Leonard v. Stemtech Int'l Inc.

• Decision Date: 24 August 2016
• Docket Number: Nos. 15-3198 & 15-3247,s. 15-3198 & 15-3247
• Citation: 120 U.S.P.Q.2d 1015,834 F.3d 376
• Parties: Andrew Paul Leonard, d/b/a APL Microscopic, Appellant in No. 15-3247 v. Stemtech International Inc; Stemtech HealthSciences, Inc.; John Does 1-100, Inclusive, Stemtech International Inc and Stemtech HealthSciences, Inc, Appellants in No. 15-3198
• Court: U.S. Court of Appeals — Third Circuit

834 F.3d 376

120 U.S.P.Q.2d 1015

Andrew Paul Leonard, d/b/a APL Microscopic, Appellant in No. 15-3247

v.Stemtech International Inc; Stemtech HealthSciences, Inc.; John Does 1-100, Inclusive, Stemtech International Inc and Stemtech HealthSciences, Inc, Appellants in No. 15-3198

Nos. 15-3198 & 15-3247

United States Court of Appeals, Third Circuit.

Argued July 12, 2016

Filed: August 24, 2016

Kathleen M. Kushi Carter, Esq [ARGUED], Christine R. Arnold, Esq., Hollins Law, 2601 Main Street, Suite 1300, Irvine, CA 92614, Thomas P. Leff, Esq., Casarino Christman Shalk Ransom & Doss, 405 North King Street, Suite 300, P.O. Box 1276, Wilmington, DE 19899, Counsel for Appellants/Cross-Appellees

Jan I. Berlage, Esq. [ARGUED], Gohn Hankey Stichel & Berlage, 201 North Charles Street, Suite 2101, Baltimore, MD 21201, James S. Green, Sr., Esq., Jared Green, Esq., Seitz Van Ogtrop & Green, 222 Delaware Avenue, Suite 1500, P.O. Box 68, Wilmington, DE 19899, Counsel for Appellee/Cross-Appellant.

Before: FUENTES, SHWARTZ, and RESTREPO, Circuit Judges.

OPINION OF THE COURT

SHWARTZ, Circuit Judge.

Andrew Leonard, a stem cell photographer, and Stemtech International, Inc., a company that sells nutritional supplements through independent distributors, cross appeal various rulings in the copyright infringement lawsuit Leonard brought against Stemtech in the District of Delaware. For the reasons discussed herein, we will affirm the District Court's pretrial, trial, and post-trial rulings, except the order denying prejudgment interest to Leonard, which we will vacate and remand.

I

A. Andrew Leonard's Images

Leonard takes photographs of stem cells using electron microscopes. Only a few photographers engage in this highly technical type of photography. Leonard obtains cell samples from doctors, scientists, and researchers and pays a scientific research institution to use an electron microscope to photograph the cells. The images first appear in black and white, and Leonard uses his "artistic judgment" to enhance the photos in color. J.A. 822-23.

Leonard created the images at issue in this case in the 1990s. Below are the two photographs at issue in this case.¹ The image on the left will be referred to as Image 3 and the right as Image 4.

Leonard markets his photographs through his business, APL Microscopic, and, during the relevant time period, used a stock photography agency known as Photo Researchers, Inc., to license his images.² He only allows limited licenses of his images because, in his view, unlimited usage licenses decrease the value of his work.

The licensing fee Leonard charges varies depending on whether his images are used for commercial, editorial, or educational purposes. Licensing fees are also impacted by the size, color, and the medium in which the images will appear.

During the 1990s and through the period at issue in this case, stem cell images were rare. At that time, Leonard's images were unique and sought after because there were very few photographers who had the technical skill necessary to produce such work. Even Stemtech's Chief Scientific Officer, Christian Drapeau, testified that Leonard's images were "extremely valuable." J.A. 1544.

In licensing his stem cell photographs, Leonard has received a range of fees, including a $4,000 fee for a nonexclusive license to use his image at trade shows for one year, $6,500 for a one-time, non-exclusive license to use one of his images on a university website for four years, and $1,325 for a one-time, non-exclusive license to use his image in a brochure with a print run of 5,000. He also received $1,500 from Time magazine, which featured one of his images of a human bone marrow stem cell on its August 7, 2006 cover.³ Between 2007 and 2012, Photo Researchers licensed Leonard's images for fees ranging from less than $100 to several thousand dollars.

B. Stemtech and its Distributors

Stemtech "formulates" and sells nutritional supplement products through thousands of distributors, J.A. 1387, who form the backbone of the company. Each distributor signs an agreement and is subject to Stemtech's policies and procedures manual. According to the manual, distributors are required to use only Stemtech marketing materials and its self-replicated websites. Specifically, the manual provides:

To promote both the products and the tremendous opportunity STEMTech offers, distributors must use the Marketing Materials and support materials produced by STEMTech.... Because the Internet recognizes no geographic borders (Domestic or Foreign), information on the Internet may be legal in one State or Country and illegal in another. Therefore, Distributors desiring to utilize an Internet web page to promote his/her distributorship must do so through the Company's official website, using official STEMTech replicated templates.

