Jcw Investments, Inc. v. Novelty, Inc.

• Citation: 482 F.3d 910
• Decision Date: 20 March 2007
• Docket Number: No. 05-2498.,05-2498.
• Parties: JCW INVESTMENTS, INC., d/b/a Tekky toys, Plaintiff-Appellee, v. NOVELTY, INC., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

482 F.3d 910

JCW INVESTMENTS, INC., d/b/a Tekky toys, Plaintiff-Appellee, v. NOVELTY, INC., Defendant-Appellant.

No. 05-2498.

United States Court of Appeals, Seventh Circuit.

Argued February 21, 2006.

Decided March 20, 2007.

Gregory J. Smith (argued), Competition Law Group, Chicago, IL, for Plaintiff-Appellee.

Daniel J. Lueders (argued), Woodard, Emhardt, Naughton, Moriarty & McNett, Indianapolis, IN, for Defendant-Appellant.

Before MANION, WOOD, and EVANS, Circuit Judges.

WOOD, Circuit Judge.

Meet Pull My Finger® Fred. He is a white, middle-aged, overweight man with black hair and a receding hairline, sitting in an armchair wearing a white tank top and blue pants. Fred is a plush doll and when one squeezes Fred's extended finger on his right hand, he farts. He also makes somewhat crude, somewhat funny statements about the bodily noises he emits, such as "Did somebody step on a duck?" or "Silent but deadly."

Fartman could be Fred's twin. Fartman, also a plush doll, is a white, middle-aged, overweight man with black hair and a receding hairline, sitting in an armchair wearing a white tank top and blue pants. Fartman (as his name suggests) also farts when one squeezes his extended finger; he too cracks jokes about the bodily function. Two of Fartman's seven jokes are the same as two of the 10 spoken by Fred. Needless to say, Tekky Toys, which manufactures Fred, was not happy when Novelty, Inc., began producing Fartman, nor about Novelty's production of a farting Santa doll sold under the name Pull-My-Finger Santa.

Tekky sued for copyright infringement, trademark infringement, and unfair competition and eventually won on all claims. The district court awarded $116,000 based on lost profits resulting from the copyright infringement, $125,000 in lost profits attributable to trademark infringement, and $50,000 in punitive damages based on state unfair competition law. The district court then awarded Tekky $575,099.82 in attorneys' fees. On appeal, Novelty offers a number of arguments for why it should not be held liable for copyright infringement, argues that Illinois's punitive damages remedy for unfair competition is preempted by federal law, and contends that the attorneys' fees awarded by the district court should have been capped according to Tekky's contingent-fee arrangement with its attorneys. For the reasons set forth below, we affirm.

I

Somewhat to our surprise, it turns out that there is a niche market for farting dolls, and it is quite lucrative. Tekky Toys, an Illinois corporation, designs and sells a whole line of them. Fred was just the beginning. Fred's creators, Jamie Wirt and Geoff Bevington, began working on Fred in 1997, and had a finished doll in 1999. They applied for a copyright registration on Fred as a "plush toy with sound," and received a certificate of copyright on February 5, 2001; later, they assigned the certificate to Tekky. In the meantime, Tekky sent out its first Fred dolls to distributors in 1999. By the time this case arose, in addition to Fred, Tekky's line of farting plush toys had expanded to Pull My Finger® Frankie (Fred's blonde, motorcycle-riding cousin), Santa, Freddy Jr., Count Fartula (purple, like the Count on Sesame Street), and Fat Bastard (character licensed from New Line Cinema's "Austin Powers" movies), among others. By March 2004, Tekky had sold more than 400,000 farting dolls.

Novelty, a privately held Indiana corporation, is owned by Todd Green, its president. Green testified in his deposition, "any time we'd create an item, okay, we try to copy—or try to think of some relevant ideas." Novelty personnel go to trade shows and take pictures of other companies' products, seeking "ideas" for their own. In early 2001, Green visited the Hong Kong showroom of TL Toys, a manufacturer of Tekky's Fred doll, and he spotted Fred. In his deposition, Green testified that he might have photographed Fred since "[i]t wouldn't be unusual for us to photograph everything we see." Green admits that his idea for Fartman was based on Fred and that he described his idea to Mary Burkhart, Novelty's art director, who prepared a drawing based on Green's description. According to Burkhart, Green wanted "a plush doll that would ... fart and shake.... And make a sound ... a hillbilly-type guy, sitting in a chair that would fart and be activated by actually pulling his finger." Typically, Novelty would assign the job of drawing a new product to an artist, such as Burkhart, and the artist would then take her drawing to Green for his approval. That was the procedure it followed for Fartman. Novelty began to manufacture plush farting dolls around October 8, 2001; the first doll it released was the one it called Pull-My-Finger Santa. Fartman hit the stores one month later, on November 5, 2001.

