Deltak, Inc. v. Advanced Systems, Inc.

• Decision Date: 21 October 1983
• Docket Number: Civ. A. No. 80 C 6678.
• Parties: DELTAK, INC., a corporation, Plaintiff, v. ADVANCED SYSTEMS, INC., a corporation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

574 F. Supp. 400

DELTAK, INC., a corporation, Plaintiff, v. ADVANCED SYSTEMS, INC., a corporation, Defendant.

Civ. A. No. 80 C 6678.

United States District Court, N.D. Illinois, E.D.

October 20, 1983.

As Corrected October 21, 1983.

David Hilliard, Pattishall McAuliffe & Hofstetter, Chicago, Ill., for plaintiff.

Gareth G. Morris, Arlington Heights, Ill., for defendant.

DECISION AND OPINION

POSNER, Circuit Judge.^*

This civil suit under the Copyright Act of 1976, 17 U.S.C. §§ 101 et seq., raises significant issues involving the computation of damages in a copyright case where the infringing item is not sold separately, and the use of expert witnesses. The case was tried before me in a two-day bench trial (August 16-17, 1983) limited to the issue of damages. At the conclusion of the trial I delivered a tentative oral opinion and asked the parties to submit post-trial briefs commenting on it. They have done so and I now make the following findings of fact and conclusions of law as required by Rule 52(a) of the Federal Rules of Civil Procedure. This opinion supersedes my oral opinion.

Deltak, Inc. brought this suit in December 1980 against Advanced Systems, Inc. (ASI), alleging copyright infringement. (A pendent claim under state law has been abandoned.) In May 1981 Judge Prentice Marshall, to whom the case was originally assigned, granted the plaintiff a preliminary injunction. He later granted summary judgment for the plaintiff on the issue of liability, leaving only the issue of damages for trial.

Deltak and ASI are two of the three largest firms in the business of selling video and audio tapes and textbooks used to teach data processing. ASI used to be the largest, but in the late 1970s Deltak passed ASI and this caused ASI to redouble its competitive efforts. In 1980 Deltak's sales revenues were about $30 million, ASI's about $24 million. Each firm's educational materials are highly substitutable for the other's.

The Deltak marketing effort included in the relevant period (1980-1981) a set of materials called the Career Development System (CDS). One component of the CDS is a large glossy pamphlet called the "Task List." On the left-hand side of each page of the Task List is a list of data-processing tasks that a company might want to teach its programmers, and on the right-hand side a list of the specific teaching materials that Deltak sells for each task. ASI paid $3,000 to two consultants to create a document that would combine the CDS task designations with a listing of ASI teaching materials. The consultants duplicated the left-hand side of the CDS Task List, using the identical language in which Deltak had described the tasks and arranging the task descriptions in the same order as Deltak; but on the right-hand side of each page, instead of listing the Deltak materials suitable to perform each task the authors of the infringing document listed ASI teaching materials. It was intended that ASI's salesmen and marketing representatives would show this document to Deltak customers to help them pick ASI materials to perform instructional tasks listed by Deltak. The initial impetus for the preparation of the document apparently had come from ASI customers who wanted to key ASI's library to the Deltak Task List.

ASI produced 42 copies of the document under conditions of secrecy and excitement. Fifteen were distributed to customers of Deltak who were actual or potential customers of ASI as well. Distribution began in August 1980, the lawsuit was brought as I have said in December 1980, and beginning shortly thereafter counsel for ASI began retrieving the copies that had been left with the customers. Some of these copies had disappeared and some had been destroyed but by the end of February 1981 none, so far as the evidence shows, was still in a customer's possession.

When Judge Marshall issued the preliminary injunction, and later when he granted summary judgment to Deltak, he held (and I agree) that there indeed was copyright infringement. He rejected ASI's argument that the copying of Deltak's Task List was within the fair-use exception to copyright liability, 17 U.S.C. § 107. Although it was certainly ASI's privilege to tell its customers which item in the ASI library could do a particular task in the CDS Task List, ASI did not stop there. It copied the exact language in which the CDS Task List described each task and the exact sequence in which the tasks were listed, which was not a random sequence. The copying was deliberate, it was done by a substantial corporation that should have known better, and the documents submitted into evidence in connection with the deposition of ASI's Miss Sorn show consciousness of probable violation of the copyright laws. If Deltak had registered its copyright within the time provided by the Copyright Act, I would have no hesitation in awarding not only the maximum statutory damages under section 504(c)(2) of $50,000, but also attorney's fees, which are authorized by section 505 and are frequently awarded in cases of willful infringement even if no actual damages are proved. See, e.g., Taylor v. Meirick, 712 F.2d 1112, 1122 (7th Cir.1983); Twentieth Century Music Corp. v. Frith, 645 F.2d 6 (5th Cir.1981) (per curiam). However, the parties have agreed that Deltak may not get either statutory damages or attorney's fees, because it did not register its copyright in time. 17 U.S.C. § 412.

