Federal Court Case Precedent Set by Masterfile Lawsuit

At long last, there is a representative case that has supported most of the arguments and points our website has argued. In the recent case, Masterfile Corporation v. Country Cycling & Hiking Tours By Brooks, Inc. Case #: 1:2006cv06363 (August 22, 2006 to February 22, 2008), Masterfile won the case but they did not get anything near what they argued for. On September 18, 2009, Attorney Oscar Michelen wrote a detailed analysis and overview of the case, the findings, and the final ruling. This is mandatory reading for anyone looking to defend themselves against Getty Images, Masterfile, or any other stock photo company!

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Written Analysis by Attorney Oscar Michelen (September 18, 2009)

Just wanted to update everyone about a recent Federal case in a suit filed by Masterfile that at first seems like a legal victory for Masterfile (since they were awarded nearly $6,000 in damages) but which in fact vindicates the position we have been espousing on this website. This may get a little wordy and legalistic, but stick with it as it is important for those who are facing claims brought by Masterfile and Getty and others.

Facts of the Case

The case is called Masterfile Corporation v. Country Cycling & Hiking Tours By Brooks, Inc. (even the title is wordy). From now on in this post I will refer to Masterfile as “MF” and the Defendant as “CC” MF sued CC, a small bike touring business for having four MF images on its website without authorization. The images were on CC’s website for over 3 years (which is the statute of limitations period under the Act anyway) CC got the usual letter demanding huge amounts including a warning that the infringer faced up to $150,000 in statutory penalties since MF had registered the images with the US Copyright Office. CC immediately removed the images from its website. Apparently the parties tried to settle pre-litigation, but they were too far apart. MF would not go below $5,880 and CC offered only “a nominal sum.” So Masterfile filed a Federal Copyright Infringement claim in the Southern District of New York.

CC did not hire a lawyer, nor did it contest the lawsuit. MF entered what is called a default judgment, meaning they win automatically on this issue of liability (fault); however, you still have to prove your damages at a hearing, called an inquest. CC only sent in a letter explaining their circumstances (which will be discussed later). While this was not proper under the Federal Rules, the court accepted it since CC was pro se (unrepresented by counsel). MF filed affidavits and other documents seeking $5,600 in statutory damages per image. Not far from what it usually seeks in its demand letters, by the way. Let’s analyze the court’s decision written by Magistrate Judge Frank Maas.

Statutory Damages

The court conducted an analysis of MF’s claim for statutory damages. Let me first remind everyone that one only gets these damages if the image was registered with the copyright office. While the court acknowledged that the Act allows up to $150,000 it quickly pointed out that the court has “broad discretion” in awarding these damages and that “Ultimately, the statutory damages should bear some relation to actual damages suffered.” The court noted that MF admitted that its licensing fee for the images would have been $1,120.00 per year per image. It also pointed out that even in statutory damages cases, one factor the court shold consider is the defendant’s “individual culpability” in the infringement. This is our first area of vindication since we have been arguing with MF and Getty (“G”) that even though innocence is not a defense to infringement, courts will look at the defendant’s culpability in assessing damages. MF and G refused to acknowledge this position – one point for our side!

The Court then went on to state that “There are several problems with MF’s proposed statutory damages.”

First problem: Since MF registered all four images at the same time in one compilation (as they always do – they never individually register images) this counts as ONE INFRINGEMENT!! The Court cited the “unambiguous language” of the Act which states that a compilation that contains separate and independent works of art counts as one work for infringement purposes. Another point for our side!! We have been trying to get MF to concede this point for nearly a year now and they have refused to acknowledge it essentially talking in double-speak and and claims of it being “a gray area.” Well if it was gray before (it wasn’t) it ain’t gray now. To quote Judge Maas: “Therefore for purpose of calculating statutory damages, [CC] infringed only one work.”

Second problem: CC used a professional web designer. The court stated that since CC did so, “it had no knowledge it was using copyrighted material.” The court also noted that CC immediately removed the images from its website once it became aware of the issue. Judge Maas said that these two factors suggest “that any damages awarded should be at the low end of the spectrum.” Another HUGE point for our side!!! (Notice that I add one exclamation point for each point in our favor as we go along so we can keep track) This really is very important for a number of reasons. We have always advised folks to immediately remove the images and that this will be looked on favorably by courts. Nearly all of our MF and G clients employed web designers or template companies to get their images for them and design their sites. The image companies have argued that this did not make them “innocent infringers” since they would still be liable for their “agents” acts. When I pointed out that these are not agents, but independent contractors who were paid for their services I was told that this made no difference. Oh well, now we know that it does.

