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Grant Heilman Photography, Inc. v. McGraw-Hill Global Educational Holdings, LLC

United States District Court, E.D. Pennsylvania

March 20, 2015

GRANT HEILMAN PHOTOGRAPHY, INC
v.
MCGRAW-HILL GLOBAL EDUCATIONAL HOLDINGS, LLC, MCGRAW-HILL SCHOOL EDUCATION HOLDINGS, LLC, and JOHN DOES PRINTERS 1-10

MEMORANDUM RE DEFENDANTS’ MOTION FOR JUDGMENT AS A MATTER OF LAW

MICHAEL M. BAYLSON, District Judge.

The essence of the concept that a photograph enjoys a copyright, and that unlicensed use of a photograph is infringement, is reflected in the comment by the famous photographer Ansel Adams, “You don’t just take a photograph, you make it.” Defendants McGraw-Hill Global Education Holdings, LLC and McGraw-Hill School Education Holdings, LLC (“McGraw-Hill”) move under Fed.R.Civ.P. 50(b) for judgment as a matter of law following a jury verdict in favor of Plaintiff Grant Heilman Photography, Inc. (“GHPI”) in a bellwether trial on GHPI’s claims of copyright infringement against McGraw-Hill. At issue is whether the Court should find that GHPI was on inquiry notice of widespread copyright infringement by McGraw-Hill prior to April 18, 2009, three years before GHPI filed this lawsuit and the expiration date for accrual of claims under the Copyright Act’s three-year statute of limitation, 17 U.S.C. § 507(b). The jury found that McGraw-Hill had not proven that GHPI was on inquiry notice before April 18, 2009 and that GHPI discovered facts sufficient to file a claim against McGraw-Hill only in October 2009. Accordingly, under the Third Circuit’s “discovery rule, ” the jury’s findings rendered GHPI’s claims accruing before April 18, 2009, timely, and the jury awarded damages in favor of GHPI for those claims in the bellwether trial.

McGraw-Hill contends, however, that the jury’s findings were contrary to law and that the evidence demonstrates that GHPI knew or should have known that McGraw-Hill was committing copyright infringement before April 18, 2009. McGraw-Hill argues that these “storm warnings, ” as a matter of law, placed GHPI on inquiry notice and triggered a duty on the part of GHPI to undertake a reasonably diligent investigation of potential copyright infringement by McGraw-Hill. McGraw-Hill contends GHPI cannot meet its burden of showing that it carried out any investigation—let alone a reasonably diligent one. Accordingly, McGraw-Hill contends the evidence requires the Court to grant judgment as a matter of law in its favor and to find that GHPI’s claims accruing before April 18, 2009, are untimely.

The Court has carefully considered the evidence and arguments put forward by both sides on what is a very close question. If the Court were to evaluate the testimony of GHPI President Sonia Wasco in isolation, the Court would likely agree with McGraw-Hill that the evidence showed GHPI was on inquiry notice. However, the Court must give substantial weight to the jury’s verdict, as well as to all of the evidence produced at trial, in the light most favorable to GHPI, showing that McGraw-Hill was not aware of the extent of its own copyright infringement until 2013, that McGraw-Hill’s recordkeeping was deficient, and that the parties had developed a course of dealing whereby any corrective action as to McGraw-Hill’s copyright infringement was made retroactively. From this evidence, the jury could have concluded (i) that an objectively reasonable plaintiff would not have been on inquiry notice of McGraw-Hill’s prior instances of copyright infringement and/or (ii) that any effort by GHPI to raise issues or question McGraw-Hill about infringements would not have led to a different result. Accordingly, the Court will deny McGraw-Hill’s motion for judgment as a matter of law.

I. Procedural History

GHPI is a stock photography agency that has licensed thousands of photographs to McGraw-Hill, a publisher of textbooks, educational materials, and other publications. On April 18, 2012, GHPI sued McGraw-Hill alleging 2, 395 instances of copyright infringement between 1995 and 2011 in which McGraw-Hill exceeded the terms of GHPI’s licenses on photographs.

