D'Pergo Custom Guitars, Inc. v. Sweetwater Sound, Inc.
Filing
209
ORDER granting 159 Motion in Limine to Admit Evidence at Trial; denying 160 Motion in Limine to Limit Disgorgement of Profits Evidence to the Three Years Prior to Filing Suit; denying 161 Motion in Limine to Prohibit Evidence of Indirect Profits. So Ordered by Chief Judge Landya B. McCafferty. (gla)
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
D’Pergo Custom Guitars, Inc
v.
Civil No. 17-cv-747-LM
Opinion No. 2021 DNH 026 P
Sweetwater Sound, Inc.
ORDER
D’Pergo Custom Guitars, Inc. (“D’Pergo”) sues Sweetwater Sound, Inc.
(“Sweetwater”) for copyright infringement and violations of the New Hampshire
Consumer Protection Act, RSA ch. 358-A. D’Pergo alleges that Sweetwater used a
copyrighted photograph of D’Pergo’s trademarked custom guitar necks and
headstock to promote and sell Sweetwater products on its website.
Presently before the court are the parties’ competing jury instructions (doc.
nos. 162 and 165), which put at issue the proper interpretation of the damages
provision of the Copyright Act, 17 U.S.C. § 504. Also pending are three motions in
limine, filed by Sweetwater, to admit or exclude evidence (doc. nos. 159, 160, and
161). The court resolves these motions, and the jury instructions issue, as outlined
below.
BACKGROUND
The following facts, drawn from the court’s order on the parties’ crossmotions for summary judgment (doc. no. 139), are recited for the limited purpose of
providing the reader with necessary context.
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D’Pergo manufactures and sells custom guitars. In 2003, Stephan
Dapergolas, D’Pergo’s owner, created a photograph showcasing a number of
D’Pergo’s unique guitar necks and headstock (the “Photograph”), which D’Pergo
published to its website. D’Pergo used the Photograph on its website from 2003
until 2006.
Sweetwater is a retailer that sells musical instruments, including guitars,
through its website. In 2004, Sweetwater copied the Photograph and published it
on its website. More specifically, Sweetwater used the photograph in its “Electric
Guitar Buying Guide” (the “Buying Guide”), in a section titled “Guitar necks
explained.” The end of the Buying Guide features several guitars from various
manufacturers for purchase—none of which are D’Pergo guitars—as well as a
hyperlink to “Shop for Electric Guitars.”
In January 2015, Dapergolas learned that Sweetwater was using the
Photograph in the Buying Guide. D’Pergo later applied for and was granted a
copyright registration for the Photograph from the Copyright Office. In January
2016, D’Pergo contacted Sweetwater about the Photograph. Sweetwater then
removed the Photograph from its website. D’Pergo subsequently trademarked its
headstock design depicted in the Photograph. In December 2017, D’Pergo brought
the instant lawsuit.
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DISCUSSION
The parties submit competing jury instructions (doc. nos. 162 and 165) on the
issue of whether D’Pergo must establish a causal nexus between Sweetwater’s
“gross revenue” and its copyright infringement in order to obtain an award of
profits. 17 U.S.C. § 504(b). In addition, Sweetwater moves in limine: (A) to exclude
all evidence of Sweetwater’s “indirect” profits (doc. no. 161); (B) or alternatively, to
exclude evidence of Sweetwater’s profits from more than three years before D’Pergo
commenced this action (doc. no. 160); and (C) to admit evidence of the parties’
respective conduct after they learned of the Photograph’s presence on Sweetwater’s
website (doc. no. 159).
The court addresses these matters in turn, beginning with the jury
instructions issue.
I.
Jury Instructions (Causal Nexus)
The court has previously determined that D’Pergo is entitled to judgment as
a matter of law on its copyright infringement claim (doc. no. 139). The only issue
left for the jury to decide is the extent to which D’Pergo is entitled to damages.
The damages provision of the Copyright Act is found at 17 U.S.C. § 504.
Subsection (a) of that statute provides that a copyright infringer is liable for “the
copyright owner’s actual damages and any additional profits of the infringer, as
provided in subsection (b).” 17 U.S.C. § 504(a). Subsection (b) consists of two
sentences. The first sentence states that the copyright owner may recover actual
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damages resulting from the infringement plus “any profits of the infringer that are
attributable to the infringement and are not taken into account in computing the
actual damages.” 17 U.S.C. § 504(b). The second sentence states: “In establishing
the infringer’s profits, the copyright owner is required to present proof only of the
infringer’s gross revenue, and the infringer is required to prove his or her deductible
expenses and the elements of profit attributable to factors other than the
copyrighted work.” Id.
A “highly literal interpretation” of § 504(b)’s second sentence, considered in
isolation from its first sentence, would permit recovery of all an infringer’s gross
revenue, even those portions that are not attributable to the infringement. On
Davis v. The Gap, Inc., 246 F.3d 152, 160 (2d Cir. 2001). For example, under such
an interpretation, a “plaintiff in a copyright action against a multidivision, multiproduct company such as General Mills, would need to do nothing more than offer
an overall gross revenue number—like $11.5 billion—and sit back.” Polar Bear
Prods., Inc. v. Timex Corp., 384 F.3d 700, 711 (9th Cir. 2004).
Seizing on this highly literal interpretation, D’Pergo seeks to instruct the jury
that, in order for it to obtain a disgorgement of profits, it need only present evidence
of Sweetwater’s gross revenues, which triggers a rebuttable presumption that all of
those gross revenues are entirely attributable to the infringement. Although
D’Pergo defends its position by emphasizing its fidelity to the statutory text,
D’Pergo’s requested instruction would allow the jury to award profits without
finding that any of Sweetwater’s profits are “attributable to the infringement.” 17
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U.S.C. § 504(b). By contrast, Sweetwater vies for an instruction that would require
D’Pergo to prove a causal relationship between the infringement and the gross
revenue number it presents in order to obtain an award of profits.
