The 2d Circuit Speaks Twice on Willfulness

Since June 28th, the Second Circuit has handed down two opinions on willful copyright infringement. The first, and more substantial, is Island Software and Computer Service, Inc. v. Microsoft Corp., 2005 U.S. App. LEXIS 12766 (2d Cir. June 28, 2005). The second, a summary order, is GMA Accessories, Inc. v. Oliva Miller, Inc., 2005 U.S. App. LEXIS 13368 (2d Cir. July 5, 2005). Willfulness determinations principally come into play in determining whether to exceed the otherwise binding ceiling of $30,000 in statutory damages per work.

Island Software involved the degree of proof necessary at the summary judgment stage to establish willfulness. The court, per Judge Calabresi, "concluded" that "in the absence of evidence conclusively demonstrating actual, rather than constructive, knowledge," summary judgment on willfulness is inappropriate. I put "concluded" in quotes because the court's discussion is dictum. It is dictum because the district court awarded statutory damages within the non-willful range, albeit while noting that its finding of willfulness was a factor that led it to award damages at the high end of the non-willful spectrum.

In vacating and reversing, the court of appeals conceded that "it may well be that the identical remedies that we are currently vacating are reimposed upon .. remand." So why vacate then? Because, the circuit stated: "We cannot be certain that the district court's remedial decision would have been the same absent its conclusion that [defendants] acted with reckless disregard for, or willful blindness to [plaintiff's rights]."

I question the wisdom of district courts ever finding willfulness if they are not going to exceed the $30,000 floor for non-willful behavior. A willfulness finding can have devastating impact by itself in precluding insurance coverage and in leaving a company open to shareholder derivative suits. Willfulness findings are also relevant for bankruptcy proceedings. In any event, the court of appeals reiterated that there are three ways to establish willfulness: actual awareness of the infringing activity, reckless disregard for the copyright owner's rights, or willful blindness to them.

At the summary judgment stage, though, the court stated that "where the non-moving party does not traverse the evidence suggesting constructive knowledge of infringement, but only disputes the inferences drawn from that evidence, our standard of review requires that we decide in favor of the non-moving party." This statement was really directed at what the trial court should have done (deny summary judgment on the issue), since the court of appeals vacated that decision.

GMA Accessories (with Judge Calabresi as the only judge in common between the two panels), summarily affirmed, in an unsigned order, the trial court's finding of non-willfulness. This finding came after a bench trial on damages, and so the standard of review was the clearly erroneous one. The standard was important because there was conflicting evidence on constructive notice of infringement. In affirming, the court cited Anderson v. Bessemer City, 470 U.S. 564, 574 (1985): "Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous."

When it comes to willfulness it is all about the evidence and the standard of review.