Swift v. Medicate Pharm., Inc., No. 12-3774 (7th Cir. 2013)Annotate this Case
Justia Opinion Summary
Swift, Schaltenbrand, and Siddle entered into an informal partnership arrangement to operate a mail-order pharmacy, divide the profits from that business, and eventually sell the book of customers to another pharmacy. After some initial success, the partners began taking profit distributions that far exceeded agreed‐upon percentages. Swift eventually filed lawsuits against Schaltenbrand and Siddle. The district court listened to 14 days of testimony before ruling against Swift on most of his claims. The court invalidated a copyright registration that Swift’s marketing company obtained for a logo used by the partnership, finding that Swift knowingly misrepresented a material fact in the application to register a copyright in the logo. The Seventh Circuit affirmed in part, agreeing that Swift failed to prove Schaltenbrand and Siddle breached their obligation to provide him with a share of profits. Swift waived fraud claims by declining to include them in the final pretrial order. The district court erred by invalidating the copyright registration without first consulting the Register of Copyrights as to the significance of the inaccurate information. The Copyright Act requires courts to perform this “curious procedure” before invalidating a registration based on a fraud on the Copyright Office.
In the United States Court of Appeals For the Seventh Circuit ____________________ Nos. 12 3773 & 12 3774 DELIVERMED HOLDINGS, LLC, et al., Plaintiffs Appellants, v. MICHAEL SCHALTENBRAND, JOEY SIDDLE, and MEDICATE PHARMACY, INC., Defendants Appellees. ____________________ Appeals from the United States District Court for the Southern District of Illinois. Nos. 3:10 cv 684 & 3:10 cv 685 J. Phil Gilbert, Judge. ____________________ ARGUED MAY 28, 2013 DECIDED OCTOBER 7, 2013 ____________________ Before EASTERBROOK, WILLIAMS, and HAMILTON, Circuit Judges. WILLIAMS, Circuit Judge. Mark Swift, Michael Schal tenbrand, and Joey Siddle entered into an informal partner ship arrangement in which they agreed to operate a mail order pharmacy and to divide any profits they earned among themselves according to agreed upon percentages. Over the next four years, the partners used this lack of struc 2 Nos. 12 3773 & 12 3774 ture to conceal their efforts to enrich themselves at the ex pense of their business. When the partners had a fundamen tal disagreement over the direction of their venture, one partner, Swift, caused two lawsuits to be filed against his other partners, Schaltenbrand and Siddle. The cases were consolidated and over the next two and a half years, lawyers for the partners racked up attorneys fees attempting to sort out the precise parameters of the oral agreement among the partners. Ultimately, the district court listened to fourteen days of testimony before ruling against Swift on most of his claims. Swift and his allies (whom he paid to file suit against his partners) now appeal the trial court s ruling. They contend that the district court erred in issuing a declaratory judg ment invalidating a copyright registration that Swift s mar keting company, DeliverMed Holdings, LLC, obtained for a logo used by the partnership. We must agree with Swift on this issue. We have no problem with the district court s find ing that Swift misrepresented a material fact in DeliverMed s application to register a copyright in the logo. But the district court erred in invalidating DeliverMed s copyright registra tion without first consulting the Register of Copyrights as to the significance of the inaccurate information Swift know ingly provided. Because the Copyright Act requires courts to perform this curious procedure before invalidating a regis tration because of a fraud on the Copyright Office, we re verse this part of the court s judgment and remand for fur ther proceedings. We affirm the remainder of the district court s judgment. We are not persuaded by DeliverMed s challenge to the dis trict court s award of attorneys fees to Schaltenbrand and Nos. 12 3773 & 12 3774 3 Siddle for their successful defense of DeliverMed s copyright infringement claim. Infringement defendants are presump tively entitled to such fees and Swift s deliberate efforts to deceive the Copyright Office serve only to solidify the case for the court s award. Furthermore, we will not overturn the district court s finding that Swift failed to prove Schal tenbrand and Siddle breached their obligation to provide him with a share of the partnership s profits. Although Swift maintains that he was entitled to more than the over $1 mil lion he received in distributions from an unprofitable ven ture, he has not provided any reliable basis to show a defi ciency between what he received and what he was owed. Finally, Swift raises a number of fraud claims on appeal but he waived them by declining to include them in the final pretrial order in this case. I. BACKGROUND Mark Swift had an idea. Swift s marketing firm, Deliv erMed Holdings LLC, specialized in helping pharmacies at tract new customers for their mail order pharmacy services. With the marketing skills he used to help DeliverMed s cli ents, Swift believed he could create his own successful