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Media Alerts - Leonard v. Stemtech International Inc. - Third Circuit
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September 12, 2016
  Leonard v. Stemtech International Inc. - Third Circuit
Headline: District court did not abuse its discretion allowing a $1.6 million jury award for the infringed use of copyrighted stem cell photographs

Area of Law: Copyright Infringement

Issue(s) Presented: Did the district court abuse its discretion in concluding the jury's findings as to vicarious and contributory infringement were supported by substantial evidence and awarding a $1.6 million award for copyright infringement?

Brief Summary: Andrew Leonard, a stem cell photographer, licensed one of his photographs to Stemtech International Inc., a nutritional supplement provider, to be used in one of Stemtech's publications. Stemtech then used Leonard's images without a license in other materials, including its distributors' websites, marketing materials, and informational PDFs. Leonard sought damages for direct, vicarious, and contributory infringement and was awarded a $1.6 million jury award on these counts.
The Third Circuit held that the district court did not abuse its discretion in finding the jury's verdict on direct, vicarious, and contributory infringement was supported by substantial evidence. Leonard first established direct infringement, which is required to prove contributory and vicarious infringement, by showing the use of his copyrighted images in Stemtech's distributors' materials. He also demonstrated that Stemtech required its distributors to use the copyrighted images in order to add legitimacy to its products and attract customers. This evidence was sufficient to prove vicarious and contributory liability.
Due to expert testimony supporting the rarity of stem cell photographs and using the Copyright Act's fair market value approach for calculating actual damages, the Third Circuit did not find the jury's $1.6 million award to be excessive or the district court to have abused its discretion in upholding the verdict. The Third Circuit vacated the district court's denial of prejudgment interest, as the district court erroneously refused to grant it to Leonard because it believed the jury award to be sufficient compensation for the use of the infringed photographs.

Extended Summary: Leonard, a stem cell photographer, licensed one of his photographs to Stemtech International Inc., a nutritional supplement provider, to be used in two places in Stemtech's Healthspan magazine. Stemtech then used Leonard's images without a license ninety-two additional times in other materials, including its distributors' websites, marketing materials, and informational PDFs. Stemtech creates and requires its distributors to use certain marketing and advertising materials, only allows the use of self-replicated websites, and owns the domains to some of its distributor's websites. Leonard discovered the unauthorized use of his copyrighted images by conducting an internet search for his photographs. After a fruitless effort to contact Stemtech and receive compensation for the use of his photographs, Leonard sought damages for direct, vicarious, and contributory infringement. He was awarded a $1.6 million jury verdict.

The Third Circuit held that the district court did not abuse its discretion in finding the jury's verdict on vicarious and contributory infringement conclusions were supported by substantial evidence. Leonard established direct infringement on behalf of Stemtech's distributors, which is required to prove vicarious and contributory infringement, by showing he owned the copyright to the photographs and did not authorize the use of his images in those materials by Stemtech or Stemtech's distributors.

Leonard then established contributory infringement, which requires a plaintiff to prove that a third party directly infringed on the copyright, that the defendant knew the third party was directly infringing, and that the defendant contributed to the infringement. The Third Circuit reasoned that Stemtech created the materials containing the copyrighted images and required its distributors to use them, proving that it knew of the third party's infringed use. Also, Stemtech knew the images were copyrighted, as it had previously licensed one image from Leonard. Therefore, sufficient evidence to prove contributory infringement was established.

Sufficient evidence to prove vicarious infringement was also established by Leonard. Vicarious infringement requires that the infringer had the right and ability to supervise or control infringing activity and had a direct financial interest in the activity. The Third Circuit looked to other case law to analogize Stemtech's control over its distributors, comparing Stemtech's required use of its created materials by its distributors to that of the products a chain store is required to sell by its controlling corporation. Since Stemtech had contracts with its distributors and required them to use certain advertising materials, it had control over their infringing activities. The Third Circuit found Stemtech officials' testimony that the use of the photographs in their materials added legitimacy to their products and attracted customers constituted a direct financial interest in the infringed use of the photographs. Therefore, vicarious infringement was established.

Second, the Third Circuit did not find the jury's $1.6 million award excessive. The award was calculated using the fair market value approach for actual damages that is authorized by the Copyright Act. Leonard presented an expert to testify to the fair market value of his images, who then multiplied that amount due to the "scarcity and rarity" of stem cell photographs. In applying this approach for the use of 92 images, the Third Circuit did not find the award excessive. The Third Circuit also noted that the expert produced an estimate of the fair market value for the use of the images to be between $1.4 and $3 million. The jury awarded an amount at the lower end of this proposed spectrum. Therefore, the Third Circuit concluded that the award did not shock the judicial conscience.

The Third Circuit vacated the district court's finding that Leonard was not entitled to prejudgment interest since he was justly compensated by the damages he received on his infringement claims. Prejudgment interest in copyright cases is awarded to prevent unjust enrichment and compensate for the time and value of income that is lost by the use of the images.

The full opinion can be found at http://www2.ca3.uscourts.gov/opinarch/153198p.pdf

Panel: Fuentes, Shwartz, and Restrepo, Circuit Judges

Argument Date: July 12, 2016

Date of Issued Opinion: August 24, 2016

Docket Number: No. 15-3198

Decided: Affirmed in part, vacated in part

Case Alert Author: Katherine A. Osevala

Counsel: Kathleen M. Kushi Carter, Christine R. Arnold, and Thomas P. Leff, Counsel for Appellants; Jan I. Berlage, James S. Green, Sr., and Jared Green, Counsel for Appellee.

Author of Opinion: Circuit Judge Shwartz

Circuit: Third Circuit

Case Alert Circuit Supervisor: Prof. Mary E. Levy

    Posted By: Susan DeJarnatt @ 09/12/2016 09:30 AM     3rd Circuit  

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