FRANK MUSIC CORP.; ROBERT WRIGHT; GEORGE FORREST; ANNE
LEDERER AS EXECUTRIX OF THE LAST WILL OF CHARLES LEDERER;
LUTHER DAVIS; EDWIN LESTER,
Plaintiffs-Appellants-Cross-Appellees v.
METRO-GOLDWYN-MAYER, INC., et al.,
Defendants-Appellees-Cross-Appellants
Nos. 87-6257, 87-6321
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
886 F.2d 1545; 1989 U.S. App. LEXIS 14660; 12 U.S.P.Q.2D
(BNA) 1412; Copy. L. Rep. (CCH) P26,475
May 4, 1989, Argued and Submitted
September 27, 1989, Filed
BETTY B. FLETCHER, Circuit Judge
In Frank Music Corp. v. Metro-Goldwyn-Mayer Inc., 772 F.2d 505 (9th Cir.
1985) (Frank Music I), we affirmed the district court's holding that defendants
infringed plaintiffs' copyright in the dramatico-musical play Kismet, but
remanded for reconsideration of the amount of profits attributable to the
infringement and for consideration of whether defendants Donn Arden and
Metro-Goldwyn-Mayer, Inc. (MGM, Inc.) should be liable in addition to MGM Grand
Hotel, Inc. (MGM Grand). On remand, the district court awarded plaintiffs $
343,724 against MGM Grand, dismissed the action against MGM, Inc. and Arden, and
awarded plaintiffs $ [**2] 115,000 in attorney's fees. Plaintiffs appeal and
defendants cross-appeal. We affirm in part, reverse in part, and remand.
I. FACTS.
The facts are fully set out in Frank Music I, 772 F.2d at 509-11. We
reiterate only selectively. Plaintiffs are the copyright owners and authors of
Kismet, a dramatico-musical work. MGM, Inc. under license produced a musical
motion picture version of Kismet. Beginning April 26, 1974, MGM Grand presented
a musical revue entitled Hallelujah Hollywood in the [*1548] hotel's Ziegfeld
Theatre. Hallelujah Hollywood was largely created by an employee of MGM Grand,
Donn Arden, n1 who also staged, produced and directed the show. The show
comprised ten acts, four billed as "tributes" to MGM motion pictures. Act IV was
entitled "Kismet", and was a tribute to the MGM movie of that name. It was based
almost entirely on music from Kismet, and used characters and settings from that
musical. Act IV "Kismet" was performed approximately 1700 times, until July 16,
1976, when, under pressure resulting from this litigation, MGM Grand substituted
a new Act IV.
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n1 The basis for finding Donn Arden to be an employee of MGM Grand is
discussed infra.
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Plaintiffs filed suit, alleging copyright infringement, unfair competition,
and breach of contract. In Frank Music I, we affirmed the district court's
conclusion that the use of Kismet in Hallelujah Hollywood was beyond the scope
of MGM Grand's ASCAP license and infringed plaintiffs' copyright. In this
appeal, the parties focus on the adequacy of damages and attorney's fees.
II. DISCUSSION
A. Apportionment of Profits
1. Direct Profits
In Frank Music I, 772 F.2d at 514, we upheld the district court's conclusion
that the plaintiffs failed to prove actual damages arising from the
infringement, but vacated the district court's award of $ 22,000 in apportioned
profits as "grossly inadequate," id. at 518, and remanded to the district court
for reconsideration.
On remand, the district court calculated MGM Grand's net profit from
Hallelujah Hollywood at $ 6,131,606, by deducting from its gross revenues the
direct costs MGM Grand proved it had incurred. Neither party challenges this
calculation.
In apportioning the profits between Act IV and the other acts in the show,
the district court made the following finding: [**4]
Act IV of "Hallelujah Hollywood" was one of ten acts, approximately a
ten minute segment of a 100 minute revue. On this basis, the Court
concludes that ten percent of the profits of "Hallelujah Hollywood"
are attributable to Act IV.
Memorandum of Decision and Order (Decision II) at 4.
Plaintiffs assert that this finding is in error in several respects. First,
they point out that on Saturdays Hallelujah Hollywood contained only eight acts,
not ten, and that on Saturdays the show ran only 75 minutes, not 100. Frank
Music I, 772 F.2d at 510. Second, Act IV was approximately eleven and a half
minutes long, not ten. Id. Because the show was performed three times on
Saturdays, and twice a night on the other evenings of the week, id., the
district court substantially underestimated the running time of Act IV in
relation to the rest of the show. n2
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n2 There were twelve shows weekly which ran for 100 minutes, plus three on
Saturdays which ran 75, totalling 1425 minutes per week. Act IV remained
constant throughout the week, for a total of approximately 173 minutes.
Accordingly, Act IV comprised 12% of the total weekly running time of Hallelujah
Hollywood. Because the district court's findings differ from those previously
found and affirmed in Frank Music I, we substitute 12% as the appropriate figure
on which we base our subsequent calculations.
