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Grant Heilman Photography, Inc. v. The McGraw-Hill Cos.

United States District Court, E.D. Pennsylvania

June 30, 2015

GRANT HEILMAN PHOTOGRAPHY, INC.
v.
THE MCGRAW-HILL COMPANIES, et al

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[Copyrighted Material Omitted]

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For Grant Heilman Photography, Inc., Plaintiff: AMANDA LEIGH BRUSS, LEAD ATTORNEY, PRO HAC VICE, HARMON & SEIDMAN LLC, Aurora, CO USA; AUTUMN WITT BOYD, LEAD ATTORNEY, Chattanooga, TN USA; JENNIFER M. JOHNSON, LEAD ATTORNEY, PRO HAC VICE, Arvada, CO USA; MAURICE HARMON, LEAD ATTORNEY, HARMON & SEIDMAN LLC, New Hope, PA USA.

For Mcgraw-Hill Global Education Holdings, LLC, Defendant: CHRISTOPHER P. BEALL, ELIZABETH SEIDLIN-BERNSTEIN, LEAD ATTORNEYS, PRO HAC VICE, LEVINE SULLIVAN KOCH & SCHULZ LLP, New York, N.Y. USA; MICHAEL BEYLKIN, LEAD ATTORNEY, PRO HAC VICE, LEVINE SULLIVAN KOCH & SCHULZ LLP, Denver, CO USA; KATHARINE LARSEN, PAUL J. SAFIER, LEVINE SULLIVAN KOCH & SCHULZ LLP, Philadelphia, PA USA.

For Mcgraw-Hill School Education Holdings, LLC, Defendant: CHRISTOPHER P. BEALL, ELIZABETH SEIDLIN-BERNSTEIN, LEAD ATTORNEYS, PRO HAC VICE, LEVINE SULLIVAN KOCH & SCHULZ LLP, New York, N.Y. USA; KATHARINE LARSEN, PAUL J. SAFIER, LEVINE SULLIVAN KOCH & SCHULZ LLP, Philadelphia, PA USA.

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[115 U.S.P.Q.2d 1375] MEMORANDUM RE POST-TRIAL MOTIONS

Michael M. Baylson, United States District Judge.

I. Introduction

In this long-running copyright infringement dispute, Plaintiff Grant Heilman Photography, Inc. (" GHPI" ) alleges more than 2,300 claims of copyright infringement against Defendants McGraw-Hill Global Education Holdings, [115 U.S.P.Q.2d 1376] LLC and McGraw-Hill School Education Holdings, LLC (" McGraw-Hill" ). GHPI, a stock photography agency, licensed photographs for use in McGraw-Hill's textbooks, educational materials, and other publications. GHPI contends McGraw-Hill committed copyright infringement on numerous occasions by overrunning limits in GHPI's licenses without compensating GHPI for the additional use of its photographs.

In September 2014, following a number of pretrial motions and discovery disputes, the Court held a six-day bellwether trial. Counsel for both parties selected 53 claims (out of the more than 2,300 claims brought by GHPI) to try to a jury in order to determine whether some of GHPI's claims were untimely, whether McGraw-Hill was liable for copyright infringement, and, if so, whet damages should be awarded to GHPI.

On September 24, 2014, the jury returned a verdict in favor of GHPI on all 53 claims. The jury found that McGraw-Hill had not proven that GHPI was on inquiry notice of McGraw-Hill's infringements before April 18, 2009, and that GHPI discovered facts sufficient to file a claim against McGraw-Hill only in October 2009. See ECF 179. This finding, under the Third Circuit's " discovery rule," rendered all of GHPI's claims at issue in the bellwether trial timely.[1] See ECF 245, 2015 WL 1279502 (E.D. Pa. Mar. 20, 2015). The jury awarded GHPI actual damages of $98,610 and profits of $28,477. See ECF 179. Accordingly, the Court entered judgment against McGraw-Hill in the amount of $127,087. See ECF 180.

