Smc Promotions, Inc. v. Smc Promotions

• Decision Date: 07 February 2005
• Docket Number: No. CV04-7107-JFW(VBKX).,CV04-7107-JFW(VBKX).
• Citation: 355 F.Supp.2d 1127
• Court: U.S. District Court — Central District of California
• Parties: SMC PROMOTIONS, INC., et al. v. SMC PROMOTIONS, et al.

355 F.Supp.2d 1127

SMC PROMOTIONS, INC., et al. v. SMC PROMOTIONS, et al.

No. CV04-7107-JFW(VBKX).

United States District Court, C.D. California.

February 7, 2005.

John C. Kirkland, Charles T. Menzies, Greenberg Traurig LLP, Santa Monica, CA, for Plaintiffs.

John R. St. John, Steven W. Brennan, St. John Wallace Brennan & Folan LLP, Torrance, CA, for Defendants.

PROCEEDINGS (IN CHAMBERS): ORDER GRANTING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION [filed 12/27/04]

WALTER, District Judge.

On December 27, 2004, Plaintiffs SMC Promotions, Inc., eMerchantClub, LLC ("EMC"), and Specialty Merchandise Corporation ("SMC") (collectively, "Plaintiffs") filed a Motion for Preliminary Injunction ("Motion"). On January 10, 2005, Defendants Official Site Builders Corporation ("OSB") and Mark Busnelli, Sr. ("Busnelli") filed an Opposition. On January 14, 2005, Plaintiffs filed a Reply. On January 24, 2005, Defendants filed a Supplemental Declaration of Steven W. Brennan in support of their Opposition. The Court heard oral argument on the matter on January 24, 2005, ordered the parties to file supplemental declarations, and scheduled a further hearing on the Motion for February 7, 2005. On January 26, 2005, Plaintiffs filed a Declaration of Randall Bishop ("Bishop Dec.") and on January 27, 2005, Plaintiffs filed a Declaration of Ronald Helvey ("Helvey Dec."). On February 2, 2005, Defendants filed a Declaration of Mark Busnelli, Sr. Pursuant to Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7-15, the Court finds that this matter is appropriate for decision without further oral argument. The hearing calendared for February 7, 2005 is hereby vacated, and the matter taken off calendar. After considering the arguments made at the January 24, 2005 hearing, in addition to the moving, opposing, and reply papers, the supplemental declarations and the arguments therein, the Court rules as follows:

I. Facts and Procedural History

On August 25, 2004, Plaintiffs filed a Complaint alleging claims for relief for: (1) Order Compelling Arbitration; (2) Copyright Infringement; (3) Cyberpiracy; (4) False Designation; (5) Common Law Unfair Competition; (6) Statutory Unfair Competition; (7) Interference with Prospective Economic Advantage; (8) Conversion; (9) Unjust Enrichment; and (10) Breach of Written Contract.¹ On October 5, 2004, Defendants filed their Answer to the Complaint and also filed Counterclaims for: (1) Libel, (2) Interference with Contractual Relations and (3) Injunctive Relief.

Plaintiff SMC, a company established in 1955, imports and distributes approximately 3,000 different products, including gift items, figurines and collectibles, through a network of more than 100,000 independent distributors, known as "members." SMC produces a 300-page catalog, entitled "World of Products," that features original, professional photographs and narrative descriptions of all of its products. The catalog is updated and copyrighted twice a year. SMC also produces several smaller specialty catalogs, including catalogs for jewelry or Christmas items. The same original photographs and narrative descriptions contained in SMC's catalogs also are available in a secure area of its primary website, SMCorp.com, that is accessible only to SMC members. The website is copyrighted separately from the catalogs. The catalogs and website contain copyright notices in statutory form.

SMC has used the "SMC" name since 1955 to identify its products and services, specifically the wholesale distribution of specialty merchandise and related services. SMC spends millions of dollars a year in connection with the advertising and promotion of the SMC name and the products and services offered by SMC. SMC's advertising includes radio and print advertisements, television infomercials, and other promotional materials and activities.

Plaintiff EMC is an affiliate of SMC that designs and constructs customized websites for SMC members. It advertises its services through its websites, eMerchantClub.com and SMCeCommerce.com. The websites sold by EMC enable SMC members to sell SMC products over the Internet. Each website offered by EMC is linked to the primary SMC website, SMCorp.com, and comes preloaded with all or a portion of SMC's copyrighted "World of Products" catalog. EMC has an exclusive license to use SMC's "copyrighted materials to build and sell websites" (Bishop Dec., ¶ 18) and is the only company authorized to directly link to the copyrighted content on SMCorp.com. Declaration of Mark Schwartz, filed December 27, 2004, ¶ 16; Declaration of Joe Wu, filed December 27, 2004, ¶ 4. EMC is also authorized to use the "SMC" name to identify the websites it sells to SMC Members. Plaintiff SMC Promotions, Inc. ("SMC Promotions") is a telemarketing company whose two primary customers are its affiliates, SMC and EMC.

