Allen-Myland, Inc. v. International Business Machines

Decision Date01 August 1991
Docket NumberCiv. A. No. 85-6166.
Citation770 F. Supp. 1014
PartiesALLEN-MYLAND, INC. v. INTERNATIONAL BUSINESS MACHINES CORPORATION.
CourtU.S. District Court — Eastern District of Pennsylvania

Robert G. Levy, and Frank, Bernstein, Conaway and Goldman, Baltimore, Md., for Allen-Myland, Inc.

Evan R. Chesler, Cravath, Swaine and Moore, New York City, for International Business Machines Corp.

MEMORANDUM AND ORDER

O'NEILL, District Judge.

I. INTRODUCTION

At the conclusion of my decision holding AMI liable with respect to certain of IBM's counterclaims, Allen-Myland, Inc. v. International Business Machines Corp., 746 F.Supp. 520 (E.D.Pa.1990) ("AMI v. IBM II"), I directed the parties to brief any issues related to appropriate relief before I entered judgment in accordance with my decision. Id. at 559-60. Specifically, I directed the parties to attempt to agree on the amount of damages to be awarded on IBM's First, Third and Fourth Counterclaims. Id. at 560. I also requested the parties to submit proposed orders entering judgment on both AMI's claims and IBM's counterclaims and granting injunctive relief for IBM's Third, Fifth and Sixth Counterclaims to the extent IBM prevailed on those claims. Id. I said that I would appoint a special master if the parties could not agree on monetary and injunctive relief. Id. Presently before me are IBM's and AMI's proposals on these subjects.

I find that I can decide the following legal issues raised by the parties without reference to a special master: the date from which prejudgment interest should be calculated for the First Counterclaim (Tuscon Electric); the necessity for damages for the First Counterclaim (Northwest Industries); the method by which damages should be calculated for the Third Counterclaim; and the request by AMI that I reconsider my ruling on the Fourth Counterclaim. I also find I can shape injunctive relief for the Fifth and Sixth Counterclaims in part without reference to a special master. I will refer the question of which tapes AMI should be required to destroy and all remaining issues related to damages to a special master to be appointed pursuant to Fed.R.Civ.P. Rule 53 for report and recommendation. Finally, I will reserve decision on further injunctive relief and whether the parties need brief the issues related to a stay of relief.

II. DAMAGES DISCUSSION
A. IBM's Third Counterclaim: Infringement of IBM's 3090 Microcode Copyright.

Section 504(b) of the Copyright Act provides:

(b) Actual Damages and Profits. The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages. In establishing the infringer's profits, the copyright owner is required to present proof only of the infringer's gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.

17 U.S.C. § 504(b) (1977 and 1990 Supp.).1

AMI contests both the need to invoke the statutorily prescribed process of calculating damages and the necessity of referring the calculation of damages to a special master. AMI's Memorandum Concerning Relief at 4-7. AMI argues that rather than follow the process outlined in the statute to arrive at damages owed I should cap IBM's potential recovery at $420 per tape copied for reconfiguration purposes. Id. at 5, 6. AMI bases its argument on my earlier finding that IBM would supply anyone with a copy of the 3090 microcode to support a reconfiguration for between $420 and $2100 depending on the number of 3090 microcode tapes that had to be changed. Id. at 4; AMI v. IBM II, 746 F.Supp. at 541. AMI reasons that "if customers could obtain the supporting microcode from IBM at $420 per tape, then they would have no reason to pay AMI any more than $420 per tape for its microcode. Thus the portion of AMI's revenue (and consequent profit) `attributable to its infringement' is no more than the $420 per tape handling charge." AMI's Memorandum Concerning Relief at 5; see also AMI's Reply Memorandum Concerning Relief at 26.

I decline to adopt AMI's method of calculating damages. The statute providing for copyright infringement remedies gives "specific unambiguous directions concerning monetary awards," including the burdens to be met by the copyright owner and by the infringer. 17 U.S.C. 504(b); Notes of Committee on the Judiciary In General at 606.

AMI supplies no copyright law precedents for its proposed departure from the method of calculating damages mandated by the statute by equating the license fee with profit attributable to the infringement.2See Kleier Advertising Co. v. James Miller Chevrolet, Inc., 722 F.Supp. 1544, 1546 (N.D.Ill.1989) ("license fees represent saved acquisition costs and are distinct from the profits attributable to the infringement"). AMI's alternative proposal makes no reference to the step-by-step process the statute provides for determining damages3 nor is the proposal consistent with the Congressional intent to deter infringement by awarding profits. See 17 U.S.C.A. 504, Historical Note, Notes of Committee on the Judiciary on Actual Damages and Profits at 606 ("profits are awarded to prevent the infringer from unfairly benefiting from a wrongful act"); Kamar International, Inc. v. Russ Berrie & Co., 752 F.2d 1326, 1332 (9th Cir.1984) (award of infringer's profits is aimed in part at deterring infringements).

