Thursday, June 15, 2006

Right of Indemnification for Infringement

Yesterday's post discussed whether there is a right of contribution among defendants for damages paid for copyright infringement. Today's post discusses whether there is a right of indemnification under such circumstances. Indemnification does not seek to apportion the amount of damages paid among the defendants, but rather seeks to have one defendant make the other whole for all damages paid: if A sues B and B pays 100% of the damages, B may, under indemnification, seek to have C pay back B for all the damages B paid to A. Judge Posner has written:

"The economic explanation for the complete shifting of liability from one joint
tortfeasor to another that is brought about by indemnity is
straightforward. In an alternative-care case we do not want both
tortfeasors to take precautions; we want the lower-cost accident
avoider to do so. The liability of the other is a backstop in case
insolvency prevents the threat of tort liability from deterring
the primary accident avoider. Hence the need for a mechanism
that will, where possible, shift the ultimate liability to the most
efficient accident avoider; indemnity does this."

Economic Analysis of Law 190 (6th ed. 2003).

Unlike claims of contribution, courts have upheld state law claims for indemnification, arising out of state common law or statute. In Foley v. Luster,249 F.3d 1281 (11th Cir. 2001), the Eleventh Circuit upheld against a preemption argument, a state common law claim to indemnification. As with contribution claims in copyright cases, the right of indemnification was asserted as a cross-claim. After the plaintiffs settled , the cross-claim went forward, with a jury finding indemnification was required. A post-trial motion to dismiss on the ground of preemption was filed and denied. The Eleventh Circuit affirmed the denial, holding that the extra element test for preemption did not apply, allegedly, because indemnification “does not concern the rights of a copyright holder. Rather, it concerns the allocation of responsibility between copyright infringers.” But that is true of contribution too, the right to which has been held preempted. The court of appeals’ other rationale that the extra element test applies only to exclusive rights is also erroneous: preemption covers both rights and remedies, and it seems fairly obvious that a right to shift payment of damages is a right involving remedies. Indeed, this is precisely why all courts have held such matters are exclusively federal for violation of federal torts.

This does not mean, however, that the right to indemnification for paying infringement damages is preempted. It is my opinion, such a right is not preempted because the right or remedy is not equivalent to any granted under the Copyright Act and does not arise under the Copyright Act: once payment is made to the copyright owner, the federal interest in extinguished.

7 comments:

Anonymous said...

My unbrella liability policy covers copyright infringement. Is that a federal law pre-emption issue if my insurance company refuses to defend and pay? Of course not. If I get an E&O policy as a filmmaker, could the insurance compny leave the courtroom free and clear by claiming its a federal pre-emption matter and they don't have to pay when I am found to be an infringer? I hope not.

A private indeminity agreement seems no different.

Anonymous said...

Anonymous #1: Your comments focus on defense and indemnification obligations pursuant to an insurance policy or other contractual provisions. However, I believe this post is discussing the potential viability of asserting a common-law right of indemnification absent an express contractual right.

anonymousnow1 said...

Caught that distinction but indemnification be indemnification even if you say tomato and I say tomato.

John Noble said...

I wonder if the difference between the indemnification and contribution claims is that--

1) contribution requires proof of defendant's infringement (preempted), while indemnification does not; and

2) indemnification alleges plaintiff was harmed by defendant (standing); while contribution does not

Thus, contribution is preempted as a state claim, notwithstanding the exhaustion of the federal interest, because the elements are identical to the elements of an infrignement claim. At the same time, there is no federal right of contribution because the Act doesn't provide standing to claim infringement absent ownership of the copyright.

The real significance of the common law contribution claim seems to be that it provides standing to assert a claim based on conduct by the defendant that did not harm the plaintiff.

The indemnification claim, on the other hand, does not require proof of copyright infringement by the defendant, which allows the state claim to go foward; but it does require proof that plaintiff was harmed by the defendant, which allows the federal claim to survive Art. III's standing requirement.

I may be over-generalizing, but it seems that indemnification arises on defendant's violation of a duty to the plaintiff -- either a duty of care, or a duty created by a promise. The right to contribution arises without regard to the defendant's duty or agreement vis-a-vis the plaintiff

I wonder it it's possible to conclude that a claim for indemnification under state common law might be brought in federal court as a stand-alone diversity action, or a pendent state claim where there is federal question jurisdiction; but that a claim for contribution, created solely by state common law, does not supply Art. III standing.

John Noble

William Patry said...

Anonymous #1

I was referring to commom law or statutory claims and not contractual ones, which I think would be governed by the ordinary rules on the lack of contract preemption. As to John Noble's points, I was assuming (perhaps wrongly so) a situation for both contribution and imdemnification where there was infringement liability; indeed that was the situatin in Foley, where the imdemnification claim went forward after a settlement and payment on infringement.

John Noble said...

I think if you read it closely, the jury instruction on indemnification in Luster did not require a finding that Luster's conduct was infringing -- only that he was solely responsible for the distributor's infringement. On the facts, it appears that he was guilty of infringement, and that will typically be the case on a distributor's claim for indemnification against a video producer. But you get the same result if Luster gives the distributor an authorized copy of a protected work, and tells the distributor he'll take 15% of the proceeds from the distributor's unauthorized reproduction and distribution.

Anonymous said...

Web business models mirror old record industry business models whereby the wealthier party (controlling the delivery system) can be indemnified by the poorer content provider, who may be falsely representing the copyright license. The wealthier party can always shield itself from contributory infringement this way. This seems backwards to me. There ought to be a requirement that representations of nonexclusive licenses under copyright be signed and in writing prior to any indemnities being considered valid. There "oughta be" a lot of things...