Digital Filing Systems, L.L.C. v. Aditya International ( 2009 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 09a0237n.06
Filed: March 31, 2009
No. 07-1519
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
DIGITAL FILING SYSTEMS, L.L.C. )
)
Plaintiff-Appellee, )
) ON APPEAL FROM THE UNITED
v. ) STATES DISTRICT COURT FOR
) THE EASTERN DISTRICT OF
ADITYA INTERNATIONAL AND ) MICHIGAN
AKHILESH AGARWAL, )
) OPINION
Defendants-Appellants. )
Before: BATCHELDER and MOORE, Circuit Judges; and BUNNING, District
Judge.*
DAVID L. BUNNING, District Judge. This case is before this Court for the third
time. In the first appeal, Case No. 05-1796, we upheld the district court’s entry of a Default
Judgment against Defendants-Appellants on Plaintiff-Appellee’s Complaint for copyright
infringement. In the second appeal, Case No. 05-2101, we upheld in part the district
court’s award of statutory damages, injunctive relief, and attorneys’ fees, and reversed the
district court’s award of statutory damages and injunctive relief with respect to the
computer software known as “DigiCourt” and remanded for further proceedings. In this
third appeal, Defendants-Appellants challenge, inter alia, the district court’s post-remand
*
The Honorable David L. Bunning, United States District Judge for the Eastern District of
Kentucky, sitting by designation.
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ruling affirming its prior award of relief. For the reasons stated herein, we affirm the district
court’s decision to affirm its prior award of statutory and injunctive relief, though we
conclude that remand is in order for the purpose of modifying the scope of the injunctive
relief.
I. BACKGROUND/PROCEDURAL HISTORY
Plaintiff-Appellee Digital Filing Systems, Incorporated (hereafter Plaintiff or Digital
Filing Systems), is a corporate citizen of Michigan; Harish L. Verma is its President. On
January 31, 2003, Digital Filing Systems sued Defendants-Appellants Akhilesh Agarwal,
a citizen of New Delhi, India, and the sole proprietorship he operates, Aditya International
(hereafter Defendants or Aditya International) in the Eastern District of Michigan.
Appellants proceeded pro se before the trial court and before this Court.1
Digital Filing Systems owns a trademarked computer software product “ProFile,”
registered under U.S. Copyright Reg. No. TX-5-551-436. In 1999 it contracted with
Defendants to enhance, add, modify, and debug its ProFile product. That Agreement
provided that Plaintiff maintained all rights to ProFile, including any work done by
Defendants, to which Defendants gave up any and all rights. It further provided that
Defendants would not market, sell, or distribute in the United States any document
management software using any aspect of imaging technology. Digital Filing Systems
alleges Defendants have marketed and sold software called “DigiFile,” registered under
U.S. copyright Reg. No. TX 5-389-304, that is either derived from, or incorporates, ProFile.
1
As we have previously noted, this pro se status is acceptable, given that Agarwal is the
sole proprietor of the unincorporated business Aditya International. See N.L.R.B. v. Consol. Food
Servs., Inc., 81 F. App’x 13, 14 n.1 (6th Cir. 2003) (unpublished decision).
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Upon discovery of DigiFile’s existence, Plaintiff sued Defendants in federal district court for
breach of the Agreement; for unlawful conversion of Plaintiff’s property for which it sought
to strike Defendants’ registration; and for actual and statutory damages, and injunctive
relief under the Copyright Act, 17 U.S.C. § 101, et seq.
Defendants’ Answer asserts that they have thus far developed three software
programs popular in the United States: DigiFile (document scan/image software), DigiCourt
and DigiRecord (both used as case management software). Defendants contend they own
a U.S. Copyright Registration No. TX5-389-304 issued May 18, 2001, on their product
DigiFile, formerly known as ProFile. Defendants maintain that it was Plaintiff who
approached them in 1997 about testing and evaluating ProFile; and that Defendants
continued to make changes and improvements to ProFile over the next few years then
entered into a Value Added Reseller (VAR) Agreement after Plaintiff requested a
nonexclusive contract to market and sell the product. Aditya International contends
Plaintiff unlawfully applied for and was issued a U.S. copyright registration for ProFile on
February 26, 2002, when in fact ProFile originated with Defendants and was now
registered by them under the name DigiFile.
Digital Filing Systems filed a detailed responsive pleading in the New Delhi action,
maintaining Defendants perpetrated a fraud on the New Delhi court by their filing of false
information and a forged VAR Agreement. According to Digital Filing Systems, it
encountered Agarwal while he was working as a programmer for a company Plaintiff
contracted with in 1999 to render programming refinement services on ProFile. Plaintiff
subsequently started working directly with Agarwal in 1999 for programming and
development services; with all property rights retained by Plaintiff. Digital Filing Systems
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maintains that upon return of its ProFile software, Defendants retained a copy without
permission and labeled it DigiFile, and also planted a bug in the source code before
returning ProFile, so as to receive copies of Plaintiff’s client communications and
information.
At Defendants’ request, the district judge initially stayed the Michigan federal court
action in May of 2003, while a copyright infringement lawsuit filed by Defendants in New
Delhi proceeded. The stay was lifted after Plaintiff represented the Indian case had been
dismissed. In February of 2005 Defendants moved to clarify Plaintiff’s intention to proceed
in Michigan federal court, claiming that the Indian case was not dismissed as Plaintiff had
erroneously reported, and that the Indian court’s ruling on Defendants’ contempt petition
restrained Plaintiff from proceeding further with the Michigan district court action.
