DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, DECISION OF 13 JUNE 2011, F. MARC SCHAFFEL PRODUCTIONS, LLC V. FOX NEWS NETWORK, LLC, ET AL., NO. 2:10-CV-00117-JST-AGR

Despite generally far-flung discovery in civil litigation in the U. S., courts will sometimes limit what information a plaintiff can see. After a production company claimed to own footage used by Fox News in a news report, a federal district court refused to allow it to pry into Fox News’ most sensitive financial information, finding that the plaintiff did not establish a causal relationship between Fox News’ cable and satellite subscription revenue streams and the alleged infringement. With this holding, even though American discovery is usually quite broad, the court dramatically curtailed the scope of evidence the plaintiff could obtain from Fox News – and placed the bulk of its hoped-for recovery out of reach.

Michael Jackson’s sudden death on 25 June 2009 shocked friends, family, and fans worldwide. Shortly afterwards, Fox News telecast excerpts from a 2003 interview with Deborah Rowe (Jackson’s ex-wife and mother of his two older children) during a news report on whether she would be an appropriate guardian for the children. After the telecast, F. Marc Schaffel Productions, LLC (FMSP) claimed that it owned the copyrights in the footage and later sued for infringement.

FMSP’s potential recovery in the action is limited to actual damages. Section 412 of the Copyright Act precludes it from recovering statutory damages, because plaintiff did not register the work within three months of its first publication in February 2003. Thus, the best FMSP can hope to recover is actual damages, if any, and profits “attributable to the infringement” under Section 504(b). This provision of the Copyright Act provides that, to establish the amount of the infringer’s profits, the copyright owner must “present proof only of the infringer’s gross revenue.” Under this rule, the onus is then placed on the alleged infringer to “prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.”

FMSP requested documents and testimony from Fox News regarding income derived from the news program at issue. Hoping to expand the scope of available income to factor into its potential recovery, FMSP argued that its requests also entitled it to information on all of Fox News’ gross revenues, including cable and satellite subscription revenues generated from licensing access to all of its programming.

Section 504 of the Copyright Act allows copyright owners to recover direct profits from infringement – such as revenue generated by selling copies of the allegedly infringing work – as well as “indirect” profits, which are generated by the sale of a different product but are still considered to be derived from the infringement. To recover such profits, however, a copyright holder must first prove that the profits sought “arise from the infringement,” such that there is a “causal nexus between the infringement and the gross revenue” at issue. Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 711 (9th Cir. 2004). Under this rule, the claimant may recover “gross revenue associated with the infringement,” but not “the infringer’s overall gross sales resulting from all streams of revenue.” Id. at 711 n.8.

Opposing FMSP’s discovery motion for Fox, Hogan Lovells partner Dori Ann Hanswirth and associates Theresa M. House, Nathaniel S. Boyer, and Jason J. Porta argued that the cable and satellite subscriber fees sought by FMSP were not connected to the alleged infringement, as there was no evidence that Fox News’ use of the video footage in a single news program “actually influenced the purchasing decisions” of consumers who paid for cable or satellite subscriptions that contained the Fox News Channel. Polar Bear, 384 F.3d at 714. Although the U.S. Court of Appeals for the Ninth Circuit had previously held that revenue without a nexus to the claimed infringement was not recoverable under the Copyright Act, Fox News’ attorneys argued that documents and testimony about it also was not discoverable. Magistrate Judge Alicia Rosenberg in the Central District of California agreed. Finding that FMSP failed to show that there was any nexus between the contested subscriber revenues and the network’s use of the interview footage, the court denied FMSP’s motion to compel in full. In so doing, Judge Rosenberg joined a handful of other federal courts in holding that because copyright claimants ultimately cannot recover such unrelated income as damages, they also cannot force a defendant to provide unfettered access to the company’s books in discovery. The decision severely limits the plaintiff’s potential damages.