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`Fair Isaac Corporation,
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`Federal Insurance Company and ACE
`American Insurance Company,
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`v.
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`Plaintiff,
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`Defendants.
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 1 of 12
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`UNITED STATES DISTRICT COURT
`DISTRICT OF MINNESOTA
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`Case No. 16-cv-1054 (WMW/DTS)
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`ORDER
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`
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`This matter is before the Court on Plaintiff Fair Isaac Corporation’s (Fair Isaac)
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`appeal of the October 9, 2019 Order of United States Magistrate Judge David T. Schultz,
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`which granted Defendants’ motion to strike Fair Isaac’s jury demand on the disgorgement
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`of Federal Insurance Company’s profits attributable to infringement under the Copyright
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`Act. (Dkt. 662.) For the reasons addressed below, the Court affirms the magistrate judge’s
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`October 9, 2019 Order.
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`BACKGROUND
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`Fair Isaac commenced this copyright-infringement action in April 2016 and
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`demanded a jury trial. Fair Isaac alleges that Defendants Federal Insurance Company and
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`its sister company, ACE American Insurance Company (collectively, Federal), breached a
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`software license agreement and infringed Fair Isaac’s copyright. Fair Isaac seeks damages
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`for breach of contract and copyright infringement, as well as disgorgement of Federal’s
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`profits attributable to the alleged infringement. Federal moved to strike Fair Isaac’s jury
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`demand as to its claim for disgorgement of Federal’s profits. The magistrate judge granted
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`

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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 2 of 12
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`Federal’s motion, concluding that Fair Isaac does not enjoy, under the Seventh Amendment
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`to the United States Constitution, a right to a jury determination on its claim for
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`disgorgement of Federal’s profits because disgorgement of profits is an equitable remedy.1
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`Fair Isaac appeals that decision, arguing that disgorgement is a legal remedy here because
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`its purpose is to punish and deter.
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`ANALYSIS
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`I.
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`The Copyright Act
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`The legal or beneficial owner of an exclusive right under a copyright, subject to
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`registration requirements, may institute an action for any infringement of that right.
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`17 U.S.C. § 501(b). Infringement remedies include injunctions, id. § 502, impoundment
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`and disposition of infringing articles, id. § 503, damages and profits, id. § 504, as well as
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`costs and attorney’s fees, id. § 505. A copyright infringer is liable for either the copyright
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`owner’s actual damages and any additional profits of the infringer as provided in Section
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`504(b), or statutory damages as provided by Section 504(c). Id. § 504(a).
`
`
`The parties dispute the proper standard of review. Federal argues that the standard
`1
`of review is “clear error” because a motion to strike a jury demand is a pretrial,
`nondispositive matter. Fed. R. Civ. P. 72(a). For nondispositive matters, the ruling will
`be set aside only if it is clearly erroneous or contrary to law. Id.; LR 72.2(a)(3); Coons v.
`BNSF Ry. Co., 268 F. Supp. 3d 983, 991 (D. Minn. 2017). If, on the other hand, the motion
`to strike a jury demand is a dispositive matter and a Report and Recommendation was
`therefore required, the decision is reviewed de novo. Fed. R. Civ. P. 72(b)(3); LR
`72.2(b)(3). The alternatives are inconsequential here because the question presented is
`purely a legal question. See Martin Ankeny Corp. v. CTB Midwest, Inc., No. 4:14-cv-
`00516-SMR-HCA, 2016 WL 7426584, at *3 (S.D. Iowa Mar. 18, 2016) (concluding that
`a district court necessarily reviews a magistrate judge’s ruling on a “pure question of law”
`de novo, regardless of whether the motion was dispositive or nondispositive (internal
`quotation marks omitted)). The Court therefore declines to resolve the issue of whether a
`Report and Recommendation was required in lieu of an order.
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` 2
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 3 of 12
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`Section 504(b) provides:
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`The copyright owner is entitled to recover the actual damages
`suffered by him or her as a result of the infringement, and any
`profits of the infringer that are attributable to the infringement
`and are not taken into account in computing the actual
`damages. In establishing the infringer’s profits, the copyright
`owner is required to present proof only of the infringer’s gross
`revenue, and the infringer is required to prove his or her
`deductible expenses and the elements of profit attributable to
`factors other than the copyrighted work.
`
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`Alternatively, the copyright owner may, at any time before final judgment is rendered, elect
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`to recover statutory damages instead of actual damages and profits. Id. § 504(c).
