Nelson-Salabes v. Morningside ( 2002 )

Filed: June 4, 2002
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 01-1369
(CA-98-2226-B)
Nelson-Salabes, Incorporated,
Plaintiff - Appellee,
versus
Morningside Development, etc., et al.,
Defendants - Appellants.
O R D E R
The court amends its opinion filed March 19, 2002, as follows:
On page 7, footnote 9, lines 5-6 and line 8 -- the references
to the Ninth Circuit are corrected to read Second Circuit in the
case of Davis v. Gap, Inc., 246 F.3d 152.
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
NELSON-SALABES, INCORPORATED,
Plaintiff-Appellee,
v.
MORNINGSIDE DEVELOPMENT, LLC; G.
NEVILLE TURNER,
Defendants-Appellants,
MORNINGSIDE HOLDINGS OF SATYR No. 01-1369
HILL, LLC,
Defendant & Third Party Plaintiff-Appellant,
and
THE STRUTT GROUP, INCORPORATED;
GEORGE SALABES,
Third Party Defendants.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Walter E. Black, Jr., Senior District Judge.
(CA-98-2226-B)
Argued: December 5, 2001
Decided: March 19, 2002
Before MOTZ, KING, and GREGORY, Circuit Judges.
____________________________________________________________
Affirmed in part and vacated and remanded in part by published opin-
ion. Judge King wrote the opinion, in which Judge Motz and Judge
Gregory joined.
____________________________________________________________
COUNSEL
ARGUED: Joshua Jacob Kaufman, VENABLE, BAETJER, HOW-
ARD & CIVILETTI, L.L.P., Washington, D.C., for Appellants. How-
ard Gary Goldberg, GOLDBERG, PIKE & BESCHE, P.C.,
Baltimore, Maryland, for Appellee. ON BRIEF: Roger W. Titus,
Kathleen E. Wherthey, VENABLE, BAETJER & HOWARD, L.L.P.,
Rockville, Maryland, for Appellants. Robin G. Banks, GOLDBERG,
PIKE & BESCHE, P.C., Baltimore, Maryland, for Appellee.
____________________________________________________________
OPINION
KING, Circuit Judge:
Appellants Morningside Development, LLC; Morningside Hold-
ings of Satyr Hill, LLC; and G. Neville Turner (collectively, the "De-
fendants") appeal a judgment of more than $736,000 entered against
them, jointly and severally, following an October 2000 bench trial in
the District of Maryland. The Defendants assert multiple contentions
of error; however, only their challenge to joint and several liability
has merit. As explained below, we otherwise affirm the judgment in
favor of Nelson-Salabes, Incorporated ("NSI"), but we vacate and
remand the district court's imposition of joint and several liability
against Morningside Holdings and Turner.
I.
A.
In the Spring of 1996, the Strutt Group, Incorporated ("Strutt"), a
real estate development company operating in Maryland, sought plan-
ning assistance from NSI, an architectural firm, for a proposed
assisted living facility in Baltimore County, called Satyr Hill Catered
Living ("Satyr Hill" or the "Project"). On June 5, 1996, NSI delivered
to Strutt a proposed letter agreement under which NSI agreed to
develop a schematic building footprint for Satyr Hill.1 Although Strutt
____________________________________________________________
1
As a general proposition, a schematic building footprint is a drawing
of a proposed building that shows the building shape in relation to the
property on which it will be constructed and reflects the exterior eleva-
tions for the proposed building.
2
failed to execute this proposed agreement, both NSI and Strutt, as the
proposed parties thereto, fully performed according to its terms.
During July 1996, Strutt and NSI continued to engage in discus-
sions concerning the planning and design of Satyr Hill. On July 24,
1996, NSI delivered to Strutt a second proposed letter agreement out-
lining architectural services it would perform for Strutt in the next
phase of development of Satyr Hill. This proposed letter agreement
provided that NSI would render additional architectural services to
Strutt, that it would develop exterior elevations for the Project, and
that it would attend a zoning exception hearing before the Baltimore
County Department of Permits and Development Management (the
"Zoning Board").2 Strutt again failed to execute the proposed agree-
ment, but, as with the first proposed agreement, both NSI and Strutt
performed according to its terms.
