Mark Swift entered into a partnership with Michael Schaltenbrand and Joey Siddle. They agreed that Medicate Pharmacy, a retail pharmacy owned by Schaltenbrand, would provide mail-order services to customers found by DeliverMed, a marketing firm owned by Swift. The parties agreed to use the DeliverMed name to identify the services the partnership provided to customers. Swift hired Deeter Associates to design a logo for the partnership to use in marketing its services. Allan Kovin orally agreed with Linda Deeter, Deeter Associates’ Executive V.P., to perform the logo work as an independent contractor. Kovin created a graphic design of a house and pestle and was the sole creator.
A dispute erupted among the partnership members. Swift sued Schaltenbrand, Siddle and Medicate for federal and state law claims. DeliverMed, Deeter Associates and Linda Deeter also sued the defendants, alleging trademark infringement claims for the defendants’ use of the logo. Deeter Associates and Linda Deeter agreed to file the suit in exchange for a cash payment and expenses reimbursement from Swift. DeliverMed applied to register a copyright for the logo. DeliverMed represented to the Copyright Office that Linda Deeter was the author of the logo and that she transferred her copyright to DeliverMed by written agreement. One week later, Deeter actually did sign a transfer of ownership agreement. DeliverMed, Deeter Associates and Linda Deeter then amended their complaint to include a copyright infringement claim. The district court ruled in the defendants’ favor on the copyright infringement claim and invalidated the copyright registration. The Seventh Circuit Court of Appeals affirmed the district court’s ruling on the infringement claim, but determined that the district court erred in invalidating DeliverMed’s copyright registration.
In most instances, a copyright owner must register the copyright with the U.S. Copyright Office before filing suit for copyright infringement. However, even a copyright registration is not sufficient if
(1) the registrant included inaccurate information on the application for copyright registration with knowledge that it was inaccurate; and (2) the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registration.
The district court invalidated the copyright registration for the logo based on the misstatements that Linda Deeter was the author of the logo and that Linda Deeter signed a written agreement transferring her copyright in the logo to DeliverMed. The Seventh Circuit agreed that, at a minimum, DeliverMed knowingly lied about whether Deeter transferred her copyright to DeliverMed. An after-the-fact transfer does not negate the lie.
Even though the Seventh Circuit upheld the district court’s factual findings, it determined that the district court made a legal error when it invalidated DeliverMed’s copyright registration. The Seventh Circuit ruled that when there is an intentional misstatement that would have caused the Register of Copyrights to refuse the registration, §411(b)(2) requires the district court to obtain an opinion from the Register of Copyrights.
In any case in which inaccurate information 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.
The Seventh Circuit indicated that the district court’s reasoning in invalidating the logo copyright was consistent with Copyright Office practices. Still, the district court did not consult with the Register of Copyrights, as it was required to do. The Seventh Circuit therefore vacated the district court’s ruling and remanded the issue to the district court.
On remand, if Defendants desire to pursue the declaratory judgment action further, the district court must ask the Register whether it would have refused DeliverMed’s application had it been aware that DeliverMed had no written ownership transfer agreement at the time of its application. After receiving that advisory opinion, the court may then determine whether to invalidate DeliverMed’s registration for the logo.
(Opinion pdf page 15).
Due to its concern that litigants would use the §411(b)(2) consultation requirement as a delaying tactic, the Seventh Circuit set out some guidelines:
Courts can demand that the party seeking invalidation first establish that the other preconditions to invalidity are satisfied before obtaining the Register’s advice on materiality. In other words, a litigant should demonstrate that (1) the registration application included inaccurate information; and (2) the registrant knowingly included the inaccuracy in his submission to the Copyright Office. 17 U.S.C. § 411(b)(1)(A). Once these requirements are met, a court may question the Register as to whether the inaccuracy would have resulted in the application’s refusal. Aside from minimizing the risk that parties would use this provision as a delay tactic, this approach has the added benefit of an endorsement from the Register.
(Opinion pdf page 16).
The Seventh Circuit also upheld the district court’s award of attorney’s fees to the defendants for successfully defending the plaintiffs’ copyright infringement claim. Defendants who successfully defend a copyright infringement claim are entitled to a very strong presumption in favor of receiving attorneys’ fees. The presumption exists so that infringement defendants will not abandon meritorious defenses when the cost of vindicating themselves exceeds the benefit to them to do so. Otherwise, infringement defendants could be deterred from exercising their rights. Since the plaintiffs in this case did not provide the Seventh Circuit with a reason to rebut the presumption, the attorney’s fees award was upheld.
This case is DeliverMed Holdings LLC v. Schaltenbrand, Nos. 12-3773 & 12-3774, Seventh Circuit Court of Appeals.