The only issue, therefore, is Deltak's right to actual damages or infringer's profits under sections 504(a) and (b) of the Copyright Act. The issue is somewhat novel because the item that was infringed, the CDS Task List, although nominally sold by the plaintiff was in fact a component of a larger product (the whole CDS packet) itself intended as a tool for selling something else (the teaching materials); and the infringer did not sell the infringing document either, but also used it as a sales tool. ASI argues that if the infringing item is not sold there cannot be any award of actual damages (the additional profits the copyright owner would have made but for the infringement) but only an award of statutory damages (provided the copyright was registered in time). That is an untenable position. Although I have found no reported decisions discussing the award of actual damages or of infringer's profits in such a case, the propriety of such an award is clearly implied by the many cases that hold that there is actionable infringement even if the infringing item is sold or priced separately. See, e.g., Herbert v. Shanley Co., 242 U.S. 591, 37 S.Ct. 232, 61 L.Ed. 511 (1917); Sailor Music v. GAP Stores, Inc., 668 F.2d 84 (2d Cir.1981). Suppose I composed a tune and copyrighted it, and Mr. Morris (ASI's counsel) came along and stole my tune in violation of the copyright laws and used it to advertise a cat food that he sells. He would not be selling the tune — ordinarily a seller does not charge his customers to listen to his commercials. He would in effect be giving away the tune to anybody who cared to listen to it, hoping it would induce the listener to buy his cat food. If I could prove that the theft had increased Morris's cat-food profits by a million dollars, these would be infringer's profits recoverable by me under section 504(b). Furthermore, if I just proved the gross revenues that Morris obtained from the infringement, and rested there, the statutory presumption in the second sentence of section 504(b) would come into play and the burden would shift to Morris to prove what fraction of those gross revenues were costs that he would have avoided had he not infringed and that therefore should be subtracted to calculate his profits from the infringement. Cf. Taylor v. Meirick, supra, 712 F.2d at 1121.

Against all this it can be argued that given the availability of statutory damages, there is no need to have a comprehensive concept of actual damages or of infringer's profits; the infringed plaintiff has a safety net. But since the maximum statutory damages are only $50,000 and an infringing work used as a marketing device could generate much greater profits for the infringer than $50,000 and cause much greater losses to the copyright owner, it would be unsound to infer from the provision for statutory damages a congressional intent to overthrow normal tort damage principles.

When the infringement consists of the unauthorized use of the plaintiff's sales tool, the plaintiff must establish either the extra profits that he would have had if the infringer had not used the sales tool, or (aided by the statutory presumption I just mentioned) the extra profits that the infringer gained from using it. (Double counting is not allowed. Taylor v. Meirick, supra, 712 F.2d at 1120.) Although most of Deltak's effort at trial was an attempt to prove ASI's extra revenue from the infringement, it did make some effort to prove its own lost profits, based on the profit that it would have made on each additional copy of the CDS kit that it contends it would have sold but for the infringement; and I shall discuss this theory of damages first.

Deltak presented evidence that the price of the kit (for this is the unusual type of advertising that the seller actually sells to his customers), consisting of the Task List and certain other items, is $5,000 and that Deltak's cost of producing one more such kit is $75. I accept $4,925 as a reasonable estimate of the profit per kit for a small increase in production. Deltak wants me to multiply that number by 50, the number of copies of the infringing document that ASI made. But the only possible factual premise for such a measure of damages would be that Deltak would have sold 50 more copies of the CDS at $5,000 apiece had it not been for the infringement. That premise was not proved at trial and is almost certainly false. I will not quarrel with the figure of $5,000 for the sale price, though there was much evidence that Deltak's average realized revenue...