Addressing several issues concerning damages in a copyright infringement case, the US Court of Appeals for the Third Circuit affirmed a jury's award of $1.6 million to a stem-cell photographer, but vacated and remanded the court's denial of prejudgment interest. Leonard v. Stemtech International, Inc., Case Nos. 15-3198; 3247 (3d Cir., Aug. 24, 2016) (Shwartz, J).
Andrew Leonard is one of a few photographers who create images of stem cells using electron microscopes. Leonard licenses his specialized images on a limited basis in order to maintain the value of his work and has received licensing fees ranging from $1,500 to $6,500 depending on the purpose and nature of the licensed image. In 2006, Stemtech, a nutritional supplement company, contacted Leonard about licensing one of his images. Stemtech agreed to pay Leonard $950 for a license to use the image solely in its internal magazine. However, Stemtech then proceeded to use the image on its website, marketing DVDs and other promotional materials, and provided the image to its distributors for their use. Leonard learned of this infringing use and asked Stemtech to stop using his image, but Stemtech and its distributors continued to use the image.
Leonard sued Stemtech for copyright infringement, and at trial, Leonard relied on a damages expert who opined that Leonard's damages from Stemtech's infringement ranged from $1.4 million to nearly $3 million. A jury found Stemtech liable for direct, vicarious and contributory copyright infringement and awarded $1.6 million in damages. The court, however, declined to award prejudgment interest, reasoning that the damages award had "sufficiently compensated" Leonard. Stemtech appealed the damages award, and Leonard cross-appealed denial of prejudgment interest.
Stemtech argued that the court's affirmance of the jury's damages award was an abuse of discretion. Stemtech contended that Leonard's damages expert used a flawed methodology, rested on unreliable bases, and should have thus been excluded. The Third Circuit disagreed, finding that Leonard had properly employed a fair market value methodology in calculating Leonard's damages range: the expert collected quotes for licensing fees from various photo agencies for uses similar to Stemtech's use, averaged them, multiplied that average by the number of alleged instances of infringement, and then multiplied that figure by "premiums," taking into account the rarity of the photographs and the exclusivity of Leonard's licensing during the infringement period. Any issues that Stemtech raised with the expert opinion went to weight, the Court explained, not admissibility.
The Third Circuit also rejected Stemtech's argument that the $1.6 million verdict was excessive. Although recognizing that the award was "quite high," the Court felt that it did not shock the conscience and that the verdict was tied to the record evidence of the scope and circumstances of Stemtech's infringement. The damages award—specifically, the use of multipliers—was not punitive; rather, the multipliers were used to account for the fair market value of Leonard's unique images.
In his cross-appeal, Leonard challenged the district court's denial of an award of Stemtech's profits and prejudgment interest. The Third Circuit found that Leonard was not entitled to Stemtech's profits because Leonard had failed to demonstrate what, if any, of Stemtech's profits were attributable to its unauthorized use of Leonard's image. The Court disagreed, however, that Leonard was not entitled to prejudgment interest. Prejudgment interest serves to compensate plaintiffs for a different harm than damages alone—it serves to recoup the time-value of a plaintiff's loss. The district court thus erred in denying prejudgment interest on the grounds that the $1.6 million adequately compensated Leonard. Although recognizing that calculating prejudgment interest based on 92 separate incidents of infringement would be difficult, that difficulty was not a basis for denying Leonard prejudgment interest.
Practice Note: In many cases, prejudgment interest is an afterthought. Prejudgment interest in protracted litigation (the complaint in this case was filed in 2008), however, can be significant. As with any request for damages, plaintiffs must gather evidence to support an award of prejudgment interest and should work to facilitate the court's interest calculation.
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