Virginia Business Litigation Lawyer Blog

Earlier this week, a federal judge sitting in Alexandria, Virginia, ordered the owner of a now-defunct chain of Northern Virginia video stores to pay $555,000 in damages for willful violations of U.S. copyright law after he rented and sold unauthorized copies of copyrighted Korean-language DVDs and videos to customers. The individual in question, Young Min Ro, did not even attend his own trial, though he was represented by a lawyer.

The U.S.-based affiliates of the three largest television broadcasting corporations in South Korea sued Mr. Ro and other defendants for willful copyright infringement in United States District Court for the Eastern District of Virginia. They alleged and proved at a bench trial that Ro made illegal copies of their TV programs and continued to rent and sell copies of the programs to his customers even after his licensing agreement ended and he was no longer paying monthly fees to the broadcast companies. In a July 26, 2011, ruling, Judge Leonie M. Brinkema found that the evidence showed not only that Ro violated copyright law but that he did so willfully. Willful copyright violators are subject to heightened damages under a provision of U.S. copyright law. (See 17 U.S.C. 504(c)(2)).

The plaintiffs had chosen to seek statutory damages - those imposed at the judge's discretion within certain statutory limits - rather than precise economic damages based on measures such as the defendant's profits from the violations or the licensing fees that they did not pay. For damages purposes, the plaintiffs chose to focus on 37 specific instances of copyright infringement for which the judge had already found the defendants liable.

In determining the monetary damages for these 37 violations, Judge Brinkema noted that under copyright law, each violation results in a statutory damage award of at least $750, and in the case of a willful violation, as much as $150,000 per violation is possible. The judge used her discretion to award $15,000 per violation, for a total damage award of $555,000.

Judge Brinkema explained that the exact amount of damages is up to her "discretion and sense of justice" under case law and that the damages are intended to serve the purposes both of compensating the plaintiffs and deterring future violations. She reasoned that the damages should amount to at least $154,895 (the amount of the unpaid licensing fees) and should also include disgorgement of the illegally obtained profits. This figure was difficult to calculate since the video stores' records were incomplete but could be as high as $225,500. She noted that the actual economic damages should be only a "floor" for the recovery.

Another relevant factor was that in the past, Ro had been ordered to pay $307,500 for copyright violations in a similar case, as well as being sentenced to two years' probation, 60 days of home confinement, 200 hours of community service, and a $1,000 fine - and that these measures had apparently had no impact on his behavior. Those facts, the judge wrote, justify "a heightened damages award of significantly more than $307,500.00, in the hopes that this time, Ro might finally get the message." This amount, she said, was "reasonable and appropriate given the willful and repeated nature of the defendants' violations."

Two owners of a Virginia restaurant breached their fiduciary duty to the corporation they managed by paying themselves exorbitant management fees and by making improper loans and distributions to themselves, a Fairfax County judge has found.

"Fiduciary duty" in this context generally refers to the duty of loyalty owed by officers, directors, and other employees to each other or to the corporation they work for. Fiduciary duties include things like acting at all times with the corporation's best interests in mind, refraining from usurping business opportunities for yourself, and refraining from actively competing with the company. In general, the law in Virginia and elsewhere holds that people in a position of trust vis-à-vis a closely held corporation must perform their duties without self-dealing or conflict of interest.

According to the opinion, the basic facts were as follows. As of 1993, Michael Magill, Thomas Dinsmore, and Raymond Clatworthy each owned 33 percent of the shares of DPR, Inc., a Virginia corporation that operated a restaurant. The restaurant's primary business was preparing buffet lunches for sightseeing school groups visiting the Washington, D.C., area. Magill, who lived in the D.C. area, set up Magill Enterprises, Ltd., which operated the restaurant as an independent contractor of DPR and charged it a management fee. The other two owners did not live in the D.C. area. DPR was organized as an S corporation.

The restaurant business was cyclical in that most of the groups visited in the springtime, and during the slower periods, the restaurant suffered a cash flow problem. Magill and Magill Enterprises became DPR's primary source of credit for its ordinary expenses. In 2006, both Dinsmore and Clatworthy took $17,000 in dividends out of the company in excess of the money that DPR had to distribute. Magill never received dividends for that year. In 2007, Dinsmore and Clatworthy directed Magill to issue dividend checks to each shareholder for $37,000. Since DPR did not have that much money to distribute, Dinsmore and Clatworthy directed DPR to forgive their loans in the amount of $17,000 each.

When Dinsmore and Clatworthy found in June 2007 that Magill had been running a separate side business of making box lunches out of the restaurant, they voted him out as a director of DPR. That month, they paid themselves management fees and other distributions. Then Magill, on the one side, and Dinsmore and Clatworthy, on the other, filed several lawsuits against each other in Virginia state court. Magill, in his capacity as a shareholder of DPR, filed a derivative suit against Dinsmore and Clatworthy, alleging that they had breached their fiduciary duty to the company by taking excessive management fees, by making loans and distributions to themselves, by reclassifying entries in DPR's books, and by other means.