Indeed, as IBM points out, application of AMI's theory would create incentives opposite to those intended by the statute, since an infringer would keep any unjust enrichment and pay only what legitimate competitors had been paying all along: "That result would not only eliminate the statutory intent to discourage copying, it would provide an affirmative incentive to the legitimate competitor to cross the line." IBM's Reply Memorandum Concerning Relief at 7. I therefore will adhere to the process prescribed by Congress to calculate damages for copyright infringement. See infra, Section IV "Appointment of Special Master."

B. IBM's Fourth Counterclaim: Breach of Contract for a 3090 400E/200E Split RPQ

In its memorandum concerning relief, AMI moves for reconsideration of my earlier ruling on IBM's Fourth Counterclaim. AMI v. IBM II, 746 F.Supp. at 550-52. AMI argues that my holding that it would impermissibly "permit AMI to enforce the Decree" to allow "AMI to enter a contract which it believed violated the Consent Decree, breach the contract, and then defend against the breach of contract claim by claiming that the contract violated the Consent Decree," id. at 551-52, is inconsistent with the Supreme Court's holding in Kaiser Steel Corporation v. Mullins, 455 U.S. 72, 102 S.Ct. 851, 70 L.Ed.2d 833 (1982). AMI Memorandum Concerning Relief at 14-15.

AMI's reliance on Kaiser is misplaced. In Kaiser, the Supreme Court permitted a defendant in a breach of contract case to raise the defense of illegality because the promise may have violated the antitrust or labor laws. Kaiser, 455 U.S. at 79, 102 S.Ct. at 857. Unlike the defendants in Kaiser, AMI has attempted to defend against enforcement of its voluntarily assumed contractual obligation because the contract allegedly violates the Consent Decree. But the alleged illegality in Kaiser concerned the antitrust or labor laws, not a violation of a consent decree to which the defendant was not a party. The Kaiser decision therefore is not relevant to my holding that the Consent Decree is not enforceable by a non-party and that to allow AMI to avoid its voluntarily assumed contractual obligations because the contract allegedly violates the Consent Decree in effect would permit AMI to enforce the Decree.4 AMI v. IBM II, 746 F.Supp. at 551-52; see also IBM Reply Memorandum Concerning Relief at 36-37. I therefore will adhere to my earlier ruling on IBM's Fourth Counterclaim.5

The parties agree that with respect to IBM's Fourth Counterclaim AMI owes IBM $365,223 in damages as of September 6, 1990, representing $324,000 in principal and $41,223 in prejudgment interest up to September 6, 1990. See Letter to Court from IBM, November 2, 1990 at 3; AMI Memo at 14. The parties should stipulate to the additional interest since September 6, 1990 and to the total amount AMI should pay IBM with respect to this counterclaim.

C. IBM's Fifth and Sixth Counterclaims — Lanham Act and Unfair Competition for 3090 Microcode Labels and Screen Notices

In my decision on liability, I held that IBM had established all of the elements of its Lanham Act and unfair competition claims regarding AMI's labels for 3090 microcode, AMI v. IBM II, 746 F.Supp. at 553, and I directed the parties to submit proposed forms of injunctive relief for the Fifth and Sixth Counterclaims to the extent IBM prevailed on those claims. Id. at 560. The parties do not dispute that in molding relief for these counterclaims I should be guided by principles of equity. AMI Reply Memorandum Concerning Relief at 48 and n. 26; cases cited at IBM Memorandum Concerning Relief at 42; see also 15 U.S.C. § 1116 (1990 Supp.).

IBM proposes that AMI be enjoined from "engaging in the same violations in the future," IBM Memorandum Concerning Relief at 41, and both IBM and AMI have proposed specific labelling practices as prospective relief. IBM Proposed Order at ¶ 20; AMI Proposed Order at ¶ 20. On the current record, I can shape an appropriate remedy for AMI's past violation of IBM's rights in its labels but I will reserve decision as to what relief should be imposed prospectively.6

IBM has proposed as a remedy for AMI's past violations that AMI be required:

to identify the customers who received falsely labelled 3090 microcode, identify the systems for which that code was supplied, notify the affected customers of the Court's decision and of the Court's Order and Judgment, recall
...

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