While the court is not prepared, at this time, to inform the parties of the
precise jury instruction on this issue that it will use at trial, it is clear that § 504(b)
must be interpreted as requiring D’Pergo to show that the gross revenue figure it
presents has “a legally significant relationship to the infringement.” Real View,
LLC v. 20-20 Techs., Inc. 811 F. Supp. 2d 553, 560-61 (D. Mass. 2011) (quoting
Polar Bear, 384 F.3d at 711). The jury will be instructed, in some fashion, that, in
order to award D’Pergo profits, it must conclude that D’Pergo established a causal
nexus between Sweetwater’s infringement and the gross revenue figure D’Pergo
presents.
Such an instruction is compelled by the sheer weight of authority. The First,
Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, and Federal Circuits
have all concluded, in some form, that a copyright owner must show a causal
relationship between the infringement and the gross revenue figure presented.
See Jane Doe No. 1 v. Backpage.com, LLC, 817 F.3d 12, 28-29 (1st Cir. 2016)
(complaint failed to plausibly allege entitlement to infringer’s profits under § 504(b)
because it failed to “link” the infringement “to some discrete portion of the
publisher/infringer’s profits”); On Davis, 246 F.3d at 160 (“[T]he term ‘gross
revenue’ under the statute means gross revenue reasonably related to the
infringement, not unrelated revenues.”); William A. Graham Co. v. Haughey, 646
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F.3d 138, 141 (3d Cir. 2011) (to succeed on claim for infringer’s profits, “a plaintiff is
first required to prove the defendants’ gross revenues over the course of the relevant
time period, and then to establish a causal nexus between the infringement and the
profits sought”); Bonner v. Dawson, 404 F.3d 290, 294 (4th Cir. 2005) (explaining
that “‘gross revenue’ refers only to revenue reasonably related to the infringement”);
Powell v. Penhollow, 260 Fed. Appx. 683, 686 (5th Cir. 2007) (“As the copyright
owner, Powell bears the burden of putting on evidence of Defendants’ gross revenue
attributable to the infringement. The burden then shifts to Defendants to produce
evidence of deductible expenses.” (citations omitted)); Thoroughbred Software Int’l
v. Dice Corp., 488 F.3d 352, 360 (6th Cir. 2007) (“To assess the infringer’s profits,
the copyright owner must first show evidence of the infringer’s gross revenue
attributable to the infringement. Then the burden shifts to the defendant . . . . ”
(citations omitted)); Taylor v. Meirick, 712 F.2d 1112, 1122 (7th Cir. 1983)
(explaining that “gross revenue” in § 504(b) means “gross revenues from the sale of
the infringing” product); Andreas v. Volkswagen of Am., Inc., 336 F.3d 789, (8th Cir.
2003) (“The plaintiff has the burden to demonstrate a nexus between the
infringement and the . . . profits before apportionment can occur.” (quotation and
brackets omitted)); Polar Bear, 384 F.3d at 711 (“[A] copyright owner is required to
do more initially than toss up an undifferentiated gross revenue number; the
revenue stream must bear a legally significant relationship to the infringement.”);
Univ. of Colo. Found., Inc. v. Am. Cyanimid Co., 196 F.3d 1366, 1375 (Fed. Cir.
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1999) (copyright owner has the burden to show that infringer’s gross revenues had a
“connection” to the infringement).
Despite the crushing weight of this authority, D’Pergo supports its requested
jury instruction by asserting that the First Circuit swims upstream. Specifically,
D’Pergo contends that the First Circuit’s opinions in John G. Danielson, Inc. v.
Winchester-Conant Properties, Inc., 322 F.3d 26 (1st Cir. 2003), Bruce v. Weekly
World News, Inc., 310 F.3d 25 (1st Cir. 2002), and Data General Corp. v. Grumman
System Support Corp., 36 F.3d 1147 (1st Cir. 1994), abrogated on other grounds by
Reed Elsevier, Inc. v. Muchnik, 559 U.S. 154 (2010), compel an instruction that does
not require the jury to find a causal link between the “gross revenue” figure and
Sweetwater’s infringement. D’Pergo is incorrect.
Although Bruce contains language arguably supporting D’Pergo’s
interpretation of § 504(b), D’Pergo extrapolates too much from the case’s holding.
There, the district court refused to award the plaintiff a share of the defendant’s
revenue streams because the plaintiff failed to present sufficient evidence of
revenue. See Bruce, 310 F.3d at 30-31. Although the plaintiff argued on appeal
that this was due to the defendant’s failure to produce discovery on its revenues, the
First Circuit found the plaintiff’s contentions “baseless” because he “made no
earnest attempt during discovery to obtain all the available evidence relating to [the
defendant’s] gross revenues.” Id. at 31. In other words, the Bruce panel merely
affirmed the district court’s conclusion that the plaintiff had failed to present
sufficient evidence of the defendant’s gross revenues. See id. at 30-31. Bruce does
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not stand for the proposition that a plaintiff need do no more than present an
undifferentiated gross revenue figure to obtain a presumption that the revenue
figure presented is attributable to the infringement.
As for Grumman, while that case states that a plaintiff must only satisfy a
“minimal burden” to trigger apportionment, it does not stand for the proposition
that a plaintiff has no burden on causation. Grumman, 36 F.3d at 1173 (emphasis
added). Rather, in describing a plaintiff’s “minimal burden,” Grumman merely
quotes the language of § 504(b) that, “[i]n establishing the infringer’s profits, the
copyright owner is required to present proof only of the infringer’s gross revenue.”
