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Sullivan v. Flora, Inc.

United States Court of Appeals, Seventh Circuit

August 21, 2019

Amy Lee Sullivan, d/b/a Design Kit, Plaintiff-Appellee, Cross-Appellant,
v.
Flora, Inc., Defendant-Appellant, Cross-Appellee.

          Argued February 8, 2019

          Appeals from the United States District Court for the Western District of Wisconsin. No. 3:15-cv-298 - William M. Conley, Judge.

          Before Flaum, Barrett, and Scudder, Circuit Judges.

          Scudder, Circuit Judge.

         This appeal presents a question of first impression for us on the scope of statutory damages recoverable under the Copyright Act of 1976. Section 504(c)(1) of the Act permits a copyright holder "to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, ” with Congress separately instructing that, in determining statutory damages, "all the parts of a compilation or derivative work constitute one work." This case requires us to determine what constitutes "one work" in a fact pattern where a jury found infringement on multiple works registered in a single copyright application.

         Amy Sullivan, a graphic design artist, produced a series of 33 illustrations for Flora, Inc., an herbal supplement company, to use in two advertising campaigns. Upon noticing that Flora was using the illustrations in other ads, Sullivan brought suit for copyright infringement and opted to pursue statutory damages. She did so to maximize her potential payout by classifying each of her 33 illustrations as "one work" within the meaning of § 504(c)(1) of the Copyright Act. Flora disagreed, contending that the illustrations were part of two broader compilations and thus, if Sullivan prevailed, § 504(c)(1) limited her to just two statutory damage awards-one award for infringement on the illustrations used in each of the two advertising campaigns. The district court agreed with Sullivan, and instructed the jury that she could recover separate awards of statutory damages for 33 acts of infringement on 33 separate illustrations. The jury found infringement on each of the 33 illustrations and returned a statutory damages award of $3.6 million.

         On appeal Flora challenges the district court's ruling on statutory damages and separate rulings on two additional defenses to liability asserted at trial. While procedural shortcomings defeat these latter two challenges, Flora is right that the district court committed error in permitting separate awards of statutory damages unaccompanied by any finding that each or any of the 33 illustrations constituted "one work" within the meaning and protection of § 504(c)(1) of the Copyright Act. It is neither appropriate nor possible for us to make that finding on the record before us. So we vacate the judgment in Sullivan's favor and remand for further proceedings.

         I

         Flora, Inc. manufactures herbal supplement and health products. In 2013, looking to produce advertisements for two new products, "7-Sources" and "Flor-Essence," the company contacted freelance production specialist Joseph Silver to develop two animated videos. Unbeknownst to Flora, Silver then contacted Amy Sullivan, a Wisconsin-based graphic design artist, to develop illustrations that would then be animated for use in the advertisements. In Sullivan's written agreement with Silver, she granted Flora exclusive rights to her illustrations in the two specified advertising campaigns.

         Over the following months, Silver and Sullivan corresponded to develop the illustrations. Silver made suggestions on color, style, and text, while also offering rough outlines and sketches to guide Sullivan's work. For her part, Sullivan used digital design software to create the ultimate illustrations, sometimes incorporating Silver's suggestions and other times not. Flora used Sullivan's illustrations in its final advertisements for the two product lines.

         At some point in the summer or fall of 2013, Sullivan noticed that Flora was using her illustrations to promote other product lines. Exactly when the unauthorized use occurred is unclear. What the record shows for certain is that, on October 16, 2013, Sullivan sent Flora a letter complaining of copyright infringement. At that time, however, Sullivan had not (yet) registered her illustrations with the Copyright Office.

         Sullivan subsequently did so in two copyright applications approved by the U.S. Copyright Office. Registration "VA 1-888-930" had an effective date of November 6, 2013 and covered the "7 Sources Illustration Collection." It listed 17 separate illustrations with names like "Frame7" and "7S-Bottle Illustration." Registration "VA 1-893-717" had an effective date of December 12, 2013 and covered the "FEV Illustration Collection/' short for Flor-Essence. It listed 16 separate illustrations with names like "Frame-3," "Herbs," and "Amy Tex Bubble."

