designs, see Sunset Lamp Corp. v. Alsy Corp., 698 F. Supp. at
1149, which Sunset contends was intended as a breakthrough or
"door opener," to enable the company to sell its entire product
line through major department store chains, something it had
not previously achieved. See Sunset's Reply to Alsy's
Objections to Magistrate's Memorandum and Order at 6-7.
According to Sunset, it is common practice in the lamp business
for department stores to purchase an entire line from a
manufacturer, and defendants' sale of an infringing version of
the floor lamp at a lower price disrupted Sunset's plans to
penetrate this market. Claiming that it lost a major market
advantage as a result of Alsy's infringement of the floor lamp,
Sunset seeks to establish its damages based on those accounts
in which it successfully sold the entire Sunrise line. See
Plaintiff's Supplemental Memorandum of Law on the Issue of
Damages at 3-4 & n. 2.; Plaintiff's Memorandum of Law on the
Issue of the Appropriate Monetary Amount to be Awarded at 12.
Alsy contends that Sunset's inability to sell other items in
its line was due entirely to factors other than the
infringement of the floor lamp. See Defendant's Objection to
the Magistrates Memorandum and Order at 7. After the exchange,
over a period of approximately 18 months, of numerous briefs
and letters discussing each side's contentions as to the scope
of damages, the Magistrate issued a Memorandum and Order, dated
June 7, 1990, which held that Sunset may expand the scope of
its damage request, subject to proof at trial, to include lost
sales on other items in the Sunrise line.
Pursuant to the Federal Magistrates Act, 28 U.S.C. § 631-639
(1988), the district court retains ultimate responsibility for
a matter referred to a magistrate. 28 U.S.C. § 636(b)(1)(C). It
was determined in a conference telephone call among counsel for
the respective parties and the Magistrate that objections to
the June 7, 1990 order were to be filed by June 25, 1990. Alsy
filed a timely objection to the Magistrate's Memorandum and
Section 504 of the Copyright Act provides for the recovery
of "actual damages suffered . . . as a result of the
Actual damages consist "primar[ily]" of "the extent to which
the market value of the copyrighted work at the time of the
infringement has been injured or destroyed by the
infringement." Fitzgerald Pub. Co. v. Baylor Pub. Co.,
807 F.2d 1110, 1117 (2d Cir. 1986) (citing 3 Nimmer on Copyright § 14.02
at 14-6 (1st ed. 1986), on remand, 670 F. Supp. 1133, 1138
(E.D.N.Y. 1987), aff'd, 862 F.2d 304 (2d Cir. 1988)(table)).
However, the scope of actual damages is not to be "narrowly
To prove the amount of damages suffered as a result of the
infringement, the copyright owner may rely on indirect
evidence. Fitzgerald, 807 F.2d at 1118. For example, the
copyright owner may recover "the profits which . . . [it] might
have earned were it not for the defendant's infringement," id.
(citing Kenbrooke Fabrics Inc. v. Holland Fabrics Inc.,
602 F. Supp. 151, 155 (S.D.N.Y. 1984)), and "is competent to testify
as to the extent to which the copyright's value has been
injured or destroyed by defendant's action." Id. At the same
time, actual damages must bear a "necessary, immediate and
direct causal connection" to the defendant's infringement. Big
Seven Music Corp. v. Lennon, 554 F.2d 504, 509 (2d Cir. 1977).
Furthermore, courts will not allow speculation as to the amount
of actual damages suffered. Abeshouse v. Ultragraphics, Inc.,
754 F.2d 467, 470 (2d Cir. 1985).
Although there do not appear to be any reported copyright
cases that have allowed, as actual damages for infringement,
lost sales on non-infringed items, neither does there appear
to be any case that forbids such recovery as a matter of law.
Additionally, a Supreme Court case under the Copyright Act of
1909, F.W. Woolworth Co. v. Contemporary Arts, Inc.,
344 U.S. 228, 73 S.Ct. 222, 97 L.Ed. 276 (1952), suggests that the
evidence to prove actual damages is not limited to evidence
showing lost sales on the infringed product. In
Woolworth, the Supreme Court decided only the scope of the
district court's discretion in awarding statutory damages
instead of the lesser amount of the infringer's proven profits.