On August 31, 2012, McGraw-Hill moved for partial summary judgment based on the statute of limitations (ECF 12). McGraw-Hill argued that, under the three-year statute of limitations of the Copyright Act, 17 U.S.C. § 507(b), summary judgment should be granted as to any claims of copyright infringement that occurred before April 18, 2009. GHPI filed a response on October 1, 2012, contending that summary judgment was not warranted because of disputes of material fact about whether GHPI knew or should have known of the extent of McGraw-Hill’s copyright infringements (ECF 24). McGraw-Hill filed a reply on October 15, 2012, reiterating that GHPI was on notice that McGraw-Hill had overrun licenses in 2006 (ECF 26). On November 28, 2012, the Court issued a Memorandum (ECF 27) and Order (ECF 28) denying McGraw-Hill’s motion, concluding that “a genuine dispute of material fact exists about whether and when GHPI should have discovered the alleged infringements that McGraw never disclosed.” See Grant Heilman Photography, Inc. v. The McGraw-Hill Companies, Inc., No. 12-2061, 2012 WL 5944761, at *1 (E.D. Pa. Nov. 28, 2012).

On December 14, 2012, McGraw-Hill moved to bifurcate the litigation into two stages under Fed.R.Civ.P. 42(b), the first to consider the statute of limitations and the second to determine liability and damages (ECF 29). GHPI opposed the motion to bifurcate (ECF 30). Following a hearing, the Court issued a Memorandum (ECF 35) and Order (ECF 36) on May 7, 2013, granting McGraw-Hill’s motion in part and ordering a bifurcated bellwether trial based on 24 invoices selected by GHPI and six invoices selected by McGraw-Hill. The Court concluded that a bellwether trial was warranted because of the possibility that the jury could find in favor of McGraw-Hill on the statute of limitations issue and in order to narrow the scope of discovery and conserve judicial resources.

On April 28, 2014, GHPI moved for partial summary judgment on 57 claims of copyright infringement for a number of reasons, including that McGraw-Hill could not establish its statute of limitations affirmative defense (ECF 104). McGraw-Hill filed a response, arguing that genuine disputes of material fact existed regarding the statute of limitations (ECF 108). GHPI replied (ECF 111), and McGraw-Hill filed a sur-reply (ECF 118). Following a hearing on June 11, 2014, the Court issued a Memorandum (ECF 126) and Order (ECF 127) on June 26, 2014, denying GHPI’s motion, concluding that GHPI failed to show any specific infringing uses by McGraw-Hill within three years prior to filing suit, and finding disputes of material fact existed regarding application of the statute of limitations. But the Court invited GHPI to submit undisputed evidence showing that McGraw-Hill exceeded the scope of GHPI’s licenses after April 18, 2009.

On July 8, 2014 GHPI filed an addendum to its motion for partial summary judgment, detailing evidence that McGraw-Hill exceeded the scope of GHPI’s licenses after April 18, 2009 (ECF 128). McGraw-Hill filed a supplemental brief on the statute of limitations issue, arguing that disputes of material fact remained as to whether many of GHPI’s claims were barred by the statute of limitations (ECF 131). GHPI replied that the undisputed evidence showed McGraw-Hill committed infringements after April 18, 2009, and that McGraw-Hill had no statute of limitations defense to those infringements (ECF 137). On August 6, 2014, the Court issued a Memorandum (ECF 139) and Order (ECF 140) granting in part GHPI’s summary judgment motion for certain infringements committed after April 18, 2009, and denying GHPI’s motion as to other claims.

On August 8, 2012, GHPI filed a motion for reconsideration, contending that the Court had committed certain errors of law in deciding GHPI’s motion for partial summary judgment (ECF 145). McGraw-Hill filed a response in opposition (ECF 152), and GHPI replied (ECF 153). On September 5, 2014, the Court granted in part and denied in part GHPI’s motion for reconsideration (ECF 157). On September 10, 2014, the Court issued an Order granting in part and denying in part GHPI’s motion for reconsideration (ECF 165). The Court corrected certain minor errors in its prior Order but refused to revisit its prior rulings on McGraw-Hill’s statute of limitations defense.

