United States: 7th Circuit Remands Case (Again) To Apply Independent Economic Value Test To Individual Images In Copyrighted Compilations

Exhibit Q to the Complaint, Sullivan v. Flora, Inc., No. 15-cv-00298 (W.D. Wisc. 2015), ECF No. 1-17.

What counts as one work for copyright purposes? The answer can have a significant impact on the magnitude of an infringement damages award – so significant that the litigants in Sullivan v. Flora, Inc. have twice asked the Seventh Circuit to weigh in on the question.

The dispute arose out of Flora, Inc.'s willful infringement of 33 copyrighted illustrations that it had commissioned from artist Amy Sullivan and then used outside the scope of the parties' license agreement. Sullivan registered her images with the U.S. Copyright Office as two sets of "illustration collections," and the parties' disagreement centers on whether she is entitled to statutory damages on a per-image, rather than per-compilation, basis.

On March 31, 2023, the Seventh Circuit affirmed in part and reversed in part a decision of the District Court for the Western District of Wisconsin, remanding the proceedings for trial on the issue of whether the individual illustrations held "independent economic value" so as to justify a per-image calculation.

Background & Proceedings Below

Flora is a manufacturer of herbal supplements and health products. In 2013, Flora retained Joseph Silver to produce animated graphic advertisements for two of its products, 7 Sources and Flor-Essence. Silver subcontracted with Amy Sullivan to create illustrations for the ads. Sullivan created 33 images, and Silver animated the images to produce two motion graphics. Sullivan granted Flora an exclusive license to use the illustrations for the 7 Sources and Flor-Essence ad campaigns.

Soon thereafter, Sullivan discovered that Flora was using the illustrations outside the terms of their license agreement and without her authorization. Sullivan registered the copyrights in two "illustration collections" comprising 33 separate illustrations and sued Flora for copyright infringement in May 2015.

During the summary judgment phase, the district court held that Sullivan "registered the two sets of illustrations as collections, apparently treating each set as a single work." During pretrial conferences, however, Sullivan challenged the court's finding, claiming that she treated each illustration as a single copyrighted work and that the works are properly described as "illustrations" and not "illustration collections." The district court requested supplemental briefing on the issue.

Flora argued that Sullivan could only recover "one award per registration" or, alternatively, that the "independent economic value test" applies. The independent economic value test asks the district court to determine whether a protected work has "standalone value" based on evidence that the "work has distinct and discernable value to the copyright holder."

The district court rejected Flora's arguments, finding that the "undisputed fact" was that Sullivan "registered her two illustration collections as a collective or group work" and thus concluded, based on the definition of "collective work" in 17 U.S.C. § 101, that the illustrations "constituted separate and individual works in themselves, . . . assembled into a collective whole." The district court found that "the individual illustrations are individual works, entitling Sullivan to separate statutory damages awards."

The case proceeded to trial. The district court instructed the jury that "for purposes of considering a statutory damages award, you may consider each illustration . . . as an independent, copyrighted work." The jury ultimately found that Flora had willfully infringed Sullivan's copyrights and awarded statutory damages for each of the 33 individual illustrations infringed, amounting to a total of $3.6 million. Flora appealed.

First Appeal: Flora I

The standard for determining whether multiple related works are entitled to separate statutory damages awards (or whether damages are instead awarded on a per-compilation basis) was an issue of first impression for the Court of Appeals for the Seventh Circuit in Flora I.

The Seventh Circuit rejected both the district court's test, which was based exclusively on how Sullivan sought to register the illustrations, and the minority position held by the Second Circuit, which "focuses on whether the copyright holder marketed and distributed the multiple protected works as individual works or as a compendium of works (like, for example, an album)." See Bryant v. Media Right Prods., Inc., 603 F.3d 135 (2d Cir. 2010).

The Seventh Circuit instead joined the majority position (held by the First, Ninth, Eleventh, and D.C. Circuits) in adopting the "independent economic value" test: "A protected work has standalone value if the evidence shows that work has distinct and discernable value to the copyright holder." See Gamma Audio & Video, Inc. v. Ean-Chea, 11 F.3d 1106 (1st Cir. 1993); VHT, Inc. v. Zillow Grp., Inc., 918 F.3d 723 (9th Cir. 2019); MCA TV Ltd. v. Feltner, 89 F.3d 766 (11th Cir. 1996); Walt Disney Co. v. Powell, 897 F.2d 565 (D.C. Cir. 1990).

However, the record on appeal was insufficient to enable the Seventh Circuit to evaluate whether independent economic value existed in each of Sullivan's 33 illustrations. Thus, the court vacated the district court's judgment and remanded to the district court for further proceedings.

District Court Proceedings (Reprise)

On remand, the district court denied Flora's request to reopen discovery. The district court held that Flora had waived arguments challenging the independent economic value of certain illustrations, granted summary judgment in favor of Sullivan, and entered the same jury verdict. Flora appealed a second time.

Second Appeal: Flora II

Considering the case for the second time, the Seventh Circuit affirmed the district court's decision not to reopen fact discovery. The court found that Flora had had the opportunity and motivation to pursue discovery on the independent economic value theory (the test that Flora itself had championed) but "simply decided not to pursue discovery on the issue."

However, the Seventh Circuit rejected the district court's grant of summary judgment, which was based on the same record that the Seventh Circuit had found insufficient to resolve the independent economic value issue in Flora I. The court held that once the district court had rejected the reopening of discovery, it should have allowed the parties to present evidence on that issue to a jury. Not doing so violated the Seventh Circuit's mandate in Flora I.

The Seventh Circuit also rejected the district court's finding that Flora had waived arguments challenging the independent economic value of individual illustrations. To the contrary, the Seventh Circuit found that Flora had argued prior to trial that the damages award should be on a per-registration basis, entitling Sullivan to only two statutory damages awards, because the individual illustrations lacked any economic value. These arguments, the Seventh Circuit found, relate precisely to the independent economic value test adopted in Flora I.

The Seventh Circuit therefore remanded the case again, requiring the district court to hold trial on the limited issue of whether Sullivan's illustrations "constitute 33 individual works or instead are parts of two compilations." The Seventh Circuit declined to rehear the case en banc (Sullivan v. Flora, Inc., No. 22-2386, 2023 WL 3185282, at *1 (7th Cir. May 1, 2023)), and proceedings have resumed at the district court below without resolution.

The case is Sullivan v. Flora Inc., No. 22-2386 (7th Cir. Mar. 31, 2023), available at https://media.ca7.uscourts.gov/cgi-bin/OpinionsWeb/processWebInputExternal.pl?Submit=Display&Path=Y2023/D03-31/C:22-2386:J:St__Eve:aut:T:fnOp:N:3024325:S:0.

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