Case Information
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE D’Pergo Custom Guitars, Inc
v.
Civil No. 17-cv-747-LM
Opinion No.
O R D E R
D’Pergo Custom Guitars, Inc. (“D’Pergo”) sues Sweetwater Sound, Inc. (“Sweetwater”) for copyright infringement and violations of the New Hampshire Consumer Protection Act, RSA ch. 358-A. D’Pergo alleges that Sweetwater used a copyrighted photograph of D’Pergo’s trademarked custom guitar necks and headstock to promote and sell Sweetwater products on its website.
Presently before the court are the parties’ competing jury instructions (doc. nos. 162 and 165), which put at issue the proper interpretation of the damages provision of the Copyright Act, 17 U.S.C. § 504. Also pending are three motions in limine, filed by Sweetwater, to admit or exclude evidence (doc. nos. 159, 160, and 161). The court resolves these motions, and the jury instructions issue, as outlined below.
BACKGROUND
The following facts, drawn from the court’s order on the parties’ cross- motions for summary judgment (doc. no. 139), are recited for the limited purpose of providing the reader with necessary context.
D’Pergo manufactures and sells custom guitars. In 2003, Stephan Dapergolas, D’Pergo’s owner, created a photograph showcasing a number of D’Pergo’s unique guitar necks and headstock (the “Photograph”), which D’Pergo published to its website. D’Pergo used the Photograph on its website from 2003 until 2006.
Sweetwater is a retailer that sells musical instruments, including guitars, through its website. In 2004, Sweetwater copied the Photograph and published it on its website. More specifically, Sweetwater used the photograph in its “Electric Guitar Buying Guide” (the “Buying Guide”), in a section titled “Guitar necks explained.” The end of the Buying Guide features several guitars from various manufacturers for purchase—none of which are D’Pergo guitars—as well as a hyperlink to “Shop for Electric Guitars.”
In January 2015, Dapergolas learned that Sweetwater was using the Photograph in the Buying Guide. D’Pergo later applied fоr and was granted a copyright registration for the Photograph from the Copyright Office. In January 2016, D’Pergo contacted Sweetwater about the Photograph. Sweetwater then removed the Photograph from its website. D’Pergo subsequently trademarked its headstock design depicted in the Photograph. In December 2017, D’Pergo brought the instant lawsuit.
DISCUSSION
The parties submit competing jury instructions (doc. nos. 162 and 165) on the issue of whether D’Pergo must establish a causal nexus between Sweetwater’s “gross revenue” and its copyright infringement in order to obtain an award of profits. 17 U.S.C. § 504(b). In addition, Sweetwater moves in limine: (A) to exclude all evidence of Sweetwater’s “indirect” profits (doc. no. 161); (B) or alternatively, to exclude evidence of Sweetwater’s profits from more than three years before D’Pergo commenced this action (doc. no. 160); and (C) to admit evidence of the parties’ respective conduct after they learned of the Photograph’s presence on Sweetwater’s website (doc. no. 159).
The court addresses these matters in turn, beginning with the jury instructions issue.
I. Jury Instructions (Causal Nexus)
The court has previously determined that D’Pergo is entitled to judgment as a matter of law on its copyright infringement claim (doc. no. 139). The only issue left for the jury to decide is the extent to which D’Pergo is entitled to damages.
The damages provision of the Copyright Act is found at 17 U.S.C. § 504. Subsection (a) of that statute provides that a copyright infringer is liable for “the copyright owner’s actual damages and any additional profits of the infringer, as provided in subsection (b).” 17 U.S.C. § 504(a). Subsection (b) consists of two sentences. The first sentence states that the copyright owner may recover actual damages resulting from the infringement plus “any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual dаmages.” 17 U.S.C. § 504(b). The second sentence states: “In establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.” Id.
