International Korwin Corp. v. Kowalczyk

• Decision Date: 16 August 1988
• Docket Number: No. 87-2376,87-2376
• Citation: 855 F.2d 375
• Parties: 1988 Copr.L.Dec. P 26,312, 8 U.S.P.Q.2d 1050 INTERNATIONAL KORWIN CORP., et al., Plaintiffs-Appellees, v. Tadeusz KOWALCZYK, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 375

855 F.2d 375

1988 Copr.L.Dec. P 26,312, 8 U.S.P.Q.2d 1050

INTERNATIONAL KORWIN CORP., et al., Plaintiffs-Appellees, v. Tadeusz KOWALCZYK, Defendant-Appellant.

No. 87-2376.

United States Court of Appeals Seventh Circuit.

Argued April 5, 1988.

Decided Aug. 16, 1988.

Irene Savanis, Jones, Day, Reavis & Pogue, Chicago, Ill., for defendant-appellant.

Monica L. Thompson, Keck, Mahin & Cate, Chicago, Ill., for plaintiffs-appellees.

Before RIPPLE, MANION and KANNE, Circuit Judges.

RIPPLE, Circuit Judge.

Tadeusz Kowalczyk appeals the district court's determination that his multiple violations of federal copyright law were willful. In addition, he challenges the amount of the fine and fees imposed by the district court. We affirm the judgment of the district court.

I Background

A. Procedural Posture

The plaintiffs, music publishers and owners of the copyrighted songs at issue here, are members of the American Society of Composers, Authors and Publishers (ASCAP). ¹ In their complaint, the plaintiffs allege that Mr. Kowalczyk, the sole proprietor of the Orbit Restaurant in Chicago, violated their rights as set forth in the Copyright Act of 1976, 17 U.S.C. Sec. 101 et seq. Specifically, the complaint asserts that Mr. Kowalczyk, without a license to do so, publicly performed (by radio broadcast and live rendition) seven copyrighted songs on the evening of August 21, 1983. On October 22, 1985, the district court denied the plaintiffs' motion for summary judgment. A two-day bench trial followed. At the conclusion of the trial, the court found Mr. Kowalczyk to have infringed willfully the copyright of all seven songs. The court enjoined Mr. Kowalczyk from further performances of those compositions without a license, imposed a fine of $10,500 ($1,500 for each infringement), awarded attorney's fees to the plaintiffs in the amount of $21,502.75, and assessed costs at $1,693.88. Mr. Kowalczyk then timely filed this appeal. ²

B. Facts

The Orbit Restaurant is divided into three areas: a dining room, a coffee shop, and a bar. In order to entertain his customers, Mr. Kowalczyk purchased an audio receiver to play radio broadcasts throughout the three areas of the restaurant. The audio receiver was located in Mr. Kowalczyk's office and was tuned primarily to Chicago radio station "FM 100." The receiver was connected by concealed wire to eight speakers, placed throughout the establishment, which were recessed into the ceiling of the restaurant. Mr. Kowalczyk also permitted two musicians to play music for tip money three times a week. The musicians were not paid a salary by Mr. Kowalczyk.

Beginning in 1980, ASCAP repeatedly contacted Mr. Kowalczyk in an effort to convince him to purchase a license to broadcast ASCAP-copyrighted songs routinely transmitted over the radio. As the district court explicitly found:

The contacts, as evidenced by the ASCAP District Office file, included letters, phone calls, and personal visits to the Orbit spread over a three year period. In the course of these contacts, ASCAP offered defendant an ASCAP license to perform the ASCAP repertoire. ASCAP also informed defendant that the public performance of copyrighted musical compositions without an ASCAP license or the copyright owner's permission constitutes copyright infringement in violation of federal law. In response to ASCAP's inquiries defendant vowed never to join ASCAP and told ASCAP representatives to sue him.

International Korwin Corp. v. Kowalczyk, 665 F.Supp. 652, 655-56 (N.D.Ill.1987) (footnote omitted).

Frustrated by Mr. Kowalczyk's refusal to purchase a license, ASCAP sent two investigators to the Orbit. On August 21, 1983, the investigators noted that six ASCAP-copyrighted songs were broadcast over the Orbit sound system. ³ In addition, the investigators noted that the two musicians performed a live rendition of another copyright protected song that same evening. ⁴