Id. (quoting § 504(b)). As already discussed, no Court of Appeals—including the
First Circuit—interprets that language in the manner D’Pergo urges. See, e.g.,
Backpage.com, 817 F.3d at 28-29. And while Grumman found that the plaintiff in
that case had met its minimal burden, the Grumman plaintiff supplied a connection
between the infringement and the revenue figure it presented. See Grumman, 36
F.3d at 1152-54, 1174.
Nor does Danielson compel the court to adopt D’Pergo’s requested jury
instruction. At one point in the opinion, Danielson paraphrases the second sentence
of § 504(b). See Danielson, 322 F.3d at 47. But, as discussed, no court interprets
that sentence in a vacuum. In addition, whether the Danielson plaintiff met its
burden of establishing the infringer’s gross revenues was not at issue in that case,
as the parties stipulated to the relevant gross revenue figure and the only dispute
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on appeal was whether a certain commissions figure was a deductible expense. See
id.
Even if these cases supported D’Pergo’s requested jury instruction—and they
do not—more recent First Circuit authority makes clear that a plaintiff in an
infringement action must establish a “link” between the infringement and the gross
revenue figure presented. Backpage.com, 817 F.3d at 28. In Backpage.com, the
First Circuit upheld the dismissal under Rule 12(b)(6) of a claim for copyright
infringement. See id. The First Circuit upheld dismissal because the complaint
failed to plausibly allege entitlement to any relief, including “profits attributable to
the infringement.” Id. at 28. Specifically, the complaint contained only “generalized
assertion[s]” that could not “plausibly be said to link” the alleged infringement “to
some discrete portion of the publisher/infringer’s profits.” Id. In so reasoning,
Backpage.com makes clear that the First Circuit stands shoulder-to-shoulder with
the majority of other circuits in requiring infringement plaintiffs to “link” the
infringement complained of to at least a “discrete portion” of the infringer’s profits
in order to obtain an award thereof. Id.
Interpreting § 504(b) to require plaintiffs to establish a causal nexus between
the defendant’s gross revenues and its infringement harmonizes the subsection’s
two sentences. See King v. St. Vincent’s Hosp., 502 U.S. 215, 221 (1991) (noting the
“cardinal rule that a statute is to be read as a whole, since the meaning of statutory
language, plain or not, depends on context” (citation omitted)). The first sentence of
§ 504(b) states that, in addition to actual damages, a copyright owner may recover
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“any profits of the infringer that are attributable to the infringement.” 17 U.S.C.
§ 504(b) (emphasis added). Although the statute goes on to state that, to establish
the infringer’s profits, the plaintiff is “required to present proof only of the
infringer’s gross revenue,” if that phrase were interpreted in a vacuum a copyright
owner could obtain profits that are not attributable to the infringement. See
Complex Sys., Inc. v. ABN Ambro Bank N.V., No. 08 Civ. 7497 (KBF), 2013 WL
5970065, at *3 (S.D.N.Y. Nov. 8, 2013) (noting that requiring plaintiffs to
demonstrate a causal nexus between revenue and infringement “is rooted in the
text of the statute itself”); see also Andreas, 336 F.3d at 796 (“The burden of
establishing that profits are attributable to the infringed work often gets confused
with the burden of apportioning profits between various factors contributing to the
profits.”).
The better interpretation of § 504(b)’s second sentence is as limited by its
first sentence: a plaintiff can only obtain profits that are attributable to the
defendant’s infringement, but the plaintiff need not distinguish the defendant’s
profits from its gross revenue. Assuming the plaintiff establishes a causal nexus
between the gross revenue figure it presents and the infringement, the plaintiff
obtains a presumption that the gross revenues are the defendant’s “profits . . .
attributable to the infringement . . . and the infringer is required to prove his or her
deductible expenses and the elements of profit attributable to factors other than the
copyrighted work.” § 504(b); see Andreas, 336 F.3d at 796.
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This interpretation not only best harmonizes the text of the statute: it makes
common sense. To paraphrase Judge Posner, if General Motors steals your
copyright and puts it in an advertisement which runs a single time, you should not
be able to simply put GM’s corporate tax return in the record in order to obtain the
entirety of the company’s gross revenue—billions of dollars—virtually all of which
would be unrelated to GM’s infringement. See Meirick, 712 F.2d at 1122. Rather,
the “common sense” approach requires “a demonstration that the infringing acts
had an effect on profits before the parties can wrangle about apportionment.”
Mackie v. Reiser, 296 F.3d 909, 915 (9th Cir. 2002). “To do otherwise would be
inconsistent with . . . rudimentary principles of tort law, to which copyright law is
often analogized . . . .” Id.
For these reasons, the court concludes that, in order to obtain an award of
profits, D’Pergo must show a causal nexus between Sweetwater’s infringement and
the gross revenue figure D’Pergo presents. Then, if a causal nexus is shown,
Sweetwater bears the burden of proving the appropriate apportionment. See 17
U.S.C. § 504(b). The jury will be instructed along these lines.
II.
Sweetwater’s Motions in Limine
As noted, Sweetwater moves in limine: (A) to exclude all evidence of
Sweetwater’s “indirect” profits (doc. no. 161); (B) to exclude evidence of
Sweetwater’s profits from more than three years before D’Pergo commenced this
action (doc. no. 160); and (C) to admit evidence of the parties’ respective conduct
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after they learned of the Photograph’s presence on Sweetwater’s website (doc. no.
159). The court addresses these motions in turn below.
A.
Motion to Exclude All Evidence of Indirect Profits (doc. no. 161)
Sweetwater moves in limine to exclude all evidence of “indirect” profits, i.e.,
profits Sweetwater generated from using D’Pergo’s copyright to promote the sales of
other products. Arguing that “the connection between Sweetwater’s profits and the
infringement is highly speculative,” doc. no. 161 at 1, Sweetwater contends that
D’Pergo should be precluded from introducing evidence of any such connection.