mail order pharmacy business. But Swift could not do this alone. He needed a partner, a pharmacy that would service the cus tomers that he identified and solicited. This joint venture would then, Swift hoped, secure a lucrative contract with the State of Illinois to provide mail order pharmacy services to Medicaid patients. Swift eventually found a pharmacy willing to partner with him. In spring 2005, Swift got in touch with an ac quaintance of his named Joey Siddle. Siddle told Swift that Siddle s boss, Michael Schaltenbrand, was interested in a 4 Nos. 12 3773 & 12 3774 business relationship. Schaltenbrand was the president and owner of Medicate Pharmacy, Inc., a retail pharmacy com pany with two Southern Illinois locations. In discussions with Schaltenbrand, Swift outlined his vision for Medicate and DeliverMed. Essentially, Swift suggested that Medicate would deliver mail order services to customers that Deliv erMed found using various marketing strategies. In July 2005, Swift, Schaltenbrand, and Siddle entered in to an oral general partnership agreement creating a joint venture along the lines Swift proposed. The partnership had a specific purpose: to develop a list of mail order pharmacy customers, provide services to those customers, divide the profits from that business, and eventually sell the book of customers to another pharmacy. The partners agreed to use income from the business to reimburse DeliverMed and Medicate for any costs resulting from pursuing the partner ship s business. Any remaining profits were to be split among the partners according to agreed upon percentages. The partnership enjoyed early success as its partners worked together for the good of their new venture. Just as Swift hoped, the partnership secured a contract with the State of Illinois to provide mail order services to Medicaid patients. With Swift s consent, Medicate began using the De liverMed name to identify the mail order services that the pharmacy provided to Illinois Medicaid patients and other customers on behalf of the partnership. Soon after the partnership started gaining steam, howev er, the partners began exploiting their informal arrangement for personal gain. Swift, Siddle, and Schaltenbrand repeated ly requested (and received) profit distributions that far ex ceeded the amounts to which they were entitled under the Nos. 12 3773 & 12 3774 5 agreement. Despite the fact that the partnership was a mon ey losing enterprise, the partners continually found the funds for distributions. For example, evidence presented to the district court indicated that, from 2005 to 2009, the part nership operated at a net loss of over $400,000. During this same period, however, Swift, Schaltenbrand, and Siddle re ceived nearly $4 million in combined distributions. Swift even persuaded Schaltenbrand to take out loans to facilitate these unjustified payments to the partners. For his part, Swift concealed his excessive demands (which he knew had no basis in the actual profitability of the partnership) by commingling them with DeliverMed s requests for cost re imbursements. Swift and Schaltenbrand each became aware of the other s excessive distributions, but neither of them cared. So long as each partner was able to obtain his own un justified share of partnership funds, no one made a fuss. In between raids of partnership coffers, the partners oc casionally found time to tend to their mail order pharmacy business. In 2008, Swift decided that the partnership needed a logo to market its services. Swift retained an advertising company, Deeter Associates, for help in designing the logo. After discussing the matter with Swift, Linda Deeter, the Ex ecutive Vice President of Deeter Associates, asked an inde pendent graphic designer, Allan Kovin, to design the logo. Deeter entered into an oral agreement with Kovin to design the logo as an independent contractor. The agreement did not contemplate a transfer of copyright in the logo to Swift, DeliverMed, or the partnership. Although Swift and Linda Deeter provided some direction and ideas as to the logo de sign, Kovin was the sole creator of the DeliverMed logo, a graphic depiction of a house and a pestle. Beginning in summer 2008, Medicate began using the house and pestle 6 Nos. 12 3773 & 12 3774 logo to identify the mail order services it provided on behalf of the partnership. After an intra partnership dispute over the direction of the business, relations among the partners reached a break ing point in summer 2009. A split formed within the partner ship: DeliverMed and Swift had one plan for the joint ven ture while Medicate, Schaltenbrand, and Siddle had another. The two sides attempted to resolve their differences but were unsuccessful. Anticipating the partnership s demise, Swift began taking steps to secure a resolution that was favorable to his inter ests. On September 1, 2009, Swift s attorney sent a letter to Schaltenbrand indicating that Swift was amenable to a pur ported request from Schaltenbrand to dissolve the partner ship. When Schaltenbrand and Siddle declined to initiate dissolution proceedings in response to the letter, Swift set out to destroy the partnership s mail order operation and force his partners to the bargaining table. For example, Swift