Free Response to Motion - District Court of Arizona - Arizona

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F ENNEMORE C RAIG
PROFESSIONAL CORPORATION P HOENIX

FENNEMORE CRAIG, P.C. Jordan Green (No. 001860) Lawrence Palles (No. 020263) 3003 North Central Avenue Suite 2600 Phoenix, Arizona 85012-2913 Telephone: (602) 916-5000 Email: [email protected] Attorneys for Defendants Avnet, Inc., Roy Vallee, and Allen Maag UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA DAN COOGAN, Plaintiff, v. AVNET, INC., et al., Defendants. No. CV2004-0621 PHX SRB DEFENDANTS'RESPONSE TO PLAINTIFF' MOTION IN LIMINE TO S EXCLUDE DEFENDANTS'EVIDENCE RELATED TO GROSS REVENUE OF AVNET, INC., DEDUCTIBLE EXPENSES FROM GROSS REVENUE, AND/OR ITS PROFIT(S) ATTRIBUTABLE TO FACTORS OTHER THAN THE COPYRIGHTED WORK

Plaintiff seeks an order "excluding any evidence or references offered by any and all Defendants... that tends to contradict, or directly contradicts specific financial information in Avnet' Annual Reports, Quarterly Reports or its SEC filings as to Avnet, s Inc.' gross revenue, deductible expenses from gross revenue, and documents related to s elements of profit attributable to factors other than the copyrighted work... ". See

Plaintiff' Motion at pp. 1-2. Plaintiff' Motion contains arguments and allegations not s s relevant to his request for relief. Defendants accept Plaintiff' statement regarding the s relief sought and will not address the unrelated issues in this Response. Plaintiff' request for an order excluding evidence that directly contradicts s
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financial information in Avnet' Annual Reports, Quarterly Reports or its SEC filings is s unnecessary. Avnet never intended to, and will not, introduce evidence that contradicts its federally mandated financial filings and public disclosures. Plaintiff' request to exclude s evidence that "tends to contradict" Avnet' disclosed financial information is so vague s that Defendants doubt the efficacy of such an order. Plaintiff seeks preclusion of evidence based on the claim that Defendants have the burden of proving that profits were not attributable to the infringement and the amount of any deductible costs, but have failed to make relevant disclosure on those issues. See Plaintiff' Motion at p. 2. However, Plaintiff ignores the fact that he has the initial burden s of identifying revenue with a causal nexus to the infringement before Defendants can respond to requests for production of documents regarding attribution of profits and deductible costs. Plaintiff has never identified any profits related to the infringement, making it impossible for Avnet to make the requested disclosures. Unable or unwilling to identify any related profits, Plaintiff instead offers evidence of alleged enhanced corporate goodwill arising out of the use of his photographs. He argues that this is sufficient to demonstrate a connection between the infringement and Avnet' profits from its global operations, entitling him to recovery of millions of dollars. s This theory has been squarely rejected by the 9th Circuit. For these reasons, Plaintiff' Motion should be denied.1 s I. BACKGROUND Plaintiff is a professional photographer. See Amended Complaint at ¶ 9. He filed suit on March 29, 2004 and seeks recovery for Avnet's profits arising out of the unauthorized use of three of his photographs of Avnet CEO Roy Vallee.2 See Complaint.
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F ENNEMORE C RAIG
PROFESSIONAL CORPORATION P HOENIX

Plaintiff' Motion should also be denied because it is an improper and untimely s discovery motion.
2

Plaintiff filed an Amended Complaint on October 18, 2004.
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F ENNEMORE C RAIG
PROFESSIONAL CORPORATION P HOENIX

Avnet is a publicly traded, Fortune 500 company.

