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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
------------------------------------------------*
XOOM, INCORPORATED; AZTECH NEW
MEDIA INTERNATIONAL CORPORATION
(Joined); MEDIA GRAPHICS
INTERNATIONAL, INCORPORATED
(Joined),
Plaintiffs-Appellees,
and
MACMILLAN DIGITAL PUBLISHING
USA, a division of Prentice-Hall,
Incorporated (Joined),No. 02-1121
Plaintiff,
v.
IMAGELINE, INCORPORATED; GEORGE P.
RIDDICK, III,
Defendants-Appellants,
and
COMPLIANCE SERVICES, INCORPORATED;
WAYNE K. NYSTROM; SPRINT
SOFTWARE PARTY LIMITED,
Defendants.
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Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. James R. Spencer, District Judge. (CA-98-542-3)
Argued: December 3, 2002
Decided: March 21, 2003
Before MICHAEL and GREGORY, Circuit Judges, and James H. MICHAEL, Jr., Senior United States District Judge for the Western District of Virginia, sitting by designation.
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Affirmed in part, reversed in part, and remanded by published opin-
ion. Judge Gregory wrote the opinion, in which Judge Michael and
Senior Judge Michael joined.
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COUNSEL
ARGUED: Thomas Henry Oxenham, III, CHANDLER, FRANKLIN
& O'BRYAN, Charlottesville, Virginia; Wyatt B. Durrette, Jr., DUR-
RETTE BRADSHAW, P.L.C., Richmond, Virginia, for Appellants.
Tobey Baroukh Marzouk, MARZOUK & PARRY, Washington,
D.C., for Appellees. ON BRIEF: Bradford M. Young, CHANDLER,
FRANKLIN & O'BRYAN, Charlottesville, Virginia, for Appellants.
Thomas M. Parry, MARZOUK & PARRY, Washington, D.C.; Robert
M. Tyler, MCGUIREWOODS, L.L.P., Richmond, Virginia, for
Appellees.
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OPINION
GREGORY, Circuit Judge:
Xoom, Inc. ("Xoom") filed suit in federal district court against
Imageline, Inc. ("Imageline"), seeking relief under federal and state
law for alleged violations of the Copyright Act of 1976 ("Copyright
Act") and interference with contractual rights. In response, Imageline
filed a counterclaim alleging copyright infringement, false advertis-
ing, unfair competition, and business conspiracy. Subsequently,
Xoom filed motions for partial summary judgment and summary
judgment, which the district court granted. Imageline appealed to this
Court. For the reasons that follow, we affirm in part and remand to
the district court.
2
I.
Imageline introduced PicturePak SuperBundle ("SuperBundle") on
CD-ROM in 1994. SuperBundle contained 1,580 individual electronic
clip-art images in CGM, WMF, and EPF formats. Imageline regis-
tered the art, text, and packing design for CD-ROM and diskette
media with the United States Copyright Office ("Copyright Office").1
The SuperBundle copyright registration became effective on March
12, 1996. The registration covered SuperBundle in its entirety; there
was no specific mention of the individual clip-art images. However,
Imageline deposited printed and electronic copies of each clip-art
image with its registration application. The Copyright Office issued
a second copyright to Imageline, effective May 3, 1996, for its data-
base, Imageline Master Gallery ("Master Gallery"), which contained
updated versions of black and white line-art images that Imageline
acquired from another company in 1991 and new images based on
WMF software. Master Gallery encompassed 9,618 individual clip-art
images in varying file formats for use in different operating systems
and user environments.2
Xoom began distributing a CD product called Web Clip Empire
50,000 in 1997. That product contained 50,000 software clips, includ-
ing clip art images. Xoom later expanded its collection and distributed
Web Clip Empire 75,000, Web Clip Empire 150,000 and Web Clip
Empire 250,000 (collectively, "Web Clip Empire Products"). The
Web Clip Empire Products are distributed through Xoom's website
and also through third parties who market the products to end-users.
Some of the images used in the Web Clip Empire Products were
designed by commissioned artists, while other images were licensed
to Xoom by third parties.
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1 Imageline noted on its registration form that "PicturePak SuperBundle
was compiled from five products created in 1991: PicturePak1; Picture-
Pak2; PicturePak3; PicturePak ValuePak 1; and Office Clips." The regis-
tration form also indicated that the material added to SuperBundle was:
"New art and new text, as well as a new packaging design, for CD-ROM
and diskette media."
2 Imageline noted on its registration form that SuperBundle was incor-
porated into Master Gallery.