Tekky first learned of Fartman in March 2002; three months later it filed this suit. In September 2002, the district court granted a preliminary injunction, halting Novelty's sales of Fartman and his smaller relative Fartboy. After the parties filed cross-motions for partial summary judgment, the district court granted Tekky's motion and found that Novelty had infringed Tekky's copyright when it copied Fred in order to create Fartman. The case then went to trial on several issues: damages for the copyright infringement, liability and damages for trademark infringement, and related state law claims. The jury found Novelty liable for trademark infringement for using the phrase "Pull My Finger" to sell the farting Santa dolls and found that Novelty's conduct was willful and wanton, justifying an award of punitive damages under Illinois's unfair competition law. The jury awarded $116,000 in damages for the copyright infringement, $125,000 for the trademark infringement, and $50,000 in punitive damages under state unfair competition law. On post-trial motions, the district court granted Tekky's request for prejudgment interest and ruled that Tekky was entitled to "its full attorneys' fees." After the filing of Tekky's fee petition and prior to the filing of a notice of appeal, the district court tolled the period for filing a notice of appeal in this case, following the procedure outlined in Federal Rule of Civil Procedure 58(c)(2) and Federal Rule of Appellate Procedure 4(a)(4)(A)(iii). See Wikol ex rel. Wikol v. Birmingham Public Schools Bd. of Educ., 360 F.3d 604, 607-08 (6th Cir.2004). The district court also appointed a special master to deal with the litigation over attorneys' fees, and that special master recommended awarding $596,399.82 to Tekky. Novelty objected, and the district court ultimately awarded $575,099.82. Following the award of attorneys' fees, Novelty filed a timely notice of appeal.

II

A

We begin with the district court's finding that Novelty violated Tekky's copyright when it created Fartman. As with any grant of summary judgment, partial or otherwise, we review the district court's decision de novo, viewing the facts in the light most favorable to the nonmoving party. See Valentine v. City of Chicago, 452 F.3d 670, 677 (7th Cir.2006).

To establish copyright infringement, one must prove two elements: "(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original." Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991). What is required for copyright protection is "some minimal degree of creativity," or "the existence of ... intellectual production, of thought, and conception." Id. at 362, 111 S.Ct. 1282 (quoting Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 59-60, 4 S.Ct. 279, 28 L.Ed. 349 (1884)). Generally, copyright protection begins at the moment of creation of "original works of authorship fixed in any tangible medium of expression," including "pictorial, graphic, and sculptural" works and sound recordings. 17 U.S.C. § 102(a). A work is "fixed" in a tangible medium of expression "when its embodiment in a copy ... is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." 17 U.S.C. § 101. See Toney v. L'Oreal USA, Inc., 406 F.3d 905, 909 (7th Cir.2005). The owner of a copyright may obtain a certificate of copyright, which is "prima facie evidence" of its validity. 17 U.S.C. § 410(c). See Wildlife Express Corp. v. Carol Wright Sales, Inc., 18 F.3d 502, 507 (7th Cir.1994).

Once it is established that a party has a valid copyright, whether registered or not, the next question is whether another person has copied the protected work. Copying may be proven by direct evidence, but that is often hard to come by. In the alternative, copying may be inferred "where the defendant had access to the copyrighted work and the accused work is substantially similar to the copyrighted work." Susan Wakeen Doll Co., Inc. v. Ashton Drake Galleries, 272 F.3d 441, 450 (7th Cir.2001) (quoting Atari, Inc. v. N. Am. Philips Consumer Elecs. Corp., 672 F.2d 607, 614 (7th Cir.1982)). See also Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1169-70 (7th Cir.1997). It is not essential to prove access, however. If the "two works are so similar as to make it highly probable that the later one is a copy of the earlier one, the issue of access need not be addressed separately, since if the later work was a copy its creator must have had access to the original." Ty, Inc., 132 F.3d at 1170. "The more a work is both like an already copyrighted work and—for this is equally important—unlike anything that is in the public domain, the less likely it is to be an independent creation." Id. at 1169 (emphasis in original). If the inference of copying is drawn from proof of access and substantial similarity, it can be rebutted if the alleged copier can show that she instead "independently created" the allegedly infringing work. Susan Wakeen Doll Co., 272 F.3d at 450. "A defendant independently created...