Ninth Circuit Affirms Validity of Unicolors’ Copyright Registration on Remand, But H&M Scores Big on Remittitur Calculations

On November 10, the U.S. Court of Appeals for the Ninth Circuit ruled in Unicolors, Inc. v. H&M Hennes & Mauritz, L.P. following remand from the U.S. Supreme Court, which earlier this year clarified the knowledge standard required for invalidating copyright registrations based on inaccuracies in the registration application. In light of that ruling, the Ninth Circuit upheld Unicolors’ ability to maintain its copyright infringement action against H&M because the plaintiff did not have the requisite knowledge of the legal inaccuracy on its registration application to invalidate the registration. While the Ninth Circuit dismissed most of H&M’s arguments on remand, the appellate court did agree with H&M that the district court’s post-remittitur damages were improperly calculated, leading to a significant reduction in the amount awarded to Unicolors in the case.

Supreme Court’s Unicolors Ruling Abrogates Ninth Circuit’s Gold Value Decision

The Ninth Circuit’s ruling follows the Supreme Court decision from this February in which the Court held that Unicolors’ legal mistake in filing a single copyright application for 31 textile designs, violating the single unit of publication requirement for such a registration, satisfied safe harbor provisions under  17 U.S.C. § 411. Section 411(a) provides that no civil infringement action may be maintained without a valid copyright registration, and Section 411(b)(1)(A) provides that a registration certificate meets this requirement regardless of inaccurate information, unless the inaccuracy was provided “with the knowledge that it was inaccurate.” Justice Stephen Breyer’s opinion called Unicolors’ inaccuracy a “labeling mistake” and found no difference in the knowledge standard required for invalidating legal mistakes or factual mistakes in a registration.

In discussing the Supreme Court’s analysis, the Ninth Circuit noted that SCOTUS’ decision effectively abrogates its own 2019 decision in Gold Value International Textile v. Sanctuary Clothing. In Gold Value, the Ninth Circuit split from other circuit courts of appeal in holding that Section 411, as amended by the Prioritizing Resources and Organization for Intellectual Property (PRO-IP) Act of 2008, did not codify a “fraud against the Copyright Office” doctrine because “knowledge” is used in the language of Section 411 rather than “fraud.”

 “[W]e were able to find a distinction between fraud and knowledge only by concluding that the statute required knowledge of solely factual errors regardless of a party’s knowledge of the law: a registrant could have knowledge of the inaccuracy by being aware of the facts without intending to defraud the Copyright Office by presuming—incorrectly—that those facts complied with the relevant legal requirements… However, because we now know § 411(b) requires knowledge of both mistakes of law and of fact, there is no daylight between a court’s determination that a party had knowledge of the legal and factual inaccuracies and a finding that the party committed fraud on the Copyright Office.”

Ninth Circuit Finds No Knowing Misrepresentation of Material Fact by Unicolors

After acknowledging the Supreme Court’s abrogation of Gold Value, the Ninth Circuit followed the test laid out by the Eleventh Circuit in Roberts v. Gordy (2017) for parties seeking to invalidate a copyright registration for factual or legal inaccuracies. Such parties must demonstrate that a registration application was filed with inaccuracies, that the applicant knew that the application failed to comply with legal requirements, and that the inaccuracies in question were material to the registration decision. “Put differently, a registration is invalid under § 411(b) if the registrant perpetrated fraud on the Copyright Office by knowingly misrepresenting material facts,” the Ninth Circuit wrote.

In assessing whether Unicolors possessed the requisite knowledge of the legal inaccuracy in its registration application, the Ninth Circuit noted that the district court expressly found that H&M failed to make any showing that Unicolors intended to defraud the Copyright Office. While willful blindness could support a finding of actual knowledge, the Ninth Circuit acknowledged that it was “hardly unreasonable” to conclude that Unicolors couldn’t have knowingly violated the appellate court’s definition of the “single unit of publication” requirement when the first binding precedent on that definition came in the Ninth Circuit’s first ruling on H&M’s appeal.