diverted incoming customer calls away from the partner ship s phone lines. At Swift s direction, callers were connect ed either to Swift s personal cell phone or to a rival mail order pharmacy. Swift later jeopardized the partnership s fi nancing by falsely informing its lender that he and Deliv erMed had initiated involuntary bankruptcy proceedings against Medicate. In addition, Swift also arranged for the partnership s customers to be contacted and encouraged to fill their prescriptions with other pharmacies. On February 2, 2010, Swift filed suit against Schal tenbrand, Siddle, and Medicate (collectively, Defendants ), asserting a litany of federal and state law claims ( Swift Ac tion ). Among other claims, Swift alleged that his partners Nos. 12 3773 & 12 3774 7 breached the partnership agreement by failing to provide Swift with the share of the partnership s profits to which he was entitled. A month later, DeliverMed, Deeter Associates, and Linda Deeter (collectively, DeliverMed Plaintiffs ) filed suit against Defendants asserting several trademark in fringement claims arising out of Medicate s use of the Deliv erMed name and the house and pestle logo ( DeliverMed Action ). The DeliverMed Plaintiffs filed suit at Swift s be hest Deeter Associates and Linda Deeter signed a contract with Swift in which they agreed to file suit in exchange for a cash payment and reimbursement of litigation expenses. Sometime after causing the DeliverMed Action to be filed, Swift attempted to enlist the help of the United States Copyright Office in this dispute. On April 1, 2011, Deliv erMed, at Swift s direction, submitted an application to reg ister a copyright in the house and pestle logo used by the partnership. The application stated that Linda Deeter was the author of the logo and that she transferred her copyright to DeliverMed by written agreement. But Swift knew that no such agreement existed at the time he filed the application. Although Linda Deeter did sign a transfer of ownership agreement, she only did so on April 8, 2011, a week after Swift filed DeliverMed s registration application. The Copy right Office issued a certificate of registration in the logo list ing DeliverMed as the copyright owner by virtue of a writ ten transfer. Soon after, DeliverMed amended its complaint to add a claim for copyright infringement. In response, De fendants filed a counterclaim seeking a declaratory judg ment invalidating DeliverMed s copyright registration. After conducting a fourteen day bench trial of the consol idated cases, the district court issued a 64 page recitation of 8 Nos. 12 3773 & 12 3774 its findings of fact and conclusions of law. In the DeliverMed Action, the court found against the DeliverMed Plaintiffs on all causes of action, including their claim for copyright in fringement. With respect to the copyright action, the court concluded that DeliverMed, Linda Deeter, and Deeter Asso ciates had not shown that they owned a copyright in the logo. Without this showing, the court ruled they could not maintain a suit for infringement as a matter of law. Alterna tively, the court found that the actual owner of the copyright, graphic designer Kovin, had transferred a nonexclusive li cense to Defendants to use the logo in connection with providing mail order pharmacy services on behalf of the partnership. The district court also awarded Defendants a declaratory judgment invalidating DeliverMed s copyright registration for the logo. In invalidating the logo registration, the court relied upon its factual findings that Swift made knowing material misrepresentations in DeliverMed s registration ap plication to the Copyright Office. The court further ordered DeliverMed to pay Defendants attorneys fees that they in curred in litigating the copyright infringement claim. In the Swift Action, the court ruled against Swift on most of his claims. With respect to Swift s breach of contract claim related to his profit distributions, the court concluded that Swift failed to satisfy his burden of proof regarding the magnitude of any profits the [partnership] had, the distribu tions made to Swift ¦ or the insufficiency of those distribu tions when compared to those promised in the  partnership agreement. Alternatively, the court concluded that Swift was not entitled to any partnership profits after September 1, 2009, because Swift wrongfully dissociated himself from the Nos. 12 3773 & 12 3774 9 partnership on that date. In ruling against Swift, the court cited its serious question[s] regarding his credibility in all areas of his testimony. The DeliverMed Plaintiffs and Swift now appeal certain aspects of the district court s ruling. II. ANALYSIS On appeal, Swift and the DeliverMed Plaintiffs1 present a number of issues for our review. The DeliverMed Plaintiffs contend that the district court erred in invalidating Deliv erMed s copyright registration based on findings that Swift knowingly misrepresented facts in DeliverMed s application for registering a copyright in the house and pestle logo. The DeliverMed Plaintiffs also maintain that the district court erred by awarding attorneys fees to Defendants for their successful defense of the copyright infringement claim. In the Swift Action, Swift argues