NSI thereafter created four architectural drawings depicting the
building footprint, the floor plans, and the exterior elevations of Satyr
Hill (the "NSI Drawings"). Strutt's civil engineer then incorporated
the NSI Drawings into the development plan for Satyr Hill (the "De-
velopment Plan"), which Strutt submitted to the Zoning Board as part
of its application for the special zoning exception (the "Zoning
Exception"). On April 7, 1997, the Zoning Board granted Strutt's
request for the Zoning Exception.
On February 14, 1997, while the Zoning Exception application was
pending before the Zoning Board, NSI delivered a third proposed let-
ter agreement to Strutt, by which it offered, inter alia, to create for
Strutt the design and working drawings for the remaining develop-
ment of the Project. This third proposed agreement, which Strutt did
not execute, outlined the additional architectural services to be per-
formed by NSI on the Project, and it stated that: "If the above is
____________________________________________________________
2
In Baltimore County, Maryland, a developer of an assisted living
facility must obtain a special zoning exception from the Zoning Board.
In order to obtain such a zoning exception, the developer must, among
other requirements, submit plans prepared by an architect and a civil
engineer, conduct community meetings, and attend a zoning exception
hearing before the Zoning Board.
3
acceptable, we will prepare a Standard AIA Agreement."3 Thereafter,
on September 29, 1997, NSI sent Strutt a revised third letter agree-
ment along with a "revised AIA Contract for Satyr Hill Catered Liv-
ing per our recent discussions." The AIA Contract that NSI, as the
architect, delivered to Strutt, as the owner, provided in relevant part
that:
[t]he Architect's Drawings, Specifications or other docu-
ments shall not be used by the Owner or others on other
projects, for additions to this Project, or for completion of
this Project by others unless the Architect is adjudged to be
in default under this Agreement, except by agreement in
writing and with appropriate compensation to the Architect
(emphasis added). As with the earlier proposed agreements, Strutt did
not execute either the revised third letter agreement or the revised
AIA Contract.
On October 7, 1997, Strutt advised NSI to cease its architectural
work on Satyr Hill, stating that Strutt's potential business partner had
backed out of the Project and that Strutt lacked sufficient expertise to
go forward with it. Strutt then inquired as to whether NSI knew of
potential purchasers for the Project, and NSI began to solicit potential
buyers on behalf of Strutt. One such potential buyer was G. Neville
Turner, the President of an entity known as The Morningside Group,
and the managing agent of both Morningside Development, LLC
("Morningside Development") and Morningside Holdings of Satyr
Hill, LLC ("Morningside Holdings").4
____________________________________________________________
3
A Standard AIA Contract is a form agreement for architectural ser-
vices developed by the American Institute of Architects ("AIA") for its
membership. It sets forth certain uniform terms and conditions normally
sought by architects in retainer agreements with their clients, and it often
is tailored to meet the requirements of a specific project.
4
Prior to the development of Satyr Hill, Turner and Morningside
Development had been involved in the construction of other assisted liv-
ing centers in Maryland. In those business arrangements, they would
create an entity with Turner serving as its managing agent. This entity
would then employ Morningside Development to construct and develop
an assisted living facility. In this case, Morningside Holdings was the
entity created to own the Project, and Morningside Development was
employed by it to develop Satyr Hill.
4
Turner was interested in being involved in the completion of Satyr
Hill for multiple reasons, including: (1) the Zoning Board had already
granted the Zoning Exception, and (2) the Zoning Board had already
approved the Development Plan. On November 18, 1997, Turner pro-
vided Strutt with a letter of intent by Morningside Holdings in con-
nection with its proposed purchase of Satyr Hill. At that time, Turner
was aware (1) that the NSI Drawings had been incorporated into the
Development Plan, and (2) that NSI asserted that any future use of the
NSI Drawings required its express consent. Morningside Holdings
subsequently agreed to purchase Satyr Hill from Strutt for the sum of
$900,000, and the transaction was closed on December 22, 1997.