Defendant OSB was created in December 2003 and directly competes with EMC by marketing, constructing and selling to SMC members websites that enable those members to sell SMC products over the internet. OSB advertises its website construction services through its own websites, SMCPromotions.com, SellSMC.com and SMCForums.com.² In response to a demand from Plaintiffs, each of OSB's websites contains a fine-print disclaimer that it "is not owned, operated, endorsed or recommended by smcorp-Specialty Merchandise Corporation TM." Defendant Busnelli is a former SMC member, and is employed by OSB.

II. Legal Standard

"A preliminary injunction is appropriate where plaintiffs demonstrate either: (1) a likelihood of success on the merits and the possibility of irreparable injury; or (2) that serious questions going to the merits were raised and the balance of hardships tips sharply in [their] favor." Southwest Voter Registration Education Project v. Shelley, 344 F.3d 914, 917 (9th Cir.2003) (citing Clear Channel Outdoor Inc. v. City of Los Angeles, 340 F.3d 810, 813 (9th Cir.2003) (quoting Walczak v. EPL Prolong, Inc., 198 F.3d 725, 731 (9th Cir.1999))). "The district court must also consider whether the public interest favors issuance of the injunction." Id. (citing Fund for Animals, Inc. v. Lujan, 962 F.2d 1391, 1400 (9th Cir.1992)). These are not separate tests, but the opposite ends of a single continuum. Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1217 (9th Cir.1987) (citing San Diego Committee Against Registration and the Draft v. Governing Board of Grossmont Union High School Dist., 790 F.2d 1471, 1473 n. 3 (9th Cir.1986)). However, "[u]nder any formulation of the test, the moving party must demonstrate a significant threat of irreparable injury." Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935 (9th Cir.1987) (citing Oakland Tribune, Inc. v. Chronicle Publishing Co., 762 F.2d 1374, 1376 (9th Cir.1985)).

"[A] preliminary injunction is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." Mazurek v. Armstrong, 520 U.S. 968, 972, 117 S.Ct. 1865, 138 L.Ed.2d 162 (1997) (quoting 11A Charles A. Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice & Procedure, § 2948, pp. 129-30 (2d ed.1995)) (emphasis in Mazurek). However, a preliminary "injunction is not a preliminary adjudication on the ultimate merits." Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1423 (9th Cir.1984). "[T]he findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits." University of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981); see also Sierra On-Line, 739 F.2d at 1423 (for preliminary relief, the court need only find a probability that necessary facts will be established, not that such facts actually exist).

III. Discussion

A. Plaintiffs Have Demonstrated a Likelihood of Success on the Merits of Their Copyright Claim.

Under the federal Copyright Act, the owner of a copyright in a pictorial or literary work, such as SMC's product photographs and descriptions, has the exclusive right to (1) reproduce the work, (2) prepare derivative works based on the work, (3) distribute copies of the work and (4) display the work publicly. 17 U.S.C. § 106. Anyone who violates any of these exclusive rights without authorization "is an infringer of the copyright." 17 U.S.C. § 501(a). Therefore, in order to prevail on the merits of a copyright infringement claim, the plaintiff must establish (1) its ownership of a valid copyright, and (2) that the defendant violated one of the exclusive rights of the copyright owner. Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991). Ownership of a valid copyright registration is prima facie proof that the work is protected by copyright. 17 U.S.C. § 410(c); see, also, Direct Diamond LLC v. Star Diamond Group, Inc., 116 F.Supp.2d 525, 527 (S.D.N.Y.2000) (certificates of copyright registration are prima facie proof of validity of copyright). In this case, Plaintiffs have sought and obtained copyright registrations for both their "World of Products" catalogs and their SMCorp.com website (which contains original photographs and narrative descriptions of the products offered for sale in the "World of Products" catalog). Declaration of John C. Kirkland, filed December 27, 2004 ("Kirkland Dec."), Exs. C, E. Therefore, Plaintiffs have established prima facie proof of the validity of their copyrights.

Plaintiffs contend that Defendants have engaged in unauthorized copying of Plaintiffs' copyrighted material because Defendants have "downloaded more than 3,000 original photographs and product descriptions from plaintiff's SMCorp.com website" and have "incorporated the entire copyrighted SMC catalog into `knock-off' websites, that they now sell to SMC members." Motion, pp. 1, 3. In support of this contention, Plaintiffs offer evidence of statements appearing on one...