Dolori Fabrics, Inc. v. Limited, Inc. (662 F. Supp. 1347, 1987)

LUMBARD, Circuit Judge:

Dolori Fabrics, Inc. commenced this action after its president, Donald Fixelle, purchased from two fashion catalogues dresses made from fabric which Dolori contends infringes upon one of its copyrighted designs. Dolori seeks damages and injunc-tive relief under the federal copyright laws, 17 U.S.C. § 101 et seq., against Brylane, Inc., the publisher of the catalogues and retailer of the allegedly infringing dresses; Lane Bryant, Inc., Brylane’s sister company; The Limited, Inc., the parent corporation of Brylane and Lane Bryant; and Kenly Casuals, Inc., a/k/a Kenly Manufacturing Co., Inc., the manufacturer of the gar-merits. Brylane cross-claims against Kenly to enforce an indemnification agreement and the warranty against infringement codified in N.Y. U.C.C. § 2-312.

The court holds that Brylane and Kenly infringed upon Dolori’s copyright and therefore grants judgment in favor of Do-lori against Kenly for $3,718.84 in damages plus an additional $15,000.00 in attorney’s fees; against Brylane for $36,647.76; and against both Kenly and Brylane, in joint and several liability, for $7,052.76. Because The Limited and Lane Bryant played no part in infringement, the court dismisses Dolori’s claims against them. Finally, judgment under N.Y. U.C.C. § 2-312 is granted to Brylane against Kenly in the amount of $36,647.76. Brylane may also recover from Kenly whatever portion of the joint and several liability of the two companies that Brylane pays to Dolori.

I. Facts

Dolori is a textile converter. A textile converter buys unpatterned and uncolored fabrics, known as greige goods, arranges to have them patterned and finished, and then sells the finished products to garment manufacturers and other fabric users. Kenly manufactures and sells women’s dresses and sportswear to retailers. Bry-lane vends women’s fashions through six catalogue lines, which include the “Lane Bryant” and “Tall Collection” catalogues. Lane Bryant operates outlets for women’s apparel in various malls and shopping centers throughout the country. Both Brylane and Lane Bryant are wholly-owned subsidiaries of The Limited.

Prior to 1982, Lane Bryant consisted of both a retail division and a mail order division. In 1982, The Limited acquired Lane Bryant and split the two divisions into separate corporations, the retail division becoming Lane Bryant, Inc., and the mail order division, Brylane, Inc. The two companies now have distinct officers, buyers, staffs, places of business, vendors, and merchandise. Neither Lane Bryant nor The Limited purchased or sold any of the infringing garments.

In the summer of 1985, Donald Fixelle, president of Dolori, and Louis Klahr, his partner, collaborated on a new design. They started with a fabric swatch of Dolo-ri’s successful pattern No. W-200, a twin print which exhibited a positive/negative look on two separate pieces of fabric — the first piece employing one color as background and the other as pattern, and the second piece of fabric reversing the two colors. Fixelle and Klahr set out to incorporate W-200’s positive/negative look into one pattern on one piece of fabric. They also located a black and white floral swatch from their fabric library with a positive/negative pattern, and a photograph from an Italian magazine. This photograph depicts a model wearing a green and white dress with a floral, positive/negative design. Combining inspiration from these three sources, they attempted to create a flat, clean look with equal distribution of positive and negative sources.

Fixelle and Klahr next met with artist Pat Sperandeo, whom they often used for design work, and showed her the two fabric swatches and the magazine photograph. They explained to her the desired look and feel. Sperandeo then drew the pattern that Fixelle and Klahr had described into a design “repeat” — the actual two-dimensional pattern which a converter prints repeatedly onto the fabric. An artist draws a design repeat to permit the engraver to engrave the pattern; to insure that the pattern can be printed repeatedly onto the cloth without gaps; and to see how the pattern will actually appear on the cloth. When Sper-andeo drew the repeat, she did not have the two floral swatches with her, but did have the magazine photograph. The repeat which Sperandeo drew was engraved and reproduced as pattern W-232. Dolori then registered the design with the Copyright Office and, on November 14, 1985 was granted a certificate of copyright registration, No. VAU 85-083.

