Designer Skin LLC v. S & L Vitamins, Inc., et al.
Lowrys Reports, Inc. v. Legg Mason Inc., et al.
271 F.Supp.2d 737, Civil No. WDQ-01-3898 (D. Md., July 10, 2003)
On the parties’ cross-motions for partial summary judgment, the Court found defendant Legg Mason guilty of copyright infringement as the result of its unauthorized copying and distribution of numerous editions of a financial newsletter published by plaintiff Lowry’s Reports. An individual employed in Legg Mason’s research department contracted with Lowry’s to receive a single copy of its financial newsletter. Her contract prohibited copying or dissemination of the newsletter or its contents. Without authorization, that employee made numerous copies of various newsletters received which were faxed to Legg Mason brokers and branch offices, posted on the company intranet, and supplied to other members of the research department. Legg Mason brokers downloaded copies of the newsletter from Legg Mason’s website. After receipt of a cease and desist letter from Lowry’s, the employee continued to provide copies to other members of the research department. These activities were conducted over an extended period of time.
The Court found that such activities constituted copyright infringement. In reaching this result, the Court held Legg Mason vicariously liable for this misconduct of its employees, given that it had both the right and ability to supervise the conduct of its employees at issue, and a direct financial interest in exploitation of the copyrighted materials.
The Court denied so much of defendants’ motion that sought to reduce the statutory damages available to plaintiff for such infringement because defendant was an innocent infringer. Such a defense was not available as the newsletters contained a copyright notice.
The Court further held that whether defendant was a willful infringer, and thus exposed to additional, and higher statutory damages, would have to await resolution at trial.
The Court did hold that plaintiff could not pursue claims for any indirect profits defendants made by use of the information contained in the newsletter. While a copyright owner can recover, in addition to its own damages, profits an infringer made from the unauthorized use of his copyrighted materials, Lowry’s could not do so here because the link to such damages was too attenuated. Thus, held the Court, plaintiff could not prove that profits made by Legg Mason as a result of investments it made were the result of information contained in plaintiff’s newsletters, which did not recommend specific investments, but rather provided informational gauges on the market as a whole.
The Court held that plaintiff could proceed with breach of contract claims, holding they were not preempted by application of the Copyright Act.
The same was not true of Lowry’s state law unfair competition claim, however, which rested on a ‘hot news’ theory. This claim arose out of Legg Mason’s inclusion of factual information contained in Lowry’s reports – market predictors known as the ‘Lowry’s numbers’ – in a morning phone broadcast to its brokers. Lowry’s could not pursue such a claim on a copyright infringement theory because the information conveyed – the ‘Lowry’s numbers’ - was held to consist of unprotectable facts. And because Lowry’s unfair competition claim rested on the same elements as a copyright infringement claim – the broadcast was held akin to a ‘performance’ of the newsletter – it was held preempted by the Copyright Act.
It should be noted that this case was ultimately tried to a jury, which awarded Lowry’s just under $20 million as a result of Legg Mason’s infringing activities. The case subsequently settled for an undisclosed sum.
Plaintiff Lowry’s Reports publishes in both daily and weekly editions a financial newsletter titled “Lowry’s New York Stock Exchange Market Trend Analysis” (collectively the “Lowry’s Reports”). These reports typically do not recommend specific investments. Instead, via technical analysis, they indicate the relative strength of the market, suggesting whether it is ‘overbought’ or ‘oversold’ and thus whether investors should place their investments in stocks or other financial instruments. The newsletter contain market predictors called the ‘Lowry’s numbers’ – which measure the current flow of money into and out of the stock market. These numbers are the product of technical analysis, performed by application of confidential algorithms.
According to plaintiff, a Legg Mason employee, a Ms. Olszewski, contracted to receive a single copy of Lowry’s Reports. Her contract expressly prohibited unauthorized copying or dissemination of the newsletters or their contents. To maintain control of the reports and their use, Lowry’s did not issue subscriptions to organizations. The annual subscription charged Olszewski was approximately $700.
Olszewski worked in the research department of Legg Mason. From 1994 until July 1999, the research department regularly faxed copies of the Lowry’s Reports to Legg Mason branch offices, where further copies were made and distributed. From July 1999 until in or about August 2001, copies of all Lowry’s Reports received by Olszewski were posted on a Legg Mason intranet. Over 16,000 copies of the various reports were downloaded from this intranet. From late 1999 to August 2001, additional copies of the Lowry’s Reports were provided to each member of Legg Mason’s research department via paper and/or email.
In addition, throughout the period Legg Mason received this report, it included the Lowry’s numbers in a daily morning phone call broadcast to its brokers. In this call, Legg Mason’s Research department provided brokers with pertinent information concerning the market, to aid in the performance of their duties.
After receiving notice that Legg Mason had posted its reports on the company intranet, Lowry’s sent a cease and desist letter. Ms. Olszewski promised to remove the materials, which were promptly removed from the company intranet. Copies of the Lowry’s Reports nonetheless continued to be distributed to each of the members of Legg Mason’s research department until July 2002, via paper and/or email.
Lowry’s subsequently commenced suit, charging Legg Mason and various individual defendant employees with copyright infringement, unfair competition, and breach of contract. The parties cross-moved for partial summary judgment.
The Court held, on the facts before it, that Legg Mason was guilty of copyright infringement with respect to the Lowry’s Reports. Lowry’s held the copyright in these works. By its unauthorized posting of such reports on its company intranet, which were subsequently downloaded over 16,000 times, and its distribution of additional copies to members of the research department, Legg Mason infringed rights exclusively granted the owner of the copyright in such work, and as such was guilty of copyright infringement. In reaching this result, the Court stated: “Unauthorized electronic transmission of copyrighted text, from the memory of one computer into the memory of another, creates an infringing copy under the Copyright Act.”
