FINDINGS OF FACT AND CONCLUSIONS OF LAW
Pursuаnt to this Court’s Opinion and Order dated February 28, 2011,
Pursuant to an Order of this Court dated June 3, 2011, an on-the-record telephonic status conference was held on June 17, 2011 to address certain legal issues that were not adequately addressed in the parties’ proposed findings of fact and conclusions of law. Plaintiff filed a memorandum regarding those issues on the eve of the status conference; the Court allowed
After consideration of the evidence offered by the parties at trial, their respective proposed findings of fact and conclusions of law, their arguments during the telephonic status conference, as well as the record of this matter as a whole, the Court now makes the following findings of fact and conclusions of law. The Court also details herein the manner in which judgment in favor of plaintiff is to be entered after the Court has issued a Final Order on plaintiffs request for attorney’s fees.
I. PROCEDURAL HISTORY
This Court previously recounted the procedural history of the instant matter in detail in its February 28, 2011 Opinion and Order, see Docket No. 48 at 6-8, and will therefore only partially reiterate that history herein. The instant matter is the seсond lawsuit plaintiff Tattoo Art, Inc. (“Tattoo Art”) has filed against defendants TAT and Knapp. Plaintiff filed the first lawsuit in this Court, Civil Action No. 2:09ev314, on July 7, 2009. Defendants thereafter filed a motion to dismiss on the basis of a mandatory mediation provision in the license agreement between the parties, and after briefing and a hearing on December 21, 2009, this Court granted that motion by Opinion and Order dated May 14, 2010, dismissing the case without prejudice. The parties thereafter submitted the matter to mediation, but were unable to resolve their dispute.
Plaintiff filed its complaint in the instant matter on July 2, 2010, alleging (as it had in its prior lawsuit) causes of action for breach of the parties’ license agreement and copyright infringement, and requesting damages, attorney’s fees, costs, and a permanent injunction. Defendants answered the complaint on August 11, 2010.
Plaintiff filed a motion for partial summary judgment as to liability on December 10, 2010, which was fully briefed, and on which this Court held a hearing on February 11, 2011. By Opinion and Order dated February 28, 2011, this Court granted plaintiffs motion. As previously noted, this matter was consequently tried before the Court, as to the issue of damages only, on March 1 and 2, 2011, and the parties thereafter submitted proposed findings of fact and conclusions of law on March 28, 2011. On May 5, 2011, plaintiff filed a renewed motion for a permanent injunction and the impoundment of defendants’ infringing materials. Defendants filed no response. As detailed above, an on-the-record telephonic status conference was held on June 17, 2011, in connection with which plaintiff filed a memorandum on June 16, 2011.
II. FINDINGS OF FACT 1
A. The Court’s Credibility Determinations
To the extent that there existed unresolved factual disputes between the parties in this matter, the Court’s resolution of such disputes in the findings of fact below were reached on the basis of the following general credibility-determinations. The Court found the trial testimony of plaintiffs owner, Joseph M. DuFresne, to have been straightforward, consistent, and ered
The Court found no reason to doubt the credibility of the deposition testimony admitted at trial from former TAT employees Mark Vanderwel and Kelly Christine Knapp. The Court likewise found no reason to doubt the credibility of the deposition testimony admitted at trial from TAT employee Benjamin Lee Wolfe, and further found Mr. Wolfe’s live testimony at trial to have been generally consistent with his deposition testimony, and ultimately very credible. Thus, the Court affords Mr. Wolfe’s testimony substantial weight herein.
B. The Parties
1. Plaintiff is a Virginia corporation in the business of creating, copyrighting, licensing, and selling “tattoo flash” artwork designs.
2. DuFresne is plaintiffs owner and the creator of its artwork, and operates under the professional name “J.D. Crowe.” Trial Tr. vol. 1, 56:1-25 (DuFresne Test.).
3. Defendants are in the business of creating and selling stencils and other products for use in applying airbrush body art.
4. TAT is a Michigan limited liability company with its principal place of business in Grand Rapids, Michigan.
5. Knapp, a citizen of Michigan, is the sole member of TAT, and controls TAT’s activities.
C. Plaintiffs Method of Copyrighting His Tattoo Designs
6. DuFresne organized his tattoo designs, both for copyright registration and sale, into books (hereinafter, the “Books”), each consisting of fifty “tattoo flash sheets,” each of which sheets, in turn, contain a number of individual tattoo images. Trial Tr. vol. 18:23-21:9 (DuFresne Test.) & 51:5-12.
7. DuFresne did not register the Books, or any portions thereof, as compilations or derivative works. Id. 20:16-21:22 (DuFresne Test.) & 52:18-53:25.
8. Instead, DuFresne explained that it was his intent to register the Books as individual copyright images under a single registration, “[mjostly because it was cheaper” than separately registering each flash sheet or the individual tattoo designs on each flash sheet.
Id.
20:24-21:6 (DuFresne Test.). He later elaborated that the Books “were put together for sale and done in 50 sheets to just help with the cost of a copyright compared to 50 copyrights,”
9. DuFresne explicitly denied that the Books were organized thematically, or that he “exercised [any] artistic discretion as an artist in putting together [his] books for purposes of copyright registration.” Id. 50:11-52:9 (DuFresne Test.). He also denied that the individual flash sheets consistently reflected a single theme, indicating that “[s]ome did, some didn’t.” Id. 52:10-17 (DuFresne Test.).
■ 10. DuFresne sells his copyrighted tattoo designs in a variety of ways, including on an individual image basis. Id. 19:8-12 (DuFresne Test.).
D. The Terms of the Parties’ License Agreement
11. On December 29, 2005, plaintiff, through its owner DuFresne, and TAT, through its sole member Knapp, entered into a written license agreement (the “Agreement”). See Compl. Ex. A. 2
12. The Agreement granted TAT the exclusive right to use the sixteen pages of plaintiffs copyrighted tattoo designs (the “Property”) attached to the Agreement “for the manufacture, offer for sale, sale, advertisement, promotion, shipment, and distribution of’ airbrush stencils derived from the Property (the “Licensed Articles”). See Compl. Ex. A ¶¶ 1.01, 1.02 & 2.01.
13. The Property consisted of 711 individual tattoo designs, of which 212 designs were drawn from 24 of plaintiffs registered Books. See Docket No. 42 at 1; PL’s Ex. 1; Tr. Exs. 1-24. The remaining designs contained in the Property were unregistered. However, defendants do not dispute that all 711 designs contained in the Property “were subject to a claim of copyright” by plaintiff. See Docket No. 42 at 1.
14. The Agreement’s initial term was 36 months, to be renewed automatically for consecutive 12-month periods until either party gave notice of nonrenewal or plaintiff gave notice of termination due to a breach of the Agreement by TAT. Id. ¶ 2.02.
15. The Agreement further allowed defendant TAT “to provide a link from [TAT]’s website to [plaintiffs website,] umm.tattoo-art.com,” but also provided that TAT’s “inability to link to wum.tattooart.com for any reason ... shall not relieve [TAT] of any obligation(s) under this Agreement.” Id. ¶ 2.03.
16. The Agreement provided that TAT would pay plaintiff royalties in the amount of 12.5% of “Gross Sales,” which the Agreement defined as the invoiced sale price for all Licensed Articles and “packages which include Licensed Articles and also includes [sic] other items” sold by TAT, “less sales tax and shipping costs.” Id. ¶¶ 1.06 & 3.01. The sale price for such packages was expressly to “be calculated based upon the sales price of the entire package without diminution for the cost of any other components contained in the package.” Id. ¶ 1.06.
17. The Agreement required TAT to provide to plaintiff “[o]n or before the 25th day of April, July, October, and January ... a full and accurate statement, certified by a knowledgeable officer as accurate, showing the quantity and Gross Sales of all Licensed Articles distributed and/or sold
18. The Agreement also required TAT to pay to plaintiff “[o]n or before the 25th day of April, July, October, and January ... any royalties due and payable with respect to sales occurring during the preceding Calendar Quarter.” Id.
