Erickson Prods., Inc. v. Kast

• Decision Date: 16 April 2019
• Docket Number: No. 15-16801,15-16801
• Parties: ERICKSON PRODUCTIONS, INC.; Jim Erickson, Plaintiffs-Appellees, v. Kraig Rudinger KAST, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

921 F.3d 822

ERICKSON PRODUCTIONS, INC.; Jim Erickson, Plaintiffs-Appellees,

v.Kraig Rudinger KAST, Defendant-Appellant.

No. 15-16801

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 25, 2019 San Francisco, California

Filed April 16, 2019

Christopher J. Cariello (argued), Margaret Wheeler-Frothingham, and Paul M. Fakler, Orrick Herrington & Sutcliffe LLP, New York, New York, for Defendant-Appellant.

Kevin P. McCulloch (argued) and Nathaniel A. Kleinman, New York, New York, for Plaintiffs-Appellees.

Before: Sidney R. Thomas, Chief Judge, and Michael Daly Hawkins and M. Margaret McKeown, Circuit Judges.

HAWKINS, Senior Circuit Judge:

Defendant-Appellant Kraig Kast ("Kast") appeals a jury verdict finding that he vicariously and contributorily infringed Plaintiffs-Appellees Erickson Productions, Inc. and Jim Erickson's (collectively, "Erickson") copyrighted images by displaying them on his website and did so willfully. We vacate the jury's vicarious liability verdict but affirm its contributory liability verdict, so we uphold the judgment against Kast. We vacate the jury's willfulness finding and remand for a determination of whether Kast's infringement was willful on the existing record.

This opinion addresses Kast's appeal of the judgment against him, Case No. 15-16801. The panel will address Kast's related appeal of the district court's amendment of the judgment against him, Case No. 17-17157, in a separate memorandum disposition.

FACTS AND PROCEEDINGS BELOW

I. Factual Background

Kast is a California resident who owns and operates various business entities and websites. One such business is Atherton Trust, a real estate wealth management company. In 2010, an opportunity arose for Atherton Trust to be appointed by the State of California to manage the estates of disabled persons. Kast thought a revamped website would enhance Atherton Trust's prospects; so, he hired a website developer, Only Websites, to redevelop the site. Among other things, Kast "agree[d] to provide content and other material ... throughout the development process." Kast's approval would be required on all work, "including the design, development and finalization of the website."

To facilitate development, Kast completed a questionnaire outlining his goals for the revamped website. Kast identified Wells Fargo Private Bank ("Wells Fargo") as one of Atherton Trust's competitors and highlighted certain features of Wells Fargo's website he found appealing. Kast also stated in emails that he wanted to mimic Wells Fargo's website. Further, Kast noted that he "need[ed] to choose photos from options" provided by Only Websites.

Kast closely managed the development process. For instance, after reviewing an early draft of the developmental website, Kast stated that he "like[d] what [Only Websites did] with the home page layout."

On the other hand, Kast wanted the logo "to be warmer like" Wells Fargo's and the photos "to be more casual like" Wells Fargo's. Likewise, Kast later requested that Only Websites move the placement of Atherton Trust's logo and company name.

Eventually, three photos from Wells Fargo's website—which were taken by Jim Erickson and licensed to Wells Fargo through his company, Erickson Productions, Inc.—were incorporated into Atherton Trust's developmental website.¹ Neither Atherton Trust, Kast, nor Only Websites licensed the photos. Erickson discovered the infringement via Picscout, a "software that tracks imagery online" by running nightly internet-wide searches. In July 2011, Erickson demanded that Atherton Trust "cease and desist infringing its copyright" and pay damages. Kast promptly directed Only Websites to remove the photos, which was done the next morning, but refused to pay.

II. Procedural Background

a. The trial and the jury's verdict against Kast

Erickson filed suit in the Central District of California, alleging direct, vicarious, and contributory copyright infringement.² Erickson contended that the infringement was willful, and therefore subject to enhanced damages under 17 U.S.C. § 504(c)(2).

The case was transferred to the Northern District of California, where it proceeded to trial by consent before a magistrate judge.

Two divergent narratives emerged at trial. Erickson portrayed Kast as an opportunistic, cost-cutting businessperson who rushed completion of Atherton Trust's developmental website in an effort to generate additional income through state-appointed estate management. Erickson's counsel elicited testimony from Kast at trial that he first became aware that the photos in question were on Atherton Trust's website in January 2011, and the photos remained there until Kast received the July 2011 demand letter. Erickson claimed that including the unlicensed photos not only allowed Kast to continue pursuing the business opportunity he so desired, but also avoided the required developmental licensing fee.