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If the district court relied exclusively on a quantitative comparison and
failed to consider the relative quality or drawing power of the show's various
component parts, it erred. See ABKCO Music, Inc. v. Harrisongs Music, Ltd., 508
F. Supp. 798, 800 (S.D.N.Y. 1981), modified on other grounds, 722 F.2d 988 (2d
Cir. 1983); Lottie Joplin Thomas Trust v. Crown Publishers, 456 F. Supp. 531,
538 (S.D.N.Y. 1977), aff'd, 592 F.2d 651 (2d Cir. 1978). However, the district
court's apportionment based on comparative durations would be appropriate if the
district court implicitly concluded that all the acts of the show were of
roughly equal value. Cf. Frank Music I, 772 F.2d at 518 ("Each element
contributed significantly to the show's success, but no one element was the sole
or overriding reason for that success.") While a more precise statement of the
district court's reasons [*1549] would have been desirable, we find support in
the record for the conclusion that all the acts in the show were of
substantially equal value.
The district court went on to apportion the parties' relative contributions
[**6] to Act IV itself:
The infringing musical material was only one of several elements
contributing to the segment. A portion of the profits attributable to
Act IV must be allocated to other elements, including the creative
talent of the producer and director, the talents of performers,
composers, choreographers, costume designers and others who
participated in creating Act IV, and the attraction of the unique
Ziegfeld Theatre with its elaborate stage effects. . . . While no
precise mathematical formula can be applied, the Court concludes that
. . . a fair approximation of the value of the infringing work to Act
IV is twenty-five percent.
Decision II at 4-5.
The district court was correct in probing into the parties' relative
contributions to Act IV. Where a defendant alters infringing material to suit
its own unique purposes, those alterations and the creativity behind them should
be taken into account in apportioning the profits of the infringing work. Cf.
Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45, 49-51 (2d Cir. 1939), aff
'd, 309 U.S. 390, 84 L. Ed. 825, 60 S. Ct. 681 (1940); [**7] see also Comment:
An Improved Framework for Music Plagiarism Litigation, 76 Calif.L.Rev. 421,
454-55 (1988). However, the district court appears to have ignored its finding
in its previous decision that defendants used not only the plaintiffs' music,
but also their lyrics, characters, settings, and costume designs, recreating to
a substantial extent the look and sound of the licensed movie version of Kismet.
Memorandum of Decision and Order (Decision I) at 10-11.
While it was not inappropriate to consider the creativity of producers,
performers and others involved in staging and adapting excerpts from Kismet for
use in Hallelujah Hollywood, the district court erred in weighing these
contributions so heavily. In performing the apportionment, the benefit of the
doubt must always be given to the plaintiff, not the defendant. Sheldon, 106
F.2d at 51. And while the apportionment may take into account the role of
uncopyrightable elements of a work in generating that work's profits, see
Sheldon, 106 F.2d at 50-51 (considering role [**8] of movie's actors, scenery,
producers and directors); cf. McCulloch v. Albert E. Price, Inc., 823 F.2d 316,
320 (9th Cir. 1987) (substantial similarity analysis can include examination of
uncopyrightable elements), the apportionment should not place too high a value
on the defendants' staging of the work, at the expense of undervaluing the
plaintiffs' more substantive creative contributions. See Comment: An Improved
Framework, supra, at 454-56. Production contributions involving expensive
costumes and lavish sets will largely be taken into account when deducting the
defendants' costs. Indeed, defendants concede that had they produced Kismet in
toto, it would have been proper for the district court to award 100% of their
profits, despite their own creative efforts in staging such a production.
The district court found that defendants' staging of the Kismet excerpts was
highly significant to Act IV's success. While we believe that a defendant's
efforts in staging an infringing production will generally not support more than
a de minimis deduction from the plaintiff's share of the profits, we cannot say
the district court's conclusion that the defendants' [**9] contributions were
substantial in this case is clearly erroneous. We recognize that there will be
shows in which the attraction of the costumes, scenery or performers outweighs
the attraction of the music or dialogue. On the other hand, a producer's ability
to stage a lavish presentation, or a performer's ability to fill a hall from the
drawing power of her name alone, is not a license to use freely the copyrighted
works of others.
We conclude that apportioning 75% of Act IV to the defendants grossly
undervalues the importance of the plaintiffs' contributions. Act IV was
essentially Kismet, [*1550] with contributions by the defendants; it was not
essentially a new work incidentally plagiarizing elements of Kismet. A fairer
apportionment, giving due regard to the district court's findings, attributes
75% of Act IV to elements taken from the plaintiffs and 25% to the defendants'
contributions. n3
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n3 Based on this allocation, plaintiffs are entitled to $ 551,844.54 as
direct profits from the infringement.
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2. Indirect Profits
In Frank Music I, we held that the plaintiffs were entitled to recover, in
addition to direct profits, a proportion of ascertainable indirect profits from
defendants' hotel and gaming operations attributable to the promotional value of
Hallelujah Hollywood. The district court considered the relative contributions
of Hallelujah Hollywood and other factors contributing to the hotel's profits,
including the hotel's guest accommodations, restaurants, cocktail lounges, star
entertainment in the "Celebrity" room, the movie theater, Jai Alai, the casino
itself, convention and banquet facilities, tennis courts, swimming pools, gym
and sauna, and also the role of advertising and general promotional activities
in bringing customers to the hotel. The district court concluded that two
percent of MGM Grand's indirect profit was attributable to Hallelujah Hollywood.