19. The Agreement further provided that, notwithstanding the provisions discussed above regarding royalties, TAT would “pay a minimum annual royalty in the amount of $6,000,” which was to “be paid on or before January 25 of each year for the preceding calendar year.” Id. ¶ 3.04.
20. The Agreement required TAT to “keep accurate books of account and records covering all transactions relating to” the Property and/or Licensed Articles, to which plaintiff would have access, and further required TAT to “designate a symbol or number which will be used exclusively in connection with the Licensed Articles.” Id. ¶ 5.01.
21. Upon expiration or termination of the Agreement, TAT was permitted to “dispose of finished Licensed Articles on hand or in process at the time of such expiration or termination, for a period of twelve (12) months thereafter, provided all further payments due with respect to that twelve (12) month period are made in accordance with the terms” of the Agreement. Id. art. VI. However, that provision did not apply “[i]n the event [the] Agreement [was] terminated by [plaintiff] due to [TAT’s] breach of any term or condition of [the] Agreement.” Id.
22. In the Agreement, TAT explicitly “aeknowledge[d] that its failure ... to cease the manufacture, sale or distribution of the Licensed Articles upon the termination or expiration of [the] Agreement” would entitle plaintiff to temporary and permanent injunctive relief. Id. ¶ 7.01.
23. TAT agreed in the Agreemеnt “to use its best efforts to continuously, diligently and competitively design, sell, advertise, promote, distribute, inventory, and supply each of the Licensed Articles.” Id. art. VIII.
24. TAT also agreed that it would “apply ‘© J.D. Crowe 2005’ on each sheet containing the Licensed Articles.” Id. ¶ 11.02.
25. The Agreement provided that it would “be deemed to have been accepted and signed in Virginia Beach, Virginia and shall be construed in accordance with the laws of the Commonwealth of Virginia.” Id. art. XIII. It further provided that, in addition to mandatory mediation, TAT “consented] and agree[d] to in personam jurisdiction and venue in the United States District Court for the Eastern District of Virginia, located in Norfolk, Virginia” or “the Circuit Court for the City of Virginia Beach, Virginia,” depending on the nature of the dispute. Id.
26. The Agreement provided that it could “be signed in multiple counterparts,” and that “[transmission of signatures by facsimile shall be valid and may be relied upon by the recipient of the facsimile.” Id. art. XVII.
E. TAT’s Performance and Initial Breach of the Agreement
27. TAT initially appeared to perform in conformity with the terms of the Agreement, providing plaintiff with statements of Gross Sales and corresponding royalty payments for the first three Calendar Quarters of 2006. Trial Tr. vol. 1, 54:15-55:25 (DuFresne Test.) & 121:25-122:17 (Knapp Test.).
28. However, each of the successive accountings performed by defendants in connection with the prior litigation, the media
29. Although TAT continued to make sales of Licensed Articles during the fourth Calendar Quarter of 2006, TAT failed to provide plaintiff with the statement of Gross Sales and corresponding royalty payment for that Calendar Quarter, which, pursuant to paragraph 3.03 of the Agreement, was due on or before January 25, 2007. Id. 58:3-5 (DuFresne Test.); 124:5-126:15 (Knapp Test.).
30. TAT thereafter provided plaintiff no further statements of Gross Sales or royalty payments, including the minimum annual royalty payments due pursuant to paragraph 3.04 of the Agreement, before plaintiff instituted litigation against defendants. Id. 58:6-7 (DuFresne Test.) & 117:7-10 (Knapp Test.).
F. TAT Receives a Bankruptcy Notice
31. In late March or early April 2007, defendants received a bankruptcy notice dated March 29, 2007 from the United States Bankruptcy Court for the Eastern District of Virginia relating to a TAT customer from Glen Allen, Virginia named James Dailey Crowe, also known as Dale Crowe or Dale James Crowe (the “bankruptcy notice”). See Defs.’ Trial Ex. 39; Trial Tr. vol. 1, 119:17-120:3 (Knapp Test.) & 123:5-24; Trial Tr. vol. 2, 273:7-16 (Knapp Test.), Mar. 2, 2011.
32. Knapp testified at trial that, shortly after receiving the notice, he accessed plaintiffs website and saw that TAT’s advertisement on plaintiffs website had been removed. Trial Tr. vol. 1, 117:17-19 (Knapp Test.) & 120:19-121:24.
33. Knapp’s testimony in this regard was undercut by his own Exhibit 12, which shows that there was still a link on plaintiffs website to TAT’s website, albeit one that apparently alternated with other links, as late as May 26, 2007, several weeks after defendants received the bankruptcy notice. Defs.’ Ex. 12 at 21; accord Trial Tr. vol. 1, 117:20-118:24 (Knapp Test.) & 120:4-14 (colloquy of the Court with plaintiffs counsel).
34. Knapp testified that he interpreted this claimed removal of TAT’s advertisement from plaintiffs website as indicative of a change of control at plaintiff. Id. 121— 21:24 (Knapp Test.).
35. In determining how to proceed, Knapp did not seek any legal advice in connection with defendants’ receipt of the bankruptcy notice, but instead relied on his own personal experience with filing bankruptcy. Trial Tr. vol. 2, 276:15-277:17 (Knapp Test.).
36. Knapp testified, both in deposition and at trial, that he believed the bankruptcy notice actually related to plaintiff, due to the similarity of the debtor’s name to DuFresne’s professional name, J.D. Crowe. Trial Tr. vol. 1, 117:11-14 (Knapp Test.), 118:25-119:16,120:19-121:11.
38. Knapp testified, both in his deposition and at trial, that TAT stopped providing the statements of Gross Sales and royalty payments required by the Agreement because of the bankruptcy notice. Id. 117:11-14, 118:25-119:16, 120:19-24. The bankruptcy notice, however, did not stop defendants from continuing to sell the Licensed Articles.
39. Knapp’s testimony in this regard is manifestly incredible. The bankruptcy notice was dated March 29, 2007 — over two months after the statement of Gross Sales and royalty payment for the fourth Calendar Quarter of 2006 were due. Compare Defs.’ Trial Ex. 39 at 1 (bankruptcy notice dated March 29, 2007 relating to a bankruptcy case filed on March 28, 2007), Trial Tr. 119:17-120:3 (Knapp Test.) & 123:5-2, and Trial Tr. vol. 2, 272:20-273:16 (Knapp Test.) mth Trial Tr. 63:1-7 (defendants’ counsel representing to the Court that the bankruptcy notice “was received at or about the time the first quarter report was due in '07”), 118:25-119:16 (Knapp Dep. Test.) (“ ‘the only reason that [Knapp said he] stopped paying royalties is because of the bankruptcy notice’ ”). Thus, as a factual matter, the bankruptcy notice could not have been the reason why TAT breached its obligations under the Agreement for the fourth Calendar Quarter of 2006. 3
40. Knapp’s testimony at trial in this connection was further invalidated by the fact that it contradiсted his own prior testimony. Trial Tr. vol. 1, 118:25-119:16 (Knapp Test.). Knapp agreed at his deposition that “ ‘the only reason that [he said he] stopped paying royalties [was] because of the bankruptcy notice.’ ” Id. 119:12-13. At trial, however, Knapp claimed that the bankruptcy notice was only “part of the reason,” but “not all the reason” why TAT stopped providing plaintiff with the required sales reports and royalty payments. Id. 117:11-16.
41. Instead, Knapp claimed that “there was a context and [he knew] it was more than that,” id. 120:24-25 (Knapp Test.), and proceeded to offer additional justifications for TAT’s omissions. First, Knapp claimed that TAT withheld the required statements of Gross Sales and royalty payments because TAT’s “ad was removed from Tattoo Art’s site.” Id. 117:17-19 (Knapp Test.). However, even if placement of a link to TAT’s website on plaintiffs website was a term of the Agreement — which it manifestly was not — that link to TAT’s website, as noted above, was still present and active on plaintiffs website months after the statement of Gross Sales and royalty payment for the fourth Calendar Quarter of 2006 were due. See Defs.’ Ex. 12 at 21; accord Trial Tr. vol. 1, 117:20-118:24 (Knapp Test.) & 120:4-14 (colloquy of the Court with plaintiffs counsel). Consequently, the claimed removal of the link to TAT’s website from plaintiffs website provides no justification whatsoever for TAT’s omissions under the Agreement.
