U.S. Supreme Court Hears Copyright Case

By Shane Wax

What happens if a copyright application includes incorrect information and the registrant subsequently sues an alleged infringer?

Under Section 411(b) of the Copyright Act, the alleged infringer can assert a defense that a copyright owner is not entitled to the benefits of their U.S. registration certificate if (a) the application materials include inaccurate information, that (b) “the inaccurate information was included on the application for copyright registration with knowledge that it was inaccurate; and (c) if known, would have caused the Register of Copyrights to refuse registration.

But what does it mean to include “inaccurate information . . . with the knowledge that it was inaccurate”? Does it matter if it is an honest mistake, a case of negligence, or if it is intention, a case of fraud? Does it matter if the applicant has knowledge of the facts but not the law? This past November, the U.S. Supreme Court heard oral argument in the matter of Unicolors v H&M, looking to answer the simple, yet important question: what state of mind must a copyright applicant have before it loses the benefits of relying on a registration to sue alleged infringer?

The Unicolors case boils down to two questions: (1) whether “knowledge” as used in the statute means “actual” or “subjective” knowledge or if it should be interpreted more broadly to include “constructive” or “objective” knowledge, and (2) whether the question of knowledge encompasses only facts or both facts and legal conclusions – that is, whether a mistake of law may negate the litigation benefits tied to a copyright registration certificate. While this case also faces a peculiar procedural question that could allow the Court to dispose of it as “improvidently granted,” the Court’s overall tenor at oral argument suggested that they were largely eager to decide this important question of copyright law now, and several moments during argument, in particular, may have foreshadowed an outcome.

This case arose in 2016 after Unicolors alleged that H&M’s “Xue Xue” design, which began appearing on H&M garments in 2015, infringed Unicolors’ “EH101” design, which it had registered in 2011 under a copyright registration that also covered 30 other works not at issue. The case was tried before a jury, which unanimously found that that H&M willfully infringed Unicolors’ copyright, thereby exposing H&M to paying enhanced statutory damages. The finding of infringement also meant H&M would have to pay Unicolors’ legal costs and reasonable attorney’s fees. At that point, H&M claimed that Unicolors’ registration was invalid because it contained inaccurate information and Unicolors knew or should have known the application was defective.

Specifically, H&M argued that Unicolors used a single copyright application to register 31 separate works as one “collection” despite “knowing” that the 31 works were not jointly published such that Unicolors knew the 31 works could not be registered using a single application. While Unicolors’ single application indicated that each of the 31 works was published on January 15, 2011, Unicolors’ president testified that this date signified when each design was presented to internal salespeople for the purposes of marketing and licensing. Since Unicolors’ works were not being sold, offered for sale or transferred “to the public” on January 15, 2011, H&M argued that the works were not published on that date, and in any event, since some of the 31 designs were withheld from Unicolors’ showrooms altogether, the 31 works were not published as a “collection.”

Unicolors countered by arguing that H&M had not shown that Unicolors intended to deceive the Copyright Office, that, at most, it made an honest mistake of law because older Copyright Office guidance as to the restrictions on using single applications for multiple works was vague and that it never encountered any objections from the Copyright Office in all of its years of following this practice of using this “showroom” date as the date of publication.

While the District Court rejected H&M’s argument, the Ninth Circuit Court of Appeals reversed, holding that the publication date in Unicolors’ application constituted inaccurate information as a matter of law because the 31 works were not published as a single unit (e.g., a sound recording with multiple compositions), and that because the District Court found that Unicolors had actual knowledge of the facts underlying the publication date, it knew or should have known that not all of the 31 works were published concurrently on January 15, 2011. According to the Ninth Circuit and H&M, this automatically necessitated, at least, referral of the matter to the Register of Copyright to consider the inaccuracies and to advise the district court how it would have proceeded on Unicolors’ single collective works application had it known the truth (irrespective of whether Unicolors made a mistake of law).
Unicolors appealed to the Supreme Court and, joined by the Solicitors General of the United States and several amici (or “friends of the court”), argued that the Ninth Circuit was wrong to conclude that Unicolors had the requisite knowledge to fall within the ambit of the Copyright Act’s referral mandate.

As to the question of whether the relevant inquiry is into the applicant’s knowledge of just the facts or rather the applicant’s knowledge of both the facts and the law as applied, Unicolors persuasively argued that mistakes of law are treated in kind to mistakes of fact because Section 411 refers to “information” not to “facts” and the phrase “information” under Section 410 includes legal conclusions. While H&M argued that “mistake or ignorance of law is no defense unless a statute explicitly indicates otherwise,” Justice Kavanaugh appeared to speak for a majority of the Court when he noted that while “ignorance of the law is no defense is an old principle . . . it’s got a lot less force in regulatory areas . . . [and] it especially has less force when the statute itself . . . folds the legal portion in,” referring to the reference to legal conclusions included in Section 410.

The Court spent more time inquiring about the meaning of “knowledge” under Section 411. Unicolors argued that, in adding the statutory text in 2010, Congress merely intended to codify the longstanding common law doctrine of “Fraud on the Copyright Office,” which requires a showing of actual knowledge as an element of intent to defraud, and even if Congress lessened the standard of proof by not requiring intent to defraud, it did not intend to replace the requirement of actual knowledge. We know that, Unicolors argued, because Congress surely did not intend to put millions of copyright registrations at risk based on innocent mistakes, and if it did, Congress would have used clear statutory language akin to “knew or should have known,” “had reasonable grounds to know,” or “acted in deliberate disregard or recklessness,” as used elsewhere in the Copyright Act.

In response to questions from the Court about “copyright trolls,” who might feign ignorance of the contest information, but who ought to know – for example, larger entities that have in house counsel to review and understand legal requirements – Unicolors noted that the “actual standard” already encompasses “willful blindness,” and that this standard could be applied to both facts and law, a sentiment echoed by the Solicitors General. Chief Justice Roberts and Justices Sotomayor and Kavanaugh sought to hone in on the precise extent of applying the willful blindness standard to this case, especially as applied to questions of law, and repeatedly suggested that the Solicitors General’s Office offered a standard that would bridge the two sides. Thus, an applicant’s interpretation of the law need not be reasonable, per se, but it cannot be manifestly unreasonable.

While it is early to tell, it is fair to prognosticate a holding that will adopt a similar standard: actual knowledge with carve out broader than willful blindness to capture wholly unreasonable positions and interpretations of the law. Indeed, counsel for H&M ultimately conceded to Justice Breyer: “If you think the statute was intended only to catch liars, then we should lose.”

A decision is expected in early 2022.