3
In 1998, Imageline sent a letter to Xoom advising that it was
infringing Imageline's copyrights by: (i) sub-licensing certain Image-
line clip-art images to other software publishers; (ii) including certain
Imageline clip-art images in Xoom's own CD software products; and
(iii) making certain Imageline clip-art images available for free down-
loading from Xoom's website. Each Web Clip Empire Product that
Xoom distributed included statements that: (i) the "web clips" were
"copyright cleared"; (ii) Xoom's clip-art images were "proprietary";
and (iii) Xoom commissioned artists around the world, most on an
exclusive basis, to develop web objects.
Xoom filed suit against Imageline in district court, seeking relief
under both federal and state law. The complaint sought injunctive and
declaratory relief based on the Copyright Act, money damages based
on interference and conspiracy to interfere with contractual rights,3
and indemnification against another defendant. Imageline filed a
counterclaim against Xoom seeking relief under federal and state law
for copyright infringement, false advertising and unfair competition,
and business conspiracy. Xoom subsequently filed several motions
for summary judgment and partial summary judgment. One of its
motions for partial summary judgment, Motion No. 2, requested a dis-
missal or stay of Imageline's copyright claims for lack of subject mat-
ter jurisdiction or, alternatively, requested a limitation of possible
statutory damages as to those claims. In a separate motion, Xoom
sought summary judgment with respect to Imageline's false advertis-
ing and unfair competition claim.
In a written opinion issued on April 5, 1999, the district court
granted partial summary judgment in favor of Xoom on Motion No.
2, issued a stay in the case, and limited possible statutory damages to
one award per registration. On April 19, 2001, the district court
granted summary judgment in favor of Xoom with respect to Image-
line's counterclaims of false advertising and unfair competition. In a
final order entered on January 7, 2002, the court disposed of all
counts in Xoom's complaint and Imageline's counterclaim. Imageline
timely filed this appeal.
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3 The claims for money damages were subsequently dismissed.
4
II.
A district court's award of summary judgment is reviewed de novo.
See A.T. Massey Coal Co., Inc. v. Massanari, 305 F.3d 226, 235 (4th
Cir. 2002). To the extent there are issues of law in dispute, those
questions will also be reviewed de novo. See Nelson-Salabes, Inc. v.
Morningside Dev., LLC, 284 F.3d 505, 512 (4th Cir. 2002).
III.
Imageline asserts that the district court erred: (1) in finding that it
did not hold copyright in the individual clip-art images or in the com-
puter program creating the images found in SuperBundle and Master
Gallery; (2) in holding that Imageline was entitled to only one award
of statutory damages per work infringed; and (3) in granting summary
judgment to Xoom on Imageline's false advertising and unfair com-
petition claim. We address each of these issues in turn.
A.
Imageline's counterclaim alleged that Xoom infringed Imageline's
copyright in the individual clip-art images contained in SuperBundle
and Master Gallery. The issue on appeal centers around the question
of whether Imageline effectively registered its copyright in the mate-
rials it claims Xoom infringed. Copyright registration is a jurisdic-
tional prerequisite to bringing an action for infringement under the
Copyright Act. See 17 U.S.C. § 411(a) (1996); Trandes Corp. v. Guy
F. Atkinson Co., 996 F.2d 655, 658 (4th Cir. 1993). The district court
found that Imageline had no basis for litigating claims of infringement
with respect to the individual images because, as registered, the copy-
right claims were only in the works as a whole and not in the individ-
ual images. Imageline appeals to this Court, asserting that its
copyright registration of SuperBundle and Master Gallery extended to
the individual clip-art images contained in both products and in the
computer programs used to create those images. We examine each of
these assertions in turn.4
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4 In its brief to the Court, Imageline also asserts that this Court should
apply the "innocent error rule" to the copyright issues in this case. The
5
1.
Imageline argues that it registered, and therefore owned, copyright
in the individual clip-art images through its copyright registrations of
SuperBundle and Master Gallery as compilations or derivative works.
We decline to make a determination of whether the individual clip-art
images were effectively registered through the registrations of Super-
Bundle and Master Gallery and find that Imageline's registration of
SuperBundle and Master Gallery was sufficient to provide copyright
protection to the underlying preexisting works of each.
In the instant case, Imageline created SuperBundle and Master Gal-
lery, both compilations or derivative works, and the underlying works
which those products encompassed. The Second Circuit held, in Mor-
ris v. Bus. Concepts, Inc., 259 F.3d 65, 68 (2d Cir. 2001), that where
an owner of a collective work also owns the copyright for a constitu-
ent part of that work, registration of the collective work is sufficient
to permit an infringement action of the constituent part. Similarly, in
1997, a district court in Kansas held that registration of a derivative
work is sufficient to allow an infringement claim based on the copy-
ing of material, whether newly added or contained in the underlying
work. In Re Indep. Serv. Orgs. Antitrust Litig., 964 F.Supp. 1469 (D.