Thereafter, in January 1998, Turner and NSI met to discuss NSI's
future involvement in Satyr Hill. On that occasion, Turner advised
NSI that the design of Satyr Hill needed to conform with a prototype
established by Morningside Development at other assisted living
facilities (the "Prototype"). Turner then informed NSI that it would
need to revise the NSI Drawings in order to conform to the Prototype,
and NSI indicated that it was willing to make such revisions. After
this January 1998 meeting with Turner, NSI became concerned that
the Defendants did not intend to continue to utilize it as the architect
for Satyr Hill. When Turner confirmed in a later telephone conversa-
tion that he was considering other architects, NSI informed Turner
that while he could retain and utilize a different architect on the Proj-
ect, he had no authority to utilize the NSI Drawings, including the
building footprint and exterior elevations which had been incorpo-
rated into the Development Plan. On January 26, 1998, in order to
confirm its position, NSI's attorney wrote to Turner, as "President
[of] The Morningside Group," and advised that the NSI Drawings
were not to be utilized without NSI's express written consent.
Turner then decided not to retain NSI for any further architectural
services with regard to Satyr Hill. Instead, Morningside Development
entered into what was called a "design build" contract with Hamil
Commercial, Incorporated ("Hamil") for the construction of Satyr
Hill, and Hamil retained a different architectural firm, EDG Archi-
tects ("EDG").5 Thereafter, Turner provided Hamil with a copy of the
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5
In their development of other assisted living facilities, Morningside
Development and Turner had utilized the services of both Hamil and
EDG.
5
NSI Drawings, as well as with the Development Plan approved by the
Zoning Board. In turn, Hamil gave these materials to EDG.
Subsequently, Turner met with EDG and requested that it re-design
Satyr Hill to conform to the Prototype. However, he specifically
instructed EDG to avoid any modifications to the Development Plan
that would necessitate obtaining a new Zoning Exception, because
doing so would be both time-consuming and costly. EDG then re-
designed Satyr Hill according to Turner's instructions, and EDG's
architectural drawings were incorporated into amended development
plans for Satyr Hill. The Defendants submitted these amended devel-
opment plans to the Zoning Board, advising the Board that the
amendments were being made, inter alia, for "minor footprint revi-
sions" and "minor changes to architectural elevations of buildings."
The Zoning Board approved the amended development plans, and
Morningside Development then completed the construction of Satyr
Hill.
B.
In July 1998, NSI filed its complaint against the Defendants in the
District of Maryland. In an amended complaint filed in March 1999,
NSI alleged that the Defendants had infringed upon NSI's copyright6
in the construction of Satyr Hill by copying the footprint and exterior
elevations from the NSI Drawings, in contravention of federal copy-
right law, i.e., 17 U.S.C. § 501(a).7 After extensive discovery, this
case proceeded to trial before the court in October 2000. After receipt
of post-trial briefs, the court, by Opinion filed on February 16, 2001,
ruled in favor of NSI and against the Defendants. Nelson-Salabes,
Inc. v. Morningside Holdings of Satyr Hill, L.L.C., Opinion, No. B-
98-2226 (Feb. 16, 2001) (the "Opinion"). Having found the Defen-
____________________________________________________________
6
On February 13, 1998, NSI submitted to the United States Copyright
Office its certificate of copyright registration for the schematic architec-
tural designs it had prepared for Satyr Hill. In October 2000, the Copy-
right Office issued NSI its Certificate of Registration (No. VAU 408-
645) for the NSI Drawings.
7
Section 501(a) of Title 17 of the United States Code, in relevant part,
provides that "[a]nyone who violates . . . the exclusive rights of the copy-
right owner . . . is an infringer of the copyright."
6
dants liable for copyright infringement, the court then analyzed the
question of an appropriate damage award, utilizing the provisions of
17 U.S.C. § 504(b).8
In so doing, the court first denied NSI's claim for actual damages
because it was speculative. Opinion at 23. The court, however, after
deducting the expenses incurred by the Defendants in the construction
of the Project and deducting the Defendants' profit from the personal
property (as opposed to the real property) connected with Satyr Hill,
concluded that the Defendants had "realized profits attributable to
[their] infringement in the amount of $736,037.45."9 Id. at 27. The
court therefore entered judgment against the Defendants, jointly and
severally, in that specific sum, plus costs. The Defendants filed a
timely notice of appeal from the court's adverse rulings, and we pos-
sess jurisdiction pursuant to 28 U.S.C. § 1291.
