By: Werner Sabo
A recent copyright case out of the Sixth Circuit, Singletary Construction LLC v. Reda Home Builders, Inc., 2020 US App. LEXIS 17371 (6th Cir., June 1, 2020) illustrates the uncertainties that can arise in calculating damages. Singletary was a home builder and constructed a house at Lot 353 Farmington in Clarksville, TN. One of the defendants, Gleason, a realtor, submitted a contract to Reda to “build the same house as Lot 353 Farmington” on behalf of one of her clients. Reda built the house.
Singletary sued Gleason and Reda for copyright infringement. The jury found that Reda had infringed upon Singletary’s copyright and profited $296,209, and that Gleason’s profits in connection with the sale were $14,441. The entered judgment and the appeal followed, with the amount of damages awarded at issue.
Under the Copyright Act, damages for copyright infringement can be either “statutory” or “actual.” Statutory damages are subject to a cap and there are certain requirements that must be met to obtain said damages. In this case, the plaintiff sued for actual damages. To obtain actual damages, the plaintiff must only prove the gross revenue of the infringer, and then the burden of proof shifts to the defendant who has to then prove any deductible expenses. The difference between gross revenue and deductible expenses is the profit, which can then be awarded as damages to the plaintiff.
In Singletary, the house sold for $320,900, representing the gross revenue of Reda. At trial, Reda attempted to prove its expenses but had great difficulty in doing so. The owner of the firm presented a spreadsheet that purported to itemize the expenses, however there were numerous discrepancies in the spreadsheet compared to other evidential documents. There was also an issue as to when the spreadsheet was prepared, with Reda’s counsel asserting that it was prepared contemporaneously during the project. Plaintiff’s attorney pointed out that the spreadsheet included Reda’s legal fees for the litigation, demonstrating it was prepared during the litigation, not at the time of construction. The jury clearly did not believe Reda’s evidence because it deducted only $24,691 in constructing a house sold for $320,900.
While the appellate court found that the verdict complied with the Copyright Act, and the jury correctly concluded that Reda failed to meet its burden in demonstrating deductible expenses, the court nevertheless reversed and remanded the case back to the trial court for a remittitur of the amount awarded or, alternatively, for a new trial on damages. This decision was based on the belief that the award shocks the conscience. It found that the awarded amount was “plainly absurd,” and found that a common-law backstop to profit disgorgement was required.
A strongly worded dissent would have affirmed the award. Because Reda failed to prove its deductible expenses, it should not have been rewarded with a reduction of the jury’s award. The dissent offered a more logical and coherent view of the case. It is not up to a court to rescue a party’s failure to follow the rules and failure to prove its own expenses. This seems like a case where the client was its own worst enemy, either having extremely poor recordkeeping or creating documents after the fact that lacked proper foundation.
This case also demonstrates the dangers associated with stealing others’ works. On even a small project, the damages can be enormous, not to mention any associated attorney’s fees.
Gleason suffered a similar fate. Her commission was $14,441, representing her gross profits. She claimed that she split her commission with three other agents. However, because she failed to provide documents requested by the plaintiff during discovery, the judge instructed the jury to ignore her testimony regarding deductible expenses. The full court affirmed the entire award against her.