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Too Quick to Be Lit—Need to Serve That Complaint First

The US Court of Appeals for the Eleventh Circuit reversed a default judgment and monetary award in favor of the plaintiff, which was issued in a case where the plaintiff filed (but never served) an amended complaint in a copyright infringement action. The Court concluded that the amended complaint stated a new claim for relief but was not properly served on the defendants in accordance with the Federal Rules of Civil Procedure. Anthony Campbell v. Rayshawn Bennett et al., Case No. 21-10978 (11th Cir. Sept. 7, 2022) (Wilson, Branch, Lagoa, JJ.) (Lagoa, J. concurring)

In 2015, Anthony Campbell (professionally known as Rackboy Cam) wrote and recorded a song called “Everything Be Lit,” and registered his copyright with the US Copyright Office in February 2017. Later, in 2018, Rackboy Cam filed suit against June James, Rakim Allen, Rayshawn Bennett (professionally known as YFN Lucci) and Think It’s a Game Records (TIG) for copyright infringement based on Bennett’s 2016 recording and release of a similar song, “Everyday We Lit.” The complaint alleged infringement under 17 U.S.C. §§ 106 and 501 and sought “an award of … actual damages, trebled, as well as all profits Defendants derived from infringing the Plaintiff’s Copyright in the Work,” statutory damages and injunctive relief.

James and Allen failed to respond to the initial complaint and the district court entered a default against them. Rackboy Cam later filed an amended complaint, requesting for the first time an award of actual damages in the form of “all profits Defendants derived, jointly and severally,” from the infringing work. In the amended complaint, Rackboy Cam did not request statutory damages. As before, James and Allen did not respond. Rackboy Cam ultimately settled with the other defendants, and they were dismissed from the action.

The district court ultimately entered a default judgment against James and Allen, awarding almost $1.5 million in profits, jointly and severally, as well as prejudgment interest, a permanent injunction, a perpetual 50% running royalty against future infringement and costs to Rackboy Cam.

James moved the district court to set aside the default, arguing that he was not properly served with the initial complaint—an argument rejected by the district court. The district court concluded that because James defaulted prior to the filing of the amended complaint, and since the amended complaint did “not allege or request new or additional relief from Allen and James,” the plaintiff was not required to have served it on James under Fed. R. Civ. P. 5. Rackboy Cam then moved for entry of a default judgment and requested the above award. The district court granted the motion and James appealed.

The issue before the Eleventh Circuit was whether the amended complaint contained a new claim for relief—joint and several liability for profits—and whether Rackboy Cam was therefore required to serve the amended complaint.

Under Rule 5, service of a pleading filed after the initial complaint is not required on a party who is in default for failing to appear, unless the pleading asserts a [...]

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Play It Again and Again (Sam): Meanwhile No Injunction, No Fees

In its third opportunity to review the district court’s decision in this trade secret case involving flooring, the US Court of Appeals for the Eleventh Circuit again reversed, this time vacating a permanent injunction and an award of attorneys’ fees. The Eleventh Circuit noted that the district court failed to make the findings required to support an injunction and abused its discretion in awarding full fees notwithstanding prior reversal of relief awarded. AcryliCon USA, LLC v. Silikal GmbH, Case No. 21-12853 (11th Cir. Aug. 29, 2022) (Newsom, Marcus, JJ.; Middlebrooks, Distr. J.)

In an earlier appeal in this case, the Eleventh Circuit reversed a ruling on trade secret misappropriation rendered by the district court in favor of AcryliCon USA (AC-USA) and vacated the damages award. An aspect of the Court’s ruling was that the “permanent” injunction entered by the district court was only preliminary in nature (not permanent) and was, as a matter of law, dissolved because the district court did not include it in the original final judgment. On remand, the district court was ordered to determine the appropriate amount of attorneys’ fees the prevailing party should receive. However, the district court just entered the same amount of attorneys’ fees it had originally awarded and again entered a “permanent” injunction barring the use of the trade secret at issue, concluding that it was obliged to do so by the Eleventh Circuit’s ruling in the first appeal.

