Billy-Bob Teeth, Inc. v. Novelty, Inc.

• Decision Date: 21 May 2003
• Docket Number: No. 01-3668.,No. 01-3735.,No. 02-2956.,No. 02-3005.,01-3668.,01-3735.,02-2956.,02-3005.
• Citation: 329 F.3d 586
• Parties: BILLY-BOB TEETH, INC., Plaintiff-Appellant, Cross-Appellee, v. NOVELTY, INC., Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

329 F.3d 586

BILLY-BOB TEETH, INC., Plaintiff-Appellant, Cross-Appellee, v. NOVELTY, INC., Defendant-Appellee, Cross-Appellant.

No. 01-3668.

No. 01-3735.

No. 02-2956.

No. 02-3005.

United States Court of Appeals, Seventh Circuit.

Argued February 27, 2003.

Decided May 21, 2003.

COPYRIGHT MATERIAL OMITTED

Robert Lancaster K. Lee Marshall (argued), Bryan Cave, St. Louis, MO, Plaintiff-Appellant.

Daniel J. Lueders (argued), Kurt N. Jones, Woodard, Emhardt, Naughton, Moriarty & McNett, Indianapolis, IN, for Defendant-Appellee.

Before KANNE, DIANE P. WOOD, and EVANS, Circuit Judges.

TERENCE T. EVANS, Circuit Judge.

When "International Man of Mystery" Austin Powers gazes at the comely British agent Kensington and purrs "groovy Baby" or "oh behave!" he always smiles, exposing a set of teeth that the best orthodontist in the world could not improve. They are ugly, and therein lies their beauty, at least from a financial point of view. This copyright/trade dress infringement case involves "novelty" teeth — oversized, crooked, and chipped teeth that fit over a person's real teeth. People wear them to get a laugh. Actor Mike Myers wore them when, as Austin Powers, he foiled the diabolical plans of Dr. Evil to achieve world domination. So where did this all begin? To answer that question we go back 10 years when a dental student named Rich Bailey, for a gag, created a set of novelty teeth.

Jonah White saw the teeth when he went to a football game where, through a mutual friend, he met Bailey, who showed him a set. White testified that Bailey was "just making them as a joke. And I'm kind of a jokester...." White asked for a pair of the teeth and Bailey gave him one. White began to wear the teeth, and "every time I wore them people wanted to buy them from me.... They looked so real, and practical jokesters wanted them...." White decided to call Bailey to suggest that the two go into business. White said, "[I]f he would show me how to make these I would make them and we would become partners 50/50 ...." They did, and White ran the business they called "Billy-Bob Teeth" while Bailey continued with dental school.

White had help from his mother. They ran the business out of her kitchen. White put an 800 line into "one of the hutches in the back of the kitchen, and my mom would answer the phone if I wasn't present when someone called." Of his mother, White testified, "half the time she was my mom, and half the time she was my boss, and half the time she was the secretary." She took orders, typed invoices, was in charge of banking, and went to the little post office in Michael, Illinois, and mailed out orders.

At first, White was making all the teeth himself. He said he would "go out on a weekend and sell more than I can make all week in my parents' attic." Later, he bought machinery like that found in a dental school laboratory. He set up little labs and had about 50 people making teeth. By 1998 or 1999, he was unable to oversee the production of enough teeth to meet the demand. Eventually he bridged the ocean, having the teeth produced in Taiwan.

The dental student making snaggly teeth and the kid selling them with his mother's help out of her kitchen was a story made for the media, and the novelty teeth quickly captured national attention. They were featured in The Wall Street Journal, People Magazine, Time Magazine, and numerous television shows, including "The Today Show" and "The Rosie O'Donnell Show." At some point, Billy-Bob secured a license from Newline Cinema. The company's crowning moment came when the looney British secret agent smiled for the camera in Newline Cinema's first Austin Powers movie. Before long, Billy-Bob was selling over $5 million a year in novelty teeth. An American success story.

What Bailey, White, and his mom were somewhat less successful at was paperwork and record-keeping. Prior to May 1996, White and Bailey were running the business under the name "Billy-Bob Teeth." In that month, Billy-Bob was incorporated and became "Billy-Bob Teeth, Inc." White and Bailey were the sole shareholders, each owning 50 percent. Nothing about their method of operation changed upon incorporation. However, Bailey, who had by now graduated from dental school, decided he wanted to practice dentistry in Idaho, and in 1997 he pulled out of the business.

Prior to 1995, all the teeth Billy-Bob produced were designed by Bailey. White, however, had designed some in 1995 and in 1997, and those teeth also began to be mass produced. It is White's teeth which are at issue in this copyright case.