After a series of events that the district court viewed as willful hindrance of the
proceedings in her court, on April 22, 2005, the district judge entered a Default Judgment
against Defendants on the underlying infringement claims alleged in Plaintiff’s Complaint.
The district court concluded Defendants had actively avoided prosecution by refusing to
comply with discovery and a court order compelling them to do so, and had avoided service
of documents and communications from opposing counsel and the court, culminating in
Defendants’ failure to participate in a court-scheduled conference call despite being
expressly informed by chambers that the call would occur as scheduled. Default Judgment
was therefore entered for Defendants’ active and unreasonable delay in the proceedings.
Defendants timely appealed that ruling. Concluding the district court had not
abused its discretion by entering a default judgment under the circumstances described
above, this Court on April 28, 2006, affirmed entry of that default judgment, based upon
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its consideration of the factors identified in Bank One of Cleveland, N.A. v. Abbe, 916 F.2d
1067, 1073 (6th Cir. 1990). This Court reviewed in detail the difficulties in prosecuting the
case, the efforts of counsel and the lower court to procure Defendants’ participation so that
the litigation could be advanced, and Defendants’ lack of participation and inadequate
explanations for that lack of participation. Defendants were given opportunities by the
district court to cure and explain their acts and omissions, and were warned that continued
failure to prosecute could result in severe sanctions. The district court found that
Defendants’ actions prejudiced Plaintiff, an American business, in its ability to reasonably
advance its litigation for copyright infringement at a time when, if the allegations proved
true, the infringement was continuing to occur.
While that appeal was pending, Plaintiff proceeded to move the district court for an
award of fees, injunctive relief, and damages on its infringement claim. By Opinion and
Order of July 20, 2005, the lower court granted Plaintiff’s motion and entered a judgment
awarding attorneys’ fees and filing costs totaling $27,870.55, as well as $67,500.00 in
statutory damages under 17 U.S.C. § 504(c)(1). In awarding this sum, the district court
examined the considerations pertinent to determining a damage figure within the statutorily
specified range. First, it looked at whether sufficient evidence had been put forth to show
that the infringement was willful, thereby allowing an increase in the maximum statutory
award, or whether the infringement was innocent, in which case a decrease in the statutory
minimum is permitted. It found that “[t]he evidence presented by Plaintiffs establishes that
Defendants did not act innocently, but it does not sufficiently establish that Defendants
acted willfully.” Therefore, pursuant to § 504(c)(1), the damages for each infringement
were required to be in a sum of not less than $750.00 or more than $30,000.00, as the
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court determined would be just so as to deter and discourage wrongful conduct under the
Copyright Act. The district court awarded Plaintiff $67,500.00 in statutory damages,
without further elaboration aside from noting that “Plaintiff has identified 90 copies of the
infringing software product in 30 identified locations within the United States. The court will
multiply each of the works by the statutory minimum of $750 and award Plaintiff $67,500.”
It appears these 90 infringements were based upon an attachment to Plaintiff’s motion
listing 30 purchasers who purportedly had 90 copies of software infringing on its
copyrighted ProFile software.
The district court awarded injunctive relief, imposing an injunction pursuant to 17
U.S.C. § 502 “restraining Defendants from offering for sale, selling, reproducing, preparing
derivative works, distributing copies of, or otherwise using the software product DIGIFILE,
DIGICOURT, PROFILE . . . .” It also granted injunctive relief under § 503(b) by ordering
that “all copies of any software identified as DIGIFILE, DIGICOURT, or similar software
obtained from Defendants or a reseller or distributor of Defendants be impounded by
Plaintiff and destroyed at Plaintiff’s discretion . . . .”
Defendants also timely appealed that Judgment. In an Order dated May 15, 2006,
we affirmed the lower court’s award of attorneys’ fees. This Court’s review focused not on
the fact that statutory damages had been awarded, since Plaintiff had been granted a
Default Judgment and that determination had been affirmed on appeal, but rather on the
scope of that statutory damage award. Noted in our Order was that injunctive relief and
the number of infringements had been calculated based upon Defendants’ sales of
DigiCourt, a product Defendants pointed out was developed by them and protected by a
separate copyright. As to this point, this Court noted that:
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The proposed order [attached to Plaintiff’s motion] awarded relief not only
with respect to DigiFile, but also as to a previously unmentioned product
known as DigiCourt. The defendants filed a response, generally denying
liability and asserting that DigiCourt had been developed by the defendants
and was protected by a third copyright, Copyright Reg. No. TX 5-917-734.
Furthermore, the defendants alleged that the purchasers listed in the motion
were purchasers of DigiCourt, not DigiFile. The plaintiff filed a reply, but did
not address the defendants’ argument concerning DigiCourt. Without
holding a hearing, the district court granted the plaintiff’s motion and awarded
statutory damages in the amount of $750 for each copy of infringing software
product, . . . . The district court likewise did not address the defendants’
arguments concerning DigiCourt.