II.
We review for clear error findings of fact made by a district court
____________________________________________________________
8
Section 504(b) of Title 17 of the United States Code provides in rele-
vant part that:
[A] copyright owner is entitled to recover the actual damages
suffered by him or her as a result of the infringement, and any
profits of the infringer that are attributable to the infringement
and are not taken into account in computing the actual damages.
9
In calculating the "profits of the infringer that are attributable to the
infringement," § 504(b) provides for a two-part procedure. First, the
copyright owner is required "to present proof . . . of the infringer's gross
revenue." Gross revenue, however, does not mean the infringer's gross
revenue from all of its commercial endeavors. Rather, as the Second Cir-
cuit recently observed, a copyright owner is only entitled to present the
gross revenue for the infringer's line of business or project related to the
infringement. Davis v. Gap, Inc., 246 F.3d 152, 160 (2nd Cir. 2001). Sec-
ond, once the copyright owner has submitted evidence of the infringer's
gross revenue, the infringer, pursuant to § 504(b), bears the burden of
proving "his or her deductible expenses and the elements of profit attrib-
utable to factors other than the copyrighted work." Thus, under § 504(b),
all gross revenue is presumed to be profit "attributable to the infringe-
ment," unless the infringer is able to demonstrate otherwise.
7
sitting without a jury. Fed. R. Civ. P. 52(a); Scrimgeour v. Internal
Revenue, 149 F.3d 318, 324 (4th Cir. 1998). We may only set aside
such a finding when we are left with the definite and firm conviction
that a mistake has been made, and we may not do so simply because
we might have found to the contrary. Scrimgeour, 149 F.3d at 324.
On the other hand, when we review the legal conclusions of a district
court, we do so on a de novo basis. Williams v. Sandman, 187 F.3d
379, 381 (4th Cir. 1999). And in considering mixed questions of law
and fact, we review the factual portion of the inquiry for clear error
and the legal conclusions de novo. Gilbane Bldg. Co v. Fed. Reserve
Bank of Richmond, Charlotte Branch, 80 F.3d 895, 905 (4th Cir.
1996).
III.
The Defendants assert that the district court made three principal
errors in entering judgment in favor of NSI. First, they contend that
the court erred in finding Morningside Holdings liable for copyright
infringement with respect to the NSI Drawings. Second, the Defen-
dants assert that the court erred in concluding that NSI had not
granted them an "implied nonexclusive license" to use the NSI Draw-
ings. Finally, they maintain that the court improperly imposed joint
and several liability on Morningside Holdings and Turner. We review
each of these contentions in turn.10
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10
The Defendants raise three other issues on appeal, which we dispose
of summarily. They challenge the district court's calculation of the dam-
age award in two respects: (1) they maintain that the court, in calculating
the profits attributable to infringement, impermissibly included the value
of the personal property at Satyr Hill; and (2) they assert that the court
erroneously allowed NSI to present evidence of the gross revenue of the
entire Satyr Hill enterprise, rather than limiting the evidence to the gross
revenue derived by the Defendants from the infringing portions of Satyr
Hill. Neither of these contentions has merit. The court did not include the
value of personal property at Satyr Hill in calculating the profits attribut-
able to infringement; thus, the Defendants' first challenge is without
basis. With respect to their second contention, the Defendants misappre-
hend controlling law. As we noted, see supra note 9, in order to recover
profits attributable to infringement, a copyright owner must submit to the
court the gross revenue of the infringer from the project related to the
8
A.
The Defendants first challenge the district court's determination
that Morningside Holdings was liable for infringing NSI's copyright.
They assert that Morningside Holdings did not infringe on the NSI
Drawings; that Morningside Holdings's ownership of the Project is an
insufficient basis to establish copyright infringement; and that any of
Turner's conduct which constituted copyright infringement was car-
ried out in his capacity as an employee of Morningside Development
only, and not in connection with his position at Morningside Hold-
ings.
