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The fair market value of a reasonable license is an eligible measure of actual damages for infringement under Section 504(b) of the Copyright Act, the 2nd U.S. Circuit Court of Appeals ruled April 3 ( On Davis v. The Gap Inc., No. 99-9081, 2nd Cir.). The panel partially reversed a ruling by U.S. Judge Robert Sweet of the Southern District of New York entering summary judgment for The Gap Inc. in an infringement action brought by designer On Davis. At issue is a line of nonfunctional jewelry worn like eyeglasses created by Davis and marketed under the name “Onoculii Designs.” Each piece is made of gold, silver or brass and constructed in a manner similar to eyeglasses; the frames support decorative, perforated metallic discs or plates in the places that would be occupied by the lenses of a pair of eyeglasses, concealing the wearer’s eyes, but allowing the wearer to see through them. Davis initially sold his designs on the street; since 1995, he has marketed them through boutiques and optical stores. The designs are worn by a number of entertainers; Davis once received a $50 fee from Vibe magazine for the use of a photo of musician Sun Ra wearing one of the designs. In May 1996, The Gap created a series of advertisements showing photos of groups of people wearing Gap clothes. One of the advertisements, which bears the caption “Fast,” depicts a group of seven people in their 20s standing in a V formation; the central figure, standing at the apex of the V formation, is wearing one of Davis’ designs. The ad was published in a number of magazines. SUIT FILED Shortly after seeing the ad, Davis contacted The Gap by telephone and in writing, stating that he had not authorized use of his design and asking whether The Gap might be interested in selling a line of his eyewear. David registered the copyright for the design at issue in May 1997; he filed suit in November 1997, alleging copyright infringement and seeking declaratory relief. The Gap moved for summary judgment, arguing that Davis was not entitled to damages and asserting the de minimis and fair use doctrines as defenses. The District Court granted the motion, finding that Davis was not eligible for statutory damages under Section 504(c) of the Copyright Act because he had not registered his copyright within three months of the first “publication” of his work prior to the alleged infringement. In addition, the court said, Davis’ claim is too speculative to merit damages under Section 504(b). On appeal, Davis argued that the court erred by entering summary judgment without ruling on the merits of his claim for declaratory relief, and that he was entitled to both compensatory and punitive damages. DECLARATORY RELIEF Reversing in part, the 2nd Circuit agreed with Davis that the lower court erred in failing to consider the declaratory relief claim. “The complaint expressly sought ‘a declaratory judgment in favor of Mr. Davis against Gap, declaring’ that the Gap had infringed Davis’ copyright by its reproduction of his eyewear in its advertisement,” the panel said. “The district court granted the defendant’s motion for summary judgment on the basis of a variety of theories that had no bearing on the demand for declaratory relief.” DAMAGES On the issue of damages, the appeals court held that while Davis has failed to meet his burden of proof on The Gap’s profits related to the ad, making him ineligible for an award of profits, there was sufficient evidence — in the form of the fee paid by Vibe magazine — to support a finding of fair market value of $50 for a licensing fee. The panel held that the lower court misread the 2nd Circuit’s ruling in Business Trends Analysts Inc. v. Freedonia Group (887 F.2d. 399 [2nd Cir. 1989]) as precluding an award of actual damages based on a license fee. LANGUAGE, PRECEDENTS, COMMENTATORS And, the court said, examining the statutory language, court precedents and the opinions of commentators, the fair market value of a reasonable license fee is an eligible measure of actual damages under Section 504(b). “It is important to note that under the terms of �504(b), unless such a foregone payment can be considered ‘actual damages,’ in some circumstances victims of infringement will go uncompensated,” the panel said. “If the infringer’s venture turned out to be unprofitable, the owner can receive no recovery based on the statutory award of the ‘infringer’s profits.’ And in some instances, there will be no harm to the market value of the copyrighted work. The owner may be incapable of showing a loss of either sales or licenses to third parties. “To rule that the owner’s loss of the fair market value of the license fees he might have exacted of the defendant do not constitute ‘actual damages,’ would mean that in such circumstances an infringer may steal with impunity. We see no reason why this should be so.” However, the panel affirmed the lower court’s finding that Davis is not entitled to punitive damages, citing the general rule that such an award is not available in a copyright infringement action. DEFENSES Finally, the panel said that the de minimis and fair use doctrines are not applicable, noting that the infringing item is “highly noticeable” in the advertisement and holding that The Gap’s use of the design “is not transformative. It supersedes.” Davis is represented by Kenneth Spole of Syosset, N.Y. The Gap is represented by Lorin L. Reisner and Suzanne J. Irving of Debevoise & Plimpton in New York. (c) Copyright 2001 Mealey Publications, Inc.

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