Fair Isaac Corporation v. Federal Insurance Company

Background

Fair Isaac Corporation brought a copyright-infringement action against Federal Insurance Company and ACE American Insurance Company. Fair Isaac alleged that the defendants breached a software license agreement and infringed its copyright. It sought breach-of-contract and copyright-infringement damages, disgorgement of the defendants’ profits attributable to the alleged infringement, injunctive relief, costs, and attorney’s fees. Fair Isaac also demanded a jury trial.

The defendants moved to strike Fair Isaac’s jury demand as to the claim for disgorgement of profits under Section 504(b) of the Copyright Act. United States Magistrate Judge David T. Schultz granted that motion, concluding that Fair Isaac had no Seventh Amendment right to a jury determination on that equitable remedy. Fair Isaac appealed the magistrate judge’s October 9, 2019 order.

Statutory Right to a Jury

The court first considered whether the Copyright Act itself provides a right to a jury trial on profit disgorgement. It explained that Section 504(b) allows a copyright owner to recover actual damages and the infringer’s profits attributable to the infringement, while Section 504(c) allows the owner to elect statutory damages instead.

The court noted that the Supreme Court has held there is no statutory jury-trial right for statutory damages under Section 504(c). The court reached the same conclusion for profits under Section 504(b), reasoning that the statute does not expressly provide a jury right and that its reference to the court’s role in apportioning profits supports treating the issue as one for the court. The court therefore held that Section 504(b) does not provide a statutory right to a jury determination of disgorged profits.

Seventh Amendment Right

The court next applied the Seventh Amendment analysis, which asks whether the claim resembles an eighteenth-century action tried in an English law court and whether the remedy is legal or equitable. The court explained that copyright-infringement actions seeking monetary damages were historically tried to juries, but the relevant question here was the nature of the particular remedy—disgorgement of the infringer’s profits.

The court relied on Supreme Court decisions describing profit recovery as difficult to classify but equitable in the copyright context. It reasoned that Fair Isaac’s requested profit recovery would be based on the defendants’ gains rather than Fair Isaac’s losses. Because Section 504(b) separates the infringer’s attributable profits from amounts included in actual damages, the court characterized the profits remedy as restitutionary, meaning it is designed to prevent the infringer from retaining an improper benefit rather than to compensate for the copyright owner’s losses.

The court rejected Fair Isaac’s argument that the remedy became legal because it could punish or deter infringement. It distinguished a securities case involving disgorgement imposed by the government for violating a public law. In this private copyright action, the court concluded, Section 504(b) profit recovery is intended to prevent the infringer from benefiting unjustly, while the Copyright Act’s punitive and deterrent features appear in its statutory-damages and criminal-penalty provisions.

The court also rejected the argument that there was nothing for equity to consider. Relying on the Supreme Court’s discussion of profit assessments and injunctions, it explained that a court may consider equitable factors when determining appropriate injunctive relief and profits. The court further concluded that the phrase describing profit recovery as equitable “in this case” meant that Section 504(b) profit recovery is equitable in copyright actions, rather than requiring a separate case-by-case classification based on particular facts.

Disposition

The court held that, although copyright infringement is a legal claim, determining profits arising from the claim is not traditionally a question for a jury. It concluded that Fair Isaac had no statutory or constitutional right to a jury determination on disgorgement of the defendants’ profits under Section 504(b).

Judge Wilhelmina M. Wright affirmed the October 9, 2019 order striking Fair Isaac’s jury demand as to the profit-disgorgement claim. The opinion did not resolve the underlying copyright-infringement or breach-of-contract claims.