In the copyright infringement context, “direct profits” refer to profits “that
are generated by selling an infringing product.” Mackie, 296 F.3d at 914. By
contrast, indirect profits are those that have a “nexus” to the infringement, but
which are not generated directly from sales of an infringing product. Id.; see also,
e.g., Andreas, 336 F.3d at 796 (noting that the case at bar involved indirect profits
because “the infringers did not sell the copyrighted work, but used the copyrighted
work to sell another product”).
As discussed, an infringement victim is entitled to its actual damages as well
as “any profits of the infringer that are attributable to the infringement” and are
not factored into the computation of actual damages. 17 U.S.C. § 504(b). Because
the statute does not differentiate between direct and indirect profits, courts have
held that a plaintiff may seek an award of either. See, e.g., Mackie, 296 F.3d at 914.
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Here, the Photograph is the copyrighted work. Sweetwater did not sell the
Photograph or the Buying Guide where it appeared on Sweetwater’s website. Thus,
if any of Sweetwater’s profits “are attributable to the infringement,” 17 U.S.C.
§ 504(b), they are only indirectly attributable. See Mackie, 296 F.3d at 914.
In an indirect profits case, the “district court must conduct a threshold
inquiry into whether there is a legally sufficient causal link between the
infringement and subsequent indirect profits.” Id. at 915. “It is not enough to show
an infringement and then seek all of the defendant’s profits, from whatever source.”
Andreas, 336 F.3d at 799. The plaintiff has the burden of demonstrating a causal
link. Am. Cyanimid Co., 196 F.3d at 1375. The court may exclude evidence of
indirect profits if the causal link proffered by the plaintiff is “too speculative.”
Mackie, 296 F.3d at 915 (quoting Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc.,
772 F.2d 505, 513 (9th Cir. 1985)); see Andreas, 336 F.3d at 799-800 (upholding
evidentiary decision precluding admission of infringer’s profits from sale of all car
models where infringement only related to a particular car model); Complex Sys.,
2013 WL 5970065, at *13-*14 (granting motion in limine to exclude evidence of
indirect profits where plaintiff “fail[ed] to provide any evidence in support of” a
causal link between those profits and the infringement).
Sweetwater argues that D’Pergo must be precluded from introducing
evidence of indirect profits because D’Pergo “has failed to identify any specific
transaction that is connected to the appearance of the Photograph” in the Buying
Guide. Doc. no. 161-1 at 7. Sweetwater contends that, because “the Photograph
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was one of thousands of images that appeared on Sweetwater’s website,” any causal
link is so “attenuated” that D’Pergo cannot be permitted to present evidence of such
a link to the jury. Id. at 8.
Granting Sweetwater’s motion to exclude all evidence of indirect profits
would be tantamount to ruling that Sweetwater is entitled to judgment as a matter
of law on the issue of indirect profits. See Andreas, 336 F.3d at 799-800. However,
the court has already determined, in its order on the parties’ cross-motions for
summary judgment, that Sweetwater is not entitled to judgment as a matter of law
on D’Pergo’s profits claim. See D’Pergo Custom Guitars, Inc. v. Sweetwater Sound,
Inc., 433 F. Supp. 3d 227, 232-33 (D.N.H. 2020) (doc. no. 139). In that decision, the
court found that a reasonable jury could conclude that D’Pergo’s evidence
establishes a causal nexus between Sweetwater’s use of the Photograph and its
gross revenues sufficient to trigger Sweetwater’s burden of apportionment. See id.
This ruling was based on D’Pergo’s anticipated evidence on profits: expert testimony
from Dr. Michael Einhorn, Ph. D., regarding “profits Sweetwater purportedly
derived from customers who purchased electric guitars online after viewing the
Buying Guide, which contained the photograph.” 1 Id. at 232.
In a separate order issued the same day as the order on the parties’ crossmotions for summary judgment, the court denied Sweetwater’s motion to exclude
Einhorn’s testimony under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S.
579 (1993). See D’Pergo Custom Guitars, Inc. v. Sweetwater Sound, Inc., No. 17-cv747-LM, 2020 WL 60351, at *1-4 (D.N.H. Jan. 6, 2020) (doc. no. 138). The court
denied Sweetwater’s motion while recognizing that, if Sweetwater carried its
burden of apportionment at trial, “it may be that Dr. Einhorn’s opinion is of limited
or no value” to the jury. Id. at *3. However, because “it is Sweetwater’s burden—
1
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Although a plaintiff’s evidence of profits cannot be “unduly speculative,”
Bruce, 310 F.3d at 31 (quotation omitted), the First Circuit has stated that a
plaintiff bears only a “minimal burden” in presenting such evidence. Grumman, 36
F.3d at 1173. Polar Bear, a Ninth Circuit case, illustrates the plaintiff’s minimal
burden. There, the defendant contracted with the plaintiff to sponsor the plaintiff’s
production of a film. See Polar Bear, 384 F.3d at 703-04. The defendant’s products
were featured prominently in the film, and the defendant was granted a one-year
license to use the film in its promotional materials. See id. at 704. However, the
defendant infringed the plaintiff’s copyright when it continued showing the film at
trade shows after the one-year license expired. See id. at 704-05. In the litigation
that followed, the jury awarded indirect profits, and the defendant challenged that
award on appeal. See id. at 712.
