Stemtech lose $1.6 million copyright infringement appeal

Andrew Leonard is a photographer of stem cells.

Leonard takes photographs of stem cells using electron microscopes.

Leonard obtains cell samples from doctors, scientists, and researchers and pays a scientific research institution to use an electron microscope to photograph the cells.

The images first appear in black and white, and Leonard uses his “artistic judgment” to enhance the photos in color.

Only a few photographers engage in this highly technical type of photography.

Leonard’s photos are typically licensed non-exclusively through his company APL Microscopic. Licensing fees are typically between a few hundred dollars and several thousand dollars.

Back in May 2006, Stemtech approached Leonard about using one of his images.

After discussing usage and color terms, Leonard provided Stemtech with a quote of $950 for a “one-year usage” of Image 4 in two places in Stemtech’s HealthSpan magazine and a separate quote of $300 for a “one-year usage” of the image on the HealthSpan website.

Stemtech decided not to license Leonard’s image because they thought ‘the price was too high‘.

That decision however didn’t stop Stemtech from using the image in their magazine.

Leonard’s stem cell image appeared twice in the HealthSpan magazine.

Upon learning his image had been used anyway, Leonard sent Stemtech an invoice for $950.

Stemcell acknowledged the invoice but paid Leonard only $500. They also continued to use Leonard’s image in ‘other promotional materials‘.

The images appeared on Stemtech websites, its distributors’ websites, marketing DVDs, and other promotional and recruitment materials.

Leonard attempted to collect the $450 balance on the issued invoice but was unsuccessful.

He discovered Stemtech’s ongoing unauthorized use of his images in 2007. This included the use of the images on Stemtech affiliate websites.

For example, Leonard found his images on “yourstems.com,” a website selling Stemtech product(s).

He contacted the site operator, informed him of the infringing uses, requested an accounting of how long the operator used the images, and sought payment for their use.

The website operator informed Leonard that he and other distributors were using materials received from Stemtech.

As part of their affiliate policies and procedures, Stemtech prohibits affiliates from creating and using their own marketing materials.

Leonard contacted Stemtech’s Chief Compliance Officer, Donna Serritella, and requested ‘that Stemtech stop using his images‘.

Serritella told Leonard that she thought that one of the images “was on the cover of a major publication, and that made it public for usage.”

Despite being informed otherwise, Stemtech did not instruct affiliates to stop using Leonard’s images.

Leonard continued to track Stemtech’s unauthorized use of his images.

In May 2008, Leonard’s friend ordered a Stemtech sales kit from a distributor.

The sales kit, intended for marketing the Stemtech product and training distributors, included DVDs with covers featuring one of Leonard’s images, and videos of “The Stemtech Story” and “Stem Cells and Stem Enhance with Christian Drapeau,” which also contained one of the images.

Eventually enough was enough and having collected evidence of unauthorized use for over a year, Leonard ‘demanded that Stemtech and several of its distributors pay him for unauthorized use of his images‘.

Stemtech flat-out refused.

Leonard went on to file a civil copyright lawsuit against Stemtech in 2008.

The case brought about 92 identified unauthorized uses of Leonard’s images. A damages expert estimated the resulting fee owed Leonard was in the range of $1.4 million to nearly $3 million.

Stemtech argued Leonard’s past licensing history warranted $1804 in damages at best.

The jury sided with Leonard and returned a verdict of $1.6 million dollars for ‘direct, vicarious and contributory infringement‘.

Stemtech filed a motion for a new trial but the motion was denied. The company also claimed the $1.6 million awarded was “unconstitutionally and grossly excessive”.

Stemtech appealed the decision in the Third Circuit.

On August 24th, 2016, the court denied Stemtech’s appeal and upheld the Delaware District Court’s decision.

The District Court appropriately denied Stemtech’s motion for a new trial on Leonard’s contributory infringement claim.

There was sufficient evidence from which a jury could conclude that third parties, namely Stemtech’s distributors, directly infringed Leonard’s copyrights.

Furthermore, the evidence shows that Stemtech knew of the distributors’ infringing activity.

Stemtech itself created the materials containing Leonard’s images, provided the materials to its distributors, and required the distributors
to use the materials.

Thus, Stemtech knew of its distributors’ infringing activities and plainly took “steps that [we]re substantially certain to result in such direct infringement.”

We also note that the jury had a basis to conclude that Stemtech knew that the images it provided to its distributors were copyrighted.

The jury heard evidence that Stemtech had negotiated with Leonard for a limited-use license of one of his images in the HealthSpan magazine.

From this evidence, the jury could infer that, despite knowing that Leonard’s images were copyrighted, Stemtech required its distributors to use the images Leonard owned to promote Stemtech’s products and thereby materially contributed to or induced their infringement.

For these reasons, the District Court did not abuse its discretion in concluding that the jury’s contributory infringement verdict in favor of Leonard was not against the weight of the evidence and hence properly denied Stemtech’s motion for a new trial on Leonard’s contributory infringement claim.

The District Court also correctly denied the motion for a new trial on Leonard’s vicarious infringement claim.

The jury could reasonably have credited the testimony from Stemtech officials indicating that images of stem cells lend legitimacy to products that purportedly enhance stem cell production and from this infer that the images could have drawn customers to buy the product, which would financially benefit Stemtech.

Thus, there was sufficient evidence from which the jury could find that the financial benefit element was met.

Thus, there was sufficient evidence from which the jury could find that the financial benefit element was met.

Because the verdict was not against the weight of the evidence, the District Court did not abuse its discretion in denying Stemtech’s motion for a new trial on Leonard’s vicarious infringement claim.

As to the $1.6 million in damages, the Third Circuit ruled it was based on fair market value, a judicially recognized method for calculating damages in copyright infringement cases.

Because we are deferential to a jury’s damages verdict, that verdict may be disturbed only if it is so grossly excessive that it shocks the judicial conscience.

Courts are loath to substitute their judgment for that of the jury.

While the award here was quite high, and perhaps surprising, we cannot say it lacked an evidentiary basis such that it “shock[s] the judicial conscience.”

The damages award was tethered to the record, which the jury was entitled to credit, and the jury was presented with no evidence that provided an alternative calculation.

In light of our deferential standard of review, we conclude that the District Court did not abuse its discretion in denying a new trial on the basis of a grossly excessive jury verdict.

In addition to affirming the $1.6 million in damages, the Third Circuit also vacated the District Court’s decision to deny Leonard prejudgment interest.

Stemtech has thus far failed to pay Leonard his awarded damages.

This has prompted the filing of two lawsuits by Leonard, which are still playing out in court.

From what I’ve been able to gather, Leonard has managed to garnish “over $35,000” from Stemtech. 25,563 shares of treasury stock in Stemtech have also been transferred to the Broward County Sheriff in Florida.

My take?

Stemtech clearly used Andrew Leonard’s images without permission and for commercial gain.

Rather than pay the reasonable fee they were initially quoted, they’re not up for over a million dollars. I think, given the nature of Leonard’s work, that’s fair.

There doesn’t appear to be one instance where Stemtech’s use of Leonard’s work was unintentional or ignorant of copyright law. Not to mention all the nonsense Leonard has had to put up with over the years.

Time to pay up guys… stop wasting this man’s time.