United States: Corporate Officer Held Personally Liable For IP Infringement By His Company

A hotel was liable for statutory damages, the other copyright owners’ costs of suit including attorneys’ fees, and was permanently enjoined from infringing copyrights to music compositions by publicly performing the music for hotel patrons. Most significantly, the President/Treasurer of the hotel’s parent company was found to be jointly and severally liable with the hotel for copyright infringement. EMI Mills Music, Inc., et al., v. Empress Hotel, Inc., et al. (D.P.R. No. 03-01940, Sept. 20, 2006).

Plaintiffs EMI Mills Music, Inc., Universal-Polygram International Publishing, Inc., Dreamworks Songs, Billy Strayhorn Songs, Inc. and Universal Studios, Inc. are music copyright owners who brought suit alleging that the defendants San Juan Empress Hotel, Empress Hotel, Inc. and Mr. Carl Palermo, President and Treasurer of Empress Hotel, Inc., had infringed their copyrights in four songs through the unauthorized public performance of the songs on defendants’ premises. The San Juan Empress Hotel regularly hires musicians to perform live for the entertainment of its patrons and also has a digital jukebox on the premises. Digital jukebox services, however, typically obtain the necessary music licenses so only the live performances were the subject of the suit.

Plaintiffs are all members of the American Society of Composers, Authors and Publishers ("ASCAP"), an association whose members write and publish musical compositions. ASCAP grants licenses on behalf of its members to music users—such as hotels, restaurants, nightclubs, television networks and stations and radio stations—that permit public performances of the members’ copyrighted music, including the four songs at issue.

From February 1998 through December 2001, ASCAP made numerous attempts to persuade the defendants to obtain an ASCAP license which would allow the hotel to lawfully perform copyrighted musical works in the ASCAP repertory. ASCAP representatives contacted defendants with at least 10 letters, telephone calls and personal visits. The defendants were advised that in order to lawfully perform ASCAP’s copyrighted musical compositions, permission was required from either ASCAP or the individual copyright owners directly. They were also informed of their potential liability arising from the unauthorized public performances.

Nevertheless, defendants repeatedly ignored and rejected ASCAP’s licensing offers. All of the performances of the ASCAP songs at issue occurred without a license from ASCAP or from the copyright owners directly. Defendants were aware that the San Juan Empress Hotel was not licensed to perform ASCAP’s copyrighted musical compositions and that such unlicensed performances constituted copyright infringement, exposing them to substantial liability.

Injunctive relief was granted to prevent further copyright violations. Defendants had been aware of their need to obtain an ASCAP license since at least 1998 and they had refused to obtain one. In light of Defendants’ infringement of ASCAP’s copyrights and the possibility that further infringements might take place, the defendants, their agents, employees and anyone else acting in concert or in privity with them were permanently enjoined from publicly performing any musical composition licensed through ASCAP at the Empress Hotel or any of the Empress Hotel Inc’s other premises without a license to do so.

Defendants may be held jointly and severally liable if they violate plaintiff’s rights as protected by the Copyright Act. In particular, a corporate officer may be held to be jointly and severally liable when he or she:

• personally participated in the actual infringement;

• derived financial benefit from the infringing activities as either a major shareholder in the corporation, or through some other means such as receiving a percentage of the revenues from the activity giving rise to the infringement;

• used the corporation as an instrument to carry out a deliberate infringement of copyright;

• was the dominant influence in the corporation, and determined the policies which resulted in the infringement, or

• on the basis of some combination of the above criteria.

As President and Treasurer of Empress Hotel, Inc., Mr. Carl Palermo was responsible for the control, management operations and maintenance of the hotel’s affairs. The parties also stipulated that musicians were regularly hired to publicly perform musical compositions at the hotel and defendants financially benefited from these public performances because the live musicians attracted or entertained paying patrons of the hotel. Based on these facts, the court found Mr. Palermo to be jointly and severally liable with Empress Hotel, Inc., for both statutory damages and costs of suit including attorneys’ fees.

Statutory Damages. Statutory damages are designed in part to deter copyright infringements; the U.S. Supreme Court has held that merely awarding copyright owners damages equal to lost profits does not sufficiently deter infringements. In recognition of the important deterrent purpose served by statutory damages, courts routinely compute statutory damages of between two to six times the license fees defendants avoided by not complying with the Copyright Act.

The defendants’ public performance of the copyrighted songs was found to be deliberate and willful in this case because defendants knowingly used the copyrighted songs at the Empress Hotel despite ASCAP’s extensive and repeated licensing offers. The court held that the defendants’ knowing infringement of the copyright laws justified an award of statutory damages between three and four times the amount of licensing fees that the defendants saved in the last nine years since ASCAP first approached them in 1998. Thus, based on the estimate of approximately $2,000 in licensing fees each year for nine years, the court awarded $15,000 for each song infringed, for a total of $60,000.

Fortunately for the defendants, plaintiffs had not sought statutory damages for willful infringement. Such damages could have been awarded, at the discretion of the court, up to the amount of $150,000 per song infringed, for a total of up to $600,000. It was also fortunate for the defendants that the plaintiffs chose to sue for infringement of only four songs. In any event, even the $60,000 in damages that was awarded is well over the approximately $18,000 that defendants would have paid in licensing fees if the music licenses had been obtained from ASCAP or from the copyright owners directly.

Attorneys’ Fees and Costs. The Copyright Act also provides that a court has discretion to award the full costs of suit, including reasonable attorneys’ fees, to the prevailing party in a copyright case. In this case, the plaintiffs were awarded their reasonable attorneys’ fees and costs because the defendants deliberately and knowingly infringed plaintiffs’ copyrights, continued to perform ASCAP’s copyrighted music after extensive notice, refused to obtain permission to perform copyrighted music, and caused the matter to be litigated through trial.

This case is a cautionary warning for businesses that use music or other copyrighted works, and specifically for their executives. Note, however, that the case is currently being appealed in the United States Court of Appeals for the First Circuit. The appellate court’s decision may provide further guidance regarding joint and several liability for copyright infringement by a corporate officer. Unless and until this decision is overturned, however, the case provides considerable incentive for corporate officers to make sure that their companies obtain proper licenses to use copyrighted works.

ASCAP is only one of the three performance rights societies in the U.S., each of which represents a different catalog of musical compositions. These defendants, and other businesses who make unlicensed use of music on their premises, also face potential liability to the other two performance rights societies – BMI and SESAC – for unlicensed music performances.

In order to avoid liability for copyright infringement, businesses that use music, whether recorded or live, need to carefully consider what music performance licenses are needed and to obtain the proper licenses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.