Unpublished Disposition, 920 F.2d 937 (9th Cir. 1991)

MEMORANDUM^* 

Appellants appeal the district court's holding that they infringed copyrights belonging to the two appellees. Appellants also appeal the denial of their post-trial motions under Rules 59 and 60 of the Federal Rules of Civil Procedure. We affirm.

Jack Chiu, president of Zenix Industrial USA (Zenix), copyrighted a sketch of his design for a decorative clock in 1986. The sketch comprises two unicorns, one on either side of a clock face. The design is called "Twinicorn." Chiu orally licensed Lung Mei Corporation (not a party to this action) to manufacture and sell the clock in Taiwan, but not in the United States. He then licensed his own company, Zenix, to manufacture and sell the clock in the United States. In the same year, Ming Chang Industries (Ming Chang), created and copyrighted a clock design comprising eight horses "pulling" a clock in a carriage. The clock is called "King's Carriage." Ming Chang is a California corporation whose powers have been suspended at all relevant times for nonpayment of taxes.

Zenix and Ming Chang heard through commercial channels that copies of their works were being sold by others. Zenix and Ming Chang then contacted appellants and requested they stop selling the clocks. After viewing clocks offered for sale by some of the appellants at a trade show, Zenix and Ming Chang brought this action, alleging infringement of their copyrights.

Appellants did not cooperate in the discovery phase of the trial and twice were sanctioned by the district court. After a bench trial, the court concluded that the copyrights were valid and were owned by Zenix and Ming Chang. The court also concluded, based in large part on the obviously incomplete invoice records provided by the appellants, that the appellants had willfully sold clocks that infringed the copyrights. The court awarded statutory damages, compensatory damages and costs to Zenix and Chang.

* The appellants' challenges to the jurisdiction of the district court are questions of law, reviewed de novo. See United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984). The challenges are meritless.

Appellants attempt to undermine jurisdiction on the ground that lack of corporate capacity prevented Ming Chang Industries from ever acquiring the "King's Carriage" copyright. The pretrial conference order settled the issue of Ming Chang's ownership. The case proceeded to judgment against the defendants. Only then did the defendants raise the issue of incapacity. Appellants now claim that the district court's judgment is subject to jurisdictional attack on the ground that, under Fed. R. Civ. P. 17(b) and California law, Ming Chang's corporate powers were suspended and therefore Ming Chang lacked the capacity to acquire the copyright.

A corporation whose powers are suspended for nonpayment of taxes lacks the legal capacity to prosecute or defend a civil action during its suspension. Sade Shoe Co. v. Oschin & Snyder, 217 Cal. App. 3d 1509, 1512, 266 Cal. Rptr. 619, 621 (1990). The Ninth Circuit indicated in Matter of Christian & Porter Aluminum Co., 584 F.2d 326, 332 waived even if it is raised after trial ends, when the suspended corporation is appealing. See also Gar-Lo, Inc. v. Prudential Savings & Loan Ass'n, 41 Cal. App. 3d 242, 244, 116 Cal. Rptr. 389, 390 (1974) (other party's failure to raise corporate incapacity does not give suspended corporation license to litigate).

A suspended corporation may obtain a judgment against a defendant and such judgment will be retroactively validated once reinstatement occurs. Electronic Equip. Express, Inc. v. Donald H. Seiler & Co., 122 Cal. App. 3d 834, 846, 176 Cal. Rptr. 239, 246 (1981). California courts have consistently viewed a corporation's tax delinquencies, after correction, as mere irregularities. Sade Shoe Co., 217 Cal. App. 3d at 1515, 266 Cal. Rptr. at 623 (quoting Welco Constr. Inc. v. Modulux, Inc., 47 Cal. App. 3d 69, 72, 120 Cal. Rptr. 572, 574 (1975)).¹  When incapacity is brought to a court's attention, the court should grant leave for the corporation to reinstate itself. Schwartz v. Magyar House, Inc., 168 Cal. App. 2d 182, ---, 335 P.2d 487, 491 ( 1959). Thus, suspension of corporate capacity is merely a plea in abatement, w hich does not affect the jurisdiction of a court to proceed. Traub Co. v. Coff ee Break Svc. Inc., 66 Cal. 2d 368, 370, 57 Cal. Rptr. 846, 848, 425 P.2d 790, ----(1967) (en banc).

