Oct. 8 -- A federal court is statutorily required to consult the Copyright Register prior to invalidating a registration based on intentional misstatements that are made in an application, the U.S. Court of Appeals for the Seventh Circuit held Oct. 7 ( DeliverMed Holdings, LLC v. Schaltenbrand, 7th Cir., No. 12-3773, 10/7/13).
The 2008 PRO IP Act instituted a new procedure that requires federal courts to consult with the Copyright Register before invalidating a registration based on known misstatements made in an application, the court noted.
In this case, the appeals court agreed with the lower court's factual conclusion that an applicant lied both about the author of a logo and about the existence of a transfer agreement that purportedly gave the applicant ownership of the logo that was subject to the registration. But, although the district court's invalidation of the registration was “consistent with the Register's practice,” by failing to consult the Register the district court committed a “legal error” that requires that the invalidation be vacated and the issue be remanded, the appeals court held.
The Seventh Circuit was in fact reviewing two lower court decisions that were the result of a failed business partnership. The relationship was the by-product of an informal agreement between a marketing firm, DeliverMed Holdings, LLC, and a pharmacy, Medicate Pharmacy, Inc., to provide mail-order pharmaceutical services.
In 2004, Mark Swift, owner of the marketing firm, approached Michael Schaltenbrand and Joey Siddle of Medicate Pharmacy to propose the joint venture. The trio agreed to form a partnership, but from the outset the relationship was plagued over disagreements about how to distribute the profits.
Despite the disagreements and constant in-fighting, some work was done to further the goals of the mail-order pharmacy. For instance, in 2008 Swift enlisted an advertising company, Deeter Associates, to help design a logo for the partnership. Deeter in turn hired an independent graphic designer, Allan Kovlin, to finalize the design. The oral agreement between Deeter and Kovlin did not effect a transfer of the copyright in the logo to Deeter, Swift or the partnership.
The partnership dissolved in 2009 and in 2010 Swift filed a lawsuit against Siddle and Schaltenbrand. Shortly thereafter, Swift persuaded Deeter to file a trademark infringement lawsuit against Medicate based on the pharmacy's use of the logo.
In 2011, Swift filed an application to register the logo with the Copyright Office. Swift's application stated that Linda Deeter of Deeter Associates had designed the logo herself, and that she had signed a transfer agreement giving DeliverMed ownership rights in the logo. The Copyright Office issued a certificate of registration and Swift then amended his complaint to include a claim for copyright infringement.
The U.S. District Court for the Southern District of Illinois consolidated the two cases and then ruled in favor of Medicate with respect to all of the substantive claims of each complaint. Notably, the district court found in favor of Medicate on Swift's copyright infringement claim based on its determination that Swift had failed to demonstrate that he owned the copyright to the logo. Moreover, the district court separately granted Medicate a declaratory judgment invalidating the registration based on its determination that the application contained false statements, and thus should not have been issued in the first place. Swift appealed.
Section 411 of the Copyright Act requires that a work be registered with the Copyright Office prior to the filing of a complaint for copyright infringement. 17 U.S.C. §411(a). “But an infringement plaintiff cannot satisfy this precondition by duping the Copyright Office into issuing a certificate of registration based on a false claim of copyright ownership,” the court said.
The court noted that the Prioritizing Resources and Organization for Intellectual Property Act, enacted in 2008 , contained an amendment to Section 411. Specifically, the legislation added Section 411(b), which states:
(1) A certificate of registration satisfies the requirements of this section and section 412, regardless of whether the certificate contains any inaccurate information, unless:
(A) the inaccurate information was included on the application for the copyright registration with knowledge that it was inaccurate; and
(B) the inaccuracy of the information, if known, would have caused the Register of copyrights to refuse registration.
(2) In any case in which inaccurate information described under paragraph (1) is alleged, the court shall request the Register of Copyrights to advise the court whether the inaccurate information, if known, would have caused the Register of Copyrights to refuse registration.
17 U.S.C. §411(b).
The problem with the district court's invalidation of the registration, based on Swift's inaccurate statements both to who designed the logo and to the existence of the transfer agreement, is that it “ignor[ed] a clear statutory directive” and thus “depriv[ed] the Register of its right to weigh in,” Judge Ann Claire Williams said.
The court said that it is immaterial that the district court's invalidation of the registration “seems consistent with the Register's practice.” As a result, although the Seventh Circuit agreed with the lower court's “ultimate factual finding,” it nonetheless vacated and remanded for further proceedings. If the defendants wish to pursue a declaratory action invalidating the copyright, then the district court must solicit the views of the Register with respect to whether the registration would have been issued had the inaccuracies been known, the Seventh Circuit said.
The court provided some final thoughts on the potential impact of strict adherence to Section 411(b). “Given its obvious potential for abuse, we must strongly caution both courts and litigants to be wary of using this device in the future,” the court said. The court added:
Although the statute appears to mandate that the Register get involved “[i]n any case in which the inaccurate information [in an application for copyright registration] is alleged,” 17 U.S.C. §411 (b)(2), input need not be sought immediately after a party makes such a claim. Instead, courts can demand that the party seeking invalidation first establish that the other preconditions to invalidity are satisfied before obtaining the Registers's advice on materiality.
The Seventh Circuit affirmed the district court's award of attorneys' fees under Section 505 of the Copyright Act, 17 U.S.C. §505. That provision gives a district court discretion to award attorneys' fees to the prevailing party in a copyright infringement action. In this, case it was not an abuse of discretion to require DeliverMed and Swift to pay the fees that the defendants' incurred in their successful defense of the copyright infringement claim, the court said.
Judges Frank H. Easterbrook and David F. Hamilton joined the opinion.
Swift was represented by Aud Courtney Cox of Sandberg Phoenix & Von Gontard, Carbondale, Ill. The defendants were represented by Kevin J. Stine of Mathis Marifian & Ricther Ltd., Belleville, Ill.
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