that the district court erred in concluding that Defendants did not breach the partner ship agreement by failing to pay Swift his appropriate share of the partnership s profits. Swift also challenges the district 1 A short time before oral argument in this case, Defendants filed a Sug gestion of Bankruptcy alerting us to the fact that DeliverMed Holdings, LLC had filed for Chapter 7 bankruptcy. According to the docket sheet, DeliverMed s bankruptcy case closed on August 15, 2013. Order Closing Case and Discharging Trustee, In re DeliverMed Holdings, LLC, No. 13 17744 (Bankr. N.D. Ill. Aug. 15, 2013), ECF No. 16; see also In re Consol. Indus. Corp., 397 F.3d 524, 527 (7th Cir. 2005) (federal court may take ju dicial notice of bankruptcy court orders). Because the automatic stay of actions against the debtor ends at the close of its bankruptcy case, 11 U.S.C. § 362(c)(2)(A), we are confident that DeliverMed s bankruptcy has no effect on the disposition of this appeal. 10 Nos. 12 3773 & 12 3774 court s conclusion that he abandoned other fraud claims by failing to include them in the final pretrial order. We discuss each of these issues in turn below. A. District Court Erred in Invalidating DeliverMed s Copyright Registration The DeliverMed Plaintiffs challenge the district court s invalidation of DeliverMed s copyright registration based on a finding that Swift knowingly misrepresented material facts in his registration application. When reviewing a bench trial, we review de novo the district court s legal conclusions. See Johnson v. West, 218 F.3d 725, 729 (7th Cir. 2000). A district court s findings of fact, and its application of the law to those facts, are reviewed for clear error. Furry v. United States, 712 F.3d 988, 992 (7th Cir. 2013). A finding is clearly erroneous only when this court is left with a definite and firm convic tion that a mistake has been committed. Cohen Dev. Co. v. JMJ Props., 317 F.3d 729, 735 (7th Cir. 2003) (quoting Bowles v. Quantum Chem. Co., 266 F.3d 622, 630 (7th Cir. 2001)). Clear error may be found if the trial judge s interpretation of the facts is implausible, illogical, internally inconsistent or con tradicted by documentary or other extrinsic evidence. Fur ry, 712 F.3d at 992 (quoting EEOC v. Sears Roebuck & Co., 839 F.2d 302, 309 (7th Cir. 1988)). As a general matter, and with exceptions not relevant here, the Copyright Act provides that a copyright holder must register its copyright in a work with the United States Copyright Office before filing suit for infringement. 17 U.S.C. § 411(a); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010). But an infringement plaintiff cannot satisfy this precondition by duping the Copyright Office into issuing a certificate of registration based on a false claim of copyright Nos. 12 3773 & 12 3774 11 ownership. To prevent plaintiffs from abusing the registra tion process in this way, the Copyright Act allows for the in validation of registrations obtained by knowing misrepre sentations of material facts. See 17 U.S.C. § 411(b)(1)(A) (B). As stated in the statute, a registration will not support the pursuit of an infringement action if (1) the registrant includ ed inaccurate information ¦ on the application for copy right registration with knowledge that it was inaccurate; and (2) the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registra tion. Id.; see also Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1295 (Fed. Cir. 2011). Following the bench trial of the DeliverMed Action, the district court invalidated DeliverMed s copyright registration for the house and pestle logo because the company (at Swift s direction) knowingly made material misrepresenta tions in its registration application. The court identified two such misstatements: (1) that Linda Deeter was the author of the logo (and thus owner of a valid copyright interest in it); and (2) that Linda Deeter transferred her copyright in the logo to DeliverMed by written agreement. The DeliverMed Plaintiffs now argue that the district court clearly erred in finding that Swift deliberately misrep resented these facts. In briefing this issue, the parties focus their attention on whether Swift knew that Linda Deeter was not the author of the logo when submitting his application. Given Swift s limited knowledge of the process used to cre ate the logo and his minimal understanding of copyright principles, the DeliverMed Plaintiffs maintain, the evidence did not support such a finding. 