When can a copyright holder sue for statutory damages?

I’ve been doing a lot of research on copyright issues lately, and I am seeing people, attorneys included, incorrectly explaining when statutory damages are available in copyright infringement cases. Namely, I see a lot of people claim you are only eligible for statutory damages if you register your copyright within 3 months of publication. This is incorrect, and it is very important to understand this section of the Copyright Act properly as it can greatly impact a copyright holder’s decisions in enforcing their rights. 

 In brief, when a copyright holder sues someone for infringement they can attempt to pursue actual damages and profit from the infringer, or they can pursue statutory damages—if they qualify to do so. The benefit of being able to pursue statutory damages is that the copyright holder doesn’t have to prove they were harmed, and the damages range from $750 to $30,000 per infringement, with the ability to pursue up to $150,000 for willful infringement. Essentially, this means that pursuing statutory damages in a copyright infringement case is easier and, in some cases, can be more lucrative.

How can a copyright holder be eligible for statutory damages? By having their copyright registered. The text of the statute authorizing statutory damages reads:

In any action under this title, other than an action brought for a violation of the rights of the author under section 106A(a), an action for infringement of the copyright of a work that has been preregistered under section 408(f) before the commencement of the infringement and that has an effective date of registration not later than the earlier of 3 months after the first publication of the work or 1 month after the copyright owner has learned of the infringement, or an action instituted under section 411(c), no award of statutory damages or of attorney’s fees, as provided by sections 504 and 505, shall be made for—

(1) any infringement of copyright in an unpublished work commenced before the effective date of its registration; or

(2) any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work.[1]

This statue is awkwardly worded and people misread it. Frankly, the first time I read this statute, it took me a good 30 to 45 minutes to understand it. Most people get hung up on the phrase that appears to state a copyright must be registered within 3 months of publication or you are not entitled to seek statutory damages. This only applies to infringements that occur before registration. The three months is a grace period between publication and registration. If a work is published and someone begins infringing it, then the copyright owner can pursue statutory damages if the work is registered within 3 months of publication. If we remove the phrases that are exceptions to the rule, then we can see that a copyright holder can seek statutory damages for any infringement that occurs after the copyright has been registered: 

In any action under this title, other than an action brought for a violation of the rights of the author under section 106A(a), an action for infringement of the copyright of a work that has been preregistered under section 408(f) before the commencement of the infringement and that has an effective date of registration not later than the earlier of 3 months after the first publication of the work or 1 month after the copyright owner has learned of the infringement, or an action instituted under section 411(c), no award of statutory damages or of attorney’s fees, as provided by sections 504 and 505, shall be made for—

(1) any infringement of copyright in an unpublished work commenced before the effective date of its registration; or

(2) any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work. [Italics added for emphasis.]

Paragraph 2 only prevents an owner from seeking statutory damages for infringement that occurred before the work was registered. If the owner registers the work, then the owner can pursue statutory damages for any new infringing uses that occur after registration. Note, however, that an infringing use that occurred before registration and continues after registration has been found to be one infringement.  Therefore, an owner would not be able to seek statutory damages.[2]

There is nothing preventing copyright owners from pursuing statutory damages against people who infringe their work after it has been registered. Additionally, they may pursue statutory damages against infringements that occur during the three month period between publication and registration, if the work is registered within three months of being published.

As one commentator has noted, “Congress made statutory damages available only for previously registered works to serve … as ‘a great encouragement for registration.’”[3] This is a reminder for all creators to register their work as soon as possible. If you haven’t registered your work and you’ve discovered it being infringed, unfortunately it’s too late to pursue statutory damages. 

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[1] 17 U.S.C. §412

[2] See Derek Andrew, Inc. v. Poof Apparel Corp., 528 F.3d 696, 700-01 (9^th Cir. 2008)(“Every court to consider the issue has held that "infringement `commences' for the purposes of § 412 when the first act in a series of acts constituting continuing infringement occurs.; See also, Mason v. Montgomery Data, Inc., 967 F.2d 135, 144 (5th Cir. 1992)(“We thus conclude that a plaintiff may not recover an award of statutory damages and attorney's fees for infringements that commenced after registration if the same defendant commenced an infringement of the same work prior to registration.”), and Johnson v. Jones, 149 F.3d 494, 506 (6th Cir. 1998).