Following the entry of judgment in the bellwether trial, the parties filed numerous post-trial motions. The Court has already denied one of those motions, McGraw-Hill's motion for judgment as a matter of law as to instances of infringement that occurred before April 18, 2009, or three years prior to the filing of the complaint in this case. After carefully weighing the

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arguments of both sides, the Court concluded that there was a legally sufficient evidentiary basis for the jury's finding that McGraw-Hill had failed to establish that GHPI was on inquiry notice or aware of " storm warnings" of infringement before April 18, 2009. See ECF 245, 246; 2015 WL 1279502.

The Court now turns its attention to three additional post-trial motions:

1. McGraw-Hill's October 21, 2014 motion under Federal Rule of Civil Procedure 59(e) for a constitutional reduction in the jury's actual damages award (ECF 194, 197). GHPI responded to that motion on December 2, 2014 (ECF 210), and McGraw-Hill replied on December 22, 2014 (ECF 218).

2. GHPI's November 4, 2014 motion under Federal Rule of Civil Procedure 50(b) for judgment as a matter of law on profits (ECF 198). McGraw-Hill responded to that motion on December 2, 2014 (ECF 205), and GHPI replied on December 22, 2014 (ECF 220).

3. GHPI's November 4, 2014 motion for a permanent injunction and impoundment (ECF 199). McGraw-Hill responded to that motion on December 2, 2014 (ECF 208), and GHPI replied on December 22, 2014 (ECF 222).

The Court held oral argument on the damages issues on June 19, 2015, and advised the parties that once these motions were decided, the Court would expect counsel to make proposals for " translating" the verdict of the bellwether trial into further findings on damages and a final judgment which will allow the parties to appeal.

Bellwether trials, which are most frequently used in multi-district mass tort cases, are recognized as an effective means for a trial judge to enhance settlement prospects or resolve common issues or claims in complex litigations. See, e.g., In re Chevron U.S.A., Inc., 109 F.3d 1016, 1019-20 (5th Cir. 1997) (" [T]he results of such trials can be beneficial for litigants who desire to settle such claims by providing information on the value of the cases as reflected by jury verdicts. Common issues or even general liability may also be resolved in a bellwether context in appropriate cases." ); In re Tylenol (Acetaminophen) Mktg., Sales Practices, and Prods. Liab. Litig., No. 12-7263, MDL No. 2436, 2015 WL 2417411, at *1 & n.3 (E.D. Pa. May 20, 2015) ( " A 'bellwether case' is a test case. 'Bellwether' trials [115 U.S.P.Q.2d 1377] should produce representative verdicts and settlements." ).[2]

This Court has previously used a bellwether trial in a copyright case alleging that unknown defendants infringed a plaintiff's copyrights by using a peer-to-peer client sharing program to download plaintiff's motion pictures without paying royalties. Malibu Media, LLC v. John Does 1-16, 902 F.Supp.2d 690, 702 (E.D. Pa. 2012). In that case, the Court permitted a bellwether trial to go forward against five defendants who had filed motions with the Court, while staying the cases against other defendants. Id. The bench trial resulted in admissions of liability by the three defendants who ultimately remained in the

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case and the award of damages to plaintiff. Malibu Media, LLC v. John Does 1, 6, 13, 14, 950 F.Supp.2d 779, 780 (E.D. Pa. 2013). The analyses and results were useful for the disposition of similar cases.

In this case, following briefing and argument by the parties, the Court concluded a bellwether trial would be the most efficient approach for trying the massive number of claims at issue and concluded that, in the exercise of its " informed discretion" under Fed.R.Civ.P. 42(b), this approach would " expedite and economize" this action. See ECF 35, 36. The Court noted that if the jury found in favor of McGraw-Hill on the statute of limitations issue (which the jury ultimately did not), it would have " dramatically narrowed" the scope of the trial. See ECF 35.

Inherent in the nature of a bellwether case is that consequences must flow from the jury's findings for the remaining claims in this case. See Chevron, 109 F.3d at 1019 (noting that " [c]ommon issues or even general liability may also be resolved in a bellwether context in appropriate cases." ). This is especially the case here, when the bellwether trial involved a selection of generally similar claims between the same plaintiff and same defendants.