In November and December, 1985, and January, 1986, Dolori sold samples of W-232 on a matte georgette — an expensive, high-quality fabric — -to a number of garment manufacturers, including Kenly. The samples employed a royal blue and black color scheme, a particularly popular combination in the fashion industry that year. Fixelle testified that the samples carried Dolori’s copyright notice on the selvage, or nonusable border, of the material. A swatch of fabric finished by Dolori which clearly bears a copyright notice on its selvage supports this claim. Nevertheless, Kenly disputes this, pointing to a dress made from fabric sampled to it by Dolori which retains part of the selvage but bears no copyright notice. Visual inspection of this dress discloses that a substantial portion of the selvage has been cut off. The fact that no notice appears on the portion of the selvage that remains does not prove that the original fabric pattern lacked notice of Dolori’s copyright. Consequently, the court credits Fixelle’s testimony, buttressed by the swatch of fabric introduced by Dolori, and finds that the samples of pattern No. W-232 sold to Kenly provided notice of Dolori’s copyright on the selvage.

Kenly never purchased any of Dolori’s fabric after receiving the sample. Instead, Kenly passed some of the fabric to Schneider Fabrics, Inc., a rival textile converter, who then printed the allegedly infringing design on lesser-quality material — crepe— and sold the finished fabric to Kenly on February 28 and June 16, 1986. Kenly used the material to manufacture two different style dresses, which it sold to Bry-lane. These dresses appeared in Brylane’s “Lane Bryant” and “Tall Collection” cat-alogues — one style in each catalogue — beginning in May, 1986. Brylane subsequently sold both dress styles through its mail order system.

When Fixelle received copies of the “Lane Bryant” and “Tall Collection” cat-alogues in late June or early July, 1986, he spotted the garments made from the fabric manufactured by Schneider. Fixelle immediately visited his attorney, who, on July 9, 1986, sent a letter to Lane Bryant, Inc. demanding that it stop selling the infringing garments and requesting information about the manufacturer. This letter did not state where Fixelle had seen the dresses. Upon receipt of the letter, Lane Bryant searched through its inventory, but, as it did not sell any dresses made from Schneider’s fabric, found nothing which “remotely resemble[d]” Dolori’s pattern.

On July 15, 1986, Lane Bryant reported the results of its search to Fixelle’s attorney. Dolori responded, in a letter dated July 25, 1986, and for the first time mentioned that the dresses had appeared in a “Lane Bryant” catalogue. Aware that Lane Bryant’s sister company Brylane published the “Lane Bryant” catalogue, controller Joel Silverman wrote back to Dolori on July 28, 1986, and suggested that Dolori direct its correspondence to Stan Silver, Silverman’s counterpart at Brylane. Neither Lane Bryant nor Dolori made any subsequent attempt to contact Brylane until this suit commenced. In the meantime, Fixelle ordered two dresses, one from each catalogue, which he received in August, 1986.

Dolori filed this action on August 28, 1986, and on the same day served on the defendants an order to show cause why a preliminary injunction should not issue. The order to show cause contained a temporary restraining order, signed by Judge John M. Walker, Jr. When Judge Walker denied Brylane’s application to stay issuance of the TRO, made pursuant to Fed. R.Civ.P. 65(b), Brylane’s president Peter Canzone ordered the items “frozen in stock.” Accordingly, Brylane pulled the dresses from future printings of the cat-alogues and cancelled any outstanding orders from customers. However, Brylane’s records show that it received 732 dresses of style No. 103-3506 from Kenly on August 29, 1986, one day after the issuance of the TRO, and that only 628 dresses of that style now remain in stock. Thus, Brylane must have shipped at least 104 garments after it had been served with the TRO. Defendants thereafter stipulated to the continuance of the TRO without admission of liability. The case proceeded to trial on February 19 and February 25, 1987.

II. Liability of Lane Bryant and The Limited

At trial, Dolori agreed to dismiss its action against The Limited, admitting that the company had no responsibility for any infringement by its wholly-owned subsidiary. For the same reason, the court also dismisses Dolori’s claim against Lane Bryant, Inc. Although Dolori does not claim that Lane Bryant either purchased or sold the infringing garments, it suggests that this court may impute Bylane’s liability to its sister company. However, “a corporation, absent findings of fraud or bad faith, is entitled to a presumption of separateness from a sister corporation even though both are owned and controlled by the same persons.” Crown Central Petroleum Corp. v. Cosmopolitan Shipping Co., 602 F.2d 474, 476 (2d Cir.1979).