In order to prove copyright infringement, a plaintiff must show that
it owns a valid copyright, and it must establish that the defendant
engaged in unauthorized copying of the work protected by the copy-
right. Towler v. Sayles, 76 F.3d 579, 581 (4th Cir. 1996). In this case,
it is undisputed that NSI owns a valid copyright for the NSI Draw-
ings. See supra note 6. Furthermore, the Defendants have not
appealed the court's determination that Morningside Development
____________________________________________________________
infringement. Davis, 246 F.3d at 160. In this case, the project related to
the infringement was Satyr Hill; therefore, NSI's submission of all of the
Defendants' gross revenue from Satyr Hill was proper. As such, the court
did not err in its calculation of the damage award.
The Defendants also assert that the court erred by imposing a sanction
against them, in the form of the exclusion of certain evidence, for their
failure to properly supplement discovery. They contend that the court
improperly excluded Turner's testimony on expenses incurred by Morn-
ingside Development in constructing Satyr Hill because the details of
those expenses had not been properly disclosed. The sanction, however,
was pursuant to Rule 37(c)(1) of the Federal Rules of Civil Procedure,
which requires witness and information exclusion for an untimely disclo-
sure, unless the violation is substantially justified or harmless. See 8A
Wright, Miller & Marcus, Federal Practice and Procedure § 2289.1 (2d
ed. 1994) (collecting cases). The Defendants failed to show that their
infraction was substantially justified, and the record supports the court's
ruling that the violation was harmful to NSI. As such, the court did not
abuse its discretion in its imposition of its sanction. United States v. Has-
tings, 126 F.3d 310, 316 (4th Cir. 1997) (reviewing for abuse of discre-
tion imposition of discovery sanctions).
9
and Turner engaged in unauthorized copying of the NSI Drawings. At
issue, therefore, is the court's conclusion that Morningside Holdings,
the owner of the Project, is liable for copyright infringement with
respect to the NSI Drawings.
Although Morningside Holdings may not have directly infringed
on NSI's copyright, it still can be liable under a theory of vicarious
liability by virtue of its relationship with Morningside Development
and Turner. The law recognizes that the imposition of liability upon
a copyright infringer under a theory of vicarious liability serves an
important public interest — it "prevent[s] an entity that profits from
infringement from hiding behind undercapitalized`dummy' opera-
tions when the copyright owner eventually sues." Hard Rock Cafe
Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1150 (7th
Cir. 1992). In order to establish vicarious liability, a copyright owner
must demonstrate that the entity to be held so liable: (1) possessed the
right and ability to supervise the infringing activity; and (2) possessed
an obvious and direct financial interest in the exploited copyrighted
materials. See, e.g., A&M Records, Inc. v. Napster, Inc., 239 F.3d
1004, 1022 (9th Cir. 2001) (observing that vicarious liability will
exist when defendant (1) has right and ability to supervise infringing
activity, and (2) has direct financial interest in such activities);
RCA/Ariola Int'l, Inc. v. Thomas & Graystron Co., 845 F.2d 773, 781
(8th Cir. 1998) (same); Hard Rock Cafe, 955 F.2d at 1150 (same);
Shapiro, Bernstein & Co., Inc. v. H. L. Green Co., Inc., 316 F.2d 304,
307 (2nd Cir. 1963) (same). Applying these legal principles to this
case, and to the findings made by the district court in its Opinion,
Morningside Holdings was properly held liable for the infringement
of NSI's copyright.
In its Opinion, the court found, inter alia, (1) that Morningside
Holdings possessed the right and ability to supervise the infringing
activity of Morningside Development, and (2) that Morningside Hold-
ings had an obvious and direct financial interest in Morningside
Development's infringement of NSI's copyright. Opinion at 27-28.
Under the evidence, Morningside Holdings owned Satyr Hill, thereby
giving it the right and ability to control construction of the Project by
Morningside Development. In that connection, its ownership of Satyr
Hill provided Morningside Holdings with an obvious and direct finan-
cial interest in the infringing activities of Morningside Development.
10
Id. That is, Morningside Holdings enjoyed the benefit of any increase
in the Project's value resulting from Morningside Development's
infringement of the NSI Drawings. In light of the evidence, we are
unable to conclude that these findings are clearly erroneous, and we
affirm the court's determination that Morningside Holdings is liable
to NSI for the infringement of NSI's copyright.
