Calculating damages in a big-stakes architectural copyright infringement case can involve a complex blend of financial data and subjective belief that can yield unpredictable results. Case in point is the matter of William Hablinski Architecture vs. Amir Construction, et al., which involved the infringement of an architectural design for a Beverly Hills mansion.
In 2003, WHA sued Amir Construction and others, including the mansion's owners, for copying a design that WHA had created for another client. WHA proved that Amir obtained access to the design from one of WHA's former employees.
To remedy Amir's infringement, WHA sought a permanent injunction, actual and compensatory damages, disgorgement of Amir's profits, punitive damages, and attorneys' fees. The court denied WHA the right to recover statutory damages and attorneys' fees under the Copyright Act because the alleged infringement occurred before the firm had registered its architectural work with the U.S. Copyright Office. (This underscores the need for copyright owners to register their works promptly to preserve these important benefits.)
The Copyright Act allows a copyright owner to recover actual and lost profit damages so long as they are not duplicative. When calculating lost-profit damages in an architectural copyright infringement case, the plaintiff can claim the defendant's gross profits as its lost profits, but the defendant can then deduct its expenses and the value of noninfringing factors to reduce its liability. Such factors can include the quality of construction, the home's size and amenities, and the extra margin of profit for merely developing the property.
In the first trial in April 2005, the jury returned a verdict in favor of WHA for total damages of almost $6 million, which included lost-profit damages of $5 million. However, Amir convinced the court to order a new trial because the questionnaire the jury used to calculate WHA's damages failed to include a provision allowing the jury to deduct the portion of Amir's profits that were attributable to factors other than the infringement. The court ruled that Amir was entitled to have the jury consider and account for the value of these factors in addition to deducting Amir's construction expenses from its gross profits.
The case was retried in December 2006. Because the only issue under dispute was the proper calculation of damages, the court did not permit evidence on liability, copyright validity, or copyright infringement. This time the jury awarded WHA only $667,000 in lost profit damages under the theory that only 25 percent of Amir's net profits could be attributed to the infringement of WHA's copyright. This significantly lower amount was consistent with an earlier attempt by Amir to limit the lost-profit damages to the maximum amount WHA would have charged to design the infringing residence. The court rejected this argument in favor of a measure of damages that allowed WHA to recoup the profits it would have made had it sold the infringing residence itself, which presumably would include the value of factors unrelated to WHA's copyright.
In view of these competing damage theories, WHA has promised to appeal the case to the U.S. Court of Appeals for the 9th Circuit.
Jeffrey C. Brown is an intellectual property attorney at the law firm of Merchant & Gould in Minneapolis.