See Avnet' 2002 Annual s

Report/Form 10-K at "Contents" page, attached as Exhibit A. As such, it is subject to Federal accounting and financial disclosure laws. Avnet is one of the world' largest s distributors of electronic components, enterprise network and computer equipment, and embedded subsystems. Id. at p. 3. Avnet also provides engineering design, materials management and logistics services, system integration and configuration, and supply chain advisory services. Id. Avnet has significant operations in Europe, Asia and the Americas. Id. at pp. 4-5. On November 7, 2005, Plaintiff requested production of "documents Avnet has related to deductible expenses under 17 United States Code § 504(b) against Avnet' s gross revenue... ". See Avnet' Responses to Plaintiff' Fourth Request for Production of s s Documents at p. 4, attached as Exhibit B. On December 28, 2005, Avnet responded: Response: Objection. Avnet is unable to respond to this Request until plaintiff identifies which income stream the infringement allegedly affected and shows a causal nexus between the infringement and Avnet' gross revenue. Avnet s is a worldwide corporation with multiple sources of revenue and income. Plaintiff' blanket request for documents s relating to "gross revenue" prematurely shifts the burden of 17 U.S.C. § 504(b), which creates a two-step framework for the recovery of indirect profits: (1) the copyright claimant must first show a causal nexus between the infringement and the gross revenue; and (2) once the causal nexus is shown, the infringer bears the burden of apportioning the profits that were not the result of infringement.th See Polar Bear Productions, Inc., 384 F.3d 700, 711 (9 Cir. 2004). In the instant case, plaintiff has not shown the requisite causal nexus between the infringement and Avnet' gross revenue. s Nonetheless and without waiving its objection, Avnet asserts that it is a publicly traded company and that its Annual Reports, Quarterly Reports and SEC filings during the relevant periods are available for plaintiff' review in the s "Investor Relations" portion of Avnet' website, Avnet.com. s Id. at pp. 4-5. Plaintiff did not file a motion to compel discovery in response to Avnet' s objection.
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Plaintiff has never identified any profits or income streams related to the infringements. Neither Plaintiff nor his experts have ever identified a single sale of Avnet' goods or services caused by the infringing use of his photographs. Indeed, both s of Plaintiff' damages experts admitted that they made no effort to establish such a causal s link and could not offer an opinion on the issue. See Supplementary Report of Jeff Sedlik at p. 5 ("I do not expect to opine or testify as to the specific amount of disgorged profit that is attributable to the infringements. . ."), attached as Exhibit C; Richard Weisgrau Deposition at pp. 90:7-91:17; 117:6-118:21; 140:16-20, attached as Exhibit D. Instead, Plaintiff argues that the use of his photographs enhanced Mr. Vallee' s reputation, which enhanced the goodwill of Avnet, resulting in a company-wide increase s in revenue. See Plaintiff' Motion at pp. 4, 7, 12-13, 15-17. Claiming a connection between the infringement and all of Avnet' revenue, he concludes that he is entitled to s recover all of Avnet' profits from its global operations during the period of infringement. s II. ANALYSIS A. Plaintiff' Motion Is Improper And Untimely. s

As a threshold matter, Plaintiff' Motion should be denied because it is an s improper and untimely discovery motion. Once a party offers an objection to a document request, the burden is on the party seeking their production to move for an order compelling it. See Clinchfield Railroad Co. v. Lynch, 700 F.2d 126, 132 n. 10 (4th Cir. 1983). If Plaintiff believed that Avnet' s objection lacked merit, the proper remedy was to file a motion to compel production pursuant to Fed. R. Civ. P. 37(a) so that the Court could resolve the discovery dispute. See Patelco Credit Union v. Sahni, 262 F.3d 897, 913 (9th Cir. 2001) (denial of motion to preclude evidence not an abuse of discretion because motion to compel was proper vehicle for pursuing discovery dispute). Motions to compel should be filed prior to the discovery cutoff. See DesRosiers v. Moran, 949 F.2d 15, 22, n. 8 (1st Cir. 1991). A party
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cannot fail to seek production while discovery is open and then seek preclusion of the evidence on the eve of trial. See JOM, Inc. v. Adell Plastics, Inc., 193 F.3d 47, 51 (1st Cir. 1999); Allied Pen Co., Inc. v. Springfield Photo Mount Co., Inc., 653 F.2d 17, 23 (1st Cir. 1981). Plaintiff did not file a motion to compel and has not obtained an order compelling the production of documents. Therefore, Plaintiff' Motion should be denied. s B. Avnet Will Not Contradict Its Federally Mandated Financial Disclosures At Trial.

