Saturday, February 22, 2020

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(1) any infringement of copyright in an unpublished work commenced before the effective date of its registration; or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


[1] 17 U.S.C. §412
[2] See Derek Andrew, Inc. v. Poof Apparel Corp., 528 F.3d 696, 700-01 (9th 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.]

Wednesday, January 29, 2020

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.