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`
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`Here, Fair Isaac seeks either all damages under 17 U.S.C. § 504 comprising its actual
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`damages and any profits derived by Federal, or statutory damages. In addition, Fair Isaac
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`seeks injunctive relief and reasonable costs and attorney’s fees. Id. §§ 502, 505.
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`II.
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`Right to a Jury Determination
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`“The right of trial by jury as declared by the Seventh Amendment to the [United
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`States] Constitution—or as provided by a federal statute—is preserved to the parties
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`inviolate.” Fed. R. Civ. P. 38(a). The Court addresses, in turn, the relevant statutory and
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`constitutional rights to a trial by jury.
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`A.
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`Statutory Right to a Jury Determination
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`Although Fair Isaac no longer contends that the Copyright Act—or any other federal
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`statute—provides the right to a jury determination on disgorgement of Federal’s profits
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`attributable to infringement, the Supreme Court of the United States requires courts to
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`ascertain first whether a construction of the statute is fairly possible by which the
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` 3
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 4 of 12
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`constitutional question may be avoided. City of Monterey v. Del Monte Dunes at Monterey,
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`Ltd., 526 U.S. 687, 707 (1999).
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`There is no statutory right to a jury trial on the award of statutory damages under
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`Section 504(c) of the Copyright Act. Feltner v. Columbia Pictures Television, Inc., 523
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`U.S. 340, 345 (1998). Section 504(c) refers to “the court,” but Section 504(c) neither refers
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`to a right to a jury trial nor refers to juries at all. Id. at 345–46. Moreover, Section 504(c)
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`does not include any term, such as “legal,” or any other language denoting legal relief. Id.
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`at 347.
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`The same is true of Section 504(b). Although Section 504(b) provides for actual
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`damages, which generally are considered legal relief, Section 504(b) also provides for
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`profits, which generally are a form of equitable relief. See id. at 352. The reasoning in
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`City of Monterey informs this analysis. There, the Supreme Court concluded that 18 U.S.C.
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`§ 1983 does not provide the right to a jury trial notwithstanding the statute authorizing a
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`party to seek relief through “an action at law, suit in equity, or other proper proceeding for
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`redress.” 526 U.S. at 707 (quoting 18 U.S.C. § 1983). It follows here that Section 504(b),
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`which does not expressly provide a right to a jury determination on actual damages and
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`profits, also does not implicitly provide such a right. The Congressional record also
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`supports this conclusion. “[W]here some of the defendant’s profits result from the
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`infringement and other profits are caused by different factors, it will be necessary for the
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`court to make an apportionment.” H.R. 94-1476, at 161 (1976) (emphasis added); see
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`Feltner, 523 U.S. at 345 (“[W]e cannot discern any congressional intent to grant . . . the
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`right to a jury trial.” (internal quotation marks omitted)).
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` 4
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 5 of 12
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`Accordingly, there is no statutory right to a jury determination as to the
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`disgorgement of profits under Section 504(b) of the Copyright Act.
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`B.
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`The Seventh Amendment
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` The Seventh Amendment to the United States Constitution provides that “[i]n Suits
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`at common law, where the value in controversy shall exceed twenty dollars, the right of
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`trial by jury shall be preserved.” U.S. Const. amend. VII. A plaintiff is entitled to a jury
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`trial in an action that is analogous to an action that would have been brought in the English
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`law courts, but not if the action is analogous to actions tried in courts of equity or admiralty.
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`Tull v. United States, 481 U.S. 412, 417 (1987).
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`The Seventh Amendment “preserve[s] the basic institution of jury trial in only its
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`most fundamental elements.” Tull, 481 U.S. at 426 (internal quotation marks omitted).
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`Consistent with the textual mandate to preserve the jury trial right, two principal inquiries
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`guide a court’s interpretation of the Seventh Amendment. City of Monterey, 526 U.S. at
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`708. First, a court must compare the statutory action to 18th-century actions brought in the
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`courts of England before the merger of the courts of law and equity. Tull, 481 U.S. at 417.
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`Second, a court must examine the remedy sought and determine whether it is legal or
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`equitable in nature. Id. at 417–18; see City of Monterey, 526 U.S. at 708 (“If the action in
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`question belongs in the law category, we then ask whether the particular trial decision must
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`fall to the jury in order to preserve the substance of the common-law right as it existed in
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`1791.” (quoting Markman v. Westview Instruments, Inc., 517 U.S. 370, 376 (1996))). The
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`Supreme Court repeatedly has asserted that the second part of this test is more important
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`than the first. E.g.. Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S.
