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Determination of willfulness in copyright infringement

Kast is a California businessman. One of his businesses is Atherton Trust, a real estate wealth management company. In order to develop a web-site for this business he hired website developer – Only Websites. Among other things, Kast “agreed to provide content and other material… throughout the development process.” Kast’s approval would be required on all work, “including the design, development and finalization of the website.”

Kast identified Wells Fargo Private Bank (“Wells Fargo”) as one of Atherton Trust’s competitors and highlighted certain features of Wells Fargo’s website he found appealing. Kast also stated in emails that he wanted to mimic Wells Fargo’s website. Further, Kast noted that he “needed to choose photos from options” provided by Only Websites. Kast closely managed the development process. Eventually, three photos from Wells Fargo’s website – which were taken by Jim Erickson and licensed to Wells Fargo through his company, Erickson Productions, Inc. – were incorporated into Atherton Trust’s developmental website.

Neither Atherton Trust, Kast, nor Only Websites licensed the photos. Erickson discovered the infringement via Picscout, a “software that tracks imagery online” by running nightly internet-wide searches. In July 2011, Erickson demanded that Atherton Trust “cease and desist infringing its copyright” and pay damages. Kast promptly directed Only Websites to remove the photos, which was done the next morning, but refused to pay. Erickson filed suit, alleging direct, vicarious, and contributory copyright infringement. Erickson contended that the infringement was willful, and therefore subject to enhanced damages.

According to Kast, Only Websites copied the photos without his consent. Kast also pointed to a provision in his contract with Only Websites, which stated that “Client [Kast] is responsible for obtaining copyright releases and licenses on all photographs it sends to Provider. Limit of 2 photographs provided by Provider for every page except the home page.” Kast testified he understood this provision to mean that “anything that I sent to them had to be licensed,” but that “if they provided the photos, they had to provide licensed photos.” Similarly, Kast asserted that had he known he needed to license photos for the developmental site, he would have done just that; in fact, he later and on his own licensed two stock photos for the site’s “live” version. Separately, Kast argued he lacked control over Only Websites.

The jury found by special verdict that Kast vicariously and contributorily (but not directly) infringed Erickson’s copyright on each of the photos and did so willfully. Pursuant to 17 U.S.C. § 504(c)(2), the jury awarded Erickson $150,000 in damages per photograph, for total damages of $450,000. Kast timely appealed the district court’s judgment against him. What the court of appeal has decided?

A website owner can receive a direct financial benefit from the presence of infringing material on his or her website, but only “where the availability of infringing material acts as a draw for customers.” If the infringing material is “just an added benefit,” rather than a draw, it does not confer a direct financial benefit on the website owner. Erickson claims the photographs enhanced the general attractiveness of Kast’s website to customers, and thereby “drew” visitors to purchase his services.

However, a financial benefit is not “direct” unless there is a “causal relationship between the infringing activity and the financial benefit.” If Kast had a direct financial interest in every piece of content on this website that arguably made the website marginally more attractive or presentable, then the requirement of a causal link would be erased. Erickson does not argue the photographs were anything more, at best, than an “added benefit” to visitors of Kast’s website, so the infringement did not confer a direct financial benefit on Kast as a matter of law.

Erickson claimed “Kast enjoyed a direct financial benefit from the illegal copying of Erickson’s works by avoiding the license fees he would have otherwise been required to pay.” Instead, Erickson’s argument must be that Kast received a direct financial benefit when Only Websites avoided Erickson’s licensing fee. Only Websites surely owed Erickson a licensing fee, and saved money by failing to pay it, but the direct infringer’s avoidance of fees alone cannot satisfy the requirement of a direct financial benefit to the vicarious infringer.

Nor did Kast receive any other direct financial benefit as a result of Only Websites’ failure to pay. In any event, Erickson never claimed that Only Websites and Kast were able to offer services more cheaply or quickly because Only Websites infringed Erickson’s copyright. Only Websites’ avoidance of licensing fees did not confer a direct financial benefit on Kast as a matter of law. Erickson never explained how using the photos allowed Kast to launch the website more quickly, or how the rushed launch enabled him to realize any profits at all. Thus, the alleged rush conferred no financial benefit on Kast at all and fails as a matter of law.

A determination of willfulness requires an assessment of a defendant’s state of mind. To prove willfulness under the Copyright Act, the plaintiff must show (1) that the defendant was actually aware of the infringing activity, or (2) that the defendant’s actions were the result of reckless disregard for, or willful blindness to, the copyright holder’s rights. The formulation ‘should have known’ reflects negligence. Negligence is a less culpable mental state than actual knowledge, willful blindness, or recklessness, the three mental states that properly support a finding of willfulness.

“A willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts. By contrast, a reckless defendant is one who merely knows of a substantial and unjustified risk of such wrongdoing, and a negligent defendant is one who should have known of a similar risk but, in fact, did not.” Thus, Kast is correct that the judge permitted the jury to find willfulness on the basis of a lesser mental state than our cases demand.

Kast presented evidence that he did not know Only Websites was or might be infringing. Kast’s contract with Only Websites suggests that Kast reasonably believed it was Only Websites’ responsibility to obtain licenses for Erickson’s photos. Several of Kast’s other actions also suggest that he was not reckless with respect to Erickson’s rights: he obtained licenses for the photos that he supplied to Only Websites, and promptly removed the infringing photos when Erickson asked.

The court vacated the jury’s finding of vicarious liability, affirmed the jury’s finding of contributory liability and therefore affirmed the judgment. The court reversed the jury’s finding of willfulness and remanded the issue of statutory damages to the trial court.

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