In light of the general promotion and the wide variety of attractions available
at MGM Grand, this conclusion is not clearly erroneous. n4
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n4 We do, however, need to correct an error in calculation or typography
noted by the plaintiffs. In subtracting MGM Grand's direct profits of $
6,131,606 from its total net profit of approximately $ 395,000,000, the district
court arrived at the figure of $ 380,868,394. The correct figure is $
388,868,394. Plaintiffs are entitled to 9% (75% of 12%) of 2% of this figure, or
$ 699,963.10.
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[**11]
B. Prejudgment Interest
The district court, without comment, declined to award prejudgment interest.
The availability of prejudgment interest under the Copyright Act of 1909 is an
issue of first impression in this circuit.
The 1909 Act does not mention prejudgment interest. Nevertheless, courts may
allow prejudgment interest even though the governing statute is silent. Rodgers
v. United States, 332 U.S. 371, 373, 92 L. Ed. 3, 68 S. Ct. 5 (1947). "[A]
persuasive consideration . . . is the relative equities between the
beneficiaries of the obligation and those upon whom it has been imposed." Id.
The goal of compensating the injured party fairly for the loss caused by the
defendant's breach of the statutory obligation should be kept in mind. Id.; see
also Loeffler v. Frank, 486 U.S. 549, 108 S. Ct. 1965, 1970-71, 100 L. Ed. 2d
549 (1988). Prejudgment interest compensates the injured party for the loss of
the use of money he would otherwise have had. General Motors Corp. v. Devex
Corp., 461 U.S. 648, 655-56, 76 L. Ed. 2d 211, 103 S. Ct. 2058 (1983); [**12]
Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282, 1299-1300 (9th Cir. 1984).
Defendants argue that Congress did not intend for prejudgment interest to be
available under the 1909 Act. They ask us to infer this from the inclusion of
prejudgment interest in the Patent Act, 35 U.S.C. § 284 (1982), n5 and the
omission of reference to prejudgment interest in either the 1909 Act or the
Copyright Act of 1976. Because the Patent and Copyright Acts are similar
statutes with similar purposes, defendants argue that differences between the
two Acts with respect to prejudgment interest are intentional. Cf. Sony Corp.
of America v. Universal City Studios, 464 U.S. 417, 435, 439, 78 L. Ed. 2d 574,
104 S. Ct. 774 (patent law appropriate source of guidance for novel copyright
issues, but noting that doctrine of contributory infringement [*1551] applies
in copyright cases, where the statute is silent, as well as in patent cases,
where the statute specifically refers to contributory infringers); Harris v.
Emus Records Corp., 734 F.2d 1329, 1333 (9th Cir. 1984).
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n5 35 U.S.C. § 284 provides:
Upon finding for the claimant the court shall award the claimant
damages adequate to compensate for the infringement, but in no event
less than a reasonable royalty for the use made of the invention by
the infringer, together with interest and costs as fixed by the court.
This section has been interpreted to require that prejudgment interest
"ordinarily be awarded where necessary to afford the plaintiff full compensation
for the infringement." General Motors, 461 U.S. at 654.
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Examination of the history of prejudgment interest in the patent context
suggests this argument is flawed. Before Congress enacted 35 U.S.C. § 284,
prejudgment interest was generally available in patent infringement cases from
the date damages were liquidated, and in exceptional cases from the date of
infringement. See, e.g., Duplate Corp. v. Triplex Safety Glass Co., 298 U.S.
448, 459, 80 L. Ed. 1274, 56 S. Ct. 792 (1936); Tilghman v. Proctor, 125 U.S.
136, 160, 31 L. Ed. 664, 8 S. Ct. 894 (1888). Such a remedy was available
despite the fact that the patent laws then in effect made no mention of
prejudgment interest. n6 Indeed, the wording of the relevant patent statute was
similar to that of § 101(b) of the 1909 Copyright Act. n7
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n6 Rev.Stat. § 4921, as amended, 42 Stat. 392, 35 U.S.C. § 70, provided in
pertinent part:
The complainant shall be entitled to recover, in addition to the
profits to be accounted for by the defendant, the damages the
complainant has sustained thereby.
40 Stat. 704-05, 28 U.S.C. § 1498 (1982), provides for a remedy in cases of
patent or copyright infringement by the United States. Section 1498 allows the
prevailing plaintiff "recovery of his reasonable and entire compensation," which
the Supreme Court construed in Waite v. United States, 282 U.S. 508, 509, 75 L.
Ed. 494, 51 S. Ct. 227 (1931), to include prejudgment interest on the profits
the plaintiff would have made but for the infringement. [**14]
n7 17 U.S.C. § 101(b) (1970) provides, in pertinent part:
[The copyright proprietor shall be entitled to recover] such damages
as the copyright proprietor may have suffered due to the infringement,
as well as all the profits which the infringer shall have made from
such infringement . . . .
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Thus, interpreting the 1909 Act in light of patent law doctrine existing at
the time of its enactment and during much of its effective period, we cannot
conclude that Congress intended from its silence that prejudgment interest would
not be available under the 1909 Act. n8 Just as courts awarded prejudgment
interest in order to provide adequate compensation to patent holders before the
enactment of 35 U.S.C. § 284, this same remedy should be available to copyright
owners for the same purpose. See also Fishman v. Estate of Wirtz, 807 F.2d 520,
584 (7th Cir. 1986) ("The denial of prejudgment interest systematically
undercompensates victims and underdeters putative offenders.") (Easterbrook,
dissenting).