J.A. 2173-74 (emphasis and capitalization in original). Stemtech owns the domain and sub-domains of at least some of its distributors' websites, and Stemtech's vendor operates the server that hosts the Stemtech-supplied sites. Distributors who purchase a website from Stemtech may customize the site only to provide the distributor's name, phone number, email address, and a biography.

C. Leonard and Stemtech's Initial Discussions

In May 2006, Stemtech contacted Leonard about using Image 4 for the "company ['s] internal magazine," J.A. 869-70, and for use on its website. After discussing usage and color terms, Leonard provided Stemtech with a quote of $950 for a "one-year usage" of Image 4 in two places in Stemtech's HealthSpan magazine and a separate quote of $300 for a "one-year usage" of the image on the HealthSpan website. J.A. 871; 2120. Stemtech declined to license the image for website use because "the price was too high," J.A. 872, but chose to use the image twice in its magazine.

Leonard sent Stemtech an invoice for $950 for the two magazine placements, but was only paid $500. After multiple unsuccessful attempts to collect the $450 balance, Leonard abandoned his collection effort. Not only did Stemtech fail to pay Leonard in full, but it used his images without a license in its other promotional materials.

The images appeared on Stemtech websites, its distributors' websites, marketing DVDs, and other promotional and recruitment materials. Several Stemtech officials and employees explained that using these images was important to Stemtech's business. Chief Scientific Officer Drapeau explained: "If you talk about stem cells, you need [ ] support for the discussion, so you ... show a cell showing what it's about.... It's a marketing thing. I understand [Leonard's images'] value totally. I mean, it's a good representation." J.A. 1539, 1544. George Antarr, Stemtech's Director of North American Sales, produced the DVD in which one of Leonard's images appeared, and explained the importance of a visual depiction of a stem cell in the video: "[W]e talked about stem cells in the product movie, so [ ] it would be good to show that, what one looks like ... [b]ecause [a] visual [is] part of every sentence. A picture tells a thousand words." J.A. 1510. Thus, as Antarr noted, using a photograph was important to Stemtech's marketing efforts.

D. Stemtech's Unauthorized Use

To make sure his images were not used for unauthorized purposes, Leonard "periodically" conducted internet searches for images of stem cells. J.A. 879-80. In October 2007, Leonard discovered his images on numerous Stemtech and Stemtech-affiliated websites. He took screenshots of and archived the webpages on which his images appeared and retained copies of emails he sent to the contacts on various sites.

For example, Leonard found his images on "yourstems.com," a website selling a Stemtech product called Stem Enhance and in a Stemtech e-book featured on the website. J.A. 881, 889. He contacted the site operator, informed him of the infringing uses, requested an accounting of how long the operator used the images, and sought payment for their use. The website operator informed Leonard that he and other distributors were using materials received from Stemtech. Thereafter, Leonard contacted Stemtech's Chief Compliance Officer, Donna Serritella, requesting that Stemtech stop using his images. Serritella told Leonard that she thought that one of the images "was on the cover of a major publication, and that made it public for usage." J.A. 898.

Despite being on notice of Leonard's claim that Stemtech and its distributors were using his images without permission, Stemtech did not notify its distributors of his assertion, which it could have done via company-wide email, its weekly newsletter, or monthly communications. In fact, Leonard continued to discover and document unauthorized uses of his photographs on Stemtech-affiliated websites and in its materials. For example, in May 2008, Leonard's friend ordered a Stemtech sales kit from a distributor. The sales kit, intended for marketing the Stemtech product and training distributors, included DVDs with covers featuring one of Leonard's images, and videos of "The Stemtech Story" and "Stem Cells and Stem Enhance with Christian Drapeau," which also contained one of the images. J.A. 905-10, 161. Leonard continued to take screenshots of the websites and infringing materials, connecting them to Stemtech via website addresses, Stemtech-branded materials such as videos and PowerPoint presentations, distributor ID numbers, and even references and links encouraging website visitors to join the Stemtech distribution team. Additionally, Leonard discovered his images on Stemtech's website system, stemtechbiz.com, which involved "websites that Stemtech owned and operated," as well as websites of individual distributors. J.A. 945-46.

E. The Civil Suit

Leonard demanded that Stemtech and several of its distributors pay him for the unauthorized use of his images. When Stemtech refused, Leonard filed the instant action, alleging numerous claims of copyright infringement. Following discovery and motion practice, a jury...