RCA/Ariola Intern., Inc. v. Thomas & Grayston Co.
| Decision Date | 28 April 1988 |
| Docket Number | Nos. 87-5195,BEL-AIRE,s. 87-5195 |
| Citation | 845 F.2d 773 |
| Parties | , 1988 Copr.L.Dec. P 26,271, 11 Fed.R.Serv.3d 114, 6 U.S.P.Q.2d 1692 RCA/ARIOLA INTERNATIONAL, INC. by change of name now BMG Music; MCA Records, Inc.; Polygram Records, Inc.; Atlantic Recording Corporation; and CBS Inc., Appellants, v. THOMAS & GRAYSTON COMPANY, Appellee, John Does 1-100. RCA/ARIOLA INTERNATIONAL, INC. by change of name now BMG Music; MCA Records, Inc.; Polygram Records, Inc.; Atlantic Recording Corporation; and CBS Inc., Appellants, v. FALCON HEIGHTS PHARMACY, Appellee. John Does 1-100. RCA/ARIOLA INTERNATIONAL, INC. by change of name now BMG Music; MCA Records, Inc.; Polygram Records, Inc.; Atlantic Recording Corporation; and CBS Inc., Appellants, v. NELSON'S OFFICE SUPPLY STORES, Northtown Shopping Center, Inc., d/b/a Nelson's Office Supply, Metacom, Inc. and James I. McCann, Appellees. RCA/ARIOLA INTERNATIONAL, INC. by change of name now BMG Music; MCA Records, Inc.; Polygram Records, Inc.; Atlantic Recording Corporation; and CBS Inc., Appellants, v. DESNICK BROS. DRUG, INC., Appellee, John Does 1-100. RCA/ARIOLA INTERNATIONAL, INC. by change of name now BMG Music; MCA Records, Inc.; Polygram Records, Inc.; Atlantic Recording Corporation; and CBS Inc., Appellants, v. ST. PAUL BOOK & STATIONERY COMPANY, d/b/a St. Paul Book & Stationery, Appellee. RCA/ARIOLA INTERNATIONAL, INC. by change of name now BMG Music; MCA Records, Inc.; Polygram Records, Inc.; Atlantic Recording Corporation; and CBS Inc., Appellants, v.PHARMACY, INC., d/b/a Bel-Aire Drugs, Appellee, John Does 1-100, Metacom, Inc. and James I. McCann, Appellees. RCA/ARIOLA INTERNATIONAL, INC. by change of name now BMG Music; MCA Records, Inc.; Polygram Records, Inc.; Atlantic Recording Corporation; and CBS Inc., Appellants, v. FISHER PHOTO SUPPLY COMPANY, Appellee, John Does 1-100, Metacom, Inc., James I. McCann, Appellees. RCA/ARIOLA INTERNATIONAL, INC. by change of name now BMG Music; MCA Records, Inc.; Polygram Records, Inc.; Atlantic Recording Corporation; and CBS Inc., Appellants, v. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Robert Vidas, Minneapolis, Minn., for appellants.
Leo Stern, Minneapolis, Minn., for appellees.
Before JOHN R. GIBSON, BOWMAN and WOLLMAN, Circuit Judges.
The duplication of copyrighted musical tapes on Rezound cassette duplicating machines in the Minneapolis-St. Paul area has resulted in an injunction and award of statutory damages, attorneys' fees, and costs against ten retailers who have had these machines on their premises, 1 the manufacturer of the machines, Metacom, Inc., and its President, James McCann. All parties to the litigation have appealed or cross-appealed. RCA/Ariola International 2 argues that the district court 3 erred in awarding damages against the twelve defendants jointly and severally; that the infringement was willful and therefore the district court should have awarded greater damages; that the district court based its award of fees and costs on an erroneously low damages figure; that the district court should have found contributory infringement; and that the injunction was inadequate. Metacom, McCann, and the retailers argue that there was no infringement by the retailers, there was no vicarious liability on the part of Metacom or McCann, that the injunctive terms will destroy the availability of the copying machine, and that there should have been no award of attorneys' fees or else the award should not have been as great as it was. We affirm the judgment of the district court.