On September 15, 2014, the bellwether trial on 53 claims selected by the parties commenced. Following a six-day trial, the jury returned a verdict on September 23, 2014, finding McGraw-Hill liable for copyright infringement. See ECF 179. The jury answered “no” to an interrogatory asking whether McGraw-Hill “has proven, by a preponderance of the evidence, that plaintiff knew of ‘storm warnings’ or was on ‘inquiry notice’ prior to April 18, 2009.” See id., Interrogatory No. 5. The jury also found that GHPI had “proven by a preponderance of the evidence that plaintiff had not discovered sufficient facts to bring a claim of infringement against defendant as of April 18, 2009.” See id., Interrogatory No. 8(a). The jury found that “plaintiff discovered facts sufficient to file a claim against defendants” in October 2009. See id., Interrogatory No. 8(b). The jury found damages separately for the claims prior to and after April 18, 2009. Accordingly, on September 24, 2014, judgment was entered in favor of GHPI and against McGraw-Hill in the amount of $127, 087.00 (ECF 180).

Both parties have filed numerous post-trial motions. On October 21, 2014, McGraw-Hill moved under Fed.R.Civ.P. 50(b) for judgment as a matter of law on the statute of limitations issue (ECF 192), and filed a memorandum in support on November 4, 2014 (ECF 195). McGraw-Hill contends it proved, by a preponderance of the evidence, that as a matter of law GHPI knew of “storm warnings” or was on “inquiry notice” before April 18, 2009, and that GHPI failed to prove, by a preponderance of the evidence, that it was reasonably diligent in investigating these “storm warnings.” On December 2, 2014, GHPI filed a response (ECF 211), arguing that the record contained substantial evidence to support the jury’s finding that GHPI was not on inquiry notice of McGraw-Hill’s widespread copyright infringements and that a reasonable jury could conclude that GHPI exercised reasonable diligence in investigating the alleged storm warnings. On December 22, 2014, McGraw-Hill filed a reply (ECF 216). The Court held argument on these motions on February 12, 2015. The Court will decide the McGraw-Hill Rule 50(b) Motion before considering any of the other post-trial motions.

III. Factual Summary of Evidence at Trial The undisputed evidence presented at trial shows that McGraw-Hill committed certain acts of copyright infringement before April 18, 2009, and that GHPI knew of these incidents. The key questions are whether the evidence shows that these incidents were storm warnings or placed GHPI on inquiry notice of McGraw-Hill’s widespread use of GHPI’s photographs beyond license limits and, if so, whether GHPI conducted a reasonably diligent investigation.

A. February 1995 Late Licensing A McGraw-Hill division, William C. Brown, published a GHPI photo in the third edition of Biology by Raven & Johnson without an invoice or payment. GHPI wrote to McGraw-Hill informing them of the use of the photo without payment. See Defs.’ Br., Ex. 15 at 6; Pl.’s Brief, Ex. 20; Trial Tr. 186:17-188:16, Sept. 15, 2014. At trial, GHPI President Sonia Wasco acknowledged that the letter was “an indication that GHPI became aware there was unauthorized use of one of GHPI’s photos” in the textbook. Trial Tr. 188:13-16, Sept. 15, 2014.

B. Early 1999 Late Licensing A McGraw-Hill division, Glencoe, published the 1998 edition of Biology: Dynamics of Life without obtaining permission for most of the photos in the book. Id. 98:17-99:6, 192:3-13; Defs.’ Br., Ex. 6.

Ms. Wasco was at the time serving as President of the Picture Archive Council of America (“PACA”), a trade association of stock photo agencies. Trial Tr. 98:8-99:16, Sept. 15, 2014. On April 8, 1999, an attorney sent a letter to McGraw-Hill on behalf of PACA members, including GHPI, asserting that McGraw-Hill’s use of the members’ images constituted copyright infringement. Defs.’ Br., Ex. 6. In September 1999, McGraw-Hill sent GHPI a letter and a check for $8, 046.25 to cover its use of 53 GHPI photos. Trial. Tr. 195:18-197:8, Sept. 15, 2014; Defs.’ Br. Ex. 26, 27.