         When settlement negotiations failed, Sullivan sued Flora for copyright infringement in the Western District of Wisconsin. The Copyright Act allows a plaintiff to choose to recover either statutory damages or actual damages. See 17 U.S.C. § 504(a). The choice must come before the entry of final judgment. See id. § 504(c)(1). As the litigation progressed, Sullivan chose to pursue statutory damages, with the parties then staking out opposing positions on the scope of a permissible award under § 504(c)(1). These competing positions frame the primary issue before us on appeal.

         Flora contended that Sullivan's 33 illustrations fell into one of two compilations (corresponding with the company's two advertising campaigns in which the illustrations appeared and also aligning with the two copyright registrations) and thus § 504(c)(1) precluded Sullivan from receiving more than two separate awards of statutory damages-one for each compilation infringed. Sullivan begged to differ. She urged the district court to treat each of the 33 illustrations as 33 separate works entitled to 33 separate awards of statutory damages upon a showing that Flora infringed each work.

         Who was right very much mattered, for Congress authorized an award of between $750 and $30, 000 in statutory damages for each work infringed, and up to $150, 000 per work if a jury found willful infringement. See id. § 504(c)(2). Put most simply, Sullivan wanted the copyrighted work multiplier to be 33 and not two.

         The district court addressed the issue pretrial. It did so by focusing on Sullivan's copyright applications. The certificates from the U.S. Copyright Office showed that Sullivan had registered each of the 33 illustrations in two applications, with the illustrations grouped to correspond with Flora's two advertised product lines. The Copyright Act and its implementing regulations allow the registration of multiple works this way. See id. § 408(c)(1) (authorizing the extension of copyright protection from a single registration to multiple works listed in the registration application); 37 C.F.R. § 202.3(b)(4) (same). Relying on these provisions and drawing upon the statute's definition of "collective works," the district court determined that "[Sullivan's] copyrighted works are collective works, in which contributions, constituting separate and individual works in themselves, are assembled into a collective whole." See 17 U.S.C. § 101 (defining "collective works" this way). From there the district court concluded that "the [33] individual illustrations are individual works, entitling Sullivan to separate statutory damages awards." The case advanced to trial against the backdrop of this ruling.

         Trial proceeded in three phases. In phase one, the court tasked the jury with determining whether Sullivan was the sole author of the copyrighted works, or instead whether Silver was a joint author capable of granting his own rights to Flora. In phase two, the jury considered whether Flora copied and used Sullivan's illustrations without authorization. In phase three, the jury determined what statutory damages resulted from the infringement.

         The jury ruled in Sullivan's favor at each phase. In phases one and two, the jury determined that Flora had copied and used Sullivan's illustrations willfully and without authorization and furthermore that the works were not joint works but instead belonged to Sullivan alone. At phase three, the jury awarded $3, 600, 000 in statutory damages, finding that Flora willfully infringed on each of Sullivan's 33 individual illustrations. The jury also found $143, 500 in actual damages, which Sullivan declined in favor of the larger statutory award.

         II

         Flora's main contention on appeal is that the district court committed legal error in determining that Sullivan could collect statutory damages for infringement on each of the 33 illustrations as separate works. Sullivan urges us to avoid the issue on the basis that Flora waived any challenge to the damages award by not expressly objecting to the district court's jury instruction. We cannot agree. While Flora could have objected, the fairest reading of the record is that the company- throughout the litigation-had made its position on statutory damages abundantly clear, including by briefing the issue during the pretrial proceeding that resulted in the district court's determinative ruling. The law required no more in this circumstance. See Dresser Industries, Inc., Waukesha Engine Div. v. Gradall Co.,965 F.2d 1442, 1450 (7th Cir. 1992) (explaining that the failure to object to a jury ...


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