Industria de Diseo Textil, S.A. v. Thiliko, LLC

Background

Industria de Diseño Textil, S.A., Zara USA, Inc., and ITX Merken BV, which the opinion says are involved in operating the Zara clothing brand, sued Thilikó, LLC and Queenie Williams. The claims included federal false advertising; federal unfair competition, false description, and false designation of origin; New York unfair and deceptive trade practices; New York false advertising; New York trademark offenses; and, as to ITX, federal copyright infringement.

The plaintiffs alleged that the defendants bought Zara clothing, removed the Zara labels, replaced them with Thilikó labels, and resold the clothing at substantial markups. They also alleged that the defendants used ITX’s copyrighted photographs of Zara products on their website to market and sell the clothing.

Neither defendant answered or otherwise appeared. The Clerk entered a certificate of default, and the plaintiffs moved for a default judgment. At an April 19, 2023 hearing, the Court accepted the well-pleaded allegations as true and found the defendants liable on every cause of action pleaded in the complaint. The Court also granted injunctive relief, and on April 20, 2023, entered a permanent injunction requiring the defendants, in essence, to stop the unlawful conduct described in the complaint.

Damages request

The plaintiffs sought damages and injunctive relief. Because the defendants had not appeared, the plaintiffs argued that calculating actual damages would be time-consuming and difficult. They proposed the maximum statutory damages permitted for infringement of fifteen ITX copyrights in photographs of Zara products, while agreeing to give up any other monetary relief. The Court ordered supplemental briefing on whether the maximum award was appropriate.

Under the Copyright Act, a copyright owner may elect statutory damages instead of proving actual damages. The usual range is $750 to $30,000 for each infringed work. If the infringement is willful, the court may award up to $150,000 per work.

Court’s analysis

The Court considered six factors used to set statutory damages: the infringer’s state of mind; expenses saved and profits earned; revenue lost by the copyright owner; deterrence; cooperation in providing evidence; and the parties’ conduct and attitude.

The Court found that the allegations supported willful infringement. The defendants allegedly copied photographs from zara.com, posted them on their own website for marketing, and relabeled and resold Zara clothing without disclosing that it was Zara clothing. The Court inferred that the defendants knew their conduct infringed the copyrights. Willfulness, the need for deterrence, the defendants’ failure to cooperate, and the broader alleged fraudulent scheme all supported a substantial award.

The factors concerning restitution and compensation supported a lower award. The Court said that copying fifteen fashion photographs likely caused limited harm to the plaintiffs and produced limited benefits for the defendants. The likely licensing fees were not shown to be large, and the opinion states that the defendants’ scheme did not divert sales from the plaintiffs because the defendants first bought the clothing from them. The Court also found the scheme’s relatively small scope and short duration made substantial profits unlikely.

Disposition

Judge John P. Cronan awarded ITX $30,000 for each of fifteen infringed copyrighted works, totaling $450,000. The Court declined to award the maximum amount sought because statutory damages should bear some relationship to actual damages, but concluded that the defendants’ wrongful conduct warranted an award substantially above likely restitution or compensation.

If the plaintiffs consented to the $450,000 total, the Court directed them to submit a proposed judgment by August 16, 2023. If they did not consent, the Court directed them to submit a status letter identifying the other relief they sought and proposing steps to determine their entitlement to that relief.