Opinion
NO. CIV. 2:10-2765 WBS GGH.
December 23, 2010
MEMORANDUM AND ORDER RE: MOTION FOR A PRELIMINARY INJUNCTION
Plaintiff Design Furnishings, Inc. ("DFI"), filed this action against defendant Zen Path, LLC ("Zen Path"), arising from defendant's notices of copyright infringement to eBay based on plaintiff's online sales of outdoor wicker patio furniture, which resulted in eBay taking action against plaintiff. Plaintiff moves for a preliminary injunction against defendant pursuant to Federal Rule of Civil Procedure 65. (Docket No. 12.)
I. Factual and Procedural Background
Both plaintiff and defendant sell outdoor wicker patio furniture made by the same Chinese manufacturer, Anji Yongcheng Co. Ltd. ("Anji"), on eBay. (Hayes Decl. in Supp. of Pl. DFI's App. re: P.I. pursuant to F.R.C.P. 65 ("Hayes Decl.") ¶ 2 (Docket No. 14).) Darla Messenger, who works for defendant, states that she designed the furniture for defendant. (Messenger Decl. in Opp'n to DFI's Mot. for a P.I. ("Messenger Decl. II") ¶¶ 3-15 (Docket No. 22).) The furniture constitutes 75 to 80 percent of defendant's sales. (Id. ¶ 21.) Jennifer Hayes, president and owner of plaintiff, does not state in her declaration the percent of plaintiff's sales based on the furniture, but plaintiff relies on eBay sales for 95 percent of plaintiff's revenues. (Hayes Decl. ¶ 14.)
Messenger states that she designed the following furniture collections: (1) modern boxy sectional, (2) Capri sectional, (3) U-shaped sectional, (4) round sectional, and (5) a set known as "Set 5." (Messenger Decl. in Opp'n to DFI's Mot. for a P.I. ("Messenger Decl. II") ¶ 3-15 (Docket No. 22).) The furniture is "geometric in design, look, and feel with boxy lines and oversized, broad, and wide wicker surface embellishments over the back and arm elements." (Id. ¶ 2.) The frame of the furniture is aluminum and wicker is "superimposed" on it. (Id.)
In reply, plaintiff has submitted a declaration from a sales representative for Anji that states that Anji was already manufacturing two of the furniture collections before Anji entered into business with defendant in April of 2010. (Louise Lin Decl. in Supp. of Pl. DFI's Reply to Def. Zen Path Opp'n to App. re: P.I. pursuant to F.R.C.P. 65 ¶ 5, Ex. 1 (Docket No. 27).)
Defendant has provided a declaration stating that listings for the plaintiff's furniture constituted 7.8 percent of plaintiff's dynastyduo125 account listings on November 1, 2010. (Lintner Decl. in Opp'n to DFI's Mot. for a P.I. ¶ 5, Ex. 1 (Docket No. 20).)
In opposition to the instant motion, defendant argues that plaintiff learned of defendant's furniture manufacturer "perhaps by underhanded means." (Zen Path's Mem. of P. A. in Opp'n to DFI's Mot. for P.I. ("Def.'s Opp'n") at 2:6-8 (Docket No. 17).) However, defendant has only made allegations in its answer, affirmative defenses, and counterclaims relating to this issue and has not provided sufficient evidence in opposition to the instant motion. (Docket No. 24.) Nonetheless, defendant has provided evidence that plaintiff used photographs obtained from defendant's eBay listings when it contacted Anji in May of 2010 and asked Anji if it manufactured the furniture and subsequently entered into contracts with Anji. (Messenger Decl. II ¶¶ 18-19; Chen Wang Decls. in Opp'n to DFI's Mot. for P.I. ¶¶ 8-9, 12-16, Exs. 4-7 (Docket No. 21).)
In early June of 2010, Messenger emailed Hayes about plaintiff's eBay listings. (Hayes Decl. ¶ 3, Exs. A-B.) Messenger demanded that plaintiff cease use of certain photographs and text because they belonged to defendant. Moreover, Messenger demanded that plaintiff not sell the furniture: "You are further intending to make copies of furniture that I personally designed inch by inch without my permission. My personally designed furniture belongs to us and we will pursue our rights to the fullest extent of the law." (Hayes Decl. Ex. A.) Messenger also wrote: "We can prove that you have or are intending to make copies of items I personally designed without my permission." (Id.) Messenger informed Hayes: "We have signed up for the Ebay VERO program since you made it necessary and once we turn in the information, it is very possible that action will be taken against your Ebay account." (Id.) In a later email, Messenger wrote: "And most importantly: You should not be producing goods that you know are copied from someone else's. I have it in writing that you specifically asked for copies of my items. I have your email asking for copies of my items to be made." (Hayes Decl. Ex. B.)
Hayes states that plaintiff stopped using the photographs following her exchange of emails with Messenger in June of 2010. (Hayes Decl. ¶ 3.) Plaintiff refused to stop selling the furniture unless presented with proof of defendant's intellectual property rights in the furniture. (Id.) Hayes states that she and another employee were unable to independently locate a design patent for the furniture. (Id.)
