Urban Outfitters and Century 21 have lost their appeal in a judgment of willful copyright infringement for using fabric designs created by Unicolors, Inc, a Los Angeles-based company that designs and sells fabric to the clothing industry, and must now and must pay $531,310 to Unicolors for its actions.
Why is this case important to you, the creative person?
After all, it seems like a typical copyright infringement case, the kind we have talked about many times on Art Law Journal. Look deeper into it though, we find that the years of litigation, legal expenses and ultimate success by Unicolors hinged on one simple act: that Unicolors spent $55 to register its designs with the U.S Copyright Office.
So, let’s look at the what happened, why the copyright registration was so important, and how the case might have played out had the works not been registered.
A Short Review on the Copyright Act
In the United States, there is no copyright infringement protection for garment designs, but protection is available for the prints and patterns on the garments, if they have some small amount of creativity. Designs can sometimes fail to reach the level of creativity required to receive copyright infringement protection. For example, designs based on mathematical algorithms, like fractals, or geometric patterns made of non-protectable items like boxes and circles of color, may not be uniquely creative. However, the layout of the shapes and flourishes may be protectable of the arrangement is creative.
Since copyright protection is automatic, happening as soon as the work is created, and copyright registration is not required, it can be difficult to know whether a work is protected. As a matter of habit, Unicolors regularly registered its fabric designs to “protect its investment and maintain a competitive advantage in its artwork.” Unicolors has filed over 60 lawsuits for copyright infringement in the approximately five years preceding the trial.
The design series at issue in the case are shown below.
Notice that Urban Outfitters version is not an exact copy. But what constitutes copyright infringement? All that is required however is that the alleged infringing work be substantially similar. Regarding the work above, the courts said “Although the colors vary slightly, each has an ombre color pattern and uses color in similar ways for highlight and contrast . . . Given the intricacy of the designs and the objective overlap between them, the district court properly concluded that the works are ‘so overwhelmingly identical that the possibility of independent creation is precluded.”
Is it possible that Urban Outfitters did not know they had used Unicolors pattern? Perhaps they had hired an outside designer to create the pattern and without Urban Outfitter’s knowledge, gave them Unicolor’s copyrighted designs. It is possible, but it doesn’t matter because copyright is a no-fault law. If a copyrighted work is used without permission, then the one who used it is an infringer. Perhaps the infringer could make a case for fair use, but Urban Outfitters clearly infringed. The issue then becomes the damages available to the copyright holder and that depends on how damages are calculated.
Statutory Damages versus Actual Damages
There are two types of damages; actual and statutory. Actual damages are exactly what they sound like. It is calculated as the revenue of statutory damages (i.e. licensing fees) plus any profit that the infringer made from the works (i.e. sales). copyright damages are not punitive. The goal here is to make Unicolors “whole” again, not to punish Urban Outfitters. Under actual damages then, Unicolors would be entitled to whatever fee they would have charged Urban Outfitters for the use of its designs as well as any profit Urban received from the sales of those products.
What is considered profit can be contentious, however. Profit is defined as “sales – costs.” Urban Outfitters could deduct various costs, such as marketing, shipping, or human resources but they must be directly related to the sales of the infringing works, which provides an opportunity for some creative accounting.
The point here is that the actual damages might be lower than the legal fees required to win the case. The result is that most cases settle. Both sides will make motions, take depositions, and try various legal approaches to gain an advantage, much of which has little to do with the law itself, but more about power and available funds. For example, a defendant that knows the plaintiff has limited resources can use legal procedures to add additional time and expenses, forcing the plaintiff into an early settlement for lower damages.
Ultimately though, both sides continually calculate the odds; the cost of litigations vs. the potential award. The copyright holder is trying to figure out how much they must spend on legal fees to get the award they want. The longer the litigation, the higher the costs so as the case continues, they spend more, but if their case gets stronger then the potential award may also increase. When that is no longer the case, when the costs of litigation don’t provide an increase in the award, then they will think about settling. It’s opposite for the defense who is thinking about how much they must pay in damages as well as how much they must pay in legal fees. As legal fees get higher, damages should get lower and when they do not, the defense will think about settling. When each of the parties’ calculations are close to each other, then they will settle.
The $55 Copyright Fee
Now consider how the calculations would change if the alleged infringer had to pay for the copyright holder’s legal fees? As the case continued, the costs for the infringer would be doubled at least so every move the infringer made to put pressure on the copyright holder, to force them to expend more resources, would hurt the infringer, not the copyright holder.
And that is where the copyright registration fee comes into play!
Think of copyright registration like insurance. The cost of copyright registration is $35 although a series of works can be registered for $55, which is what Unicolors did with its designs. Photographers also get a steep discount, being able to register up to 750 works for $55 if those works were created in the same calendar year and were taken by the same photographer.
Registering a work prior to the occurrence of copyright infringement or within 3 months of publication entitles the copyright holder to between $750 to $30,000 per infringement. Additionally, if the infringement is “willful,” the damages can reach up to $150,000 per infringement. Where along the spectrum any case falls is determined by the court. More importantly however, reasonable legal fees will also be paid by the infringer. Technically, the legal fees provision is at the discretion of the court but rarely does the court not provide reasonable fee reimbursement.