A “highly literal interpretation” of § 504(b)’s second sentence, considered in
isolation from its first sentence, would permit recovery of all an infringer’s gross
revenue, even those portions that are not attributable to the infringement. On
Davis v. The Gap, Inc.,
Seizing on this highly literal interpretation, D’Pergo seeks to instruct the jury that, in order fоr it to obtain a disgorgement of profits, it need only present evidence of Sweetwater’s gross revenues, which triggers a rebuttable presumption that all of those gross revenues are entirely attributable to the infringement. Although D’Pergo defends its position by emphasizing its fidelity to the statutory text, D’Pergo’s requested instruction would allow the jury to award profits without finding that any of Sweetwater’s profits are “attributable to the infringement.” 17 U.S.C. § 504(b). By contrast, Sweetwater vies for an instruction that would require D’Pergo to prove a causal relationship between the infringement and the gross revenue number it presents in order to obtain an award of profits.
While the court is not prepared, at this time, to inform the parties of the
precise jury instruction on this issue that it will use at trial, it is clear that § 504(b)
must be interpreted as requiring D’Pergo to show that the gross revenue figure it
presents has “a legally significant relationship to the infringement.” Reаl View,
LLC v. 20-20 Techs., Inc.
Such an instruction is compelled by the sheer weight of authority. The First,
Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, and Federal Circuits
have all concluded, in some form, that a copyright owner must show a causal
relationship between the infringement and the gross revenue figure presented. See Jane Doe No. 1 v. Backpage.com, LLC,
Despite the crushing weight of this authority, D’Pergo supports its requested
jury instruction by asserting that the First Circuit swims upstream. Specifically,
D’Pergo contends that the First Circuit’s opinions in John G. Danielson, Inc. v.
Winchester-Conant Properties, Inc.,
Although Bruce contains language arguably supporting D’Pergo’s
interpretation of § 504(b), D’Pergo extrapolates too much from the case’s holding.
There, the district court refused to award the plaintiff a share of the defendant’s
revenue streams because the plaintiff failed to present sufficient evidence of
revenue. See Bruce,
As for Grumman, while that case states that a plaintiff must only satisfy a
“minimal burden” to trigger apportionment, it does not stand for the proposition
that a plaintiff has no burden on causation. Grumman,
Nor does Danielson compel the court to adopt D’Pergo’s requested jury
instruction. At one point in the opinion, Danielson paraphrases the second sentence
of § 504(b). See Danielson,
Even if these cases supported D’Pergo’s requested jury instruction—and they
do not—more recent First Circuit authority makes clear that a plaintiff in an
infringement action must establish a “link” between the infringement and the gross
revenue figure presented. Backpаge.com,
Interpreting § 504(b) to require plaintiffs to establish a causal nexus between
the defendant’s gross revenues and its infringement harmonizes the subsection’s
two sentences. Sеe King v. St. Vincent’s Hosp.,
The better interpretation of § 504(b)’s second sentence is as limited by its
first sentence: a plaintiff can only obtain profits that are attributable to the
defendant’s infringement, but the plaintiff need not distinguish the defendant’s
profits from its gross revenue. Assuming the plaintiff establishes a causal nexus
between the gross revenue figure it presents and the infringement, the plaintiff
obtains a presumption that the gross revenues are the defendant’s “profits . . .
attributable to the infringement . . . and the infringer is required to prove his or her
deductible expenses and the elements of profit attributable to factors other than the
copyrighted work.” § 504(b); see Andreas,
This interpretation not only best harmonizes the text of the statute: it makes
common sense. To paraphrase Judge Posner, if General Motors steals your
copyright and puts it in an advertisement which runs a single time, you should not
be able to simply put GM’s corporate tax return in the record in order to obtain the
entirety of the company’s gross revenue—billions of dollars—virtually all of which
would be unrelated to GM’s infringement. See Meirick,
For these reasons, the court concludes that, in order to obtain an award of profits, D’Pergo must show a causal nexus between Sweetwater’s infringement and the gross revenue figure D’Pergo presents. Then, if a causal nexus is shown, Sweetwater bears the burden of proving the appropriate apportionment. See 17 U.S.C. § 504(b). The jury will be instructed along these lines.