[3] Nimmer, David, Investigating the Hypothetical “Reasonable Royalty” for Copyright Infringement, 99 B.U.L.Rev. 1, 24. [Internal citations omitted.]

Understanding Royalty Rates in Comic Book Publishing

Editor's note: This post was cross-posted on CreatorResource.com. 

            The royalty is the percentage amount a publisher pays to you based on sales of your book. I’m often asked, “What is a good royalty rate?” and the answer is it depends. Royalties can vary wildly. I have seen royalties as high as 80% to as low as 10%. Sometimes, the lower royalty can actually be a better deal. The reason: it all depends on how the royalty is calculated.

            Typically, the royalty being paid will be subject to some sort of offset. Usually, this will be defined in the contract as Net Sales, Net Profits, or something similar. The offset is the expenses the publisher is allowed to recoup, and thereby deduct, out of your royalty rate from the amounts it has received. It often includes shipping, printing, and advertising costs. I have also seen it include personnel costs, insurance costs, storage costs, and so on. If an advance was received, any royalty payments will also be withheld until the advance has been paid back.

            I have also seen royalties that are based on the cover price of the book being sold, and also just based on amounts received in connection with the work. No offsets, other than advances, are taken by the publisher.

            It is incredibly important to know and understand what the royalty will be based on. Not all publishing agreements clearly spell out what can be offset against the royalty payment, namely, they won’t include a definition of Net Sales. They might list the royalty to be paid followed by a lengthy list of items they can recoup.

When I review publishing agreements, I try to limit the amounts being claimed as much as possible. In my opinion, if a publisher is offsetting the amount received, it should only apply to verifiable, third-party expenses incurred in connection with the work.

            So, how does the math work out? I’ll do my best to illustrate. I’m going to try and use round numbers for ease. These figures will likely differ from what you might see.

METHOD 1: Let’s say you negotiate a 50% royalty off of Net Sales with a publisher. They define Net Sales as the amount they receive from sales of the book, but they can deduct shipping, advertising, and printing costs before calculating the royalty. We’ll assume a small print run of 1,000 copies at $0.80 a copy. Total cost of printing (and for the sake of ease we’ll include shipping): $800. Usually, Diamond Comic Distributors (“Diamond), the primary company who distributes comic books to comic book stores, pays 60% off cover price. Assuming the cover price is $3.99, that is $1.60 going to the publisher for each copy sold to Diamond. Let’s assume the entire print run sells out through Diamond. The publisher has received $1,600 for the book. Now, it can deduct printing, shipping, and advertising. We already stated the printing and shipping will be $800. For our example, the publisher did not spend any money advertising your book. In total, the publisher has received $800, and you will receive $400 from this run.

METHOD 2: Now, let’s assume the publisher pays you 50% of whatever they receive without deductions. Assuming 1,000 copies sold, they would receive $1,600 from Diamond. Your split would be $800.

METHOD 3: Finally, let’s say you negotiate a 15% royalty off of the retail price of the books sold. Again, assuming all 1,000 copies sold at $3.99 a book, you would receive $0.60 per book sold. In this scenario, you would make $600. The publisher does not deduct anything from this royalty amount.

Method 1 is probably the most common royalty rate I’ve seen for creator-owned publications. However, the deductions can vary greatly. It is entirely possible for the deductions to exceed what the publisher earns, and therefore creators might not receive a royalty rate under this method. Method 2 I’ve seen from newer publishers who are utilizing newer models to do hybrid creator-and-publisher owned books or buying the creator’s rights. Method 3 is more in line with traditional publishing.

As you can see, how the royalty rate is calculated can make a big difference. Publisher definitions of royalty rates and Net Sales can vary wildly. It is important to pay attention to how these terms are defined, what deductions can be taken, and understand how you will be paid.  

