Derek Andrew Inc v. Poof Apparel Corporation ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DEREK ANDREW, INC.,  No. 07-35048
Plaintiff-Appellee,
v.  D.C. No.
CV-05-01136-JPD
POOF APPAREL CORPORATION,
OPINION
Defendant-Appellant.

Appeal from the United States District Court
for the Western District of Washington
James P. Donohue, Magistrate Judge, Presiding
Argued and Submitted
May 8, 2008—Seattle, Washington
Filed June 11, 2008
Before: Susan P. Graber and Johnnie B. Rawlinson,
Circuit Judges, and Otis D. Wright II,* District Judge.
Opinion by Judge Wright
*The Honorable Otis D. Wright II, United States District Judge for the
Central District of California, sitting by designation.
6659
6662 DEREK ANDREW v. POOF APPAREL CORP.
COUNSEL
Neil A. Smith and Robert J. Stumpf, Jr., Sheppard, Mullin,
Richter & Hampton LLP, San Francisco, California, for the
defendant-appellant.
Lacy H. Koonce III, Davis Wright Tremaine LLP, New York,
New York, for the plaintiff-appellee.
OPINION
WRIGHT, District Judge:
Poof Apparel Corporation (“Poof”) appeals the district
court’s award to Derek Andrew, Inc. (“Andrew”) of $15,000
in statutory damages under the Copyright Act, along with
$296,090.50 in attorneys’ fees.1 We have jurisdiction pursuant
to 28 U.S.C. § 1291, and for the following reasons,
REVERSE and REMAND.
BACKGROUND
A. THE PARTIES AND PROPERTY RIGHTS AT ISSUE
Andrew and Poof are corporations engaged in the apparel
1
Poof also challenges other rulings by the district court; we reject those
arguments in a memorandum disposition filed this date.
DEREK ANDREW v. POOF APPAREL CORP. 6663
business. Of primary importance to this appeal is Andrew’s
“Twisted Heart” clothing line—a line of casual sportswear for
women aged 14-70. Consumers can find this line at high-end
department stores such as Nordstrom, Saks Fifth Avenue, and
Neiman Marcus. The average price of Twisted Heart clothing
is approximately $100.
Andrew’s Twisted Heart line is identified by its label and,
in particular, its “hang-tag” featuring its “Heart Design” and
“Twisted Heart” trademarks.2 Developed and first used in
2003, the Twisted Heart hang-tag hangs from the garment by
a small, satin ribbon. The tag, including its configuration and
the artwork in the label, was registered with the U.S. Copy-
right Office on June 15, 2005.
Poof sells women’s clothing to retail stores and other cus-
tomers throughout the United States. Most of its clothes are
manufactured abroad and are shipped throughout the United
States to lower-end retail stores such as T.J. Maxx, The Wet
Seal, and Marshall’s. Affixed to certain clothing sold by Poof
are hang-tags nearly identical to Andrew’s “Twisted Heart”
hang-tags, the only difference being the word “Poof!” in place
of the words “Twisted Heart.”
B. THE DISPUTE AND THE PROCEEDINGS BELOW
On May 9, 2005, a garment bearing Poof’s infringing hang-
tag came into Andrew’s possession, prompting Andrew’s
counsel to send a cease and desist letter to Poof on May 17,
2005. From there, the parties engaged in a letter-writing cam-
paign, whereby Poof twice indicated its intent to comply with
Andrew’s demands. Poof, however, failed to remove the gar-
2
Andrew’s “Heart Design” mark was first used in commerce on August
11, 2003, and is the subject of U.S. Trademark Registration No. 3202995,filed on April 6, 2005. The “Twisted Heart” word mark has been used in
commerce since August 11, 2003, and is the subject of U.S. Trademark
Registration No. 2930606, filed July 14, 2003.
6664 DEREK ANDREW v. POOF APPAREL CORP.
ments bearing the infringing hang-tag from stores. Andrew
filed a complaint for copyright and trademark infringement, in
addition to state law claims, in the U.S. District Court for the
Western District of Washington.
Despite being represented by counsel, Poof failed to
respond to Andrew’s complaint and, on August 8, 2005,
default was entered. Regretting that the matter had “prog-
ressed to this point,” on November 17, 2005, Poof’s counsel
sent a letter to Andrew expressing Poof’s interest in arriving
at a settlement. Andrew’s counsel was receptive to entertain-
ing settlement discussions, but not before Poof entered an
appearance in the matter. Obligingly, Poof entered its appear-
ance on February 6, 2006, and on March 23, 2006, filed a
motion to set aside the entry of default.
On April 14, 2006, Magistrate Judge James Donohue
issued his Report and Recommendation denying Poof’s
motion to set aside entry of default because Poof failed to
establish “good cause” for doing so. Poof objected to Judge
Donohue’s Report and argued that default was not warranted.
