by James Kachmar
The IP Law Blog
Many businesses rely on their websites to promote their company and drum up business. Having a “professional” looking web page is considered a must and companies spend a lot of money in creating and maintaining their web presence. However, a recent case out of the Ninth Circuit Court of Appeals demonstrates that care must be taken in connection with the creation of a company’s website, especially when obtaining “stock” or other photos from a third party to help promote your business.
In Erickson Productions, Inc. v. Kast (decided April 16, 2019), the Ninth Circuit was asked to review a jury’s finding of copyright infringement involving the use of certain photos on the updated website for the defendant’s company. Kast operated several companies, including Atherton Trust, a real estate wealth management company. In 2010, Kast was looking for ways for Atherton Trust to be appointed by the State of California to manage the estates of disabled persons and set about creating a new website to help attract this new business. He hired a website developer to update Atherton Trust’s website and entered into an agreement with that developer by which his approval was required on all work, “including the design, development and finalization of the website.”
Kast worked with the developer to give his ideas as to what he wanted his new website to look like and apparently made numerous favorable comments towards an existing website for Wells Fargo Private Bankers. The revamped website for Atherton Trust that was eventually created included three photos that had apparently been copied from the Wells Fargo website. These three photos were taken by Jim Erickson and licensed to Wells Fargo for use on its web page. Neither Kast, his company or his web developer obtained licenses for the photos to use on the Atherton Trust website. Erickson soon learned of the use of his photos on the Atherton Trust website and in July 2011, sent a cease and desist letter to Atherton Trust demanding that his photos be removed and payment for the infringement of his photos copyrights. Although Kast immediately removed the three offending photos from the Atherton website, he declined to pay any money to Erickson. Erickson sued and, after a jury trial, was awarded damages of $450,000 ($150,000 for each offending photograph). Kast appealed this decision to the Ninth Circuit.
a. Vicarious Liability
The first issue of Kast’s appeal dealt with the jury’s finding that Kast was vicariously liable for copyright infringement because he had employed a developer who had directly infringed on Erickson’s copyrights in his photos that were used on the Atherton Trust website. The Ninth Circuit began by noting that the elements that a Plaintiff must prove to establish vicarious liability are that the defendant has “(1) the right and ability to supervise the infringing conduct; and (2) a direct financial interest in the infringing activity.” Kast focused his argument to the Ninth Circuit on the second prong and claimed that there was no evidence that he had received a direct financial benefit as a result of the use of the photos on the Atherton Trust website. The Ninth Circuit agreed with him and held that it was improper to award damages against him on a theory of vicarious liability.
The Ninth Circuit reasoned that, “[t]he essential aspect of the `direct financial benefit’ inquiry is whether there is a causal relationship between the infringing activity and any financial benefit a defendant reaps…” Erickson claimed that Kast had received at least three direct financial benefits as a result of the infringement: (1) the photographs drew customers to the Atherton Trust website; (2) Kast avoided paying licensing fees for the use of the photos; and (3) Kast was able to “rush” his new website’s launch. The Ninth Circuit rejected each of these arguments.
First, the Ninth Circuit held that there was no evidence that any consumer went to the Atherton Trust website to view Erickson’s photographs or purchased any services from Atherton Trust as a result of the photographs. Next, the Ninth Circuit rejected the argument that the avoidance of licensing fees could be a direct financial benefit in this case. The Court reasoned that avoiding licensing fees could only be a direct financial benefit if the web page developer had somehow lowered his fees as a result of avoiding having to pay licensing fees. However, there was no evidence that the developer had done so. Finally, the Ninth Circuit rejected the argument that the “rush” of the website was a direct financial benefit because, once again, there was no evidence that launching the website earlier had resulted in any business to Atherton Trust.
While the Ninth Circuit held that it was error to impose liability against Kast under a vicarious liability theory, it did affirm liability against him under a contributory liability theory.
b. Contributory Liability
The Ninth Circuit found that Kast was liable for contributory infringement, which is when a defendant “(1) has knowledge of another’s infringement; and (2) either (a) materially contributes to; or (b) induces that infringement.” Kast’s attack on this theory was really one directed at the jury instructions given by the trial judge, which included a definition of “knowledge” as including Kast having only a “reason to know” of the infringement. Kast argued to the Ninth Circuit that only “actual knowledge” or “willful blindness” would be sufficient to impose contributory infringement liability.
However, Kast had failed to raise this objection at his trial. The Ninth Circuit concluded that because of this failure, its review was limited to considering only whether the jury instruction constituted “plain error.” The Court found that the trial court did not commit “plain error” in this regard because there had been inconsistency in prior Ninth Circuit cases regarding the knowledge element for contributory infringement liability.
For instance, in 2013, the Ninth Circuit in Luvdarts, LLC v. AT&T Mobility, LLC, held that “actual knowledge of specific acts of infringement” and “willful blindness of specific facts” would be the only two mental states that allowed for a finding of contributory infringement. However, in 2011, the Court had affirmed a lower court’s decision to instruct the jury that contributory liability could be imposed where the defendant “knew or had reason to know” of the infringement. Thus, because the Court declined to find that this instruction as “plain error,” it affirmed the jury’s finding of contributory infringement against Kast.
c. Willfulness Finding
Finally, Kast urged the Court to reverse the verdict of willfulness on his part regarding the infringing activities. A finding of no willfulness would substantially reduce the amount of damages that could be awarded against Kast. Statutory damages in a case not involving willfulness are capped at $30,000 per work infringed. (See 17 U.S.C. §504(c)(1).) However, if there is a finding of willfulness, statutory damages can rise up to $150,000 per work infringed. (Id., § 504(c)(2).)
Kast urged the Ninth Circuit to reverse the finding of willfulness saying that the trial court had improperly instructed the jury that willfulness could include whether he “should have known” of the claimed infringement. The Ninth Circuit began by nothing that willfulness “requires an assessment of a defendant’s state of mind.” A plaintiff seeking to establish willfulness under the Copyright Act must prove “(1) that the defendant was actually aware of the infringing activity; or (2) that the defendant’s actions were the result of reckless disregard for or willful blindness to the copyright holder’s rights.” (Citing, Unicorlors, Inc. v. Urban Outfitters, Inc., 853 F.3d 980, 991 (9th Cir. 2017).
The Ninth Circuit concluded that a “should have known” standard does not fit within the statutory framework because it is essentially a negligent standard. To say that a defendant such as Kast “should have known” of the infringing activity meant that, while he may have been negligent, he was not necessarily guilty of willfulness under the Copyright Act. The Ninth Circuit further concluded that had the jury been properly instructed, it may not have found that Kast acted “willfully” and could not have awarded more than $90,000 in damages. Therefore, the Ninth Circuit reversed the verdict and remanded it back to the trial court to make a new determination as to the amount of statutory damages that should be awarded to Erickson.
The facts of the Erickson case serve as a reminder that when developing or updating your company website, you should pay careful attention to where content for the site is coming from and whether any licensing fees should be (and have been) paid. Otherwise, the owners of the website face the prospect of being held vicariously and/or contributorily liable for any content on the web page that infringes on another person’s copyrights.
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