12 Nos. 12 3773 & 12 3774 But even if we agree that Swift did not knowingly mis represent that Linda Deeter was the author, we would still uphold the trial court s finding that Swift knowingly includ ed inaccurate information in DeliverMed s registration ap plication. The DeliverMed Plaintiffs have not provided any evidence to contradict the court s determination that Swift knowingly lied about the existence of a written ownership transfer agreement between DeliverMed and Linda Deeter. Although they eventually executed a transfer agreement, this happened a week after DeliverMed filed its registration application. The fact that the parties later entered into an agreement does not transform Swift s earlier misrepresenta tion into a true statement. See, e.g., Ass n Benefit. Servs. v. Caremark Rx, Inc., 493 F.3d 841, 853 (7th Cir. 2007) ( A claim for fraud ¦ requires a showing that, at the time the fraudulent statement was made, it was an intentional misrepresentation. ) (emphasis in original). Although we have no problem upholding the trial court s ultimate factual finding, we asked the parties to file supple mental briefing on whether the district court made a legal error when invalidating DeliverMed s copyright registration. Among other innovations, the most recent amendments to the Copyright Act instituted a new procedure for courts con fronted with a registration allegedly obtained by knowing misstatements in an application. See generally Prioritizing Re sources and Organization for Intellectual Property Act of 2008 ( PRO IP Act ), Pub. L. No. 110 403, § 101, 122 Stat. 4256, 4257 58. Recall that the Copyright Act provides for the invalidation of registrations where the registrant knowingly misrepresented information in his application and the inac curacy of the information, if known, would have caused the Register of Copyrights to refuse registration. 17 U.S.C. Nos. 12 3773 & 12 3774 13 § 411(b)(1)(A) (B). Instead of relying solely on the court s own assessment of the Register s response to an inaccuracy, the statute obligates courts to obtain an opinion from the Register on the matter: In any case in which inaccurate information ¦ is al leged, the court shall request the Register of Copy rights to advise the court whether the inaccurate in formation, if known, would have caused the Register of Copyrights to refuse registration. 17 U.S.C. § 411(b)(2). In one of the few instances in which it was called upon to deliver its opinion to a federal court, the Register described the purpose of this mechanism: 17 U.S.C. § 411(b)(2) was amended to ensure that no court holds that a certificate is invalid due to what it considers to be a misstatement on an application without first obtaining the input of the Register as to whether the application was properly filed or, in the words of § 411(b)(2), whether the inaccurate infor mation, if known, would have caused the Register of Copyrights to refuse registration. Response of the Register of Copyrights to Request Pursuant to 17 U.S.C. § 411(b)(2) at 10 11, Olem Shoe Corp. v. Wash. Shoe Co., No. 1:09 cv 23494 (S.D. Fla. Oct. 14, 2010); see also United States Copyright Office, Annual Report of the Regis ter of Copyrights: Fiscal Year Ending September 30, 2009, 34 (2009) available at http://www.copyright.gov/reports/annual/ 2009/ar2009.pdf ( The [PRO IP] Act ¦ amended section 411 ¦ by adding subsection (b) to create a new procedure ¦ that requires courts to seek the advice of the Copyright Of 14 Nos. 12 3773 & 12 3774 fice on issues that may involve fraud on the Copyright Of fice. ). In this case, the parties did not ask the district court to consult the Register before invalidating DeliverMed s regis tration. Instead, the court relied upon its own speculation that had the application contained truthful information as to ¦ the facts supporting DeliverMed s claim to ownership, the Copyright Office would have rejected DeliverMed s ap plication. The district court s reasoning seems consistent with the Register s practice. See 37 C.F.R. § 202.3(c) ( An ap plication for copyright registration may be submitted by ¦ the owner of any exclusive right in a work, or the duly au thorized agent of any such ¦ owner ); U.S. Copyright Of fice, Compendium II: Copyright Office Practices, § 606.03 (1988) ( The Copyright Office will refuse to register a claim when it has knowledge that the applicant is not authorized to submit the claim. ). But under section 411(b)(2), a court still must request a response from the Register before com ing to a conclusion as to the materiality of a particular mis representation. See generally Lopez v. Davis, 531 U.S. 230, 241 (2001) (noting Congress s use of the word shall to impose discretionless obligations ). By granting a declaratory judg ment invalidating DeliverMed s copyright registration with out following the statutorily mandated procedure, the dis trict court made a legal error. Given that the parties did not raise this provision at trial (or on appeal, at least until we asked for supplemental brief ing on the matter), this was an understandable oversight. Ordinarily, we would decline to address this issue because the DeliverMed Plaintiffs failed to raise it in their opening brief. See, e.g., United States v. Hook, 195 F.3d 299, 310 (7th Cir. Nos. 12 3773 & 12 3774 15 1999). But ignoring a clear statutory directive due to the in advertence of the parties would defeat the purpose of 17 U.S.C. § 411(b)(2) and deprive the Register of its right to weigh in on precisely this issue. See 17 U.S.C. § 411(b)(2); Re sponse of the Register of Copyrights to Request Pursuant to 17 U.S.C. § 411(b)(2) at 10 11, Olem Shoe, No. 1:09 cv 23494 ( 17 U.S.C. § 411(b)(2) was amended to ensure that no court holds that a certificate is invalid due to what it considers to be a misstatement on an application without first obtaining the input of the Register. ). Under these unique circumstances, we vacate the court s declaratory judgment invalidating DeliverMed s copyright registration in the house and pestle logo