Proving disgorgement damages in a copyright infringement case is a three-act play.

• Author: Wolfe, Richard C.
• Position: Business Law

Remedies allowed by the Copyright Act include injunctive relief, impoundment, destruction, damages, and court costs. (1) If the plaintiff has timely registered a claim of copyright with the copyright office, the plaintiff then has additional arrows in his or her quiver in the form of statutory damages and attorneys' fees. While many copyright formalities were eliminated when the United States joined the Berne Convention, this provision of the law was retained as a powerful incentive to encourage copyright owners to register their works in a timely manner.

If the infringement is of an unpublished work, then registration is timely if it is made before the infringement commenced. (2) If the work is published, then registration is deemed timely if it is made within three months after the first publication of the work and the infringement commenced after the first publication of the work. (3) There are certain exceptions in the event of a live broadcast, because it would be physically impossible to register a copyright before the infringement occurred, as the infringement is taking place simultaneously with the initial distribution of the work. (4)

Benefits of a Timely Registration

A copyright owner with a timely registered claim of copyright "may elect" an award of statutory damages rather than actual damages and profits.5 In certain circumstances, like infringement of multiple copyrights, statutory damages may result in a higher damages model. Numerous courts have held that once the election has taken place, it is not reversible. In other words, once a plaintiff has elected statutory damages, they can no longer seek an award of actual damages or the infringer's profits. (6) While the courts have the discretion to award statutory damages "in lieu of," or in addition to, actual damages and profits, most of the case law is based on the 1909 Copyright Act, not the 1976 Copyright Act. (7) However, courts continue to have "wide discretion in determining the amount of statutory damages, constrained only by the specified maxima and minima." (8) The statutory language authorizing the election mandates that it must be made "at any time before final judgment is rendered." (9) The election by the copyright owner could even occur after the judge (in a bench trial) or jury had returned a verdict on liability and an award of actual damages and profits. (10) An election at such a late stage in the trial raises the possibility that a court could grant the lesser of the two damage amounts (11) because it was irritated the copyright owner had not elected statutory damages at an earlier stage, opting to put the court or the jury to the trouble of calculating actual damages and the infringer profits. However, note that the Supreme Court held in Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998), the Seventh Amendment provides a right to a jury trial on all issues pertinent to an award of statutory damages under [section]504(c) of the Copyright Act, including the amount itself. (12)

This article will not explore the computation of statutory damages, but rather will focus on the calculation of the infringer's profit or so-called "disgorgement damages."

Defining "Actual Damages"

The Copyright Act fails to define the term "actual damages." However, numerous cases have held that actual damages are consistent with the normal calculation that would be expected of damages for any tort, i.e., monetary compensation proximately caused by the infringing activity. Actual damages are often calculated to reflect "the extent of which the market value of the copyright has been injured or destroyed by an infringement." (13) Rarely is a plaintiff's lawyer able to present a damage model of actual damages with clear precision, due to the present and future value of the copyright, which itself is generally uncertain. This is because a copyright's present value is always calculated based upon an estimate of its future earnings which, in turn, depends upon some kind of prediction often imprecise of the future taste of the consuming market. This uncertainty is not unique to copyright law. The Ninth Circuit stated, "[a]lthough certainty as to the amount of damages will not preclude recovery, uncertainty as to the fact of damages may." (14) The calculation of actual damages and the infringer's profits is sometimes overlapping. For example, some courts have considered that sales of an infringing article have displaced sales that the copyright owner would otherwise have made. In such cases, the volume of lost sales can be a measure of actual damages. (15) While the courts will not allow a double recovery, a creative plaintiff's lawyer can employ an analysis to determine the greater profit margin as being either the infringer's profit margin or the plaintiff's profit margin, then use that damage model to assess actual damages. In determining lost profits, a copyright owner must not only prove the volume of sales lost, but also the profit margin on such sales. Thus, unlike the net profit analysis on disgorgement profits, which is discussed later in this article, the plaintiff maintains the burden of proof of the proper profit margins.

Whether representing a plaintiff or a defendant in a copyright infringement case, counsel must be well versed in the shifting burdens on the issue of disgorgement damages. Section 504(b) of the Copyright Act provides a powerful weapon when properly used. When the plaintiff opts for actual damages and disgorgement of profits attributable to the defendant's use of the infringing material, the damages portion of the case operates like a three-act play, with the burden of persuasion passing back and forth between the parties.

Statutory Law

Damages for copyright infringement are set forth in 17 U.S.C. [section] 504. Each alternative presents special challenges. However, it is the authors' opinion that the damage model, based upon actual damages and profits, is usually the method that results in the largest and most predictable award and is generally elected except where infringements of multiple copyrights occur, or where the infringer earns a small amount of profits. This article will focus on the burdens associated with this model, particularly with respect to profits.

With respect to actual damages and profits, [section] 504(b) states:

The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages. In establishing the infringer's profits, the copyright owner is...