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Webloyalty.com, Inc. v. Consumer Innovations, LLC

Defendant Found Guilty Of Willfully Infringing Copyrights In Online Advertising Materials

After a bench trial, a Federal Delaware District Court found defendant Consumer Innovations guilty of willfully infringing plaintiff Webloyalty.com's copyrights in a banner ad and related "sell page."  These materials are used by Webloyalty to promote an online "club" whose members, for a monthly fee, can purchase merchandise offered for sale through the "club" at a discount.  Defendant, a competitor, was held to have infringed plaintiff's copyrights by copying substantial portions of these advertising materials.  Such copying was held to be willful, in large part, because Consumer Innovations denied copying plaintiff's materials in the face of convincing evidence to the contrary.  As a result, the Court awarded plaintiff statutory damages of $50,000, comprised of $25,000 for each act of infringement, together with a significant portion of the attorneys' fees expended by plaintiff in prosecuting this action.  In setting the amount of such damages, the Court took into account both the absence of any evidence that plaintiff had been injured by defendant's activities, as well as evidence that defendant generated only $1,000 in revenue from its use of the promotional materials at issue.

Defendant Uses Plaintiff's Promotional Materials As Template For Its Own Promotional Materials

Webloyalty and Consumer Innovations are competitors that each operate "online clubs" that offer consumers, for a monthly fee, the opportunity to purchase merchandise at a discount. The parties promote their clubs via banner ads placed on the sale confirmation pages of partners' web sites.  Clicking on the banner ad takes the interested consumer to a "sell page," which promotes club membership and describes its terms.

Webloyalty entered into an agreement with the retailer Walter Drake pursuant to which it placed a banner ad advertising its "online club" on a website operated by Walter Drake.  This banner ad, in turn, linked to a "sell page" offering an opportunity to join Webloyalty's club.  Consumers were offered a $10 discount on their next Walter Drake purchase if they joined Webloyalty's club.  Webloyalty obtained copyright registrations for both its banner ad and sell page.

To test the effectiveness of plaintiff's club and promotional materials, Walter Drake agreed to place a banner ad promoting defendant Consumer Innovations' "club" on its "sale confirmation" page.  This ad also took the consumer to a "sell page" this time promoting Consumer Innovations' online club.  Throughout the test period, consumers were shown, alternatively, banner ads from one or the other competitors.

The banner ad and sell page Consumer Innovations posted on Walter Drake's site were "created" by Consumer Innovations' Director of Interactive Marketing, Matthew Gordon.  Before he submitted these materials for posting, Gordon reviewed the copyrighted banner ad and sell pages of Webloyalty and became a member of Webloyalty's "club." 

The Court held that Gordon used Webloyalty's materials as the template for the banner ad and sell pages he "created" for Consumer Innovations.  Indeed, one of the drafts of these materials defendant produced, contained, in addition to substantially similar language, Webloyalty's telephone number.

The marketing materials Consumer Innovations ultimately posted on the Walter Drake web site contained substantial similarities to those of Webloyalty.  According to the Court, Consumer Innovations' "banner . . . is identical to the Webloyalty Banner except that "Reservation Rewards" [the name of Webloyalty's online club] was replaced by "Traveler Innovations" [the name of Consumer Innovations' online club]."  The sell page posted by Consumer Innovations similarly contained passages of text "virtually identical" to that of the Webloyalty sell page.  As explained by the Court in a prior decision:

Examples of such identical verbiage include:  Try all the benefits for the next 30 days FREE and see how much you save!  There's no obligation to continue.  If you are completely satisfied, do nothing and you'll enjoy ongoing savings for only ___ a month;"  For your convenience _____ will use the contact and credit or debit card information you provided to Walter Drake today for billing and benefit processing;" and "To thank you for your purchase at Walter Drake today, click YES below to get your $10.00 Cash Back Gift … on your next Walter Drake purchase plus sign up for all the money-saving benefits of our … online travel … discounts … program!"  (The ___ spaces were filled in with references to the competitors' individual programs).