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` 5
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 6 of 12
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`558, 565 (1990); Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989). In summary,
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`if disgorgement of Federal’s profits was not available at law for the kind of wrong at issue
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`here, Fair Isaac does not have a constitutional right to a jury determination on the
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`disgorgement question. Tex. Advanced Optoelectronic Sols., Inc. v. Renesas Elecs. Am.,
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`Inc., 895 F.3d 1304, 1320 (Fed. Cir. 2018).
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`1.
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`Cause-of-Action Inquiry
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`To determine the character of the cause of action, a court compares the statutory
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`action to 18th-century actions brought in the courts of England before the merger of the
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`courts of law and equity. Tull, 481 U.S. at 417. Before the ratification of the Seventh
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`Amendment, United States common law and statutes granted copyright owners a cause of
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`action for infringement. Feltner, 523 U.S. at 348. Copyright lawsuits for monetary
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`damages were tried before a jury in courts of law prior to 1791. Id. at 348–49. Federal
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`does not dispute that actions for copyright infringement must be tried before a jury. At
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`issue is the nature of the remedy sought and whether that particular decision must rest with
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`a jury so as to preserve the common-law right as it existed in 1791.
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`2.
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`Nature-of-Remedy Inquiry
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`The Court must determine whether the disgorgement of profits derived from
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`copyright infringement must be decided by a jury so as “to preserve the right to a jury’s
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`resolution of the ultimate dispute.” Cf. Markman, 517 U.S. at 377.
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`In Feltner, the Supreme Court held that there is “clear and direct historical evidence
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`that juries, both as a general matter and in copyright cases, set the amount of damages
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`awarded to a successful plaintiff.” 523 U.S. at 355. The Feltner Court explained that the
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` 6
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 7 of 12
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`infringer made “no attempt to draw an analogy between an action for statutory damages
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`under [Section] 504(c) [of the Copyright Act] and any historical cause of action—including
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`those actions for monetary relief that we have characterized as equitable, such as actions
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`for disgorgement of improper profits.”2 Id. at 352. As such, there is a Seventh Amendment
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`right to a jury determination of statutory damages under Section 504(c). Id. at 355.
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`In Petrella v. Metro-Goldwyn-Mayer, Inc., in which a copyright holder filed an
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`action for infringement and sought actual damages and additional profits under Section
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`504(b), the Supreme Court explained:
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`Like other restitutional remedies, recovery of profits “is not
`easily characterized as legal or equitable,” for it is an
`“amalgamation of rights and remedies drawn from both
`systems.” Restatement (Third) of Restitution and Unjust
`Enrichment § 4, Comment b, p. 28 (2010). Given the “protean
`character” of the profits-recovery remedy, see id., Comment c,
`at 30, we regard as appropriate its treatment as “equitable” in
`this case.
`
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`572 U.S. 663, 668 n.1 (2014). The Supreme Court also observed, in accounting for the
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`plaintiff’s delay in bringing suit, that “the equitable relief [the plaintiff] seeks—e.g.,
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`disgorgement of unjust gains and an injunction against future infringement” may be
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`addressed “at the remedial stage.” Id. at 686–87. While not in unequivocal terms, Petrella
`
`
`Feltner includes a contradictory statement when addressing whether the Copyright
`2
`Act provides a statutory right to a jury determination. Feltner states that “the Copyright
`Act does not use the term ‘court’ in the subsection addressing awards of actual damages
`and profits, see § 504(b), which generally are thought to constitute legal relief.” 523 U.S.
`at 346. It is notable both that the Feltner Court used the word “generally,” and the
`parentheticals accompanying the citations to this statement include the word “damages,”
`but not “profits.”
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` 7
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 8 of 12
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`nonetheless suggests that disgorgement of profits as a result of copyright infringement is
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`an equitable remedy.3
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`Fair Isaac argues that, although profit disgorgement can have multiple rationales,
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`including compensation, punishment, deterrence, and unjust enrichment, it is a legal
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`remedy when, as here, profit disgorgement serves to deter and punish wrongful conduct.