The district court’s award of statutory damages was therefore vacated. In our Order, we
emphasized that “plaintiff clearly is entitled to statutory damages for each sale of a
software product impermissibly derived from ProFile,” but remanded the matter for
additional findings of fact by the district court with respect to its award of statutory
damages.
Our May 15, 2006, Order also noted the same problem with the scope of injunctive
relief awarded to Plaintiff. The Judgment included DigiCourt as an offending product that
Defendants were restrained from selling, distributing copies of, or using. Once again, the
evidentiary support for the district court’s conclusion that DigiCourt is an infringing software
was absent, necessitating remand for further fact-finding on including DigiCourt within the
injunctive relief.
On remand, the district court directed the parties to file supplemental briefs in
support of their positions on the issue of whether DigiCourt was an infringing software that
should also be enjoined. The district court entered formal Findings of Fact and
Conclusions of Law by Order of February 16, 2007, and reinstated in full its original
Opinion and Order awarding statutory damages and injunctive relief, thereby including
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DigiCourt software within the scope of that ruling. Defendants moved for reconsideration,
which was denied by Order of April 3, 2007. This appeal followed.
II. ANALYSIS
The primary issue presented in this third appeal is whether the district court abused
its discretion when, on remand, it reinstated its prior award of statutory damages and
injunctive relief. A secondary issue is Plaintiff’s request for an award of legal fees for this
appeal pursuant to 17 U.S.C. § 505. This latter request is denied for the same reasons
previously articulated by this Court in the earlier appeal, Case No. 05-2101, wherein
Plaintiff presented a similar request. The instant appeal is not frivolous as evidenced
herein, nor did Plaintiff file a separate motion for an award of fees in accordance with
Federal Rule of Appellate Procedure 38. We therefore turn now to the primary issue
before us.
A. Standard of Review
As noted in the prior appeal, an award of statutory damages and the scope of
permanent injunctions under the Copyright Act are reviewed on appeal for an abuse of
discretion. Murray Hill Publ’ns, Inc. v. ABC Commc’ns, Inc., 264 F.3d 622, 639 (6th Cir.
2001); S. Cent. Power Co. v. IBEW, Local Union 2359, 186 F.3d 733, 737 (6th Cir. 1999).
Issues of law are reviewed de novo, while factual findings are left undisturbed unless
clearly erroneous. Ford Motor Co. v. Catalanotte, 342 F.3d 543, 545-46 (6th Cir. 2003)
(review of statutory damage award in context of Anticybersquatting Consumer Protection
Act). Moreover, the Supreme Court has clarified that “‘[a] finding is ‘clearly erroneous’
when although there is evidence to support it, the reviewing court on the entire evidence
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is left with the definite and firm conviction that a mistake has been committed.’” Anderson
v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting United States v. United States
Gypsum Co., 333 U.S. 364, 395 (1948)); see also Ellis v. Diffie, 177 F.3d 503, 505-06 (6th
Cir. 1999).
B. Review of the Merits
Defendants, continuing to proceed pro se, raise a number of arguments on appeal.
Many of the questions they pose and arguments they advance are directed to the merits
of the prior two rulings by this Court. Those rulings are not the subject of this appeal;
Defendants’ questions and arguments regarding our previous rulings simply are not
relevant to this third appellate proceeding. What is properly before us are Defendants’
challenges to the lower court’s subsequent determination on remand.
1. Statutory Damages
The district court defaulted Defendants on the issue of infringement, and
Defendants are subject to the remedy provisions under the Copyright Act. This Court’s
prior decision recognized that infringement had occurred. Therefore, despite being
uncertain, damages are in order. See Story Parchment Co. v. Paterson Parchment Paper
Co., 282 U.S. 555, 562 (1931) (“The rule which precludes the recovery of uncertain
damages applies to such as are not the certain result of the wrong, not to those damages
which are definitely attributable to the wrong and only uncertain in respect of their
amount.”). Digital Filing Systems chose the option of recovering statutory damages under
§ 504(c) in lieu of actual damages. Section 504(c) of the Copyright Act permits a copyright
owner “to recover, instead of actual damages and profits, an award of statutory damages.
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. . ., in a sum of not less than $750 or more than $30,000 as the court considers just.” 17
U.S.C. § 504(c)(1). In copyright infringement cases, the district court has discretion to
award statutory damages of any amount between this minimum and maximum for each
infringement.
Having concluded that infringement occurred, and based on Plaintiff’s election of
statutory damages, the district court was obligated to make an award of statutory damages
for each infringement, though it has broad discretion concerning the amount awarded
within the minimum and maximum statutory boundaries. See Wildlife Internationale, Inc.
v. B. Russell Clements, 782 F.2d 1044, 1985 WL 14088, *2 (6th Cir. Dec. 3, 1985)
(unpublished table decision); see also Jewell-La Salle Realty Co. v. Buck, 283 U.S. 202,
206 (1931) (award of minimum statutory damages where other proof of actual damage was
lacking).
