Ty, Inc. v. Publications Intern. Ltd.

• Decision Date: 30 May 2002
• Docket Number: No. 01-3304.,01-3304.
• Citation: 292 F.3d 512
• Parties: TY, INC., Plaintiff-Appellee, v. PUBLICATIONS INTERNATIONAL LTD., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

292 F.3d 512

TY, INC., Plaintiff-Appellee, v. PUBLICATIONS INTERNATIONAL LTD., Defendant-Appellant.

No. 01-3304.

United States Court of Appeals, Seventh Circuit.

Argued April 5, 2002.

Decided May 30, 2002.

Rehearing and Rehearing En Banc Denied July 11, 2002.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

James P. White, Laurie A. Haynie (argued), Welsh & Katz, Chicago, IL, for Plaintiff-Appellee,

William Patry (argued), Skadden, Arps, Slate, Meagher & Flom, New York, NY, for Defendant-Appellant.

Before FLAUM, Chief Judge, and POSNER and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

Ty is the manufacturer of Beanie Babies. These well-known beanbag stuffed animals are copyrightable as "sculptural works," 17 U.S.C. §§ 101, 102(a)(5); Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1169 (7th Cir.1997), and are copyrighted by Ty, which brought this suit for copyright and trademark infringement against Publications International, Ltd. (PIL), publisher of a series of books, with titles such as For the Love of Beanie Babies and Beanie Babies Collector's Guide, that contain photographs of Beanie Babies. PIL concedes that photographs of Beanie Babies are derivative works, which, being copies of copyrighted works, can be produced only under license from Ty — and PIL has no license. PIL's defense to the charge of copyright infringement is the doctrine of fair use. On Ty's motion for summary judgment, the district court rejected the defense, granted the motion, and issued a permanent injunction against PIL's selling any of its Beanie Babies books. It also awarded Ty PIL's profits from the sale of those books, $1.36 million, plus more than $200,000 in prejudgment interest.

The trademark claim remains in the district court, which denied summary judgment on that claim, but the court entered final judgment on the copyright claim under Fed.R.Civ.P. 54(b) to permit an immediate appeal. However, Rule 54(b) authorizes the district court to enter a final judgment on a single claim only if that claim is separate from the claim or claims remaining for decision in the district court—separate not in the sense of arising under a different statute or legal doctrine, such as the trademark statute versus the copyright statute, but in the sense of involving different facts. Continental Casualty Co. v. Anderson Excavating & Wrecking Co., 189 F.3d 512, 516 (7th Cir.1999); Lawyers Title Ins. Corp. v. Dearborn Title Corp., 118 F.3d 1157, 1162-63 (7th Cir.1997); NAACP v. American Family Mutual Ins. Co., 978 F.2d 287, 292 (7th Cir.1992); see Curtiss-Wright Corp v. General Electric Co., 446 U.S. 1, 8, 100 S.Ct. 1460, 64 L.Ed.2d 1 (1980); Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 21-22 (2d Cir.1997); Maldonado-Denis v. Castillo-Rodriguez, 23 F.3d 576, 580 (1st Cir.1994). Otherwise the appellate court would have to go over the same ground when the judgment terminating the entire case was appealed.

At first glance the factual overlap might seem complete in this case, since the identical images, PIL's photographs of Beanie Babies, are claimed to infringe both Ty's copyrights and its trademarks. But the only facts before us on this appeal, the facts bearing on PIL's defense of fair use, are unlikely to be at issue in the trademark phase of the case. Moreover, although the district court issued a permanent rather than a preliminary injunction, that injunction is appealable immediately, irrespective of Rule 54(b), by virtue of the provision of the Judicial Code that permits "interlocutory orders ... granting ... injunctions" to be appealed. 28 U.S.C. § 1292(a)(1). Although this provision is ordinarily used to permit the immediate appeal of preliminary (temporary) injunctions, it is not so limited as a matter either of statutory language or statutory purpose. United States v. Hansen, 795 F.2d 35, 38 (7th Cir.1986); Prohosky v. Prudential Ins. Co., 767 F.2d 387, 391 n. 4 (7th Cir.1985); Parks v. Pavkovic, 753 F.2d 1397, 1402-03 (7th Cir.1985); Fielder v. Credit Acceptance Corp., 188 F.3d 1031, 1033 (8th Cir.1999); Warren Publishing, Inc. v. Microdos Data Corp., 115 F.3d 1509, 1511 and n. 1 (11th Cir.1997) (en banc); 16 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure, § 3924, pp. 149-53 (2d ed.1996). An order is interlocutory when it does not wind up the litigation in the court issuing the order, and that is the character of the permanent injunction that the district court issued in this case. And while one reason for permitting the immediate appeal of a preliminary injunction is that such an injunction is entered after a summary proceeding, increasing the risk of error, that turns out to be the character of the permanent injunction in this case as well: it was issued in response to a motion for summary judgment, and not after a trial.

