Rearden LLC v. The Walt Disney Company

Background

Rearden LLC developed and owned MOVA Contour Reality Capture, software used to capture human facial performance for computer-generated characters. Disney contracted with DD3 to provide facial-capture services using MOVA for several films, including Beauty and the Beast.

Rearden asserted copyright, trademark, and patent claims against Disney. After earlier rulings narrowed the case, the matter proceeded to trial on Rearden’s claim that Disney was vicariously liable for DD3’s copyright infringement when DD3 used MOVA to animate the Beast character in Beauty and the Beast.

The jury found that Rearden owned the MOVA copyright during the relevant period and that Disney was vicariously liable for DD3’s infringement. It awarded Rearden $250,638 in actual damages and returned an advisory verdict that Disney’s attributable profits were $345,098. The court later awarded Rearden $345,098 in Disney’s profits.

Disney’s Rule 50(b) Motion

Disney renewed its motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(b). This procedure permits a court to overturn a jury’s verdict when, after considering the evidence in the light most favorable to the nonmoving party, no reasonable jury could legally have reached that result. The renewed motion was limited to grounds Disney had raised before the case went to the jury.

Disney argued that Rearden had not presented legally sufficient evidence that Rearden owned the copyright during DD3’s alleged infringement, that Disney had the practical ability to control DD3’s conduct, that Disney directly benefited financially from the conduct, that the conduct was connected to Disney’s revenue from Beauty and the Beast, or that Rearden suffered actual damages.

Copyright Ownership

The court rejected Disney’s challenge to copyright ownership. The parties agreed that OL2 held the MOVA assets, including the copyright, until February 2013, when OL2 transferred them to MO2. The trial dispute was whether MO2 was formed as a Rearden subsidiary and therefore acquired the copyright for Rearden.

Rearden’s witnesses testified that Rearden formed MO2 to reacquire the MOVA assets and paid expenses connected with MO2’s formation and acquisition. The court held that this testimony was legally sufficient evidence of ownership. Although the absence of contemporaneous documents could affect the witnesses’ credibility, the court could not weigh credibility or substitute its judgment for the jury’s on a judgment-as-a-matter-of-law motion.

Vicarious Copyright Infringement

The court explained that vicarious copyright liability requires evidence that the defendant had both the legal right and the practical ability to control the direct infringer, and that the defendant received a direct financial benefit from the infringement.

The court found the evidence insufficient on the practical-ability-to-control requirement. Disney had contractual rights to supervise DD3’s work and to terminate the contract, and Disney representatives participated in creative decisions involving the Beast. But the court found no evidence that those representatives participated in the actual MOVA animation process or could identify that DD3 was using MOVA without the copyright owner’s permission.

The court also rejected Rearden’s argument that Disney could have discovered the infringement through due diligence. In the court’s view, confirming that a vendor claimed rights to use software or hardware would not necessarily reveal infringement. The evidence therefore did not permit a reasonable jury to find that Disney could identify and control DD3’s alleged infringement.

The court reached the opposite conclusion on direct financial benefit. Evidence showed that MOVA helped create a more realistic and believable Beast, that it was used in much of the Beast’s face footage in the theatrical trailer, and that visual effects and trailers could affect audience interest and ticket sales. The court held that this evidence was sufficient for a reasonable jury to find a direct financial benefit to Disney, even though consumers could not directly see temporary copies of the software in computer memory.

Remedies

The court rejected Disney’s challenge to the $250,638 actual-damages award. Rearden’s expert presented an estimate of the costs Rearden would have incurred to provide MOVA services and the profit it would have charged. Disney presented a competing estimate. The court held that the jury’s award fell within the range supported by the evidence and was not impermissibly speculative. The court also stated that disputes about the expert’s credibility were for the jury, not the court, to resolve on this motion.

The court denied Disney’s motion as to the award of Disney’s profits and the required causal connection between the infringement and those profits. Those issues were tried to the court as equitable issues rather than to a jury. Because Rule 50 applies to issues decided during a jury trial, the court held that Rule 50 did not apply to the profits issue.

Disposition

The court granted Disney’s renewed motion for judgment as a matter of law because Rearden did not present legally sufficient evidence that Disney had the practical ability to identify and control DD3’s infringing conduct. The court denied the motion as to the issue of causal connection and the award of Disney’s profits.