Remember that copyright infringement is a no-fault law. As discussed earlier, the question isn’t usually whether there was copyright infringement, but the extent of the damages. So, if there is an infringement and the copyright holder knows that his legal fees are paid for by the defendant, then the entire calculation changes in favor of the copyright holder. That makes it easier to push the infringer to a higher settlement or to take a case to trial, which can be a very expensive process. It also makes it easier to get a lawyer to take the case on contingency since the risk of not getting paid is very low.
Why did this case end up in trial and with an appeal rather than settling?
One would think that if Urban Outfitters infringed and they were at risk of paying legal fees if the case continued, then they would have settled early rather than spending years in litigation, racking up legal fees. Unfortunately, we can only speculate but the most likely reason would revolve around Unicolors’ claim that the Urban’s infringing activity was willful.
At the time this case commenced, proving willful infringement was not an easy task. It required, among other things, subjective knowledge; that the risk of copyright infringement was either known to the accused infringer or so obvious that it should have been known. Proving that someone knew they were infringing is difficult. Where does that proof come from? Do people write in their emails to colleagues that they are stealing someone’s work? Do they sent a note to their boss asking if its ok to infringe?
So when including statutory damages in the calculations, Unicolor believing they had a good case and Urban Outfitters thinking they could overcome willfulness, it’s likely that their settlement numbers never came close to each other.
Unicolor was so sure of its position that it made a motion for summary judgment before any trial took place. Issues of law can often be decided by a judge, while facts are generally decided by a jury. When the facts are not in dispute, a plaintiff will often submit a motion for summary judgment, allowing the judge to decide the case based on the law alone. Of course, the defense will dispute facts but if the judge believes the jury will not dispute those facts, then he or she can rule on the case.
The judge agreed with Unicolor’s argument and ruled in their favor, although damages still needed to be determined. A two-day trial was then held on the issue of willfulness and damages. A jury found that Urban Outfitters willfully infringed Unicolors’ copyrights in the designs and awarded $164,400 in damages. The district court later granted Unicolors $366,910.17 in fees and costs.
So, if this case had not been one with statutory damages, Unicolors’ would have paid $344,910 to its lawyers and received $164,400 for a net loss of $180,510. If the judge did not agree with the willfulness claim, it would have been worse. Assume Unicolors would have received the maximum available statutory damages of 30,000, the net loss would have been $314,910. Not a great investment.
Without the legal fees provision, Unciolors would have been forced to settle before their legal fees got too high. They would have gotten something, but it would not have been nearly as much.
Urban Outfitters Appeals The Ruling
Urban decided to appeal the case because they felt that the lower court judge did not fully consider the requirement that the company had no knowledge of the infringement and therefore the infringement could not be willful. Unfortunately, one thing that appeals courts are known to do on occasion, is revising the rules. After all, the rules were court-created, to begin with.
This case was heard in the Ninth Circuit, one of the most powerful Federal courts in the country on intellectual property. The Ninth Circuit rejected Urban Outfitter’s argument finding that there was enough evidence to conclude that Urban Outfitter’s had a policy in its workplace of “reckless disregard” to copyright infringement, primarily because it did not even inquire into whether the fabric designs it uses are protected by copyright. According to the court, “Unicolors showed that Urban keeps thousands of fabric swatches at its design studio that it has purchased from art studios or taken from vintage clothing remnants; Urban’s designers use these swatches to create thousands of apparel designs each year; Urban pays tens of thousands of dollars each year to purchase art and has a general awareness that fabric designs may be copyrighted.” Specific knowledge is not required, only a generalized knowledge that the work is copyrighted.
Unfortunately, reckless disregard for copyright is all too common, especial in the apparel industry. Companies like Urban Outfitters are just playing the numbers. We talked about the numbers game in detail in our article, The Low-Risk Gambit of Stealing an Instagram Photo, but the summarized version is that since very few people or companies register works, the risk of litigation, including statutory damages, is very low. Without legal fees being paid by the infringer, the costs of litigation are almost always too high for the copyright holder and so the cases will settle, leaving the infringing company with some profit or at most, a small loss. Meanwhile, another infringing activity is never discovered. All in all, it is more profitable to look the other way than to discover whether a work is copyrighted and pay the appropriate licensing fees to the owner.
That’s changed now. The most recognized court in the country has said that the casual attitude regarding copyright is now “willful” copyright infringement, and that means a lot of companies known for infringing content might have to change their business practices or find themselves embroiled in lawsuits like this one. Then again, if artists, photographers, designers, and other creative people continue to create work without registering, nothing may change.
What”s your best advice for regularly keeping up with copyright registration?
As a photographer and Patent Attorney with a background in marketing, Steve has a unique perspective on art, law, and business. He is currently serving as the Chief Product Officer at Artrepreneur. You can find his photography at artrepreneur.com or through Fremin Gallery in NYC.