2020-01-29 Correction: An earlier version of this post contained an error stating Diamond pays 60% off cover price. It has been corrected to state Diamond pays 60% off of cover price. 

Disney Princesses, Cosplay, and Trademark Infringement

            In 2016, Disney sued Characters for Hire, LLC (“CFH”)[1]. CFH’s primary business was having performers dress up like Disney Princesses, Star Wars characters, or Avengers characters and performing at themed birthday party celebrations. When Disney sued, it claimed CFH infringed upon its trademark and copyrights through advertisements, marketing materials, and the actors performing at parties.

            In August 2018, the court ruled in a summary judgment motion that CFH’s use did not infringe upon Disney’s trademarks. In promoting its services, CFH used generic substitutes such as Big Green Guy, The Dark Lord, Smuggler’s Co-Pilot, etc., thereby avoiding confusion with Disney’s trademarks. Another factor the court found to weigh against trademark infringement was that Disney does not offer the services provided by CFH, namely character appearances at private birthday parties, and would be unlikely to do so in the future. The court also found no evidence of actual consumer confusion. However, the court did not rule on the trademark dilution and copyright infringement claims.  The case was voluntarily dismissed by the parties in December 2018.

            This case is fascinating to me for a couple of reasons. First, it tests the boundaries of trademark law. How close is too close for something to be considered a trademark infringement? CFH was essentially in the business of hiring out performers dressed as Disney characters. Evidence submitted in the case, such as disclaimers, contract language, and character descriptions, make it clear CFH knew it was walking a fine line. Personally, I think this case could have easily gone the other way. However, the court weighed the factors that go into evaluating a trademark infringement claim very favorably toward CFH.[2] Second, since the case was not appealed and no further courts have considered it, it is a case other accused infringers can look to for guidance and hopeful relief. If CFH could prevail against Disney in this case, with some of the unfavorable facts stacked against it, then others could as well.  

Finally, I’m intrigued by its application to the ever-growing field of professional cosplay. Well-known and well-regarded cosplayers are often compensated to make appearances at events dressed as characters. This case seems to give them, and event organizers, a bit more leeway to do so without worrying about a lawsuit based on their appearance as a character owned by another corporation.

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[1] Disney Enterprises, Inc. v. Avi Lieberman, 1:16-cv-02340, (S.D.N.Y. 2016).

[2] “[T]he strength of his mark, the degree of similarity between the two marks, the proximity of the products, the likelihood that the prior owner will bridge the gap, actual confusion, and the reciprocal of defendant's good faith in adopting its own mark, the quality of defendant's product, and the sophistication of the buyers.” Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir.1961)

What is the CASE Act?

The CASE Act is the short name for the Copyright Alternative in Small-Claims Enforcement Act. If passed into law, it would add a new section to the Copyright Act, and it would establish a Copyright Claims Board within the Copyright Office that would be able to hear and resolve copyright disputes outside of court. The current version of the Act passed in the House of Representatives on October 22, and it is now waiting to be heard before the Senate.

Currently, if copyright owners need to enforce their rights, they must litigate their claims in federal court. This can be time-consuming and expensive. The CASE Act was introduced in an effort to make it easier and more affordable for copyright owners to enforce copyright infringement claims, especially those with cases where the damages would be small.

Copyright owners who would like to pursue a claim under the CASE Act can file a claim with the Board and pay the prescribed fee, which is yet to be determined but in no event less than $100 or more than filing in a federal district court. The Board’s attorneys will review the claim. If the attorneys determine the claim meets at least the minimum standards for filling, then the claimant must serve notice on the opposing party. After being served, the defendant has the opportunity to opt-out of the Board proceeding. If the defendant opts-out, then the plaintiff would have to file a claim in federal court to continue pursuing the matter. If the defendant does not affirmatively opt-out of the Board proceeding, then it will continue.