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n8 Nor do we suggest that Congress's continuing silence on this issue in the
1976 Act necessarily should be interpreted as an express disavowal of
prejudgment interest. "Ordinarily, 'Congress' silence is just that -- silence.'"
Community for Creative Non-Violence v. Reid, 490 U.S. 730, 109 S. Ct. 2166,
2177, 104 L. Ed. 2d 811 (1989), quoting Alaska Airlines, Inc. v. Brock, 480 U.S.
678, 686, 94 L. Ed. 2d 661, 107 S. Ct. 1476 (1987).
Only one circuit has considered the availability of prejudgment interest in a
copyright infringement action, and that case construed the 1976 Act, not the
1909 Act. In Robert R. Jones Assocs. v. Nino Homes, 858 F.2d 274, 282 (6th Cir.
1988), the Sixth Circuit vacated the district court's decision to award
prejudgment interest under the 1976 Act. Finding that the district court's
purpose in granting prejudgment interest was "to provide an effective sanction
against copyright infringement," id., the court held that such a remedy was
unnecessary to deter infringements in light of the availability under the 1976
Act of an award of profits and damages, as well as costs and attorneys' fees.
Id.; see 17 U.S.C. §§ 504(b), 505 (1982).
The Sixth Circuit's decision is of limited utility in determining whether
prejudgment interest should be allowed under the 1909 Act. Deterrence of
infringement is not the only purpose of the copyright law: Congress also
intended the damages provisions of the 1909 Act to provide adequate compensation
to the copyright holder. F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S.
228, 232-33, 97 L. Ed. 276, 73 S. Ct. 222 (1952).
The Second Circuit has affirmed an award under the 1909 Act which included
prejudgment interest without discussing the issue. Lottie Joplin Thomas Trust
v. Crown Publishers, 592 F.2d 651, 656 (2d Cir. 1978). It does not appear that
the propriety of that award was argued to the appellate court.
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We therefore hold that prejudgment interest is an available remedy under the
1909 Act. Whether the circumstances of this case warrant the remedy is a
separate question. The common-law rule during much of the effective period of
the 1909 Act awarded prejudgment interest only on [*1552] damages that were
liquidated or readily ascertainable by mathematical computations and did not
rely on opinion or discretion. See, e.g., General Motors, 461 U.S. at 651-52 &
n. 5 (discussing history of common law rule). But even where damages were not
liquidated or readily ascertainable, courts had the power to award prejudgment
interest on unliquidated damages when necessary to compensate the plaintiff
fairly. Miller v. Robertson, 266 U.S. 243, 258, 69 L. Ed. 265, 45 S. Ct. 73
(1924).
Because the 1909 Act allows plaintiffs to recover only the greater of the
defendant's profits or the plaintiff's actual damages, see Frank Music I, 772
F.2d at 512; Sid & Marty Krofft Television Productions, Inc. v. McDonald's Corp.
, 562 F.2d 1157, 1176 (9th Cir. 1977), an award of profits or damages under the
1909 Act will not necessarily [**16] be adequate to compensate a prevailing
copyright owner. n9 Accordingly, we conclude prejudgment interest ordinarily
should be awarded.
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n9 Prior to 1946, the patent law, like the 1976 Copyright Act, allowed
recovery of both profits and damages. Rev.Stat. § 4921, as amended, 42 Stat.
392, 35 U.S.C. § 70; Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S.
476, 505, 12 L. Ed. 2d 457, 84 S. Ct. 1526 (1964). In 1946 Congress eliminated
recovery of the patent infringer's profits, while at the same time making it
easier for a patent holder to recover prejudgment interest, in order to ensure
the patent holder full compensation. See H.R.Rep. No. 1587, 79th Cong., 2d
Sess., 1-2 (1946); S.Rep. No. 1503, 79th Cong., 2d Sess., 2 (1946); 92 Cong.Rec.
9188 (1946); see also General Motors, 461 U.S. at 654-55. Although congressional
intent in enacting the 1946 amendment to the patent law cannot shed light on
congressional intent in enacting the 1909 Copyright Act, the provision of
generally available prejudgment interest as a quid pro quo for the
unavailability of profits in the patent context suggests the suitability of
making prejudgment interest generally available under the 1909 Act where the
copyright holder is limited to recovering only profits or damages, but not both.
We do not, however, mean to suggest that this analogy should be dispositive in
determining whether and when prejudgment interest should be awarded under the
1976 Copyright Act, issues on which we express no opinion.
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Awarding prejudgment interest on the apportioned share of defendant's profits
is consistent with the purposes underlying the profits remedy. Profits are
awarded to the plaintiff not only to compensate for the plaintiff's injury, but
also and primarily to prevent the defendant from being unjustly enriched by its
infringing use of the plaintiff's property. See Sheldon v. Metro-Goldwyn
Pictures Corp., 309 U.S. 390, 399, 84 L. Ed. 825, 60 S. Ct. 681 (1940); D.