The district court awarded $67,500.00 in statutory damages, finding there were 90
infringements and assessing the statutory minimum of $750.00 for each infringement. The
damage statute itself places wide discretion in the assessing court to set appropriate
damages within the statutory limits. Zomba Enter., Inc. v. Panorama Records, Inc., 491
F.3d 574, 587 (6th Cir. 2007) (citing Douglas v. Cunningham, 294 U.S. 207, 210 (1935)
(Congress’s purpose in enacting the statutory-damage provision of the 1909 Copyright Act
and its delineation of specified limits for statutory damages “take[ ] the matter out of the
ordinary rule with respect to abuse of discretion”); Broad, Music, Inc. v. Star Amusements,
Inc., 44 F.3d 485, 487 (7th Cir. 1995) (interpreting the modern Copyright Act and noting
“that the standard for reviewing an award of statutory damages within the allowed range
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is even more deferential than abuse of discretion”)). Indeed, historically one of the reasons
statutory damages were awarded is because sufficient proof of actual damages was
lacking. See F. W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 233 (1952)
(“the amount of damages suffered was not computable from the testimony. . . . warrant[ing]
resort to the [damage] statute in the discretion of the court, subject always to the statutory
limitations”).
‘The phraseology of the section was adopted to avoid the strictness of
construction incident to a law imposing penalties, and to give the owner of
a copyright some recompense for injury done him, in a case where the rules
of law render difficult or impossible proof of damages or discovery of profits.’
Woolworth, 344 U.S. at 231 (quoting Douglas v. Cunningham, 294 U.S. 207, 209 (1935)).
‘In other words, the court’s conception of what is just in the particular case,
considering the nature of the copyright, the circumstances of the
infringement and the like, is made the measure of the damages to be paid,
but with the express qualification that in every case the assessment must be
within the prescribed limitations, that is to say, neither more than the
maximum nor less than the minimum. Within these limitations the court’s
discretion and sense of justice are controlling, but it has no discretion when
proceeding under this provision to go outside of them.’
Woolworth, 344 U.S. at 232 (quoting L.A. Westermann Co. v. Dispatch Printing Co., 249
U.S. 100, 106-07 (1919)).
While clearly the $750.00 per infringement assessed by the district court is
reasonable because it falls within the permissible statutory damage boundaries, the
$750.00 per infringement is not what lies at the heart of this appeal. Rather, it is the trial
court’s factual findings, in particular as they pertain to DigiCourt, and its finding that there
were 90 infringements. DigiFile, the computer software found to be infringing, and ProFile,
Plaintiff’s copyrighted software, are both used for scanning/imaging and indexing of
documents. DigiCourt, on the other hand, is a separate case management software
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program.2 Defendants have a separate copyright for DigiCourt. Plaintiff has not argued
that the DigiCourt program itself infringes upon its copyrighted ProFile software, nor
disputed Defendants’ rightful ownership of this software. At the time of the underlying
damages ruling, Plaintiff did not offer a management software serving the same function
as DigiCourt.
DigiCourt’s connection with this litigation turns upon the nature and extent to which
Defendants’ infringing software, DigiFile, was made a part of the DigiCourt software sold
by Defendants. To the extent it was sold as available with and included in, or packaged
with, the DigiCourt program, an infringement violative of the Copyright Act has occurred.
Basically, the parties dispute how DigiFile was packaged or bundled with DigiCourt.
The district court’s first damages ruling, the July 20, 2005, Opinion and Order, stated
simply that “Plaintiff has identified 90 copies of the infringing software product in 30
identified locations within the United States. The court will multiply each of the works by
the statutory minimum of $750 and award Plaintiff $67,500.” This reference to 90 copies
came from the May 3, 2005, declaration of Pearl M. Holforty provided with Plaintiff’s
original motion for damages. That declaration represented that she is, and has been, the
Manager of Digital Filing Systems from 1995 to the present. She attached to her
declaration a list of some of Defendants’ customers, most of whom she represents were
identified by Frontier Consulting, one of Defendants’ U.S. distributors. Ms. Holforty states
two of the listed customers were contacted to verify their status as customers of
2
There is another case management product developed by Defendants and referred to in
the record as DigiRecord, which performs functions similar to DigiCourt but was designed for a
different type of county office located within local courthouses.
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Defendants. Eight of the purported customers on the list were identified in 2002 from
Defendants’ website. Holforty represents that their status as customers was verified by
correspondence sent directly to each customer. Also significant is Holforty’s declaration
that “at least 90 copies of the infringing software product” were present at the 30 customer
locations identified on the list. She explains that this “number of licenses at each customer
site is an estimate based on discussions with three counties.”
The lower court’s award of the statutory minimum for 90 copies was based upon
Holforty’s declaration. However, the declaration does not define what she meant by “the
infringing product;” that is, whether Holforty is referring to DigiFile specifically or simply
Defendants’ sales of the umbrella image management software DigiCourt, a point
previously noted by this Court in its May 15, 2006, Order in Appeal No. 05-2101. The fatal
deficiencies in Holforty’s statements that, in turn, rendered the lower court’s reliance upon
her declaration misplaced, were described as follows in this Court’s prior ruling:
In her declaration, the plaintiff’s manager, Pearl M. Holforty, did not indicate
the name of the infringing product purchased or otherwise verify that the
infringing product was derived from ProFile. Moreover, Holforty’s declaration
generally lacks sufficient specificity. Three statements in particular are worth
noting. First, the declaration states that “most customers on Attachment 1
were provided by Frontier Consulting and verified by contacting two of the
listed customers,” but the declaration does not indicate who the two
customers were or provide affidavits from them. Second, the declaration
states that other customers “were verified by direct correspondence,” but the
declaration does not include copies of the correspondence or furnish other
corroboration. Third, the declaration states that “[t]he number of licenses at
each customer site is an estimate based on discussions with three counties,”
but the declaration again does not name the counties or detail the
discussions. Because the declaration does not give adequate information
about the infringing software or the customers, the award of statutory
damages will be vacated.