In the absence of any showing of good cause for not bringing the suspension to the court's attention before judgment, we reject the defendants' attempt to use incapacity in an attempt to overturn the district court's factual finding as to copyright ownership. Defendants' attempt to characterize the issue as a failure to join an indispensable party does not change anything.

At oral argument, counsel for Ming Chang indicated the lack of any present desire on the part of his client to revive itself. If Ming Chang were the appellant, dismissing the appeal would be appropriate. See, e.g., Christian & Porter, 584 F.2d at 332; Gar-Lo, 41 Cal. App. 3d at 244, 116 Cal. Rptr. at 390. But Ming Chang is attempting to defend a judgment in its favor. There is no California decision addressig such a situation.

California's suspension statute takes away the corporation's litigation privileges in order to pressure the corporation into payment of taxes. If the corporation wishes to take part in litigation-- whether a trial or on appeal, whether it is suing or defending--the corporation must pay its taxes. Thus, judgment in favor of Ming Chang solely on the ground of incapacity, however, would be a non sequitur, because the defendants have not shown the district court's decision to be in error.

II

Section 501 of the Copyright Act gives the power to claim infringement only to copyright owners or exclusive licensees. Appellants argue that Zenix lacked the power to claim infringement because it is neither the owner of the "Twinicorn" copyright nor an exclusive licensee. We affirm the district court's conclusion that Zenix had standing under Sec. 501 to claim infringement.

The author of the copyrighted design, Jack Chiu, transferred to Zenix the rights to "use, manufacture and sell" the work. By the same agreement, however, Chiu expressly reserved the rights to "reproduce" and "distribute." Appellants urge that, as a matter of law, the agreement gave Zenix merely a nonexclusive license because Chiu retained the rights granted to Zenix.

When appellants raised their "nonexclusive license" argument in a post-trial motion, the district court concluded that Zenix was an exclusive licensee and denied the motions. The district court found that "Mr. Chiu did not grant any person other than Zenix the right to manufacture the Twinicorn clock. Therefore, the license was exclusive."²  Of course, in order for the license to be exclusive, Chiu, the licensor, must also give up the rights granted to Zenix. See 3 M. Nimmer & D. Nimmer, Nimmer on Copyright Sec. 1202, at 12-29 (1989) ("Indeed, the licensor may be liable to the exclusive licensee for copyright infringement if the licensor exercises rights which have theretofore been exclusively licensed.").

When contractual language is clear, its legal effect is a matter of law, reviewed de novo. L.K. Comstock & Co. v. United Engineers & Constructors, 880 F.2d 219, 221 (9th Cir. 1989). The most that can be said about the license agreement, however, is that it is poorly drafted and ambiguous. The term "reproduce" seems to encompass "manufacture," and the term "distribute" seems to encompass "sell." Conversely, Chiu may have intended merely to reserve whatever rights he did not grant to Zenix.

Chiu asserted that he intended the license to be exclusive. The court stated that the division of rights in the agreement "is permissible under the Copyright Act and does not affect whether the license is exclusive." (Emphasis added.) Apparently, the district court relied on the conduct of the contracting parties in determining that the license was exclusive. When the inquiry extends beyond the words of the contract and focuses on related facts, the trial court's consideration of extrinsic evidence is entitled to great deference and its interpretation of the contract will not be reversed unless it is clearly erroneous. Id. at 221; In re U.S. Financial Sec. Litig., 729 F.2d 628, 632 (9th Cir. 1984).

The district court did not appear concerned with whether or not Chiu himself retained the same rights he granted to Zenix. There is no evidence in the record, however, that Chiu exercised any of the rights granted to Zenix. The district court's conclusion that Chiu gave Zenix an exclusive license was not clearly erroneous. This conclusion is supported where, as here, the copyright holder has no dispute with its licensee on the matter. As the Second Circuit has pointed out, it would be anomalous to permit a third-party infringer to invoke this provision against the licensee. Eden Toys v. Florelee Undergarment Co., 697 F.2d 27, 36 (2d Cir. 1982).