Dobbs, Handbook on the Law of Remedies 1 (1973). For the restitutionary purpose
of this remedy to be served fully, the defendant generally should be required to
turn over to the plaintiff not only the profits made from the use of his
property, but also the interest on these profits, which can well exceed the
profits themselves. See D. Dobbs, supra, at 169-70; Fishman, 807 F.2d at 583-84
(giving examples of the effect of compound interest to demonstrate how "the time
value of money works in defendants' favor.") (Easterbrook, dissenting). Indeed,
one way to view this interest is as another form [**18] of indirect profit
accruing from the infringement, which should be turned over to the copyright
owner along with other forms of indirect profit. It would be anomalous to hold
that a plaintiff can recover, for example, profits derived from the promotional
use of its copyrighted material, but not for the value of the use of the revenue
generated by the infringement. n10
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n10 Prejudgment interest will, of course, be available on both the direct and
indirect profits earned by MGM Grand, since both forms of profit are equally
attributable to the infringement. Frank Music I, 772 F.2d at 517.
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We accordingly remand to the district court to enter an award of prejudgment
interest. n11 The award should be based on the fifty-two week Treasury bill
rate, unless the district court concludes that the equities demand a different
rate. See In re Bloom, 875 F.2d 224, 228 (9th Cir. 1989); [*1553] Columbia
Brick Works, Inc. v. Royal Ins. Co., 768 F.2d 1066, 1071 (9th Cir. 1985). [**19]
n12
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n11 Plaintiffs requested prejudgment interest only from the date of the last
infringing performance. This is an acceptable date from which to start the
running of interest. We need not decide in this case whether an award of
prejudgment interest from some earlier point in time, such as the first
infringement or date of notice, would be appropriate.
n12 This is the same rate on which postjudgment interest is based. See 28
U.S.C. § 1961 (1982).
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C. Liability of MGM, Inc.
In Frank Music I, we remanded to the district court to determine whether MGM,
Inc., MGM Grand's parent corporation, should be liable for the infringement. We
held that "[a] parent corporation cannot be held liable for the infringing
actions of its subsidiary unless there is a substantial and continuing
connection between the two with respect to the infringing acts." Frank Music I,
772 F.2d at 519-20. [**20]
The district court found that plaintiffs failed to establish such a
substantial and continuing connection. According to the district court, the only
evidence of a connection between MGM, Inc. and MGM Grand was MGM Grand's use of
MGM Inc.'s studio facilities for planning the production prior to the opening of
MGM Grand. The district court also noted, as a fact it believed favorable to
MGM, Inc., that MGM Grand paid rent for the facilities and bore all the costs
associated with the production of Hallelujah Hollywood.
The district court apparently did not consider several other important pieces
of evidence. During the time of the infringing performances, MGM Grand was
wholly owned by MGM, Inc. [R.T. 456] MGM, Inc.'s legal counsel responded to
inquiries about the use of Kismet in Hallelujah Hollywood. [R.T. 488] Donn Arden
's office was at MGM, Inc. [R.T. 209], and he was selected for the job with MGM
Grand by a representative of MGM, Inc. [R.T. 217]. In addition to drawing
patrons to the hotel and casino, Hallelujah Hollywood had another purpose: to
promote MGM, Inc. and its "Leo the Lion" symbol. [R.T. 228, 242] Only material
that had been used in MGM, Inc. [**21] films was used in the tribute segments
of the show. [R.T. 359-60] Arden actively consulted with personnel from MGM,
Inc. in preparing the show. [R.T. 232] MGM, Inc. made its movie version of
Kismet available to Arden and Marvin Laird, who viewed it in a production room
at MGM, Inc. [R.T. 243, 380] Arden and Laird got clearances for the material
they wanted to use in Hallelujah Hollywood, including a clearance to use Kismet,
from MGM, Inc. [R.T. 269, 271, 394] Laird, who worked on the music to Act IV,
used material and was assisted by employees from MGM Inc.'s music library. [R.T.
301, 386]
The district court clearly erred in not finding that MGM, Inc. and MGM Grand
had a substantial and continuing relationship with respect to the infringing
activities. See Peter Pan Fabrics, Inc. v. Acadia Co., 173 F. Supp. 292, 298-99
(S.D.N.Y. 1959) (substantial and continuing connection between defendant and
company which actually sold infringing fabric where, inter alia, both had same
president, defendant owned 70% of the seller's stock and defendant responded to
notice of infringement). Therefore, we conclude that MGM, Inc. is jointly and
severally [**22] liable for the judgment against MGM Grand.
Plaintiffs also argue that MGM, Inc. should be liable additionally for an
award of its own profits or, in lieu of such an award, for statutory damages. We
disagree. Our conclusion that MGM, Inc. had a substantial and continuing
relationship with MGM Grand with respect to the infringement permits us to treat
the two corporate entities as the same for purposes of imposing an award of
profits. Nevertheless, the downstream corporate benefits to MGM, Inc. from the
infringement are simply too attenuated and too speculative to support a further
award from an apportionment of its corporate profits. The question of whether
specific profits were made from an infringement is similar to that of proximate
cause in the tort context: just as there comes a point beyond which effects
cannot legally be attributed to an initial tortious action, so too there comes a
point beyond which an infringer's profits, from its enterprises as a whole,
cannot legally be attributed to a particular act of infringement. The profits of
a hotel may well, as here, have a sufficient nexus with an infringing
performance in the hotel's showroom to justify attributing some percentage
[**23] [*1554] of the hotel's profits to the infringement. n13 The profits of
MGM, Inc. from its own interests and activities other than the MGM Grand lack
such a nexus. Although MGM, Inc. may have reaped some marginal benefit from the
infringement, for example from a slight increase in movie revenue as a result of
the advertising value of the MGM Grand, or from a rise in stock value
attributable in part to the success of the hotel, the percentage of such profits
attributable to the infringing material in Act IV of Hallelujah Hollywood is too
speculative and the relationship between such profits and the infringement too
attenuated to justify the award of additional damages based on any profits
received by MGM, Inc.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n13 Thus, the result would be the same in this case even if the showroom
where Hallelujah Hollywood was performed were a distinct corporate entity from
the hotel as a whole, provided there was the requisite relationship between the
two with respect to the infringement. See generally Shapiro, Bernstein & Co. v.