A court may disregard the corporate form only if it “determine[s] that there is such unity of interest and ownership that separate personalities of the corporations no longer exist, and that failure to disregard the corporate form would result in fraud or injustice.” Oriental Commercial and Shipping Co. v. Rosseel, N.V., 609 F.Supp. 75, 78-79 (S.D.N.Y.1985). Here, the two companies showed meticulous respect for corporate formalities. The fact that both license the tradename “Lane Bryant” from a third company—Brylane for one of its catalogues and Lane Bryant for its retail operation—does not, by itself, justify piercing the corporate veil.

Nor has Dolori demonstrated bad faith or fraud. When Dolori advised Lane Bryant of its claims of infringement, Lane Bryant did all that it could be expected to do. After receiving Dolori’s first letter, which gave Lane Bryant no reason to suppose that Dolori’s claim of infringement actually referred to Brylane, Lane Bryant made a search of its inventory, failed to find any fabric which might infringe on Dolori’s copyright, and then promptly reported its findings to Dolori. When Dolori’s second letter mentioned the “Lane Bryant” cat-alogue, thus alerting Lane Bryant to the possibility that Brylane might be involved, Lane Bryant immediately referred Dolori to the responsible officer at Brylane.

III. Liability of Kenly and Brylane A. Originality of Dolori’s Design

Kenly and Brylane challenge the validity of Dolori’s copyright, claiming that it lacks originality, “the one pervading element prerequisite to copyright protection....” 1 M. Nimmer, Nimmer on Copyright § 2.01 at 2-5 (1986); see also L. Batlin & Son, Inc. v. Snyder, 536 F.2d 486, 489-90 (2d Cir.) (en banc), cert. denied, 429 U.S. 857, 97 S.Ct. 156, 50 L.Ed.2d 135 (1976). Kenly and Brylane contend that Dolori’s design amounted to little more than a copy of the design pictured in the Italian fashion magazine. They point to the fact that artist Pat Sperandeo had only that photograph with her when she drew the design repeat, neglecting to mention that Fixelle and Klahr had earlier discussed their design with her and shown her two swatches of cloth in addition to the magazine photograph. Kenly and Brylane also place great reliance on the testimony of Howard Scott, a seventeen-year veteran of the print business who presently works as a vice president at “The Hampton Print Works,” a textile converter. Scott testified that Dolori’s pattern no. W-232 was “almost identical” to the photograph from the Italian fashion magazine. He continued, “I don’t think I would attempt to copyright a design like this because it’s so close.”

A Copyright Office certificate of registration, if timely obtained, “constitute^] prima facie evidence of the validity of the copyright_” 17 U.S.C. § 410(c). Nevertheless, a litigant may attempt to rebut the presumption of copyright validity, and “[w]here other evidence in the record casts doubt on the question, validity will not be assumed.” Durham Industries, Inc. v. Tomy Corp., 630 F.2d 905, 908 (2d Cir.1980).

The requirement of originality does not present Dolori with a difficult hurdle to clear. The Second Circuit has variously characterized the test of originality as “ ‘modest,’ ‘minimal,’ and as establishing a ‘low threshold’_” Durham Industries, supra, 630 F.2d at 910 (citing cases). As Professor Nimmer explained, “the line to be drawn includes almost any independent effort on the side of sufficient originality. Any ‘distinguishable variation’ of a prior work will constitute sufficient originality to support a copyright if such variation ... is more than merely trivial.” 1 M. Nimmer, supra, § 2.01[B] at 2-11. Originality does not demand “invention in the sense of striking uniqueness, ingeniousness, or novelty.... Originality means that the work owes its creation to the author and this in turn means that the work must not consist of actual copying.” L. Batlin & Son, supra, 536 F.2d at 490 (cites omitted). In the words of Judge Frank, “[a]ll that is needed to satisfy both the Constitution and the statute is that the ‘author’ contributed something more than a ‘merely trivial’ variation, something recognizably ‘his own.’ Originality in this context ‘means little more than a prohibition of actual copying.’ ” Alfred Bell & Co. v. Catalda Fine Arts, 191 F.2d 99, 102-03 (2d Cir.1951) (footnotes omitted).

The court finds Dolori’s design to be sufficiently original to support a copyright. We agree with Fixelle’s description of the photograph’s design as “very muddled and tonal and dimensional”, while his pattern is “flat and clean” and has an equal positive/negative distribution. Nor does the fact that Dolori’s artist Pat Sperandeo used the photograph when she drew up the design require a different result. As Kenly’s expert witness Howard Scott conceded during cross-examination, industry members commonly “shopped stores” and relied upon fashion magazines to generate new design ideas; indeed, his own firm had resorted to similar techniques in the past. Thus, the court concludes Dolori’s design — a distinguishable variation of the design portrayed in the Italian fashion magazine — contains the modicum of originality necessary for copyright protection.

