Tattoo Art Incorporated v. TAT International LLC

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-2014
TATTOO ART INCORPORATED,
Plaintiff – Appellee,
v.
TAT INTERNATIONAL LLC; KIRK A KNAPP,
Defendants - Appellants.
Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Mark S. Davis, District
Judge. (2:10-cv-00323-MSD-DEM)
Argued: October 25, 2012 Decided: December 10, 2012
Before TRAXLER, Chief Judge, and WILKINSON and AGEE, Circuit
Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Nicholas Shaker Ayoub, WHEELER UPHAM, PC, Grand Rapids,
Michigan, for Appellants. Mark R. Baumgartner, PENDER & COWARD,
PC, Virginia Beach, Virginia, for Appellee. ON BRIEF:
Christopher Gibbons, DUNN/GIBBONS, Grand Rapids, Michigan, for
Appellants. Kristen R. Jurjevich, PENDER & COWARD, PC, Virginia
Beach, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Plaintiff-Appellee Tattoo Art, Inc. (“Tattoo Art”)
brought this action against Defendants-Appellants TAT
International, LLC (“TAT”) and Kirk A. Knapp, alleging claims
for copyright infringement and breach of a copyright license
agreement. The district court granted Tattoo Art’s motion for
partial summary judgment as to liability on both causes of
action. The district court then conducted a bench trial solely
as to damages and awarded actual damages of $18,105.48 on the
breach of contract claim and statutory damages under the
Copyright Act of $480,000 on the infringement claim. TAT
appeals various aspects of the district court’s rulings as to
both liability and damages. We affirm.
I.
Tattoo Art is a Virginia company owned by Joseph
Dufresne, who uses the trade name J.D. Crowe. Tattoo Art holds
copyright registrations for hundreds of colorized “tattoo flash”
art designs created by Dufresne. A tattoo flash is an original
drawing or design of a tattoo printed or drawn on a sheet of
paper or a poster and often displayed on the walls of tattoo
parlors to give customers design ideas for the tattooist to
copy.
2
To avoid the cost of copyright registration for
hundreds of individual works, Tattoo Art grouped its tattoo
flash designs into “Books” consisting of 50 pages or “sheets.”
Each sheet, in turn, displayed numerous individual tattoo
designs; Tattoo Art, however, secured only a single copyright
registration for each 50-sheet Book. Tattoo Art licenses
interested parties to use its copyrighted flash designs in
tattoos, posters, cell phone covers, and t-shirts among other
things. In this case, Tattoo Art granted permission to TAT, a
Michigan company owned by Knapp, to use the copyrighted designs.
Among other things, TAT creates and sells stencils for use in
applying temporary airbrush body art.
In December 2005, Tattoo Art and TAT entered into an
agreement permitting TAT to use specified copyrighted flash
drawings to create stencils for temporary airbrushed tattoos.
According to Tattoo Art, the complete terms of the parties’
agreement were contained within a 10-page typewritten “License
Agreement” (or “the Agreement”), a signed copy of which Tattoo
Art attached and incorporated into its complaint. The License
Agreement granted TAT the right to use the specified tattoo
designs 1 “for the manufacture, offer for sale, sale,
1
The License Agreement identified 711 individual designs,
most of which were unregistered, covered by the license. There
is no dispute that Tattoo Art held copyright registrations for
(Continued)
3
advertisement, promotion, shipment, and distribution of the
Licensed Articles.” J.A. 253. “Licensed Articles,” in turn,
was defined as “Stencils for use in applying airbrush body
art.” Id. The licensing clause limited TAT’s use of the
copyrighted flash designs to “the creation and sale of Stencils
for the application of airbrush body art” and permitted TAT to
“distribute graphic representations (including photographs
and/or posters)” of the tattoo flash designs only if it did so
“in connection with the sale of Stencils. No other use . . . is
granted by this License.” J.A. 254.