Although H&M advanced a pair of arguments contending that Unicolors did make a knowing misrepresentation of a material fact to the Copyright Office, the Ninth Circuit was unpersuaded. Although Unicolors knew that it had combined public designs and others kept confidential for certain customers within a single registration, the Ninth Circuit held that this did not speak to Unicolors’ knowledge of the legal requirements of its registration application at the time that it was filed. Further, while testimony from Unicolors’ President Nazir Pazirandeh indicated that the designs were registered through a single application to save money, the Ninth Circuit held that the lack of a “single unit of publication” definition, coupled with other testimony from Pazirandeh regarding Unicolors’ registration practices for bundling design collections in a single application, led to a reasonable inference that Pazirandeh evaluated several plausible legal interpretations of the single unit rule and chose the least expensive option, “as would any profit-motivated businessperson,” the Ninth Circuit wrote.

Most of H&M’s Arguments Fail Except for District Court’s Error in Remittitur Calculations

After deciding the threshold matter that Unicolors possessed a valid copyright registration to maintain its infringement action, the Ninth Circuit moved on to strike down ten separate arguments raised by H&M challenging district court rulings at various stages of the litigation. Regarding H&M’s pretrial challenges, the Ninth Circuit ruled that H&M forfeited its argument that Pazirandeh’s testimony constituted an undesignated expert opinion, and found that the district court did not abuse its discretion in excluding H&M’s proffered testimony on substantial similarity and damages issues. On H&M’s at-trial challenges, the Ninth Circuit found that H&M forfeited its evidentiary challenge to the district court’s admission into evidence of a black-and-white version of Unicolors’ copyright registration, and found harmless error in the district court’s refusal of H&M’s proposed jury instruction and documentary evidence regarding the Chinese copyright in H&M’s own accused design. On H&M’s post-trial challenges, the Ninth Circuit dismissed H&M’s renewed validity challenge to Unicolors’ copyright registration as well as its challenges to the jury’s findings of striking similarity and willfulness. Finally, the Ninth Circuit found no abuse of discretion in the district court’s award of attorneys’ fees to Unicolors.

However, H&M was successful in getting the Ninth Circuit to significantly reduce the district court’s entry of post-remittitur damages after the appellate court found abuse of discretion in the district court’s profit-disgorgement damages calculation. Although the district court granted H&M’s renewed motion for judgment as a matter of law (RJMOL), limiting Unicolors’ recovery to damages on H&M’s U.S. sales and not all international sales, the district court relied on the average gross sales price per piece rather than the gross profit per piece based on its interpretation of the maximum recovery rule for remittitur calculations.

Remittitur Must Reflect Maximum Recovery “Sustainable By the Proof”

While the maximum recovery rule requires that remittitur must reflect the maximum amount sustainable by the proof, the Ninth Circuit found that Unicolors’ evidence proffered at trial only supported a profit award pegged to H&M’s gross profit per piece, which the jury used in its damages calculation. The Ninth Circuit found that the district court should have begun by assessing the jury’s calculations to determine the maximum award to Unicolors sustainable by proof.

“Although we have not stated as such in so many words, this understanding of the maximum recovery rule is well-grounded in the law… As the Supreme Court has explained, the purpose of remittitur is to maintain the jury’s verdict while ‘lopping off an excrescence…’ And this is best achieved by ‘minimiz[ing] the extent of judicial interference with a matter that is otherwise within the jury’s domain.’”

In using the proper rate of the gross profit per piece, the Ninth Circuit found a profit disgorgement award based on H&M’s U.S. sales totalling $98,441.23, far lower than the district court’s conclusion that H&M owed $247,675.33 based on the average gross sales price per piece. While H&M also challenged the jury’s award of $18,534 in lost profits, the Ninth Circuit found that H&M failed to timely object to Pazirandeh’s trial testimony on lost profits. Adding the lost profits and profit disgorgement awards together, the Ninth Circuit held that the proper remittitur calculation resulted in $116,975.23 in damages awarded to Unicolor. If Unicolors rejected this amount, the district court was instructed to grant H&M’s motion for a new trial but limited only to the issue of damages.

Image Source: Deposit Photos
Image ID: 211210396
Author: AndreyPopov