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On remand, Plaintiff came forth with additional documentation, and Defendants were given
the opportunity to file a brief on damages. Moreover, the district court issued specific
findings based upon this supplemental evidence and argument by the parties. Those
findings included that “Defendants’ sales of the DigiCourt program included sales of the
infringing DigiFile program.”
The district court’s supplemental findings on February 16, 2007, confirm that
DigiCourt was not a software identified in Plaintiff’s Complaint. But the lower court
implicitly found DigiCourt relevant to the issue of statutory damages for purposes of
calculating the number of infringements because the declarations of Plaintiff’s expert,
Michael Todd Holforty, included in Plaintiff’s supplemental filing confirm that a demo
version of the DigiCourt software contained the infringing software DigiFile as a clickable
item, and that versions 2.0 and 3.0 of DigiCourt examined by Mr. Holforty at two customer
courthouse locations also contained the DigiFile imaging software. The district judge
remarked that “From this [Mr. Holforty] concluded that the software which this Court and
the Court of Appeals affirmed as being offending and infringing on Plaintiff’s product,
DigiFile, is integrated and embedded in the DigiCourt software,” and that “Mr. Holforty
concluded from this that the DigiFile imaging software was integrated and embedded in the
DigiCourt Pro version 3.0 software and the DigiCourt version 2.0 software.”
Holforty3 describes three specific instances where he documented observing the
DigiFile software. The first was his visit to Defendants’ website in 2003, when he observed
3
Apparently Michael Holforty is the son of Pearl Holforty. Defendants moved the district
court to strike Mr. Holforty’s declaration, which motion was denied. Despite the familial relationship,
Mr. Holforty’s declaration sets forth his background and training in computer software science.
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that “[t]he DigiFile product was integrated and embedded in the demo version of DigiCourt
that I accessed and viewed on the website.” The second was on August 25, 2005, while
on site at the Garza County, Texas, Courthouse. Holforty declares that “[t]he DigiFile
imaging software was integrated and embedded in the DigiCourt Pro version 3.0 software,”
and “in the DigiRecord software.” The third occurred on May 25, 2006, while on site at the
Jack County, Texas, Courthouse, where he observed that “[t]he DigiFile imaging software
was integrated and embedded in the DigiCourt version 2.0 software.”4 Thus, at the website
demo and at the two courthouses he visited, he noted the presence of the DigiFile program
within the DigiCourt system installed at those courthouses.
Defendants maintain DigiFile is a program separately sold and installed from that
of DigiCourt, and thus the fact that DigiFile may be a clickable item on the DigiCourt menu
does not equate with a customer having actually paid for and had the software installed
such that an infringement has occurred. As part of their supplemental briefing, Defendants
offered the expert declaration of Sameer Mehra, who stated he had full access to and had
examined Defendants’ DigiCourt software and observed that DigiFile was not accessible
via, and integrated within, the DigiCourt software.
The district judge reviewed and weighed the evidence submitted by both parties on
remand, ultimately concluding that the expert information submitted by Plaintiff pertaining
4
The various other declarations offered by Plaintiff in its supplemental briefing do not speak
to the question of whether DigiFile in particular was viewed and removed from particular client
computers. These declarations merely confirm generally that DigiCourt was found and removed
from the computers. The one exception is the affidavit of Armando Balderrama, who was hired to
remove software. He states that DigiRecord, DigiCourt and DigiFile software have been removed
from three workstations and one server at the Reagan County Clerk’s offices. Coincidentally, and
as subsequently explained herein, the Reagan County District Clerk and County Clerk’s offices are
among Mr. Mims’ list of customers who purchased DigiCourt and DigiRecord with imaging software,
which is consistent with Balderrama’s affidavit’s statement that DigiFile was found.
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to the DigiCourt software was more credible. The lower court based this credibility finding
upon the specificity contained in Mr. Holforty’s declarations, and his personal observations
of the software on particular dates and at specific customer locations. Conversely,
Defendant’s expert failed to specify the date he viewed DigiCourt, the version examined,
or whether it was a working version of the software that was accessed. This credibility
assessment by the district court and her findings of fact related thereto are sound. We
cannot find fault with the district court’s consideration of this evidence, nor would it be
proper for us to do so, under the applicable standard.
Our role in reviewing the district judge’s findings of fact upon which she decided to
reinstate the prior award is a limited one, dictated by the boundaries set by the Federal
Civil Rules. Under those rules, “[f]indings of fact shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of the trial court to judge of the
credibility of the witnesses.” Fed. R. Civ. P. 52(a). This “clearly-erroneous standard – with
its deference to the trier of fact – is the rule, not the exception.” Anderson v. City of
Bessemer City, 470 U.S. 564, 575 (1985).
The plain language of Rule 52(a), with its use of the conjunctive “and,” dictates that
district court factual findings be given appropriate deference, whether based on credibility
determinations, or on physical or documentary evidence, or on inferences from other facts.