On April 6, 2011, Judge Jane Marum Roush of the Fairfax County Circuit Court ruled in Magill's favor, entering judgment on DPR's behalf for $17,137 for the loans forgiven in May 2007, and for $9,812 in excessive management fees.

Dinsmore and Clatworthy, in turn, sued Magill for breach of fiduciary duty and other claims concerning Magill's box lunch business. The judge found that Magill had wrongfully converted company property by running this business but found that the plaintiffs had proved no monetary damages to the corporation as a result. Thus the court found for Magill on this claim as well.

Is Facebook violating New York privacy laws when it permits children to press the "like" button on the site to endorse advertisements without first receiving approval from their parents? That's the question posed by a lawsuit filed on May 3, 2011, in federal court in Brooklyn, N.Y., by the father of a teenager there who is a member of the hugely popular social networking site. The case was brought as a class action on behalf of "all minors in New York whose names or likenesses were used by Facebook, Inc., for commercial purposes without the consent of the parents or guardians of said minors." Anyone over the age of 12 can sign up for a Facebook account.

When any Facebook user, including a teenager, "likes" an advertisement, that preference appears on the Facebook page for that ad, the lawsuit says. This in turn is considered a "click" on that ad and generates revenue for Facebook, since it receives revenue from advertisers based on the number of users that "like" the advertisement. Facebook's privacy settings don't permit any users to prevent their names and pictures from appearing on advertising pages that they have "liked." They can at any time withdraw their "like," but as long as it is in effect, it will be considered a "click" and thus a "commercial use," according to the complaint.

In order to sign up for Facebook, users, including those under age, agree to the following statement: "You can use your privacy settings to limit how your name and profile picture may be associated with commercial, sponsored or related content (such as a brand you like) served or enhanced by us. You give us permission to use your name and profile picture in connection with that content, subject to the limits you place." According to the complaint, however, "at no time does Facebook seek or obtain the consent of any parent or guardian of its minor users to use or sell the name and likeness of the child for commercial use by Facebook or third-party advertisers."

Thus, according to the complaint, Facebook is using minors' names and likenesses for "commercial and marketing purposes" without the consent of their parents or legal guardians. This, according to the complaint, violates New York Civil Rights Law Sections 50 and 51, which provide civil and criminal penalties for using minors' names or likenesses without such consent.

Creative lawyering, for sure. Who could have predicted that a kid expressing his fondness for a product could give rise to a class action? A Facebook spokesman has been quoted as saying, "We believe this suit is completely without merit and we will fight it vigorously."

In a 63-page amended complaint filed on June 16, 2011, in federal court in San Jose, Apple Inc. is continuing to strongly press its contentions that Samsung Electronics Co.'s Galaxy smartphones and tablet computers infringe upon Apple's patents and trademarks for the iPhone and the iPad. In this new filing, Apple, which has long been known as a company that pursues its intellectual property claims vigorously, amplifies a complaint it filed a couple of months ago against Samsung.

"Instead of pursuing independent product development, Samsung has chosen to slavishly copy Apple's innovative technology, distinctive user interfaces, and elegant and distinctive product and packaging design, in violation of Apple's valuable intellectual property rights," Apple's attorneys wrote in the new complaint. An Apple spokeswoman has been quoted as saying, "It's no coincidence that Samsung's latest products look a lot like the iPhone and iPad, from the shape of the hardware to the user interface and even the packaging. This kind of blatant copying is wrong, and we need to protect Apple's intellectual property when companies steal our ideas."

A key focus of Apple's concern is several design patents that it owns for various aspects of the iPhone and iPad. These design patents, Apple said in the complaint, "cover the unique and novel ornamental appearance of Apple's devices, which include features such as the black face, bezel, the matrix of application icons, and a rim surrounding a flat screen."

The iPhone, according to the complaint, has a distinctive shape and appearance -- including "a matrix of colorful square icons with evenly rounded corners and a bottom row of colorful square icons set off from the other icons, which does not change as other pages of the user interface are viewed - which are the embodiment of Apple's innovative iPhone user interface." And this combination of elements "is distinctive and serves to identify Apple as the source of the iPhone products," the complaint says. Thus, the Samsung Galaxy products incorrectly leave the consumer with the impression that they are Apple products "based upon the design alone."

But what smartphone these days doesn't bear some resemblance to the iPhone? There are only so many ways to make a thin "bar" form-factor phone capable of running various applications. Do Apple's design patents give it the right to exclude all others from the market? We will be following this case closely.