Plaintiff' request for an order excluding evidence that contradicts information in s Avnet' federally mandated financial disclosures is unnecessary. Avnet is a publicly s traded company subject to Federal accounting and financial disclosure laws. Avnet stands by its disclosures and will not contradict them at trial. It is unclear what constitutes evidence "that tends to contradict" Avnet' financial s reports. s See Plaintiff' Motion at p.1. To the extent that issues regarding Avnet' s

finances are litigated at trial, Avnet is entitled to offer relevant evidence. Plaintiff is free to make any appropriate objections to the evidence or cross examine witnesses regarding perceived inconsistencies. Plaintiff' request for an order precluding evidence "that tends s to contradict" Avnet' disclosed financial records should be denied because it is so vague s that Defendants doubt the efficacy of such an order. C. Plaintiff Has The Initial Burden To Identify Profits Related To The Infringement.

Plaintiff seeks preclusion of evidence based on the claim that Defendants have the burden of proving that profits were not attributable to the infringement and the amount of their deductible costs, but have failed to make relevant disclosure on those issues. See Plaintiff' Motion at p. 2. Plaintiff is wrong. s Pursuant to 17 U.S.C. § 504(c)(1), the owner of an infringed copyright can recover
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the amount of the infringer' "direct" and "indirect" profits causally related to the s infringement.3 17 U.S.C. § 504(c)(1); see also Polar Bear Productions, Inc. v. Timex Corp., 384 F.3d 700, 707 (9th Cir. 2004); Mackie v. Riser, 296 F.3d 909, 914 (9th Cir. 2002); Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 512 (9th Cir. 1985).4 Only profits that have a causal nexus to the infringement are recoverable. Polar Bear, 384 F.3d at 707, 711 ("this rule of reason ` obviates a good deal of mischief' in claiming profits beyond what might be attributable to the infringement"); Mackie, 296 F.3d at 914; On Davis v. Gap, Inc., 246 F.3d 152, 161 (2nd Cir. 2001); Estate of Vane v. The Fair, Inc., 849 F.2d 186, 189-90 (5th Cir. 1988); Taylor v. Meirick, 712 F.2d 1112, 1122 (7th Cir. 1983). The Court must make a threshold determination whether there is a legally sufficient causal link between the infringement and the indirect profits. Mackie, 296 F.3d at 915. The plaintiff has the initial burden to provide proof of the infringer' gross revenue related s to the infringement. Polar Bear, 384 F.3d at 707, 711; Mackie, 296 F.3d at 914; On Davis, 246 F.3d at 161; Vane, 849 F.2d at 189-90. Only after the plaintiff has met its burden of demonstrating a relationship between the infringement and profits, does the burden shift to the infringer to prove any offsetting costs. Polar Bear, 384 F.3d at 707, 711; Mackie, 296 F.3d at 914.
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F ENNEMORE C RAIG
PROFESSIONAL CORPORATION P HOENIX

