Tattoo Art Incorporated v. TAT International LLC, No. 11-2014 (4th Cir. 2012)

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-2014 TATTOO ART INCORPORATED, Plaintiff Appellee, v. TAT INTERNATIONAL LLC; KIRK A KNAPP, Defendants - Appellants. Appeal from the United States District Court for the Eastern District of Virginia, at Norfolk. Mark S. Davis, District Judge. (2:10-cv-00323-MSD-DEM) Argued: October 25, 2012 Decided: December 10, 2012 Before TRAXLER, Chief Judge, and WILKINSON and AGEE, Circuit Judges. Affirmed by unpublished per curiam opinion. ARGUED: Nicholas Shaker Ayoub, WHEELER UPHAM, PC, Grand Rapids, Michigan, for Appellants. Mark R. Baumgartner, PENDER & COWARD, PC, Virginia Beach, Virginia, for Appellee. ON BRIEF: Christopher Gibbons, DUNN/GIBBONS, Grand Rapids, Michigan, for Appellants. Kristen R. Jurjevich, PENDER & COWARD, PC, Virginia Beach, Virginia, for Appellee. Unpublished opinions are not binding precedent in this circuit. PER CURIAM: Plaintiff-Appellee brought this action Tattoo Art, against Inc. ( Tattoo Art ) Defendants-Appellants TAT International, LLC ( TAT ) and Kirk A. Knapp, alleging claims for copyright infringement and breach of a copyright license agreement. partial The district court granted Tattoo Art s motion for summary action. judgment as to liability on both causes of The district court then conducted a bench trial solely as to damages and awarded actual damages of $18,105.48 on the breach of Copyright contract Act of claim $480,000 and on statutory the damages infringement under claim. the TAT appeals various aspects of the district court s rulings as to both liability and damages. We affirm. I. Tattoo Art is a Virginia company Dufresne, who uses the trade name J.D. Crowe. owned by Joseph Tattoo Art holds copyright registrations for hundreds of colorized tattoo flash art designs created by Dufresne. A tattoo flash is an original drawing or design of a tattoo printed or drawn on a sheet of paper or a poster and often displayed on the walls of tattoo parlors to give customers design copy. 2 ideas for the tattooist to To hundreds of avoid the individual cost of works, copyright Tattoo Art registration grouped its for tattoo flash designs into Books consisting of 50 pages or sheets. Each sheet, in turn, displayed numerous individual tattoo designs; Tattoo Art, however, secured only a single copyright registration interested for each parties to 50-sheet use its Book. Tattoo copyrighted Art flash licenses designs in tattoos, posters, cell phone covers, and t-shirts among other things. In this case, Tattoo Art granted permission to TAT, a Michigan company owned by Knapp, to use the copyrighted designs. Among other things, TAT creates and sells stencils for use in applying temporary airbrush body art. In December 2005, Tattoo Art and TAT entered into an agreement permitting TAT to use specified copyrighted flash drawings to create stencils for temporary airbrushed tattoos. According to Tattoo Art, the complete terms of the parties agreement were contained within a 10-page typewritten License Agreement (or the Agreement ), a signed copy of which Tattoo Art attached and incorporated into its complaint. Agreement granted designs 1 for TAT the the right to manufacture, 1 use offer the The License specified for sale, tattoo sale, The License Agreement identified 711 individual designs, most of which were unregistered, covered by the license. There is no dispute that Tattoo Art held copyright registrations for (Continued) 3 advertisement, promotion, Licensed Articles. was defined art. Id. as shipment, J.A. 253. Stencils The for licensing and distribution of the Licensed Articles, in turn, use clause in applying limited airbrush TAT s use body of the copyrighted flash designs to the creation and sale of Stencils for the application of airbrush body art and permitted TAT to distribute graphic representations (including photographs and/or posters) of the tattoo flash designs only if it did so in connection with the sale of Stencils. granted by this License. Under the No other use . . . is J.A. 254. terms of the License Agreement, TAT was required to make quarterly royalty payments of 12.5 percent of its gross sales, if any, of licensed articles created pursuant to the License Agreement, and regardless of gross sales. no less than $6,000 annually, TAT was also obligated under the Agreement to provide Tattoo Art with quarterly sales reports. Finally, the License Agreement provided an initial term of three years, after which it would continue on a year-toyear basis unless one party elected not to renew, in which case the Agreement would expire at the end of the 12-month period during which notice of 212 of these designs registered Books. nonrenewal which came 4 was from given. 