In the second appeal, the Eleventh Circuit held that AC-USA failed, as a matter of law, to prove its misappropriation claim and reversed the judgment entered in favor of AC-USA on that count. The Court also reversed the district court’s judgment that its $1.5 million damages award could be sustained on the basis of the contract claim once the misappropriation claim was reversed. The Court ruled that, as a matter of law, since AC-USA had failed to prove actual damages on its consequential damages theory, it could only recover nominal damages based on its breach of contract claim. Finally, the Court concluded that AC-USA was entitled to attorneys’ fees only on its breach of contract claim because, under Georgia law, even a nominal damages award would still materially alter the legal relationship between the parties.

In the second remand, the district court awarded essentially the same amount of attorneys’ fees ($1.3 million) to AC-USA but acknowledged that, since Silikal prevailed in vacating the award of compensatory and punitive damages, Silikal “was the prevailing party on the appeal under the terms of the [agreement]” and was entitled to almost $500,000 in attorneys’ fees for its successful appeal. The district court also awarded $100 in nominal damages to AC-USA for its successful appeal on the breach of contract claim. The district court then entered a permanent injunction enjoining Silikal “from disclosing or using in any way, directly or indirectly, the [ . . . resin . . . ] to anyone other than Plaintiff.”

Both parties appealed. AC-USA appealed the award of [...]

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DMCA Scienter Requirement Not Satisfied without Evidence of Knowledge of Inducement or Concealment

Interpreting a provision of the Digital Millennium Copyright Act (DMCA), 17 U.S.C. § 1202(b), for the first time, the US Court of Appeals for the Eleventh Circuit affirmed a summary judgment ruling that the plaintiff failed to satisfy the second scienter requirement of § 1202(b) by not showing that the defendant knew, or had reasonable grounds to know, that its actions would induce, enable, facilitate or conceal a copyright claim. Victor Elias Photography, LLC v. Ice Portal, Inc., Case No. 21-11892 (11th Cir. Aug. 12, 2022) (Newsom, Marcus, JJ; Covington, Distr. J.)

Victor Elias is a professional photographer who takes photographs for hotels and resorts throughout the United States, Mexico and the Caribbean. Between 2013 and 2017, Elias took pictures for Starwood Hotels & Resorts and Wyndham Hotel & Resorts. As part of his process, Elias embedded copyright management information (CMI) into the image files.

During this period and into 2018, Starwood and Wyndham contracted with Ice Portal (a division of Shiji at the time of the appeal) to process thousands of images, including 220 images taken by Elias, and make them available to online travel agents. This processing included converting the images to JPEG format, making copies in various industry-standards sizes and optimizing the files for faster display. The processing sometimes resulted in the loss of an image file’s metadata. In 2016, Elias discovered infringing online uses of his images that lacked the embedded CMI. He filed suit against Ice Portal, contending that the stripping of metadata resulted in loss of his embedded CMI, which violated two sections of the DMCA: 17 U.S.C. §§ 1202(a) and 1202(b).

Following discovery, the district found that Elias could not “satisfy the ‘second scienter requirement’ of the statute” and granted Shiji’s motion for summary judgment. Relying on the 2018 Ninth Circuit case Stevens v. Corelogic, the district court found that Elias had not established that Shiji “knew or had reason to know that its action would induce, enable, facilitate, or conceal infringement.” The court determined that Elias failed to demonstrate that the removal of CMI “is the reason, or even the likely reason, for the infringing use of the images,” or that “Shiji was even aware that searching for terms embedded in the extended attributes was a method used by copyright holders to find infringement on the internet.” Elias appealed.

Because this was a novel issue for the Eleventh Circuit, the Court interpreted § 1202(b) as an issue of first impression. After considering the plain terms of the statute and the opinions of sister circuits, the Court agreed with its sister circuits that to satisfy the scienter requirement of §1202(b), a plaintiff “must make an affirmative showing . . . [that] the defendant was aware [of] or had reasonable grounds to be aware of the probable future impact of its actions.”

Elias urged the Eleventh Circuit to adopt a standard that would only require a plaintiff to demonstrate that CMI was knowingly removed without consent and that the defendant either “knows, or has [...]