B. Infringement

Even giving due consideration to the derivative nature of Dolori’s work, Durham Industries, supra, 630 F.2d at 909, the court finds that defendants’ pattern infringed upon Dolori’s design. Where direct evidence of copying is unavailable, copying may be inferred from an alleged infringer’s access to the copyrighted work and “substantial similarity” between the works. E.g., Warner Bros., Inc. v. American Broadcasting Companies, Inc., 654 F.2d 204, 207 (2d Cir.1981); Novelty Textile Mills, Inc. v. Joan Fabrics Corp., 558 F.2d 1090, 1092 (2d Cir.1977). As Dolori sampled its work to Kenly, Kenly had access to Dolori’s pattern.

Substantial similarity must be determined by the “ordinary observer” test. Under this test, as formulated by Judge Learned Hand over a quarter of a century ago, two patterns will be deemed substantially similar if “the ordinary observer, unless he sets out to detect the disparities, would be disposed to overlook them, and regard their aesthetic appeal as the same.” Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir.1960). In other words, a court should find substantial similarity if “an average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work.” Ideal Toy Corp. v. Fab-Lu Ltd., 360 F.2d 1021, 1022 (2d Cir.1966).

Defendants’ pattern is an exact copy, line for line, flower for flower, color for color, of Dolori’s work, except that Dolori’s design repeats every 25¼ inches while the defendants’ design repeats every 18 inches. Placing a sample of Dolori’s floral design on top of one of the dresses manufactured by Kenly and sold by Brylane shows the infringing design exactly duplicates the first 18 inches of Dolori’s pattern; and then repeats that identical 18 inches over and over again. Thus, the court concludes that an average lay observer would recognize that defendants’ pattern had been appropriated from Dolori’s copyrighted design. Ideal Toy, supra, 360 F.2d at 1022.

Kenly’s argument that it would be contradictory to find both originality of Dolori’s pattern and infringement forgets that the two tests are entirely different. Eden Toys, Inc. v. Florelee Undergarment Co., 697 F.2d 27, 34 (2d Cir.1982). A work may be copyrighted even if it is substantially similar to a preexisting work produced by another, id.; 1 M. Nimmer, supra, § 2.01[A] at 2-7-8. However, the copyright protection afforded a derivative work extends only to the incremental contributions of the second author. 17 U.S.C. § 103(b). See generally 1 M. Nimmer, supra, § 3.04; J. Patry, Latman’s The Copyright Law 28 & n. 52 (6th ed. 1986). Here, Kenly and Brylane infringed on Dolori’s original contribution to the floral design and thus should be held accountable. See Financial Information, Inc. v. Moody’s Investors Service, Inc., 751 F.2d 501, 510-11 (2d Cir.1984) (Newman, J., concurring). In other words, even W-232’s derivative nature does not forgive exact copying.

C. Intent

The court finds that Kenly intentionally infringed upon Dolori’s copyright: it received samples of Dolori’s pattern directly from Dolori; those samples bore notice of Dolori’s copyright; instead of purchasing from Dolori, Kenly gave samples to a rival textile converter, who printed Dolori’s design on cheaper cloth and then sold it to Kenly.

On the other hand, Brylane’s infringement was unintentional: Brylane never sampled this pattern from Dolori; as no one purchased Dolori’s pattern, except as samples, until April, 1986, it was not circulating in the marketplace; Brylane never received notice, until the commencement of this suit, that the pattern infringed upon Dolori’s copyright; Dolori's copyright notice on the selvage had been removed during the manufacture of Kenly’s sample dresses and never reached Brylane; and most important, Brylane dealt with a reputable dress manufacturer who had no history of copyright infringement.

Finally, Brylane had no obligation to undertake a copyright search. See In Design v. S. Rothschild & Co., 1986 Copr.L.Dec. (CCH) ¶ 25,890 at 20,073 (S.D.N.Y.1986) [Available on WESTLAW, DCT database] (“Defendant was under no obligation, having bought the garment at Macy’s, a reputable department store, and finding no indication that the design was not in the public domain, to make a search to determine whether it had copyright protection.”). Brylane purchases thousands of garments from nearly 500 suppliers within a year’s time. The burden of researching each floral pattern — the most common design in the industry — obtained from a reputable manufacturer would be unreasonable.