B.
The Defendants next assert that they cannot be held liable for copy-
right infringement because they enjoyed an "implied nonexclusive
license" to use the NSI Drawings. They maintain that the district court
erred in concluding to the contrary. Opinion at 18. An implied nonex-
clusive license, as its designation suggests, is not a written license and
can be given either orally or implied from conduct. I.A.E., Inc. v.
Shaver, 74 F.3d 768, 775 (7th Cir. 1996). Such an implied license
does not transfer the ownership of a copyright; rather, it "simply per-
mits the use of a copyrighted work in a particular manner." Id. The
existence of an implied nonexclusive license, however, constitutes an
affirmative defense to an allegation of copyright infringement. In this
situation, the Defendants maintain that the totality of NSI's conduct
implies the existence of such a license. They particularly rely upon
NSI's failure to contractually prohibit the use of the NSI Drawings in
its dealings with Strutt, despite knowing that Strutt would sell the
Project if it could not obtain financing. As such, the Defendants assert
that, as a matter of law, they did not infringe upon NSI's copyright.11
Although this Court has not heretofore specifically addressed the
question of what circumstances might create an implied nonexclusive
license, several of our sister circuits have examined the issue. In so
doing, they have utilized versions of the three-part test created by the
Ninth Circuit in its decision in Effects Associates, Inc. v. Cohen, 908
____________________________________________________________
11
Because determining whether Strutt enjoyed an implied nonexclusive
license to use the NSI Drawings is a mixed question of law (i.e., what
is the legal standard for an implied nonexclusive license) and fact (i.e.,
whether the facts necessary to meet that standard existed), we review the
district court's factual findings for clear error and its legal conclusions
de novo. Gilbane Bldg. Co. v. Fed. Reserve Bank of Richmond, Charlotte
Branch, 80 F.3d 895, 905 (4th Cir. 1996).
11
F.2d 555 (9th Cir. 1990). Under the Effects Associates test, an "im-
plied nonexclusive license" for use of an otherwise copyright pro-
tected work is created "when (1) a person (the licensee) requests the
creation of a work, (2) the creator (the licensor) makes that particular
work and delivers it to the licensee who requested it, and (3) the licen-
sor intends that the licensee copy and distribute his work." Shaver, 74
F.3d at 776 (citing Effects Assocs., 908 F.2d at 558-59). Although
Effects Associates did not deal with architectural drawings, the frame-
work of its three-part test has been applied in several relevant subse-
quent decisions. Foad Consulting Group, Inc. v. Azzalino, 270 F.3d
821, 827-28 (9th Cir. 2001); Johnson v. Jones, 149 F.3d 494, 500-01
(6th Cir. 1998); Shaver, 74 F.3d at 775-76. Those courts have inter-
preted the "copy and distribute" prong of the Effects Associates test
to mean that the creator of a protected work must intend that its copy-
righted drawings be used on the project for which they were created,
independent of the creator's involvement. Foad Consulting, 270 F.3d
at 827 n.10; Johnson, 149 F.3d at 500; Shaver, 74 F.3d at 775-77.
Applying the Effects Associates test in this case, it is clear that the
potential licensee (Strutt) had requested that the creator (NSI) develop
architectural plans for the Project (the NSI Drawings), and that NSI
had proceeded to develop the NSI Drawings and deliver them to
Strutt. As such, the first two prongs of the Effects Associates three-
part test are satisfied. Therefore, the determinative question is
whether NSI intended that Strutt utilize the NSI Drawings in con-
structing Satyr Hill, independent of any future involvement by NSI.
An analysis of the three decisions that have interpreted and applied
the Effects Associates test in the architectural drawings context indi-
cates that we, in assessing whether NSI granted Strutt an implied non-
exclusive license, should examine the totality of the circumstances
surrounding NSI's conduct. Although application of the totality of the
circumstances standard requires that we engage in a broad inquiry,
these decisions of the Sixth, Seventh, and Ninth Circuits, each of
which involved copyrighted architectural drawings, guide our analy-
sis.