42. Knapp then testified that Kelly Knapp was responsible for bringing such contractual obligations to his attention, but that she inexplicably failed to do so with
G. TAT Alters Plaintiffs Copyrighted Tattoo Designs
43. At an indeterminate point prior to May 14, 2009 — defendants claim it to be sometime during 2008, see Trial Tr. vol. 2, 260:1-4 (Wolfe Test.) & 265:22-25 — dеfendants undertook a project that “took the artwork provided by Tattoo Art, made derivative works by changing the colors [of plaintiffs copyrighted tattoo designs] electronically, re-laying out the posters [of plaintiffs copyrighted tattoo designs] and printing up posters called Original Collection.” Trial Tr. vol. 1, 188:3-8 (Wolfe Dep. Test.); accord id. 153:13-163:22 (Knapp Test.).
44. Knapp testified that defendants undertook the Original Collection reeoloring project because the images of plaintiffs copyrighted tattoo designs were not effectively selling the stencils derived from them, due at least in part to their complex coloration, which Knapp claimed to be difficult to recreate using the airbrush medium. Id. 153:13-156:18 (Knapp Test.) & 159:12-14; Trial Tr. vol. 2, 273:17-274:5 (Knapp Test.). But see Trial Tr. vol. 1, 65:21-66:13 (DuFresne Test.) (DuFresne denying that needle and ink necessarily allow artists to create more detailed tattoo images than airbrush).
45. Knapp testified at trial that, to that end, defendants derived the Original Collection not from the images of plaintiffs copyrighted tattoo designs, but instead only from the stencil silhouettes of such designs, employing TAT’s own proprietary “Ray Brandt” style of coloration instead of the original coloration of plaintiffs designs. Id. 154:19-157:12 (Knapp Test.).
46. Knapp testified that defendants knew at the time when they created the Original Collection stencils that they “were derived from J.D. Crowe and [they] knew [they] were going to have to pay royalties on them.” Id. 165:20-23 (Knapp Test.).
47. Knapp’s testimony in this connection is belied, however, by the fact that TAT never contacted plaintiff regarding the development or sale of Original Collection artwork or stencils, id. 102:1-5 (DuFresne Test.); Trial Tr. vol. 2, 282:8-283:1 (Knapp Test.) & 283:16-284:10 (DuFresne Test.), and, as previously noted, paid no royalties for any Original Collection-related sales before plaintiff instituted litigation against defendants.
48. Knapp testified that he believed defendants’ creation of the Original Collection was permissible in light оf TAT’s obligation under Article VIII of the Agreement “to use its best efforts to continuously, diligently and competitively design, sell, advertise, promote, distribute, inventory, and supply each of the Licensed Articles.” Compl. Ex. A art. VIII; Trial Tr. vol. 1, 159:6-163:4.
49. However, defendants did not seek any legal advice in connection with the development or sale of Original Collection artwork and stencils. Trial Tr. vol. 1, 160:6-16 (Knapp Test.); Trial Tr. vol. 2, 282:8-283:1 (Knapp Test.).
50. Instead, Knapp testified that he relied on a conversation he had with DuFresne prior to the signing of the Agreement in which they discussed that “it was the unique colorization” of plaintiffs tattoo designs “that made his artwork copyrightable.” Trial Tr. vol. 2, 282:12-20 (Knapp Test.). Although DuFresne acknowledged
51. TAT began offering Original Collection stencils and banners depicting Original Collection artwork for sale on its website during 2008, first only to its affiliates, then to affiliates and its “Most Valuable Partners” (“MVP”), and ultimately to the general public. Trial Tr. vol. 2, 258:12-261:19 (Wolfe Test.) & 267:7-268:24; see also Pl.’s Ex. 15.
52. Plaintiffs copyright information was conspicuously absent from the Original Collection artwork. Trial Tr. vol. 1, 26:6-9 (DuFresne Test.), 151:19-152:5 (Knapp Test.) & 183:7-7 (Kelly Knapp Dep. Test.).
H. DuFresne Contacts Defendants about Their Breaches
53. DuFresne accessed TAT’s website in early February 2009, and saw that TAT was still displaying the images of plaintiffs copyrighted tattoo designs and offering stencils derived from the Property for sale. Id. 25:9-14 (DuFresne Test.).
54. DuFresne contacted defendants by telephone on February 9, 2009 to inquire about TAT’s failure, since January 2007, to provide plaintiff statements of Gross Sales and royalty payments. Trial Tr. vol. 1, 24:11-21 (DuFresne Test.), 63:22-64:2, 66:14-21 & 74:23-75:5.
55. Knapp claimed in that telephone сonversation that he believed, based on the bankruptcy notice, that plaintiff was bankrupt, which DuFresne denied. Id. 24:22-25:2 (DuFresne Test.); 58:15-18, 62:7-64:2, 66:14-67:20.
56. Knapp then told DuFresne that “within a week he’d have [DuFresne] a report and royalties.” Id. 25:3-4 (DuFresne Test.), 66:21-23 & 67:19-20.
57. However, Knapp provided no such report or royalty payment and, indeed, never communicated with plaintiff again until plaintiff instituted litigation against defendants. Id. 25:5-8 (DuFresne Test.).
I. Plaintiff Terminates the Agreement
58. Three or four weeks after the aforementioned telephone conversations, DuFresne again accessed TAT’s website, and discovered that the images of plaintiffs copyrighted tattoo designs had been removed from the website and replaced with the Original Collection artwork. Id. 25:15-26:5 (DuFresne Test.), 73:18-74:10 & 78:18-24; cf. Trial Tr. vol. 2, 211:21-213:18 (Wolfe Test.) (Wolfe testifying that, to his recollection, plaintiffs copyrighted tattoo designs were taken down in May 2009, around the time the termination letter was received).
59. On May 14, 2009, at plaintiffs direction, plaintiffs counsel sent TAT a letter immediately terminating the Agreement based on TAT’s “failure to pay the minimum royalties and/or report royalties” (the “termination letter”). Tr. Ex. 42; see also Trial Tr. vol. 1, 26:13-15 (DuFresne Test.). The termination letter directed TAT to “return any artwork in [TAT’s] possession, custody or control pertaining to or owned by Tattoo Art, Inc., along with a complete accounting of all sales” to date. Tr. Ex. 42. The termination letter further notified defendants “to immediately cease and desist any further use of artwork owned by Tattoo Art, Inc.,” warning defendants that such use “will be considered copyright infringement, subject to penalties and damages as provided by law.” Id.
J. TAT’s Actions after Receiving the Termination Letter
61. Despite defendants’ receipt of the termination letter, see id. 153:7-12 (Knapp Test.), they did not return plaintiffs artwork, provide a complete accounting of Gross Sales, or provide any of the royalty payments due to plaintiff pursuant to the Agreement in response to the termination letter.
62. Defendants also did not remove or otherwise render inaccessible the pages on TAT’s website displaying Original Collection artwork. Instead, defendants actually made additional pages of Original Collection artwork on TAT’s website accessible to the general public, and continued selling stencils derived from plaintiffs Property. Trial Tr. vol. 1, 26:16-25 (DuFresne Test.) & 27:7-23; Trial Tr. vol. 2, 261:20-264:1 (Wolfe Test.).
63. Defendants did not attempt to render the pages of TAT’s website displaying the Original Collection artwork inaccessible to the public until July 2009, within weeks after plaintiff filed its initial lawsuit against defendants. Trial Tr. vol. 1, 77:6-78:24 (DuFresne Test.); see also Trial Tr. vol. 2, 213:23-215:1 (Wolfe Test.).