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`Actual and punitive damages are the “traditional form[s] of relief offered in the
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`courts of law.” Curtis v. Loether, 415 U.S. 189, 196 (1974).4 While monetary damages
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`traditionally are considered legal relief, the Supreme Court has articulated two exceptions
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`to this general rule: monetary relief is equitable when it is restitutionary, “such as in actions
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`for disgorgement of improper profits,” or when it is “incidental to or intertwined with
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`injunctive relief.”5 Terry, 494 U.S. at 570–71 (internal quotation marks omitted).
`
`
`A historical analysis confirms this suggestion. The first federal copyright statute,
`3
`the Copyright Act of 1790, authorized damages for copyright infringement. Feltner, 523
`U.S. at 351. Before the enactment of the Copyright Act of 1909, “there had been no
`statutory provision for the recovery of profits, but that recovery had been allowed in equity
`both in copyright and [in] patent cases as appropriate equitable relief incident to a decree
`for an injunction.” Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390, 399 (1940)
`(emphasis added). “That relief had been given in accordance with the principles governing
`equity jurisdiction, not to inflict punishment but to prevent an unjust enrichment . . . .” Id.
`When it is not clear to what extent an infringer’s profits are the result of infringement, both
`the Copyright Act and the Supreme Court’s prior decisions “leave the matter to the
`appropriate exercise of the equity jurisdiction upon an accounting to determine the profits
`which the infringer shall have made from such infringement.” Id. at 402 (emphasis added).
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` 4
`
`“Remedies intended to punish culpable individuals . . . were issued by courts of law,
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`not courts of equity.” Tull, 481 U.S. at 422.
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` 5
`
`The Supreme Court has “characterized damages as equitable where they are
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`restitutionary, such as in ‘action[s] for disgorgement of improper profits.’ ” Terry, 494
`U.S. at 570 (quoting Tull, 481 U.S. at 424); see also Feltner, 523 U.S. at 352.
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 9 of 12
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`Here, any profit disgorgement would be based on Federal’s gains, not Fair Isaac’s
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`losses. Fair Isaac need not suffer any actual damages to be awarded Federal’s improper
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`profits. Section 504(b) expressly excludes any profits “taken into account in computing
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`the actual damages.” 17 U.S.C. § 504(b). As these profits are measured exclusively based
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`on Federal’s gains, they are restitutionary.
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`There is no sound basis to conclude that, here, disgorgement is a legal remedy that
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`serves to punish and deter. Fair Isaac asserts that in Kokesh v. SEC, the Supreme Court
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`held that disgorgement of profits operated as a penalty because it was intended for punitive
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`purposes. 137 S. Ct. 1635, 1645 (2017). But in the securities context, the disgorgement
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`penalty is not a liability imposed solely for the purpose of redressing a private injury. Id.
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`at 1643; see also Brady v. Daly, 175 U.S. 148, 153–58 (1899) (holding that a compensatory
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`remedy for a private wrong under the Copyright Act is not a statutory penalty). As such,
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`Kokesh is inapposite because it involved disgorgement as a penalty that was imposed by
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`the state as a consequence of violating a public law. 137 S. Ct. at 1645 (recognizing that
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`“disgorgement serves compensatory goals in some cases”).
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`“Damages are awarded to compensate the copyright owner for losses from the
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`infringement, and profits are awarded to prevent the infringer from unfairly benefiting from
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`a wrongful act.” H.R. Rep. No. 94-1476, at 161 (1976). Fair Isaac rests its argument on
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`the word “prevent” in the Congressional record, contending that this legislative purpose
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`demonstrates the primary intent of deterrence. But damages are awarded to compensate
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`the owner. Profits are awarded as damages to prevent infringers from reaping a wrongful
`
`
`
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` 9
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`

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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 10 of 12
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`benefit, not to prevent the infringement.6 See Sheldon, 309 U.S. at 684 (explaining that the
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`purpose of the profits award in the Copyright Act of 1909 was to provide just compensation
`
`for the wrong, not to impose a penalty by giving to the copyright proprietor profits that are
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`not attributable to infringement). The broader statutory scheme of the Copyright Act
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`supports this conclusion. In the civil context, copyright infringement is a strict liability
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`violation and intent is not a required element of the claim. Buck v. Jewell-La Salle Realty
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`Co., 283 U.S. 191, 198 (1931). But if a copyright owner elects to recover statutory damages
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`instead of actual damages and profits, then the infringer’s intent is relevant. 17 U.S.C.