II. Sweetwater’s Motions in Limine
As noted, Sweetwater moves in limine: (A) to exclude all evidence of Sweetwater’s “indirect” profits (doc. no. 161); (B) to exclude evidence of Sweetwater’s profits from more than three years before D’Pergo commenced this action (doc. no. 160); and (C) to admit evidence of the parties’ respective conduct after they learned of the Photograph’s presence on Sweetwater’s website (doc. no. 159). The court addresses these motions in turn below.
A. Motion to Exclude All Evidence of Indirect Profits (doc. no. 161) Sweetwater moves in limine to exclude all evidence of “indirect” profits, i.e., profits Sweetwater generated from using D’Pergo’s copyright to promote the sales of other products. Arguing that “the connection between Sweetwater’s profits and the infringement is highly speculative,” doc. no. 161 at 1, Sweеtwater contends that D’Pergo should be precluded from introducing evidence of any such connection.
In the copyright infringement context, “direct profits” refer to profits “that
are generated by selling an infringing product.” Mackie,
As discussed, an infringement victim is entitled to its actual damages as well
as “any profits of the infringer that are attributable to the infringement” and are
not factored into the computation of actual damages. 17 U.S.C. § 504(b). Because
the statute does not differentiate between direct and indirect profits, courts have
held that a plaintiff may seek an award of either. See, e.g., Mackie,
Here, the Photograph is the copyrighted work. Sweetwater did not sell the
Photograph or the Buying Guide where it appeared on Sweetwater’s website. Thus,
if any of Sweetwater’s profits “are attributable to the infringement,” 17 U.S.C.
§ 504(b), they are only indirectly attributable. See Mackie,
In an indirect profits case, the “district court must conduct a threshold
inquiry into whether there is a legally sufficient causal link between the
infringement and subsequent indirect profits.” Id. at 915. “It is not enough to show
an infringement and then seek all of the defendant’s profits, from whatever source.”
Andreas,
Sweetwater argues that D’Pergo must be precluded from introducing evidence of indirect profits because D’Pergo “has failed to identify any specific transaction that is connected to the appearance of the Photograph” in the Buying Guide. Doc. no. 161-1 at 7. Sweetwater contends that, because “the Photograph was one of thousands of images that appeared on Sweetwater’s website,” any causal link is so “attenuated” that D’Pergo cannot be permitted to present evidence of such a link to the jury. Id. at 8.
Granting Sweetwater’s motion to exclude all evidence of indirect profits
would be tantamount to ruling that Sweetwater is entitled to judgment as a matter
of law on the issue of indirect profits. See Andreas,
Although a plaintiff’s evidence of profits cannot be “unduly speculative,”
Bruce,
The plaintiff in Pоlar Bear presented evidence of the defendant’s profits attributable to the infringement in the form of expert testimony. See id. The expert “reviewed [the defendant’s] sales records from the twelve trade shows where it showed the unauthorized . . . materials.” Id. The expert calculated that the defendant “yielded an average of $30,000 in sales per show, for a total of $360,000 in gross revenue.” Id. “Based on his experience evaluating trade shows, he concluded that approximately 10% to 25% of trade show sales are the result of . . . not D’Pergo’s or Dr. Einhorn’s—to separate Sweetwater’s profits gained as a result of its use of the Photograph from those which were not,” the fact that Einhorn failed to parse the Photograph’s impact on Sweetwater’s sales from the overall impact of the Buying Guide on Sweetwater’s sales was not a basis to exclude his opinion. Id. the booth promotion, of which the [infringing] materials were a substantial part.” Id. The Ninth Circuit held that this “testimony established the requisite causal connection between the category of profits sought—revenue from trade booth sales—and the infringement.” Id.
