Feature

Consolation Prize: Barcroft Media and the Case for a Copyright Small Claims Court

By Walter G. Lehmann

©2019. Published in Landslide, Vol. 11, No. 5, May/June 2019, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

Imagine you have a client who is in the business of licensing photos of Hollywood celebrities. She discovers that a company that runs celebrity gossip and entertainment websites is using her photos without paying her a licensing fee or otherwise getting her permission. She asks you to help her enforce her copyrights. You send a cease and desist letter and attempt to negotiate a licensing agreement that includes a retroactive licensing fee. After lengthy negotiations, the infringer deletes the infringing photos from its websites but refuses to compensate your client for illegally using the photos. Reluctantly you file a lawsuit—in federal court, of course, because this is a copyright claim after all—and you incur considerable time and expense prosecuting it. When you finally get to court, the judge summarily rejects the infringer’s fair use defense and awards your client a reasonable licensing fee. You’ve won the case—time to pop open the champagne, right? But wait, the total award is barely more than the $10,000 maximum typically allowed in a conciliation court case. And while the judge allows you to submit a request for attorney fees, she is skeptical that you will be able to demonstrate that you are entitled to them. Discouraged, the next time your client calls about enforcing her copyrights, you tell her that you are sorry but there is really very little you can do to help her.

This is essentially what happened in Barcroft Media, Ltd. v. Coed Media Group, LLC.1 The case illustrates a frustrating reality of current copyright practice. While the threat of litigation can often be an effective way to get a defendant to settle a dispute, in the world of copyrights this is not usually the case. Because the costs of bringing an infringement claim very often far exceed the likely damage award, such threats are frequently ignored. Sending a cease and desist letter can be effective in getting an infringer to stop the infringing use (by taking down a photo from a website, for example), but it is next to impossible to get an uncooperative infringer to voluntarily agree to compensate the copyright owner for that infringing use, much less reimburse the costs of enforcing the copyright owner’s rights. As a result, copyright owners are forced to play “whack-a-mole” against infringing users at their own considerable expense, or simply give up on enforcing their copyrights. The facts of Barcroft and the court’s ruling in that case clearly illustrate the problem.

One possible solution is to establish a “small claims” court to adjudicate low-value, uncomplicated copyright infringement claims in a more efficient and cost-effective manner. A copyright small claims court would help to level the playing field and correct the imbalance in negotiating power between copyright owners and users, making fair settlements more likely. Barcroft makes a compelling case for the creation of a small claims court—or some other form of alternate dispute resolution—to handle straightforward copyright infringement cases.

A (Relatively) Simple Case of Copyright Infringement

Barcroft is a relatively straightforward case of copyright infringement. The plaintiffs, Barcroft Media Ltd. and FameFlynet Inc., are stock photography companies that license celebrity and human-interest photos and videos. They acquire this content from photographers with whom they have ongoing relationships in the form of employment agreements, assignment agreements, and work-for-hire agreements.2 Stock photography companies, which have been around since the 1920s, typically charge a licensing fee between several hundred and several thousand dollars per image. Licensing fees are typically based on the size of the image, how it will be used, and other factors. Some stock houses employ a subscription model: customers pay a fixed fee for unlimited access to the company’s catalog of content. With the advent of online digital photography, so-called “microstock” agencies, which license photos for as little as $0.25 per use, have been growing in popularity.3 Like other stock companies, the plaintiffs in Barcroft use a copyright tracking service to register their copyrights, monitor digital use of their content, identify potential infringing uses, and collect documentation of potential infringements.4

The defendant, Coed Media Group LLC (CMG), is a company that maintains celebrity gossip and entertainment websites. They manage several small popular culture, sports, and entertainment websites, which collectively receive roughly four million unique visitors per month. CMG does not license individual images for display on its websites; instead, it predominately uses image subscription services to populate its websites with photographs. The company earns revenue by selling advertising space through online marketplaces, taking in approximately $1.50 per thousand visitors.5 CMG’s CEO testified that the company “would never pay a substantial fee to license any image for its Websites, which earn little revenue and have consistently been in the red.”6

The lawsuit involved a dozen images, including photographs of celebrity actresses and singers, as well as a photograph of a man wearing a Union Jack while waiting outside the hospital for the birth of Prince William and Kate Middleton’s child, and photographs depicting a mother and child, the former of whom underwent plastic surgery to resemble the latter. There was no question that the plaintiffs owned the photographs and had registered them with the U.S. Copyright Office. There was also no question that the defendant displayed the images on its websites and that it did not have the plaintiffs’ permission to do so.7