In Foad Consulting and Shaver, the Ninth and Seventh Circuits
concluded that the architects had granted implied nonexclusive
licenses for use of their otherwise protected work. Foad Consulting,
12
270 F.3d at 832; Shaver, 74 F.3d at 776-77. In both of these decisions,
architects were hired to perform discrete assignments — in Foad
Consulting, to develop a "plot plan" for a shopping center, and in
Shaver, to create schematic design drawings for an airport
cargo/hanger building — and there was no indication that the creator
and the potential licensee were engaged in anything more than short-
term transactions. The contracts in these instances gave no indication
that use of the copyrighted materials was contingent on the architects'
future involvement in the projects or on their express permission. In
fact, neither architect made use of a standard AIA contract which, as
noted previously, contains a provision requiring the architect's
express permission to use his plans if he is no longer involved in the
project. Foad Consulting, 270 F.3d at 828-31; Shaver, 74 F.3d at 776-
77. Moreover, in those two decisions, neither architect's conduct sug-
gested that use of the copyrighted material without the architect's
future involvement was prohibited, and in Shaver the architect actu-
ally made statements indicating that future use was appropriate.
Shaver, 74 F.3d at 776-77.
The Sixth Circuit, however, in its Johnson decision, found that an
implied nonexclusive license had not been granted. Johnson, 145 F.3d
at 501-02. Unlike the architects in Foad Consulting and Shaver, John-
son had been hired by Jones to design an entire project, her dream
home. Although no written contracts were executed between the par-
ties, Johnson had submitted two AIA contracts to Jones, each contain-
ing a provision specifically prohibiting any future use of Johnson's
architectural drawings in the absence of his future involvement or his
express permission. Id.
Our analysis of these decisions thus suggests that the existence of
an implied nonexclusive license in a particular situation turns on at
least three factors: (1) whether the parties were engaged in a short-
term discrete transaction as opposed to an ongoing relationship; (2)
whether the creator utilized written contracts, such as the standard
AIA contract, providing that copyrighted materials could only be used
with the creator's future involvement or express permission; and (3)
whether the creator's conduct during the creation or delivery of the
copyrighted material indicated that use of the material without the
creator's involvement or consent was permissible. In Johnson, the
architect was retained with the understanding that he would develop
13
the project to completion, and his contracts and conduct suggested
that any use of his architectural work without his involvement or con-
sent was impermissible. As a result, no implied license was found to
exist. On the other hand, as we have pointed out, implied licenses
were found to exist in Foad Consulting and Shaver, where the archi-
tects were hired for discrete tasks, with no indication of their further
involvement in the project, and where they did not suggest in their
proposed contracts or by their conduct that use of the copyrighted
material without their involvement was impermissible.
The situation in this case, based on the record presented, falls
somewhere between the situation in Johnson, on the one hand, and
those in Shaver and Foad Consulting, on the other. Unlike the archi-
tect in Johnson, NSI was not retained to develop plans for the entire
Project and, like the architects in Shaver and Foad Consulting, NSI
created the NSI Drawings pursuant to task-specific contracts. More-
over, as in Shaver and Foad Consulting, neither of those task-specific
contracts contained language prohibiting future use of the architec-
tural drawings without NSI's involvement or consent. In this instance,
however, like the architect in Johnson, NSI and Strutt plainly contem-
plated NSI's long-term involvement in Satyr Hill, and they engaged
in ongoing discussions for more than nine months concerning NSI's
development of the Project. And during those discussions, NSI sub-
mitted contracts to Strutt that, similar to those in Johnson, contained
the standard AIA prohibition against use of the NSI Drawings without
NSI's future involvement or its express consent. Indeed, NSI never
expressed to Strutt by its representations or conduct that Strutt could
utilize NSI's plans without NSI's future involvement or express con-
sent; in fact, NSI specifically advised Strutt to the contrary on at least
two occasions.
Reviewed and evaluated in its totality, therefore, Strutt and NSI
were engaged in an ongoing relationship that contemplated NSI's
future involvement in Satyr Hill. Although the Project was performed
in component parts, the facts found by the district court in its Opinion
demonstrate that NSI created the NSI Drawings with the understand-
ing that it would participate in the further development of Satyr Hill.
