Umg Recordings, Inc. v. Disco Azteca Distributors

• Decision Date: 14 August 2006
• Docket Number: No. CIV. S-04-2611 FCD DAD.,CIV. S-04-2611 FCD DAD.
• Citation: 446 F.Supp.2d 1164
• Court: U.S. District Court — Eastern District of California
• Parties: UMG RECORDINGS, INC., A Delaware corporation, Univision Music LLC, a Delaware limited liability company, DISA LLC, a Delaware limited liability company, and Fonovisa, Inc., a California corporation, Plaintiffs, v. DISCO AZTECA DISTRIBUTORS, INC., Defendant. and Related Counterclaim.

446 F.Supp.2d 1164

UMG RECORDINGS, INC., A Delaware corporation, Univision Music LLC, a Delaware limited liability company, DISA LLC, a Delaware limited liability company, and Fonovisa, Inc., a California corporation, Plaintiffs, v. DISCO AZTECA DISTRIBUTORS, INC., Defendant. and Related Counterclaim.

No. CIV. S-04-2611 FCD DAD.

United States District Court, E.D. California.

August 14, 2006.

COPYRIGHT MATERIAL OMITTED

Jeffrey David Goldman, Nicole Lynn Harris, Mitchell Silberberg and Knupp, Los Angeles, CA, for Plaintiffs.

David Samuel White, Fainsbert Mase and Snyder, LLP., Los Angeles, CA, for Defendant.

MEMORANDUM AND ORDER

DAMRELL, District Judge.

This matter is before the court on plaintiffs UMG Recordings, Inc. and Fonovisa LLC and plaintiffs and counterdefendants Univision Music LLC and Disa LLC (collectively "plaintiffs") motion for summary judgment or, alternatively, partial summary judgment.¹ By the motion, plaintiffs seek: (1) a judgment of liability against defendant Disco Azteca Distributors, Inc. ("defendant" or "Disco Azteca") for copyright infringement of 38 of plaintiffs' works; (2) a determination that defendant's infringement was "willful" within the meaning of Section 504 of the Copyright Act, 17 U.S.C. § 504(c)(2); and (3) a judgment of non-liability in favor of counterdefendants Univision Music LLC and Disa LLC ("counterdefendants") on defendant's counterclaim for copyright infringement.

Defendant does not oppose the motion with respect to its direct liability for copyright infringement,² but argues that a finding of willfulness cannot be made as a matter of law because triable issues of fact remain regarding its state of mind. Likewise, defendant argues that judgment of non-liability in favor of counterdefendants cannot be made as triable issues of fact exist as to whether counterdefendants infringed defendant's copyrights in two sound recordings.

For the reasons set forth below, the court GRANTS IN PART and DENIES IN PART plaintiffs' motion. Considering plaintiffs' evidence proffered in support of the motion and defendant's non-opposition thereto, the court grants plaintiffs' motion as to liability and finds that defendant directly infringed 38 of plaintiffs' copyrighted works. However, the court cannot find, as a matter of law, that said infringement was "willful." On that issue, triable issues of fact remain. As to defendant's counterclaim for infringement, plaintiffs' motion is also granted as defendant's counterclaim is based on a right to attribution (i.e., the provision of proper credit to Disco Azteca and the writer of the original song on plaintiffs' CDs) which is not a protected right under the Copyright Act.

BACKGROUND

A. Plaintiffs

Plaintiffs are record companies engaged in the business of creating, manufacturing, distributing, and selling musical and sound recordings. (Def.'s Resp. to Pls.' Stmt. of Undisputed Facts ["SUF"], filed July 21, 2006, ¶ 1.) Plaintiffs are the owners or exclusive United States licensees of 38 musical works, listed on Schedules A and B to the Second Amended Complaint, and have sold and distributed these works throughout the United States. (SUF ¶ 2.)

B. Disco Azteca

Disco Azteca is in the business of selling and distributing sound recordings both as a wholesaler and in retail outlets that it owns and operates. (SUF ¶ 3.) Disco Azteca operates warehouses in Stockton, California and Chicago, Illinois and eleven retail stores throughout California and Nevada. (SUF ¶ 4.) The owners of Disco Azteca, Arturo, Humberto, Jose and Christiano Sanchez (the "Sanchezes"), have been involved in the music business since 1974. (SUF ¶ 5.) In addition to Disco Azteca, the Sanchezes also own and/or operate a recording company called Mar International S.A. ("Mar International") and a music publishing company called Jarabe Publishing Company ("Jarabe"), which operate out of the same office as Disco Azteca. (SUF ¶ 6.) Through Mar International, the Sanchezes have created 300 CDs that have collectively sold hundreds of thousands of copies, and Jarabe controls and/or owns thousands of copyrights in musical works which have been distributed in the United States and abroad. (SUF ¶ 7.) The Sanchezes arrange for the copyrights in these works to be registered with the United States Copyright Office. (Id.)