For a period of two years, from 2014 to March 2016, CMG posted the images on its websites. The celebrity images were used in a variety of ways, including as banner photographs at the top of web pages linking to celebrity gossip articles on other websites (called “Daily Dumps”); to feature CMG’s website logo; and in connection with articles on CMG’s websites about the celebrities depicted in the photographs. The photograph of the man wearing a Union Jack was used in connection with an article entitled “These Grown Ass People Waiting for the Royal Baby Are Actually Psychotic”; and the photographs of the mother and daughter were used with an article entitled “Mom Shells Out $57K to Look Like Daughter’s Twin and It’s Creepier Than It Sounds.”8

In May 2015, CMG received a cease and desist letter from plaintiff FameFlynet. CMG’s CEO contacted FameFlynet, and the parties began negotiating a subscription package by which CMG would continue using certain images for a monthly fee. CMG’s president testified that during their initial conversation, FameFlynet’s head of sales told him “not to worry” about the images referenced in the letter. The subscription agreement was never finalized. CMG deleted the images included in the cease and desist letter from its websites in August 2015. Just over a year later, on September 29, 2016, the plaintiffs filed a lawsuit alleging copyright infringement.9 CMG asserted defenses based on waiver and copyright fair use.

Waiver and Implied License

The Barcroft court quickly dispensed with CMG’s waiver claim. The court noted that under New York law a claim of waiver “requires proof of an ‘intentional relinquishment of a known right with both knowledge of its existence and an intention to relinquish it.’”10 The court said that even assuming that FameFlynet’s head of sales had the authority to waive the plaintiffs’ rights, his “stray comment” could not be construed as a knowing waiver because he was unaware of the cease and desist letter, his comment was not an “explicit indication” that he intended to release CMG from liability, and, given the totality of the circumstances, it was clear he had no such intention.11

The court suggested that CMG could have, but did not, assert in its pleadings that the statement amounted to an “implied nonexclusive license” to continue to use the images. However, the court pointed out that such a claim would likely fail on its merits, as the facts indicated that there was no explicit “meeting of the minds” and that the subsequent negotiations regarding a subscription agreement revealed that “both sides believed it was necessary for CMG to pay for a license fee to continue using FameFlynet’s copyrighted content.”12 The court further noted that CMG’s decision to take down the images from its website when negotiations fell through suggested that CMG believed it did not have an implied license to use the images.13

Copyright Fair Use

The court then focused on what was really at the heart of the dispute—whether CMG’s unauthorized use of the photos could be considered fair use.14 Not surprisingly, the court’s copyright fair use analysis focused primarily on the first of the four fair use factors set out in section 107 of the Copyright Act15—the purpose and character of the use—and quoted Campbell v. Acuff-Rose Music, Inc.16 regarding so-called “transformative use.” The court opined that CMG’s use of the images “had no transformative effect because it displayed the Images in the same manner and for the same purpose as they were originally intended to be used.”17 The “paparazzi photographs” were intended to document the “comings and goings of celebrities, illustrate their fashion and lifestyle choices, and accompany gossip and news articles about their lives.”18 CMG’s use of these celebrity images on its website and in connection with articles about the celebrities “are all consistent with the original intent behind taking and copyrighting the Images,” and therefore CMG’s use “was not transformative.”19

The court distinguished between uses that may be transformative and those that are not. The court explained that use of a copyrighted work “may be transformative where the use serves to illustrate criticism, commentary, or a news story about that work” and then gave several examples drawn from recent cases:

For instance, a news report about a video that has gone viral on the Internet might fairly display a screenshot or clip from that video to illustrate what all the fuss is about. Similarly, a depiction of a controversial photograph might fairly accompany a work of commentary or criticism about the artistic merit or appropriateness of the photograph.20

In each case, the court said, “the copyrighted work is itself the subject of the story, transforming the function of the work in the new context.”21 The court distinguished between the use of copyrightable images to “comment on, criticize, or report news about the Images themselves” (which the court suggested is permissible) and their use as “illustrative aids”—that is, as illustrating the subjects described in the articles posted on the defendant’s websites.22 The court then rejected CMG’s argument: “if accepted, [it] would eliminate copyright protection any time a copyrighted photograph was used in conjunction with a news story about the subject of the photograph.”23

While the court’s formulation of the concept of transformative fair use is sound, it is too narrowly construed. Limiting transformative fair use only to commentary “about the images themselves” ignores other acceptable “illustrative” uses, such as the use of a photograph to illustrate a historic event or a particular social or cultural phenomenon. While the court noted in discussing the second fair use factor—the nature of the copyrighted work—that factual works are more likely than creative works to be considered fair use, the court failed to consider that there are situations where use of a particular work may be essential to explaining a particular event or phenomenon or otherwise elucidate the point being made.24 In such cases, the copyrighted work may need to be used to illustrate commentary that is not specifically “about the images themselves.”