Here, Einhorn has prepared an expert report on D’Pergo’s behalf. See doc. no. 161-3. Einhorn’s report estimates the amount of revenue Sweetwater earned from the sale of electric guitars and guitar accessories from persons who navigated to Sweetwater’s retail shop page after viewing the Buying Guide. Based on sales data for Sweetwater’s product transactions from 2004-2016 (the years the Photograph appeared in the Buying Guide), Einhorn determined that Sweetwater generated approximately $91 million in revenue from online sales of guitars during those years, and from sales of guitar accessories to persons who had prеviously bought a guitar during those years. Based on additional data provided by Sweetwater, Einhorn determined that approximately 5.25 million unique viewers came to shop on Sweetwater’s online retail sales page, and approximately 500,000 viewed the Buying Guide, for a proportion of 9.4%. Recognizing that the approximately $91 million in revenue in online sales cannot be entirely attributed to the Buying Guide, Einhorn calculates Sweetwater’s gross revenue attributable to the infringement to be approximately $8.5 million (which is 9.4% of the approximately $91 million in total revenue from online sales of guitars and accessories during the infringing period).
Although loosely connected at best, this evidence of indirect profits is not so
“unduly speculative” that it must be kept from the jury. Bruce,
Einhorn’s anticipated testimony on indirect profits is minimally sufficient to permit D’Pergo to present the argument to the jury. A reasonable jury may well conclude, however, that the mere fact that the Photograph appeared in a sales publication that generated revenue is insufficient to establish a causal link. This is particularly true where the Photograph is one of several in the Buyer’s Guide, and the Photograph depicts D’Pergo guitar necks—which Sweetwater does not sell.
Under such circumstances, it may be difficult for D’Pergo to persuade a jury
on causation without a witness who can testify that the Photograph caused him to
be more interested in Sweetwater’s guitars and guitar accessories. See Complex
Sys.,
In sum, a plaintiff’s burden for a claim of infringer’s profits under § 504(b) is
“minimal.” Grumman,
For these reasons, the court denies Sweetwater’s motion in limine to exclude all evidence of indirect profits (doc. no. 161).
B. Motion to Exclude Evidence of Profits Generated More Than Three
Years Before D’Pergo Filed Suit (doc. no. 160)
As an alternative to its motion to exclude all evidence of indirect profits,
Sweetwater moves in limine to preclude evidence of profits it generated more than
three years before D’Pergo filed suit. Relying upon the United States Supreme
Court’s opinion in Petrella v. Metro-Goldwyn-Mayer, Inc.,
The Copyright Act provides that a civil action asserting an infringement
claim must be “commenced within three years after the claim accrued.” 17 U.S.C.
§ 507(b); accord Warren Freedenfeld Assocs., Inc. v. McTigue,
Here, the parties do not dispute that the discovery rule applies or that D’Pergo’s suit is timely. Indeed, as previously noted, the court has already determined as a matter of law that Sweetwater infringed D’Pergo’s copyright. Instead, Sweetwater contends that Petrella imposes a three-year damages bar for infringement claims even if those claims are timely brought.
This is not the first time Sweetwater has so argued in this litigation. In its
objection to D’Pergo’s motion to compel discovery (doc. no. 63), Sweetwater argued
that Petrella limits Sweetwater’s liability for infringement to the three years prior
to the date D’Pergo filed this action. Both then and now, Sweetwater cites language
from Petrella observing that § 507(b) provides for “retrospective relief running only
three years back from the date the complaint was filed.” Petrella,
Sweetwater first argues that this court’s prior ruling is not controlling on the admissibility of evidence of its profits from outside the three-year window because it was rendered in the context of resolving a discovery dispute. It is of course true that evidence need not be admissible to be discoverable. See Fed. R. Civ. P. 26(b)(1). The court does not agree, however, that the procedural context of its prior ruling renders it inapplicable to this evidentiary issue. Evidence of Sweetwater’s profits from the sale of electric guitars in the years prior to 2014 is relevant—and therefore discoverable—because D’Pergo can seek disgorgement of those profits notwithstаnding the three-year statute of limitations. See 17 U.S.C. § 504(b).
Sweetwater argues that the Second Circuit’s recent decision in Sohm should
cause this court to revisit its prior ruling. Because Sohm interprets Petrella, it is
helpful to review Petrella before considering Sohm. See Sohm,
In 1991, the Petrella plaintiff gained ownership over the copyright for the
1963 screenplay for “Raging Bull.” See Petrella,
Because the plaintiff did not seek to hold MGM liable for infringements occurring more than three years before she filed suit, whether she could have done so under the discovery rule was not at issue in Petrella. [2] Instead, the primary issue was whether the Ninth Circuit erred by holding that the equitable defense of laches barred the plaintiff’s claims even though they were brought within three years of accrual. See id. at 676-77.