H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963) ("When the right and ability to
supervise coalesce with an obvious and direct financial interest in the
exploitation of copyrighted materials -- even in the absence of knowledge [of
the infringement] -- the purposes of copyright law may be best effectuated by
the imposition of liability upon the beneficiary of that exploitation."
[Citations omitted]). Similarly, had MGM, Inc. received a more definite,
ascertainable financial benefit from the infringement, beyond the profits
received by its hotel subsidiary, an award reaching those profits would be
entirely proper. Joint liability for profits among interrelated corporate
defendants serves the purpose of giving a successful copyright plaintiff its due
reward without subjecting that award to the vagaries of corporate structures
which, in the context of the particular infringement, should in fairness be
ignored.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**24]
Plaintiffs argue that, if MGM, Inc.'s profits from the infringement are too
speculative, MGM, Inc. must be liable for an award of statutory damages. See
Frank Music I, 772 F.2d at 520; Russell v. Price, 612 F.2d 1123, 1130 (9th Cir.
1979) (statutory damages mandatory if neither profits nor damages can be
ascertained). This presents a question we declined to reach in Frank Music I:
whether an award of statutory damages is mandatory against an infringer whose
profits are not ascertainable when the profits of another infringer are
ascertainable. See Frank Music I, 772 F.2d at 520 n. 12. Generally, if either
profits or actual damages can be ascertained, an award of statutory damages is
discretionary, although the latter type of damages should be awarded if profits
or actual damages would be inadequate. Krofft, 562 F.2d at 1178. n14
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n14 If statutory damages are awarded, the amount must be in excess of the
provable profits or actual damages. Krofft, 562 F.2d at 1178. This rule is a
logical corollary of this circuit's rule that under the 1909 Act a plaintiff is
limited to recovering only the greater of the infringer's profits or actual
damages, but not both.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**25]
Statutory damages are available in order to effectuate two purposes
underlying the remedial provisions of the Copyright Act: to provide adequate
compensation to the copyright holder and to deter infringement. Frank Music I,
772 F.2d at 520; F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228,
232-33, 97 L. Ed. 276, 73 S. Ct. 222 (1952). Where, as here, no actual damages
have been proved and both defendants have been held jointly and severally liable
for the profits earned by the primary infringer, we conclude the court should
exercise its discretion to award statutory damages in lieu of profits only if
they would exceed the profits for which the defendants are jointly liable. In
that case, both the defendants should be held jointly and severally liable for
the award of statutory damages. See MCA, Inc. v. Wilson, 677 F.2d 180, 187-88
(2d Cir. 1981). Here we find the award of an aliquot share of MGM Grand's
profits plus prejudgment interest adequately compensates plaintiffs for their
injuries. Thus, statutory damages are not appropriate [**26] in the case of
either defendant. The rule we follow serves the purpose of compensation because
the plaintiffs are assured an adequate recovery, and it serves the purpose of
deterrence because each defendant is jointly and severally liable for the award.
An award of mandatory statutory damages against MGM, Inc. effectively would
grant [*1555] plaintiffs a windfall. n15
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n15 Our rationale would not preclude an award of statutory damages against a
defendant whose profits are not ascertainable and who is not jointly liable for
an award of actual damages, statutory damages awarded in lieu of actual damages,
or a co-defendant's profits. Because such a defendant has presumably received a
benefit from the infringement distinct from that of its co-defendants, an award
of statutory damages in lieu of profits would not necessarily give plaintiffs a
windfall. At the same time, the absence of joint liability means that the
severally liable defendant's conduct would not generally be deterred absent an
award of damages.
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[**27]
D. Liability of Donn Arden
In Frank Music I, we held that Donn Arden could not be held jointly and
severally liable for MGM Grand's profits unless he acted as a partner or
practically a partner of MGM Grand, rather than as an employee or independent
contractor. 772 F.2d at 519. On remand the district court concluded that Arden
was an employee of MGM Grand, and that his entire involvement with Hallelujah
Hollywood fell within the course and scope of his employment. This finding was
not clearly erroneous.