As the discussion below will show, the jurors' answers to interrogatories show clearly that:

1. The jury found that GHPI proved McGraw-Hill infringed the copyright of GHPI's photographs by a preponderance of the evidence.

2. McGraw-Hill failed to satisfy the jury that any of GHPI's claims were barred by the applicable statute of limitations.

3. The jury found that GHPI proved a right to actual damages and profits.

As this was a bellwether trial, the jury's findings on the 53 claims litigated, including the jury's findings on damages, must have resonance on the thousands of remaining claims in this case. With the Court's ruling on the two pending motions concerning the verdicts on damages, the stage is set for the parties' final act--using the bellwether verdicts to extrapolate damages for the remaining claims.

II. Overview of Damages under the Copyright Act

The Copyright Act authorizes three separate damages remedies for infringement. GHPI initially claimed statutory damages under 17 U.S.C. § 504(a), and alternatively proceeded under 17 U.S.C. § 504(b), which allows a copyright owner " to recover the actual damages suffered by him or her as a result of the infringement, and any profits that are attributable to the infringement and are not taken into account in computing the actual damages." 17 U.S.C. § 504(b).

(1) Statutory Damages. During trial, the Court granted McGraw-Hill's motion for a directed verdict on statutory damages, concluding that the infringement began before GHPI registered its copyright and GHPI failed to register its copyright within three months of first publication. See ECF 233, Trial Tr. 3:11-6:7, Sept. 19, 2014; see also Gloster v. Relios, Inc., No. 02-7140, 2006 WL 1804572, at *1-2 (E.D. Pa. June 28, 2006).

(2) Actual Damages. " Actual damages represent the extent to which infringement has injured or destroyed the market value of the copyrighted work at the time of infringement." 5 Nimmer on Copyright § 14.02[A]. Plaintiff's actual damages are generally [115 U.S.P.Q.2d 1378] " equal to the profits that the plaintiff might have accrued but for the defendant's infringement," which is distinguishable from the related right to recover infringer's profits. Id. § 14.02[A]. However, " damages may be reduced if, prior to infringement, a license agreement has been executed by the plaintiff that in

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itself reduces the market value of the copyrighted work to the plaintiff as of the time of infringement." Id. § 14.02[A].

(3) Infringer's Profits. With regard to establishing the infringer's profits, " the copyright owner is required to present proof only of the infringer's gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work." 17 U.S.C. § 504(b). However, " a finding of liability is not a lottery ticket. In all instances, the relief should match the proof." 5 Nimmer on Copyright § 14.01[C].

Section 504(b) permits recovery of actual damages and infringer's profits " to the extent there is no overlap in those recoveries." 6 Patry on Copyright § 22:112. It is clear that § 504(b) bars recovery of any infringer's profits that are included in the actual damages award, and vice versa. Hamil Am., Inc. v. GFI, 193 F.3d 92, 108 n.7 (2d Cir. 1999) (holding that a copyright plaintiff " may recover its own lost profits, which are part of the plaintiff's 'actual damages,' as well as the defendant's profits," but " a plaintiff may not recover damages that have already been taken into account in computing its actual damages" ).

GHPI is a stock photography agency that earns revenue licensing its photographs for use in others' work, not a publisher who sells textbooks. " Where plaintiff would not have made the sales defendant did, or where the parties' revenues represent compensation for different activities, there will be no double recovery." 6 Patry on Copyright § 22:112. Thus, there are two separate revenue streams here: (1) GHPI's lost revenues, i.e. fees not paid for McGraw-Hill's use of GHPI's photographs, and (2) McGraw-Hill's profits (or a portion of profits) earned from selling textbooks (which contained, among other things, GHPI's photographs). Accordingly, the jury was justified in awarding actual damages and infringer's profits in this case. But the jury's award is impermissible to the extent either the actual damages or infringer's profits award includes an element of the other.

III. Factual Summary of Evidence at Trial

The Court notes that it has already summarized the procedural history of this case and some of the evidence introduced at trial in its Memorandum on McGraw-Hill's motion for judgment as a matter of law. See ECF 245; 2015 WL 1279502, at *2-*10. Accordingly, the Court will summarize only those facts introduced at trial necessary to a determination of the pending motions concerning actual damages, infringer's profits, and permanent injunction issues.

