Gold Value International Textile, Inc. v. Sanctuary Clothing, LLC

          Argued and Submitted December 6, 2018 Pasadena, California

          Appeal from the United States District Court for the Central District of California D.C. No. 2:16-cv-00339-JAK-FFM John A. Kronstadt, District Judge, Presiding

          Scott Alan Burroughs (argued) and Trevor W. Barrett, Doniger/Burroughs, Venice, California, for Plaintiff-Appellant.

          Jessica Strom Rutherford (argued), Alexander Malbin, and Edmund J. Ferdinand III, Ferdinand IP LLC, New York, New York, for Defendants-Appellees.

          Before: Diarmuid F. O'Scannlain and Sandra S. Ikuta, Circuit Judges, and George Caram Steeh III, [*] District Judge.

         SUMMARY^[**]

         Copyright

         The panel affirmed the district court's summary judgment and award of attorney's fees in favor of the defendants in an action under the Copyright Act.

         Gold Value International Textile, Inc., doing business as Fiesta Fabric, alleged that defendant Sanctuary Clothing, LLC, copied its fabric design, which was used to manufacture a blouse that was sold by defendant retail outlets. Sanctuary filed a counterclaim, seeking invalidation of Fiesta's copyright. Concluding that Fiesta's copyright registration was invalid, the district court granted summary judgment in favor of defendants.

         The panel affirmed the district court's conclusion that Fiesta's copyright registration was invalid under 17 U.S.C. § 411(b) because Fiesta knowingly included inaccurate information in its copyright application that would have caused the Copyright Office to deny registration. Specifically, Fiesta knowingly included previously published designs in its application to register an unpublished collection. In addition, the Register of Copyrights indicated that it would not publish a single group of published and unpublished works. Because a valid registration is a precondition to bringing an action for infringement, the panel affirmed the district court's grant of summary judgment in favor of defendants.

         The panel further held that defendants were prevailing parties, and the district court did not abuse its discretion in awarding attorney's fees under 17 U.S.C. § 505 even though defendants prevailed on a technical defense.

          OPINION

          STEEH, District Judge:

         Gold Value International Textile, Inc., doing business as Fiesta Fabric ("Fiesta"), brought this action for copyright infringement against Sanctuary Clothing, LLC ("Sanctuary"), and several clothing retailers. Fiesta alleges that Sanctuary copied its fabric design, which was used to manufacture a blouse that was sold by the defendant retail outlets. Sanctuary filed a counterclaim, seeking invalidation of Fiesta's copyright. Concluding that Fiesta's copyright registration was invalid, the district court granted summary judgment in favor of Defendants. The district court determined invalidity pursuant to 17 U.S.C. § 411(b), finding that Fiesta knowingly included inaccurate information in its copyright application that would have caused the Copyright Office to deny registration. Recognizing that a valid copyright registration is a prerequisite to bringing suit, the district court dismissed Fiesta's complaint. The court also awarded attorney's fees and costs to Defendants. Fiesta appeals the final judgment as of right. Finding no error in the conclusions of the district court, we affirm.

         BACKGROUND

         Fiesta is a California corporation that creates textile designs and sells fabric to its customers, who use the fabric to make clothing. Sanctuary is a clothing manufacturer; the remaining defendants are retailers who purchased garments from Sanctuary and sold them to customers. Fiesta alleges that it owns the copyright in a two-dimensional textile design entitled 1461-43 ("1461 Design"). According to Fiesta, Sanctuary infringed its copyright by creating and selling clothing to retailers featuring a design substantially similar to the 1461 Design.

         Effective October 24, 2013, Fiesta registered the 1461 Design under Copyright Registration No. VAu 1-151-509 ("'509 Registration"), as part of its "Grp. 029-Spring/Summer 2014" collection. In addition to the 1461 Design, the '509 Registration comprises thirty-three fabric designs. In the copyright application, Fiesta's president, Morris Ajnassian, certified that none of the works in the collection had been published as of October 23, 2013. The fabric designs were registered as an unpublished collection.

         Prior to the registration, Fiesta sold samples of fabric bearing the 1461 Design to "a limited group of existing and potential customers for the limited purpose of securing full production contracts for hundreds or thousands of yards of fabric." Between March 12, 2013, and October 24, 2013, Fiesta sold about 190 yards of fabric featuring the 1461 Design. Ajnassian testified that he knew that sample fabric bearing the 1461 Design had been sold prior to approving the copyright registration application, but that he did not consider sampling to be publication.

         PROCEDURAL HISTORY

         In ruling on the parties' cross-motions for summary judgment, the district court determined that because the 1461 Design had been sold prior to registration, it had been published and, therefore, Fiesta's identification of the 1461 Design as unpublished in the copyright application was inaccurate. Because Fiesta knew that the fabric had previously been sold, the court concluded, it included inaccurate information in its copyright application with knowledge that it was inaccurate. The court deferred a final ruling on whether Fiesta's copyright registration was invalid, and submitted an inquiry to the Copyright Office regarding whether the Register of Copyrights would have rejected Fiesta's application if it had known of the inaccuracy. Specifically, the district court inquired as follows:

Would the Register of Copyrights have rejected Plaintiff's Registration No. VAu 1-151-509 for 2-dimensional artwork ("Grp.029-Spring/Summer 2014," filed October 24, 2013) with respect to Design 1461? Thus, would it have done so if, at the time of the application, the Register of Copyrights had known that, although Plaintiff had characterized the work as an unpublished collection that included the 1461 Design, Plaintiff previously had published the 1461 Design when it sold to its customers fabric samples that used the 1461 Design, without limiting further distribution or sale by those customers?

         The Register of Copyrights responded that "had the Office been aware that the 1461 Design had been previously published, the Office would have refused registration of that work using the unpublished collections option because the work was registered as unpublished when in fact it had been published." As the district court explained, "[t]he Register noted that if it is made aware of an error at the time of application, the general practice of the Copyright Office is to correspond with the applicant and give an opportunity to correct the error" within forty-five days. The ...