Arter Neon & LED Sign, Inc. (Arter Neon) is a Los Angeles area company that designs and sells neon and LED signs for retail and business displays.  Pong C. Kao is a principal of Arter Neon and the creator of several copyrighted signs and works of art sold by the company.

Kao is the named author on U.S. Copyright Registration Nos. VAu 742-862 for a “Scissors” LED design VAu 750-093 for a series of of neon and LED works.  Kao also has two applications pending before the U.S. Copyright Office for designs for a “Reflexology” sign and a “Foot Massage” sign.  Arter Neon is the exclusive licensee of these copyrights.

Last month, Arter Neon and Kao filed a complaint (arterneoncomplaint.pdf) in federal court in Los Angeles against Touch of Asia Spa Equipment, Inc. (TOA) and its principals and employees, alleging that TOA infringed Kao’s copyrights and breached a license agreement between the parties.

In July 2007, Arter Neon and TOA entered into a license agreement which permitted TOA to distribute signs containing some of Arter Neon’s copyrighted designs.  According to the complaint, Arter Neon provided TOA with images of the designs for TOA’s web site, and all orders for those products were to be forwarded to Arter Neon. 

The agreement prohibited TOA from manufacturing products containing the copyrighted designs or obtaining such products from a third party.

The complaint alleges that, during a delivery in June 2008, Kao noticed signs in TOA’s showroom that displayed the Arter Neon copyrighted designs but were not made by or purchased from Arter Neon.  When Kao confronted one of the principals of TOA, Hong Ju Liu, Liu allegedly refused to stop selling the third party merchandise.

According to the complaint, Arter Neon sent TOA written notice that it was terminating the agreement later that day.  The letter also requested that TOA cease and desist the infringing conduct.  The complaint alleges that a private investigator subsequently purchased infringing signs from KOA, and KOA continues to infringe.

On the copyright infringement claim, Arter Neon asks for an injunction and either compensatory damages (based roughly on the copyright holder’s lost profits) or statutory damages (the Copyright Act provides the option of calculating damages as a set figure, between $750 and $30,000 at the court’s discretion, per infringing work).

Should Arter Neon succeed on the breach of contract claim, the damages probably would have to be parsed by the type of breach.  This is because the license agreement has a “liquidated damages” clause, a provision that sets the damages sum for certain breaching acts. 

Here, the clause provides that failure to pay royalty payments and “unauthorized usage” of the copyrighted designs render KOA liable for $5,000 per instance of failure or unauthorized use. 

One potential area of contention is whether KOA’s purchases of signs containing the copyrighted designs from a third party constitute an unauthorized use of the designs subject to the liquidated damages clause or are another type of breach for which the damages amount is calculated by other methods. 

The specificity of the enumerated breaches in the liquidated damages clause (and the placement of the prohibition against purchasing the signs from a third party in a separate paragraph) seems to indicate that those acts are not subject to the provision. 

In any event, this case is definitely subject to the “be careful what you ask for” maxim – when Kao warned Liu that KOA’s conduct violated the license agreement and constituted copyright infringement, she allegedly replied, “go ahead and sue me.”

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