Schiller & Schmidt, Inc. v. Nordisco Corp.

• Decision Date: 23 July 1992
• Docket Number: Nos. 91-2195,91-2781,s. 91-2195
• Citation: 969 F.2d 410
• Parties: 1992 Copr.L.Dec. P 26,955, 23 U.S.P.Q.2d 1762 SCHILLER & SCHMIDT, INCORPORATED, Plaintiff-Appellant, v. NORDISCO CORPORATION, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 410

969 F.2d 410

1992 Copr.L.Dec. P 26,955, 23 U.S.P.Q.2d 1762

SCHILLER & SCHMIDT, INCORPORATED, Plaintiff-Appellant, v. NORDISCO CORPORATION, et al., Defendants-Appellees.

Nos. 91-2195, 91-2781.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 28, 1992.

Decided July 23, 1992.

Douglass G. Hewitt, George J. Lynch, Wilson & McIlvaine, John Bostjancich, David C. Hilliard (argued), Douglas N. Masters, Pattishall, McAuliffe, Newbury, Hilliard & Geraldson, Chicago, Ill., for plaintiff-appellant.

Robert S. Dorband (argued), Jacquelyn C. Haynes, Borovsky & Ehrlich, Chicago, Ill., for defendants-appellees.

Before POSNER, FLAUM, and KANNE, Circuit Judges.

POSNER, Circuit Judge.

Schiller and Schmidt, a seller of office supplies, brought suit against a competitor, Nordisco, charging copyright infringement and misappropriation of trade secrets. (The other defendants and other charges require no discussion.) The judge found no copyright infringement and awarded damages of only $16,545 for the misappropriation. Schiller and Schmidt (we shall call it "Schiller" for short) appeals, raising issues concerning works for hire, infringement of copyrighted compilations, and proof of damages.

The suit grows out of a family squabble. James Rybak, the nephew of Schiller's president, Bernard Garvey, was an employee of his uncle's company when in 1979 he launched the company into the mail order business by creating a catalog of office supplies sold by Schiller. The catalog consisted of product descriptions and prices together with photographs of the products. The product descriptions were based on but not copied verbatim from printed information supplied to Schiller by the manufacturers of the products. The manufacturers were the source of the vast majority of the photos as well, although Rybak determined the layout of each product's photos--that is, how they would be arranged in relation to each other and to the text. (The pictures at the end of this opinion are of sample layouts from the catalogs of the parties and of other mail order houses.) Some of the photos in the catalog did not come from manufacturers but instead had been made at Rybak's direction by "Spotline Studios," the name under which the photographer Carl Bertel did business. Rybak would take the office supplies that he wanted photographed to Bertel's studio and would give him some, though apparently few, directions with regard to the positioning of the objects to be photographed.

By the middle of 1983 Schiller was mailing 200,000 copies of its catalog quarterly and was making some $2 million a year in mail order sales. But Garvey was concerned about the cost of the catalog and also wanted to give his son Kenneth a bigger role in the mail order end of the business. Rybak, whose employment contract with Schiller did not contain a noncompetition clause, decided to leave and form his own mail order office supplies company. He took with him his father (another employee of Schiller), hundreds of photos (which he later returned to Schiller) including those he had commissioned on Schiller's behalf from Bertel, and the mailing list for Schiller's catalog. Rybak's company, Nordisco, brought out its own catalog later in 1983, precipitating this suit filed two years later. Schiller claimed that not only Nordisco's first catalog, but its subsequent catalogs as well, infringed Schiller's catalogs. It sought damages in excess of $1 million based on a decline in its mail order sales that set in after Nordisco's catalog came out.

The focus of the evidence at trial was Nordisco's first catalog. A third of the entries appear to duplicate the corresponding entries in Schiller's summer 1983 catalog as is evident from the illustrations at the end of this opinion. Among the duplicate entries, 18 use photos taken by Bertel for Rybak when the latter was employed by Schiller. Although Schiller denies it and Nordisco did not help its cause by systematically misciting the record in its brief in our court, it is fairly clear that the photos in the 40-plus other duplicate entries come from the product manufacturers--there was no second Bertel who took photos for Schiller. Schiller did, however, create the layouts for the photos supplied by the manufacturers, and Nordisco appears to have duplicated those layouts.

The plaintiff claims three sources of copyright protection. First, it claims to own copyright in the 18 photos, and if so there is no doubt that Nordisco infringed by copying the photos into its own catalog. Nordisco denies that Schiller is the copyright owner. Second, Schiller claims that Nordisco infringed its copyright on the catalog itself, viewed as a compilation. Nordisco should (but doesn't) concede that Schiller has such a copyright, but it denies any infringement. Third, Schiller claims that Nordisco infringed its copyright on individual layouts within the compilation, that is, on separately copyrightable components of the compilation. Nordisco again denies infringement.