From 1985 until about three years ago, Mar International was a member of an anti-piracy organization called ALARM, which conducted raids for the purpose of confiscating counterfeit products, and created educational materials about piracy and copyright law. (SUF ¶ 8.) For over 20 years, when legal issues arise, Disco Azteca employs outside counsel (David White, defendant's counsel in this case). (SUF ¶ 9; Def.'s Stmt. of Disputed Facts ["DDF"], filed July 21, 2006, ¶ 1.) Jose Sanchez ("Sanchez") testified that he is familiar generally with the copyright laws and the protections they afford to copyrighted musical work, and he has, over the years, come to understand the Copyright Act's prohibition on "parallel imports."³ (SUF ¶ 10.) Although, Disco Azteca has not been involved previously in a copyright lawsuit, and has not had prior experience dealing with the issue of parallel imports. (¶ 2.)

C. Plaintiff's Cease & Desist Letter to Disco Azteca

On March 5, 2003, after receiving information that Disco Azteca may have purchased or imported parallel imports of plaintiffs' work, plaintiff UMG Recordings, Inc. ("UMG") sent a letter, in English and Spanish, to Disco Azteca at both its Stockton, California and Cicero, Illinois addresses, asking Disco Azteca to cease and desist from:

purchasing, importing and/or causing to be imported " for distribution, sale, or other exploitation in the United States copies of records manufactured outside the United States, which contain copies of various master recordings owned exclusively by UMG Recordings, Inc.... . (SUF ¶ 11.)

The letter referenced Section 602(a) of the Copyright Act and cited specific case law on the prohibition of parallel imports. (Id.)

Defendant, however, maintains that it first learned of plaintiffs' copyright claims when defendant was served with the complaint in this action on February 25, 2005. (Certif. of Service, filed March 9, 2005.) According to Sanchez, while it appears that UMG's letter was received and signed for by an employee of defendant, he declares it was never brought to his attention, and thus, he never responded to it. UMG did not attempt to contact defendant further, prior to filing the instant lawsuit on December 9, 2004 (plaintiffs filed an amended complaint on February 23, 2005). Sanchez states that he first saw the March 5, 2003 letter in March 2006, during the course of this litigation.⁴ (DDF ¶ 9.)⁵

D. Disco Azteca's Infringing Conduct

Between March 2003 and July 2005, plaintiffs' investigators visited Disco Azteca's retail stores and identified hundreds of parallel-import versions of plaintiffs' copyrighted CDs (including those listed on Schedule A to the Second Amended Complaint) offered for sale by Disco Azteca. (SUF ¶ 14.) In 2003, Disco Azteca had been purchasing phonorecords⁶ directly from plaintiffs, but plaintiffs temporarily ceased selling to Disco Azteca because it had failed to comply with plaintiffs' credit policy and had fallen behind on paying plaintiffs' invoices.⁷ (SUF ¶ 13.) To obtain inventory during these periods when plaintiffs halted distribution, Disco Azteca began purchasing CDs from a Mexicobased company called Musical Del Norte. (SUF ¶ 15; DDF ¶ 5.) Sanchez testified that Musical Del Norte's salesman told him that the product he was purchasing came from "the warehouses of Universal, Fonovisa, [and] Univision" in Mexico, and that Musical Del Norte was authorized to export product from Mexico into the United States on behalf of plaintiffs—that "everything [was] legal." (SUF ¶ s 16, 17.) The salesman assured Disco Azteca that Musical Del Norte's product was legitimate and that its distribution to Disco Azteca for sale in the United States was permitted. (DDF ¶ 5.)

Sanchez relied on these statements and did not attempt to verify the salesman's representations by either obtaining documentation from Musical Del Norte or contacting plaintiffs to confirm Musical Del Norte was an authorized distributor. (SUF ¶ 19.) Sanchez testified, at that time, he was primarily concerned about keeping Disco Azteca profitable, and that the relationship with Musical Del Norte enabled the company to "come out of a hole" financially. (SUF ¶ 21.) The shipments from Musical Del Norte were delivered from Tijuana, Mexico by Musical Del Norte to Disco Azteca in California. (SUF ¶ 16.)

Disco Azteca purchased around 8,000⁸ CDs from Musical Del Norte in 2003 and 2004, some for equal and some for lower than the wholesale prices offered by plaintiffs. (SUF ¶ 22.) The packaging on plaintiffs' CDs purchased by Disco Azteca indicated that they had been manufactured by plaintiffs' Mexico-based affiliates, and the packaging was entirely in Spanish. (SUF ¶ 28.) Sanchez testified that when he inspected the product he received from Musical Del Norte, he only looked to see if plaintiffs' respective names appeared on the label copy of the CDs, i.e., "Universal" or "Univision." Sanchez did not check to see whether the product was identified as being manufactured in the United States or abroad. (SUF ¶ 29.) No one else at Disco Azteca conducted any further inspection of the product received from Musical Del Norte. (SUF ¶ 30.) Additionally, Disco Azteca does not have any procedures or policies which would prevent parallel imports or counterfeit product from being sold in its stores it does not have a written policy, or any other procedure, to inform its employees that the sale of parallel imports is illegal, and it does not have any employee designated to perform such an inspection of the product it receives from suppliers. (SUF ¶ 31.)

Disco Azteca's invoices from Musical Del Norte identified all of...