and remand for further proceedings. On remand, if Defendants desire to pursue the declaratory judgment action further, the district court must ask the Register whether it would have refused DeliverMed s application had it been aware that DeliverMed had no written ownership transfer agreement at the time of its application.2 After receiving that advisory opinion, the court may then determine whether to invalidate Deliv erMed s registration for the logo.3 2 In addition, the district court should ensure the Register is aware of its ruling (unchallenged by the parties) that Linda Deeter had no copyright in the logo that she could transfer to DeliverMed. Instead, the court de termined that Kovin, as designer of the logo, was the sole copyright owner and did not transfer his interest to Deeter or any of the other De liverMed Plaintiffs. 3 The DeliverMed Plaintiffs also argue that the district court erred by failing to assess the degree of prejudice Defendants suffered as a result of Swift s misrepresentation to the Copyright Office. Prejudice has no rele 16 Nos. 12 3773 & 12 3774 Given its obvious potential for abuse, we must strongly caution both courts and litigants to be wary of using this de vice in the future. See, e.g., Olem Shoe Corp. v. Wash. Shoe Co., No. 09 cv 23494, 2010 U.S. Dist. LEXIS 143590, at *6 n.4 (S.D. Fla. Sep. 3, 2010) (noting section 411(b)(2) s potential as a weapon to delay the proceedings in district court ). Alt hough the statute appears to mandate that the Register get involved [i]n any case in which inaccurate information [in an application for copyright registration] is alleged, 17 U.S.C. § 411(b)(2), input need not be sought immediately af ter a party makes such a claim. Instead, courts can demand that the party seeking invalidation first establish that the other preconditions to invalidity are satisfied before obtain ing the Register s advice on materiality. In other words, a lit igant should demonstrate that (1) the registration application included inaccurate information; and (2) the registrant knowingly included the inaccuracy in his submission to the Copyright Office. 17 U.S.C. § 411(b)(1)(A). Once these re quirements are met, a court may question the Register as to whether the inaccuracy would have resulted in the applica tion s refusal. Aside from minimizing the risk that parties would use this provision as a delay tactic, this approach has the added benefit of an endorsement from the Register. See Response of the Register of Copyrights to Request Pursuant to 17 U.S.C. § 411(b)(2) at 12, Olem Shoe, No. 1:09 cv 23494 ( [B]efore asking the Register whether she would have re fused to register a copyright ¦ a court should feel free to de vance to the fraud on the Copyright Office inquiry. Section 411(b)(1) only directs courts to consider whether the registrant knowingly misstated a material fact in his application. 17 U.S.C. § 411(b)(1)(A) (B). Nos. 12 3773 & 12 3774 17 termine whether there is in fact a misstatement of fact. ). When faced with this situation in the future, courts should tread carefully and employ this mechanism only when nec essary. B. District Court Did Not Err in Awarding Attorneys Fees to Defendants DeliverMed also challenges the district court s award of attorneys fees to Defendants in connection with their suc cessful defense of the DeliverMed Plaintiffs copyright claim. The Copyright Act grants district courts the discretion to award attorneys fees to the prevailing party in a copyright infringement suit. 17 U.S.C. § 505. We review attorneys fees awards under an abuse of discretion standard. JCW Invs., Inc. v. Novelty, Inc., 482 F.3d 910, 920 (7th Cir. 2007). We see no abuse of discretion here. As a consequence of their successful defense of an infringement suit, Defendants are entitled to a very strong presumption in favor of re ceiving attorneys fees. Assessment Techs. of Wis., LLC v. Wire Data, Inc., 361 F.3d 434, 437 (7th Cir. 2004). This presumption is designed to ensure that an infringement defendant does not abandon a meritorious defense in situations in which the cost of vindication exceeds the private benefit to the party. Id. For without the prospect of such an award, [an infringement defendant] might be forced into a nuisance set tlement or deterred altogether from exercising [its] rights. Id. DeliverMed has not provided us with any reason to rebut this presumption. Indeed, the fact that Swift deliberately lied to the Copyright Office lends additional support to the 18 Nos. 12 3773 & 12 3774 court s award.4 See Fogerty v. Fantasy, Inc., 510 U.S. 517, 539 n.19 (1994) (listing the need in particular circumstances to advance considerations of compensation and deterrence among factors courts should consider when considering whether to award fees under § 505). We affirm the district court s order requiring DeliverMed to pay Defendants rea sonable attorneys fees incurred in defending against the De liverMed Plaintiffs copyright suit. C. Swift Did Not Satisfy Burden of Proof on Breach of Contract Claim Related to Distributions We turn now to the Swift Action. Swift argues that the district court erred in ruling against him on his breach of contract claim arising out of Defendants purported failure to pay Swift his rightful