64. Defendants subsequently discovered that their initial attempt to render the Original Collection artwork — and possibly plaintiffs original copyrighted tattoo designs — inaccessible was unsuccessful, because the images could still be accessed by means of the search function on TAT’s website. Trial Tr. vol. 2, 215:2-216:22 (Wolfe Test.). Defendants thereafter corrected the oversight, rendering the pages containing the images entirely inaccessible to the public. Id. 216:24-217:24 (Wolfe Test.). However, defendants did not actually remove the pages containing the images from the website; they simply restricted access to them. Id. 264:2-5 (Wolfe Test.).
65. Defendants’ website, even as of the date of trial, still contained references to “J.D. Crowe” and plaintiffs copyrighted tattoo designs, suggesting that TAT’s MVPs have access to those designs on a cloaked website. Pl.’s Ex. 14. Defendants claim that such references are erroneous, and that no one could actually access those designs as of the date of trial. Trial Tr. vol. 2, 264:6-265:8 (Wolfe Test.), 270:10-25.
66. By letter dated July 29, 2009, defendants’ counsel represented to plaintiff that defendants were “willing to promptly return all artwork, and provide a complete accounting of all sales under the License Agreement, up to May 14, 2009.” Tr. Ex. 46; Trial Tr. vol. 1, 33:9-13 (DuFresne Test.).
67. However, defendants did not return plaintiffs copyrighted artwork, and the accounting they provided on August 5, 2009 proved to be inaccurate. Trial Tr. vol. 1, 33:18-34:15 (DuFresne Test.); Tr. Ex. 47.
68. Defendants continued selling stencils derived from plaintiffs Property, albeit allegedly inadvertently, during the pendency of plaintiffs initial lawsuit, the mediation, and even during the pendency of the instant matter. Id. 174:23-175:3 (Knapp Test.); Trial Tr. vol. 2, 232:6-233:24 (Wolfe Test.) (estimating gross revenue of “around $4,500” from all Licensed Article and Original Collection sales made after May 14, 2009, including approximately $500 in sales during August 2009).
K. TAT’s Gross Revenues, Profits, and Expenses
70. TAT’s gross revenues for 2006 were $1,425,370. Trial Tr. vol. 1, 175:4-25 (Knapp Test.).
71. TAT’s gross revenues for 2007 were $1,278,421. Id. 176:1-2 (Knapp Test.).
72. TAT’s gross revenues for 2008 were $1,474,839. Id. 176:3-4 (Knapp Test.).
73. TAT’s gross revenues for 2009 were $865,232. Id. 176:5-6 (Knapp Test.).
74. TAT’s profits from 2006 through 2008 totaled approximately $1,876,000. Id. 188:15-18 (Wolfe Dep. Test.).
75. Defendants described the business derived from TAT’s contractual relationship with plaintiff from 2006 through 2009 as being “very small bordering on insignificant,” Trial Tr. vol. 2, 208:2-11 (Wolfe Test.), constituting “a very small component” of TAT’s total product offering, id. 207:10-13 (Wolfe Test.), and constituting only “about one half of one percent of [defendants’] overall sales.” Id. 275:23-25 (Knapp Test.); see generally id. 206:19-210:16 (Wolfe Test.).
76. However, defendants made “no attempt to determine” the portion of total sales attributable to plaintiffs Property beyond preparation of TAT’s profit and loss statement. Id. 257:11-258:11 (Wolfe Test.).
77.Defendants indicated that the Original Collection was developed “at considerable expense,” taking “over a year to complete and costing] [defendants] about $27,500.” Trial Tr. vol. 1, 153:15-23 (Knapp Test.).
III. CONCLUSIONS OF LAW
A. Jurisdiction and Venue
Subject-matter jurisdiction in this mаtter is properly based on the existence of both a “federal question” pursuant to 28 U.S.C. § 1338, the statute conferring exclusive jurisdiction upon the federal courts in copyright infringement suits, and complete diversity of citizenship among the parties pursuant to 28 U.S.C. § 1332.
Section 411(a) of the Copyright Act provides in relevant part that “no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title.” 17 U.S.C. § 411(a). Although the United States Court of Appeals for the Fourth Circuit historically interpreted this statute to mean that “[c]opyright registration is a jurisdictional prerequisite to bringing an action for infringement under the Copyright Act,” the United States Supreme Court has recently decided to the contrary.
See Xoom, Inc. v. Imageline, Inc.,
B. Plaintiffs Copyright Infringement Claim
This Court determined in its February 28, 2011 Opinion and Order that defendants’ development and marketing of the Original Collection — i.e., their recolored images derived from, at a minimum, the silhouettes of plaintiffs copyrighted tattoo designs — was beyond the scope of the license granted by the Agreement, and therefore constituted copyright infringement, both before and after defendant received the termination letter. Docket No. 48 at 14-15. There remain, however, substantive issues that affect the measure and exact calculation of damages for defendants’ infringement. The Court will address each such issue in turn.
1. The Measure of Damages for Copyright Infringement
The Copyright Act of 1976, codified as amended in Title 17 of the United States Code, provides in relevant part that “an infringer of copyright is liable for either ... the copyright owner’s actual damages and any additional profits of the infringer ... or ... statutory damages.” 17 U.S.C. § 504(a). Plaintiff has included in its proposed findings of fact and conclusions of law calculations for statutory damages with respect to its registered images and actual damages for its unregistered images, and on the basis of those calculations, requests an award of statutory damages in the amount of $2,000,000.00.
The statutory damages provision of the Copyright Act, 17 U.S.C. § 504(c)(1), provides:
[T]he copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $750 or more than $30,000 as the court considers just.
17 U.S.C. § 504(c)(1). The foregoing range of statutory damages is, however, subject to two relevant statutory caveats:
In a case where the copyright owner sustains the burden of proving, and the court finds, that infringement was committed willfully, the court in its discretion may increase the award of statutory damages to a sum of not more than $150,000. In a case where the infringer sustains the burden of proving, and the court finds, that such infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court in its discretion may reduce the award of statutory damages to a sum of not less than $200.
17 U.S.C. § 504(c)(2).
In calculating statutory damages, 17 U.S.C. § 504(c)(1) further provides that “all the parts of a compilation or derivative work constitute one wоrk.” 17 U.S.C. § 504(c)(1). “Compilation” is defined statutorily as “a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship. The term “compilation” includes “collective works.” 17 U.S.C. § 101. A “collective work,” in turn, is statutorily defined as “a work, such as a periodical issue, anthology, or encyclope
A “derivative work” is statutorily defined as:
a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a “derivative work”.
Id.
2. The Court’s Calculation of Statutory Damages
a. Willful or Unwitting Infringement
This Court indicated in its February 28, 2011 Opinion and Order that “whether or not defendants’ infringement was committed willfully is not a question of liability, but instead a matter of statutory damages pursuant to 17 U.S.C. § 504.” Docket No. 48 at 15. (citing
Lyons P’ship, L.P. v. Moms Costumes, Inc.,
This Court has reviewed, and painstakingly weighed, the totality of the evidence before it in this connection. Plaintiffs evidence at trial cast defendants’ actions, quite appropriately, in an extremely unfavorable light, and defendants’ actions vis-avis plaintiff in this matter are far from the innoсent or unwitting end of the spectrum. Thus, reduced statutory damages would be inappropriate in this matter. However, neither can this Court conclude, with an amount of confidence sufficient to justify enhanced statutory damages, that defendants willfully infringed plaintiffs copyrights.