GHPI's proof of its alleged actual damages primarily relied on agreed upon licensing fees negotiated between the parties. GHPI's pretrial memorandum (ECF 159) defines its " actual damages" as " the actual license fees it is owed." GHPI states that Exhibit A to its pretrial memorandum is " a summary of claims for damages." Exhibit A was filed under seal (ECF 162) because McGraw-Hill had designated its contents confidential under a Protective Order. Exhibit A is a graph showing detailed data for all 53 invoices which were subjects of the bellwether trial, including a copy of each photograph used by McGraw-Hill, the name of the publication in which it appeared, license limit, print amount, actual use (if term exceeded), and damages sought by GHPI for which the heading is " Lost License Fees" plus [McGraw-Hill's] " Revenue." The information from the graph which constitutes Exhibit A to GHPI's pretrial memorandum was introduced at trial (Tr. Ex. P-810, P-824, P-825).

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The evidence at trial also showed that on several occasions--though by no means on every occasion--McGraw-Hill agreed to pay a multiplier when it was found to have infringed GHPI's copyrighted photographs:

o McGraw-Hill paid two times the license fee for unauthorized use of GHPI photographs in the 1998 edition of Biology: Dynamics of Life. See ECF 229, Trial Tr. 216:3-12, Sept. 15, 2014.
o On August 15, 2006, Heidi Kidwell, an employee of Glencoe, a McGraw-Hill unit, sent a letter to GHPI enclosing a check for $39,433.10 for " usage in a print run larger than originally anticipated" [115 U.S.P.Q.2d 1379] in 16 separate invoices involving 10 publications. See ECF 230, Trial Tr. 44:25-45:20, Sept. 16, 2015. In October 2006, GHPI President Sonia 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. 56:21-57:6. McGraw-Hill agreed to pay the difference. Id. 62:24-63:12.
o In 2009, McGraw-Hill paid a " much higher" than usual license fee for use of a single image without a license in the fifth edition of The Living World. See id. 97:8-25; ECF 232, Trial Tr. 180:23-181:21, Sept. 18, 2014.

The evidence also showed that GHPI's invoices during certain time periods included provisions requiring payment of either two times or ten times the license fee in the event the photographs were used beyond license limits. See ECF 230, Trial Tr. 157:12-162:25, Sept. 16, 2014. Ms. Wasco testified that this license term was not a penalty but " a fair use charge, because it was something that was done in the industry" for license overruns. Id. 117:12-118:12. She noted that GHPI charged a ten times fee to some clients, but charged textbook publishers a lesser fee for unauthorized uses because they were typically able to work out agreements. Id. 161:13-162:25. Ms. Wasco testified that GHPI " charged multiples, it just wasn't a ten times multiple." Id. 162:24-25. She also testified that she viewed the ten times multiple GHPI charged McGraw-Hill with regard to the overruns that led to this litigation as the starting point for negotiations, not the actual amount GHPI expected McGraw-Hill to pay. See ECF 234, Trial Tr. 68:25-69:23, Sep. 22, 2014.

The record also includes testimony from Rachel Norton, Director of Publishing Operations at McGraw-Hill School Group, that McGraw-Hill paid another stock photography agency more than $800,000 for unauthorized use of images. See ECF 231, Trial Tr. 37:6-38:13, Sept. 17, 2014. Ms. Norton testified that she did not know precisely how the calculations were done, but that the $800,000 payment seemed to be more than just the difference between the usage tiers in McGraw-Hill's pricing agreement with that agency. Id. Moreover, Ms. Norton testified that McGraw-Hill pays a " wide range" of license fees to vendors. See ECF 232, Trial Tr. 70:13-17, Sept. 18, 2014.

During GHPI's closing argument, GHPI's counsel asked the jury to return a verdict substantial enough to " get [McGraw-Hill's] attention." See ECF 234, Trial Tr. 106:12-15, Sept. 22, 2014. " I'm asking that you award damages in the amount surely of the lost fees, but also in some profits sufficient to wake them up and to stop this infringement." Id. 106:15-18. In its ...


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