share of the partnership s profits. We review the district court s findings on this issue for clear er ror. Furry, 712 F.3d at 992. Under Illinois law, a plaintiff asserting a breach of con tract claim must plead and prove: (1) the existence of a con tract, (2) the performance of its conditions by the plaintiff, (3) a breach by the defendant, and (4) damages as a result of the breach. Law Offices of Colleen M. McLaughlin v. First Star Fin. Corp., 963 N.E.2d 968, 981 (Ill. App. Ct. 2011). For Swift, the last two elements blend into one. To establish a breach, he has to show a deficiency between his rightful share of the 4 The need to deter Swift from lying to the Copyright Office does not necessarily depend upon whether the Register would have refused regis tration had it known of his deliberate misrepresentation. Courts have an interest in preventing litigants from making any knowing misstatements to the Copyright Office in an effort to secure a litigation advantage. Nos. 12 3773 & 12 3774 19 partnership s profits and the amount of profits he actually received. The resulting deficiency, if any, would more or less equal his damages. So to succeed on both elements, Swift has to establish a reasonable basis for determining the amount of profits that Defendants denied him. See Kohlmeier v. Shelter Ins. Co., 525 N.E.2d 94, 102 (Ill. App. Ct. 1988). Swift could not satisfy his burden on the basis of speculation or conjecture. Id. After evaluating the evidence Swift presented, the district court concluded that Swift had not met his burden of proof that Defendants breached their obligation to pay him distri butions. The court found Swift s evidence on this point to be: unclear, inconsistent, unreliable, and often incredible. The preponderance of the evidence does not demon strate the magnitude of any profits the [partnership] had, the distributions made to Swift ¦ , or the insuf ficiency of those distributions when compared to those promised in the JV partnership agreement. Swift maintains that, despite the inconsistencies in the fi nancial records he provided, the district court had a reason able basis to find a breach of Defendants obligation to pay him his share of the profits from 2005 until 2011. Appellant Br. at 51. We think the district court has it right. Swift has not pro vided any reasonable basis to conclude that he received less than his share of the partnership s profits. For example, to show that Defendants breached the agreement by paying him roughly $600,000 in distributions from 2005 2007, Swift refers us to some informal financial statements. The individ ual that prepared them, Larry Schaltenbrand, Jr. ( Larry Jr. ), 20 Nos. 12 3773 & 12 3774 testified that the records did not present an accurate depic tion of the partnership s profits. Instead, they were prepared to keep track of the some income and expense for Deliv erMed mail order. Tr. at 2536. Larry Jr. did not prepare these reports based upon his own examination of the part nership s business records. Instead, Larry Jr. received a doc ument from Medicate s bookkeeper that listed the revenue for the mail order operation and about ten categories of ex penses. Tr. at 2542 43. But Larry Jr. testified that the reports he received from Medicate did not include all of the partner ship s expenses. In his words, there were many, many more expenses than just the few that are listed on that set of finan cial statements. Tr. at 2584. Moreover, other evidence sug gested that the revenues Larry Jr. used were overstated. The partnership s other accountant, Larry Schaltenbrand, Sr. ( Larry Sr. ), testified that Medicate s bookkeeper had re peatedly overstated the partnership s mail order account re ceivables. Tr. at 2589 91. Specifically, Larry Sr. testified that sales were overestimated by $160,000 in 2005, by $608,000 in 2006, and by $805,000 in 2007. Tr. at 2593 94. Because the information Larry Jr. received to determine the partnership s profits from 2005 2007 was inaccurate, his resulting calculations could not serve as a reasonable basis to find that Defendants breached the contract. See, e.g., Wohl v. Spectrum Mfg., 94 F.3d 353, 355 (7th Cir. 1996) ( If the infor mation that the employee enters is inaccurate, the output da ta will be inaccurate. Garbage in, garbage out. ). Without more, we have no reason to disagree with the district court s finding that Defendants satisfied their distribution obliga tions under the agreement from 2005 2007. See Def. Ex. 247. Nos. 12 3773 & 12 3774 21 Nor did Swift present a reliable basis to establish a distri bution shortfall from 2008 2011. Instead of dividing the profits among the partners, Swift posits that in 2008 the partners adopted a different method to calculate distribu tions. According to Swift, the partners agreed to give each partner a distribution that equaled a pro rated share of whatever distributions Schaltenbrand received for a given year based on each partner s percentage of ownership in the partnership. So to calculate his share, Swift divided the amount of Schaltenbrand s distributions by the percentage value of Schaltenbrand s ownership stake (in this case, .511) to arrive at the total amount of distributions that the partners would receive for that year. After calculating