NY Court Strikes Blow To Infringement Multiplier

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November 6, 2004

Editor's Note: The New York Federal District Court has issued a ruling that will make it very difficult for photographers to make significant recoveries for unauthorized uses of their images unless the images were registered in advance. This ruling also makes it imperative for photographers to register their images prior to offering them for licensing. And finally, the ruling may encourage more unauthorized use because the penalties for such are less severe.



The following story, written by Attorney Nancy E. Wolff, was
first published in the PACA Update. Ms. Wolff is counsel for the Picture Archive
Counsel of America (PACA). Ms. Wolff and PACA have authorized me to re-publish this article. M.
Wolff may be contacted at newolff@aol.com.

New York Federal District Court Strikes Blow to Industry Practice of Collecting an Infringement Multiplier as Actual Damages

Stehrenberger v. R.J. Reynolds Tobacco Holdings, Inc. et al United States District Court For The Southern District Of New York, 03 Civ. 4894 (LLS), September 15, 2004

In a major blow to copyright litigants, Judge Stanton ruled that the long standing practice within the photo licensing community of utilizing multipliers in infringement cases was not the method by which damages were to be calculated under the copyright law and precluded the plaintiff in this action from offering evidence in support of her claim that a multiplier should be used in calculating her actual damages. He summarized his point by stating "in litigated cases, infringement does not make a copyright more valuable".

The case involved a copyright infringement action brought by a photographer against the tobacco company for alleged infringement of her photograph in a newspaper advertisement. The facts surrounding the infringement were not described fully as the decision was based on defendant's motion for summary judgment. The sole issue was whether the photographer could seek actual damages based on a multiplier of an amount that would otherwise be charged if the image was not infringed. The photographer hired an expert on damages who wrote an expert report that described the industry practice of granting a "retroactive license" to a user who has made a mistake and infringed. The report stated:

A user who discovers that it has made an unauthorized use can resolve the problem by paying a reasonable license fee of two to three times the normal fee, [Exhibit 11], thus avoiding the costly and protracted business of a federal copyright case. The multiplier applies when the infringer recognizes the mistake and moves quickly to correct it. However, where a copyright owner must go to court to resolve the infringement, the fee guideline is that the price should be further enhanced up to ten times what the pre-infringement price would have been.

The expert opined that the fair market value of the infringement was $60,000 and that the infringement was unauthorized and therefore willful so the value of the retroactive license was $600,000.

The photograph infringed had not been registered, so the photographer was limited to actual damages and could not elect statutory damages. The tobacco company argued that the measure of actual damages under the Copyright Act is limited to fair market value and the law does not permit any "enhancement" of damages if you go to court to enforce your rights. Any enhancement, it argued, was punitive and could only be awarded if you were entitled to statutory damages and could establish that the infringement was willful. In other words, there is no place for any deterrence factor in calculating actual damages.

PACA and other photography organizations have included language applying a multiplier of a license fee to clients who have infringed and wish to resolve the matter without litigation. The fees range from 3 to 10 times the normal fee. This multiplier has been significant in deterring infringements and encouraging clients to license images rather than "steal" them. The multiplier is also critical in negotiating a settlement where the images are not registered. If the infringing client can receive the same terms as the "good" client that licenses properly, then there can be no recovery of the extra costs of tracking down the infringement.

Despite the fact that the industry has relied on this multiplier for so many years, there have been almost no reported cases on this issue. Cases that settle are not reported and do not become part of case law. Previously only one court relied on a multiplier to compute actual damages from an unauthorized use in, Bruce v. Weekly World News. Inc., 150 F. Supp.2d 313, 321 (D. Mass. 2001), vacated in part, 310 F.3d 25 (1st Cir. 2002). The court in the Bruce case used a five times multiplier to calculate actual damages. Nonetheless, the court in Stehrenberger declined to follow this decision stating that the court in Bruce did not analyze the issue, because both sides' experts adopted the multiplier concept.

Rather, Judge Stanton looked to Judge Fox's opinion in Barrera and Burgos v Brooklyn Music, Ltd. et al. for the standard of damage calculation. The court examined the language of the Copyright Act which states, in pertinent part: "an infringer of copyright is liable for either (1) the copyright owner's actual damages and any additional profits of the infringer, as provided by [504(b)]; or (2) statutory damages, as provided by subsection [17 U.S.C. 504(c)]." 17 U.S.C. 504(a) ("504(a)"). The court went on to state that "Actual damages are primarily measured by "the extent to which the market value of the copyrighted work at the time of the infringement has been injured or destroyed by the infringement." In appropriate circumstances, actual damages may be taken to be a reasonable license fee-that is, the fair market value of a license authorizing defendants' use of the copyrighted work."

Judge Fox's standard of damages calculation would allow the victim of infringement to collect only "fair market value" of their work; a far cry from using a multiplier of three to ten times the amount, which, prior to this decision, had been the industry norm. According to Justice Stanton, "Both facially and substantively, this increase of that figure by a factor of ten does not define a fair and reasonable license fee, but represents concepts of punishment for infringement, deterrence of similar behavior in the future, and recompense for the costs and effort of litigation."

As a result, the photographer was not permitted to offer evidence supporting her claim that a multiplier should be used in calculating her damages.

The court most likely focused on the "penalty" issue because the damages sought for the infringing newspaper use was so high. While this is a lower court decision, unlike the Bruce case that was appealed to the First Circuit, it will have far reaching impact. Courts are not obliged to follow the decision of the SDNY but without other cases to support the multiplier, courts will be inclined to follow. More importantly, the multiplier, as supported by the Bruce case, was an important tool in negotiating favorable retroactive fees. This recent case will surely be used by perceptive attorneys to decline to accept any multiplier in settling a copyright case. Without the deterrence of a higher fee for the infringing use, there is no incentive to properly license. The costs of tracking down an infringing use will outweigh the income of an actual license fee.

Short of trying to bring every case in Boston, the home of the First Circuit, what can be done? REGISTER, REGISTER, REGISTER. The photographer was restricted to seeking actual damages because the photograph was not registered before infringement. Given this decision, PACA must look for ways to work with the photographic community and the Copyright Office to encourage copyright registration. An infringer of a registered work can face statutory damages of $30,000 and up to $150,000 if the infringement is willful as well as attorney's fees.

© Nancy E. Wolff, Wolff & Godin, LLP

As a service to the photographic community PACA has provided a new resource on its web site
at stockindustry.org/copyright.html on How to Register Photographs . This information is available to everyone regardless of whether they are members of PACA.

This material provides step by step information and PDF files of the Form VAs that must be submitted to the U.S. Copyright Office to properly register images.