There is no requirement that either party be represented by an attorney in a proceeding before the Board, and the proceeding is supposed to be primarily conducted via written statements or remote conferencing. A decision issued by the Board has limited ability to be appealed to a court. It can only be appealed “[i]f the determination was issued as a result of fraud, corruption, misrepresentation, or other misconduct[,] [i]f the Copyright Claims Board exceeded its authority or failed to render a final determination concerning the subject matter at issue[, or] [i]n the case of a default determination or determination based on a failure to prosecute, if it is established that the default or failure was due to excusable neglect.” The Board can award damages of up to $15,000 per infringed work. However, the maximum amount recoverable by one party in a proceeding under before the Board is $30,000, not counting awards of attorneys’ fees or costs.

I agree with most of the CASE Act supporters that copyright litigation is too expensive for many copyright owners to pursue, and as a result, some of these copyright owners are unable to enforce their rights. The CASE Act is a step in the right direction. However, there are three issues that I find troubling, at least at this stage of my review of the Act.

The first is the opt-out nature of the proceedings. Even though there are provisions in the Act to provide for proper service upon a defendant, it is still very likely the opt-out nature of the proceeding will be overlooked and people will not receive the documents or understand their importance and will have a judgment issued against them without their knowledge. Making it opt-in would be truly voluntary, and would alleviate many of the issues of notice.  

The second issue, and most troubling for me, is the limited review by courts. While I understand that the goal is to make the process cheaper and easier than pursuing a claim in a district court, I also understand that copyright cases are often complicated. Having seen the number of decisions overturned at the appellate levels due to an incorrect application of law, I am concerned about the Board’s decision being final, especially since a decision can still be as high as $30,000. If Board decisions could be appealed to the Court of Appeals, it would make the Board review process more enticing.

The final issue involves the benefits of a Board proceeding. The benefits of the Board proceeding are relatively apparent for the plaintiff: low cost, faster, and, it will likely be easier to obtain damages than it court. The benefits for the defending are lacking. As mentioned, the lack of appellate review is a turn off. Additionally, there is some language in the CASE Act that appears to allow the plaintiff to claim statutory damages they would be otherwise unable to claim in court. The only benefit is the cap on awards. As of today, I don’t think I would advise a client to participate in a Board proceeding as a defendant unless their infringement was so blatant and excessive that the maximum award benefit worked in their favor.

The CASE Act is still not law, but it is getting close. The current version has made it farther than previous attempts, and at some point, I expect we will have an alternative means of copyright enforcement. The question will be whether the process will be an attractive enough alternative to litigation for defendants that they will want to participate.  

Halloween Costumes & Knockoffs - Part III

It’s that time of year again. The leaves are changing color, the days are getting shorter and colder, and ghosts, ghouls and goblins are on the forefront of my mind. So are knock-off Halloween costumes.  

    This is my third year doing this list. If you want to see previous entries, you can find them here and here. Without further delay, here are some of my favorite knock-off superhero costumes I’ve run across this year. (Note: all links affiliate links)

I can't wait to dress up in this Superhero Soldier Costume Deluxe Halloween Cosplay.



This one is called the Punishing One. It's painfully obvious what they're trying to do.



I've watched Miraculous enough times with my daughter to know this is more than just a Men's Cat Cosplay Costume.



Speaking of cats, they might want to be careful about using Catwoman in describing this one.



This one brings to mind a certain Storm-y look.



And we'll close out this year's list with a Sexy Aqua Warrior.

A Sonic Victory for Archie

In my book Comics Startup 101: Key Legal and Business Issues for Comic Book Creators, I briefly discuss the Ken Penders litigation against Archie Comics. In summary, Penders wrote Sonic the Hedgehog comics for Archie in the 90s, and he never signed a work-made-for-hire agreement. He sued Archie over ownership of the characters, and the case eventually settled. Similarly, artist Scott Fulop filed a lawsuit against Archie Comics in 2016. He claimed ownership to the Sonic the Hedgehog stories he worked on and that Archie’s use of them was infringement. The district court finally issued its decision in the case, Narrative Ark Entertainment LLC v. Archie Comics Publications, Inc., No. 16CV6109 (VB) (S.D.N.Y.), at the end of August.