Id. at 574. Moreover, the rule calls for greater deference to a trial court’s credibility
findings. The Supreme Court describes this greater deference in this manner:
[W]hen a trial judge’s finding is based on his decision to credit the testimony
of one of two or more witnesses, each of whom has told a coherent and
facially plausible story that is not contradicted by extrinsic evidence, that
finding, if not internally inconsistent, can virtually never be clear error.
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Id. at 575.
Mr. Holforty’s observations at the two courthouse locations are consistent with other
evidence submitted upon supplemental briefing. In its Supplemental Reply, Plaintiff offered
the customer list compiled by one Michael Mims, who is one of Defendants’ U.S. resellers.
Plaintiff sued Mims in Texas in conjunction with garnishment and enforcement proceedings
on the Michigan judgment; this list was provided by Mims in conjunction with that
proceeding. Both the Garza County, Texas, Courthouse and the Jack County, Texas,
Courthouse visited by Holforty are included on Mims’ customer list. Mims’ list indicates that
the County Clerk and District Clerk offices of Jack and Garza Counties purchased
DigiCourt and DigiRecord software with imaging software, which would also be consistent
with Mr. Holforty’s observation of DigiFile software within DigiCourt when he examined
those computers.
As further evidence of the DigiCourt-DigiFile connection, Plaintiff points to
statements made in a cross-claim filed by Mims against Plaintiff in that enforcement action
for loss of customers and destruction of his business, statements like “[b]oth DigiCourt and
DigiRecord had DigiFile (the scanning software that was the subject of the copyright
infringement action in Michigan between Digital and Judgment-Debtors) imbedded in
them.” This statement from the cross-claim was also repeated by the district court in its
factual findings, emphasizing Mims’ description that the DigiFile software was imbedded
in DigiCourt and DigiRecord.
We are obligated to give the district court’s review and interpretation of this evidence
great deference, as long as its account of the evidence is plausible in light of the record
viewed in its entirety. We should not reverse the district court even were we convinced that
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we would have decided the case differently. Rather, “appellate courts must constantly
have in mind that their function is not to decide factual issues de novo.” Anderson, 470
U.S. at 573-74. The district court determined that a statutory minimum for 90 infringing
copies was just, despite Defendants’ protests and offerings of proof which the district judge
rejected. We cannot say that this credibility assessment of Defendants’ testimonial proof
and Defendants’ other proof on damages, and the lower court’s acceptance of Plaintiff’s
proof and the reasonable inferences to be drawn therefrom was clear error.
In seeking reconsideration before the district court, Defendants go to great lengths
seeking to negate the district judge’s finding that DigiFile was embedded within the sales
of DigiCourt software. Defendants attached an affidavit from Mims wherein he seeks to
clarify a statement made by his counsel in the counterclaim to the effect
that DigiCourt and DigiRecord has DigiFile imaging software imbedded in it.
This is not technically accurate, as explained below. DigiFile imaging
software has always been priced and sold as separate software. When my
business, ODS, a reseller, introduced DigiCourt case management software
in 2003, the customers had the option of purchasing imaging software as a
separate module. . . . DigiRecord for county clerks had the same option:
DigiFile imaging software could be purchased as separate software module
and then included as part of the DigiRecord software.
Mims’ affidavit further states that “DigiCourt JP and Municipal software was never sold with
imaging because the State did not require JPs or cities to keep copies of their tickets. The
imaging software was never imbedded in their case management software.” The district
court did not note or discuss these sworn statements by Mims, or the extent to which they
impacted any finding that the DigiFile software was automatically included in and imbedded
within a customer’s purchase of DigiCourt.
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Plaintiff offered no evidence to directly contradict these statements. Plaintiff’s reply
brief attached a supplemental affidavit from Mr. Holforty that sought to provide more detail
on DigiCourt versions 2.0 and 3.0 and their integration and embedding of DigiFile within
DigiCourt, based upon his examination of these versions at the Jack and Garza County
locations. To the extent Holforty is implicitly opining that the infringing software can be
included in version 2.0 and is essentially automatically available in 3.0, the record contains
no other information to shed light on which version was installed at each of the various
customer locations listed by Pearl Horforty in her declaration. Pearl Holforty’s list of
customers who possessed a combined total of 90 copies of the “infringing software”
included offices that, according to Mims, were never sold scan/imaging software with their
case management software.
The weakness in this reconsideration evidence is its emphasis upon sales; that is,
whether DigiCourt or DigiRecord was priced, sold, or purchased with DigiFile imaging
software. Despite these evidentiary offerings on reconsideration, Defendants and Mims
do not make clear whether a copy of the infringing product existed within, as a part of, or
in conjunction with Defendants’ case management software sold to a customer. Their
emphasis is upon the product purchased. The emphasis of the Copyright Act, in contrast,
is not on whether a sale of the infringing product occurred. The Act provides copyright
protection to “original works of authorship fixed in any tangible medium of expression.”
This includes computer programs, which fall under the Act’s protection of “literary works.”
17 U.S.C. § 102(a). Elements of a copyright-infringement claim are (1) ownership of the
copyright by the plaintiff and (2) copying by the defendant. See Feist Publ’ns, Inc. v. Rural
Tel. Serv. Co., 499 U.S. 340, 361 (1991); Zomba Enterprises, Inc. v. Panorama Records,
Inc., 491 F.3d 574, 581 (6th Cir. 2007).
