Although my entertainment practice focuses on transactions and not litigation, I do read many court opinions from entertainment and intellectual property lawsuits as research for my books and just as a means of keeping up-to-date on the changing legal landscape. While it’s likely true that transactional attorneys prefer to negotiate rather than sue, there are just some lawsuits that are lose-lose all around and do not need to reach any courtroom.
Case in point. I was perusing the court opinion in Webloyalty.com,Inc. v. Consumer Innovations, LLC, a 2005 case from a Delaware federal court. Both the plaintiff, Webloyalty, and the defendant, Consumer Innovations, operate similar membership discount program businesses that they advertise online. Consumer Innovations (CI) used a promotional sell page and an online banner that were clearly copied from Webloyalty (one of CI’s drafts of the sell sheet still had Webloyalty’s phone number in the text). That’s copyright infringement. But CI refused to come clean and instead “lied about using the Webloyalty material in their depositions and at trial”.
Judges aren’t fond of liars in their courtrooms. For that reason, CI not only lost the case but was also ordered to pay statutory damages as well as Webloyalty’s attorney fees and costs. But Webloyalty still ended up in the “hole” financially. Here’s why:
- Setting Statutory Damages. Statutory damages start at $750 and can go up to $150,000 for each act of infringement if the infringer acted willfully, The court labeled CI a willful infringer. However,the statutory damage award must still bear some relationship to the profits earned by the infringer and the revenue lost by the copyright owner. The court was not convinced that Webloyalty lost significant revenue as a direct result of the infringement. CI generated only $1,000 from its use of the sell sheet and banner. As a result, the court set statutory damages at $25,000 each for infringement of the sell sheet and the banner ($50,000 in total).
- Setting Attorney Fees. A $50,000 statutory damage award for Webloyalty would have been okay – except for the fact that Webloyalty’s attorney fees were over $300,000. While Webloyalty was eligible for CI to pay its attorney fees, the law restricts the payment to reasonable attorney fees. The court decided that only 75% of Webloyalty’s attorney fees was reasonable. As a result, CI had to reimburse Webloyalty for $225,000 in attorneys’ fees plus $42,000 in other legal costs.
Bottom line. Webloyalty received $319,339 from CI in total statutory damages and reimbursement for legal fees and costs. However, by my calculation, Webloyalty’s total legal expenses were over $344,876.
That’s a $25,000+ deficit for a full trial to defend a copyrighted work worth about $1,000. This is a case that should have settled.