Fulop worked as a freelance writer and artist for Archie Comics between 1996 and 1998, creating stories and characters for the Sonic the Hedgehog line of books. During his time working on Sonic, he did not sign a work-made-for-hire agreement, and even though Archie Comics claimed he did, no evidence of one was introduced at trial. After learning from Penders that his creations were still being reprinted, Fulop registered copyrights in his works in 2009 and 2010. Archie claimed authorship and ownership of the works, filed for copyright registrations, and transferred its rights in the same over to Sega between 2011 and 2013. Fulop did not file his lawsuit until 2016, claiming he was evaluating his options and waiting to see the outcome of the Penders litigation.

In its decision, the court ruled against Fulop. The court found that at its heart, the case was about copyright ownership. Fulop claimed he owned rights to the stories he worked on, and Archie claimed he didn’t. In a lawsuit concerning ownership of a copyright, a claim must be brought within three years of discovering evidence of disputed ownership. Since Fulop was aware of the Penders litigation, having submitted an affidavit during it, and was aware of the disputed ownership claims over his works, the court dismissed Fulop’s claims as they were brought later than three years after discovering the dispute. Since Fulop’s ownership claim failed, his lawsuit for infringement could not move forward. As a result, the court dismissed Fulop’s claims against Archie.

Creators should pay attention to this case for two reasons. First, it’s important to know your rights and the details of the contracts you sign. And second, if you think you have a claim or dispute against someone, don’t wait too long in evaluating or asserting it.

Youngblood Lost

            Not too long ago, Rob Liefeld broke the news on social media that he no longer owns the rights to Youngblood, the popular comic book series he launched when helping to found Image Comics. In his statement, he said the rights to his characters had been transferred to someone he would not work with, and he would no longer be associated with the comic book series he created.

            Explaining the situation further, Liefeld detailed how he had transferred the rights to a third-party in the late ’90s, and this person had now transferred the rights to someone else. Even though he worked well with the previous rights-holder over the intervening years, Liefeld called the initial deal in the ’90s a bad deal.

            Liefeld’s calling it a bad deal started me thinking about the nature of deals and transactions. Oftentimes, the ultimate outcome of a deal might not be known for years. The initial deal might seem fair, and each party might be satisfied for a while. However, over time one party’s opinion of the deal might sour and, eventually, said party will regret the transaction.

            As a distant observer, it’s easy to look back on a transaction and criticize what should have been done. Oftentimes, however, deals are a series of compromises and emotional decisions, and the end result can be less than ideal. In order to get a deal done, sometimes you have to agree to or give up something you might not want to. Sometimes, the deal might not turn bad until years later due to something that was negotiated in to or negotiated out of the contract. Ultimately, it comes down to who has the negotiating power, and how eager the parties are to make a deal happen.

            What could Liefeld have done differently in negotiating this deal? Not knowing the particulars, we can only speculate. Assuming the rights were assigned, which is not entirely clear from Liefeld’s post, one option would have been to license the rights instead. If the rights had been licensed, then Liefeld could have included a prohibition against further transfers or assignments and retained some control.

Even though the rights appear to have been assigned without restriction, there are two other options that could have been included. As with a license, the deal could have included a statement prohibiting transfer without Liefeld’s consent. Depending on the nature of the transaction, this might have been difficult to include. If someone is paying good money to acquire rights to something valuable, they do not want their rights to be impaired in any way.

Another possible option would have been to include a right of first refusal. By including a right of first refusal, Liefeld could have matched any future offers for the right to Youngblood. Again, this might not have been possible depending on the negotiations, but it is slightly more palatable to buyers than an outright restriction, even though it might lessen the value of the rights being acquired.

            So, how do you avoid a bad deal? The only sure way to avoid a bad deal is not make a deal in the first place. Otherwise, you should try to understand the deal you are making and all of the likely outcomes.