## Facts

- FM Industries developed and owned debt-collection and case-management software known as TUCANS.
- FM licensed TUCANS to Citicorp for use in Citicorp’s debt-collection operations.
- FM alleged Citicorp failed to pay agreed licensing fees and induced outside collection firms (including the Law Offices of Ross Gelfand, LLC) to continue using TUCANS after the license expired.
- The alleged infringement consisted of software being loaded into a computer’s random access memory without authorization.
- FM sought extremely large monetary relief, including statutory damages exceeding $15 billion and actual damages of $235 million, and pursued aggressive discovery and sanctions tactics.
- Defendants disputed copyright ownership, arguing the copyright belonged to FM’s principal (Michael Friedman) rather than the corporate plaintiff, raising real-party-in-interest concerns and intersecting with Friedman’s bankruptcy.

## Issues

1. Whether the district court abused its discretion by dismissing the remaining claims as a sanction for repeated failure to comply with pretrial-order requirements.
2. Whether the district court properly awarded attorneys’ fees and imposed monetary sanctions on counsel for vexatious multiplication of proceedings, including joint and several liability for assisting counsel.
3. Whether statutory damages were barred by late copyright registration under 17 U.S.C. § 412 and whether FM failed to pursue or prove actual damages.

## Decision

- The Seventh Circuit affirmed dismissal of the action as a sanction for persistent noncompliance with pretrial-order obligations.
- The court affirmed the attorneys’ fee award against FM and upheld personal monetary sanctions against FM’s lead counsel for vexatious multiplication of proceedings.
- The court upheld joint and several liability imposed on assisting counsel for the sanctioned fees.
- The court agreed that statutory damages were unavailable under 17 U.S.C. § 412 due to late registration and that FM failed to prove actual damages.

## Legal Principles

- District courts may dismiss claims as a sanction when a party’s repeated and willful failure to comply with pretrial requirements shows that lesser sanctions are unlikely to secure compliance.
- Courts may impose attorneys’ fees personally on counsel who unreasonably and vexatiously multiply proceedings; fee liability may extend to lawyers who materially contribute to the misconduct.
- Under 17 U.S.C. § 412, statutory damages are unavailable for infringement of a published work if registration occurs more than three months after first publication (and, in any event, for infringement occurring before registration).
- When statutory damages are unavailable, a plaintiff must develop and prove actual damages (or other available relief); unsupported or exaggerated damage demands do not substitute for proof.

## Conclusion

The Seventh Circuit sustained dismissal and fee sanctions where counsel repeatedly disregarded pretrial-order obligations and multiplied proceedings, and it confirmed that late copyright registration forecloses statutory damages while actual damages require proof rather than assertion.


FM Industries, Inc. v. Citicorp Credit Servs., Inc., 614 F.3d 335 (7th Cir. 2010)