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`§ 504(c). When willful infringement is pleaded and proved, the factfinder may increase
`
`the award of statutory damages. Id. In short, the punitive and deterrent nature of the
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`Copyright Act exists in Section 504(c) concerning statutory damages and Section 102
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`addressing criminal penalties for willful infringement and economic motive, but not
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`Section 504(b).7 See F. W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 233
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`(1952) (observing that the Copyright Act’s statutory damages provision “is designed to
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`discourage wrongful conduct”).
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`Fair Isaac maintains that, because disgorgement does not necessitate or permit
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`judicial discretion, “there is nothing for equity to consider.” But this argument is contrary
`
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`Prevent means “to hinder or preclude.” Black’s Law Dictionary.
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`6
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` 7
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`A plaintiff alleging trademark infringement need not show that a defendant willfully
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`infringed the plaintiff’s trademark as a precondition to a profits award. Romag Fasteners,
`Inc. v. Fossil, Inc., 140 S. Ct. 1492, 1495–96 (2020). In reaching this conclusion, the
`Supreme Court declined to read a willfulness requirement into the statute when Congress
`specified the requisite mental state in other sections of the Lanham Act. Id.
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 11 of 12
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`to the Supreme Court’s reasoning in Petrella, which explained that, should the plaintiff
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`ultimately prevail on the merits, “the District Court, in determining appropriate injunctive
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`relief and assessing profits, may take account of her delay in commencing suit,” including
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`the defendant’s reliance on the plaintiff’s delay, the defendant’s early knowledge of the
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`plaintiff’s claims, the protection the defendant might have achieved through a declaratory
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`judgment action, the extent to which the defendant’s investment was protected by the
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`separate accrual rule, “and any other consideration that would justify adjusting injunctive
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`relief or profits.” 572 U.S. at 687 (emphasis added) (citing Haas v. Leo Feist, Inc., 234 F.
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`105, 107–08 (S.D.N.Y. 1916) (Hand, J.) (reasoning that, in a copyright-infringement action,
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`“[e]quity will control its peculiar remedy of an account of profits according to its own sense
`
`of justice,” and an award of profits would account for copyright owner’s inaction until the
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`infringer had invested large sums exploiting the work at issue)).
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`Finally, Fair Isaac contends that, after the Petrella decision, no court has decided
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`that the disgorgement remedy is equitable based on a particularized analysis of case-
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`specific facts. The Supreme Court in Petrella acknowledged in a footnote that recovery of
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`profits is not easily characterized as legal or equitable and regarded it as equitable “in this
`
`case.” 572 U.S. at 668 n.1. In doing so, the Supreme Court also characterized the
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`disgorgement of profits under Section 504(b) as equitable relief on other occasions in the
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`opinion. Logical reasoning leads this Court to interpret the qualifying language “in this
`
`case” to mean that the recovery of profits is equitable relief when sought under Section
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`504(b) of the Copyright Act, not that a court must undertake a case-by-case analysis based
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`on the particular facts and circumstances presented. Cf. Kokesh, 137 S. Ct. at 1645
`
`
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`CASE 0:16-cv-01054-WMW-DTS Document 811 Filed 06/24/20 Page 12 of 12
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`(concluding that recovery of profits for securities violations redressing a wrong to the
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`public as opposed to an individual is a penalty, i.e. legal).
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`Fair Isaac presents no sound legal basis to conclude that the courts of law in 1791
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`would have awarded disgorgement of a defendant’s profits as a remedy for copyright
`
`infringement. The Seventh Amendment “preserve[s] the basic institution of jury trial in
`
`only its most fundamental elements.” Tull, 481 U.S. at 426 (internal quotation marks
`
`omitted). Even though copyright infringement is a legal claim, a determination of profits
`
`arising from the claim is not traditionally a question for the jury. Cf. City of Monterey, 526
`
`U.S. at 718. Moreover, the recovery of profits under Section 504(b) of the Copyright Act
`
`is equitable because the profits are not a proxy for Fair Isaac’s actual damages. As Section
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`504(b) declares, a copyright holder is entitled to recover the actual damages suffered as a
`
`result of the infringement and any profits of the infringer attributable to the infringement
`
`that are not taken into account in computing the actual damages.
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`ORDER
`
`Based on the foregoing analysis and all the files, records and proceedings herein, IT
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`IS HEREBY ORDERED that the October 9, 2019 Order, (Dkt. 588), is AFFIRMED.
`
`
`Dated: June 24, 2020
`
`
`
`s/Wilhelmina M. Wright
`Wilhelmina M. Wright
`United States District Judge
`
`
`
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` 12
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`