24 of The Tattoo License Art s Agreement also reserved exclusively for Tattoo Art the option of terminating in the event of a breach by TAT. J.A. 254. If the Agreement was not renewed by either party, TAT was permitted to dispose of finished Licensed Articles on hand or in process . . . for a period of twelve (12) months thereafter. That is, TAT could continue to promote and J.A. 256. sell inventory derived from the copyrighted designs. existing If, however, Tattoo Art terminated based on TAT s breach, TAT was obligated under the License Agreement to immediately cease all sales. J.A. 257. TAT concedes that an agreement exists but denies that the written License Agreement constituted the final agreement. Instead, TAT claims that Knapp and Dufresne orally modified some of its terms after Knapp received a fax from Tattoo Art of the proposed License Agreement on December 29, 2005. The alleged modifications included the right for TAT to sell all existing licensed inventory in the event of termination, regardless of the reason, royalty and the payment. elimination According to of the TAT, $6000 Tattoo minimum Art annual promised to prepare a revised License Agreement to reflect the alleged oral modifications. page on its TAT concedes that Knapp signed the signature behalf and faxed it back to Tattoo Art on the understanding that the signature page would be attached to the revised License Agreement. TAT 5 contends, however, that a revised Agreement was never prepared or sent and that TAT did not receive a complete copy of the signed License the Agreement signature until the lawsuit was underway. Following the execution of page by Knapp, TAT made three of the four required quarterly royalty payments in 2006, the total of which was $653. The last royalty payment was made in October 2006, after which time TAT sent no further royalty payments or sales reports. In fact, the parties apparently had no further contact until February 2009. In the meantime, TAT had changed the coloring of Tattoo Art s designs and was displaying these re-colored images on TAT s website to promote its stencils. from the re-colored TAT also removed the copyright notice images and referred to the images years despite collectively as its Original Collection. After having remained silent for two TAT s failure to send royalty payments or reports, Tattoo Art contacted TAT in February 2009. TAT promised to come current with the missed royalty payments and reports but failed to do so. On May 14, 2009, Tattoo Art sent TAT a termination letter, advising TAT to cease any further use of licensed property and demanding an accounting of all sales up to that date. termination was based on TAT s failure royalties and/or report royalties. to J.A. 835. pay the The minimum Nonetheless, TAT continued to sell stencils derived from the licensed property 6 and to use altered designs and artwork in the sale and promotion of these items on its website. In July 2009, Tattoo Art filed an action for breach of the License Agreement and copyright infringement. mandatory mediation provision in the License Relying on a Agreement, TAT argued that Tattoo Art was required to submit any dispute to mediation before filing an action to enforce the Agreement. The district court agreed and granted TAT s motion to dismiss. The parties then submitted the case to mediation but were unable to achieve a resolution. In July 2010, Tattoo Art re-filed the action, again asserting claims for breach copyright infringement. fraudulent Tattoo Art inducement, unclean subsequently motion for the License Agreement and TAT pled the affirmative defenses of hands filed judgment as to liability. Art s of summary a and motion equitable for estoppel. partial summary The district court granted Tattoo judgment, concluding that TAT had breached the Agreement and infringed on the copyrights held by Tattoo Art. The district court then held a bench trial as to damages, after which it entered an order awarding Tattoo Art $18,105.48 on the breach of contract claim and statutory damages under the Copyright Act of $480,000 on the infringement claim. 7 II. A. TAT first challenges the district court s grant of partial summary judgment in favor of Tattoo Art as to liability on its breach of contract claim. We review the district court s See Temkin v. Frederick grant of summary judgment de novo. Cnty. Comm rs., 945 F.2d 716, 718 (4th Cir. 1991). Summary judgment shall be granted if the movant shows that there is no genuine dispute as to any material fact and that it is entitled to judgment as a matter of law. proponent initially bears the Fed. R. Civ. P. 56(a). burden of demonstrating absence of any genuine issue of material fact. F.2d at 718. If the proponent succeeds The the See Temkin, 945 in doing so, the opposing party must present facts sufficient to create a triable issue. See id. at 718-19. obligation by producing Tattoo Art fulfilled this initial the signed License Agreement and presenting evidence that TAT failed to pay royalties or provide quarterly sales reports required by the Agreement. TAT responds that the question of whether the parties orally modified the License Agreement presented an issue of material fact that was not amenable to resolution at the summary judgment stage. We disagree. A party asserting the existence of a genuine issue of material fact must support its assertion by citing to particular parts 8 of materials in the record, including depositions, information, affidavits documents, or electronically declarations, stipulations admissions, interrogatory answers or other materials. Civ. P. 56(c)(1)(A). record or proffer stored . . . Fed. R. TAT failed to point to anything in the any evidence that would create dispute of fact about the terms of the Agreement. a material The sole support TAT offered for its claim that various terms of the Agreement had been modified was a copy of the License Agreement displaying some handwritten margin notes regarding a few of the disputed provisions. TAT, however, offered no deposition or affidavit testimony verifying who made the notes or when they were made. Because TAT failed to point to [any] document that contains what [it] contend[s] are the definitive terms of the Agreement, J.A. 370, the district court had no choice but to conclude that the version of the License Agreement incorporated into Tattoo Art s complaint was definitive. The TAT s oral district court modification found claim, other bases including merger clause in the License Agreement. the for rejecting existence of a This clause provided that the written Agreement constitutes the entire agreement and understanding between the parties and that any modifications of its written terms were invalid unless contained in a written document signed by both parties. J.A. 259. The district court concluded that the signed signature page reflected TAT s assent 9 that no oral modifications could be made to the License Agreement, and TAT has not argued on appeal that the merger clause was not part of the License Agreement. 