III

The district court found that all of the appellants sold copies of Zenix's and Chang's works. The court based this finding in large part on appellants' response to discovery requests. When ordered by the court to produce invoices on sales of all goods for some seven months in question, no appellant produced more than fifteen invoices--many produced none at all. The few invoices that were produced were not in numerical order.

Appellants argue that the district court erred in concluding from this evidence that they all sold copies of the copyrighted works.³  Appellants insist that no logical inference of sales can be drawn from this evidence because the record does not contain any information regarding the invoice system used by any of the defendants. Appellants suggest that the evidence may have resulted from various appellants' peculiar invoice systems or from no system at all.

Appellants' argument that the district court had no logical basis for its conclusion is incorrect. The court, as the factfinder, was free to conclude any number of things when faced with a scanty, disordered set of invoices. Moreover, the court received evidence that some appellants displayed the works at a trade show and in an advertising brochure, some sold copies to agents of Zenix or Ming Chang, some purchased copies from other appellants, and some took orders for future sales. As the Supreme Court stated in Anderson v. Bessemer City,

[w]here there are two permissible views of the evidence, the factfinder's choice between them cannot be erroneous....

This is so even where the district court's findings do not rest on credibility determinations, but are based instead on physical or documentary evidence or inferences from other facts.

470 U.S. 564, 574 (1984) (citations omitted). After reviewing the evidence in the record with respect to each of the appellants, we affirm these findings of the district court.

IV

Appellants urge that, because Lung Mei manufactured the finished product from the copyrighted sketch, Lung Mei is a joint author of a derivative work, the finished clock. Appellants also insist that Lung Mei gave them permission to sell the finished clocks. If Lung Mei is a joint author who gave them permission to sell, appellants conclude, then they are immune to any claim of copyright infringement.

Appellants fail to point to any convincing evidence that Lung Mei and Zenix, through their manufacturing efforts, intended to create a new, joint work. See Weissmann v. Freeman, 868 F.2d 1313, 1319 (2d Cir. 1989) (" [A]n author who intends to create a joint work must clearly demonstrate his or her intent in that regard."). Chiu's testimony suggests no such intention. In addition, there is no evidence that Lung Mei desired or attempted to copyright the finished work as a joint work. Appellants cite a recent Supreme Court case addressing a situation far different from this one.⁴  The district court correctly concluded that Chiu was the author of the Twinicorn clock.

V

Appellants moved for relief from the judgment under Fed. R. Civ. P. 60(b) (3) on grounds of fraud. The district court denied relief. A Rule 60(b) motion will not be reversed absent abuse of discretion. Thompson v. Housing Authority, 782 F.2d 829, 832 (9th Cir.), cert. denied, 479 U.S. 829 (1986).

The only undisputed facts appellants can point to in support of their motion are (1) Chiu admitted that he improperly has filed copyright registrations on works he imported, but did not design; and (2) the Twinicorn application included no reference to his previous Unicorn clock. Chiu's admission would be more relevant if he were alleged to have filed this registration without actually designing the Twinicorn clock. Chiu, however, proved that he designed the clock. Chiu's failure to refer to the Unicorn copyright in his Twinicorn application, while directly relevant to the issue of validity, is hardly conclusive evidence of deliberate fraud. To invalidate a copyright, the omission must be deliberate. See Donald Frederick Evans & Assocs. v. Continental Homes, 785 F.2d 897, 904 (11th Cir. 1986) (failure to list pre-existing work on registration application does not invalidate registration unless "intentional or purposeful").

Appellants rely on Russ Berrie & Co. v. Jerry Elsner Co., 482 F. Supp. 980 (S.D.N.Y. 1980). In Berrie, the plaintiff designed toy gorillas that were almost indistinguishable from previous works in the public domain. Because the plaintiff failed to mention the public domain work in the application before the court, and in all its previous applications, the district court concluded the plaintiff intentionally withheld material information from the Copyright Office. The court noted that " [b]y virtue of the omissions in its application, plaintiff has effectively arrogated to itself rights which it does not legitimately possess." Id. at 989 n. 6. Chiu, on the contrary, appears to own the copyrights on both clock designs, so his omission has no such effect. If done intentionally, registering copyrights on works designed by others is deplorable and fraudulent conduct. The district court, however, did not abuse its discretion in denying the motion.

