The opinion of the court was delivered by: SHARON E. GRUBIN
REPORT AND RECOMMENDATION TO THE HONORABLE MICHAEL B. MUKASEY
SHARON E. GRUBIN, United States Magistrate Judge:
On August 28, 1991, the court entered a default judgment in this case brought under the Copyright Act against Cherry Hill Textiles Inc. referring the determination of damages to me. I held a hearing on September 30, 1991 at which testimony by plaintiff Schwartz-Liebman Textiles was taken, and plaintiff thereafter submitted further evidence. The defendant did not appear for the hearing or make any submissions, despite notice and opportunity to do so. Plaintiff requests an award of $ 20,000, which I find appropriate for the reasons in my proposed findings of fact and conclusions of law set forth below.
A default judgment entered on well-pleaded allegations of a complaint establishes a defendant's liability. The allegations are to be accepted as true, except those relating to the amount of damages. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981); Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974); Trans World Airlines, Inc. v. Hughes, 449 F.2d 51, 69-70 (2d Cir. 1971), rev'd on other grounds, 409 U.S. 363 (1973).
Plaintiff is a New York textile converter, which prepares and produces designs printed on fabric for garment manufacturers and others. Since February 16, 1990, plaintiff has sold printed textiles bearing the "Minton 4397-11361" design, created by plaintiff's design studio, to garment manufacturers and others. On March 13, 1990, plaintiff registered a copyright in the design. According to the second amended complaint, defendant Cherry Hill Textiles Inc., without plaintiff's consent, thereafter manufactured, sold and distributed fabrics imprinted with a design copied from and substantially similar to the "Minton 4397-11361," thereby infringing plaintiff's copyright.
The Copyright Act provides a copyright owner with the option of recovering (1) the copyright owner's actual damages and any additional profits of the infringer or (2) statutory damages, often referred to as "in lieu" damages, of between $ 500 and $ 20,000 per infringed work. 17 U.S.C. §§ 504(a), 504(c)(1).
A key reason for the alternative statutory damage provision is so that a copyright owner will not be prevented from a recovery simply because actual amounts may not be ascertainable due to an infringer's success in hiding records of its illegal activities. F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 233 (1952); Lauratex Textile Corp. v. Allton Knitting Mills, 519 F. Supp. 730, 732 (S.D.N.Y. 1981). Moreover, "the broad discretionary power given courts to make such an award serves the dual purposes of the Copyright Act: to compensate copyright owners and to provide a deterrent for would-be infringers." Lauratex Textile Corp. v. Allton Knitting Mills, 519 F. Supp. at 733. See F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 233 (1952); N.A.S. Import, Corp. v. Chenson Enterprises, Inc., 968 F.2d 250, 252 (2d Cir. 1992). "Even for uninjurious and unprofitable invasions of copyright the court may, if it deems just, impose a liability within statutory limits to sanction and vindicate the statutory policy [of discouraging wrongful conduct]." F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. at 233. In recognition of the indefinite nature of the evidence it has presented, plaintiff has elected to recover statutory damages.
Plaintiff has submitted no direct evidence of Cherry Hill's revenues or profits on the infringing fabric or of sales lost by plaintiff as a result of the infringing activity. Joseph Bostany, plaintiff's President, testified at the hearing, and plaintiff has also submitted an affidavit from Joseph Brodie, the President of JEJ Fabrics Inc. These executives, with over 80 years' combined experience in the textile converting business, each estimated that a small fabric converter such as Cherry Hill would have to produce a minimum "run" of 25,000 yards of fabric per pattern to operate profitably. Messrs. Bostany and Brodie also estimated that Cherry Hill's manufacturing costs would be $ 2.38 per yard, it would need to charge an additional 20% to cover overhead and "financing costs," and its profit on the manufacture and sale of 25,000 yards of fabric would therefore come to approximately $ 12,500. Although without evidence of actual sales such estimates would be too speculative to support an award of "actual damages and profits" under § 504(b), they shed some light on the range of appropriate statutory damages that should be awarded for Cherry Hill's infringing activity. For purposes of determining statutory damages under § 504(c), it is reasonable to assume that Cherry Hill manufactured its infringing fabric in at least such a minimum quantity. It is therefore further likely that its activities have decreased plaintiff's profits and are likely to continue to do so, either by directly displacing sales or by otherwise undermining or complicating plaintiff's business relations with garment manufacturers. Given these reasonable assumptions and given a reasonable estimate of profit by Cherry Hill on simply one run of the pattern of $ 12,500, in view of the likely magnitude of Cherry Hill's infringing conduct and "as a deterrent for would-be infringers," Lauratex Textile Corp. v. Allton Knitting Mills, 519 F. Supp. at 733, I recommend based on the admissible evidence and pleadings that plaintiff be awarded $ 20,000 in statutory damages, the maximum amount permitted under 17 U.S.C. § 504(c)(1).
[EDITOR'S NOTE: The following court-provided text does not appear at this cite in 815 F. Supp. 106.]
The parties are hereby directed that if you have any objections to this Report and Recommendation you must, within ten (10) days from today, make them in writing, file them with the Clerk of the Court and send copies to the Honorable Michael B. Mukasey, to the opposing party and to the undersigned. Failure to file objections within ten (10) days will preclude later appellate review of any order that will be entered by Judge Mukasey. See 28 U.S.C. § 636(b)(1); Rules 6(a), 6(e) and 72(b) of the Federal Rules of Civil Procedure; Thomas v. Arn, 474 U.S. 140 (1985); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Small v. Secretary of Health and Human Services, 892 F.2d 15, 16 (2d Cir. 1989) (per curiam); Wesolek v. Canadair Ltd., 838 F.2d 55, 58 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237 (2d Cir. 1983) (per curiam).
Dated: New York, New York