Harper House, Inc. v. Thomas Nelson, Inc.

• Decision Date: 31 October 1989
• Docket Number: 87-6411,Nos. 87-6398,s. 87-6398
• Citation: 889 F.2d 197,12 U.S.P.Q.2d 1779
• Parties: 1989 Copr.L.Dec. P 26,491, 12 U.S.P.Q.2d 1779 HARPER HOUSE, INC., Plaintiff-Appellee-Cross-Appellant, v. THOMAS NELSON, INC.; Time Maker, Inc.; National Media Group; R.M. Marketing, Inc., Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 197

889 F.2d 197

1989 Copr.L.Dec. P 26,491, 12 U.S.P.Q.2d 1779

HARPER HOUSE, INC., Plaintiff-Appellee-Cross-Appellant, v. THOMAS NELSON, INC.; Time Maker, Inc.; National Media

Group; R.M. Marketing, Inc.,

Defendants-Appellants-Cross-Appellees.

Nos. 87-6398, 87-6411.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 26, 1989.

Decided Oct. 31, 1989.

Joel McCabe Smith, Gary L. Swingle, Leopold, Petrich & Smith, Los Angeles, Cal., for defendant-appellant Thomas Nelson, Inc.

Robert P. Taylor, Pillsbury, Madison & Sutro, San Francisco, Cal., for Pennsylvania defendants-appellants.

Robert A. Schroeder, Pretty, Schroeder, Brueggemann & Clark, Los Angeles, Cal., for plaintiff-appellee Harper House, Inc.

Appeal from the United States District Court for the Central District of California.

Before GOODWIN, Chief Judge, NELSON and BOOCHEVER, Circuit Judges.

GOODWIN, Chief Judge:

Defendants appeal a judgment awarding damages for infringement of copyright and unfair competition, arising out of their production and marketing of an "organizer" that closely resembled the product of plaintiff Harper House, Inc.

Harper House's trial witness described organizers as products intended to help people deal with the tremendous amount of information that they must absorb in order to keep up in a modern, complex world. Harper House's organizers are supposed to aid memory, to help plan, and to help individuals to be more creative. The organizers' categories and formats suggest ways in which information should be stored and analyzed.

Defendants describe organizers in less grandiose terms. They contend that an organizer is a collection of blank forms for recording calendar information and often-used dates, addresses and telephone numbers. Typically, the blank forms are contained in a loose-leaf binder, with tabs to identify and separate the various sections. Additional forms and up-to-date calendars can later be inserted into the loose-leaf binder. Virtually all organizers contain calendars, telephone and address pages, and sections for recording daily activities. Other features of an organizer can vary widely, depending on information the designer considers most useful, the market for which the organizer is intended, and the format and graphic design chosen.

Harper House was established in 1980, and has grown to be a leading seller of organizers. It first produced "Day Runner" in 1982, and followed with "Running Mate," a smaller, more compact organizer, in 1984. These products were very successful, and Harper House's sales increased from $4 million in 1984 to $15 or $16 million in 1986. During the relevant period, Harper House's organizers sold at retail for $40 to $50 each.

On June 14, 1985, Harper House applied for and received certificates of registration from the Copyright Office for the 1982, 1983, and 1984 versions of Day Runner, and for the 1984 Running Mate. Under the section "Nature of Authorship," the applications for registration instructed Harper House to "briefly describe the nature of the material created by this author in which copyright is claimed." Harper House responded "[t]ext, compilation of data and editing of data."

Defendant Thomas Nelson, Inc. is a well-known Tennessee-based publisher, mostly of bibles and other items with religious themes. The other three defendants are R.M. Marketing, National Media Group, and Time Maker, Inc., all companies located in Pennsylvania and related to each other (referred to as the "Pennsylvania defendants"). R.M. Marketing and National Media Group are in the direct response marketing business. Time Maker, Inc. was formed in 1985 in order to sell the organizer developed by defendants.

Defendants decided to produce an organizer, eventually named the "Time Maker." They retained Meredith Baxter-Birney, star of the television series "Family Ties," to promote the organizer. They also hired Donna Otto to assist in designing the organizer. Donna Otto had presented numerous seminars on how women should organize their time. She was described in promotional literature as the "developer" of Time Maker, though her role may have been primarily promotional.

