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August 24, 1994



The opinion of the court was delivered by: SONIA SOTOMAYOR


 Pursuant to 17 U.S.C. § 505 (1977), defendants, Tower Video Inc. and M.T.S. Incorporated, d/b/a Tower Video (collectively, "Tower Video"), move for the costs and attorneys' fees they incurred in defending this copyright infringement action tried before me on December 6, 1993. Pursuant to Fed. R. Civ. P. 68, defendants alternatively move for the costs and attorneys' fees incurred by them subsequent to their Offer of Judgment dated March 29, 1993. For the reasons discussed below, Tower Video's motion for costs and fees is granted.


 A. The Instant Action

 Defendants' request for costs and attorneys' fees arises out of this copyright infringement action brought by plaintiff, Screenlife Establishment ("Screenlife"), because of Tower Video's sale in the United States of twenty-seven English language laser video disks of the motion picture Return from the River Kwai ("Return"), which had been manufactured and distributed in Japan with Japanese subtitles and Japanese/English covers. Tower Video had acquired forty-six of the Japanese distributed disks by purchasing them for Tower Records KK, its Japanese subsidiary, and importing them into the United States. Tower Video immediately ceased selling the laser disks upon notice of Screenlife's complaint alleging copyright infringement, and offered a permanent injunction barring it from infringing Screenlife's United States copyright, the delivery of a remaining nineteen Return disks to Screenlife, and an award of $ 348 to plaintiff representing the net profit from the sale of the twenty-seven video disks. In its complaint, Screenlife also sought statutory damages pursuant to 17 U.S.C. § 505. However, by statute, Screenlife could not recover such damages.

 Under 17 U.S.C. § 412(2), if a copyright holder has not registered a copyright within three months after the first publication of the work, the holder cannot recover statutory damages or attorneys' fees if the infringement commenced after the first publication, but before the effective date of the copyright's registration. Return was first published no later than 1989, but Screenlife's Certificate of Registration was effective in May of 1992, clearly more than three months after the date of first publication. Tower Video commenced retail sales in January of 1992, after Return's first publication and before the effective date of registration. Thus, Screenlife did not have a statutory claim for damages and attorneys' fees, and it withdrew those claims in the early stages of the litigation. Screenlife, however, retained its claim for actual damages despite Tower Video's consent to an injunction and offer of net profits.

 As the case progressed, attempts at settlement of the actual damages claim failed. On March 29, 1993, Tower Video made an Offer of Judgment ("the Offer") pursuant to Fed. R. Civ. P. 68. The Offer included defendants' consent to the entry of an injunction barring Tower Video from importing or selling Return in the United States, the delivery of the nineteen remaining Return disks to Screenlife and an award of $ 4,101 (instead of the previously offered $ 348) in damages and costs. Plaintiff rejected the Offer. The only issue eventually litigated at trial, however, was Screenlife's demand for actual damages, predicated on its claim that Tower Video's sale of the twenty-seven laser video disks reduced the value of its sale and licensing rights in the United States market.

 B. The Prior Tri-Star Actions

 As explained more fully below, the reasonableness of plaintiff's decision to pursue its claim for actual damages in this action must be assessed in light of two other actions which were outstanding at the time of the trial in this case: one suit involving the right of Return's distributor, Tri-Star Pictures ("Tri-Star"), to terminate its contract with Screenlife's subsidiary, Leisure Time Productions ("Leisure"), 88 CV 9127, and the second, also brought by Tri-Star, sought to determine the validity of trademark infringement allegations made against the title Return by Academy Pictures who claimed rights to Bridge on the River Kwai ("Bridge"), 88 CV 9129. In the distribution agreement action, Leisure also filed a third party complaint against Academy Pictures for tortious interference of contract and Academy Pictures filed a counter-motion for summary judgment against Leisure for its use of the title Return, alleging there was confusing similarity to Bridge, in violation of the Lanham Act. See Tri-Star Pictures, Inc. v. Leisure Time Productions, B.V., 749 F. Supp. 1243 (S.D.N.Y. 1990), aff'd 17 F.3d 38 (2d Cir. 1994). At the time of trial of the underlying action before me, the district court in the Tri-Star action had held that Academy Pictures had made a strong preliminary showing for relief under the Lanham Act, but that disputed issues of material facts made summary judgment inappropriate. See Tri-Star Pictures, Inc. v. Leisure Time Productions, B.V., 749 F. Supp. 1243, 1992 WL 296314, at *7 (S.D.N.Y. 1990). Academy Picture's claim was subsequently dismissed without prejudice to proceed with those claims in Tri-Star's pending trademark action. Tri-Star Pictures, Inc. v. Leisure Time Productions, B.V., 17 F.3d 38, 42. The trademark action settled on April 27, 1993.

 At the time of the trial of the underlying action before me, moreover, Screenlife's subsidiary, Leisure, had also already lost the declaratory judgment motion brought by Tri-Star seeking the termination of its distribution agreement with Leisure. 749 F. Supp. at 1243. In that action, Tri-Star argued that because Academy Pictures had asserted trademark infringement claims against the use of Screenlife's Return title, Leisure had breached its contractual warranty to Tri-Star to deliver Return free of any claims that would impair and interfere with Tri-Star's distribution rights. The district court agreed and held that Tri-Star was entitled to terminate its distribution agreement. See Tri-Star Pictures, Inc., 749 F. Supp. at 1243. After the trial in this underlying action, in February 1994, the Second Circuit affirmed the district court's holding. Tri-Star Pictures, Inc., v. Leisure Time Productions, B.V., 17 F.3d 38 (2d Cir. 1994).

 Prior to Tri-Star's termination of its distribution agreement, Leisure had also entered into agreements with ITC Entertainment ("ITC") and Home Box Office ("HBO") licensing Return for television display and home video use. However, theatrical release by Tri-Star was a condition precedent to release by HBO or ITC. Hence, because Tri-Star did not theatrically release Return, it has not been released on television nor sold in home video devices in the United States. Thus, at the time of trial in this action, the outcome of the Tri-Star appeal was unknown, Academy Picture's trademark infringement claim was still pending, and a projected release date for Return in the United States market was unknown.


 An award of costs and attorneys' fees under 17 U.S.C. § 505 is appropriate when the party seeking fees has prevailed in the litigation and the non-moving party's conduct warrants imposing such fees. After reviewing the parties' ...

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