninth Circuit considered the jury’s vicarious liability verdict, contributory liability verdict and willfulness finding.

The Ninth Circuit first addressed the jury’s verdict regarding vicarious liability, noting the required elements a plaintiff must prove to establish vicarious liability are that the defendant has “(1) the right and ability to supervise the infringing conduct and (2) a direct financial interest in the infringing activity.” A financial benefit is not “direct” unless there is a causal relationship between the infringing activity and the financial benefit. Kast argued that the district court erred in denying his motion for a directed verdict on this issue because Erickson presented no evidence of anything that would constitute a direct financial benefit as a matter of law. Erickson claimed that Kast had received at least three direct financial benefits as a result of the infringement: (1) the photographs drew customers to Kast’s website, (2) Kast avoided paying licensing fees for the use of the photos, and (3) Kast was able to “rush” his new website’s launch. The Ninth Circuit rejected each of these claims and vacated the jury’s vicarious liability verdict.

The Ninth Circuit concluded that having the photos on the website conferred no financial benefit to Kast as a matter of law because a website owner can receive a financial benefit from having infringing materials on his website only where the availability of the materials is more than just an added benefit (i.e., where the materials act as a draw to visitors), and here, the parties had agreed that no one visited Kraft’s website or purchased anything from him because of the availability of Erickson’s photos.

Moreover, the Ninth Circuit held that avoidance of licensing fees does not constitute a direct financial benefit as a matter of law. Noting that it was an issue of first impression in the Ninth Circuit, the panel reasoned that the avoidance of licensing fees by the direct infringer (the web developer), without more, could not confer a direct financial benefit to Kast. While Kast might have received a financial benefit if the website developer had lowered its fees as a result of not paying licensing fees, the benefit would not be direct because it would only reach Kast as a result of the developer’s “intervening decision to cut prices.” The court also rejected Erickson’s alternate argument that the website developer was acting as Kast’s agent when it avoided the licensing fees, noting that Kast employed the developer to design the website and any illegal act on the developer’s part would have exceeded the scope of any agency relationship.

Finally, the panel concluded that Erickson’s third claim of direct financial benefit to Kast failed as a matter of law because Erickson never explained how using his photos “allowed Kast to launch his website more quickly, or how the rushed launch enabled him to realize any profits” before he took down the photos.

Because Kast received no direct financial benefit from having the infringing images on his website, he could not be held vicariously liable for copyright infringements, and the court vacated the jury’s verdict on that claim.

The panel affirmed the jury’s verdict finding Kast was liable for contributory infringement, however. A party engages in contributory copyright infringement when it “(1) has knowledge of another’s infringement; and (2) either (a) materially contributes to; or (b) induces that infringement.” Kast argued that the jury instructions given by the trial judge, which included a definition of “knowledge” as including Kast having a “reason to know” of the infringement, was not sufficient to impose contributory infringement. Noting that Kast failed to timely raise this objection, the panel upheld the verdict under a “plain error” standard, concluding that inconsistent Ninth Circuit precedent regarding the knowledge element for contributory infringement liability precluded finding that the trial court’s inclusion of “reason to know” was plainly erroneous.

Finally, the court of appeals vacated the jury’s finding of willfulness and assessment of maximum statutory damages of $150,000 per infringed work. A plaintiff seeking to establish willfulness under the Copyright Act must prove “(1) that the defendant was actually aware of the infringing activity, or (2) that the defendant’s actions were the result of reckless disregard, for or willful blindness to the copyright holder’s rights.” On appeal, Kast argued that the district court improperly instructed the jury that willfulness could be found if he “should have known” of the claimed infringement. The panel agreed, concluding that the “should have known” standard is essentially a negligence standard that does not fit within the statutory framework. “Negligence is a less culpable mental state than actual knowledge, willful blindness, or recklessness, the three mental states that properly support a finding of willfulness.”

Accordingly, the Ninth Circuit remanded the issue of statutory damages to the district court, finding that the erroneous jury instruction was likely prejudicial to Kast and had the jury been properly instructed, it may not have found that Kast acted “willfully.” The panel noted that the record reflected that Kast was unaware he was infringing because he testified that he reasonably believed a provision in their contract suggested that it was the developer’s responsibility to obtain licenses for photos they provided, and that he was not reckless because he obtained licenses for photos he supplied to the developer and promptly removed the infringing photos when Erickson asked.

Summary prepared by Linna Chen and Peter Pottier