2 We agree with the district district rulings. court and find no error in the court s Accordingly, we affirm the grant of summary judgment on Tattoo Art s breach of contract claim. B. [T]he Copyright Act grants the copyright holder exclusive rights to use and to authorize the use of his work in five qualified copyrighted work in ways, including Sony copies, reproduction Corp. v. of the Universal City Studios, Inc., 464 U.S. 417, 432-33 (1984), and the right to display the copyrighted Tasini, 533 U.S. 106(5)). 483, work 496 publicly, n.4 (2001) N.Y. (quoting Times 17 Co. v. U.S.C. § Under the Copyright Act, [a]nyone who violates any of 2 The district court also concluded that under Virginia law, the alleged oral modifications would have been invalid under the statute of frauds in view of the License Agreement s initial term of 36 months. See Va. Code § 11-2 (mandating that any agreement that is not to be performed within a year must be in writing and signed to be enforceable). Under certain circumstances where there has been part performance, however, equity requires that the statute of frauds be avoided and the oral agreement enforced. T.G. Slater & Son, Inc. v. Donald P. & Patricia A. Brennan, L.L.C., 385 F.3d 836, 841 (4th Cir. 2004). We need not address this basis for the district court s ruling in light of our disposition on other grounds. 10 the exclusive rights of the infringer of the copyright. copyright owner . 17 U.S.C. § 501(a). . . is an A licensee infringes the owner s copyright if its use exceeds the scope of ITOFCA, Inc. v. MegaTrans Logistics, Inc., 322 its license. F.3d 928, 940 omitted)). (7th Thus, Cir. 2003) [o]ne who (internal obtains quotation permission to marks use a copyrighted work may not exceed the specific purpose for which permission was granted, Gilliam v. Am. Broad. Cos., 538 F.2d 14, 20 (2d underlying Cir. work 1976), . . . and unauthorized constitute[s] an editing of the of the infringement copyright in that work similar to any other use of a work that exceeded the license granted by the proprietor of the copyright, id. at 21. The district court determined that TAT s alteration of the coloring website was of Tattoo beyond the Art s designs scope of for TAT s display license on under TAT s the Agreement and therefore constituted copyright infringement prior to termination of the License Agreement by Tattoo Art in May 2009. Art The district court concluded further that because Tattoo terminated breach, from TAT any was the License prohibited further use of Agreement under the termination. 11 the as a terms copyrighted result of of Agreement the works TAT s following We agree. TAT was given license to use the copyrighted tattoo flash artwork to create stencils and to use copies of the artwork to promote the stencils. The Agreement did not license TAT to edit, modify or alter the copyrighted works it was licensed to display for marketing purposes, and therefore such use constituted copyright infringement. post-termination copyrighted context, works TAT s constituted continued infringement display for the In the of the additional reason that TAT was contractually required to immediately cease all sales of the stencils in light of Tattoo Art s notice of termination for breach. On appeal, TAT argues that the district court should have permitted it to pursue its equitable estoppel affirmative defense at trial. To establish an estoppel defense to copyright infringement, TAT must show that Tattoo Art (1) misrepresented or concealed material facts, (2) intended or expected that [TAT] would act upon those misrepresentations or concealments, and (3) had actual or constructive of the true Service & Training, Inc. v. Data General Corp., 963 facts. F.2d 680, 690 (4th Cir. 1992). record knowledge evidence suggesting TAT has not directed us to any that Tattoo Art misrepresented or concealed material facts that would have caused TAT, in reliance upon such misrepresentations, to 12 infringe. Accordingly, we affirm the grant of partial summary judgment as to liability on Tattoo Art s copyright infringement claim. III. Following a bench trial on the issue of damages, the district court issued a 77-page order ruling on numerous issues. After concluding that TAT owed a total of $20,250 in royalties, plus pre- and post-judgment interest but less any payments previously made, the district court considered the appropriate amount of damages to award for the copyright infringement. Under 17 U.S.C. § 504(a), an infringer of copyright is liable for either (1) additional the profits copyright of the owner s infringer actual . damages, as provided by [§ 504(c)]. recover statutory permits the damages offended under 17 copyright . or (2) and any statutory