RCA and the other appellants are members of a trade association called the Recording Industry Association of America (RIAA), which sent investigator Ralph Vaughan and others to the Twin City area in 1983 to investigate usage of the Rezound duplicating machine in copying copyrighted sound recordings. Metacom manufactures and markets the Rezound machine. Metacom retains ownership of the machines and places them at the retailers' stores free of charge. The district court found Metacom requires compliance with the rules and regulations set out in Metacom's operation manual. The Rezound machine is slotted so that it will only take specially notched blank tapes; ordinary blank tapes will not fit the machine. Metacom manufactures the specially notched blank tapes and sells them to the retailers, who sell them to customers. According to McCann, Metacom slots the machines in this manner so the retailer "can control his machinery in the store, so that customers, for instance, don't bring their own blank tapes in to copy on this machinery." The retailers involved in this action had "Rezound Centers" at their stores, where they kept a Rezound machine for their customers' use and sold the notched blank tapes. The Rezound machine made only monaural, as opposed to stereo, reproductions. Metacom advertises its machine for use in duplicating spoken word materials. Each Rezound Center had a copyright warning posted. 4
RIIA gave Metacom notice on January 10, 1979 of claimed infringing duplication on the Rezound machines. Metacom's counsel answered that Metacom policed the Rezound Center operators to prevent the retailers from engaging in unauthorized duplication of copyrighted materials. In June, 1979 Metacom sought a legal opinion and its attorneys opined that even though "some customers may misuse the copier to reproduce copyrighted materials," Metacom had no potential liability for infringement from the Rezound equipment because the Rezound equipment was not being supplied "with the intention, purpose, knowledge or expectation that it is to be used for infringing purposes." McCann, writing on behalf of Metacom, advised the retailers not to permit their employees to take any part in the copying process, but to insist the customers operate the machine themselves.
Beginning in 1983 and continuing through 1985, the investigators of the RIAA Anti-Piracy Unit took musical tapes copyrighted by RCA and the other appellants to the businesses of the various retailers. The investigators would present a copyrighted tape marked with a p P copyright notice to one of the retailers' clerks. The investigators would ask the clerk for the proper length blank tape to copy the particular copyrighted tape presented. Then the investigator would feign ignorance of how the Rezound copier worked in order to persuade the clerk to do as much of the copying as possible. In some instances the investigators received assistance ranging from putting the originals in the appropriate slot in the machine to completing the entire copying process. The deposition of investigator Vaughan reveals that Vaughan made no effort to observe whether or not any of the bona fide customers copied copyrighted recordings. In oral argument, counsel for RCA stated that such an investigation would have been too time-consuming.
Based on their investigation, RIIA members filed ten separate actions, each naming one of the retailers and some naming Metacom and McCann. These actions were ultimately consolidated and submitted to the district court on cross motions for summary judgment. While the record is extensive, with many pages of depositions and affidavits supported by a plethora of exhibits, none of the parties urge that there is any material question of fact. The motions were referred to a magistrate, whose report the district court adopted. The magistrate concluded that RCA had proved a clear case of direct infringement against the retailers by showing that the investigators were permitted to make infringing copies.
With respect to Metacom and McCann the magistrate concluded that the Rezound machine was a staple article of commerce, which precluded a finding of contributory infringement against Metacom under Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984). He concluded that Metacom asserted authority to control use of the Rezound machine by its operating rules and regulations, but that Metacom had failed to use that authority to prevent infringement. While there were copyright warnings attached to the equipment, Metacom provided no directions on how to limit or prevent duplication of copyrighted material and McCann had sent the retailers a letter saying it was legal for customers to duplicate anything for private use (though he warned the retailers not to assist in the copying). Metacom's authority to control use of the machine, together with Metacom's financial interest in the copying as the source for the notched blank tapes needed to use the machine, sufficed to render Metacom vicariously liable. Based on the magistrate's finding, the court held Metacom's president, McCann, liable for infringement on the grounds that he controlled the actions of the corporation.
In considering appropriate relief, the magistrate recognized that RCA had elected to recover statutory, rather than actual, damages. 5 He concluded that Metacom and McCann should bear the brunt of the damage award because they led retailers to believe that anything could be duplicated. He recommended statutory damages against Metacom and McCann of $5,000. He recommended the retailers be held jointly and severally liable in a total sum of $2,500. He concluded that none of the defendants had committed willful infringements and therefore declined to enhance...
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