Ms. Wasco returned the letter and check as unacceptable, and sent a letter identifying three other products associated with the book in which McGraw-Hill had also used GHPI images without permission, enclosing invoices for three times the normal license fee as a penalty. Trial Tr. 197:17-198:19; 211:3-21; 214:14-216:2, Sept. 15, 2014; Defs.’ Br. Ex. 27, 29. Ms. Wasco indicated she negotiated payment for this infringement for “the better party of a day” with a McGraw-Hill executive. Trial. Tr. 100:13-101:16; 217:5-18, Sept. 15, 2014. McGraw-Hill agreed to pay a two-times penalty. Id. 216:3-12.

C. November 12, 1999 Selling Stock Article On November 12, 1999, Ms. Wasco received an email from a GHPI photographer forwarding an article called “Infringement at Glencoe” that had appeared in the November 3, 1999 edition of Selling Stock, a stock photo industry newsletter published by Jim Pickerell. Trial Tr. 13:14-16:18, Sept. 16, 2014; Defs.’ Br. 8, 24. The article discussed the failure of Glencoe to obtain photo permissions for Biology: Dynamics of Life and another textbook series, Science Voyages . Defs.’ Br. Ex. 8, 24. The article labeled Glencoe’s conduct “a pattern” and advised readers that, “You can no longer depend on this publisher—and maybe not any publisher—to tell you when they have published your work. You can’t wait to be notified. . . . You can no longer trust the publisher to supply you with the information you need to properly invoice.” Trial Tr. 19:8-20, Sept. 16, 2014; Defs.’ Br., Ex. 8, 24.

At trial, Ms. Wasco testified that she did not share Mr. Pickerell’s opinion. Trial Tr. 21:3-6, Sept. 16, 2014. She also acknowledged that Mr. Pickerell did not “say anything about widespread massive over printing of, not just one or two books, but dozens or hundreds of books” or “use by over printing photographs beyond the license limits on a massive widespread basis by McGraw” and that she did not believe “there was massive widespread copyright infringement that was being committed by . . . McGraw Hill.” Trial Tr. 103:25-104:10, Sept. 15, 2014.

Ms. Wasco also noted that GHPI and McGraw-Hill “always resolved” issues of copyright infringement and the parties had a “longstanding trusting relationship.” Trial Tr. 52:23-24, Sept. 15, 2014. Ms. Wasco testified that she felt she could trust McGraw-Hill to comply license limits. Id. 52:25-53:3.

D. November 1999 Late Licensing GHPI confirmed that McGraw-Hill used its photos in three of the Science Voyages textbooks without permission. Trial Tr. 23:17-26:23, Sept. 16, 2014; Defs.’ Ex. 7, 13. Ms. Wasco testified that she believed these incidents were “something that slipped through the cracks, or was unusual, or was an oversight on the part of McGraw, rather than an ingrained systemic serial practice of McGraw-Hill to infringe.” Trial Tr. 105:4-11, Sept. 15, 2014. She testified that “McGraw essentially cooperate[d] with [GHPI] in fixing this mistake concerning these two books, Science Voyages and Biology: Dynamics of Life in late 1999 and early 2000.” Id. 101:24-102:22. McGraw Hill presented correspondence with GHPI resolving these issues in positive terms, discussing “working together in the future” to the jury. Id. 216:3-217:18; Pl.’s Br., Ex. 8, 9, 13, 25, 38, 39.

Ms. Wasco testified that she traveled to McGraw-Hill’s Columbus, Ohio, offices in early 2000 and met with McGraw-Hill’s permissions employees. At that meeting, “we talked about the problems that had occurred and developed what we felt was a good basic body of licensing and agreement for moving forward so that this would not happen in the future.” Trial Tr. 102:8-12, Sept. 15, 2014. Ms. Wasco testified that she did not believe, “at that time, that there was widespread copyright infringement that McGraw was committing against Heilman Photographers in particular and other photographers in general, ” but “that as a result of the meeting in 2000 that McGraw was a trustworthy partner, business partner and that [GHPI], going forward, would be able to rely upon them to get permissions for the uses they made and pay for them.” Id. 102:13-22.

