Connolly v. J.T. Ventures

• Citation: 851 F.2d 930
• Decision Date: 08 July 1988
• Docket Number: No. 87-2329,87-2329
• Parties: 1988 Copr.L.Dec. P 26,301, 8 U.S.P.Q.2d 1248 Laurie CONNOLLY d/b/a Brindar Designs, Plaintiff-Appellee, v. J.T. VENTURES and John Lange, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 930

851 F.2d 930

1988 Copr.L.Dec. P 26,301, 8 U.S.P.Q.2d 1248

Laurie CONNOLLY d/b/a Brindar Designs, Plaintiff-Appellee, v. J.T. VENTURES and John Lange, Defendants-Appellants.

No. 87-2329.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 26, 1988.

Decided July 8, 1988.

Christopher Cronson, Oak Park, Ill., for defendants-appellants.

Lawrence M. Jarvis, Allegretti, Hewitt, Witcoff & McAndrews, Chicago, Ill., for plaintiff-appellee.

Before BAUER, Chief Judge, POSNER, Circuit Judge, and PELL, Senior Circuit Judge.

PELL, Senior Circuit Judge.

The district court found defendants-appellants J.T. Ventures, Ltd. and John Lange, its president, to be in contempt for violating the terms of a settlement agreement entered into just under a year earlier. A judgment of approximately $16,000 was entered against the corporation, Lange, and Thomas Brandt, the corporation's vice-president. Lange and Brandt were held jointly and severally liable with the corporation. Roughly one-half of the judgment represented a compensatory award to the plaintiff, while the other half represented an award of attorneys' fees. The defendants appeal, challenging the damages award, the imposition of personal liability on the officers, and the award of attorneys' fees. The finding of willful contempt is not challenged on appeal.

Background

Plaintiff-appellee Laurie Connolly, doing business as Brindar Designs, markets sweatshirts. The shirts' copyrighted design bears the names of the cities London, Paris, and Rome as well as the name of a fourth city, for example, Seattle. The design also includes an illustration of a familiar landmark associated with each city, Big Ben, the Eiffel Tower, and the Colosseum in the case of London, Paris, and Rome, the Space Needle in the case of Seattle. The shirts are primarily sold in and around the fourth city.

The shirt design is copyrighted and when J.T. Ventures ¹ began selling a shirt with a similar design, Connolly sued for copyright infringement. The case was settled by an agreement under which J.T. Ventures agreed to pay Connolly $2,000 and to make certain specified changes in its design (e.g., changing the typeface; using different landmarks for London, Paris, and Rome; changing the order of those cities). The court entered a final order which incorporated the terms of the settlement agreement. The copyright infringement suit was dismissed with prejudice; the court retained jurisdiction for purposes of enforcing the order. Although J.T. Ventures made some changes to the design of its shirt, as the district court found, and defendants do not contest on appeal, the redesigned shirt did not comply with the terms of the settlement agreement. It continued to list London as the first city and used a typeface which was not sufficiently different from that used by Connolly. The district court also found that the contempt had been willful.

Damages Award

The district court held a hearing on damages and ultimately awarded Connolly slightly more than $7,500 in compensatory damages. The figure represented the profit obtained by the defendants from the sale of their shirts. The parties agreed that this was the correct amount of profits. In determining that defendants' profits were an appropriate measure of damages, the district court held that it was proper to look at analogous areas of law. Since the underlying lawsuit was one for copyright infringement, the district court looked to the provisions of copyright law. Section 504(b) of the Copyright Act provides that an infringer's profits from the unauthorized use of a copyrighted work may be recovered by the copyright owner. 17 U.S.C. Sec. 504(b). Thus Judge Getzendanner determined that J.T. Ventures' profits would be an appropriate measure of damages in a civil contempt action where the underlying lawsuit sounded in copyright, relying in part on her earlier unpublished decision in Motorola, Inc. v. Computer Displays International, Inc., No. 82 C 1399, slip op. (N.D.Ill. September 17, 1985) . The thrust of defendants' appeal on this issue attacks the district court's analysis--in large part because, due to the fact that the parties settled the copyright infringement suit, J.T. Ventures neither admitted infringing nor was found to have infringed Connolly's copyright. We need not decide the issue as framed by J.T. Ventures, however, because we find that the district court judge fashioned an appropriate equitable remedy in the equitable contempt proceeding.