II Opinion of the District Court

In setting forth the facts of the case, the district court detailed the technical capabilities of the Orbit's "Grommes" audio receiver. The district court noted that the receiver "has paging capabilities and possesses three sets of speaker terminals: 8 ohms, 25 volts, and 70 volts. The receiver is capable of driving up to 40 speakers." Kowalczyk, 665 F.Supp. at 655. The court then found credible the testimony of ASCAP's expert witness, Daniel E. Hart, that "the receiver was not of a type commonly used in private homes." Id. The court also noted the physical size of the Orbit (2,664 square feet of publicly accessible space) and its annual revenues (grossing between $583,000 to $919,000 from 1980 to 1985--$35,000 to $136,000 net profit). Based on these facts, the court concluded that "the Orbit has sufficient space and generates enough revenue to justify the use of a commercial background music service." Id. In addressing the legal issues, the district court began by noting:

Section 106(4) of the Act grants copyright owners the exclusive right to publicly perform or authorize the performance of their copyrighted works. The Act broadly defines "perform" to include the rendition or playing of a work "either directly or by means of any device or process." 17 U.S.C. Sec. 101. To perform "publicly" means to perform at a place open to the public. Id.

Id. at 656. Applying the language of the statute, the court determined that the live performance by the two musicians violated the plaintiffs' exclusive copyrights. The court further held that a proprietor is liable for his entertainers performing copyrighted works, even if he is unaware of the violation.

Turning to the radio performances, the district court addressed Mr. Kowalczyk's defense that he was protected by a statutory exemption for small businesses. The exemption, 17 U.S.C. Sec. 110(5), ⁵ as interpreted by the court, has three basic requirements for application: (1) the receiving apparatus must be of a kind that is commonly used in private homes; (2) the performances must not be further transmitted to the public; and (3) the business must be a small commercial establishment. The district court held that Mr. Kowalczyk had failed to satisfy even one of these requirements. See Kowalczyk, 665 F.Supp. at 657-58. Specifically, concerning the first factor--that the receiving apparatus be of a kind commonly used in private homes--the district court found that ASCAP's expert witness, Daniel E. Hart, testified "that defendant's Grommes receiver, with features and power typical of a commercial receiver, is clearly not the type of receiver commonly used in the home. In addition, the commercial style receiver is attached via built-in concealed wiring to eight remote ceiling mounted speakers; hardly the type of sound system commonly found at home, even in today's high-tech world." Id. at 657 (emphasis in original). As to the second criterion--further transmission to the public--the district court relied on the plain language of the statute to determine that the radio broadcasts were further transmitted inside the Orbit. ⁶ The court reasoned that the receiver was located in Mr. Kowalczyk's office and the speakers were dispersed throughout the restaurant. Consequently, the concealed wires that carried the sound from the receiver to the speakers fell within the definition of further transmission. Finally, concerning the third factor--small commercial establishment--the district court examined the legislative history surrounding section 110(5) to conclude that the Orbit was not the type of small commercial establishment that Congress intended to exempt from the copyright laws. ⁷ Accordingly, the court found Mr. Kowalczyk liable for the radio performances as well.

The district court next addressed the appropriate remedy. First, it enjoined further performances of the seven copyrighted musical compositions. The court then awarded statutory damages, in lieu of actual damages, at the plaintiffs' request. In determining the amount of damages, the court focused on "the willfulness of the defendant's conduct, and the deterrent value of the sanction imposed." Id. at 658. The district court found that Mr. Kowalczyk's "cavalier" attitude in dismissing ASCAP's repeated warnings to obtain a license constituted willful conduct. As a result, it imposed fines of $1,500 per performance. ⁸ The court then awarded attorney's fees and costs pursuant to the explicit statutory authority contained in 17 U.S.C. Sec. 505. ⁹

III Analysis

A. Willful Infringement

1. Contentions of the Parties

Mr. Kowalczyk does not contest the district court's finding that he violated the plaintiffs' copyrights. Nor does he challenge the court's determination that the section 110(5) exception was inapplicable. Instead, he contends only that the court's finding that he willfully infringed the plaintiffs' copyrights was clearly erroneous. See Appellant's Reply Br. at 2. Specifically, he contends that the court improperly relied "solely on the fact that Kowalczyk refused to enter into a licensing agreement with ASCAP." Appellant's Br. at 15 (emphasis in original). He asserts that he relied in good faith on the section 110(5) exemption in not purchasing a license from ASCAP. He argues that, even though the exemption may not have applied, the district court should have addressed whether he reasonably relied upon it and therefore is not guilty of willful infringement. In contrast, the plaintiffs contend that the district court properly concluded that Mr. Kowalczyk willfully violated the Copyright Act. Moreover, they stress that the district court found that Mr. Kowalczyk's proffered "good faith" reliance on the section 110(5) exemption is not credible.

2. Analysis

In asking this court to reverse the trial court's determination that his violation was willful, Mr. Kowalczyk undertakes a heavy burden. The district court's finding of willfulness is a factual determination that we cannot reverse unless clearly erroneous. Fitzgerald Pub....