The Court began its analysis by explaining when a “claim ordinarily accrues.”
Id. at 670. It stated that, under the injury rule, copyright claims generally accrue
“when an infringing act occurs.” Id. at 670 & n.4. In addition, the Court observed
that, although it had “not passed on the question, nine Courts of Appeals have
adopted, as an alternative to [this] rule, a ‘discovery rule,’ which starts the
limitations period when ‘the plaintiff discovers, or with due diligence should have
discovered, the injury that forms the basis for the claim.’” Id. at 670 n.4 (quoting
Haughey,
The Court then explained “the separate-accrual rule that [also] attends the copyright statute of limitations.” Id. at 671. The Court stated that, under the separate-accrual rule, “each time an infringing work is reproduced or distributed, the infringer commits a new wrong,” and “[e]ach wrong gives rise to a discrete claim.” Id. (internal quotation marks omitted). Furthermore, “each infringing act starts a new limitations period.” Id.
Synthesizing the injury rule and the separate-accrual rule as they bore on the facts of the case at hand, the Court stated that: (1) under § 507(b) and the injury rule, “an infringement is actionable within three years, and only three years of its occurrence”; and (2), because each infringement gives rise to a discrete claim, “the infringer is insulated from liability for earlier infringements of the same work.” Id. In other words, although the plaintiff’s pre-2006 claims were barred because they were outside the limitations period, that did not prevent her from pursuing infringement claims for conduct occurring within three years of when she filed suit because “the statute of limitations runs separately from eаch violation.” Id. Because it was undisputed that the plaintiff’s post-2006 claims were timely under the statute, the Court held that the Ninth Circuit erred in concluding that “infringing acts occurring before January 6, 2006, bar all relief . . . for infringement occurring on or after that date.” Id. at 677.
Petrella does, however, contain statements which, read in isolation, suggest that an infringement plaintiff cannot recover profits generated more than three years before commencement of the action even if her claims are timely. [3] For example, the Court stated that § 507(b) allows for “retrospective relief only three years back from the time of the suit. No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant’s to keep.” Id. at 677. Although the Petrella Court stated that “[n]o recovery may be had for infringement in earlier years,” and that “the infringer is insulated from liability from earlier infringemеnts of the same work,” these statements and others like them must be read in context. The reason “[n]o recovery may be had” for infringements that occur more than three years prior to the commencement of the action is because, if—as in Petrella— the injury rule applies, such infringements are outside the limitations period. Id. at 671, 677.
In Sohm, the Second Circuit interpreted Petrella to have “explicitly delimited
damages to the three years prior to the commencement of a copyright infringement
action” regardless of the action’s timeliness
.
Sohm,
As discussed, when viewed in context, this court does not agree that Petrella
is best understood as “limiting damages to the three years prior to when the suit is
filed” regardless of whether the suit is timely
.
Sohm,
This court is not alone in its interpretation of Petrella. Most district courts to
have considered the issue have held that the limitations on damages discussed in
Petrella do not apply to claims that are timely pursuant to the discovery rule. See
Mitchell v. Capitol Records, LLC,
For all of these reasons, and after careful consideration of Sohm and a close review of Petrella, the court adheres to its prior ruling that the limitations on damages discussed in Petrella do not apply to claims that are timely under thе discovery rule. Because the parties do not dispute that D’Pergo’s infringement claim is timely under that rule, Petrella does not bar D’Pergo from recovering profits generated more than three years before D’Pergo filed suit.
Finally, Sweetwater argues that, because it cannot be liable for profits attributable to its infringement which arose more than three years before this action commenced, evidence of such profits is irrelevant under Rule 401 and should be excluded under Rule 403. However, for the reasons already explained, Sweetwater may be held liable for such profits. Any evidence of such profits is therefore relevant.