Copyright Infringement Established

Plaintiff commenced this action, asserting claims of copyright infringement, unfair competition and false designation of origin.  After a bench trial, the Court found Defendant Consumer Innovations guilty of willful copyright infringement and awarded damages, as discussed below.

To establish a claim for copyright infringement, a plaintiff must show both that it owns a valid copyright, and that its copyrighted materials were copied by the defendant.  In addition to actual copying, plaintiff must show there is a substantial similarity between defendant's work and those elements of plaintiff's work protected by the copyright laws.  Actual copying may be "proven by showing that the defendant had access to the protected work and that there is a substantial similarity between the two works."  To establish such copying is actionable, "requires the fact finder to 'determine whether a lay-observer would believe that the copying was of protectable aspects of the 'copyrighted works.'"

The Court held that plaintiff had established that defendant infringed its copyrights in the works at issue.  Plaintiff established ownership of a valid copyright in those works through its copyright registrations.  Plaintiff also established that defendant had actually copied these works.  Such actual copying was established via Gordon's review of plaintiff's materials, and the fact that "large sections of the Consumer Innovations sell page are identical to the Webloyalty sell page."  The presence in a draft of Consumer Innovations' sell page of Webloyalty's telephone number was "compelling additional evidence of copying."  Finally, the Court concluded that there was sufficient similarity between protected elements of  the respective parties' works to make such copying actionable.

In reaching this result, the Court rejected Consumer Innovations' defenses of merger and scenes a faire.  Defendant had advanced these arguments in support of its contentions that the portions of plaintiff's works defendant copied were not entitled to protection under the Copyright Act.  Rather, claimed defendant, the "common language of both sell pages was 'standard in the industry' or consisted of 'functional instructions' such that it was not protectable."  The Court held that defendant had failed to support these contentions with adequate evidence.  Said the Court:

For either doctrine to apply, Consumer Innovation must establish that there is a limited, if not singular, manner to express the ideas presented on the sell page.  It has not made any such showing. . . . .  These [sample] sell pages show that there are other ways in which those ideas can be expressed.  Neither of these sell pages uses the same text or arrangement as Webloyalty's copyrighted page.  While the 'external facts', described by Consumer Innovations may provide the central ideas, there apparently are a number of ways to express them.

Statutory Damages Awarded For Willful Copyright Infringement 

The Court further found that defendant's copying was willful.  Copyright infringement is willful when the defendant "actually knew it was infringing the plaintiff's copyrights or recklessly disregarded that possibility."  The Court rested its determination of willfulness largely on defendant's insistence that it did not copy plaintiff's materials in the face of substantial evidence to the contrary.  A finding of willfulness increases the statutory damages awardable by the Court to an amount up to $150,000 for each act of infringement.

Plaintiff sought and received statutory damages as a result of defendant's willful infringement.  According to the Court:

The factors used to determine the level of statutory damages include:  "the expenses saved and the profits earned by the defendant, the revenues lost by the plaintiff, and the defendant's state of mind."  "Normally, it is the blameworthiness of the defendants which weighs the heaviest in the court's analysis."

The Court found that defendant's willful copying supported the award of "significant statutory damages."  However, defendant's willfulness was counterbalanced by plaintiff's inability to demonstrate lost revenues, as well as by the fact that defendant generated only $1,000 in revenue from its use of the infringing materials.  As a result, the Court awarded Webloyalty $50,000 in statutory damages, amounting to $25,000 for each act of infringement.

The Court also awarded plaintiff a substantial portion of the attorneys' fees it expended in bringing this matter to trial.  The Court's award only covered fees expended after the Court, on a summary judgment motion, rejected defendant's defenses of merger and scenes a faire.  All told, the Court awarded plaintiff $226,621.35 in attorneys' fees.

Finally, the Court rejected plaintiff's claims of trade dress infringement, because Webloyalty failed to show either that "the features of its sell page and Banner are inherently distinctive or that they have acquired secondary meaning."