Under the terms of the License Agreement, TAT was
required to make quarterly royalty payments of 12.5 percent of
its gross sales, if any, of licensed articles created pursuant
to the License Agreement, and no less than $6,000 annually,
regardless of gross sales. TAT was also obligated under the
Agreement to provide Tattoo Art with quarterly sales reports.
Finally, the License Agreement provided an initial
term of three years, after which it would continue on a year-to-
year basis unless one party elected not to renew, in which case
the Agreement would expire at the end of the 12-month period
during which notice of nonrenewal was given. The License
212 of these designs which came from 24 of Tattoo Art’s
registered Books.
4
Agreement also reserved exclusively for Tattoo Art the option of
terminating “in the event of a breach” by TAT. J.A. 254. If
the Agreement was not renewed by either party, TAT was permitted
to “dispose of finished Licensed Articles on hand or in process
. . . for a period of twelve (12) months thereafter.” J.A. 256.
That is, TAT could continue to promote and sell existing
inventory derived from the copyrighted designs. If, however,
Tattoo Art terminated based on TAT’s breach, TAT was obligated
under the License Agreement to “immediately cease all sales.”
J.A. 257.
TAT concedes that an agreement exists but denies that
the written License Agreement constituted the final agreement.
Instead, TAT claims that Knapp and Dufresne orally modified some
of its terms after Knapp received a fax from Tattoo Art of the
proposed License Agreement on December 29, 2005. The alleged
modifications included the right for TAT to sell all existing
licensed inventory in the event of termination, regardless of
the reason, and the elimination of the $6000 minimum annual
royalty payment. According to TAT, Tattoo Art promised to
prepare a revised License Agreement to reflect the alleged oral
modifications. TAT concedes that Knapp signed the signature
page on its behalf and faxed it back to Tattoo Art on the
understanding that the signature page would be attached to the
“revised” License Agreement. TAT contends, however, that a
5
revised Agreement was never prepared or sent and that TAT did
not receive a complete copy of the signed License Agreement
until the lawsuit was underway.
Following the execution of the signature page by
Knapp, TAT made three of the four required quarterly royalty
payments in 2006, the total of which was $653. The last royalty
payment was made in October 2006, after which time TAT sent no
further royalty payments or sales reports. In fact, the parties
apparently had no further contact until February 2009. In the
meantime, TAT had changed the coloring of Tattoo Art’s designs
and was displaying these re-colored images on TAT’s website to
promote its stencils. TAT also removed the copyright notice
from the re-colored images and referred to the images
collectively as its “Original Collection.”
After having remained silent for two years despite
TAT’s failure to send royalty payments or reports, Tattoo Art
contacted TAT in February 2009. TAT promised to come current
with the missed royalty payments and reports but failed to do
so. On May 14, 2009, Tattoo Art sent TAT a termination letter,
advising TAT to cease any further use of licensed property and
demanding an accounting of all sales up to that date. The
termination was based on TAT’s “failure to pay the minimum
royalties and/or report royalties.” J.A. 835. Nonetheless, TAT
continued to sell stencils derived from the licensed property
6
and to use altered designs and artwork in the sale and promotion
of these items on its website.
In July 2009, Tattoo Art filed an action for breach of
the License Agreement and copyright infringement. Relying on a
mandatory mediation provision in the License Agreement, TAT
argued that Tattoo Art was required to submit any dispute to
mediation before filing an action to enforce the Agreement. The
district court agreed and granted TAT’s motion to dismiss. The
parties then submitted the case to mediation but were unable to
achieve a resolution.
In July 2010, Tattoo Art re-filed the action, again
asserting claims for breach of the License Agreement and
copyright infringement. TAT pled the affirmative defenses of
fraudulent inducement, unclean hands and equitable estoppel.
Tattoo Art subsequently filed a motion for partial summary
judgment as to liability. The district court granted Tattoo
Art’s motion for summary judgment, concluding that TAT had
breached the Agreement and infringed on the copyrights held by
Tattoo Art. The district court then held a bench trial as to
damages, after which it entered an order awarding Tattoo Art
$18,105.48 on the breach of contract claim and statutory damages
under the Copyright Act of $480,000 on the infringement claim.
