Michael Ratoza of U.S. IP LAW reports (via @BeelJDPhD) on a case that issues a somewhat stunning ruling for those of us, such as LIKELIHOOD OF CONFUSION®, who have never really thought about the question of common-law indemnification for copyright infringement — or, worse, who have thought about it a little and assumed it must exist.
see more Lolcats and funny pictures
It doesn’t. Maybe.
The story: A builder was sued for copyright infringement for selling a house constructed on plans it had purchased from a third party but which, it turned out, had in fact been copied, without permission, from another set of plans which happened to have been protected by copyright owned by a competing developer.
In attempting to defend itself, the builder brought indemnification claims against the seller of the counterfeit plans. He argued that the seller committed fraud and misrepresentation in selling plans that the seller knew were wrongfully copied. The court dismissed the indemnification claims because there is no right of indemnity for copyright infringement.
The court pointed out that there is no indemnity right included in the Copyright Act, and that the Copyright Act preempts conflicting state law. As such, state indemnity law does not apply. In any event, it is federal common law, not state common law, that applies in a copyright proceeding. Federal common law is very limited and does not include the right of indemnity for violation of federal law.
Outside of the building context, this case raises anew the obvious problem faced by the buyer of goods that turn out to be counterfeit. How can the innocent buyer of counterfeit goods protect itself from liability when the seller fails to disclose that the sold goods were wrongfully copied?
And sellers usually will fail to disclose that sort of thing, after all. Maybe.
I found this language a little odd:
The court pointed out that there is no indemnity right included in the Copyright Act, and that the Copyright Act preempts conflicting state law. As such, state indemnity law does not apply.
Well, wait. If there is no indemnity right, there is nothing to preempt, is there, unless the Copyright Act explivity forbids indemnification (which it does not)? It turns out, in fact, that I’m not the only one who sees it this way:
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. . . .
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.
That’s not just any opinion out there, disagreeing with the Eleventh Circuit’s rationale but agreeing with its holding — it’s Bill Patry‘s.
So, the case I first thought Michael was writing about was KBL Corp. v. Arnouts, 2009 WL 302060 (S.D.N.Y. 2009), from February of this year (opinion here). Interestingly, the court there disagrees with Patry’s link between contribution and indemnifiction, citing Conrad v. Beck-Turek, Ltd., Inc., 891 F.Supp. 962, 966 (S.D.N.Y.1995), and after dispensing of the contribution argument analyzes the indemnifcation on its own merits. But its rationale in denying indemnification is based on a peculiarity of New York indemnification law:
The defendants argue that the plaintiff has failed to state a claim for indemnification, because indemnification may only be implied under common law where the party seeking indemnification was without fault, and the plaintiff was not without fault in the conduct that led to its losses in the Betz litigations.
The parties do not dispute that the right to indemnification would be available to the plaintiff if it could meet the requirements for indemnification under New York State common law. Because the validity of this assumption does not affect the outcome of the case, the Court analyzes whether the plaintiff can state a claim for indemnification pursuant to the requirements of state law. However, it should be noted at the outset that courts holding that a state law right to contribution is unavailable in connection with a federal statutory scheme that does not itself provide for contribution, often apply the same analysis to state law claims for indemnification in connection with a federal statute that does not itself provide for indemnification. . . . In this case, the plaintiff cannot establish that it was without fault with respect to the underlying injuries to Betz. According to the allegations in its own Complaint, the plaintiff knew that the plans at issue in both Betz lawsuits originated from designs that belonged to Betz, even before it gave the plans to the defendants for modification and approval.
That’s the “maybe” I meant before — sometimes, bad guys do disclose their bad acts. So, it’s like this, I guess: Read More…