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Defendants protest that DigiFile is purchased separately, for a separate price, in
order to obtain access to the software program. Even presuming this is the case, it does
not evidence clear error in the district court’s factual finding of the number of infringing
copies produced. Each infringement for copyright damage calculation purposes is not
driven by whether Defendants accomplished a sale of the software for a profit. It is
dictated by whether a copy of the software was made. See Thoroughbred Software
International, Inc. v. Dice Corp., 488 F.3d 352, 359 (6th Cir. 2007) (concluding, in
assessing actual damages for copyright violation, that the infringer was “liable for the
unpaid license fees for all the unauthorized copies it made, regardless of whether these
copies were accessible to or used by [the infringer’s] customers”); see also Sensonics, Inc.
v. Aerosonic Corp., 81 F.3d 1566, 1573 (6th Cir. 1996) (rejecting appellant’s argument that
patent damages were measured by the number of devices sold rather than the number
manufactured, as patent law excludes others from making, using, or selling patented
subject matter).
In this Court’s view, documentation of a precise number of customers separately
purchasing and paying a license fee for DigiFile is not required. Defendants would claim
such does not exist, yet it is undisputed that DigiFile was in fact observed and accessed
during on-site visits by Plaintiff’s representative. Defendants have not been forthcoming
with information even as to those confirmed observations, and evidence of other sales of
DigiFile specifically have not been forthcoming from Defendants even though Defendants
continue to maintain that DigiFile is not an infringing product.
The record is at best ambiguous on whether DigiFile was packaged with sales of
DigiCourt/DigiRecord and merely inaccessible to the customer because it had not been
separately purchased, or whether it physically was not included in each sale of Defendants’
case management software. Perhaps Defendants’ records were incomplete; however, if
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determining the number of infringing copies is impeded by a defendant’s failure to come
forth with accurate or complete records, a court may draw adverse inferences from this
lack of information. Defendants have not offered information or evidence that DigiFile is
not embedded or otherwise physically contained within the DigiCourt program with its
distribution. In other words, there is no evidence that a customer purchasing DigiCourt
software from Defendants who thereafter decides to purchase DigiFile undergoes a
separate installation or is sent additional, separate software, etc. Absent evidence of such,
it is reasonable to infer the fact, as did the district judge in this case, that the DigiFile
program is contained or otherwise packaged within and accompanies the distribution of
DigiCourt. Plaintiff should not otherwise be penalized in assessing damages where it does
not have the ability to verify or contest representations by the liable infringer. See
Woolworth, 344 U.S. at 233.
Defendants’ own failure to be forthcoming in its conveyance of unambiguous,
accurate and complete sales information as to its software products has generated
adverse consequences which only Defendants should bear. Due to Defendants’ default,
Digital Filing Systems has had little opportunity to conduct discovery on the extent of
Defendants’ production and sales of the DigiFile product, being left to address what limited
information in this respect Defendants came forth with on supplemental briefing. Since
damages are difficult to ascertain, doubts about the proof should be resolved against
Defendants.
[I]f actual damages cannot be ascertained with precision because the
evidence available from the infringer is inadequate, damages may be
estimated on the best available evidence, taking cognizance of the reason
for the inadequacy of proof and resolving doubt against the infringer.
Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1572 (Fed. Cir. 1996) (citations omitted).
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In determining damages, parties should not be rewarded for failing to respond or
cooperate with discovery. Monogram Models, Inc. v. Industro Motive Corp., 492 F.2d
1281, 1287-88 (6th Cir. 1974) (infringer’s conduct in remaining silent prevented
ascertaining facts concerning damages); Bell v. Pro Arts, Inc., 511 F.2d 451, 453 (6th Cir.
1975) (per curiam) (appellant infringer’s failure to cooperate in discovery rendered it
impossible to ascertain damages); Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1065
(Fed. Cir. 1983) (“when the amount of the damages [for patent infringement] cannot be
ascertained with precision, any doubts regarding the amount must be resolved against the
infringer”); Sensonics, Inc., 81 F.3d at 1572 (where defendant in patent infringement action
failed to retain production records during litigation period, proper for district court to draw
strong adverse inference records would have been unfavorable to defendant).
The district court was properly in the position to gauge the reasonable inference to
be made from the evidence submitted pertaining to sales of DigiCourt and, in particular,
the embedding of DigiFile within DigiCourt. The record demonstrates that the district court
judge considered carefully the available testimonial declarations and documentation
provided by the parties upon remand prior to determining that the statutory award should
be reinstated. Certainly, it was within the district court’s province to resolve any
uncertainties about the nature and extent to which DigiFile was sold as a package within
DigiCourt against Defendants, and to determine what evidence it deemed most credible
after being provided with the testimonial declarations and documentary evidence from the
parties. Under these evidentiary circumstances, Defendants cannot now be heard to
complain about any inaccuracy in the district judge’s assessment where any purported
inaccuracies were at least in part attributable to Defendants. They, as the infringers,
should bear the burden of any inexactitude. See Nickson Industries, Inc. v. Rol Mfg. Co.,
847 F.2d 795, 799 (Fed. Cir. 1988).
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Where the tort itself is of such a nature as to preclude the
ascertainment of the amount of damages with certainty, it would be a
perversion of fundamental principles of justice to deny all relief to the injured
person, and thereby relieve the wrongdoer from making any amend for his
acts. In such case, while the damages may not be determined by mere
speculation or guess, it will be enough if the evidence show the extent of the
damages as a matter of just and reasonable inference, although the result
be only approximate. The wrongdoer is not entitled to complain that they
cannot be measured with the exactness and precision that would be possible
if the case, which he alone is responsible for making, were otherwise. . . .