In fact, Donna Otto and the defendants did not design Time Maker from scratch. Much of Time Maker was based upon Harper House's organizers, which defendants had identified as the best organizers currently available. At a January 1985 meeting at which the defendants' project took shape, Mary Wheeler, the editor at Thomas Nelson in charge of the project, was told to have printed copies of Time Maker prototype available in three weeks. At trial, she testified that creation of an original work would have taken six months to a year.

Many of the blank forms for Time Maker were marked-up versions of forms contained in Harper House's organizers, with little or no change. On the other hand, Time Maker also contains many forms not copied or derived from Harper House's organizers. Notably, Time Maker includes many specialized forms for homemakers, such as a weekly menu planner and pre-printed grocery lists. Time Maker also has a binder very similar to that of Harper House's Running Mate, including pockets for business cards, a calculator, a note pad, and pens.

The Harper House organizers and the final version of Time Maker each contain at least several pages of instructional text. The prototype Time Maker does not contain any instructions. The organizers' instructions describe their features and proper use. The Time Maker instructions bear no apparent similarity to the Harper House instructions in their choice of words or their arrangement. All the Time Maker instructions are in a six-page section at the front of the organizer. Harper House's organizers each contain a general instructional page at the front, with additional instructions at the beginning of each section.

After the prototype Time Maker (the "Time Maker I") was printed, Thomas Nelson's president, Robert Wolgemuth, requested a legal opinion from an attorney specializing in copyright. The opinion advised that copyright registrations had not been issued to Harper House for the Harper House products. It cautioned that, if Harper House were to obtain a copyright registration, Thomas Nelson might be held liable for infringement. It further recommended that Thomas Nelson change all Time Maker pages similar to pages in Harper House's organizers, especially any which had been copied from Harper House.

Defendants proceeded to have printed 200 copies of Time Maker I. These were displayed in television and print advertisements, and distributed to salesmen to be shown to retailers in order to generate orders. Defense witnesses testified that the salesmen were told that there would be changes between the prototype and the production version.

A test commercial had been filmed in late January, 1985. Based on positive responses, a commercial for national display was filmed in June, 1985, using Time Maker I. Time Maker I was never sold to consumers, though it was pictured in the commercial and in print advertisements. The defendants made many changes from Time Maker I in readying the production version (the "Time Maker II"). The parties provided contrasting testimony regarding the significance of changes between Time Maker I and Time Maker II, as well as the care with which the changes were undertaken. Defendants testified that Time Maker I was featured in commercials and print advertisements because Time Maker II had not been completed as of the date for filming.

The Pennsylvania defendants began direct response marketing on or about July 1, 1985. The introductory price of Time Maker was $19.95. A few months later, Thomas Nelson began to distribute Time Maker to bookstores, where it sold for $24.95. Defendants spent $1,800,000 on advertising and made total sales of about $12,500,000. Nevertheless, they abandoned the organizer business in early 1986 after liquidating their existing inventories. Defendants argued that they lost money on Time Maker, and left the business for that reason. Harper House disputed this, pointing to the lack of adequate documentary support for the alleged losses, as well as the fact that Defendants paid only about $4 for each Time Maker, made in Taiwan and Korea, while selling them for $20 to $25 each. Harper House claimed that defendants "dumped" their inventory after being sued because they feared that further sales would be enjoined.

A Harper House representative saw Time Maker I at a trade show in May, 1985, and demanded that defendants stop infringing upon Harper House's copyrights. Defendants refused, and Harper House filed suit soon thereafter, alleging copyright infringement, violation of the Lanham Act, and state law unfair competition. Defendants responded by filing an unfair competition action against Harper House in Pennsylvania. Defendants' unfair competition action was transferred to the Central District of California where it was dismissed, and Harper House was awarded $54,848.60 in attorneys fees.

During discovery in this action, Thomas Nelson's president Wolgemuth stated that he did not know of records relating to the profitability of Time Maker, records allegedly kept for the purpose of dividing the profits among the defendants. After the accountant who had prepared those records testified as to their contents, and that he had delivered the records to Wolgemuth, the district court sanctioned Thomas Nelson $150,000.

A jury trial was held in May, 1987. The parties stipulated that the court would decide the issue of copyrightability. Defendants moved for a directed verdict on the grounds that Harper House's organizers were not copyrightable, that even if they were copyrightable defendants did not appropriate protectable subject matter, and that the unfair competition claims lacked foundation. The district court denied the motion and found Harper House's organizers copyrightable. That ruling was reaffirmed in a...