On June 19, 2006, after considering Judge Donohue’s Report,
Poof’s objections, and Andrew’s response thereto, the Honor-
able Thomas Zilly adopted Judge Donohue’s conclusions and
denied Poof’s motion to set aside entry of default.
On December 4, 2006, a bench trial commenced on the
issue of damages. On the Lanham Act and Washington state
law claims, Judge Donohue found that disgorgement of prof-
its was the appropriate measure of damages and awarded
Andrew $685,307.70. The court found that Poof distributed
189,108 garments containing the infringing hang-tag, repre-
senting a total gross revenue of $1,028,848.10. From this, the
court deducted $343,540.40 in costs and disgorged Poof of its
profits in the sum of $685,307.70.
As to its copyright claim, Andrew was awarded $15,000 in
statutory damages. Poof was also permanently enjoined from
DEREK ANDREW v. POOF APPAREL CORP. 6665
further infringing upon Andrew’s trademarks and—because
the trial court was of the opinion that this was an exceptional
case—Andrew was awarded attorneys’ fees in the amount of
$296,090.50, and $6,678.60 in costs. Poof timely appealed.
DISCUSSION
A. THE DISTRICT COURT ERRED IN AWARDING ANDREW
$15,000 IN STATUTORY DAMAGES UNDER THE COPYRIGHT
ACT.
Under 17 U.S.C. § 504(a) and (c), a copyright owner may
elect to recover statutory damages instead of actual damages
and any additional profits. Ordinarily, we review an award of
statutory damages for abuse of discretion. See Frank Music
Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 520 (9th
Cir. 1985).
[1] Title 17 U.S.C. § 412(2) leaves no room for discretion,
however. Section 412(2) mandates that, in order to recover
statutory damages, the copyrighted work must have been reg-
istered prior to commencement of the infringement, unless the
registration is made within three months after first publication
of the work. See id. (precluding an award of attorneys’ fees
as well);3 Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d
700, 707 n.5 (9th Cir. 2004).
Here, the district court awarded Andrew $15,000 in statu-
tory damages because Poof distributed garments bearing the
infringing hang-tag after June 15, 2005, the copyright’s regis-
tration date. Thus, as a matter of law, the court must have
determined that § 412 does not preclude an award of statutory
3
Title 17 U.S.C. § 412(2) provides that “no award of statutory damages
or of attorney’s fees, as provided by sections 504 and 505, shall be made
for any infringement of copyright commenced after first publication of the
work and before the effective date of its registration, unless such registra-
tion is made within three months after the first publication of the work.”
6666 DEREK ANDREW v. POOF APPAREL CORP.
damages because these post-June 15, 2005, shipments were
separate and distinct infringements from the pre-registration
infringement. We review de novo the court’s legal conclusion
that the post-June 15, 2005, infringements did not “com-
mence” before the copyright was registered. See Perfect 10,
Inc. v. CCBill LLC, 488 F.3d 1102, 1109 (9th Cir. 2007).
[2] In this case, it is undisputed that Andrew’s hang-tag
was first published on August 11, 2003, and that its copyright
registration became effective on June 15, 2005. It is also
undisputed that the initial act of infringement occurred on
May 9, 2005, when Andrew first came into possession of a
Poof garment bearing an infringing hang-tag. Thus, Andrew’s
copyright in its Twisted Heart hang-tag was registered more
than three months after its first publication, and Poof’s
infringement first occurred before the effective date of regis-
tration.
Citing this sequence of events, Poof argues that Andrew is
precluded from recovering statutory damages under § 412
because any subsequent, post-registration distributions of gar-
ments bearing the infringing hang-tag are continuous and
ongoing acts of the initial infringement. Andrew, on the other
hand, contends that these post-registration distributions con-
stitute new infringements under the Copyright Act, thereby
justifying the court’s award of statutory damages.
[3] Until now, we have not expressly addressed the issue
presented; namely, whether § 412 bars an award of statutory
damages for post-registration infringements when the initial
act of infringement occurred prior to the effective copyright
registration date. Resolution of this issue necessarily depends
upon our interpretation of the term “commenced” as it is used
in § 412. In that regard, we examine the text of § 412 and con-
sider the purposes behind its enactment.
[4] With respect to the text, we are guided by the courts
that have interpreted § 412 in similar factual contexts. As one
court has concluded, while
DEREK ANDREW v. POOF APPAREL CORP. 6667
[e]ach separate act of infringement is, of course,
an “infringement” within the meaning of the stat-
ute, and in a literal sense perhaps such an act
might be said to have “commenced ” (and ended)
on the day of its perpetration[,] . . . it would be
peculiar if not inaccurate to use the word “com-
menced ” to describe a single act. That verb gener-
ally presupposes as a subject some kind of activity
that begins at one time and continues or reoccurs
thereafter.