The plaintiff in Polar Bear presented evidence of the defendant’s profits
attributable to the infringement in the form of expert testimony. See id. The expert
“reviewed [the defendant’s] sales records from the twelve trade shows where it
showed the unauthorized . . . materials.” Id. The expert calculated that the
defendant “yielded an average of $30,000 in sales per show, for a total of $360,000
in gross revenue.” Id. “Based on his experience evaluating trade shows, he
concluded that approximately 10% to 25% of trade show sales are the result of . . .
not D’Pergo’s or Dr. Einhorn’s—to separate Sweetwater’s profits gained as a result
of its use of the Photograph from those which were not,” the fact that Einhorn failed
to parse the Photograph’s impact on Sweetwater’s sales from the overall impact of
the Buying Guide on Sweetwater’s sales was not a basis to exclude his opinion. Id.
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the booth promotion, of which the [infringing] materials were a substantial part.”
Id. The Ninth Circuit held that this “testimony established the requisite causal
connection between the category of profits sought—revenue from trade booth
sales—and the infringement.” Id.
Here, Einhorn has prepared an expert report on D’Pergo’s behalf. See doc.
no. 161-3. Einhorn’s report estimates the amount of revenue Sweetwater earned
from the sale of electric guitars and guitar accessories from persons who navigated
to Sweetwater’s retail shop page after viewing the Buying Guide. Based on sales
data for Sweetwater’s product transactions from 2004-2016 (the years the
Photograph appeared in the Buying Guide), Einhorn determined that Sweetwater
generated approximately $91 million in revenue from online sales of guitars during
those years, and from sales of guitar accessories to persons who had previously
bought a guitar during those years. Based on additional data provided by
Sweetwater, Einhorn determined that approximately 5.25 million unique viewers
came to shop on Sweetwater’s online retail sales page, and approximately 500,000
viewed the Buying Guide, for a proportion of 9.4%. Recognizing that the
approximately $91 million in revenue in online sales cannot be entirely attributed
to the Buying Guide, Einhorn calculates Sweetwater’s gross revenue attributable to
the infringement to be approximately $8.5 million (which is 9.4% of the
approximately $91 million in total revenue from online sales of guitars and
accessories during the infringing period).
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Although loosely connected at best, this evidence of indirect profits is not so
“unduly speculative” that it must be kept from the jury. Bruce, 310 F.3d at 31
(quotation omitted). As in Polar Bear, the plaintiff’s anticipated evidence provides a
link between the infringement and the gross revenue figure it submits: customers
purchased Sweetwater’s guitars and guitar accessories after viewing infringing
promotional materials featuring the Photograph.
Einhorn’s anticipated testimony on indirect profits is minimally sufficient to
permit D’Pergo to present the argument to the jury. A reasonable jury may well
conclude, however, that the mere fact that the Photograph appeared in a sales
publication that generated revenue is insufficient to establish a causal link. This is
particularly true where the Photograph is one of several in the Buyer’s Guide, and
the Photograph depicts D’Pergo guitar necks—which Sweetwater does not sell.
Under such circumstances, it may be difficult for D’Pergo to persuade a jury
on causation without a witness who can testify that the Photograph caused him to
be more interested in Sweetwater’s guitars and guitar accessories. See Complex
Sys., 2013 WL 5970065, at *3 (observing that § 504(b) requires a “causal nexus,”
rather than merely “some non-causal connection”). Alternatively, the jury might
reasonably conclude that, even if Einhorn’s testimony satisfies D’Pergo’s initial
burden of showing a causal nexus, Sweetwater adduced sufficient evidence to rebut
that causal showing. See Grumman, 36 F.3d at 1175 (“The defendant’s burden
under the apportionment provision of Section 504(b) is primarily to demonstrate the
absence of a causal link between the infringement and all or part of the profits
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claimed by the plaintiff.”). Nonetheless, D’Pergo’s evidence of a causal nexus is
minimally sufficient to survive this challenge. See Polar Bear, 384 F.3d at 712; see
also IvyMedia Corp. v. ILIKEBUS, Inc., No. 15-11918-NMG, 2017 U.S. Dist. LEXIS
80547, at *2 (D. Mass. May 25, 2017) (denying judgment as a matter of law to
defendant on claim for infringement profits even though the “evidence of damages
and causation is tenuous at best”). And, while Sweetwater may believe that
Einhorn deployed a faulty methodology in concluding that a causal relationship
exists, “any purported flaws in [Einhorn’s] methodology or the evidence he relied
upon in reaching his opinion” do not justify keeping it from the jury; rather, they
“are matters for cross-examination and argument.” Gray v. Perry, No. 2:15-cv05642-CAS (JCx), 2019 WL 2992007, at *19 (C.D. Cal. July 5, 2019) (denying
Daubert motion to exclude Einhorn’s testimony on defendant’s net profits in
infringement case); accord D’Pergo, 2020 WL 60351, at *3 (doc. no. 138).
In sum, a plaintiff’s burden for a claim of infringer’s profits under § 504(b) is
“minimal.” Grumman, 36 F.3d at 1173. The plaintiff is required only to present
evidence that the defendant profited at all from the infringement; apportioning the
extent to which the profits are attributable to the infringement is the defendant’s
burden. See 17 U.S.C. § 504(b); Grumman, 36 F.3d at 1173-75; Andreas, 336 F.3d
at 796 (noting that the copyright owner has the burden of proving that the
defendant “profited from the infringing [material] at all,” and the defendant has the
burden regarding “the extent [to which] it profited from the infringement”). Thus,
contrary to Sweetwater’s argument, the fact that Einhorn’s report does not connect
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any particular transaction to the use of the photograph in the Buying Guide does
not render D’Pergo’s indirect profits claim so speculative that D’Pergo may present
no evidence of indirect profits. See Andreas, 336 at 797 (“[W]e reject the notion that
[the plaintiff] was required to put a . . . buyer on the stand to testify that she
bought the car because of the commercial in order to meet his burden of a causal
connection.”).