For example, in the often-cited case Bill Graham Archives v. Dorling Kindersley Ltd.,25 the court found that the use of concert posters and tickets to illustrate a historical narrative about the famous psychedelic rock band the Grateful Dead was fair use. The court reasoned that the defendant’s use of the concert posters and tickets “as historical artifacts” of Grateful Dead performances was transformatively different from the original expressive purpose of the copyrighted images.26 The copyrighted works in that case were not being used to illustrate commentary “about the images themselves” but instead were used as part of a historical timeline to illustrate the history of the band. The use of copyrighted works to illustrate historical narratives and social or cultural commentaries is common practice in both book publishing and documentary film contexts. In such cases, the ability to obtain permission from the copyright owner, and the availability of suitable substitutes, are important considerations.27

The Barcroft court’s fair use analysis falls short because it treats all the images used by the defendant the same: a proper fair use analysis requires consideration of the specific context in which each work is used. The court’s finding that the defendant’s use of the “paparazzi photographs” of celebrities in connection with banner ads, the defendant’s logo, and to “illustrate” articles about celebrities was not fair use appears correct. These images were not being used in any transformative sense. However, CMG’s use of the photographs of the man wearing the Union Jack and of the woman and daughter both deserve further analysis. Although the court did not explain the nature of the articles with which these images were used, judging from the headlines quoted in the opinion it could be that these photos were being used for the purpose of illustrating the historic event or the particular social or cultural phenomenon being discussed in the article. For example, it is possible that the article entitled “These Grown Ass People Waiting for the Royal Baby Are Actually Psychotic” was discussing people like the man wearing the Union Jack, in which case the photograph was arguably illustrative of the facts being discussed in the article. Similarly, the photographs of the mother and daughter used in connection with the article entitled “Mom Shells Out $57K to Look Like Daughter’s Twin and It’s Creepier Than It Sounds” may have been used to demonstrate that the mother and daughter do in fact look the same, in which case there would be no substitute for photographs depicting them. As such, under a Bill Graham Archives analysis, CMG’s use of these photos arguably should have been considered transformative fair use: they were not being used for their original purpose of recording a newsworthy event, but rather for the purposes of illustrating the historical and cultural points being discussed in the articles with which they were used. Or, to use the phrase adopted by the Barcroft court, these photographs may have been necessary “to illustrate what all the fuss is about.”28

While not an express factor in fair use analysis, ultimately the ability to acquire permission from the copyright owner under reasonable terms may explain the court’s ruling in Barcroft. Given a different fact situation, one in which a defendant is unable to obtain permission after reasonable attempts to do so (the fact situation in the Bill Graham Archives case, for example29) another court may well have found a defendant’s use of the two “human interest” photographs in an illustrative context to be fair use.

Relief

While the plaintiffs won the substantive argument regarding copyright infringement, the relief granted by the court must have come as a serious disappointment. Not surprisingly, the court first determined that the plaintiffs were entitled to a final injunction prohibiting CMG from infringing on their copyrights. Of course, CMG had already taken down the allegedly infringing photographs before the plaintiffs filed their lawsuit, so this was a moot point.

More noteworthy is how the court approached the award of monetary damages for the infringing uses. First, the court noted that under section 504 of the Copyright Act, a copyright infringer may be liable for either the copyright owner’s actual damages or for statutory damages. Statutory damages range from a minimum of $750 up to $30,000 per copyrighted work and are available to those works whose copyrights were registered at the time the infringement occurred. Factors to be considered in determining the amount of statutory damages include, among other things, the “deterrent effect on the infringer and third parties.”30 The Barcroft court noted that because statutory damages are intended to discourage wrongful conduct as well as provide reparation for injury, courts often impose “as statutory damages a multiple of the applicable licensing fee a defendant would have paid but for the infringement.”31

Four of the images used by CMG were not timely registered and therefore not entitled to statutory damages. For the infringing use of these four images, the court considered evidence of actual licensing fees paid for these same images by a comparable third-party publisher and awarded the plaintiffs the grant sum of $255.