Singh v. Famous Overseas, Inc., 680 F. Supp. 533, 535
(E.D.N.Y. 1988); accord Parfums Givenchy, Inc. v. C&C
Beauty Sales, Inc., 832 F. Supp. 1378, 1394 (C.D. Cal. 1993)
(quoting Singh, 680 F. Supp. at 535); Mason v. Montgomery
Data, Inc., 741 F. Supp. 1282, 1286 (S.D. Tex. 1990) (“The
plain language of the statute does not reveal that Congress
intended to distinguish between pre- and post-registration
infringements.”). We discern no reason to depart from such a
reading.
[5] We also recognize that § 412 is designed to implement
two fundamental purposes. First, by denying an award of stat-
utory damages and attorney’s fees where infringement takes
place before registration, Congress sought to provide copy-
right owners with an incentive to register their copyrights
promptly. See H.R. Rep. No. 94-1476, at 158 (1976), as
reprinted in 1976 U.S.C.C.A.N. 5659, 5774 (“Copyright reg-
istration . . . is useful and important to users and the public
at large . . . and should therefore be induced in some practical
way.”). Second, § 412 encourages potential infringers to
check the Copyright Office’s database. See Johnson v. Jones,
149 F.3d 494, 505 (6th Cir. 1998). To allow statutory dam-
ages and attorneys’ fees where an infringing act occurs before
registration and then reoccurs thereafter clearly would defeat
the dual incentives of § 412. See Johnson, 149 F.3d at 505(“These purposes would be thwarted by holding that infringe-
ment is ‘commenced’ for the purposes of § 412 each time an
6668 DEREK ANDREW v. POOF APPAREL CORP.
infringer commits another in an ongoing series of infringing
acts.”).
Every court to consider the issue has held that “infringe-
ment ‘commences’ for the purposes of § 412 when the first
act in a series of acts constituting continuing infringement
occurs.” Johnson, 149 F.3d at 506; accord Whelan Assocs.,
Inc. v. Jaslow Dental Lab., Inc., 609 F. Supp. 1325, 1331
(E.D. Pa. 1985) (“Interpreting ‘commencement of infringe-
ment’ as the time when the first act of infringement in a series
of on-going discrete infringements occurs . . . would best pro-
mote the early registration of a copyright.”). Indeed, if the
incentive structure of § 412 is to be properly applied, Andrew,
having waited nearly two years from the date of first publica-
tion to register its copyright, should not receive the reward of
statutory damages. See Johnson, 149 F.3d at 505-06.
[6] Accordingly, we join those circuits that addressed the
issue before us4 and hold that the first act of infringement in
a series of ongoing infringements of the same kind marks the
commencement of one continuing infringement under § 412.
This interpretation, we believe, furthers Congress’ intent to
promote the early registration of copyrights.
[7] Given our interpretation of § 412, we must now deter-
mine whether Poof’s post-registration distributions were an
ongoing continuation of its initial pre-registration infringe-
ment. In this case, there is no legally significant difference
between Poof’s pre- and post-registration infringement. Poof
first distributed garments bearing the infringing hang-tag on
May 9, 2005, if not earlier, and continued to do so—albeit
with the hang-tag attached to different garments—after the
4
See Bouchat v. Bon-Ton Dep’t Stores, Inc., 506 F.3d 315, 330 (4th Cir.
2007), cert. denied, 2008 WL 436937 (U.S. Apr. 21, 2008) (No. 07-1053);
Troll Co. v. Uneeda Doll Co., 483 F.3d 150, 158 (2d Cir. 2007); Johnson,
149 F.3d at 506; Mason v. Montgomery Data, Inc., 967 F.2d 135, 142-44
(5th Cir. 1992).
DEREK ANDREW v. POOF APPAREL CORP. 6669
June 15, 2005, copyright registration. Thus, Poof began its
infringing activity before the effective registration date, and it
repeated the same act after that date each time it used the
same copyrighted material.
[8] The mere fact that the hang-tag was attached to new
garments made and distributed after June 15 does not trans-
form those distributions into many separate and distinct
infringements. See e.g. Mason, 967 F.2d at 144 (concluding
that a plaintiff may not recover statutory damages for
infringements that commenced after registration if the same
defendant commenced an infringement of the same work prior
to registration); Ez-Tixz, Inc. v. Hit-Tix, Inc., 919 F. Supp.
