Derek Andrew, Inc. v. Poof Apparel Corp.

Decision Date11 June 2008
Docket NumberNo. 07-35048.,07-35048.
Citation528 F.3d 696
PartiesDEREK ANDREW, INC., Plaintiff-Appellee, v. POOF APPAREL CORPORATION, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit
528 F.3d 696
DEREK ANDREW, INC., Plaintiff-Appellee,
v.
POOF APPAREL CORPORATION, Defendant-Appellant.
No. 07-35048.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted May 8, 2008.
Filed June 11, 2008.

[528 F.3d 697]

Neil A. Smith and Robert J. Stumpf, Jr., Sheppard, Mullin, Richter & Hampton LLP, San Francisco, CA, for the defendant-appellant.

Lacy H. Koonce III, Davis Wright Tremaine LLP, New York, NY, for the plaintiff-appellee.

Appeal from the United States District Court for the Western District of Washington; James P. Donohue, Magistrate Judge, Presiding. D.C. No. CV-05-01136-JPD.

Before: SUSAN P. GRABER and JOHNNIE B. RAWLINSON, Circuit

[528 F.3d 698]

Judges, and OTIS D. WRIGHT II,* District Judge.

WRIGHT, District Judge:


Poof Apparel Corporation ("Poof") appeals the district court's award to Derek Andrew, Inc. ("Andrew") of $15,000 in statutory damages under the Copyright Act, along with $296,090.50 in attorneys' fees.1 We have jurisdiction pursuant to 28 U.S.C. § 1291, and for the following reasons, REVERSE and REMAND.

BACKGROUND

A. THE PARTIES AND PROPERTY RIGHTS AT ISSUE

Andrew and Poof are corporations engaged in the apparel business. Of primary importance to this appeal is Andrew's "Twisted Heart" clothing line — a line of casual sportswear for women aged 14-70. Consumers can find this line at high-end department stores such as Nordstrom, Saks Fifth Avenue, and Neiman Marcus. The average price of Twisted Heart clothing is approximately $100.

Andrew's Twisted Heart line is identified by its label and, in particular, its "hang-tag" featuring its "Heart Design" and "Twisted Heart" trademarks.2 Developed and first used in 2003, the Twisted Heart hang-tag hangs from the garment by a small, satin ribbon. The tag, including its configuration and the artwork in the label, was registered with the U.S. Copyright Office on June 15, 2005.

Poof sells women's clothing to retail stores and other customers throughout the United States. Most of its clothes are manufactured abroad and are shipped throughout the United States to lower-end retail stores such as T.J. Maxx, The Wet Seal, and Marshall's. Affixed to certain clothing sold by Poof are hang-tags nearly identical to Andrew's "Twisted Heart" hang-tags, the only difference being the word "Poof!" in place of the words "Twisted Heart."

B. THE DISPUTE AND THE PROCEEDINGS BELOW

On May 9, 2005, a garment bearing Poof's infringing hang-tag came into Andrew's possession, prompting Andrew's counsel to send a cease and desist letter to Poof on May 17, 2005. From there, the parties engaged in a letter-writing campaign, whereby Poof twice indicated its intent to comply with Andrew's demands. Poof, however, failed to remove the garments bearing the infringing hang-tag from stores. Andrew filed a complaint for copyright and trademark infringement, in addition to state law claims, in the U.S. District Court for the Western District of Washington.

Despite being represented by counsel, Poof failed to respond to Andrew's complaint and, on August 8, 2005, default was entered. Regretting that the matter had "progressed to this point," on November 17, 2005, Poof's counsel sent a letter to Andrew expressing Poof's interest in arriving at a settlement. Andrew's counsel was receptive to entertaining settlement discussions, but not before Poof entered an appearance in the matter. Obligingly, Poof entered its appearance on February 6, 2006, and on March 23, 2006, filed a motion to set aside the entry of default.

528 F.3d 699

On April 14, 2006, Magistrate Judge James Donohue issued his Report and Recommendation denying Poof's motion to set aside entry of default because Poof failed to establish "good cause" for doing so. Poof objected to Judge Donohue's Report and argued that default was not warranted. On June 19, 2006, after considering Judge Donohue's Report, Poof's objections, and Andrew's response thereto, the Honorable Thomas Zilly adopted Judge Donohue's conclusions and denied Poof's motion to set aside entry of default.

On December 4, 2006, a bench trial commenced on the issue of damages. On the Lanham Act and Washington state law claims, Judge Donohue found that disgorgement of profits was the appropriate measure of damages and awarded Andrew $685,307.70. The court found that Poof distributed 189,108 garments containing the infringing hang-tag, representing a total gross revenue of $1,028,848.10. From this, the court deducted $343,540.40 in costs and disgorged Poof of its profits in the sum of $685,307.70.

As to its copyright claim, Andrew was awarded $15,000 in statutory damages. Poof was also permanently enjoined from further infringing upon Andrew's trademarks and—because the trial court was of the opinion that this was an exceptional case — Andrew was awarded attorneys' fees in the amount of $296,090.50, and $6,678.60 in costs. Poof timely appealed.

DISCUSSION

A. THE DISTRICT COURT ERRED IN AWARDING ANDREW $15,000 IN STATUTORY DAMAGES UNDER THE COPYRIGHT ACT.

Under 17 U.S.C. § 504(a) and (c), a copyright owner may elect to recover statutory damages instead of actual damages and any additional profits. Ordinarily, we review an award of statutory damages for abuse of discretion. See Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 520 (9th Cir.1985).

Title 17 U.S.C. § 412(2) leaves no room for discretion, however. Section 412(2) mandates that, in order to recover statutory damages, the copyrighted work must have been registered prior to commencement of the infringement, unless the registration is made within three months after first publication of the work. See id. (precluding an award of attorneys' fees as well);3 Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 707 n. 5 (9th Cir.2004).

Here, the district court awarded Andrew $15,000 in statutory damages because Poof distributed garments bearing the infringing hang-tag after June 15, 2005, the copyright's registration date. Thus, as a matter of law, the court must have determined that § 412 does not preclude an award of statutory damages because these post-June 15, 2005, shipments were separate and distinct infringements from the pre-registration infringement. We review de novo the court's legal conclusion that the post-June 15, 2005, infringements did not "commence" before the copyright was registered. See Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102, 1109 (9th Cir.2007).

In this case, it is undisputed that Andrew's hang-tag was first published on August 11, 2003, and that its copyright registration became effective on June 15, 2005.

528 F.3d 700

It is also undisputed that the initial act of infringement occurred on May 9, 2005, when Andrew first came into possession of a Poof garment bearing an infringing hang-tag. Thus, Andrew's copyright in its Twisted Heart hang-tag was registered more than three months after its first publication, and Poof's infringement first occurred before the effective date of registration.

Citing this sequence of events, Poof argues that Andrew is precluded from recovering statutory damages under § 412 because any...

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