Much of J.T. Ventures' brief on appeal argues that Connolly failed to prove that she had lost any sales. Connolly's hearing testimony established that her damages arose in part due to the manner in which she markets her shirts. Rather than sell them through numerous retailers she generally grants one store the exclusive rights to sell her shirts--she testified that this exclusivity was an important aspect of her marketing plan. Sales of J.T. Ventures' shirts in the same city destroyed that exclusivity. Sales of J.T. Ventures' shirts in cities where Connolly did not yet but planned to sell her shirts also detracted from her ability to offer an exclusive to retailers.

J.T. Ventures first points to the fact that Connolly admitted that her sales had only gone up during the pendency of the litigation. This does not show that Connolly lost no sales. Her sales might have been even higher were it not for the sales of J.T. Ventures' shirts. In reply, J.T. Ventures characterizes the award of its profits as a "windfall" to Connolly, in part because it has continued to sell its once-again redesigned shirt, therefore it did not obtain profits which would have otherwise gone to Connolly. We disagree. Essentially, this argument boils down to the contention that because J.T. Ventures would still have made a profit by complying with the terms of the settlement agreement, it should not be deprived of the profits made by violating the agreement.

The evidence of sales actually lost was not the best. But even if we thought that the court had made a finding that Connolly had been actually damaged by lost sales, which it did not, and that such a finding was clearly erroneous, which we do not, we would affirm. The district court found that Connolly was entitled to compensation in the form of defendants' profits from the sale of its shirts and we agree. Therefore we focus on J.T. Ventures' argument challenging the use of its profits as a measure of damages. In support of this argument, J.T. Ventures claims a lack of authority explicitly supporting such an award, although it conceded at oral argument that it knew of no authority prohibiting such an award.

Sanctions for civil contempt may be imposed to coerce obedience to a court order or to compensate the complainant for losses sustained as a result of the contumacy, United States v. United Mine Workers of America, 330 U.S. 258, 303-04, 67 S.Ct. 677, 701-02, 91 L.Ed. 884 (1947); where compensation is intended, a fine may be imposed payable to the complainant, id. at 304, 67 S.Ct. at 701. J.T. Ventures argues that any fine must be based only upon actual losses sustained as a result of the contumacy.

A court has broad discretion to fashion a remedy based on the nature of the harm and the probable effect of alternative sanctions. United Mine Workers, 330 U.S. at 303-04, 67 S.Ct. at 701-02. "A civil fine is paid to the opposing party and may serve as recompense for losses sustained because of the contempt." Dan B. Dobbs, Handbook on the Law of Remedies, Sec. 2.9 at 99 (West 1973).

An early Seventh Circuit case reversed a $500 fine for civil contempt where the record showed no evidence of loss or damage from disobedience of the injunction. Norstrom v. Wahl, 41 F.2d 910, 914 (7th Cir.1930). Subsequently, in Leman v. Krentler-Arnold Hinge Last Co., 284 U.S. 448, 52 S.Ct. 238, 76 L.Ed. 289 (1932), the Supreme Court reversed a decision holding that a defendant's profits were not recoverable in a civil contempt proceeding in the absence of proof of pecuniary injury or damage. There the respondent had violated a permanent injunction which had been granted in a patent infringement suit. The court held that the compensatory goal of a civil contempt proceeding "does not require so narrow a view of what should be embraced in an adequate remedial award." Id. at 456, 52 S.Ct. at 241. We find the court's reasoning equally apt in this case:

While the distinction is clear between damages, in the sense of actual pecuniary loss, and profits, the latter may none the less be included in the concept of compensatory relief. In a suit in equity against an infringer, profits are recoverable not by way of punishment but to insure full compensation to the party injured.... The court of equity in such cases applies familiar [sic] principle in 'converting the infringer into a trustee for the patentee as regards the profits thus made.' [Citation.] This is not to say that there is an actual fiduciary relation which would give the right to an accounting for profits regardless of the existence of a basic claim to equitable relief. [Citation.] ... [A] court of equity which has acquired, upon some equitable ground, jurisdiction of a suit for the infringement of a patent, will not send the plaintiff to a court of law to recover damages, but will itself administer full relief, by awarding, as an equivalent or a substitute for legal damages, a compensation computed and measured by the same rule that courts of equity apply to the case of a trustee who has wrongfully used the trust property for his own advantage. 'Profits are thus allowed as an equitable measure of compensation.' [Citation.] In view of the principles governing the broader relief obtainable in equity, as contrasted with those applicable in courts of law, it is apparent that there is no necessary exclusion of profits from the idea of compensation in a remedial proceeding.

.... [T]here is no reason why in such a proceeding equitable...