However, in commenting on the district court's decision to
exclude evidence of actual damages because it was granting only
statutory damages, the Supreme Court noted:
"Respondent proved loss of some customers and
offered, but was not allowed, to show complaints
from sales outlets about the Woolworth
competition, decline in respondent's sales, and
eventual abandonment of the line with an
unsalable stock on hand. The trial judge excluded
or struck most of this testimony on the ground
that authority to allow statutory damages
rendered proof of actual damages unnecessary. It
might have been a better practice to have
received the evidence, even if it fell short of
establishing the measure of liability; for when
recovery may be awarded without any proof of
injury, it cannot hurt and may aid the exercise
of discretion to hear any evidence on the subject
that has probative value."
Id. at 230-31, 73 S.Ct. at 224.
Although the above discussion is dictum, it suggests that
the scope of actual damages is limited only by the requirement
that the evidence prove a relationship between the alleged
damages and the defendant's infringement.
The recent case of Business Trends Analysts v. Freedonia
Group Inc., 887 F.2d 399 (2d Cir. 1989) suggests that although
a plaintiff must prove the connection between the infringement
and the alleged damages, it is not barred as a matter of law
from recovering damages encompassing lost sales on
non-infringed items. The litigation in Business Trends arose
out of the competition between two market forecasting groups —
plaintiff, Business Trend Analysts Inc. ("BTA"), and defendant,
The Fredonia Group ("TFG"). Both companies were formed from the
breakup of the Predicasts Research Group and each sought to
exploit for itself the predecessor organization's goodwill and
customer base. BTA alleged that TFG had infringed its robotics
industry report and then had offered the infringing study to
prospective customers for one tenth of the price charged by
BTA. TFG had initially charged its customers the same price as
that charged by BTA, but later cut the price in order to expose
as many potential customers as possible to its work. In effect,
defendant had intended the infringing product to be its "door
opener" for entry into the market.
The Court of Appeals agreed with the district court's
finding that TFG had infringed the BTA study. Id. at 403. The
Court also agreed that plaintiff's proof at trial of actual
damages was unconvincing and that statutory damages were
unavailable because of BTA's failure to register the copyright
within three months of publication, as required under 17 U.S.C. § 504(c).
Id. at 404.*fn1
However, to avoid limiting plaintiff's recovery to
defendant's modest cash profits on the infringing study, given
the lack of proof of actual damages and the unavailability of
statutory damages, the district court had allowed recovery of
additional profits based on the theory that the infringement
resulted in "good will and market advantage" to TFG that could
be calculated as the difference between the regular price and
the discounted price for the infringing study multiplied by
the number of infringing reports sold. Business Trends Analysts
v. Freedonia Group, Inc., 700 F. Supp. 1213, 1232. The district
court found additional support for its theory in Deltak, Inc.
v. Advanced Systems, 767 F.2d 357, 361-363 (7th Cir. 1985),
which defined profits to include total acquisition
costs of the copyrighted work that were avoided by the
defendant as a result of its infringement. 700 F. Supp. at
On appeal, the Court rejected both approaches to calculating
defendant's profits as "artificial," 887 F.2d at 405, but
"[W]e emphasize that we are not rejecting as a
matter of law a view of `profits' under Section
504(b) that might include enhanced good will or
market recognition. We hold only that the proof
in the instant case is inadequate to support such
Id. at 407.
Noting that TFG's President had admitted that discount sales
of the infringing study enhanced the sales of subsequent
non-infringing studies, the Court suggested that "[h]ad this
issue been pursued and purchasers of the infringing study been
matched with purchasers of the later study at proven prices,
BTA might well have argued that revenues from subsequent sales
were `profits' under Section 504(b)."
In essence, the Business Trends panel left open the
possibility of recovering a defendant's profits derived from
the sale of non-infringing goods provided that the copyright
owner could establish the necessary causal relationship between
those profits and the infringement. In responding to
defendant's contention that an award of profits based on
"enhanced good will" and "market recognition" is impermissible
because those factors inherently are not quantifiable, the
Court wrote that:
"[W]e see no legal barrier to such an award . . .
so long as the amount of the award is based on a
factual base rather than `undue speculation.'
Abeshouse v. Ultragraphics, Inc., 754 F.2d 467, 470
(2d Cir. 1985). Although we recognize that proving
the value from an infringing product used to
enhance commercial reputation may be difficult, we
are unpersuaded that the difficulty is so universal
that an award for such gains may never be made as a
matter of law."
Business Trends, 887 F.2d at 404.