The plaintiffs sought statutory damages for the eight other images used by CMG. In assessing the proper amount of statutory damages, the court considered both the “expenses saved and profits earned” by the infringing party and the “revenue lost” by the plaintiffs.32 In addition, the court assessed the conduct of the parties, criticizing both the plaintiffs’ “lackadaisical approach” to enforcing their copyrights and the “casual approach” to copyright clearances shown by CMG.33 The court concluded that statutory damages for each of the images “should be the statutory minimum of $750 or five times the reasonable licensing fee, whichever is greater.”34 Applying this formula, the court reviewed evidence of what a reasonable licensing fee would be for CMG’s use of each of the images, and awarded the plaintiffs the magnificent sum of $10,625, for a total kingly award of $10,880.

While the court agreed to entertain a motion for the award of attorney fees—undoubtedly considerable given the nature of the dispute—the court indicated it was “skeptical of Plaintiffs’ claims to attorney’s fees here.”35 In denying the plaintiffs’ posttrial motion, the court explained that while the Copyright Act authorizes the court to “award a reasonable attorney’s fee to the prevailing party,” a prevailing party is not entitled to attorney fees as a matter of right.36 Citing Kirtsaeng v. John Wiley & Sons, Inc.,37 the court noted that among the factors that inform a court’s decision about whether to award attorney fees are “frivolousness, motivation, objective unreasonableness, and the need in particular circumstances to advance considerations of compensation and deterrence.”38 Reviewing the dispute, the court concluded that under the circumstances CMG’s reliance on fair use was reasonable and that there was no evidence of bad faith. The parties were simply unable to reach a consensus on a reasonable settlement amount.39 The court rejected the plaintiffs’ argument that attorney fees should be awarded to the prevailing party to “further the purpose of the Copyright Act” by enabling the plaintiffs to enforce their statutory rights.40 Thus, despite the successful verdict on the substantive claim of copyright infringement, the plaintiffs—and their attorneys—had little to show for their pains.

Impact of Barcroft

The situation faced by the plaintiffs in Barcroft is actually quite common. Content owners, particularly photographers, have always had difficulty enforcing their copyrights. In the digital realm, however, the ease with which images can be appropriated and used without permission has increased exponentially. There are an increasing number of tools available for identifying infringing uses. Search engines can locate the use of individual photographs with remarkable accuracy. Such uses can be documented through screenshots and matched with databases of permitted uses to identify infringers. A number of companies have developed business models based on assisting copyright owners to identify and prosecute infringement claims. Typically, such companies encourage photographers and other content creators to register their works with the company, usually at no cost, with the promise that the company will identify and prosecute infringement claims in exchange for a percentage of any settlement award extracted from the infringement. These companies engage legal counsel—usually on a contingency fee basis—to send cease and desist letters, negotiate retroactive licensing fees, and, if necessary, file and prosecute lawsuits against uncooperative infringers. While the concept is sound, in practice it generally does not work.

The court’s ruling in Barcroft underscores the difficulty of obtaining compensation even for meritorious copyright infringement claims. Prosecuting a copyright infringement claim involves filing a lawsuit in federal court: the general rule of thumb is that the potential damage award must be at a minimum valued at more than $150,000 for the claim to be worth pursuing. Copyright infringers and their attorneys know this. As a result, the threat of litigation is often not seen as much of a risk. In response to a cease and desist letter, infringers typically will stop the infringing use (as the defendants in Barcroft eventually did), but rarely will they agree to pay a retroactive licensing fee. In this author’s experience, only in cases where the defendant’s reputation with content creators is at stake will it seriously entertain a demand for a retroactive licensing fee for unpermitted use of a copyrightable work. Clearly there is a need to level the playing field.

The solution is to create a simplified process for adjudicating straightforward, low-value copyright infringement claims—sometimes referred to as “copyright small claims.” In September 2013, the United States Copyright Office issued a report on copyright small claims.41 The report noted the “formidable challenges” copyright owners face in enforcing their constitutional right to control the exploitation of their creative works. After analyzing the current copyright enforcement regime, the Register recommended the establishment of a copyright small claims court to adjudicate infringement cases valued at under $30,000 in damages. Under the Register’s proposal, the tribunal would be a voluntary alternative to federal court.42 Legislation to implement the recommendations contained in the Register’s report has been introduced in each subsequent session of Congress.43 Critics have pointed out some flaws with this proposal, particularly regarding “opt out” provisions that could potentially impose additional burdens on the prosecution of small infringement claims.

Barcroft is typical of copyright small claims cases. As was the case in Barcroft, the only substantive issue in settling most simple copyright infringement claims is whether a valid fair use defense is available. If not, as the court in Barcroft made clear, the plaintiff is entitled to a reasonable retroactive licensing fee—typically in the several hundred to several thousand dollar range—as compensation for each unauthorized use. As it stands, however, the prospect of excessive litigation costs allows defendants to hide behind the fair use defense. Awarding attorney fees to the prevailing party, as the plaintiffs in Barcroft requested, could ironically provide plaintiffs’ attorneys with an incentive to litigate rather than settle these claims in the expectation of being awarded their attorney fees.