Third Problem: The court found that CC is a small company with gross revenues of about $16,400 per year and that almost none of its business comes through its website. In fact, all of its income comes from three law firms that book cycling programs. (That apparently none of these firms were willing to help CC out with a little bit of free legal advice or representation is unfortunate, but anyway I digress). The court then stated that had CC known what the licensing fee was “it is highly unlikely that it would have spent $1,120 per year for a license, rather than looking to the public domain for artwork.” This is another significant point for our side!!!! OK let me explain why this is so important to our position on G cases especially – All the images companies argue that their licensing scheme should be the basis for an “actual damages claim” My position has been that this is just the starting point because it was a 2001 case called Davis v. The Gap which established the notion that a plaintiff could get a “retroactive license fee” as “actual damages” but in that case the court also said that crafting too large a retroactive fee would not be correct since the infringer would not have likely paid that amount. So we have been arguing with G especially that this part of the Davis case envisions a negotiation between the plaintiff and defendant meaning that a court will look at the fee to see if the infringer would have paid that in the market place or gone elsewhere. This new MF case says exactly that!!

Fourth Problem: CC does not need to be deterred. The court noted that given the circumstances of this case (which by the way are nearly identical to the circumstances of all other cases) a high award is not necessary to deter CC from infringing anew nor is it necessary to further the goal of general deterrence of others. We have directly made this argument almost verbatim to the image companies and sometimes they have nearly laughed back at me asking “How could you say this would not have value as general deterrence” (only a lawyer could chuckle as they uttered that sentence by the way). Now they know how I can say it – cause a Federal Court just did! To quote the Harry Potter book series: One point for Gryffindor!!!!!

The court awarded $1,120.00 in statutory damages to MF because (1) CC was unaware it had infringed (2) It infringed only one work since all the images came from one compilation (3) It acted appropriately once it learned of the problem.

Wow – a Federal lawsuit over a $1,120.00 claim. I think had I represented CC I could have gotten this down even further by arguing to the court that MF’s licensing scheme should just be the starting point and that the fair market value of a stock image is what should apply. Also, while the court briefly mentions the section in the Act that allows a court to reduce damages in cases of innocent infringement there is no discussion of applying it to this case even though the court found CC was an innocent infringer.

Legal Fees

The court then went on discuss legal fees. It is this exposure to potential legal fees that makes me strongly encourage my MF clients to reach a settlement with them. But even this section was good for our side. The court noted that an award of legal fees is “generally awarded to a prevailing plaintiff” in a copyright infringement case involving registered works (you can’t get it in cases involving works that were not registered at the time of the infringement). The court also noted that MF should get legal fees because it had to file suit since CC only offered a “nominal sum” prior to litigation. Well – this is really good for us! Presumably if CC had offered something at or over the $1,120.00 MF ended up winning, then suit may not have been reasonable and fees would have been unjustified. We routinely advise offering more than $300 per image on MF claims so that had we represented CC we would have come in at or over the $1120 and likely avoided having any legal fees awarded. Another point!!!!!!

The court conducted an analysis of the the time spent and costs incurred and awarded $4,860.00 So MF’s lawyers made over 4 times what MF did by bringing this case. You think this is going to be encouraging to MF? I hope they read this case carefully and be guided accordingly

Permanent Injunction

The court went on to address MF’s request for a permanent injunction – a court order stopping CC from ever infringing MF’s copyrights again. This should be a ground ball for MF right? WRONG! The court denied this routine request as CC’s owners are semi-retired and immediately removed the images so that it is not likely that they would ever infringe in the future.

Conclusion

This case clearly establishes that our position is correct on so many key points from innocent infringement to value of damages to how courts will look upon small businesses caught in this trap. I only regret CC had not come to my firm first as we may have been able to reduce this judgment even further. In any event, I sincerely hope that the various image companies take this decision to heart and begin to realize that coming closer to our side of these issues will save them time and effort and that litigation (and therefore the threat of litigation) may not get them the great results they seek!

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As a follow-up to Oscar’s analysis and commentary, I want to add that common sense prevailed. What Masterfile was asking for was not reasonable and did not take into consideration the defendant’s obvious position and intent that they were innocent infringers. I would also like to point out that this case took nearly 2 years to resolve when you take into account the time prior to the actual filing date.

These notable court documents (Adobe Acrobat PDF) are very good and informative reading. Although this was a Masterfile case, this can easily pertain to many Getty Images cases if they should ever want to take any cases to court.

Notable Court Documents for Masterfile Corporation v. Country Cycling & Hiking Tours By Brooks, Inc. Case #: 1:2006cv06363 (August 22, 2006 to February 22, 2008).

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