Previewing Unicolors v. H&M: Does U.S.C. 411(b) Have a Scienter Requirement?
Do you ever wonder what the legal implications are when two fabric designs are a little too similar? Well, the Supreme Court will soon decide what such a scenario means for designers and manufacturers alike. After denying certiorari on a similar case in 2020[1], the Court has agreed to hear Unicolors, Inc. v. H&M Hennes & Mauritz, and rule on whether or not a copyright registrant must have an intent to defraud the Copyright Office for a registration with errors to be invalidated.[2]
In 2011, California-based fabrics manufacturer Unicolors, Inc. designed and registered copyrights for 31 designs, including EH101, an intricate pattern with geometric motifs.[3] In 2015, multinational clothing retailer H&M began selling garments with a very similar design called “Xue Xu.”[4] Unicolors swiftly filed suit alleging copyright infringement.[5]
At trial, a jury found that Unicolors owned a valid copyright to EH101, and that H&M’s sale of the “Xue Xu” garments was willful infringement, which generally requires knowledge of an existing copyright or reckless disregard for such copyright.[6] The jury awarded Unicolors $817,920 in profit disgorgement damages and $28,800 in lost profits.[7] At trial, H&M argued that Unicolors had knowingly included inaccuracies in its registration application by mixing confined—designs made for a private customer and thus held back from the public for a period—and unconfined—immediately public—designs into the same registration and therefore the registration should have been deemed invalid.[8]. The district court rejected this defense, and held that 17 U.S.C. 411(b)(1)(a)[9], part of an exception to presumed copyright registration, requires an intent to defraud, of which there was no evidence, and thus Unicolors’ copyright was valid.[10] Generally speaking, registrations are presumed valid upon submission even if information is inaccurate.[11] However, by some courts’ statutory readings, if a registrant knowingly includes incorrect information and the inaccuracy of this information would have caused the Register of Copyrights to refuse the registration, the registrant is not entitled to copyright protections.[12] Thus, the district court reasoned that it did not find evidence of fraudulent behavior by Unicolors, and thus was not required to send the registration to the Register of Copyrights prior to proceeding with the case.[13] Registration is fundamental in copyright cases because while there are some protections without it, registration is required in the U.S. in order to bring a lawsuit for infringement.[14]
On appeal, however, the Ninth Circuit Court of Appeals reversed the district court’s judgment in favor of H&M and remanded for further proceedings concerning Unicolors’s copyright registration.[15] The three-judge panel held that 17 U.S.C. 411(b)(1)(a) does not require intent to defraud—also called a scienter requirement—for a registration to be deemed invalid.[16] The panel also found the district court failed to refer the matter to the Copyright Office per 411(b)(2).[17]
Provision 411(b), including the scienter-focused exception, was enacted into law in 2008[18], and for 11 years, the Ninth Circuit held that a copyright is not invalidated by inaccuracies if they were made in good faith.[19] However, the court reversed its previous interpretation of 411(b) in Gold Value, holding that the “plain language” of 411(b) does not require a showing of fraud, but only the knowledge that information in an application is inaccurate.[20] Indeed, in Gold Value, the court held that its L.A. Printex decision did not directly address the intent to defraud interpretation of 411(b) but instead merely mentioned that fraud was not present in that case.[21]
However, the Ninth Circuit’s interpretation is in clear opposition to other circuits that have heard cases on 411(b). The Eleventh[22], Seventh[23], and Fifth[24] Circuits have all held that 411(b) does have a scienter requirement and does not require immediate referral to the Copyright Office.
With arguments for the case scheduled for November 8th, the Supreme Court will ultimately determine the correct interpretation of 411(b).[25] It seems that if 411(b)(1)(a) is interpreted without a scienter requirement, a defendant need only allege knowledge that information is inaccurate before seeking input from the Register, potentially rendering the entire provision redundant. In anticipation of the decision, legal scholars are warning would-be copyright applicants to double and triple check their registrations for fear that a pro-H&M verdict will disrupt the existing system that protects registrations with some unknowing mistakes.[26]
Footnotes
