Articles of Interest

Apr 26, 2002 -- (Originally published in the Entertainment Law column in the New York Law Journal, April 26, 2002.)

A federal appeals court has decided that a distributor of a record album can be liable for copyright infringement even when the plaintiff has not established that the producer of that album was guilty of1 infringement.¹ The Court upheld the claim of the composer of two musical compositions which were included on the album without his permission.

The recording entitled “De Vuelta Al Sabor” (the “Album”) was produced by Fonovisa, a Latin music record label. Fonovisa licensed the right to distribute the Album to Distribuidora Nacional de Discos, Inc. (“Distribuidora”), which in turn licensed the right of the distribution to Distribuidora Aponte, Inc. (“Aponte”). After defendants had commenced distribution of the Album, plaintiff filed suit against Fonovisa, Distribuidora and Aponte alleging violation of its copyright under the Copyright Act and violations of the Lanham Act.

Although Fonovisa answered the complaint, Distribuidora and Aponte did not. At the trial, plaintiff presented his evidence, then voluntarily dismissed the case against Fonovisa. He pursued his case against Distribuidora and Aponte, both of whom were in default.

Following the trial, plaintiff filed a post-trial memorandum on the liability of Distribuidora and Aponte and requested an award of damages. Distribuidora then first made its appearance, filing a reply to that memorandum. Aponte did not reply. The court, having determined that no hearing on damages was necessary, awarded plaintiff $9,500.00 in statutory damages against Distribuidora and $6,756.79 in actual damages against Aponte. Distribuidora appealed from the award by the court of statutory damages.

Distribuidora asserts that the district court was in error for finding it liable as a distributor when the plaintiff had not established that the producer was guilty of infringement and for failing to hold a hearing on damages.

The Court notes that whether a distributor can be found liable for copyright infringement when the plaintiff has not established that the producer is guilty of infringement is a question of law that is reviewed de novo. Regarding a hearing on the issue of damages, the need for such a hearing is vested with the district court, and is reviewed for abuse of discretion.

Distribuidora contends that a distributor’s liability for copyright infringement is derived from the producer’s liability. It also contends that the plaintiff must proceed under a theory of contributory liability, and that when there is no primary infringer, there can be no secondary infringer. Because the producer, Fonovisa, was not found to be an infringer of plaintiff’s copyright, Distribuidora argues that it cannot be liable as a distributor.

The Court indicates that this argument is premised on an inaccurate conception of the law. It states that the Copyright Act provides that “the owner of a copyright has the exclusive rights to do and to authorize any of the following:...(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease or lending.” It is clear that section 106(3) of the Copyright Act explicitly grants to the copyright owner the exclusive right to distribute copies of the copyrighted work. It further provides that anyone who violates any of the exclusive rights of the copyright owner is an infringer of the copyright. Accordingly, if Distribuidora distributed copies of plaintiff’s copyrighted work, the act of distribution is a direct infringement itself, not an act of contributory or vicarious infringement.

Plaintiff alleged that Distribuidora distributed unauthorized reproductions of his copyrighted compositions throughout Puerto Rico. Having failed to appear or respond, defendant was in default. A defaulting party is taken to have conceded the truth of the factual allegations in the complaint as establishing the grounds for liability as to which damages will be calculated. Thus, the Court holds that the district court was correct to have found Distribuidora liable to plaintiff for copyright infringement.

In contesting the award of statutory damages, Distribuidora argues that it was never given the opportunity to be heard on the issue of damages. Here, plaintiff elected to receive, and was awarded, statutory damages against defendant under section 504(c)(1) of the Copyright Act. That section allows a copyright owner to elect, at any time before final judgment is rendered, to recover an award of statutory damages for all infringements involved in the action instead of actual damages and profits. The district court, after considering the record, decided that no hearing was necessary and awarded statutory damages within the prescribed range.

Both section 504(c)(1) of the Copyright Act and Rule 55 (b)(2) of the Federal Rules of Civil Procedure grant wide discretion to the district court. A copyright owner is entitled to elect to recover in statutory damages a sum of not less than $750 or more than $30,000, as the court considers just. Discretion as to the judgment or the need for a hearing on damages is vested with the district court. If, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any allegation by evidence or to make an investigation of any other matter, the court may conduct such hearings as it deems necessary, and shall accord a right of trial by jury to the parties when and as required by any statute of the United States. The Court indicates that “it is a familiar practice and an exercise of judicial power for a court upon default, by taking evidence when necessary or by computation from facts of record, to fix the amount which the plaintiff is lawfully entitled to recover and to give judgment accordingly.” Under the present facts, the discretion granted to the district court was not abused.

Fonovisa appealed the denial by the district court of its motion requesting attorney’s fees under the Copyright Act. When plaintiff voluntarily dismissed its claim against Fonovisa, the parties entered into an agreement (embodied in a handwritten document) whereby Fonovisa would not collect any award of attorney’s fees or costs. According to Fonovisa, it agreed to this arrangement subject to the condition that it would remain free to pursue a judgment for attorney’s fees.

Fonovisa argues that, although the agreement prevents it from collecting attorney’s fees, it was structured so that Fonovisa could receive a judgment for such fees. It contents that the judgment would be valuable to deter other potential plaintiffs from filing frivolous claims for copyright infringement and, thus, would have value.

In rejecting this argument, the Court notes that the jurisdiction of a federal court is restricted to resolution of cases or controversies. A case generally becomes moot when a controversy no longer is “live” or the parties “lack a legal cognizable interest in the outcome.” “Courts are not required to go through the symbolic step of entering a judgment which the beneficiary has already agreed not to collect merely so that the judgment can be waived as a red flag to serve the prior interests of the recipient in other cases.” There being no actual live controversy, the district court was correct to dismiss the motion for attorney’s fees as moot.

Accordingly, the Court, finding no error in the district court’s rulings, affirms its decision.

ENDNOTE

¹ Juan R. Ortiz-Gonzalez v. Fonovisa et al. Nos. 00-2290 and 01-1004, U.S. Court of Appeals for the First Circuit, (January 17, 2002).