728, 736 (S.D.N.Y. 1996) (rejecting argument that each sale
of an infringing ticket was a separate act of infringement that
commenced after the copyright’s registration date); Parfums
Givenchy, 832 F. Supp. at 1393-95 (rejecting argument that,
because the defendant had imported and distributed the
infringing product on several distinct occasions, each act of
importing the product constituted a separate and distinct act
of infringement); Johnson v. Univ. of Va., 606 F. Supp. 321,
325 (W.D. Va. 1985) (rejecting argument that each time a
photograph was copied, a separate copyright infringement
was commenced). Poof simply engaged in an ongoing series
of infringements that commenced with the first distribution in
May 2005. Therefore, Andrew is not entitled to statutory
damages under the Copyright Act, and the court’s award of
$15,000 is REVERSED.
B. THE DISTRICT COURT MAY HAVE ERRED IN AWARDING
ANDREW $296,090.50 IN ATTORNEYS’ FEES.
[9] Poof also challenges the district court’s award of attor-
neys’ fees. First, Poof argues that, in addition to precluding
recovery of statutory damages, Andrew’s failure to timely
register its copyrights precludes it from recovering attorneys’
fees. As noted above, 17 U.S.C. § 412(2) of the Copyright Act
precludes an award of attorneys’ fees if the copyrighted work
6670 DEREK ANDREW v. POOF APPAREL CORP.
is not registered prior to the commencement of the infringe-
ment, unless the registration is made within three months after
the first publication of the work. Because infringement com-
menced prior to the June 15, 2005, registration date, Andrew
is not entitled to its attorneys’ fees to the extent that they are
based upon a violation of the Copyright Act.
[10] Second, Poof challenges the propriety of attorneys’
fees under the Lanham Act. An award of reasonable attor-
neys’ fees and costs is expressly provided for in “exceptional
cases” of trademark infringement. See 15 U.S.C. § 1117(a).
“While the term ‘exceptional’ is not defined in the statute,
attorneys’ fees are available in infringement cases where the
acts of infringement can be characterized as malicious, fraud-
ulent, deliberate, or willful.” Rio Props., Inc. v. Rio Int’l
Interlink, 284 F.3d 1007, 1023 (9th Cir. 2002).
Poof argues that, “while the Magistrate Judge acknowl-
edged Poof Apparel’s default occurred in a complaint that
pled wilfulness, the court made no specific finding that the
infringement . . . was ‘malicious, fraudulent, deliberate or
willful.’ ” Not only is this argument factually inaccurate—the
district court determined that Poof wilfully infringed
Andrew’s trademarks—but, more importantly, it is expressly
foreclosed by our holding in Rio Properties, Inc.
[11] In Rio Properties, Inc., we upheld an award of attor-
neys’ fees under the Lanham Act solely because, “by entry of
default judgment, the district court determined, as alleged in
RIO’s complaint, that RII’s acts were committed knowingly,
maliciously, and oppressively, and with an intent to . . . injure
RIO.” 284 F.3d at 1023 (alteration in original) (internal quota-
tion marks omitted); see also TeleVideo Sys., Inc. v. Heiden-
thal, 826 F.2d 915, 917-18 (9th Cir. 1987) (“The general rule
of law is that upon default the factual allegations of the com-
plaint, except those relating to the amount of damages, will be
taken as true.” (internal quotation marks omitted)). The case
before us is indistinguishable.
DEREK ANDREW v. POOF APPAREL CORP. 6671
[12] The district court entered default and Poof concedes
that its default occurred with respect to a complaint that pled
wilfulness. Thus, all factual allegations in the complaint are
deemed true, including the allegation of Poof’s willful
infringement of Andrew’s trademarks. This default suffi-
ciently establishes Andrew’s entitlement to attorneys’ fees
under the Lanham Act. Because Poof does not contest the
amount of fees, the district court’s award of fees under the
Lanham Act is affirmed.
[13] Nevertheless, REMAND is proper because it is
unclear whether the district court’s award of fees may have
included fees related to Andrew’s Copyright Act claim. On
remand, the district court must recalculate the fees award tak-
ing into account that Poof prevails as a matter of law on
Andrew’s Copyright Act claim.
CONCLUSION
The district court’s award of $15,000 in statutory damages
under the Copyright Act is REVERSED because the infring-
ing activity commenced before the effective registration date
of the copyright at issue. In addition, while the district court’s
award of attorneys’ fees under the Lanham Act is proper, any
award of attorneys’ fees under the Copyright Act is improper
for the same reason Andrew was not entitled to statutory dam-
ages under the Copyright Act. On the record before us, how-
ever, we are unable to determine whether any portion of
attorneys’ fees award was based on the Copyright Act. Thus,
we REMAND with instructions to apportion the fees award in
light of our determination that Andrew is not entitled to attor-
neys’ fees under the Copyright Act.
Statutory damages under the Copyright Act REVERSED;
attorney fees REMANDED with instructions. The parties
shall bear their own costs on appeal.