On November 16, 1999, Billy-Bob obtained copyright registrations for "Sculpture and Artwork in Novelty Teeth" and "Sculpture and Artwork in Novelty Teeth with Chip." On the registrations the author was described as "Billy Bob Teeth, Inc., employer for hire of Jonah White." However, Billy-Bob Teeth Inc. did not come into being until after the works were authored. So to straighten things out, during trial of this matter, on May 31, 2001, White, as owner, signed a nunc pro tunc copyright assignment, assigning his works to Billy-Bob Teeth, Inc.

Billy-Bob teeth are sold in what is described as a clamshell plastic package with an insert card. Bailey is pictured on the back wearing glasses and the novelty teeth. The first prototype of the packaging cost $5,000 to make.

The defendant in this suit, Novelty Inc., entered the picture in 1999 when it contacted White to extract from him samples of Billy-Bob teeth. Novelty sells items to 5,000 gas stations, and it wanted to sell Billy-Bob products. White was eager to land such a large account, so he sent samples. When he called Novelty to see what was happening with the proposed deal, White was told that the owner of Novelty, Todd Green, was not interested. Green apparently said to one of his employees that the teeth were a great idea, but he was already working on a set of his own. Billy-Bob calls that false and says what Green was actually working on was copying Billy-Bob teeth. Novelty contacted its Taiwan manufacturer with instructions to change the Billy-Bob teeth enough so the resulting product would not be seen as copies. Novelty ordered 90,000 "Bubba Teeth" from the Taiwan company. Billy-Bob complains that not only were Bubba teeth copies, but they were shoddy copies as well. Later, Novelty ordered a large number of "Hilljack Teeth," which Billy-Bob said also infringed its copyright. Not only that, Billy-Bob says, Novelty also copied the clamshell packaging and the insert. All of this caused Billy-Bob to receive complaints about the quality of its teeth when in fact the problem was with Bubba and Hilljack teeth.

When Novelty started flooding the market with shoddy teeth, White says, in testimony which was excluded from the trial, he was engaged in licensing negotiations with one of his distributors, Gregory O'Dell, who was going to pay $500,000 for the right to buy the teeth directly from Billy-Bob's Taiwanese importer and sell them under the Billy-Bob name. When O'Dell discovered that Novelty's teeth were cheaper, the deal "came to a screeching halt."

Billy-Bob sued, alleging copyright and trade dress infringement. The case went to trial before a jury. As we just said, the evidence regarding the $500,000 O'Dell deal was excluded. The jury, however, awarded Billy-Bob $105,000 in damages for copyright infringement on Novelty's sale of Bubba Teeth, $30,000 in damages on the sale of Hilljack Teeth, and $7,046.40 in damages for trade dress infringement. Novelty moved for judgment as a matter of law or for a new trial. The motion was granted in part on the basis that the copyrights were invalid because neither of the works was a "work made for hire." In addition, the judge conditionally granted the motion for a new trial. The damage award for trade dress infringement was upheld.

The district court concluded that Billy-Bob Teeth, Inc. could not show an ownership interest in the copyright. The corporation did not exist when White made the teeth so the teeth could not be a "work made for hire" under 17 U.S.C. § 101. Even if White attempted to assign his interest in the teeth to the corporation during trial, the district court said that for the assignment to be valid there would need to be evidence of a prior oral agreement to transfer ownership. The only evidence on this point was White's testimony, which the district court found was not sufficiently reliable to lead to a conclusion that there was an oral agreement. As to the trade dress claim, the district court upheld the jury's verdict for Billy-Bob. This appeal by Billy-Bob and a cross-appeal by Novelty followed.

We review a grant of judgment as a matter of law de novo, viewing the evidence and drawing all reasonable inferences in Billy-Bob's favor. We review a grant of a new trial for an abuse of discretion. A new trial may be granted only when the verdict is against the manifest weight of the evidence. Mathur v. Board of Tr. of S. Ill. Univ., 207 F.3d 938 (7th Cir.2000).

A copyright "vests initially in the author or authors of the work." 17 U.S.C. § 201. Under the "work made for hire" provisions in 17 U.S.C. § 101, employers are considered authors. A "work made for hire" is a work prepared by an "employee within the scope of his or her employment" or a "work specially ordered or commissioned" within nine specified categories. Community for Creative Non-Violence v. Reid, 490 U.S. 730, 738, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989). When a work falls within the nine categories, it can be a work made for hire if "the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire." § 101. For an item to be a commissioned work, then, the parties must agree in advance that that is what it will be. Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410 (7th Cir.1992).

For a number of reasons, Billy-Bob, Inc. cannot claim that the teeth are works made for hire. First of...