The law regarding the recovery of an infringer' profits is more fully briefed in s Defendants' Motion to Preclude Testimony of Plaintiff' Expert Richard Weisgrau at pp. s 13-16, Defendants' Motion To Preclude Testimony Of Plaintiff' Expert Jeff Sedlik at s pp. 14-16, and Defendants' Motion For Summary Judgment On Plaintiff' Claim For s Recovery Of Avnet' Profits at pp. 5-10 (on May 10, 2006, the Court denied Defendants' s Motion for Leave to File Motion For Summary Judgment After Dispositive Motion Deadline but held that the Motion for Summary Judgment will be considered a trial memorandum on the issue of lost profits). "Direct profits" are generated by sales of the infringed product. Mackie, 296 F.3d at 914; Polar Bear, 384 F.3d at 707-8. "Indirect profits" are not generated through the direct sale of the infringed product. Id. Plaintiff has not alleged that Defendants engaged in the direct sale of Plaintiff' photographs. See Plaintiff' Motion at p. 15. Therefore, direct s s profits will not be addressed in this Response.
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F ENNEMORE C RAIG
PROFESSIONAL CORPORATION P HOENIX

On November 7, 2005, Plaintiff requested production of "documents Avnet has related to deductible expenses under 17 United States Code § 504(b) against Avnet' s gross revenue... ". See Exhibit B at p. 4. In its December 28, 2005 Response, Avnet objected, setting forth the factual and legal basis for its inability to supply the requested documents.5 Plaintiff has never identified any revenue streams related to the alleged infringements, making it impossible for Avnet to make the requested disclosures.6 Plaintiff argues that he has met his burden because "a copyright owner is required to present proof only of the infringer' gross revenue, as Plaintiff has done using Avnet' s s s Annual reports from 2002 through 2005." See Plaintiff' Motion at p. 11. His argument is based on the second sentence of 17 U.S.C. § 504(b), which provides: "the copyright owner is required to present proof only of the infringer' gross revenue, and the infringer s is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work." See Plaintiff' Motion at p. 10. s This

argument ignores the plain language of the statute and has been squarely rejected by the 9th Circuit and other courts. Plaintiff ignores the first sentence of the statute that specifically permits recovery only of "profits of the infringer that are attributable to the infringement." 17 U.S.C. § 504(b). Although "gross revenue" is not defined in the statute, it is well settled that it means the gross revenue associated with the infringement, not the infringer' overall gross s revenue. Polar Bear, 384 F.3d at 711 ("Although the statute only references the broad term `gross revenue,' to conclude that a copyright plaintiff need only provide the company' overall gross revenue, without regard to the infringement, would make little s
5

Avnet has disclosed significant financial information to Plaintiff and its public financial disclosures are available on its website.
6

Avnet is not required to produce financial documents for its global operations that are unrelated to profits caused by the infringement. Fed. R. Civ. P. 26(b)(1). Those financial records are not relevant to any issue in this case and will not lead to the discovery of any admissible evidence. Id.
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F ENNEMORE C RAIG
PROFESSIONAL CORPORATION P HOENIX

practical or legal sense."); On Davis, 246 F.3d at 160 ("the statutory term `gross revenue' should not be construed so broadly as to include revenue from lines of business that were unrelated to the act of infringement"); Taylor, 712 F.2d at 1122 ("[i]f General Motors were to steal your copyright and put it in a sales brochure, you could not just put a copy of General Motors' corporate income tax return in the record and rest your case for an award of infringer's profits"). "A copyright owner is required to do more initially than toss up an undifferentiated gross revenue number; the revenue stream must bear a legally significant relationship to the infringement." Polar Bear, 384 F.3d at 711. Since Plaintiff never identified any revenue with a causal nexus to the infringement, Avnet could not provide the requested documents and the burden of proving that the revenue was unrelated to the infringement and relevant deductible costs never shifted to Defendants. Therefore, Plaintiff' Motion should be denied. s D. Evidence Of Enhanced Goodwill Cannot Support A Claim For Recovery Of Avnet' Profits. s