the total distri butions, Swift simply multiplied it by his purported share in the company (.359) to discover his share of the profits. In Swift s mind, the amount of profits obtained by the partner ship was irrelevant to calculating the distributions to which he is entitled from 2008 to 2011. So rather than introduce ev idence of the partnership s profits during this period, Swift relied on Schaltenbrand s distributions to show that Defend ants did not pay him his fair share. But Swift has not presented any credible evidence to support his contention that the partners agreed to provide distributions in this manner. Instead, the evidence at trial supported the district court s finding that the agreement provided for distributions based on the partnership s net profits, with each partner receiving a predetermined per centage of those profits. In his closing argument, Swift di rected the district court to email correspondence among the partners to demonstrate the existence of this arrangement. See, e.g., Pl. Ex. 6 at 42, 105, 128 132, 149 151. These docu ments do not mention a distribution system along the lines 22 Nos. 12 3773 & 12 3774 Swift suggests nor do they imply that such a system was in place. Without any supporting documents, all that remains is Swift s own say so on the matter. Given the district court s serious concerns with Swift s credibility in all aspects of his testimony and the deference we afford this finding, we de cline to overturn the court s construction of the partners dis tribution agreement based solely on Swift s authority. See generally Gaffney v. Riverboat Servs., 451 F.3d 424, 448 (7th Cir. 2006) ( [W]e have stated that a trial court s credibility deter mination can virtually never amount to clear error. (quoting Carnes Co. v. Stone Creek Mech., Inc., 412 F.3d 845, 848 (7th Cir. 2005))). Swift was only entitled to a share of the partnership s profits from 2008 2011 under the agreement. His failure to present evidence of the partnership s income during this pe riod dooms his claim.5 Without some indication of the part nership s income, we have no basis to find that Swift was due more than the nearly $800,000 he received in distribu tions. Swift did not provide the trial court with a reliable basis to find that he did not receive his share of the distributions. We agree with the district court that Swift has not met his 5 In addition, we note that the district court could not reasonably rely upon the amount of Schaltenbrand s distributions to determine Swift s share of the profits. The evidence showed that Schaltenbrand withdrew money from the partnership without regard for the partnership s profits and received far more than his rightful share of distributions under the agreement. Nos. 12 3773 & 12 3774 23 burden of proving that Defendants breached their distribu tion obligation under the partnership agreement.6 D. Swift Waived Fraud Claims Not Asserted in Final Pretrial Order Swift s other argument relates to his fraud claim against Defendants. He contends that the district court erred by fail ing to consider an additional thirteen fraud claims that Swift chose to omit from the final pretrial order. Quite the contra ry: The district court s refusal to consider these claims was a prudent exercise of its responsibility to narrow the issues for trial. Because the parties rely on the pretrial conference to inform them precisely what is in controversy, the pretrial or der is treated as superseding the pleadings and establishes the issues to be considered at trial. Gorkilowski v. Tolbert, 52 F.3d 1439, 1443 44 (7th Cir. 1995) (quoting Erff v. MarkHon Indus., Inc., 781 F.2d 613, 617 (7th Cir. 1986)). In order to pre serve the pretrial order s usefulness in focusing the parties efforts, a claim or theory not raised in the pretrial order should not be considered by the fact finder. SNA Nut Co. v. Haagen Dazs Co., Inc., 302 F.3d 725, 732 (7th Cir. 2002) (quot ing Gorkilowski, 52 F.3d at 1444). The district court correctly prohibited Swift from pursuing fraud theories other than the two that he identified in the final pretrial order. Swift s mere assertion of a fraud claim does not entitle him to the court s consideration of a litany of different fraud theories that Swift 6 In light of our holding that Swift has not met his burden of proving a deficiency between the amount of distributions he was entitled to receive and what he actually received, we decline to address Swift s alternative arguments regarding his purported dissociation from the partnership. 24 Nos. 12 3773 & 12 3774 deemed unworthy of consideration before trial. To conclude otherwise would undermine the vital function that pretrial conferences and orders serve in conserving judicial re sources. Indeed, we shudder to think of how much longer this fourteen day bench trial would have lasted in the ab sence of an effective pretrial order that narrowed the claims and theories. III. CONCLUSION We REVERSE the district court s award of declaratory judgment invalidating DeliverMed Holdings, LLC s Certifi cate of Copyright Registration VA 1 766 676 for the house and pestle logo and REMAND for further proceedings con sistent with this opinion. We AFFIRM the district court s judgment in all other respects.