For these reasons, the court denies Sweetwater’s motion in limine to exclude evidence of profits it generated more than three years before D’Pergo filed suit (doc. no. 160).
C. Sweetwater’s Motion to Admit Evidence of the Parties’ Respectivе Conduct Upon Learning of the Infringement (doc. no. 159) Sweetwater next moves in limine to admit evidence of the parties’ respective conduct after learning that D’Pergo’s photograph appeared on Sweetwater’s website. Sweetwater claims that, when D’Pergo’s owner, Stephan Dapergolas, learned that a photograph of his guitar necks appeared on Sweetwater’s website, he “did not immediately alert Sweetwater, but instead promptly retained a damages consultant.” Doc. no. 159-1 at 2. Sweetwater contends that Dapergolas then worked with this consultant for nearly a year before finally contacting Sweetwater. By contrast, Sweetwater states that when it learned of the Photograph’s presence on its website, Sweetwater “immediately removed [it] and apologized for its use.” Id. Sweetwater claims that D’Pergo then waited almost another year before bringing this lawsuit.
D’Pergo agrees that evidence of its conduct and Dapergolas’s conduct is
admissible. However, D’Pergo contends evidence of Sweetwater’s conduct is
inadmissible. Sweetwater counters that the evidence of both parties’ conduct is
admissible to provide context to D’Pergo’s infringement claim. See Faigin v. Kelly,
The court agrees with Sweetwater. Although the jury will only decide the
extent of Sweetwater’s liability for copyright infringement, evidence of both parties’
conduct surrounding the infringement is “admissible to ‘paint the backdrop’ of the
case.” Bartlett v. Mut. Pharm. Co., Inc., No. 08-cv-00358-JL,
D’Pergo next contends that, even if evidence of Sweetwater’s conduct is relevant to provide context, its probative value is substantially outweighed by the danger of unfair prejudice. See Fed. R. Ev. 403. D’Pergo states its belief that Sweetwater may inappropriately argue from this evidence “that it was an innocent, inadvertent infringer of D’Pergo’s copyright.” Doc. no. 185 at 4. Though the court expresses no opinion on whether such argument would be appropriate, the possibility that Sweetwater may make an inappropriate argument to the jury does not constitute a basis to exclude Sweetwater’s post-notification conduct under Rule 403. To the extent D’Pergo finds Sweetwater’s arguments at trial objectionable, it is free to object to those arguments at the time they are made.
For these reasons, the court grants Sweetwater’s motion in limine to admit evidence of the parties’ respective conduct after learning of the Photograph’s presence on Sweetwater’s website (doc. no. 159).
CONCLUSION The jury will be instructed, in some fashion, that D’Pergo must prove a causal nexus between Sweetwater’s infringement and the gross revenue figure D’Pergo presents. Sweetwater’s motion in limine to exclude evidence of indirect profits (doc. no. 161) is denied, as is its motion to exclude evidence of profits generated more than three years before D’Pergo filed suit (doc. no. 160). Sweetwater’s motion to admit evidence of the parties’ respective conduct after learning of the Photograph’s presence on Sweetwater’s website (doc. nо. 159) is granted.
SO ORDERED.
__________________________ Landya McCafferty United States District Judge January 28, 2021
cc: Counsel of Record.
Notes
[1] In a separate order issued the same day as the order on the parties’ cross-
motions for summary judgment, the court denied Sweetwater’s motion to exclude
Einhorn’s testimony under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S.
579 (1993). See D’Pergo Custom Guitars, Inc. v. Sweetwater Sound, Inc., No. 17-cv-
747-LM,
[2] Indeed, the plaintiff conceded that she knew of MGM’s reproductions and distributions of the film at the time she obtained the copyright but waited to file because the film was mired in debt and she thought it unlikely she’d recover anything. See id. at 682.
[3] As this court noted in its prior discovery order, infringement defendants seized on this and similar language from the opinion, arguing that the Supreme Court had established a three-year limit on damages independent of, and in addition to, § 507(b)’s timeliness requirement. See doc. no. 76 at 6-7.