For these reasons, the court denies Sweetwater’s motion in limine to exclude
all evidence of indirect profits (doc. no. 161).
B.
Motion to Exclude Evidence of Profits Generated More Than Three
Years Before D’Pergo Filed Suit (doc. no. 160)
As an alternative to its motion to exclude all evidence of indirect profits,
Sweetwater moves in limine to preclude evidence of profits it generated more than
three years before D’Pergo filed suit. Relying upon the United States Supreme
Court’s opinion in Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014), and
the Second Circuit’s recent application of it in Sohm v. Scholastic, Inc., 959 F.3d 39
(2d Cir. 2020), Sweetwater asserts such evidence is irrelevant under Federal Rule of
Evidence 401 because the relief available in an infringement suit is limited to a
three-year lookback period from the time the suit is filed.
The Copyright Act provides that a civil action asserting an infringement
claim must be “commenced within three years after the claim accrued.” 17 U.S.C.
§ 507(b); accord Warren Freedenfeld Assocs., Inc. v. McTigue, 531 F.3d 38, 44 (1st
Cir. 2008). Courts use one of two methods for determining when an infringement
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claim accrues: the injury rule or the discovery rule. See 6 Patry on Copyright §§
20:17, 20:18. Under the “injury rule,” a claim accrues at the time of the injury, i.e.,
at the time of the infringement. See William A. Graham Co. v. Haughey, 567 F.3d
425, 433 (3d Cir. 2009). Thus, under this rule, an infringement claim must be
brought within three years of the infringement’s occurrence, regardless of when the
plaintiff became aware of the infringement. See id.; § 507(b). Under the “discovery
rule,” a claim accrues at the time the plaintiff discovers or reasonably could have
discovered the infringing conduct. See McTigue, 531 F.3d at 44. Thus, under this
rule, an infringement claim must be brought within three years of when the
plaintiff discovered or reasonably could have discovered the infringing conduct. See
id.; § 507(b). Most courts—including the First Circuit—use the discovery rule
rather than the injury rule for purposes of § 507(b). See Petrella, 572 U.S. at 670
n.4; McTigue, 531 F.3d at 44.
Here, the parties do not dispute that the discovery rule applies or that
D’Pergo’s suit is timely. Indeed, as previously noted, the court has already
determined as a matter of law that Sweetwater infringed D’Pergo’s copyright.
Instead, Sweetwater contends that Petrella imposes a three-year damages bar for
infringement claims even if those claims are timely brought.
This is not the first time Sweetwater has so argued in this litigation. In its
objection to D’Pergo’s motion to compel discovery (doc. no. 63), Sweetwater argued
that Petrella limits Sweetwater’s liability for infringement to the three years prior
to the date D’Pergo filed this action. Both then and now, Sweetwater cites language
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from Petrella observing that § 507(b) provides for “retrospective relief running only
three years back from the date the complaint was filed.” Petrella, 572 U.S. at 672.
This court has already rejected Sweetwater’s argument in a written order, and
ruled that D’Pergo was entitled to discovery pertaining to Sweetwater’s liability for
copyright infringement “beyond the three-year limitations period in” § 507(b)
because “the three-year lookback rule for damages” cited in Petrella does not apply
to claims that are timely under the discovery rule. Doc. no. 76 at 7-8. Although
Petrella referenced a three-year lookback rule, it did so in the context of explaining
why a plaintiff cannot recover for claims that are not timely; Petrella did not
articulate a freestanding limit on damages for otherwise timely claims. See id.
Sweetwater first argues that this court’s prior ruling is not controlling on the
admissibility of evidence of its profits from outside the three-year window because it
was rendered in the context of resolving a discovery dispute. It is of course true
that evidence need not be admissible to be discoverable. See Fed. R. Civ. P. 26(b)(1).
The court does not agree, however, that the procedural context of its prior ruling
renders it inapplicable to this evidentiary issue. Evidence of Sweetwater’s profits
from the sale of electric guitars in the years prior to 2014 is relevant—and therefore
discoverable—because D’Pergo can seek disgorgement of those profits
notwithstanding the three-year statute of limitations. See 17 U.S.C. § 504(b).
Sweetwater argues that the Second Circuit’s recent decision in Sohm should
cause this court to revisit its prior ruling. Because Sohm interprets Petrella, it is
helpful to review Petrella before considering Sohm. See Sohm, 959 F.3d at 51-52.
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In 1991, the Petrella plaintiff gained ownership over the copyright for the
1963 screenplay for “Raging Bull.” See Petrella, 572 U.S. at 673-74. In 2009, the
plaintiff sued MGM, who had previously been assigned the rights to the screenplay.
See id. The plaintiff alleged that the company’s continued distribution of the film
violated her copyright. See id. at 674-75. Although MGM committed arguably
infringing acts from the time the plaintiff gained the copyright in 1991, she “sought
relief only for acts of infringement occurring on or after January 6, 2006,” i.e.,
within three years of when she filed suit. Id.
Because the plaintiff did not seek to hold MGM liable for infringements
occurring more than three years before she filed suit, whether she could have done
so under the discovery rule was not at issue in Petrella. 2 Instead, the primary issue
was whether the Ninth Circuit erred by holding that the equitable defense of laches
barred the plaintiff’s claims even though they were brought within three years of
accrual. See id. at 676-77.
The Court began its analysis by explaining when a “claim ordinarily accrues.”
Id. at 670. It stated that, under the injury rule, copyright claims generally accrue
“when an infringing act occurs.” Id. at 670 & n.4. In addition, the Court observed
that, although it had “not passed on the question, nine Courts of Appeals have
adopted, as an alternative to [this] rule, a ‘discovery rule,’ which starts the
Indeed, the plaintiff conceded that she knew of MGM’s reproductions and
distributions of the film at the time she obtained the copyright but waited to file
because the film was mired in debt and she thought it unlikely she’d recover
anything. See id. at 682.