Kast painted a different picture. He agreed "the Atherton Trust website included unauthorized copies of [Erickson's] photos that were copied from" Wells Fargo's website. But, according to Kast, Only Websites copied the photos without his consent. Kast also pointed to a provision in his contract with Only Websites, which stated that "Client [Kast] is responsible for obtaining copyright releases and licenses on all photographs it sends to Provider. Limit of 2 photographs provided by Provider for every page except the home page." Kast testified he understood this provision to mean that "[a]nything that I sent to them had to be licensed," but that "if they provided the photos, [they] had to provide licensed photos." Similarly, Kast asserted that had he known he needed to license photos for the developmental site, he would have done just that; in fact, he later and on his own licensed two stock photos for the site's "live" version. Separately, Kast argued he lacked control over Only Websites: Only Websites published the website without his consent and ignored multiple requests to replace the infringing photos. Finally, Kast contended that he did not reap a financial benefit from the infringing photos because "[h]e made no money off the website" and "avoid[ing] a license fee" is not a direct financial benefit.

At the charging conference, the parties wrangled over the wording of the willfulness jury instruction. Erickson sought an instruction that Kast acted willfully if he knew he infringed Erickson's copyrights, acted with reckless disregard for Erickson's copyrights, or "should have known" his actions infringed Erickson's copyrights. Kast objected to the "should have known" prong, arguing that it set the standard "much lower than recklessness." The district court agreed with Erickson and included the "should have known" prong.

The jury found by special verdict that Kast vicariously and contributorily (but not directly) infringed Erickson's copyright on each of the photos and did so willfully. Pursuant to 17 U.S.C. § 504(c)(2), the jury awarded Erickson $ 150,000 in damages per photograph, for total damages of $ 450,000.

b. The instant appeal

Kast timely appealed the district court's judgment against him. Kast initially briefed his case without the assistance of counsel. We appointed pro bono counsel to assist Kast with two of the issues he raised in his opening brief: (1) whether the avoidance of licensing fees constitutes a direct financial benefit for purposes of imposing vicarious copyright liability; and (2) whether a "should have known" willfulness instruction is proper under 17 U.S.C. § 504(c). The parties submitted supplemental briefing on these issues, the former an issue of first impression in this circuit. We now consider whether to affirm (1) the jury's vicarious liability verdict, (2) the jury's contributory liability verdict, and (3) the jury's willfulness finding. We also address (4) some additional evidentiary and procedural matters.

STANDARDS OF REVIEW

"We review the district court's denial of a motion for directed verdict de novo." Allstate Ins. Co. v. Herron , 634 F.3d 1101, 1109 (9th Cir. 2011). Legal questions are reviewed de novo so long as they are "raise[d] ... at some point before the judge submitted the case to the jury[.]" F.B.T. Prods., LLC v. Aftermath Records , 621 F.3d 958, 962–63 (9th Cir. 2010).

Jury instructions "must fairly and adequately cover the issues presented, must correctly state the law, and must not be misleading." Gantt v. City of Los Angeles , 717 F.3d 702, 706 (9th Cir. 2013) (quotation marks and citation omitted). If a jury instruction is incorrect, reversal is appropriate "unless the error is more probably than not harmless." Chuman v. Wright , 76 F.3d 292, 294 (9th Cir. 1996). If a party fails to object to a jury instruction in the district court, it can still be reviewed on appeal for plain error. See Hoard v. Hartman , 904 F.3d 780, 786 (9th Cir. 2018). "We may exercise our discretion to correct a district court on plain error review when the following factors are met: (1) the district court erred; (2) the error was obvious or plain; (3) the error affected substantial rights; and (4) the error seriously impaired the fairness, integrity, or public reputation of judicial proceedings." Id. at 787 (quotation marks and citation omitted).

"We review the district court's rulings concerning discovery and evidentiary issues for an abuse of discretion and reverse only if the district court's ruling more likely than not affected the verdict." Kulas v. Flores , 255 F.3d 780, 783 (9th Cir. 2001) (citations omitted).

DISCUSSION

I. The Vicarious Liability Verdict

The jury found that Kast vicariously infringed Erickson's copyright through his employment of Only Websites, the direct infringer. "To prevail on a vicarious liability claim, [plaintiff] must prove [defendant] has (1) the right and ability to supervise the infringing conduct and (2) a direct financial interest in the infringing activity." VHT, Inc. v. Zillow Group, Inc. , 918 F.3d 723, 745 (9th Cir. 2019) (citing ...