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innocent error rule states "that immaterial, inadvertent errors in an appli-
cation for copyright registration do not jeopardize the validity of the reg-
istration." Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d
1147, 1161 (1st Cir. 1994) (citations omitted). This Court has applied the
"innocent error rule" in Serv. and Training, Inc. v. Data Gen. Corp., 963
F.2d 680 (4th Cir. 1992), where we found that a copyright was not invali-
dated because there was no evidence that appellee's failure to inform the
"Copyright Office of it's software's derivative nature was intentional."
Data Gen. Corp., 963 F.2d at 689. In the instant case, Imageline failed
to correct problems with its application after the Copyright Office
informed Imageline of the problems and gave instructions on how to cor-
rect them. Because Imageline's failure to make the necessary corrections
to its application for copyright registration cannot be considered inno-
cent, we conclude that its registration falls outside of the protection of
the rule and therefore reject Imageline's claim of innocent error. We do
not, however, completely invalidate Imageline's copyright registration of
SuperBundle and Master Gallery. Infra pp. 6-7.
6
Kan. 1997); see also Foxworthy v. Custom Tees, Inc., 879 F.Supp.
1200, 1218 (N.D. Ga. 1995) (holding that "preexisting materials may
be subject to copyright protection under the umbrella of a compilation
copyright."). We adopt this view and reverse the district court, finding
that because Imageline owned copyright in SuperBundle and Master
Gallery and in the underlying works of each, its registration of Super-
Bundle and Master Gallery was sufficient to permit an infringement
action on the underlying parts, whether they be new or preexisting.5
Based on this holding, we do not address the issue of whether the
registration of the products covered the individual clip-art images. If
Xoom improperly used any copyrightable image contained in Super-
Bundle and Master Gallery, new or preexisting, that usage would give
rise to potential statutory damages.
2.
Imageline also asserts that it holds copyright in the computer pro-
grams that created the WMF formatted images upon which Xoom
allegedly infringed.6 In its brief to this Court, Imageline contends that
because the clip-art images are perceptible when printed in a two-
dimensional format, it was only required to submit the visual arts reg-
istration form ("Form VA"), not the source code that is normally
required to obtain copyright in a computer program. However, this
contention is only partially correct. To the extent that Imageline was
attempting to register copyright in the compilation of clip-art images,
submission of Form VA and two complete copies of the images is
sufficient for registration. See Circular 40a: Deposit Requirements for
Registration of Claims to Copyright in Visual Arts Material.7 How-
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5 We do not conclude that the registration of SuperBundle and Master
Gallery constituted an effective registration of the underlying preexisting
works.
6 The parties have not been clear on what Imageline sought to protect
with respect to the creation of the clip-art images. At oral argument,
Imageline acknowledged that there really are no computer programs in
question here, but stated that it was seeking to copyright the images gen-
erated by the programs. To the extent that Imageline claims to have prop-
erly registered copyright in the computer programs, we address that issue
here.
7 There are regulations, codified at 37 C.F.R. § 202 et al. (2002), which
govern copyright registration. However, because the regulations do not
7
ever, for Imageline to own copyright in the computer programs creat-
ing the WMF formatted images, it must comply with the requirements
that the Copyright Office sets forth in Circular 61: Copyright Regis-
tration for Computer Programs ("Circular 61").
Circular 61 requires the applicant to deposit computer source code
in order to obtain copyright in computer programs. Imageline states
that the creation of the WMF images was not original; rather, those
images were created using commercially available products from
companies such as Microsoft and Adobe. Thus, Imageline asserts that
it could not, and was not required to, deposit the source code because
it does not own copyright in the programs used to create the source
code.
Circular 61 does waive the requirement for a deposit of source
code when the code contains copyrightable authorship. However, in
that situation, the applicant "must state in writing that the work as
deposited in object code contains copyrightable ownership." Circular
61 at 2. Upon receipt of this written statement, the Copyright Office
issues a letter to the applicant "stating that registration has been made
under its rule of doubt and warning that it has not determined the
existence of copyrightable authorship." Id. The record before this
Court presents no evidence that Imageline submitted the requisite
written statement in compliance with this requirement. Additionally,
there is no evidence that the computer programs were registered
because there is no letter from the Copyright Office stipulating regis-
tration in the computer programs that created the clip-art images.
Therefore, to the extent Imageline claims to have properly registered
copyright in the computer programs that created the clip-art images,
we conclude that Imageline failed to do so and we affirm the district
court's holding that Imageline does not hold copyright in those pro-
grams.
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explicitly provide for all required elements of copyright registration, the
Copyright Office issues circulars which outline the specific requirements
for effective copyright registration. It is common practice for applicants
to look to the circulars for guidance when completing copyright applica-
tions.