In Frank Music I, we opined that if the district court concluded that Arden
was an employee, he nonetheless could be held severally liable for any profits
he himself earned in connection with Hallelujah Hollywood. Id. Amounts paid to
Arden in salary, however, were not to be considered as profits. Id. Although the
district court on remand failed to make a factual finding as to whether Arden
earned royalties or other profits from Hallelujah Hollywood, the record is clear
that Arden received only a weekly salary, and did not receive royalties based on
the revenues or profits from the show. See MCA, 677 F.2d at 186. [**28]
Plaintiffs argue that if Arden is not liable for an award of profits, he
should be subject to an award of statutory damages. Although statutory damages
may be awarded against a defendant who is not jointly liable with other
defendants where there would otherwise be no award against that defendant, such
an award is not mandatory. In this case it would be inappropriate, because the
plaintiffs have been awarded ample compensation from MGM Grand and MGM, Inc.,
and deterrence would not be furthered by imposing statutory damages against
Arden.
Arden consulted MGM, Inc. as to whether he could use material from Kismet. He
was assured he could. There is no evidence Arden knew or should have known MGM,
Inc.'s assurance was incorrect. Whether his use of this material was permissible
depended on the content and interpretation of contracts and license agreements
within the knowledge of MGM, Inc. and MGM Grand. The error of those defendants
in concluding that MGM Grand's ASCAP license permitted the use they and Arden
made of Kismet was not Arden's fault and Arden received no benefit from the
infringement. n16 In these circumstances, no purpose would be served by
sanctioning Arden by [**29] an award of statutory damages against him. Cf.
Bradbury v. Columbia Broadcasting System, Inc., 287 F.2d 478, 485 (9th Cir.
1961); compare Universal Pictures Co. v. Harold Lloyd Corp., 162 F.2d 354, 365
(9th Cir. 1947) (greater blameworthiness where employee contributed material to
infringing movie, knowing it to have been used previously in plaintiff's
copyrighted movie). n17
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n16 Because part of Arden's task was to create tributes to MGM movies, he
acted well within the expectations of his employer in creating Act IV with heavy
reliance on material from Kismet. His situation is thus different from that of a
hypothetical employee who eases the demands of his job by plagiarizing the work
of others, and therefore could be deemed to have received a benefit from the
infringement even if his only financial benefit was in the form of salary.
n17 An award in the amount of profits actually earned by the employee would
be appropriate in any event. Such profits, received through the use of the
plaintiff's copyrighted material, should properly be turned over to the
copyright owner.
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[**30]
E. Pendent Claims
In addition to their copyright claims, plaintiffs asserted pendent state law
claims against MGM, Inc. for breach of contract and breach of the implied
covenant of good [*1556] faith and fair dealing. The district court, in its
first decision, dismissed these claims based on its factual finding that MGM,
Inc. had little or no involvement in the production of Hallelujah Hollywood. In
Frank Music I, we considered plaintiffs' due process challenge to this
dismissal. n18 We concluded that the district court did not err in dismissing
the plaintiffs' contract claims. Frank Music I, 772 F.2d at 521. At the same
time, we remanded to the district court to determine whether there was a
substantial and continuing connection between MGM, Inc. and MGM Grand, as a
component of the plaintiffs' copyright claims. Id. at 520.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n18 Although the district court had indicated at the outset of trial that it
would not exercise pendent jurisdiction over these claims, it subsequently
reversed course and permitted plaintiffs to make an evidentiary showing in
respect to their pendent claims during the period of post-trial briefing.
Plaintiffs did not make a proffer of additional evidence at that time.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**31]
Our determination that a substantial and continuing connection exists between
MGM, Inc. and MGM Grand in regard to the copyright infringement requires us to
conclude that the plaintiffs' pendent claims should not have been dismissed on
the ground of a lack of such a relationship. n19 However, we nonetheless affirm
the dismissal of the pendent claims. Any recovery available to plaintiffs under
their contract and breach of implied covenant theories would either duplicate
the profits awarded on their copyright infringement claim or, if based on actual
damages, be precluded by our affirmance in Frank Music I of the district court's
finding that plaintiffs failed to prove actual damages from the infringement.
Frank Music I, 772 F.2d at 513.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n19 Defendants argue that the law of the case should preclude us from
reexamining this question. Although issues previously decided by the same court
in the same case will not ordinarily be subject to reexamination, considerations
of fundamental fairness may in an appropriate case dictate an exception to this
rule. Moore v. Jas. H. Matthews & Co., 682 F.2d 830, 833-34 (9th Cir. 1982);
White v. Murtha, 377 F.2d 428, 431-32 (5th Cir. 1967).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
[**32]
F. Attorney's Fees
Both parties appeal from the district court's award of attorney's fees to the
plaintiffs. The plaintiffs argue that the district court awarded them too small
a fee. The defendants argue that the plaintiffs are not entitled to a fee at
all, and even if they are, the fee awarded was too high.
The decision to award fees, and the amount of fees awarded, are both reviewed
for abuse of discretion. n20 Moore v. Jas. H. Matthews & Co., 682 F.2d 830, 838
(9th Cir. 1982); Russell v. Price, 612 F.2d 1123, 1132 (9th Cir. 1979).