Dolori counters that Brylane’s shipment of 104 garments after it received the TRO signed by Judge Walker on August 28, 1986 proves intentional infringement. The court disagrees. Brylane’s president, Peter Canzone, testified that upon receiving the TRO, he immediately ordered that both styles be frozen in stock — in other words, no more orders were to be filled and existing orders were to be refunded. As with any large organization, orders cannot be implemented instantly; they require a certain amount of time to work their way to the line from management. As everything else points to Brylane’s good faith, and Brylane had no advance notice that it was to be served with a TRO, the shipment of 104 garments before Canzone’s orders could be implemented does not, by itself, prove that Brylane intentionally infringed on Dolori's copyright.

However, Brylane’s unintentional infringement does not, as it claims, exempt it from liability under 17 U.S.C. § 405(b). That section provides, in pertinent part, “Any person who innocently infringes a copyright, in reliance upon an authorized copy ... from which the copyright notice has been omitted, incurs no liability for actual or statutory damages under section 504 for any infringing acts committed before receiving actual notice....” As the plain words of the statute make clear, this section only applies where a defendant has been misled by omission from “an authorized copy.” See 17 U.S.C. § 405, note; Ruskin v. Sunrise Management, Inc., 506 F.Supp. 1284, 1289 (D.Colo.1981); 2 M. Nimmer, supra, § 7.14[B][2][c] at 7-107. Here, Brylane was not misled by the omission of the notice from authorized copies, but from unauthorized ones — the dresses sold by Kenly. Accordingly, section 405(b) does not shield Brylane from liability.

IV. Relief

A. Double-Counting

Section 504(b) of the Copyright Act entitles the owner of a copyright “to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing actual damages.” 17 U.S.C. § 504(b) (emphasis added). Kenly contends that the italicized language precludes this court from awarding Dolori both actual damages and Kenly’s profits. The court disagrees. In Abeshouse v. Ultragraphics, Inc., 754 F.2d 467, 471 (2d Cir.1985), Chief Judge Feinberg concluded that forcing a distributor to disgorge the profits from its sales in addition to reimbursing the plaintiff manufacturer for the profits it would have earned “contain[ed] no element of double-counting.” The manufacturer “could not have made the [sales which the distributor had made] and therefore cannot claim any lost profits on them.” Id.

Similarly, Dolori did not compete for, and therefore could not have made, the same sales as either Kenly or Brylane. Dolori may therefore recover from Kenly and Brylane both its actual damages and their profits due to the infringement. See also Deltak, Inc. v. Advanced Systems, Inc., 767 F.2d 357, 363 (7th Cir.1985); Taylor v. Meirick, 712 F.2d 1112, 1119-21 (7th Cir.1983). See generally 3 M. Nimmer, supra, § 14.01[A] at 14-4; J. Patry, supra, at 287-88. Abeshouse also answers Kenly’s contention that this court may not order it to disgorge its profits to Dolori because the two companies compete in different markets.

B. Dolori’s Damages

The court finds Dolori would have made Schneider’s sales to Kenly— who had been and still is Dolori’s customer as well as Schneider’s — had Schneider not been selling the infringing fabric. E.g., Stevens Linen Associates, Inc. v. Mastercraft Corp., 656 F.2d 11, 15 (2d Cir.1981); Baldwin Cooke Co. v. Keith Clark, Inc., 420 F.Supp. 404, 407 (N.D.Ill.1976); 3 M. Nimmer, supra, § 14.02[A] at 14-9. The court rejects Dolori’s argument that it should be awarded lost profits on the sale of the more expensive matte georgette fabric rather than on the sale of the less expensive crepe fabric which Schneider actually sold to Kenly. It strains credulity to suggest that Dolori, a textile converter who regularly printed its designs on crepe fabric, would have refused to do so here if Kenly had placed such an order. Nor will the court speculate as to whether Dolori would have made the additional sales necessary to supply those orders which Bry-lane received from its mail order customers but never filled because of the pendency of this lawsuit.

Fixelle testified that Dolori would have sold the crepe imprinted with W-232 for $2.15 to $2.25 a yard and that Dolori works on a 30 percent markup. The court selects the median figure of $2.20, resulting in a finding that Dolori would have earned 66