8
B.
Under the Copyright Act, "[T]he copyright owner may elect, at any
time before final judgment is rendered, to recover, instead of actual
damages and profits, an award of statutory damages for all infringe-
ments involved in the action . . . . For the purposes of this subsection,
all the parts of a compilation or derivative work constitute one work."
17 U.S.C. § 504(c)(1) (1996). Imageline asserts that, contrary to the
district court's finding, the language of the Copyright Act does not
bar multiple awards for statutory damages when one registration
includes multiple works. While Imageline's assertion is true, we find
that, given the facts of the instant case, Imageline is only entitled to
a maximum of two awards of statutory damages.
As we held above, infra pp. 6-7, Imageline's registration of Super-
Bundle and Master Gallery covered, for the purposes of this action,
the products in their entirety and the underlying preexisting works
contained therein in which Imageline also owned copyright. Although
parts of a compilation or derivative work may be "regarded as inde-
pendent works for other purposes[,]" for purposes of statutory dam-
ages, they constitute one work. H.R. Rep. No. 94-1476, at 162 (1976).
Because both SuperBundle and Master Gallery can be classified as
either compilations or derivative works, we find that, for purposes of
determining statutory damages under Section 504(c)(1), the registra-
tions of SuperBundle and Master Gallery constitute a total of two
works (one for each registration of the compilation or derivative work).8
Therefore, Imageline may only receive a maximum of two awards of
statutory damages for copyright infringement.
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8 The district court incorrectly held that "there should be only one
award of statutory damages per registration regardless of the number of
infringements or the number of products containing infringing images."
Xoom, Inc. v. Imageline, Inc., 93 F. Supp. 2d 688, 693 (E.D. Va. 1999)
(emphasis added). Imageline is entitled to one award of statutory dam-
ages per work infringed because SuperBundle and Master Gallery are
compilations or derivative works in which Imageline holds copyrights,
not because they are single registrations.
9
C.
In a separate motion, Imageline sought relief in the district court
for violations of § 43 of the Lanham Trademark Act ("Lanham Act").
Imageline asserted that Xoom violated the Lanham Act by making
statements regarding the copyright clearance of the images contained
in the Web Clip Empire Products. The district court granted summary
judgment in favor of Xoom. On appeal, Imageline argues that it pre-
sented sufficient evidence to warrant a finding that there is a genuine
issue of material fact as to Xoom's alleged violation of the Lanham
Act.9
To recover damages under the Lanham Act, Imageline must first
establish that there has been a Lanham Act violation, then must prove
actual damages and a causal link between those damages and the Lan-
ham Act violation. 15 U.S.C. §§ 1117, 1125 (1998); Black & Decker,
Inc. v. Pro-tech Power Inc., 26 F. Supp. 2d 834, 863 (E.D. Va. 1998)
("To recover damages for false advertising, a plaintiff `must prove
both actual damages and a causal link between [the defendant's] vio-
lation and those damages.'" (citations omitted)). In the instant case,
we assume that a Lanham Act violation has occurred, and now turn
to an examination of whether Imageline has satisfied its evidentiary
burden to warrant an award of damages.
In determining damages under the Lanham Act, the plaintiff bears
the burden of proving a causal connection between its harms and the
defendant's profits. See 15 U.S.C. § 1125 (1998); Otis Clapp & Son,
Inc. v. Filmore Vitamin Co., 754 F.2d 738, 745 (7th Cir. 1985)
("[T]he plaintiff may not recover if he fails to prove that the defen-
dant's actions caused the claimed harm." (citations omitted)). Image-
line's alleged damages are "loss of goodwill, diminution in the value
of Imageline's artwork and of Imageline's graphic image library, and
loss of income." However, the record contains no evidence that
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9 Imageline asks this court to adopt the Reverse Passing Off ("RPO")
theory, recognized by other circuits as a false designation of origin
actionable under the Lanham Act. See Waldman Publishing Corp. v.
Landoll, Inc., 43 F.3d 775, 780 (2d Cir. 1994). Because the district
court's commentary on this issue was dicta, we find that the issue was
not properly before us on appeal and decline to address it here.
10
Imageline suffered actual damages. Further, even if there was evi-
dence of actual damages, Imageline does not prove a causal link
between its damages and Xoom's actions. Because there is no evi-
dence of actual damages or a causal link between actual damages and
Xoom's actions, we find that Imageline failed to satisfy its burden
under 15 U.S.C. § 1117 and therefore has no sustainable claim under
the Lanham Act. Accordingly, we affirm the district court's grant of
summary judgement on the Lanham Act claim in favor of Xoom.
IV.
For the foregoing reasons, we affirm in part, reverse in part, and
remand to the district court for a determination of statutory damages.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
11