The main reason for allowing the interlocutory appeal of an injunction, moreover, is that an injunction is likely to inflict irreparable harm on the defendant, that is, harm that a reversal will not cure. The harm will be prolonged and thus increased if the defendant must await the completion of further proceedings in the district court before challenging the injunction in the court of appeals. This is true whether the injunction is permanent or temporary — in fact it is truer for the former. The purpose of an injunction bond is to compensate the defendant, in the event he prevails on the merits, for the harm that an injunction entered before the final decision caused him, and so it is required only for a temporary restraining order or a preliminary injunction, Fed.R.Civ.P. 65(c), not for a permanent injunction.

So we have jurisdiction by virtue both of Rule 54(b) and section 1292(a)(1), and thus can proceed to the merits, where the only question is whether PIL is entitled to a trial on its defense of fair use. "Fair use is a mixed question of law and fact," Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 560, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985), which means that it "may be resolved on summary judgment if a reasonable trier of fact could reach only one conclusion" — but not otherwise. Narell v. Freeman, 872 F.2d 907, 910 (9th Cir.1989); see also Association of American Medical Colleges v. Cuomo, 928 F.2d 519, 524 (2d Cir.1991).

The defense of fair use, originally judge-made, now codified, plays an essential role in copyright law. Without it, any copying of copyrighted material would be a copyright infringement. A book reviewer could not quote from the book he was reviewing without a license from the publisher. Quite apart from the impairment of freedom of expression that would result from giving a copyright holder control over public criticism of his work, to deem such quotation an infringement would greatly reduce the credibility of book reviews, to the detriment of copyright owners as a group, though not to the owners of copyright on the worst books. Book reviews would no longer serve the reading public as a useful guide to which books to buy. Book reviews that quote from ("copy") the books being reviewed increase the demand for copyrighted works; to deem such copying infringement would therefore be perverse, and so the fair-use doctrine permits such copying. Desnick v. American Broadcasting Companies, Inc., 44 F.3d 1345, 1351 (7th Cir.1995) (dictum); William M. Landes, "Copyright, Borrowed Images, and Appropriation Art: An Economic Approach," 9 Geo. Mason L.Rev. 1, 10 (2000); Lawrence Lessig, "The Law of the Horse: What Cyberlaw Might Teach," 113 Harv. L.Rev. 501, 528 (1999). On the other hand, were a book reviewer to quote the entire book in his review, or so much of the book as to make the review a substitute for the book itself, he would be cutting into the publisher's market, and the defense of fair use would fail. Harper & Row, Publishers, Inc. v. Nation Enterprises, 723 F.2d 195, 215 (2d Cir.1983) (dissenting opinion), rev'd, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985); see Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 562, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985); Worldwide Church of God v. Philadelphia Church of God, Inc., 227 F.3d 1110, 1118 (9th Cir.2000); Consumers Union of United States, Inc. v. General Signal Corp., 724 F.2d 1044, 1051 (2d Cir.1983).

Generalizing from this example in economic terminology that has become orthodox in fair-use case law, we may say that copying that is complementary to the copyrighted work (in the sense that nails are complements of hammers) is fair use, but copying that is a substitute for the copyrighted work (in the sense that nails are substitutes for pegs or screws), or for derivative works from the copyrighted work, see 4 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 13.05[B][1], p. 13-193 (2002), is not fair use. On Davis v. The Gap, Inc., 246 F.3d 152, 175-76 (2d Cir.2001); Suntrust Bank v. Houghton Mifflin Co., 268 F.3d 1257, 1277 (11th. Cir.2001) (concurring opinion); Wendy J. Gordon, "Fair Use as Market Failure: A Structural and Economic Analysis of the Betamax Case and Its Predecessors," 82 Colum. L.Rev. 1600, 1643 n. 237 (1982); see Consumers Union of United States, Inc. v. General Signal Corp., supra, 724 F.2d at 1051. If the price of nails fell, the demand for hammers would rise but the demand for pegs would fall. The hammer manufacturer wants there to be an abundant supply of cheap nails, and likewise publishers want their books reviewed and wouldn't want reviews inhibited and degraded by a rule requiring the reviewer to obtain a copyright license from the publisher if he wanted to quote from the book. So, in the absence of a fair-use doctrine, most publishers would disclaim control over the contents of reviews. The doctrine makes such disclaimers unnecessary. It thus economizes on transaction costs.

The distinction between complementary and substitutional copying (sometimes — though as it seems to us,...