Instead of identifying any profits related to the infringement, Plaintiff offers evidence of alleged enhanced goodwill to Avnet caused by the use of his photographs.7 He argues that the enhanced goodwill demonstrates a causal nexus between the infringement and all of Avnet' gross revenues from its global operations. Based on the s enhanced goodwill, he concludes that he is entitled to recover Avnet' gross profits from s all of its global operations (hundreds of millions of dollars). See Plaintiff' Motion at pp. s 5, 7, 13. This argument has been rejected by the 9th Circuit and other courts. Enhanced goodwill alone is simply not a compensable element of an infringer' profits. Evidence of s The sole basis for Plaintiff' claim that there is a causal nexus between the infringement s and Avnet' profits is the alleged enhancement of Avnet' goodwill. See Plaintiff' s s s Motion at p. 4, l. 27; p. 7, l. 22; p. 12, l. 15; p. 13, ll. 1, 4, 7, and 9; p. 15, l. 25; p. 16, l. 1; and p. 17, l. 4.
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enhanced goodwill or market recognition is insufficient to support recovery of indirect profits. See Polar Bear, 384 F.3d at 713-16; Bus. Trends Analysts, Inc. v. Freedonia Group, Inc., 887 F.2d 399, 407 (2nd Cir. 1989) (vacating award of profit damages for alleged enhancement of defendant's goodwill because plaintiff failed to quantify the value of the alleged enhancement); Vane, 849 F.2d at 189-90; Rainey v. Wayne State Univ., 26 F. Supp. 2d 963, 970-71 (E.D. MI 1998) (plaintiff failed to introduce any facts by which a reasonable nonspeculative formula could be used to award profit damages.); Roy Export Co. Establishment v. Columbia Broad. Sys., Inc., 503 F. Supp. 1137 (S.D.N.Y. 1980), aff'd, 672 F.2d 1095 (2nd Cir. 1982) (rejecting as speculative profits derived from prestige allegedly resulting from broadcasting infringing motion picture). Plaintiff has offered no evidence of a connection between the infringement and any specific profits or income streams. Indeed, both of Plaintiff' damages experts admitted s that they made no effort to establish such a causal link and could not offer an opinion on the issue. See Exhibit C at p. 5 ("I do not expect to opine or testify as to the specific amount of disgorged profit that is attributable to the infringements"); Exhibit D at pp. 90:7-91:17; 117:6-118:21; 140:16-20. Plaintiff merely offers Avnet' Annual Statements s as proof of Avnet' gross revenue from its global operations and argues that he has met s his burden of showing a causal nexus. Plaintiff' argument fails. As explained in Taylor, s "[i]f General Motors were to steal your copyright and put it in a sales brochure, you could not just put a copy of General Motors' corporate income tax return in the record and rest your case for an award of infringer's profits." 712 F.2d at 1122. Since Plaintiff has never identified profits with a causal nexus to the infringement and mere evidence of enhanced goodwill cannot support a claim for recovery of Avnet's profits, the Court should deny Plaintiff' Motion in Limine. s III. CONCLUSION Plaintiff' Motion should be denied because: s
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1. 2. 3.

it is procedurally improper and untimely; Avnet will not contradict its federally mandated financial disclosures; Plaintiff' request to preclude evidence that "may tend to contradict" s

Avnet' financial disclosures is vague and ambiguous; s 4. Avnet cannot disclose documents regarding deductible costs because

Plaintiff has never identified any profits related to the infringement; and 5. Plaintiff cannot maintain his claim for recovery of Avnet' profits based on s

mere evidence of alleged enhanced goodwill. DATED this 12th day of June, 2006. FENNEMORE CRAIG, P.C.

By s/Jordan Green Jordan Green Lawrence Palles Attorneys for Defendants Avnet, Inc., Roy Vallee, and Allen Maag

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F ENNEMORE C RAIG
PROFESSIONAL CORPORATION P HOENIX

CERTIFICATE OF SERVICE I hereby certify that on June 12, 2006, I electronically transmitted the attached document to the Clerk' Office using the CM/ECF System for s filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Jordan Meschkow, Esq. Meschkow & Gresham, P.L.C. 5727 North Seventh Street Suite 409 Phoenix, Arizona 85014-5818 Nancy Giles, Esq. Giles Legal PLC 733 W. Willetta Street Phoenix, Arizona 85007

s/Jordan Green

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