22
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limitations period when ‘the plaintiff discovers, or with due diligence should have
discovered, the injury that forms the basis for the claim.’” Id. at 670 n.4 (quoting
Haughey, 567 F.3d at 433).
The Court then explained “the separate-accrual rule that [also] attends the
copyright statute of limitations.” Id. at 671. The Court stated that, under the
separate-accrual rule, “each time an infringing work is reproduced or distributed,
the infringer commits a new wrong,” and “[e]ach wrong gives rise to a discrete
claim.” Id. (internal quotation marks omitted). Furthermore, “each infringing act
starts a new limitations period.” Id.
Synthesizing the injury rule and the separate-accrual rule as they bore on the
facts of the case at hand, the Court stated that: (1) under § 507(b) and the injury
rule, “an infringement is actionable within three years, and only three years of its
occurrence”; and (2), because each infringement gives rise to a discrete claim, “the
infringer is insulated from liability for earlier infringements of the same work.” Id.
In other words, although the plaintiff’s pre-2006 claims were barred because they
were outside the limitations period, that did not prevent her from pursuing
infringement claims for conduct occurring within three years of when she filed suit
because “the statute of limitations runs separately from each violation.” Id.
Because it was undisputed that the plaintiff’s post-2006 claims were timely under
the statute, the Court held that the Ninth Circuit erred in concluding that
“infringing acts occurring before January 6, 2006, bar all relief . . . for infringement
occurring on or after that date.” Id. at 677.
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Petrella does, however, contain statements which, read in isolation, suggest
that an infringement plaintiff cannot recover profits generated more than three
years before commencement of the action even if her claims are timely. 3 For
example, the Court stated that § 507(b) allows for “retrospective relief only three
years back from the time of the suit. No recovery may be had for infringement in
earlier years. Profits made in those years remain the defendant’s to keep.” Id. at
677. Although the Petrella Court stated that “[n]o recovery may be had for
infringement in earlier years,” and that “the infringer is insulated from liability
from earlier infringements of the same work,” these statements and others like
them must be read in context. The reason “[n]o recovery may be had” for
infringements that occur more than three years prior to the commencement of the
action is because, if—as in Petrella— the injury rule applies, such infringements
are outside the limitations period. Id. at 671, 677.
In Sohm, the Second Circuit interpreted Petrella to have “explicitly delimited
damages to the three years prior to the commencement of a copyright infringement
action” regardless of the action’s timeliness. Sohm, 959 F.3d at 51. The Second
Circuit noted that the Supreme Court “explicitly asserted that ‘a successful plaintiff
can gain retrospective relief only three years back from the time of suit’ and that ‘no
recovery may be had for infringement in earlier years.’” Id. at 52 (brackets omitted)
As this court noted in its prior discovery order, infringement defendants
seized on this and similar language from the opinion, arguing that the Supreme
Court had established a three-year limit on damages independent of, and in
addition to, § 507(b)’s timeliness requirement. See doc. no. 76 at 6-7.
24
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(quoting Petrella, 572 U.S. 677). Because the Second Circuit concluded that such
statements were not dicta, it held that Petrella requires courts to use the discovery
rule to determine a claim’s timeliness while simultaneously requiring courts to use
“a three-year lookback period from the time a suit is filed to determine the extent of
the relief available.” Id. After conducting another close reading of Petrella in light
of Sohm, this court respectfully disagrees with the Second Circuit’s interpretation.
As discussed, when viewed in context, this court does not agree that Petrella
is best understood as “limiting damages to the three years prior to when the suit is
filed” regardless of whether the suit is timely. Sohm, 959 F.3d at 52. The reason
that the Petrella plaintiff could not obtain relief for infringements occurring more
than three years before she filed suit was because any claim based on those
infringements would not have been timely. See Petrella, 572 U.S. at 671, 674-75.
When, as in Petrella, the injury rule applies, a plaintiff cannot recover for
infringements occurring more than three years before the commencement of its
action because such infringements are outside the limitations period. When, as
here, the discovery rule applies, recovery may be had for an infringement that
occurs more than three years prior to the commencement of the action. So long as
the action is commenced within three years after the plaintiff discovered or
reasonably could have discovered the infringement, the action is timely under
§ 507(b) and the plaintiff may seek all remedies to which it is entitled under
§ 504(b).
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This court is not alone in its interpretation of Petrella. Most district courts to
have considered the issue have held that the limitations on damages discussed in
Petrella do not apply to claims that are timely pursuant to the discovery rule. See
Mitchell v. Capitol Records, LLC, 287 F. Supp. 3d 673, 678 (W.D. Ky. 2017) (noting
that the “relevant date . . . has always been the date of accrual,” and that, “[w]hile
Petrella uses language that suggests that no damages may be recovered for acts of
infringement which occurred more than three years prior to the initiation of the
suit, these statements cannot be isolated from the Court’s initial statement fixing
accrual at the date of occurrence”); Menzel v. Scholastic, Inc., No. 17-cv-05499-EMC,
2019 WL 6896145, at *6-*7 (N.D. Cal. Dec. 18, 2019) (rejecting argument that
Petrella created a three-year damages bar independent of the three-year limitations
period and faulting the defendant for “isolat[ing] language used in Petrella from the
broader context of the case”); Design Basics, LLC v. McNaughton Co., No. 3:17-cv258, 2017 WL 11068761, at *4-*5 (M.D. Pa. Nov. 15, 2017) (joining those courts that
have “rejected the notion that § 507(b) serves dual purpose as a time limit for civil
actions and a contrarily interpreted limitation on damages”); Oracle USA, Inc. v.