i. Plaintiffs Claimed Business Justification
The business justification defendants offered for their development and marketing of the Original Collection artwork and stencils was certainly a plausible one. It may well have been the case that the original coloration of plaintiffs ink artwork was, in many cases, too intricate for the airbrush medium, thus rendering that artwork ineffective in marketing the stencils, because many airbrush artists would be incapable of creating an airbrush tattoo with the stencil that would actually resemble plaintiffs artwork. However, any potential legitimacy that such a business justification might have had was entirely overshadowed by the illegitimacy of the circumstances in which the Original Collection was developed. The very name chosen by defendants for their
derivative
artwork — the
Original
Collection — is particularly telling in this connection. Defendants developed the Original Collection long after they had stopped providing plaintiff with the statements of Gross Sales and royalty payments required by the Agreement. Defendants never contacted plaintiff, or consulted an attorney, regarding the development or marketing of the Original Collection. Defendants never paid plaintiff any royalties on Original Collection sales prior to the instant litigation — not when DuFresne contacted them by telephone, and not even when they received the termination letter. In
ii.The Bankruptcy Notice Excuse
In the same vein, even if the Court had believed defendants’ excuse premised on their receipt of the bankruptcy notice, such an explanation would only serve to reinforce the highly questionable nature of defendants’ actions. Defendants offered the Court no legal support for the proposition that, even if they had received a bankruptcy notice that actually related to plaintiff or DuFresne, as opposed to an uninvolved third party, such receipt would have justified or required defendants to cease fulfilling their contractual obligations to plaintiff pursuant to the Agreement. Instead, one could easily conclude — though the Court need not do so here — -that defendants opportunistically took advantage of what they believed to be plaintiffs bankruptcy to appropriate his copyrighted artwork for their own continued use and profit, without any regard to the continued validity of the Agreement between them.
iii.The Agreement’s “Best Efforts” Clause
Tipping the scales slightly in the other direction is defendants’ claimed reliance on TAT’s obligation to use “its best efforts to continuously, diligently and competitively design ... the Licensed Articles” under Article VIII of the Agreement. Compl. Ex. A art. VIII. Although this Court determined in its February 28, 2011 Opinion and Order that Article VIII, as a matter of law, could not reasonably be interpreted as authorizing defendants’ development of the Original Collection, see Docket No. 48 at 13-14, it is not entirely inconceivable that defendants actually believed, and relied on, this legally flawed interpretation. Of course, such an interpretation would have been considerably more plausible had it not arisen in a context in which TAT had already long since defaulted on many of its other obligations under the Agreement, most notably the obligation to pay plaintiff royalties. Moreover, defendants certainly should not be rewarded for their failure to consult plaintiff or seek legal counsel about the permissibility of their Original Collection project. Nevertheless, the Court cannot rule out the possibility that defendants, in developing the Original Collection, were motivated, at least in part, by TAT’s obligation to use its best efforts to design the Licensed Articles. 4
iv.Insufficient Evidence to Establish Willfulness
On the basis of the foregoing observations, the Court finds there to be insufficient evidence in the record before it to establish affirmatively that defendants had actual or constructive knowledge that then-actions constituted infringement. However ill-advised the development of the Original Collection has proven in hindsight, the Court cannot conclude definitively that such development was consciously undertaken with knowledge, actual or constructive, that it would constitute infringement.
In the same vein, although defendants’ actions in this matter could easily be characterized as recklessly disregarding TAT’s contractual obligations to plaintiff under the Agreement, the Court cannot conclude that such actions were undertaken in reck
Defendants’ defaults under the Agreement, though numerous, do not by themselves necessarily establish the requisite reckless disregard of plaintiffs copyrights. Consequently, finding that defendants’ actions were neither willful nor innocent, the Court shall award damages within the standard range “of not less than $750 or more than $30,000 as the court considers just.” 17 U.S.C. § 504(c)(1). The next question, of course, is how many separate works of plaintiff were infringed by defendants.
b. The Number of Works Infringed
Plaintiff claims that “[t]he Defendants infringed upon a total of 708 Works which were subject to a claim of copyright by Tattoo Art,” of which “212 individual. Works ... were registered with the U.S. Copyright Office.” Id. at 17-18; see also Tr. Exs. 1, 80. Plaintiff “has elected to receive statutory damages for the 212 registered Works.” Docket No. 59 at 23. Plaintiff contends that it should receive an award of statutory damages for each such registered image infringed upon by defendants because “[e]ach of the individual images has independent economic value and is sold separately,” and the images were “not registered as compilations or derivative works.” Docket No. 59 at 17.
Defendants argue in response that plaintiffs Books constitute “collective works” as that term is defined in 17 U.S.C. § 101, and that since the Property was drawn from 16 of plaintiffs Books, plaintiff is only entitled to 16, statutory damages awards, one per sheet from each such Book.
“The question of whether a work constitutes a ‘compilation’ for purposes of statutory damages pursuant to Section 504(c)(1) of the Copyright Act is a mixed question of law and fact.”
Bryant v. Media Right Prods., Inc.,
i. The “Independent Economic Value” Test
The United States Court of Appeals for the First Circuit, for example, has historically looked in this connection to applicable “regulations promulgated by the [United States] Copyright Office,” which provide that “the copyrights in multiple works may be rеgistered on a single form, and thus considered one work
for the purposes of registration
while still qualifying as separate “works” for purposes of awarding statutory damages.”
Gamma Audio & Video, Inc. v. Ean-Chea,
For the purpose of registration [of copyright] on a single application and upon payment of a single registration fee, the following shall be considered a single work: (A) In the case of publishedworks: all copyrightable elements that are otherwise recognizable as self-contained works, that are included in a single unit of publication, and in which the copyright claimant is the same.
37 C.F.R. § 202.3(b)(4)®. Relying on this language, the First Circuit in Gamma applied a “functional test ... with the focus on whether each expression ... has an independent economic value and is, in itself, viable.” Id.
ii. The Alternative Plain-Language Test'
Although several other United States Courts of Appeals have also adopted this “independent economic value” test, the United States Court of Appeals for the Second Circuit declined to adopt that test in a recent published opinion.
See
Bryant
In rejecting the “independent economic value” test in
Bryant,
the Second Circuit distinguished its prior decision in
Robert Stigwood Group, Ltd. v. O'Reilly,
Bryant also reviewed other, more recent Second Circuit decisions on the contours of a “compilation,” emphasizing that the court had historically “focused on whether the plaintiff — the copyright holder — issued its works separately, or together as a unit,” and explaining that, in those cases, the plaintiffs had issued their infringed works separately, and it was the defendants who had combined those works into the infringing compilation. Id. at 141. By contrast, the plaintiffs in Bryant chose to issue their songs as albums instead of individually. The Second Circuit held that “[i]n this situation, the plain language of the Copyright Act limits the copyright holders’ statutory damage award to one for each Album.” Id.
iii. Fourth Circuit Position
The Fourth Circuit’s decision in
Xoom
appears to side with the Second Circuit’s approach in
Bryant. See Xoom,
On appeal, the Fourth Circuit affirmed in part and reversed in part the district court’s decision. The Fourth Circuit “decline[d] to make a determination of whether the individual clip-art images were effectively registered through the registrations of SuperBundle and Master Gallery.” Id. at 283. Instead, the Fourth Circuit simply found “that Imageline’s registration of SuperBundle and Master Gallery was sufficient to provide copyright protection to the underlying preexisting works of each,” noting that Imageline had “created SuperBundle and Master Gallery, both compilations or derivative works, and the underlying works which those products encompassed.” Id.
Turning to the separate question of the number of works for which statutory damages could be awarded, the Fourth Circuit found that the district court had “incorrectly held that ‘there should be only one award of statutory damages per
registration
regardless of the number of infringements or the number of products containing infringing images.’”
Id.
at 285 n. 8 (quoting
XOOM,
The Fourth Circuit’s analysis in
Xoom
is largely consistent with the Second Circuit’s analysis in
Bryant.
There, the plaintiffs had registered not only their albums, but also certain individual songs, and the Second Circuit assumed for purposes of its decision that “each song on the Albums was copyrighted separately.”
iv. Application of Bryant and Xoom to the Instant Matter
The foregoing analysis suggests that neither the precise method by which the copyright holder registers his work nor the existence of separate copyrights for each constituent element of a copyrighted work is dispositive of the work’s status as a “compilation” for purposes of statutory damages. Instead, as the Second Circuit explained in Bryant:
An album is a collection of preexisting materials — songs—that are selected and arranged by the author in a way that results in an original work of authorship — the album. Based on a plain reading of the statute, therefore, infringement of an album should result in only one statutory damage award.