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Veil Piercing Under Lanham Act Requires Specific Showing of Liability

The US Court of Appeals for the Eleventh Circuit reversed a district court decision granting summary judgment of liability under the Langham Act, finding that the plaintiffs failed to apply the correct standards for piercing the corporate veil and individual liability in a false advertising and false endorsement dispute. Edmondson et al. v. Velvet Lifestyles, LLC, Case No. 20-11315 (11th Cir. Aug. 4, 2022) (Jordan, Pryor, Marcus, JJ.)

Miami Velvet operated as a swingers’ nightclub in Miami, Florida. Miami Velvet was owned, operated and managed by Velvet Lifestyles, LLC. Joy Dorfman was the president, manager and a salaried employee of Velvet Lifestyles. My Three Yorkies, LLC, was the managing member of Velvet Lifestyles, and Dorfman was, in turn, the managing member of Yorkies. She was also the president of Yorkies and received the management fees that Velvet Lifestyles paid Yorkies. Approximately 30 individuals sued Velvet Lifestyles, My Three Yorkies and Dorfman for false advertising and false endorsement under the Lanham Act. The individuals alleged that Velvet Lifestyles, My Three Yorkies and Dorfman used the individuals’ images in advertisements without their consent, without any compensation and in such a way that implied they were affiliated with and endorsed Miami Velvet.

The district court granted the plaintiffs’ motion for summary judgment, finding that Velvet Lifestyles, My Three Yorkies and Dorfman’s use of the plaintiffs’ images constituted false advertising and false endorsement. The plaintiffs’ motion treated all three defendants as effectively a single entity, and the district court made no finding that either My Three Yorkies or Dorfman had any direct involvement in the advertising. The district court did not apply the individual liability standard to Dorfman and instead treated all three defendants as a single entity as the plaintiffs’ motion had done. A jury awarded damages at trial. After post-trial motion practice, My Three Yorkies and Dorfman appealed.

The plaintiffs argued on appeal that My Three Yorkies and Dorfman had not properly preserved these issues for review on appeal. The Eleventh Circuit rejected the plaintiff’s argument, finding that because the plaintiffs did not properly plead the standards for piercing the corporate veil and individual liability, My Three Yorkies and Dorfman were not obligated to raise or respond to those issues and, therefore, any procedural failures on their part were inconsequential.

Turning to the merits, the Eleventh Circuit reversed the finding of liability on summary judgment. The Court explained that in order for My Three Yorkies to be liable for the actions of Velvet Lifestyles, the plaintiffs had to show that My Three Yorkies was directly involved in the violation of the Lanham Act. The Court found that the plaintiffs failed to show that My Three Yorkies took any action regarding the management of the club or the advertisement in question, and that therefore the plaintiffs had failed to establish that the corporate veil should be pierced. The Court further explained that in order for Dorfman to be liable as an individual, the plaintiffs had to show that she actively participated as the [...]

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No Winners Here: A Case Can Have No Prevailing Party

In a matter of first impression, the US Court of Appeals for the Eleventh Circuit found that there may be no prevailing party for purposes of assessing costs and attorneys’ fees under Federal Rule of Civil Procedure 54(d). Royal Palm Properties, LLC v. Pink Palm Properties, LLC, Case No. 21-10872 (11th Cir. July 7, 2022) (Wilson, Rosenbaum, Covington, JJ.)

Royal Palm Properties sued Pink Palm Properties for trademark infringement. Pink Palm countersued, seeking cancellation of the trademark and a declaratory judgment of noninfringement. Following a three-day trial, the jury found that Pink Palm did not infringe the trademark and that the trademark was not invalid on the grounds asserted by Pink Palm. Pink Palm moved for judgment as a matter of law (JMOL), asking the court to overrule the jury’s determination that the trademark was valid. The district granted Pink Palm’s motion and invalidated the trademark. Pink Palm subsequently moved for costs, which the district court granted because Pink Palm was the prevailing party in light of the order granting JMOL. Royal Palm appealed.

The Eleventh Circuit reversed the district court’s grant of JMOL, reinstating the jury’s verdict and the trademark’s validity. In light of this reversal, the district court, on remand, ruled that Pink Palm was no longer the prevailing party for purposes of costs and was not entitled to an award of attorneys’ fees under the Lanham Act’s exception case doctrine. Pink Palm appealed.