Bertel made the 18 photos, but Schiller owned the copyrights in them if they were "works for hire," or if Bertel assigned the copyrights to Schiller. 17 U.S.C. §§ 101(1), (2), 201(b), (d). Since no one could suppose after Community for Creative Non-Violence v. Reid, 490 U.S. 730, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989), that Bertel was an employee of Schiller, they were works for hire only if they fell in one or more of the categories of intellectual property enumerated in section 101(2), as they did, and were specially commissioned by Schiller, as they were, and the parties had signed a statement to that effect--which they had not. What is true is that in 1988, long after this suit had begun, Bertel obligingly signed a statement in which he "agree[d] that Schiller and Schmidt has owned the copyright [in the photos], and I hereby assign any remaining copyright which I may own in any photographs which I took for Schiller and Schmidt, and any right to maintain actions, now or hereafter existing, for alleged infringement thereof" to Schiller. The statement was not signed by Schiller, however, as the statute required if the photos were to be works for hire. The statutory language is "signed by them," 17 U.S.C. § 101(2), that is, by both parties, and it means what it says. 1 Paul Goldstein, Copyright: Principles, Law and Practice § 4.3.2.2, at p. 405 and n. 54 (1989).

The statement also came too late. The requirement of a written statement regarding the copyright on a specially commissioned work is not merely a statute of frauds, although that is the purpose emphasized by the cases. Dumas v. Gommerman, 865 F.2d 1093, 1101 (9th Cir.1989); Easter Seal Society for Crippled Children and Adults of Louisiana, Inc. v. Playboy Enterprises, Inc., 815 F.2d 323, 328 n. 8 (5th Cir.1987). That is, it is not only designed to protect people against false claims of oral agreements. If it were, then it might not matter when the statement had been made or signed, Monetti, S.P.A. v. Anchor Hocking Co., 931 F.2d 1178, 1183 (7th Cir.1991); Cattin v. General Motors Corp., 955 F.2d 416, 429-30 (6th Cir.1992), although there is authority that it must be signed before suit is brought. Watson v. McCabe, 527 F.2d 286, 289 (6th Cir.1975); E. Allan Farnsworth, Contracts § 6.7, at p. 428 and n. 19 (2d ed. 1990). This is an esoteric question, since ordinarily the absence of the requisite statement will lead to the dismissal of the suit before it can be tendered. Cf. Pommer v. Medtest Corp., 961 F.2d 620, 625 (7th Cir.1992); DF Activities Corp. v. Brown, 851 F.2d 920, 922-23 (7th Cir.1988). We need not try to resolve the question here. For the signed-statement requirement in section 101(2) has a second purpose--to make the ownership of property rights in intellectual property clear and definite, so that such property will be readily marketable. Cf. Community for Creative Non-Violence v. Reid, supra, 490 U.S. at 750, 109 S.Ct. at 2178; 1 Goldstein, supra, § 4.3.2.2, at pp. 404-05. The creator of the property is the owner, unless he is an employee creating the property within the scope of his employment or the parties have agreed in a writing signed by both that the person who commissioned the creation of the property is the owner. The writing must precede the creation of the property in order to serve its purpose of identifying the (noncreator) owner unequivocally. It did not precede it here.

Schiller also (though sketchily) argues assignment, 17 U.S.C. § 201(d), and bases the argument on the same document that we have quoted. If Bertel owned the copyrights, Nordisco infringed them, and Bertel rather than suing directly was entitled to assign the copyrights and with them the right to sue for infringement of them to Schiller. SAPC, Inc. v. Lotus Development Corp., 921 F.2d 360 (1st Cir.1990). Nordisco does not argue that the assignment came too late for this suit to be timely even with respect to the infringements that occurred back in 1983. But it does argue that when Bertel sold his business in 1985 to Edmund Ojenus, including the negatives of the 18 photos copied in Nordisco's catalog, the copyrights in the photos were sold along with the photos themselves, leaving nothing for Bertel to assign to Schiller four years later. Schiller points out in response that the sale of the physical embodiment of intellectual property does not "of itself" transfer the intellectual property. 17 U.S.C. § 202. Obviously when a publisher sells books to a bookseller he does not mean to transfer the copyright in them so that the bookseller could copy the books and sell the copies without paying anything to the publisher. So we must look beyond the sale of the negatives to the sale agreement between Bertel and Ojenus, to see what was sold.

Although the agreement does not mention the word "copyright," its wording leaves little doubt that Bertel sold all the assets of Spotline Studios, tangible and intangible alike. If Bertel retained...