Plaintiffs in copyright actions may be awarded attorney's fees simply by virtue
of prevailing in the action: no other precondition need be met, although the fee
awarded must be reasonable. McCulloch v. Albert E. Price, Inc., 823 F.2d 316,
323 (9th Cir. 1987) ("fees are generally awarded to a prevailing plaintiff");
Original Appalachian Artworks, Inc. v. Toy Loft, Inc., 684 F.2d 821, 832 (11th
Cir. 1982); cf. Russell, 612 F.2d at 1132. The district court [**33] correctly
noted that such awards to prevailing plaintiffs serve the purpose of encouraging
private enforcement and deterring infringements. The district court did not
abuse its discretion in determining that the plaintiffs are entitled to an award
of attorney's fees.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n20 17 U.S.C. § 116 (1909 Act) provides: "the court may award to the
prevailing party a reasonable attorney's fee as part of the costs." 17 U.S.C. §
505 (1976 Act) provides for attorney's fees in virtually identical language.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
We conclude, however, that the district court erred in failing to explain the
basis for the amount awarded. Plaintiffs' counsel did not provide the district
court with contemporaneous time records. His "reconstructed records" claim
1707.5 hours spent on this case from 1975 through mid-May 1980. This
reconstruction is memorialized in an itemized list. In addition, he estimated
that he expended another 3500 hours on the case from mid-May 1980 to the summer
of 1987, listing the [**34] services performed during that period but not
allocating his time among the various services. Counsel sought compensation at
the rate of [*1557] $ 250 per hour. Counsel's only explanation for his failure
to keep track of seven years of his work was that he "got out of the habit of
keeping time on the case."
The district court found that counsel expended much unwarranted time -- as
much as 300 hours of work where only a single hour was necessary. The court
found the facts simple, but noted that complicated legal issues relating to
damages were presented. As additional reasons for reducing the amount of the
fees award, the court remarked that plaintiffs prevailed on only one of three
claims, and that "both sides engendered numerous delays and petty discovery
disputes, resulting in the inordinate length of time necessary to resolve this
case." The court, "in view of all these factors," concluded that a reasonable
attorney's fee was $ 115,000. The district court made no specific findings
either as to the number of hours reasonably spent or what was a reasonable
hourly rate.
The trial court correctly refused to accept uncritically plaintiffs' counsel
's representations concerning [**35] the time expended. Sealy, Inc. v. Easy
Living, Inc., 743 F.2d 1378, 1385 (9th Cir. 1984). Plaintiffs bear the burden of
showing the time spent and that it was reasonably necessary to the successful
prosecution of their copyright claims. The lack of contemporaneous records does
not justify an automatic reduction in the hours claimed, but such hours should
be credited only if reasonable under the circumstances and supported by other
evidence such as testimony or secondary documentation. Johnson v. University
College, 706 F.2d 1205, 1207 (11th Cir. 1983). Time spent by plaintiffs' counsel
responding to motions or actions by the defendants should not be excluded from
the fee award. "Although [defendants] had the right to play hardball in
contesting [plaintiffs'] claims, it is also appropriate that [defendants] bear
the cost of their obstructionist strategy." Burgess v. Premier Corp., 727 F.2d
826, 841 (9th Cir. 1984). The district court blamed [**36] both sides for
delays and petty discovery disputes, without differentiating those delays and
disputes properly the fault of the plaintiffs from those properly the fault of
the defendants. See Moore, 682 F.2d at 839 n. 10 (no reduction in fee where
marginally useful work was necessary response to motions and defenses of the
defendants).
In setting a reasonable attorney's fee, the district court should make
specific findings of the rate and hours it has determined to be reasonable.
Sealy, 743 F.2d at 1385. In Moore, the district court reduced counsels' fee
request because, in the district court's opinion, they "were . . . inclined to
produce a large volume of less than useful material." 682 F.2d at 837 (ellipsis
in original). We reversed and remanded that award, holding that the district
court abused its discretion by reducing counsels' claimed hours by half and
allowing less than half their normal billing rate solely on the ground that some
of their work was less than useful. Id. at 839. Plaintiffs' counsel's
inadequate [**37] showing has invited substantial discounting of his fee.
Still, he is entitled to a reasonable amount. Before determining the appropriate
fee, the district court should make a more detailed analysis of the time records
presented and a finding as to the reasonable hourly rate. See Sealy, 743 F.2d at
1385. We accordingly remand to the district court to reconsider its award and to
substantiate whatever fee it awards. In its discretion, it can require the
parties to supplement the record.
III. CONCLUSION
We vacate the damages award. We conclude that the proper apportionment
entitles plaintiffs to 9% of the direct profits from Hallelujah Hollywood. We
affirm the district court's finding as to the percentage of indirect profits
attributable to Hallelujah Hollywood. We correct the award however for a
mathematical error. Accordingly, plaintiffs are entitled to $ 551,844.54 as
their share of direct profits and $ 699,963.10 as their share of indirect
profits. We conclude that prejudgment interest should have been awarded, and
remand for a calculation of the appropriate amount. We reverse the district
court's finding that MGM, Inc. lacked a substantial and continuing [**38]
[*1558] connection with MGM Grand with respect to the infringement, and hold
MGM, Inc. jointly and severally liable for the award of profits and prejudgment
interest against MGM Grand. We affirm the district court's finding that Donn
Arden is not jointly liable for the infringement, and decline to hold him
severally liable for a separate award of profits or statutory damages. We affirm
the district court's dismissal of plaintiffs' pendent claims. We vacate the
award of attorney's fees so that the district court may make the necessary
findings and recompute the amount to be awarded. We remand to the district court
for further proceedings consistent with this opinion.
AFFIRMED in part, REVERSED in part, and REMANDED with directions.