Tattoo Art elected to U.S.C owner . damages to § 504(c)(1), recover which between a minimum of $750 and a maximum of $30,000 per infringement of a given work, as the court considers just. copyright owner willfully, the shows that Copyright the Act In cases where the infringement authorizes was committed enhanced statutory damages of up to $150,000 per infringed work. See 17 U.S.C. § 504(c)(2). The district court concluded that Tattoo Art was not entitled to enhanced damages even though there was some evidence 13 of willfulness. The court found that even were it to accept the explanation offered by TAT at trial for changing the coloration that the modified color scheme was a more effective marketing tool for the stencils any potential legitimacy that such a business justification might have had was entirely overshadowed by the illegitimacy of the circumstances. . . . The very name chosen by [TAT] for [its] [licensed derivative the Original Collection is particularly telling. Nonetheless, the definitively infringement. appropriate district that court TAT J.A. statutory willfully 709. Thus, could damages engaged the range court was $750 products]J.A. 706. not conclude in copyright determined the to per $30,000 infringement, as prescribed by § 504(c)(1). In determining the number of infringements that occurred, the district court rejected Tattoo Art s argument that the display of each individual recolored image was a separate copyright violation; instead, the district court decided that each of Tattoo compilation. See Art s 17 registered U.S.C. § 101. Books constituted Although parts of a a compilation . . . may be regarded as independent works for other purposes, for purposes of statutory damages, they constitute one work. Cir. Xoom, Inc. v. Imageline, Inc., 323 F.3d 279, 285 (4th 2003) (internal quotation marks and alteration omitted), abrogated on other grounds, Reed Elsevier, Inc. v. 14 Muchnick, 130 S. Ct. 1237 (2010). Thus, the district court concluded that Tattoo Art was entitled to only one award of statutory damages for each book that was infringed. images used by books, the district entitled to TAT 24 came from court statutory 24 of Tattoo determined damage that Because the Art s registered Tattoo awards. Art Neither was party specifically challenges the court s method of determining the number of infringements committed by TAT. Finally, as to where the district court should fix the amount of statutory damages for each infringement within the $750 - $30,000 range, see 17 U.S.C. § 504(c)(1), the district court found that Tattoo Art s conduct fell closer to the willful end of the spectrum than the innocent end, J.A. 719, and set the amount at $20,000, yielding a total of $480,000 for the 24 infringements, plus pre- and post-judgment interest. On appeal, TAT does not specifically challenge how the district court arrived at this $20,000 figure. Rather, TAT broadly challenges the total amount of the award, contending that it was damages grossly Tattoo Art disproportional could have to the recovered amount under of the actual Minimum Royalty payment provision of the License Agreement (purportedly 25 times more) or the amount of unpaid royalties due for TAT s actual sales (purportedly 68 times more). TAT cites State Farm Mutual Automobile Insurance Company v. Campbell, 538 U.S. 408 15 (2003), and BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), to support its argument that the statutory damages award is subject to proportionality review. Those cases, however, involve proportionality review of punitive damages awards, not statutory damages awards where Congress has limited the district court s discretion by establishing a statutory range. TAT is essentially arguing that these awards within the statutory range were constitutionally argument. would excessive. This is an unavailing We review for clear error any factual finding that determine the appropriate level of copyright statutory damages, but we review an award of those damages within the statutory range for abuse of discretion. L.P. v. 2001). Morris In Costumes, this case, Inc., the 243 See Lyons Partnership, F.3d district 789, court 799 (4th Cir. articulated a reasonable basis for fixing statutory damages at $20,000, and we perceive no abuse of discretion or constitutional error in the district court s conclusions. Finally, we reject TAT s contention that the district court improperly awarded both actual damages for breach of the License Agreement and statutory damages infringement under 17 U.S.C. § 504(c)(1). permitted Tattoo Art to elect to recover for copyright The Copyright Act either (1) the copyright owner s actual damages and any additional profits of the infringer . . . or (2) statutory damages, as provided by [§ 16 504(c)]. See 17 U.S.C. § 504(a). Tattoo Art elected and received statutory damages on its infringement claim; the award of actual damages was not for the infringement claim but for TAT s failure to pay royalties under the License Agreement. The election required by the Copyright Act pertains to infringement claims, i.e., an infringement plaintiff cannot recover both actual and statutory damages for the same act of infringement. That is not what occurred in this case, however, because the district court awarded actual damages only for TAT s breach of the License Agreement, not for copyright infringement. IV. For the foregoing reasons, we affirm the orders of the district court. AFFIRMED 17

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