As detailed above in the Court’s findings of fact, DuFresne sought to emphasize in his testimony at trial the arbitrary, even “random,” manner in which he organized his tattoo flash sheets for copyright registration and sale. Although it was implicit in DuFresne’s testimony that he
created
the various tattoo flash sheets comprising each Book at different times,
see
Trial Tr. vol. 1, 51:24-52:4 (DuFresne Test.), it does not appear from that testimony that he
issued
those sheets in any econоmically meaningful way — i.e., for sale or licensing — on a separate, sheet-by-sheet or image-by-image basis. Although, as previously noted, DuFresne indicated that he sometimes sells individual images, he also testified that the sheets “were put together
for sale
and done in 50 sheets to just help with the cost of a copyright compared to 50 copyrights.”
Id.
51:10-12 (DuFresne Test.);
cf. Twin Peaks Productions, Inc. v. Publ’ns Int’l, Ltd.,
The Court must also determine the amount of each such statutory damage award. As noted above, since the Court has declined to find defendants’ conduct in this matter to have been willful or innocent, the Court may impose damages in any amount from $750 to $30,000 per infringement, as it considers just. In this connection, the Court takes into consideration its observation above that defendants’ conduct falls closer to the willful end of the spectrum than the innocent end. The Court also notes that, had it concluded that the “independent economic value” test applied in this Circuit, defendants would have faced hundreds of separate statutory damage awards. In light of the foregoing analysis, the Court considers a statutory damages award in the amount of $20,000 per infringement — much closer to the upper limit of $30,000 than the lower limit of $750 — is just and appropriate in this matter, and will consequently awаrd statutory damages in the total amount of $480,000.
3. Plaintiffs References to Actual Damages
Although plaintiffs proposed findings of fact and conclusions of law only
It appears that the Fourth Circuit has not yet addressed this issue in the wake of the Supreme Court’s recent decision in
Muchnick.
However, several other district courts within the Fourth Circuit have applied
Muchnick
in analyzing copyright infringement claims relating to unregistered works and, where appropriate, have dismissed such claims.
See, e.g., Ferguson v. Mabry,
C/A No. 3:10-2641-CMC-JRM,
To date, plaintiff has offered the Court no proof of its registration, preregistration, or even application for registration of any of the nearly 500 tattoo designs contained in the Property that were not drawn from one of plaintiffs various registered Books. It is not enough, under applicable law, that defendants have stipulated to plaintiffs copyright interest in both the registered and unregistered designs. In the absence of such proof, plaintiff may not maintain a claim for actual damages with respect to the unregistered designs, the proof of defendants’ infringement, of such designs notwithstanding, and the Court cannot agree that plaintiff is entitled to an award of actual damages for such infringement, notwithstanding its disclaimer that it seeks no recovery stemming from such entitlement.
Neither 17 U.S.C. § 411(a) nor the unregistered nature of many of the tattoo designs contained in the Property was ever raised by any party in this matter prior to trial. Moreover, plaintiffs, original and amended complaints make no reference to § 411(a)’s registration requirement. How
Plaintiffs counsel took the position during the June 17, 2011 telephonic status conference that the applicability of § 411(a) constituted an affirmative defense that had to be raised by defendants. Defendants’ counsel denied that they were required to raise § 411(a) as an affirmative defense, noting that both pre- and post Muchnick decisions by various courts have considered proof of registration or preregistration to be an element that must be proven by a plaintiff in order to prevail on a copyright infringement claim. While this might seem like an academic point, since plaintiffs ultimate request for monetary relief is limited to statutory damages, the Court again feels compelled to address the issue because plaintiff seemingly seeks to parlay an entitlement to actual damages into a larger statutory damages award. Therefore, the Court notes that, on the basis of its discussion of relevant case law above, it agrees with defendants’ position in this regard.
Plaintiffs counsel further took the position during the June 17, 2011 status conference that plaintiff was not, in fact, requesting any award of damages for the unregistered images infringed by defendants. Docket No. 74 at 1-2. Although plaintiffs counsel correctly pointed out during that status conference that the request for damages at the end of plaintiffs proposed findings of fact and conclusions of law characterized the damages requested for defendant’s copyright infringement as “amounting] to less than $10,000.00 for each of the 212 infringed registered works, without factoring in any compensation for the 496 infringed unregistered works,” Docket No. 59 at 34, the position articulated in that portion of the document is confusing in light of the prior references discussed above, as well as additional references in plaintiffs proposed findings of fact and conclusions of law.
For example, plaintiffs counsel expressly proposed elsewhere in that document that the Court adopt the legal conclusion that “Tattoo Art is entitled to recover TAT’s profits attributable to the remaining approximately 500 non-registered Works.”
Id.
at 23 ¶ 47. Plaintiffs counsel further proposed that the Court adopt a detailed— and highly speculative — actual damages calculation for plaintiffs unregistered designs, which was premised on the notion that, in the absence of any proof by defendants of TAT’s expenses or profits attributable to products other than plaintiffs designs, plaintiff is entitled to substantially all of TAT’s profits from 2006 through 2009.
Id.
at 23-24 ¶¶ 43-53;
see also id.
at 21 ¶¶ 26-27, 31-32. Plaintiffs counsel specifically claimed, without any mention of 17 U.S.C. § 411(a), that plaintiff “is
entitled to recover
TAT’s profits reasonably attributable to the non-registered Works in the amount of $1,918,700.00,” and that it “is
entitled to judgment
against
These legal conclusions, which plaintiff affirmatively proposed that the Court adopt, are simply inaccurate. Although it is true that a plaintiff may recover actual damages for infringements that
occurred
prior to registration of the infringed work or works, such a recovery may not be
sought
by filing a lawsuit, let alone actually
recovered
in such a lawsuit, until the infringed works are registered or preregistered. 17 U.S.C. § 411(a). In other words, infringement prior to registration still constitutes infringement, and can still merit an
eventual
recovery, but such recovery cannot be sought in a lawsuit until
after
registration or preregistration of the infringed works.
Olan Mills,
C. Plaintiffs Breach of Contract Claim
1. The Nature of Defendants’ Breaches of the Agreement
Turning to plaintiffs breach of contract claim, this Court previously noted in its February 28, 2011 Opinion and Order that defendants do not dispute' that TAT breached its obligations under paragraph 3.03 of the Agreement by failing to provide plaintiff with the requisite statements of Gross Sales, and corresponding royalty payments starting in January 2007. Docket No. 48 at 22. The testimony offered at trial was consistent with that concession. Moreover, the Court’s findings of fact above establish several additional ways in which TAT breached its obligations under the Agreement:
• TAT’s statements of Gross Sales and corresponding royalty payments for the first three Calendar Quarters of 2006 were inaccurate to the detriment of plaintiff, thus breaching TAT’s obligations under paragraph 3.03 of the Agreement.
• TAT breached paragraph 3.04 of the Agreement by failing, during the entire term of the Agreement, to pay the minimum royalties required by it.
• The consistently inaccurate nature of TAT’s successive accountings prepared in connection with the instant litigation cleаrly demonstrate that TAT breached paragraph 5.01 of the Agreement, which required TAT to maintain accurate books and records relating to the Licensed Articles.
• The testimony at trial also, established that TAT breached paragraph 5.01 by failing to designate — or, at least, to use consistently — exclusive symbols or numbers in its books and records for plain
• The testimony at trial further established that TAT breached paragraph 11.02 of the Agreement by failing to “apply ‘© J.D. Crowe 2005’ on each sheet containing the Licensed Articles,” and affirmatively removing plaintiffs copyright from the Original Collection artwork. Compl. Ex. A ¶ 11.02; Trial Tr. vol. 1, at 173:14-174:4 (Knapp Test.), 183:7-17 (Kelly Knapp Dep. Test.).
• TAT’s infringements of plaintiffs copyrights in developing and marketing the Original Collection exceeded the scope of the license granted by the Agreement, and thus constituted additional breaches of the Agreement.