7
II.
A.
TAT first challenges the district court’s grant of
partial summary judgment in favor of Tattoo Art as to liability
on its breach of contract claim. We review the district court’s
grant of summary judgment de novo. See Temkin v. Frederick
Cnty. Comm’rs., 945 F.2d 716, 718 (4th Cir. 1991). Summary
judgment shall be granted if the movant shows that there is “no
genuine dispute as to any material fact” and that it is entitled
to judgment as a matter of law. Fed. R. Civ. P. 56(a). The
proponent initially bears the burden of demonstrating the
absence of any genuine issue of material fact. See Temkin, 945
F.2d at 718. If the proponent succeeds in doing so, the
opposing party must present facts sufficient to create a triable
issue. See id. at 718-19. Tattoo Art fulfilled this initial
obligation by producing the signed License Agreement and
presenting evidence that TAT failed to pay royalties or provide
quarterly sales reports required by the Agreement.
TAT responds that the question of whether the parties
orally modified the License Agreement presented an issue of
material fact that was not amenable to resolution at the summary
judgment stage. We disagree. A party asserting the existence
of a genuine issue of material fact must support its assertion
by “citing to particular parts of materials in the record,
8
including depositions, documents, electronically stored
information, affidavits or declarations, stipulations . . .
admissions, interrogatory answers or other materials.” Fed. R.
Civ. P. 56(c)(1)(A). TAT failed to point to anything in the
record or proffer any evidence that would create a material
dispute of fact about the terms of the Agreement. The sole
support TAT offered for its claim that various terms of the
Agreement had been modified was a copy of the License Agreement
displaying some handwritten margin notes regarding a few of the
disputed provisions. TAT, however, offered no deposition or
affidavit testimony verifying who made the notes or when they
were made. Because TAT failed to “point to [any] document that
contains what [it] contend[s] are the definitive terms of the
Agreement,” J.A. 370, the district court had no choice but to
conclude that the version of the License Agreement incorporated
into Tattoo Art’s complaint was definitive.
The district court found other bases for rejecting
TAT’s oral modification claim, including the existence of a
merger clause in the License Agreement. This clause provided
that the written “Agreement constitutes the entire agreement and
understanding between the parties” and that any modifications of
its written terms were invalid unless contained in “a written
document signed by both parties.” J.A. 259. The district court
concluded that the signed signature page reflected TAT’s assent
9
that no oral modifications could be made to the License
Agreement, and TAT has not argued on appeal that the merger
clause was not part of the License Agreement. 2 We agree with the
district court and find no error in the district court’s
rulings. Accordingly, we affirm the grant of summary judgment
on Tattoo Art’s breach of contract claim.
B.
“[T]he Copyright Act grants the copyright holder
‘exclusive’ rights to use and to authorize the use of his work
in five qualified ways, including reproduction of the
copyrighted work in copies,” Sony Corp. v. Universal City
Studios, Inc., 464 U.S. 417, 432-33 (1984), and the right “‘to
display the copyrighted work publicly,’” N.Y. Times Co. v.
Tasini, 533 U.S. 483, 496 n.4 (2001) (quoting 17 U.S.C. §
106(5)). Under the Copyright Act, “[a]nyone who violates any of
2
The district court also concluded that under Virginia law,
the alleged oral modifications would have been invalid under the
statute of frauds in view of the License Agreement’s initial
term of 36 months. See Va. Code § 11-2 (mandating that “any
agreement that is not to be performed within a year” must be “in
writing and signed” to be enforceable). Under certain
circumstances “where there has been part performance,” however,
equity requires that the statute of frauds be avoided and the
oral agreement enforced. T.G. Slater & Son, Inc. v. Donald P. &
Patricia A. Brennan, L.L.C., 385 F.3d 836, 841 (4th Cir. 2004).
We need not address this basis for the district court’s ruling
in light of our disposition on other grounds.