In light of this, the advantages of creating an expedited process for the judicial assessment of basic fair use defenses is obvious. An alternative dispute resolution process through which copyright owners and content users could submit claims and defenses arising from copyright fair use for adjudication by an experienced “fair use” judge seems to make a great deal of sense. If the parties in Barcroft had access to such a process, perhaps they could have avoided wasting the court’s time and their money on unnecessary litigation. It would certainly help to alleviate the “formidable challenges” content creators currently face in asserting their copyrights. The concept of an alternative process for enforcing copyright infringement claims involving fair use defenses—whether through a small claims court, court-imposed mediation, or some other form of alternative dispute resolution—seems long overdue.

Endnotes

1. 297 F. Supp. 3d 339 (S.D.N.Y. 2017).

2. Id. at 347.

3. Eric A. Taub, When Are Photos Like Penny Stocks? When They Sell, N.Y. Times (June 5, 2007), http://www.nytimes.com/2007/06/05/technology/circuits/05syndicate.html?em&ex=1181188800&en=687225a44f80273c&ei=5087.

4. Barcroft, 297 F. Supp. 3d at 347.

5. Id.

6. Id. at 346–47.

7. Id.

8. Id. at 347.

9. Id. at 348.

10. Id.

11. Id. at 348–49.

12. Id. at 349.

13. Id. at 349–50.

14. Section 107 of the U.S. Copyright Act provides an important statutory exception to copyright for uses that can be considered “fair use.” See 17 U.S.C. § 17.

15. The four factors include: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use on the potential market for or value of the copyrighted work.

16. 510 U.S. 569 (1994).

17. Barcroft, 297 F. Supp. 3d at 350–51.

18. Id. at 352.

19. Id.

20. Id. (citations omitted).

21. Id.

22. Id.

23. Id.

24. With respect to the third factor, unsurprisingly the court concluded that it weighed against fair use because CMG “used all or most of each original Image in its website displays”—a common finding in cases involving factual photographs. As for the fourth factor, the court concluded that it also weighed against fair use because “CMG displayed the Images for the very purpose for which they were originally intended” and therefore “‘usurp[ed]’ the function of the original works in the market.” See id. at 354–55 (alteration in original).

25. 448 F.3d 605 (2d Cir. 2006).

26. Id. at 610.

27. In fact, three of the four examples of fair use articulated in the “Documentary Filmmakers’ Statement of Best Practices in Fair Use,” available at http://cmsimpact.org/wp-content/uploads/2016/01/Documentary-Filmmakers.pdf, concern such types of illustrative use.

28. Barcroft, 297 F. Supp. 3d at 352.

29. In Bill Graham Archives, the defendant sought permission from the copyright owner, but the copyright owner demanded rights to Grateful Dead recordings in return. The defendant decided to rely on fair use instead.

30. Barcroft, 297 F. Supp. 3d at 356.

31. Id.

32. Id. at 358.

33. Id.

34. Id. at 359.

35. Id. at 361.

36. Barcroft Media, Ltd. v. Coed Media Grp., LLC, No. 16-CV-7634, slip op. at 1 (S.D.N.Y. Jan. 10, 2018).

37. 136 S. Ct. 1979, 1985–86 (2016).

38. Barcroft, No. 16-CV-7634, slip op. at 2.

39. The court noted that “CMG’s original settlement offer was within a few thousand dollars of the amount it was ultimately ordered by the Court to pay, indicating that CMG was seeking to settle in good faith.” Id. at 5.

40. Id. at 7.

41. U.S. Copyright Office, Copyright Small Claims (2013), https://www.copyright.gov/docs/smallclaims/usco-smallcopyrightclaims.pdf.

42. Id. at 4.

43. H.R. 3945, the Copyright Alternative Small Claims (CASE) Act, was introduced in October 2017. The bill would enact the recommendations of the Register and establish a voluntary small claims adjudication process within the U.S. Copyright Office. Committee hearings were held in September 2018. The bill was not acted on before the 115th Congress adjourned at the end of 2018.

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Walter G. Lehmann is managing partner of the art, entertainment, and museum law firm Lehmann PLC (formerly Lehmann Strobel PC), where he has advised creative professionals and cultural institutions on intellectual property issues including copyright fair use for more than 20 years.