Rimini Street, Inc., No. 2:10-CV-00106-LRH-PAL, 2015 WL 5089779, at *6 (D. Nev.
Aug. 27, 2015) (denying motion in limine to exclude evidence of infringement
damages incurred more than three years before filing of suit because plaintiffs’
claims were timely under the discovery rule and “Petrella expressly declined to
reject the discovery rule”); Panoramic Stock Images, Ltd. v. McGraw-Hill Global
Educ. Holdings, LLC, No. 12-C-9881, 2015 WL 393381, at *1-*2 (N.D. Ill. Jan. 27,
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2015) (holding that Petrella did not require application of a three-year damages rule
to a claim that was timely under the discovery rule). But see Navarro v. Procter &
Gamble Co., No. 1:17-cv-406, 2021 WL 184591, at *31-33 (S.D. Ohio Jan. 19, 2021)
(agreeing with Sohm that Petrella “seems to adopt a three-year lookback for
damages” independent of the statute of limitations).
For all of these reasons, and after careful consideration of Sohm and a close
review of Petrella, the court adheres to its prior ruling that the limitations on
damages discussed in Petrella do not apply to claims that are timely under the
discovery rule. Because the parties do not dispute that D’Pergo’s infringement
claim is timely under that rule, Petrella does not bar D’Pergo from recovering
profits generated more than three years before D’Pergo filed suit.
Finally, Sweetwater argues that, because it cannot be liable for profits
attributable to its infringement which arose more than three years before this
action commenced, evidence of such profits is irrelevant under Rule 401 and should
be excluded under Rule 403. However, for the reasons already explained,
Sweetwater may be held liable for such profits. Any evidence of such profits is
therefore relevant.
For these reasons, the court denies Sweetwater’s motion in limine to exclude
evidence of profits it generated more than three years before D’Pergo filed suit (doc.
no. 160).
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C.
Sweetwater’s Motion to Admit Evidence of the Parties’ Respective
Conduct Upon Learning of the Infringement (doc. no. 159)
Sweetwater next moves in limine to admit evidence of the parties’ respective
conduct after learning that D’Pergo’s photograph appeared on Sweetwater’s
website. Sweetwater claims that, when D’Pergo’s owner, Stephan Dapergolas,
learned that a photograph of his guitar necks appeared on Sweetwater’s website, he
“did not immediately alert Sweetwater, but instead promptly retained a damages
consultant.” Doc. no. 159-1 at 2. Sweetwater contends that Dapergolas then
worked with this consultant for nearly a year before finally contacting Sweetwater.
By contrast, Sweetwater states that when it learned of the Photograph’s presence
on its website, Sweetwater “immediately removed [it] and apologized for its use.”
Id. Sweetwater claims that D’Pergo then waited almost another year before
bringing this lawsuit.
D’Pergo agrees that evidence of its conduct and Dapergolas’s conduct is
admissible. However, D’Pergo contends evidence of Sweetwater’s conduct is
inadmissible. Sweetwater counters that the evidence of both parties’ conduct is
admissible to provide context to D’Pergo’s infringement claim. See Faigin v. Kelly,
184 F.3d 67, 81 (1st Cir. 1999) (noting the “well-settled” proposition that “context
evidence is generally admissible”).
The court agrees with Sweetwater. Although the jury will only decide the
extent of Sweetwater’s liability for copyright infringement, evidence of both parties’
conduct surrounding the infringement is “admissible to ‘paint the backdrop’ of the
case.” Bartlett v. Mut. Pharm. Co., Inc., No. 08-cv-00358-JL, 2010 WL 3210724, at
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Case 1:17-cv-00747-LM Document 209 Filed 01/28/21 Page 29 of 30
*1 (D.N.H. Aug. 10, 2010) (brackets omitted) (quoting Faigin, 184 F.3d at 81).
Providing the jury with this case’s “relevant background information” will allow
them “to stitch together an appropriate context” to assess evidence of Sweetwater’s
liability for copyright infringement. United States v. McKeeve, 131 F.3d 1, 13 (1st
Cir. 1997) (noting that trials are “meaty affairs,” and “courts should not insist that
all taste be extracted from a piece of evidence before a jury can chew on it”).
D’Pergo next contends that, even if evidence of Sweetwater’s conduct is
relevant to provide context, its probative value is substantially outweighed by the
danger of unfair prejudice. See Fed. R. Ev. 403. D’Pergo states its belief that
Sweetwater may inappropriately argue from this evidence “that it was an innocent,
inadvertent infringer of D’Pergo’s copyright.” Doc. no. 185 at 4. Though the court
expresses no opinion on whether such argument would be appropriate, the
possibility that Sweetwater may make an inappropriate argument to the jury does
not constitute a basis to exclude Sweetwater’s post-notification conduct under Rule
403. To the extent D’Pergo finds Sweetwater’s arguments at trial objectionable, it is
free to object to those arguments at the time they are made.
For these reasons, the court grants Sweetwater’s motion in limine to
admit evidence of the parties’ respective conduct after learning of the
Photograph’s presence on Sweetwater’s website (doc. no. 159).
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CONCLUSION
The jury will be instructed, in some fashion, that D’Pergo must prove a
causal nexus between Sweetwater’s infringement and the gross revenue
figure D’Pergo presents. Sweetwater’s motion in limine to exclude evidence
of indirect profits (doc. no. 161) is denied, as is its motion to exclude evidence
of profits generated more than three years before D’Pergo filed suit (doc. no.
160). Sweetwater’s motion to admit evidence of the parties’ respective
conduct after learning of the Photograph’s presence on Sweetwater’s website
(doc. no. 159) is granted.
SO ORDERED.
__________________________
Landya McCafferty
United States District Judge
January 28, 2021
cc: Counsel of Record.
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