10
the exclusive rights of the copyright owner . . . is an
infringer of the copyright.” 17 U.S.C. § 501(a). “A licensee
infringes the owner’s copyright if its use exceeds the scope of
its license.” ITOFCA, Inc. v. MegaTrans Logistics, Inc., 322
F.3d 928, 940 (7th Cir. 2003) (internal quotation marks
omitted)). Thus, “[o]ne who obtains permission to use a
copyrighted” work “may not exceed the specific purpose for which
permission was granted,” Gilliam v. Am. Broad. Cos., 538 F.2d
14, 20 (2d Cir. 1976), and “unauthorized editing of the
underlying work . . . constitute[s] an infringement of the
copyright in that work similar to any other use of a work that
exceeded the license granted by the proprietor of the
copyright,” id. at 21.
The district court determined that TAT’s alteration of
the coloring of Tattoo Art’s designs for display on TAT’s
website was beyond the scope of TAT’s license under the
Agreement and therefore constituted copyright infringement prior
to termination of the License Agreement by Tattoo Art in May
2009. The district court concluded further that because Tattoo
Art terminated the License Agreement as a result of TAT’s
breach, TAT was prohibited under the terms of the Agreement
from any further use of the copyrighted works following
termination.
11
We agree. TAT was given license to use the
copyrighted tattoo flash artwork to create stencils and to use
copies of the artwork to promote the stencils. The Agreement
did not license TAT to edit, modify or alter the copyrighted
works it was licensed to display for marketing purposes, and
therefore such use constituted copyright infringement. In the
post-termination context, TAT’s continued display of the
copyrighted works constituted infringement for the additional
reason that TAT was contractually required to “immediately cease
all sales” of the stencils in light of Tattoo Art’s notice of
termination for breach.
On appeal, TAT argues that the district court should
have permitted it to pursue its equitable estoppel affirmative
defense at trial. To establish an estoppel defense to copyright
infringement, TAT must show that Tattoo Art “(1) misrepresented
or concealed material facts, (2) intended or expected that [TAT]
would act upon those misrepresentations or concealments, and (3)
had actual or constructive knowledge of the true
facts.” Service & Training, Inc. v. Data General Corp., 963
F.2d 680, 690 (4th Cir. 1992). TAT has not directed us to any
record evidence suggesting that Tattoo Art misrepresented or
concealed material facts that would have caused TAT, in reliance
upon such misrepresentations, to infringe. Accordingly, we
12
affirm the grant of partial summary judgment as to liability on
Tattoo Art’s copyright infringement claim.
III.
Following a bench trial on the issue of damages, the
district court issued a 77-page order ruling on numerous issues.
After concluding that TAT owed a total of $20,250 in royalties,
plus pre- and post-judgment interest but less any payments
previously made, the district court considered the appropriate
amount of damages to award for the copyright infringement.
Under 17 U.S.C. § 504(a), “an infringer of copyright is liable
for either—(1) the copyright owner’s actual damages and any
additional profits of the infringer . . . or (2) statutory
damages, as provided by [§ 504(c)].” Tattoo Art elected to
recover statutory damages under 17 U.S.C § 504(c)(1), which
permits the offended copyright owner to recover between a
minimum of $750 and a maximum of $30,000 per infringement of a
given work, “as the court considers just.” In cases where the
copyright owner shows that the infringement was committed
willfully, the Copyright Act authorizes enhanced statutory
damages of up to $150,000 per infringed work. See 17 U.S.C. §
504(c)(2).
The district court concluded that Tattoo Art was not
entitled to enhanced damages even though there was some evidence
13
of willfulness. The court found that even were it to accept the
explanation offered by TAT at trial for changing the coloration—
that the modified color scheme was a more effective marketing
tool for the stencils—“any potential legitimacy that such a
business justification might have had was entirely overshadowed
by the illegitimacy of the circumstances. . . . The very name
chosen by [TAT] for [its] derivative [licensed products]-
the Original Collection is particularly telling.” J.A. 706.