VI

In their motions for relief under Fed. R. Civ. P. 59, appellants raised a number of arguments. A district court's decision concerning a motion pursuant to Rule 59 is reviewed for an abuse of discretion. Hard v. Burlington No. R.R., 812 F.2d 482, 483 (9th Cir. 1987).

Appellants argued that the copyright on the Twinicorn sketch is invalid because the sketch was injected into the public domain. Their argument springs from the fact that the Twinicorn sketch is similar to an earlier "Unicorn" sketch, which, appellants' insist, was in the public domain. Even if appellants' factual allegations are correct and were unavailable at the trial, the Twinicorn sketch nevertheless adds original, copyrightable elements to the Unicorn work. See Eden Toys, 697 F.2d at 34; United States v. Taxe, 540 F.2d 961, 965 n. 2 (9th Cir. 1976), cert. denied, 429 U.S. 1040 (1977). Thus, similarity to a public domain work would not affect its copyrightability.

Appellants rely on L. Batlin & Son, Inc. v. Snyder, 536 F.2d 486 (2d Cir. 1976), which is inapposite. There, the court compared a cast iron "Uncle Sam," mechanical bank, which was in the public domain, with a plastic version that was "practically an exact copy," except two inches shorter. The court held that any original contribution to the public domain work was "a minuscule variation" too trivial to merit copyright protection.

The copyright registration on the Twinicorn sketch was prima facie evidence of originality. See Drop Dead Co., 326 F.2d at 92. The district court also received evidence from Chiu regarding his original efforts in designing the clock. The appellants never rebutted this showing of originality at trial. A clock with twin unicorns on either side of the timepiece, as compared to a single unicorn on one side, is not "practically an exact copy," nor is it a "minuscule variation." The district court correctly found the copyright valid. Denial of the motion based on the "public domain" defense was not an abuse of discretion.

B. The Defense of the "First Sale Doctrine"

Appellants also argued that the "first sale doctrine" provides a valid defense. The first sale doctrine prevents the copyright owner from interfering with the disposition of particular copies after the copyright owner parts with title to them. The doctrine allows the new owner of a lawfully made copy to sell or dispose of that copy without the copyright owner's permission. See 17 U.S.C. § 109 (1988). To make out the defense, appellants would have had to prove that they acquired their copies from the copyright owner (Chiu) or a licensee (Zenix or Lung Mei).

At trial, appellants never attempted to prove the source of the goods they sold. They took the position, despite evidence to the contrary, that they had never sold the works. It certainly is possible that appellants acquired their copies of the Twinicorn clock from Lung Mei, the manufacturing company licensed to make and sell the Twinicorn in Taiwan. It appears, however, that the district judge and the parties were unconcerned with this possibility. This lack of concern is understandable, because at trial the issue joined was whether appellants sold copies that infringed a valid copyright. The district court was never presented with the "first sale" defense. Regarding the possibility that Lung Mei, the Taiwanese manufacturer, was the source of the goods, the judge stated:

So in other words, the manufacturer, I suppose under the law of Taiwan, which I'm not concerned with, possibly could make this clock and sell it to some other company. But if that company imports it into the United States, they violate the copyright and so does anybody who displays it, or sells it, or promotes it. Am I--Is there a dispute on that now?

...

[Attorney for Zenix and Ming Chang:] No. I don't have a dispute with your Honor's statement.

...

[Attorney for appellants:] I don't disagree with your Honor's statement. But we are trying to dispute the validity of the copyright....

Because appellants had ample opportunity to raise, but never raised the issue of the source of the goods, the district court did not abuse its discretion by denying the post-trial motion based on the defense of the first sale doctrine.

Zenix's and Ming Chang's request for attorney fees under 17 U.S.C. § 505 is denied.

The district court's judgment is AFFIRMED.