Protecting oneself from personal liability is top on the list when a business owner forms a corporation or similar entity. Lawyers and courts refer to this protection as the “corporate veil”. Be careful, though, because your corporate veil is not armor clad. Larry Chasin, president of Ideal Diamond Solutions, Inc. (IDS), learned this the hard way when a competitor, Blue Nile, Inc. (Blue Nile), sued him and his company for copyright infringement. Apparently, IDS, which provided e-commerce solutions for jewelry stores, maintained certain websites on which were displayed images of diamonds and other jewelry copied directly from Blue Nile’s web site. Blue Nile, an online jewelry and diamond retailer, sued Chasin for copyright infringement and other claims in the U.S. District Court for the Western District of Washington in Seattle. Blue Nile, Inc. v. Ideal Diamond Solutions, Inc., et al., No. C10-380Z (August 3, 2011). [link]
Chasin argued against his being held liable for copyright infringement: his was a small company, he had no role in creating the infringing websites, and he had no knowledge that the content was copyrighted by Blue Nile. The court listened but was unconvinced, noting that Chasin was the man in charge: Chasin was the “brainchild” and he “controlled the corporate affairs.” According to the court, he may have been an innocent infringer — that is, without knowledge that images were infringing — but lack of knowledge did not protect him from liability (although it may be relevant to damages). The court wrote,
Copyright is a strict liability tort; therefore there is no corporate veil and all individuals who participate are jointly and severally liable . . . It is well established that a corporate officer will be liable as a joint tortfeasor with the Corporation in a copyright infringement case where the officer was the dominant influence in the Corporation, and determined the policies which resulted in infringement.
The Blue Nile case teaches important lessons for both the copyright holder and the user of copyrighted materials. For the holder, it demonstrates the importance of registering your copyrights. Copyright Registration gave Blue Nile the right to sue in federal court and to collect statutory damages (and attorneys fees). For users of copyrighted material, Blue Nile also carries an important warning. Corporate officers, whether your company is big or small, may be personally liable for the infringing activities of the company. If you are using content created by others be sure that you have the appropriate rights to copy it. If you don’t know, hire a copyright lawyer to advise you.
–Adam G. Garson, Esq.