Nonetheless, the district court could not “conclude
definitively” that TAT willfully engaged in copyright
infringement. J.A. 709. Thus, the court determined the
appropriate statutory damages range was $750 to $30,000 per
infringement, as prescribed by § 504(c)(1).
In determining the number of infringements that
occurred, the district court rejected Tattoo Art’s argument that
the display of each individual recolored image was a separate
copyright violation; instead, the district court decided that
each of Tattoo Art’s registered “Books” constituted a
compilation. See 17 U.S.C. § 101. “Although parts of a
compilation . . . may be regarded as independent works for other
purposes, for purposes of statutory damages, they constitute one
work.” Xoom, Inc. v. Imageline, Inc., 323 F.3d 279, 285 (4th
Cir. 2003) (internal quotation marks and alteration
omitted), abrogated on other grounds, Reed Elsevier, Inc. v.
14
Muchnick, 130 S. Ct. 1237 (2010). Thus, the district court
concluded that Tattoo Art was entitled to only one award of
statutory damages for each book that was infringed. Because the
images used by TAT came from 24 of Tattoo Art’s registered
books, the district court determined that Tattoo Art was
entitled to 24 statutory damage awards. Neither party
specifically challenges the court’s method of determining the
number of infringements committed by TAT.
Finally, as to where the district court should fix the
amount of statutory damages for each infringement within the
$750 - $30,000 range, see 17 U.S.C. § 504(c)(1), the district
court found that Tattoo Art’s conduct fell “closer to the
willful end of the spectrum than the innocent end,” J.A. 719,
and set the amount at $20,000, yielding a total of $480,000 for
the 24 infringements, plus pre- and post-judgment interest.
On appeal, TAT does not specifically challenge how the
district court arrived at this $20,000 figure. Rather, TAT
broadly challenges the total amount of the award, contending
that it was grossly disproportional to the amount of actual
damages Tattoo Art could have recovered under the Minimum
Royalty payment provision of the License Agreement (purportedly
25 times more) or the amount of unpaid royalties due for TAT’s
actual sales (purportedly 68 times more). TAT cites State Farm
Mutual Automobile Insurance Company v. Campbell, 538 U.S. 40815
(2003), and BMW of North America, Inc. v. Gore, 517 U.S. 559(1996), to support its argument that the statutory damages award
is subject to proportionality review. Those cases, however,
involve proportionality review of punitive damages awards, not
statutory damages awards where Congress has limited the district
court’s discretion by establishing a statutory range. TAT is
essentially arguing that these awards within the statutory range
were constitutionally excessive. This is an unavailing
argument. We review for clear error any factual finding that
would determine the appropriate level of copyright statutory
damages, but we review an award of those damages within the
statutory range for abuse of discretion. See Lyons Partnership,
L.P. v. Morris Costumes, Inc., 243 F.3d 789, 799 (4th Cir.
2001). In this case, the district court articulated a
reasonable basis for fixing statutory damages at $20,000, and we
perceive no abuse of discretion or constitutional error in the
district court’s conclusions.
Finally, we reject TAT’s contention that the district
court improperly awarded both actual damages for breach of the
License Agreement and statutory damages for copyright
infringement under 17 U.S.C. § 504(c)(1). The Copyright Act
permitted Tattoo Art to elect to recover “either—(1) the
copyright owner’s actual damages and any additional profits of
the infringer . . . or (2) statutory damages, as provided by [§
16
504(c)].” See 17 U.S.C. § 504(a). Tattoo Art elected and
received statutory damages on its infringement claim; the award
of actual damages was not for the infringement claim but for
TAT’s failure to pay royalties under the License Agreement. The
election required by the Copyright Act pertains to infringement
claims, i.e., an infringement plaintiff cannot recover both
actual and statutory damages for the same act of infringement.
That is not what occurred in this case, however, because the
district court awarded actual damages only for TAT’s breach of
the License Agreement, not for copyright infringement.
IV.
For the foregoing reasons, we affirm the orders of the
district court.
AFFIRMED
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