[T]he risk of the uncertainty should be thrown upon the wrongdoer instead
of upon the injured party.
Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563 (1931)
(citations omitted). Defendants have failed to show that the district judge’s findings of fact
were clearly erroneous.
In summary, while given great flexibility, a damage assessment is not without limits.
In the second appeal, addressing the district court’s initial award of statutory damages,
there was virtually no explanation or articulation by the district court as to how it reached
its assessment and considered it just. Thus, as flexible and as discretionary as the statute
may be, some explanation is required. On remand, the district court sought further proof
from both parties, then reached express factual findings and legal conclusions therefrom
that, in the end, it determined confirmed its initial damage assessment. Under the clear
error standard for those factual findings, and given that those damages fall within the
statutory damage range, and given the district judge’s discretion in determining what is
considered to be a “just” statutory damage award, the district judge’s decision must be
upheld. The district court’s inference that Defendants provided a copy of DigiFile software
within copies of case management software sold and distributed by it was reasonable
based upon the evidence before it. It is this copying, rather than the sale of, the program
that constitutes the infringing conduct. See 107 U.S.C. § 106 (owners exclusive right to
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reproduce the copyrighted work and distribute copies to the public); § 501 (violation of
owner’s exclusive copyright rights is an infringement, and the one so doing is an infringer).
2. Injunctive Relief
Under the Copyright Act, Defendants are subject to an injunction restraining them
from further infringement, and they may be required to turn over all infringing copies. “Any
court having jurisdiction of a civil action arising under this title may, ... grant temporary and
final injunctions on such terms as it may deem reasonable to prevent or restrain
infringement of a copyright.” 17 U.S.C. § 502(a). Permanent injunctions are granted
where liability is determined and a continuing threat to a copyright exists. Such injunctions
may be issued without an evidentiary hearing where no triable issues of fact are involved.
United States v. Miami Univ., 294 F.3d 797, 815 (6th Cir. 2002).
By her decision on remand reinstating her prior Order of Judgment for damages and
injunctive relief, the district judge ordered that:
Pursuant to 17 U.S.C. § 502, an injunction issues, restraining Defendants
from offering for sale, selling, reproducing, preparing derivative works,
distributing copies of, or otherwise using the software product DIGIFILE,
DIGICOURT or PROFILE, and ordering them to refrain from asserting any
contract other than the 1999 Agreement.
. . . [P]ursuant to 17 U.S.C. § 503, that all copies of any software identified
as DIGIFILE, DIGICOURT, or similar software obtained from Defendants or
a reseller or distributor of Defendants be impounded by Plaintiff and
destroyed at Plaintiff’s discretion, whether in tangible media of expression or
disposed of electronically.
Plaintiff does not dispute that Defendants’ case management software, DigiCourt
and DigiRecord, does not infringe its ProFile product, nor did the district court so find in
either the default judgment of infringement or its subsequent findings regarding damages.
In light of this undisputed circumstance, the scope of the lower court’s award of injunctive
relief must be modified.
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The above quoted sections of the district court’s Order of Judgment, in particular the
use of the word “or”, impermissibly includes DigiCourt software generally in the scope of
the injunction, regardless of whether DigiFile was actually integrated and imbedded within
the DigiCourt program sold to a particular customer. While under the applicable legal
standards that finding was an appropriate one for purposes of assessing and calculating
statutory monetary damages, it is overly inclusive for purposes of injunctive relief. That this
is simply too broad is perhaps best exemplified by comparison to the scope of injunctive
relief Plaintiff in its original motion proposed was appropriate to order under the Copyright
Act:
1. That pursuant to 17 U.S.C. § 502(b) that the infringement of Plaintiff’s
registered copyright cease and that Defendants stop the sale or transfer of
the DIGIFILE software product, or any product that includes the DIGIFILE
product, such as DIGICOURT and DIGIRECORD.
2. That pursuant to 17 U.S.C. § 503(b) that any infringing copies of the work
in the United States be impounded and destroyed, thus permitting Plaintiff
to offer to replace them with copies of Plaintiff’s work at a negotiated price,
including any products that include the DIGIFILE software, such as
DIGICOURT and DIGIRECORD.
(emphasis added). Thus, Plaintiff acknowledges that only works which specifically include
the infringing software DigiFile should be enjoined. However, the injunction as written
allows for impoundment and destruction of DigiCourt generally, without verification that the
actual DigiFile program is also present. For this reason, remand for the limited purpose
of modifying the scope of injunctive relief is necessary.
III. CONCLUSION
For the reasons set forth herein, the district court’s decision confirming its prior
award of statutory damages is hereby AFFIRMED and its decision confirming its prior
award of injunctive relief is hereby REVERSED and REMANDED for further proceedings
consistent with this opinion.
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