2. The Irrelevance of the Bankruptcy Notice
The Court has already concluded above in its findings of fact that defendants’ claimed case of mistaken identity with regard to the bankruptcy notice they received could not have been the reason for TAT’s failure to provide the statement of Gross Sales and corresponding royalty payment for the fourth Calendar Quarter of 2006. To the extent that defendants claim that the bankruptcy notice was the reason for withholding subsequent statements of Gross Sales and royalty payments, the Court notes that both defendants’ counsel and Knapp have consistently failed to suggest any basis whatsoever for their position that the filing of a bankruptcy petition automatically stays the contractual obligations of the filer’s debtors. However, even if defendants’ position in that regard were correct, it would not apply in this matter because .it was not plaintiff who was bankrupt. Defendants provide ho legal authority for their position that mistaking a notice of bankruptcy for an uninvolved third party somehow operated to suspend defendants’ obligations to plaintiff under the Agreement in such a way as to prevent such suspension from constituting a breach.
3. The Measure of Damages for Breach of the Agreement
This Court previously determined in its February 28, 2011 Opinion and Order that the Agreement is governed by Virginia law, pursuant to the valid, enforceable choice-of-law provision contained therein. Under Virginia law, “ ‘[t]he elements of a breach of contract action are (1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant’s violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation.’ ”
Sunrise Continuing Care, LLC v. Wright,
4. The Court’s Calculations of Breach of Contract Damages
In the absence of any accurate accounting of TAT’s sales of products relating to plaintiffs Property, plaintiff engages in speculative calculations to reach the conсlusion that $1,000,000 of TAT’s revenues each year were attributable to plaintiffs Property, and that plaintiff is due royalties in the amount of $437,500.00.
See
Docket No. 59 at 10-16. The Court will not address in detail the numerous assumptions upon which plaintiff’s calculations are based; suffice it to say that such calculations are far too speculative to satisfy plaintiffs burden under Virginia law to prove damages with reasonable certainty.
See, e.g., SunTrust,
D. Permanent Injunction
This Court is expressly authorized by statute to “grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.” 17 U.S.C. § 502(a). As the Supreme Court has explained:
[A] plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between . the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.
eBay Inc. v. MercExchange, L.L.C.,
As noted above in the Court’s findings of fact, TAT explicitly “acknowledge[d] that its failure ... to cease the manufacture, sale or distribution of the Licensed Articles upon the termination or expiration of [the] Agreement” would entitle plaintiff to temporary and permanent injunctive relief. Compl. Ex. A ¶ 7.01. Although this acknowledgment might well preclude TAT from opposing the award of injunctive relief, it does not, by itself, establish plaintiffs entitlement to such relief. Instead, the Court must still consider the four-factor test set forth in eBay.
“Irreparable injury often derives from the nature of copyright violations, which deprive the copyright holder of intangible exclusive rights.”
Christopher Phelps & Assocs., LLC v. Galloway,
allowing defendants to continue to distribute [plaintiffs copyrighted tattoo designs or their derivative Original Collection images] — particularly when the record reflects that plaintiff! ] [has] not licensed the [development and marketing of the Original Collection] — would significantly diminish the intangible value of the [Property] to plaintiff! ] in a manner that could not be cured by damages alone.
Splitfish,
2.The Balance of Hardships
The Court must next consider whether the balance of hardships between the parties supports granting a permanent injunction against defendants. A permanent injunction in this case would prevent defendants from disposing of their remaining stock of stencils derived from plaintiffs Property or defendants’ own derivative Original Collection. The Cоurt obviously recognizes the expense defendants allegedly incurred in developing the Original Collection and either manufacturing in-house or ordering the corresponding stencils. However, the very conception of the Original Collection was without plaintiffs consent and beyond the scope of the license granted by the Agreement. Furthermore, plaintiff in no way encouraged defendants to incur the expenses relating to the Original Collection.
With respect to stencils directly derived from plaintiffs original artwork, defendants had long since stopped paying the required royalties on sales thereof. Moreover, it should be noted that defendants’ testimony at trial suggested that plaintiffs original artwork was largely ineffective in selling the stencils.
Consequently, the hardship to defendants resulting from a permanent injunction is relatively minor, and would only cost them expenses that should never have been incurred in the first place. On the other hand, allowing defendants to continue marketing the unauthorized, derivative Original Collection would constitute a severe hardship to plaintiff, who would then conceivably be forced to compete with products derived from his own copyrighted tattoo designs.
3.Public Interest
Finally, plaintiff must also show that the public interest would not be disserved by granting a permanent injunction. “It is easy to understand that the public interest reflected in the constitutional protection of copyright, and the Congressional enactment of the Copyright Act, is enhanced by issuance of a permanent injunction where copyright infringement has taken place.”
White,
As noted above, plaintiff has provided the Court with no proof of registration, preregistration, or even application for registration of the unregistered tattoo designs contained in the Property. Although the Court does not lack subject-matter jurisdiction over plaintiffs claim relating to such unregistered designs, the Court must still determine whether it has the authority to extend any permanent injunction granted herein to encompass both the registered and the unregistered designs. During the June 17, 2011 telephonic status conference, defendants’ counsel conceded that it was within this Court’s discretion to enjoin defendants’ conduct with respect to plaintiffs unregistered tattoo designs. However, this Court must nevertheless examine the applicable case law for itself to determine both the permissibility and appropriateness of ordering such injunctive relief.
The Second Circuit addressed this issue in the decision that was subsequently reversed, on related but distinct grounds, by the Supreme Court in
Muchnick. See In re Literary Works in Elec. Databases Copyright Litig.,
[E]ven if injunctive relief against infringement of an unregistered copyright is available, that relief is properly limited to situations ... where a defendant has engaged in a pattern of infringement of a plaintiffs registered copyrights and can be expected to continue to infringe new copyrighted material emanating in the future from the plaintiff. That sort of prophylactic relief furthers the purpоses of the Copyright Act generally and does not undermine the intended effect of section 411(a).
Id.
(citing
Olan Mills,
The United States Court of Appeals for the Ninth Circuit has articulated an even more expansive standard, albeit one that was rejected by the Second Circuit, and not addressed by the Supreme Court in
Muchnick. Compare Perfect 10, Inc. v. Amazon.com, Inc.,
Registration is generally a jurisdictional prerequisite to a suit for copyright infringement. But section 411 does not limit the remedies a court can grant. Rather, the Copyright Act gives courts broad authority to issue injunctive relief. Once a court has jurisdiction over an action for copyright infringement under section 411, the court may grant injunctive relief to restrain infringement of any copyright, whether registered or unregistered. Because at least some of the Perfect 10 images at issue were registered, the district court did not err in determining that it could issue an order that covers unregistered works. Therefore, we have jurisdiction over the district court’s decision and order.
Id.
On the other hand, several other courts have concluded that registration is a prerequisite to seeking both damages and injunctive relief.
See, e.g., La Resolana Architects, PA v. Clay Realtors Angel Fire,
At least one other court in this District has addressed this question, though that decision was also issued before the Supreme Court’s decision in
Muchnick. See Balzer & Assocs., Inc. v. Union Bank & Trust Co.,
Civ. Action No. 3:09CV273-HEH,
As noted above, the Supreme Court’s decision in
Muchnick
did not address the availability of injunctive relief for unregistered works, and it does not appear that the Fourth Circuit has ruled on this particular issue, either before or after
Muchnick. See Balzer,
E. Pre- and Postjudgment Interest
The Supreme Court has explained: Although Congress has enacted a statute governing the award of post-judgment interest in federal court litigation ... there is no comparable legislation regarding prejudgment interest. Far from indicating a legislative determination that prejudgment interest should not be awarded, however, the absence of a statute merely indicates that the question is governed by traditional judge-made principles.
City of Milwaukee v. Cement Div., Nat’l Gypsum Co.,
With regard to plaintiffs breach of contract claim, the award of prejudgment interest is a matter within the Court’s discretion.
See, e.g., Hitachi Credit Am. Corp. v. Signet Bank,
With regard to plaintiffs copyright infringement claim, the Court notes that, despite the absence of any explicit reference to the availability of prejudgment interest in the text of the Copyright Act, several United States Courts of Appeals have determined that prejudgment interest may be awarded on copyright infringement claims.