The Court determined the Legg Mason could be held vicariously liable for the misconduct of its employees at issue. According to the Court, a party can be held vicariously liable for the infringement of another if it “has the right and ability to supervise the infringing activity and also has an obvious and direct financial interest in exploitation of the copyrighted material.” Such was the case here. Said the Court:
In reaching this result, the Court rejected Legg Mason’s argument that its company policy, prohibiting such copying, prevented it from being held liable for copyright infringement. While such a policy may be considered in determining the appropriate damages to award, it could not prevent a determination of liability, as the Copyright Act is a strict liability statute.
The Court also rejected Legg Mason’s fair use, equitable estoppel, and implied license defenses.
The distribution of the Lowry’s reports to other members of the research department for their use in commercial activities was not a fair use of plaintiff’s reports.
Similarly, the equitable estoppel claim, premised on the assertion the Lowry’s delayed for too long in voicing its objection to defendant’s conduct, failed. Here, Legg Mason pointed to the fact that Lowry’s had received notice of its misconduct on two occasions, approximately one year and then again six months before it actually complained to Legg Mason. Such was held insufficient to create an equitable estoppel, in light of the fact that: (a) the newsletters bore a copyright notice, (b) in the intervening period, Lowry’s advised all its clients, including Legg Mason, that unauthorized distribution of the Reports was prohibited, and (c) Legg Mason, even after receipt of a cease and desist letter, continued to distribute copies to members of the research department.
Finally, Legg Mason’s implied license claim fell because there was no evidence the Lowry’s knew the full extent of defendant’s copying and distribution of its reports to all members of the research department. As an implied license claim rests on mutual assent to the conduct at issue, this defense failed as Lowry’s could not have consented to conduct of which it was not aware.
The Court accordingly found defendant Legg Mason guilty of copyright infringement.
Legg Mason made various motions to limit the damages plaintiff could recover as a result of such misconduct. A plaintiff may elect to receive either its actual damages and the infringers’ profits, or statutory damages. The Court may limit the statutory damages available to a copyright owner if the defendant is an ‘innocent’ infringer. Under 17 U.S.C. Section 504(c)(2), such damages can be limited to $200 per infringed work. However, such damages are not available if a proper copyright notice appears on the infringed works, as was the case here.
Statutory damages may be increased to a maximum of $150,000 per infringed work if the infringement is committed willfully. 17 U.S.C. Section 504(c)((2). In this context, willfulness “means that the infringer either had actual knowledge that it was infringing the owner’s copyrights or acted in reckless disregard of those rights.” Here, issues of fact, particularly as to who was responsible for placing the Reports on the Company’s intranet, and how that decision was made, precluded the Court from rendering a determination on this issue at this time, which would await resolution for trial.
The Court did grant so much of Legg Mason’s motion for summary judgment which sought to bar plaintiff from recovering a portion of the profits it made from its business activities as a result of the infringing activities at issue. As stated above, under the Copyright Act, a copyright owner can elect to recover, in lieu of statutory damages, the actual damages it sustained, as well as the profits defendant made from its use of the infringed material. Here, Legg Mason was not accused of reselling copies of the Reports to third parties. Instead, plaintiff claimed that Legg Mason profited by using the Reports to make investment decisions, and to aid others in making investment decisions, and thereby profiting via commissions and fees.
Such a link, held the Court, was too attenuated for plaintiff to meets its burden of proof. This was particularly true here, given that Lowry’s Reports does not typically recommend specific investments, but rather, provides information as to general market conditions as a whole. Said the Court: “The complex, variable, independent thought processes of hundreds of individual brokers intervene between the copying and any subsequent gain. Lowry’s had articulated no more than a speculative correlation.”
The Court rejected Legg Mason’s argument that Lowry’s breach of contract claim was preempted by the Copyright Act. Said the Court:
It should be noted that plaintiff was allowed to pursue this claim even though it could not produce a copy of the actual signed contract it claimed Ms. Olszewski executed. Its company policy of requiring the execution of such a contract, combined with Ms. Olszewski’s lack of memory on the subject, and Legg Mason’s annual payment of the subscription fee, was sufficient to permit the issue to be presented to the jury.
The same was not true of plaintiff’s unfair competition claim. Premised on a ‘hot news’ theory, the claim rested on Legg Mason’s dissemination of the “Lowry’s numbers” in its morning broadcast phone call with its brokers, giving advice on the market for use in their daily business activities. These numbers were also disseminated to brokers who requested them.
Such, held the Court, was the case here.
Plaintiff could not pursue a copyright infringement claim as a result of the broadcasts of the “Lowry’s numbers,” because both parties agreed they were facts. As such, they are beyond the ambit of the Copyright Act’s protections.
Nonetheless, the parties agreed that the claims at issue sought to protect the reports, and their contents, which did fall within the subject matter of the Copyright Act. As such, Lowry’s unfair competition claim would be subject to preemption unless it added an additional element that makes it qualitatively different from a copyright infringement claim.
The Court held that, whether cast as a ‘hot news’ claim, or a more traditional unfair competition claim, such an additional element was lacking here. “The morning call broadcast, however, amounts to no more than the unauthorized public performance of (an uncopyrightable excerpt from) the Reports. … Thus, the ‘unfair conduct’ of which Lowry’s complains does not differ qualitatively from conduct that ‘would infringe on of the exclusive rights’ granted by the Copyright Act.” The Court accordingly dismissed this claim on Legg Mason’s motion.