A recent decision in the 6th circuit, Thoroughbred Software International, Inc. v. Dice Corporation, 2007 WL 1702777 (6th Cir. June 14, 2007), raises the question of double counting of damages that can arise when plaintiff seeks both its losses and defendant's gains. Section 504(b) permits copyright owners to recover its actual damages "and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages."
In Bucklew v. Hawkins, Ash & Baptie, LLP, 329 F.3d 923, 931 (7th Cir. 2003), Judge Posner wrote: “A copyright owner can sue for his losses or the infringer's profits, but not for the sum of the two amounts … . That would be double counting.” For example, if the copyright owner proves it lost 10 sales because of the infringement, and that defendant made those 10 sales, there is only one award of damages/profits from the 10 sales, and not 20 (the sum of the two in Judge Posner's terminology). If the copyright owner proves it lost 10 sales because of the infringement, and that defendant made 15 sales, 5 of which plaintiff wouldn't have made, plaintiff recovers on 15 sales, not on 25.
Judge Posner gave another formulation of the principle in Taylor v. Meirick, 712 F.2d 1112, 1120 (7th Cir. 1983): “If the profits the owner would have made but for the infringement are equal to the profits the infringer made by selling the copyrighted item, and the owner proves up his lost profits,” the statute “bars the owner from receiving an additional award of damages based on the infringer's profits.” In most cases, the choice faced by the prevailing copyright owner is straightforward: pick the largest number.
In Thoroughbred Software, plaintiff licensed accounting software. Defendant licensee (with permission), installed plaintiff's software on computers and then rented the computers to its own customers. The rental fee wasn't broken down between the hardware and software. Defendant made more copies than it paid for and plaintiff sued. Some of those extra copies were unused, though, and one issue on appeal was whether plaintiff could prove that it was damaged by the unauthorized, but unused copies. The district court found plaintiff had failed to show a causal connection between the unused copies and any financial loss. By contrast, the cour of appeals found the license agreement straightforward: defendant was required to pay for all copies made, without any limitation on whether they were used. Plaintiff was, therefore, awarded actual damages of lost license fees for the unused copies.
On to defendant's gains. The court of appeals thought the proper measure of defendant's gains was "the amount that Dice Corp. charges its customers for the infringing software, minus the amount that Dice Corp. should have paid for the infringing software (i.e. the lost license fee), which was already been included as actual damages." Because the court found plaintiff couldn't provide a non-speculative basis for such an amount - due in large part to the bundling of the software with the hardware rental - an award of defendant's damages was precluded.
I am very interested in what others think of the court's theory of how to measure defendant's gains. I am skeptical it was proper (although none were ultimately awarded). Usually defendant's non- double counted damages are for sales that plaintiff could not have made, but which are nonetheless one-for-displacement, as where defendant is selling a knock-off of plaintiff's sweater design. But in Thoroughbred, the most plaintiff could ever get was the proper license fee paid by defendant, a measure of damages already taken into account by the award of plaintiff's license fee for the unused copies. Plaintiff never had a claim to the profit defendant made off the license fee, which seems to be what the court of appeal was trying to figure out.