Before addressing whether the district court erred by failing to name Pink Palm as the prevailing party, the Eleventh Circuit addressed the threshold question of whether courts are required to name a prevailing party in every case. The Court noted that while the Supreme Court of the United States has issued multiple opinions providing guidance on how to determine the prevailing party, it has not yet addressed whether there must be a prevailing party under Federal Rule of Civil Procedure 54.

Not finding any precedent in its own circuit, the Eleventh Circuit first looked to Federal Circuit precedent, which has stated that a district court must declare a prevailing party and that “punting is not an option.” The Court next explored holdings by the Eighth, Fifth and Second Circuits. Those courts have found that where the parties each brought unsuccessful claims and outcome did not materially alter the legal relationship between the parties, there is no prevailing party.

The Eleventh Circuit agreed with Eighth, Fifth and Second Circuit precedent and concluded that the text of Rule 54(d) does not allow for multiple prevailing parties, and there is not always a prevailing party in every case. A district court in the Eleventh Circuit may find (at most) one prevailing party, but it is not required to do so in every case. The Court found that both Royal Palm and Pink Palm had rebuffed the other’s claim regarding the trademark, leading to no material alteration in the legal relationship between the parties, and thus there was no prevailing party.




Can’t Overturn Jury Verdicts Based on Reasonable Inferences, but Broad Injunction Is Nonstarter Even for Willfully Misappropriated Trade Secrets

In a rare appellate trade secret opinion, the US Court of Appeals for the Eleventh Circuit affirmed a district court’s denial of a defendant’s request for a new trial on liability and its refusal of the plaintiff’s requested injunction. It also reversed in part the district court’s denial of judgment as a matter of law (JMOL) on damages for clear error because the plaintiff failed to deduct marginal costs when calculating lost profits. Financial Information Technologies v. iControl Systems, Case No. 20-13368 (11th Cir. Dec. 22, 2021) (Jordan, Newsom, JJ., and Burke, Distr J.).

Competitors Financial Information Technologies (Fintech) and iControl Systems both sell software that processes alcohol sales invoices within 24 hours. Fintech was a lone operator for several years until iControl started servicing the alcohol industry and began selling a very similar product at a lower price point. After Fintech lost its vice president of operations (who was very involved in designing Fintech’s software), a sales representative and several customers to iControl, Fintech filed suit alleging misappropriation of trade secrets. The jury ruled in Fintech’s favor and awarded compensatory and punitive damages. iControl sought a new trial on liability, contending that Fintech’s alleged trade secrets were readily ascertainable and not “secret,” and JMOL on damages since Fintech hadn’t proved lost profits because it hadn’t deducted fixed and marginal costs from its lost revenue calculations. Fintech sought a permanent injunction prohibiting iControl from using either company’s software. The district court denied all three motions, and both parties appealed.

As to the jury verdict, the Eleventh Circuit noted that jury liability findings are generally difficult to overturn, and that the verdict was general and nonspecific regarding which of the seven alleged trade secrets iControl had misappropriated, so Fintech only needed to show evidence under the Florida Uniform Trade Secrets Act (FUTSA) of misappropriation as to one. iControl also did not move for JMOL on liability, and therefore, under the abuse-of-discretion standard of review, the Court could only overturn if “there is an absolute absence of evidence to support the verdict.” However, the Court found that Fintech and its witness presented sufficient evidence at trial to permit a reasonable jury to find that Fintech possessed at least one of the seven alleged trade secrets and that it was misappropriated. The evidence included emails indicating that its former vice president helped iControl discover Fintech’s internal processes to aid software developments, assisted iControl’s chief technology officer in troubleshooting issues in a manner similar to Fintech, shared screenshots of Fintech’s user portal and prompted customers to switch to iControl.

Similarly, the Eleventh Circuit found that the jury reasonably could have inferred from the evidence that iControl schemed to hire Fintech employees to misappropriate Fintech’s software features—an act that demonstrated willfulness.

After assessing the meanings of fixed and marginal costs and the properly fact-intensive revenue and profits figures of the businesses, the Eleventh Circuit agreed that the jury was not required to deduct Fintech’s fixed costs from its revenues to arrive at a proper “actual [...]

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