E. February 2004 Late Licensing A McGraw-Hill Higher Education division freelancer sent an invoice request for the seventh edition of Biology by Raven & Johnson to GHPI, noting that a GHPI photograph was used without permission. Trial Tr. 27:21-30:20, Sept. 16, 2015; Defs.’ Br., Ex. 16. The GHPI invoice listed a copyright year of 2003, even though the invoice had not been requested until 2004. Defs.’ Br., Ex. 16. Ms. Wasco testified that an invoice request received after the book’s copyright year would “raise a flag” for GHPI that the publisher had already made use of GHPI’s photo without permission. Trial Tr. 37:3-18, Sept. 16, 2014. But Ms. Wasco did not recall that this particular invoice request “raised a flag.” Id. 37:19-22.

Ms. Wasco also acknowledged that, since at least May 2003, GHPI had a practice of asking for the book’s copyright year and ISBN when each invoice was requested so as to determine whether it had already been published and, in such cases, charged an additional retroactive license fee for the infringement. Id. 22:5-11; 152:6-153:12; Defs.’ Br., Ex. 12. But the invoice GHPI issued for the seventh edition of Biology made no reference to a retroactive license fee. Defs.’ Br., Ex. 16.

F. August 2006 License Overruns On August 15, 2006, Glencoe employee Heidi Kidwell sent a letter to GHPI enclosing a check for $39, 433.10 for “usage in a print run larger than originally anticipated” in 16 separate invoices involving 10 publications. Trial Tr. 44:25-45:20, Sept. 16, 2015; Defs.’ Br., Ex. 9.

Ms. Wasco testified that, after receiving this letter, “We actually felt that they got it right. That, you know, they were bringing this to our attention and wanted to resolve the issues that were outstanding at the time, the overages, and wanted to take care of any of the problems that existed there and we were really pleased that they brought this to our attention so we could resolve it.” Trial Tr. 108:23-109:3, Sept. 15, 2014. Ms. Wasco noted that she did not think at the time that McGraw-Hill must be infringing lots of other GHPI works, but she “thought that . . . this was the problem, this is what had happened. I did not think they were doing any other infringements.” Id. 109:4-9. Ms. Wasco testified she did not ask McGraw whether it infringed other books “because we assumed they were giving us all the – they had been cooperating with us on these, we thought, how great, they brought it to our attention, they wanted to make this right. We had no reason to believe that they were infringing any other titles.” Trial Tr. 62:16-21, Sept. 16, 2014.

On August 25, 2006, Ms. Wasco received an email from Robert Folz, the owner of Visuals Unlimited, Inc., another agency that did business with McGraw-Hill, sharing that he had received a check and an insufficient explanation from Glencoe. Id. 45:21-47:7; 48:21-49:10; Defs.’ Br., Ex. 11. In her response, Ms. Wasco confirmed that GHPI had also received a check, and that she knew another agency had as well. Trial Tr. 49:14-21; 51:22-25, Sept. 16, 2014; Defs.’ Br., Ex. 11. In addition, she told Mr. Folz that an attorney had contacted her several months ago and asked GHPI to join in an audit of publishing numbers at Houghton Mifflin Harcourt. Ms. Wasco declined to join out of concern “of being blacklisted.” Defs.’ Br., Ex. 11. Ms. Wasco speculated that the attorney may have requested an audit of McGraw-Hill and that action may have caused McGraw-Hill to send the overrun checks. Trial Tr. 52:21-56:4, Sept. 16, 2014; Defs.’ Br., Ex. 11.[1]

In October 2006, Ms. Wasco wrote a letter to Ms. Kidwell contending that McGraw-Hill owed additional amounts under the parties’ pricing agreement for the 16 invoices that had been exceeded. Id. Ex. 2 at 56:21-57:6; Id. Ex. 9 at 5. McGraw-Hill agreed to pay the difference. Id. Ex. 2 at 62:24-63:12; Id. Ex. 10.

On December 1, 2006, Ms. Kidwell wrote an email to Ms. Wasco notifying GHPI that the invoices for the overrun payments had been processed and thanking Ms. Wasco “for the time you and your staff took to provide such clear invoicing. I appreciate this. It made the evaluation process much simpler.” Defs.’ Br., Ex. ...


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