See, e.g., William A. Graham Co. v. Haughey,
Turning to the separate question of whether such an award of prejudgment interest is
appropriate
in this matter in light of considerations of fairness and Congressional intent, the Court notes that defendants’ counsel agreed during the June 17, 2011 telephonic status conference that an award of prejudgment interest on plaintiffs copyright infringement claim would be available, but argued that such an award was not warranted by the facts of this matter, and would not be necessary to
IY. CONCLUSION
A. Plaintiffs Request for Attorney’s Fees
Plaintiff has requested an award of attorney’s fees. See Docket No. 59 at 35. Pursuant to Rule 54(d)(2)(B)© of the Federal Rules of Civil Procedure, plaintiff shall file a motion for an award of attorney’s fees in connection with this matter, attaching all invoices, indicia of the reasonableness of the fee request and the relevant market rates, and other required supporting documents, no later than fourteen (14) days after entry of these Findings of Fact and Conclusions of Law. Pursuant to Rule 58(e), the Court ORDERS that plaintiffs request for attorney’s fees in its proposed findings of fact and conclusions of law, and any motion filed by plaintiff for attorney’s fees as detailed above, shall have the same effect under Rule 4(a)(4) of the Federal Rules of Appеllate Procedure as a timely motion under Rule 59 of the Federal Rules of Civil Procedure, extending the time to file an appeal in this matter to run from the date of entry of this Court’s Final Order on plaintiffs motion for attorney’s fees.
B. Awards of Damages
1. Defendants’ Breach of the Agreement
Counsel for all parties are hereby ORDERED to coordinate to file with the Court within fourteen (14) days after entry of these Findings of Fact and Conclusions of Law a joint stipulation (the “Joint Stipulation”) of the total amount of prior royalty payments by TAT that have already been received and accepted (i.e., deposited) by plaintiff or plaintiffs counsel from TAT as of the date of its filing. See, e.g., Tr. Ex. 48. In addition to such total amount, the Joint Stipulation shall indicate the dates on which each prior royalty payment was made by TAT and accepted by plaintiff or plaintiffs counsel, the amount of each such payment, the calendar year to which each such payment related, and, in the case of a payment that related to multiple calendar years, a breakdown of which portions of such payment related to which calendar years.
On the basis of the Court’s findings of fact and conclusions of law contained herein, the Clerk is DIRECTED, after entry of this Court’s Final Order on plaintiffs re
The Court also- awards plaintiff prejudgment interest at an annual rate of six percent (6%) on the following portions of the total principal amount from the following dates:
• From January 25, 2007 as to $6,000.00 of the total principal аmount less the total amount of any prior royalty payments listed in the Joint Stipulation that were paid by TAT during 2006;
• From January 25, 2008 as to $6,000.00 of the total principal amount less the total amount of any prior royalty payments listed in the Joint Stipulation that were paid by TAT during 2007;
• From January 25, 2009 as to $6,000.00 of the total principal amount less the total amount of any prior royalty payments listed in the Joint Stipulation that were paid by TAT during 2008; and
• From May 14, 2009 as to $2,250.00 of the total principal amount less the total amount of any prior royalty payments listed in the Joint Stipulation that were paid by TAT during 2009.
For purposes of calculating prejudgment interest, any prior royalty payments listed in the Joint Stipulation that were paid by TAT arid accepted by plaintiff or plaintiffs counsel after December 31, 2009 shall be deducted from the principal amounts relating to each calendar year in reverse chronological order (i.e., deducted first from the $2,250.00 relating to 2009, then from the $6,000.00 relating to 2008, and so on). The Court further awards postjudgment interest on the total principal amount pursuant to, and at the interest rate provided by, 28 U.S.C. § 1961.
2. Defendants’ Infringement of Plaintiffs Copyrights
On the basis of the Court’s findings of fact and conclusions of law contained herein, the Clerk is further DIRECTED, also after entry of the Court’s Final Order, to enter judgment in favor of plaintiff and against defendants TAT and Knapp, jointly and severally, in the principal amount of $480,000.00 in statutory damages for defendants’ infringement of plaintiffs registered tattoo designs. This constitutes statutory damages in the amount of $20,000.00 for each of the 24 registered Books from which tattoo designs infringed by defendants were drawn. The Court awards prejudgment interest at an annual rate of six percent (6%) from May 14, 2009 and postjudgment interest pursuant to, and at the interest rate provided by, 28 U.S.C. § 1961.
C. Permanent Injunction against Future Infringement
The Court also finds, pursuant to its findings of fact and conclusions of law contained herein, as well as TAT’s explicit acknowledgments in paragraph 7.01 of the Agreement, that plaintiff “has suffered an irreparable injury” from defendants’ copyright infringement, that the damages hereby awarded “are inadequate to compensate for that injury,” that “the balance of hardships” weighs heavily in favor of an equitable remedy for plaintiff, and that “the public interest would not be disserved by a permanent injunction.”
eBay,
D.Disposition of Infringing Materials
The Court also ORDERS that, within thirty (30) days after entry of this Court’s Final Order on plaintiffs motion for attorney’s fees, defendants deliver to plaintiffs counsel all infringing materials of any nature in defendants’ direct or indirect possession or control, or over which any defendant possesses any current, future, potential, or contingent ownership interest. Defendants are further ORDERED to file with the Court within seven (7) days after such delivery a notice, in the form of either a sworn affidavit or unsworn declaration, made under penalty of perjury pursuant to 28 U.S.C. § 1746, certifying that such delivery included all infringing materials in defendants’ possession or control, or over which any defendant possessed any current, future, potential, or contingent ownership interest. Such notice shall also explicitly account for, in detail, any sale, transfer, gift, conveyance, destruction, disposal, or other manner of disposition of any infringing materials, other than those included in such delivery to plaintiffs counsel and/or accurately accounted for in defendants’ January 2011 accounting, during the period from August 1, 2009 through the date of such certification. Any notice of appeal filed by defendants in connection with this matter shall operate to stay defendants’ obligations of delivery and certification under this section pending resolution of such appeal.
E.Jurisdiction Retained for Enforcement Purposes
This Court shall retain jurisdiction over the parties in this matter for purposes of enforcing all obligations imposed herein by the Court on the parties, including without limitation the permanent injunction imposed upon defendants.
F.Redaction of Personal Identifiers
Pursuant to a timely and unopposed motion by defendants’ counsel during the June 17, 2011 telephonic status conference, the Court hereby extends the deadline for the parties to review all exhibits admitted into evidence at trial and redact any personal identifiers contained therein, in accordance with Rule 5.2 of the Federal Rules of Civil Procedure and this Court’s Local Civil Rule 7(C), to July 1, 2011.
The Clerk is DIRECTED to send a copy of these Findings of Fact and Conclusions of Law to counsel for the parties.
IT IS SO ORDERED.
Notes
. As noted above, at the conclusion of the damages trial on March 2, 2011, the Court requested that the parties file detailed proposed findings of fact and conclusions of law. Trial Tr. vol. 2, 233:7-11 & 284:18-288:12, Mar. 2, 2011. Because neither of the submissions contained sufficient factual findings to stand alone and be entered by the Court, the Court has made such findings herein.
. After extensive analysis, this Court previously concluded in its February 28, 2011 Opinion and Order that the copy of the Agreement attached to plaintiff’s complaint as Exhibit A constituted the definitive contract between the parties. See Docket No. 48 at 23.
. The Court will discuss in its Conclusions of Law below the reasons why the bankruptcy notice also provided no basis for withholding subsequent statements of Gross Sales and corresponding royalty payments.
. This Court explained in its February 28, 2011 Opinion and Order that TAT's authority to “design” contemplated by Article VIII of the Agreement "would extend to, for example, the material out of which the stencils [i.e., the Licensed Articles] were constructed, and not to the coloring of plaintiff’s copyrighted designs themselves.” Docket No. 48 at 14.