Contribution and Indemnification Among Multiple Infringers
| Jurisdiction | United States,Federal |
| Citation | Vol. 44 No. 5 Pg. 49 |
| Pages | 49 |
| Publication year | 2015 |
Articles
Intellectual Property Law
Contribution and Indemnification Among Multiple Infringers
By William C. Groh, III
Intellectual Property Law articles are sponsored by the CBA Intellectual Property Section. They provide information of interest to intellectual property attorneys who advise clients on protecting and exploiting various forms of intellectual property in the marketplace.
Coordinating Editors
K Kalan, Denver, Administrative Patent Judge—(720) 480-1500, kmkalan@yahoo.com; William F. Vobach, Denver, of HolzerIPLaw, PC—(720) 204-5673, vobach@holzeriplaw.com
About the Author
William C. Groh, III is an intellectual property and business litigation attorney at Thomas P. Howard, LLC. Please feel free to contact him with any questions or comments—(303) 665-9845, wcgroh@thowardlaw.com.
Federal courts generally agree that the Copyright Act greatly limits potential contribution and indemnification rights among co-defendants facing joint and several liability for copyright infringement.
The Copyright Act's strict liability scheme often leaves accused infringers with few viable defenses. Liability can attach for infringements occurring without fault or even knowledge. A party can be held liable for unknowingly participating in copyright infringement perpetrated by others. This liability risk is especially high in industries such as software resale and development, which routinely involve the transfer of intellectual property among multiple parties.
For example, a resale vendor who unintentionally buys and sells counterfeit software is liable for copyright infringement even if the vendor used its best efforts to avoid trading in pirated materials. A business owner may innocently rely on a third-party Web developer's false (or merely inaccurate) representation that the developer's work is original. One way or another, infringing intellectual property is increasingly likely to change hands many times in today's economy. These situations can lead to copyright infringement liability among multiple defendants.
The implications for co-defendants are harsh. The Copyright Act does not require a plaintiff to apportion damages among defendants. While each defendant is individually liable for his or her own illegal profits, co-defendants are jointly and severally liable for statutory damages and all other actual damages.[1] Litigators counseling defendants in this situation will naturally consider potential third-party claims against the other responsible parties, but traditional third-party remedies can come up short in the copyright infringement context. The main obstacle is the Copyright Act itself. First, only the "legal or beneficial owner" of an exclusive right under the Copyright Act has standing to sue for injuries arising from the infringement of the copyrighted work.[2] This means copyright defendants generally lack standing to bring infringement claims against co-infringers for injuries arising from the co-infringer's copyright infringement.[3]
Second, and complementing its restriction on standing, the Copyright Act also preempts any remedy considered a functional "equivalent" of a copyright infringement suit.[4] These principles pose a big obstacle to third-party contribution and indemnification claims, sometimes for reasons that are not entirely clear. This article discusses the viability of these remedies among defendants facing joint and several copyright infringement liability.
Indemnification and Contribution
Common law indemnification is generally available for defendants who are without fault themselves but are nonetheless liable to the plaintiff due to a third party's wrongful conduct. At common law, the defendant can seek indemnification for the entire judgment amount once the plaintiff's judgment has been satisfied. A defendant can potentially seek indemnification as a matter of common law or a statute codifying common law, or as a matter of other statutory law providing a basis for indemnification claims.
Contractual indemnification is similar and more common. It often arises in the context of insurance and indemnity agreements. The uniform commercial code, where applicable, can also impose "contractual" warranty obligations, which can, in turn, serve as a basis for indemnification claims.
Like indemnification, contribution claims allow a defendant to seek compensation from a third party once the plaintiff's judgment has been satisfied. Unlike indemnification, contribution is available to defendants who acted with at least some degree of fault but were not the only parties at fault. A defendant can generally seek contribution when that defendant has paid more than its fair share in satisfying the plaintiff's judgment.
Procedurally, court rules generally allow the defendant to seek indemnification against the third party during the underlying lawsuit.[5] Unless substantive law provides otherwise, however, contribution and indemnification judgments generally do not mature until the plaintiff's judgment has been at least partially satisfied.[6]
De Facto Preemption of State Common Law Indemnification and Contribution Claims
Federal courts agree that neither contribution nor indemnification are available under the Copyright Act or federal common law.[7] However, state law contribution and indemnification are generally available in federal court because they are considered substantive remedies.[8] Thus, the question becomes: Are these state law claims federally preempted in the copyright context?
The leading case on this issue is Foley v. Luster, in which the Eleventh Circuit determined the Copyright Act did not preempt a Florida common law indemnification claim.[9] Analyzing the three potential bases for federal preemption generally, the court first determined that no explicit preemption existed because nothing in the Act expressly barred indemnification suits. Next, the court ruled out conflict preemption because the claims did not conflict with one another. The court found that "it is certainly permissible for a plaintiff to sustain a copyright infringement suit while the defendants litigate an indemnity suit as a cross-claim." Finally, the court found no field preemption because it determined common law indemnity claims did not intrude on the exclusive rights guaranteed by the Copyright Act.
In evaluating preemption, the court in Foley also considered (but did not apply) the extra element test, which courts use to consider whether the Copyright Act preempts particular state law causes of action.[10] Under this test, courts determine whether the state law claim requires an element instead of or in addition to "the acts of reproduction, performance, distribution or display" of copyrighted works.[11] If the answer is yes, the cause of action is not preempted.[12] For example, many courts have applied this test in upholding breach of contract actions (such as indemnification agreements) where copyright infringement is an element of liability.[13] In such cases, breach of the promise between the parties supplies the extra element.[14] Even so, a breach of contract action is still likely to be preempted if the contract merely involves a promise by one party not to infringe the other party's copyrights.[15]
Although the holding in Foley might appear to open the door for state law contribution and indemnification claims, these claims continue to meet very limited success when pled as a matter of state common law. Courts have considered indemnification and contribution as matters of federal common law even while apparently acknowledging that federal copyright law does not actually preempt these state law claims.[16] For example, in Equity Builders and Contractors, Inc. v. Russell, the U.S. District Court for the Northern District of Illinois rejected an Illinois common law contribution claim on these grounds.[17] The court distinguished the question of preemption from "whether substantive law authorizes such a claim for indemnification (or contribution)."[18] The court then denied the claim on the ground that contribution and indemnification were governed (and precluded) by federal common law interpreting the Copyright Act.[19]
The above case law does not clarify how federal common law can override state law indemnification and contribution claims if they...
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