Opinion at 17-18. Unlike the architects in Foad Consulting and
Shaver, NSI eventually submitted an AIA agreement to Strutt, and it
negotiated for more than nine months with Strutt concerning the work
14
covered by the AIA agreement. In these circumstances, we agree that
NSI did not intend for Strutt to utilize the NSI Drawings in the con-
struction of Satyr Hill without NSI's future involvement in the Project
or its express consent. Therefore, like the district court, we are "satis-
fied that these facts do not support a finding that [NSI] granted Strutt
[an implied] nonexclusive license." Opinion at 18.12
C.
In their final contention on appeal, the Defendants maintain that the
court erred by imposing joint and several liability on both Morning-
side Holdings and Turner, its managing agent, for the full amount of
the judgment. We see this as a meritorious contention. The rule that
all defendants who engage in the same act of copyright infringement
are jointly and severally liable "applies only to the defendant[s'] lia-
bility for damages."13 MCA, Inc. v. Wilson, 677 F.2d 180, 186 (2nd
Cir. 1981); see also Fitzgerald Publ'g Co., Inc. v. Baylor Publ'g Co.,
Inc., 807 F.2d 1110, 1116 (2nd Cir. 1986) (imposing joint and several
liability on defendants for statutory damages award). As we have pre-
viously explained, see supra note 9, a defendant in a copyright
infringement action may be liable for both "actual damages" and
"profits attributable to infringement." 17 U.S.C. § 504(b). The district
court, however, found that NSI had suffered no actual damages in this
case. Opinion at 23. Therefore, it awarded judgment to NSI solely for
the profits of the Defendants attributable to their infringement of the
NSI Drawings. In such situations, each defendant is only liable to the
copyright plaintiff to the extent of its own profits derived from the
infringing activity; thus, as the Second Circuit has held, in the copy-
right infringement context "one defendant is not liable for the profit
made by another." MCA, 677 F.2d at 186; see also Frank Music Corp.
v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 519 (9th Cir. 1985)
("When a copyright is infringed, all infringers are jointly and sever-
____________________________________________________________
12
Because an implied nonexclusive license did not exist, we need not
address the question of whether Strutt could transfer any such license to
the Defendants.
13
Joint and several liability means that "[t]he person who has been
harmed can sue and recover from both wrongdoers or from either one of
the wrongdoers." Black's Law Dictionary 914. Thus, if two parties are
jointly and severally liable, each is responsible for the liability of both.
15
ally liable for plaintiffs' actual damages, but each defendant is sever-
ally liable for his or its own illegal profit; one defendant is not liable
for the profit made by another." (emphasis added)); 3 Nimmer on
Copyright § 12.04[C][3], at 12-50.
Although defendants in copyright infringement proceedings are
generally not jointly liable for profits, a long-standing exception to
this rule exists when such defendants act as partners or as "practical
partners." Frank Music, 772 F.2d at 519 (citations omitted). When a
court finds the existence of a partnership or a "practical partnership,"
the "partners" thereof are jointly and severally liable for any profits
that they collectively derived from the acts of copyright infringement.
Id. (concluding that entity's role in activity, degree of direction of
activity, and financial interest in activity were relevant in addressing
the existence of a practical partnership); see Belford, Clarke & Co. v.
Scribner, 144 U.S. 488, 507-08 (1892) (deciding that printer was
jointly liable for publisher's profits from infringing book because
printer and publisher were "practical partners").
In this situation, the court imposed joint and several liability on the
Defendants for the full value of their aggregate profits. The court,
however, did not support its imposition of such liability by making
the necessary predicate finding that the Defendants had been engaged
in a "practical partnership." As such, we must vacate the imposition
of joint and several liability on Morningside Holdings and Turner,
and we remand this aspect of their appeal for any further proceedings
that may be appropriate.14
IV.
For the foregoing reasons, we affirm the judgment of the district
court, except for its imposition of joint and several liability on Morn-
____________________________________________________________
14
The Defendants did not appeal the imposition of joint and several lia-
bility on Morningside Development. As such, we leave this aspect of the
judgment undisturbed.
16
ingside Holdings and Turner, and on that aspect of the appeal we
vacate and remand.
AFFIRMED IN PART AND VACATED
AND REMANDED IN PART
17