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Duplicator and Replicator Liability for Third Party’s Infringement

Any duplication or replication business can be a copyright infringer without intending to be one. It may not even know about it until it is too late! The following scenario may apply to any manufacturer, duplicator or replicator of publishing media, whether it is print, CD ROM, audio only, video, film, photos, or other media.

SALE, Inc., (“SALE”) purportedly the owner of the rights in a master tape, delivers the master to DUPE, Ltd., (“DUPE”) a duplication or replication business, and orders thousands of copies of compact discs and audio cassettes. Assuming that in the normal course of business SALE has obtained all of the required rights, the order is taken by DUPE, paid for, completed, and copies are then delivered to SALE for distribution.

Shortly thereafter DUPE and its principal owners are served with a lawsuit for copyright infringement in a United States District Court. It is alleged that SALE had not acquired all of the rights necessary to make copies from the master, and DUPE is a party to numerous acts of copyright infringement. The owners of DUPE protest, “We didn’t know! We only duplicated the copies for our contracting client, SALE. We didn’t intend to infringe anyone’s copyright!”

Under the American copyright laws of the United States, DUPE may be a copyright infringer. Generally, neither knowledge nor intent is required for one to be liable for copying someone else’s work without permission. Being an “innocent infringer” has little bearing on liability, although it is important in determining the dollar amount of damages. A duplication business may also be liable if the contracting party (SALE) has a duty to obtain the owner’s authorization and fails to do so.

In 1993, a federal court in Chicago decided that a printer of advertising brochures was liable for infringing the copyright of certain photographs its contracting client used in the brochures. In that case, the printer was unaware that its contracting client, who created the brochures, had failed to pay a licensing fee for the use of the photos. Nonetheless, the court found that the absence of knowledge or intent was not a defense.

DUPE’s liability arises because it is an agent of the primary infringer (in our case, SALE), or it has the right and ability to supervise infringing activities, and has a direct financial interest in those activities. Copyright infringement does not require knowledge or intent of the illegal act.

Although DUPE may have performed the actual duplication, it is not solely liable for the infringement. SALE, Inc., is the primary infringer, and thus is jointly liable. SALE has the ability to supervise the duplicating house’s activities and has a direct financial interest in the duplication of the product. DUPE, as the duplicating house, may be considered an agent of SALE, and would thereby be a vicarious infringer. Courts have imposed vicarious liability upon printers because a printer may be in a position to police the primary infringer’s conduct.

Despite the apparent liability imposed on duplication businesses, a 1970 New York case, decided otherwise. In Leo Feist v. Apollo Records, the court decided that a company which had recorded, edited and prepared master tapes for its contracting client was not liable to the copyright owner. In fact, the court attributed sole responsibility to the primary infringer, the record manufacturer. The New York court cited an earlier case, in which the court dismissed a musical copyright owner’s complaint against a record pressing company “on the grounds that the record presser was not a `manufacturer’ within the meaning of” the U.S. Copyright Act. In the New York cases, the courts decided that the general manufacturer did not act “jointly” or “in concert” with the presser simply because it hired the presser for the duplication. The contracting party, and primary infringer, was the general manufacturer in fact as well as name and thus was solely liable for the infringements.

The New York cases appear to protect duplicating or replicating business from unintentional infringement liability. However, these cases may be limited to their particular facts and can be interpreted by courts very narrowly. In other cases, the courts still find a duplicating house jointly liable for infringement along with the general manufacturer.

The Copyright Act prescribes the minimum amount of damages an infringer will pay. In an average case, the minimum a party would pay would be $500 per infringement or the lost profits. In a case of innocent infringement the court may reduce the amount to $200 for each infringement. In order to deter future infringements, courts have the discretion to increase the damages in cases of willful infringement. Public policy dictates that willful and intentional infringers should be punished more harshly than innocent infringers who had no prior knowledge or intent, although the burden of proving innocence is on the infringer. The Copyright Act states that the infringer must prove that he “was not aware and had no reason to believe that his or her acts constituted an infringement of copyright.”

Although the law establishes a minimum amount, there is no reduced ceiling for an innocent infringer. Thus, based upon the specific facts of a case, an innocent infringer could be required to pay up to the maximum statutory damages for all the infringements, although many courts would probably be reluctant to do so. There is very little deterrent effect if the infringer had no actual knowledge or intent. Nonetheless, even only a minimum amount could be costly. In addition, a court may award profits, actual damages, court costs, and attorneys fees when warranted by the circumstances of the case. The payments to defense counsel alone, even if found blameless and without liability, could be staggering to a small business.

There really is no legal standard for how thorough an investigation is needed prior to accepting a prospective duplication. By law, whether or not DUPE searched to see if SALE had procured the rights, or how reasonable the search was, is immaterial to DUPE’s basic liability because of the strict liability standard.

It would have been in DUPE’s best interest to secure copies of the “valid” licenses entitling SALE to duplicate. The review of SALE’s licenses is relevant to DUPE’s potential damages. Other businesses in similar circumstances should insist on reviewing copies of the contracting party’s licenses.

DUPE, may have legal recourse against SALE, if DUPE, included an indemnification clause in its contract with SALE. An example of an indemnification clause would include the language similar to the following:

SALE warrants that it has procured all rights to duplicate the master and agrees to fully indemnify DUPE, and hold DUPE harmless from and against any and all claims, demands, losses, damages, liabilities, costs, and expenses, including all legal fees arising out of or by reason of a breach by SALE of the representations, warranties, or agreements made under this contract.

Some courts, however, may find that a “hold harmless” clause does not represent a good faith effort to avoid copyright infringement, but is actually an attempt to circumvent the copyright law. This notion was alleged in a recent St. Louis case in which a federal appeals court strongly affirmed the law that “hold harmless” clauses do not protect duplication and replication houses from copyright infringement liability. The St. Louis court further stated that a copyright owner does not give consent even if the “employer” is actually the investigator hired by the copyright owner, so long as the investigator “approached the [duplicator] in a conventional manner.”

Although a warranty and indemnification clause may be irrelevant for the purposes of determining basic infringement liability, it is important for the assessment of damages.

Although an indemnification clause would not have protected DUPE from being sued by a legitimate copyright owner, it would have given DUPE the right to seek full compensation from the intentional infringer, SALE. If DUPE, were forced to defend itself in an infringement suit, SALE would have to compensate it for all expenses and attorney’s fees paid, plus the amount of damages for which DUPE is held liable. In reality, indemnification, or reimbursement is not easy. It may require further litigation and the likelihood of repayment is questionable. Indeed, DUPE’s judgment against SALE may be worthless and uncollectible. Duplicating or replicating firms are in a tight spot. It is not cost effective to do a background search on all contracting parties. Irregardless, a firm may be somewhat liable with the contracting party for copyright infringement. The importance of indemnification clauses, and more so, the prior review of all the relevant licenses, cannot be underestimated.

This article was prepared with the assistance of Laura Schneider, then a student at University of Miami School of Law.

By: Bruce E. Colfin
© 2007 Jacobson & Colfin, PC

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