On August 27, 2010, defendant filed two copyright registration applications for photographs of the furniture and four copyright registration applications for the furniture. (Banuelos Decl. in Supp. of Def. Zen Path's Mem. of P. A. in Opp'n to Pl.'s Ex Parte App. re: P.I. for Order to Show Cause Req. for TRO ("Banuelos Decl.") ¶¶ 2-8, Exs. A-F (Docket No. 1 Ex. 9).) The applications identified the works as "sculpture/3-D artwork, Ornamental Design" and attached photographs of the furniture. (Id. Exs. A-F.) The "completion/publication" date of the furniture ranged from August 15, 2009, to April 20, 2010. (Id.) Defendant's counsel filed the applications on defendant's behalf and identified the author as Messenger. (Id.)
Defendant appears not to have applied for copyright registration of the set known as "Set 5."
The court decided to continue the TRO based on the records removed from state court. Many of the copies of the black-and-white photographs of the furniture attached to the applications were of such bad quality that it was difficult to even discern the object in the photograph. Defendant has since provided the court with good quality, color copies of the photographs attached to the copyright applications.
The United States Copyright Office ("USCO") refused to register the furniture. (See Zen Path's Answer Affirmative Defenses to Compl. for Damages, Counterclaims ¶ 148, Ex. 30 (Docket No. 24).) The USCO's November 4, 2010, letter refusing registration of the Capri sectional wicker furniture explained:
Registration for the above work must be refused because it is a `useful article' which does not contain any separable authorship needed to sustain a claim to copyright. . . .
Because all of the elements of the work you deposited are either related to the utilitarian aspects or function, or are subsumed within the overall shape, contour, or configuration of the article, there is no physically or conceptually `separable' authorship as such.
(Id. Ex. 30.)
Following the filing of the copyright applications, but before receipt of the refusals, defendant's counsel demanded that plaintiff cease sale of the furniture and related conduct and attached the pending copyright applications in a September 8, 2010, letter. (Hayes Decl. Ex. C.) On September 22, 2010, Messenger submitted notices of claimed copyright infringement to eBay: "[B]ased on the copyright applications that had been filed for certain [sic] of my furniture collections . . ., I notified eBay that I believed Plaintiff was offering for sale certain furniture collections that were within the scope of my copyrights, which had been applied for as of the end of August of 2010." (Messenger Decl. in Supp. of Def. Zen Path's Mem. of P. A. in Opp'n to Pl.'s Ex Parte App. re: P.I. for Order to Show Cause Req. for TRO ("Messenger Decl. I") ¶ 2 (Docket No. 1 Ex. 10).)
Related conduct included plaintiff stating "we are the factory" on its eBay listings. (Hayes Decl. in Supp. of DFI's App. re: P.I. pursuant to F.R.C.P. 65 ("Hayes Decl.") Ex. D (Docket No. 14); see also Nielsen Decl. in Opp'n to DFI's Mot. for P.I. ("Nielsen Decl.") ¶ 11, Ex. 23 (Docket No. 19).)
On September 22, 2010, eBay notified plaintiff that it terminated numerous listings of furniture on accounts named "elegantfurnishings" and "dynastyduo125" for copyright violations. (Hayes Decl. Exs. E-F.) As of September 22, 2010, 35 of plaintiff's listings had been terminated. (Id. ¶ 13.) Hayes states that for auctions that had already ended, "[u]nless DFI was contacted by the purchaser(s) on those sales, those sales and profits were lost forever." (Id. ¶ 12.) On the same day, eBay also notified plaintiff that it would be unable to list new items on its dynastyduo125 account for 7 days because of "a recent policy violation." (Id. Ex. D.) The email also notified plaintiff that its account could be suspended if additional violations were reported. (Id.) Plaintiff has not provided evidence about any selling restrictions, suspension, or termination as to the elegantfurnishings account.
Defendant continued to submit notices of claimed infringement to eBay, totaling 63, through September 30, 2010, the day before a hearing in state court on a temporary restraining order ("TRO"). (Id. ¶ 14; see Exs. G-M.) Hayes states that the 63 notices of claimed infringement caused plaintiff's "policy violation rating" to go from "high" to "very low" on one account and "high" to "low" on a second account. (Id. ¶ 14.) Hayes states in her declaration:
If Defendant is not stopped from submitting repeated notices of claimed infringement when there is absolutely no basis to claim that DFI's auctions are infringing on Defendant's intellectual property rights, then eBay could very well permanently suspend DFI's accounts. If Defendant is not stopped from submitting repeated notices of claimed infringement when there is absolutely no basis to claim that DFI's auctions are infringing on Defendant's intellectual property rights, then DFI will lose prospective customers, goodwill, and its good reputation with customers and with eBay. If that occurs, then my entire business will cease to exist since I rely on eBay for 95% of the company's revenues. I will be out of work and forced to lay off DFI's employees.
Defendant argues that before defendant notified eBay of claimed infringement plaintiff "had begun a systematic campaign of manipulating its own, already low" feedback rating on its elegantfurnishings account by selling e-books or "feigning the sale of" e-books "to persons DFI and Hayes knew, who would then leave multiple positive feedbacks on DFI's elegantfurnishings account." (Zen Path's Mem. of P. A. in Opp'n to DFI's Mot. for a P.I. ("Zen Path's Opp'n") 4:10-18 (Docket No. 17).) Defendant argues that "[i]t appears that DFI's elegantfurnishings account was suspended or terminated in late October/early November of 2010 because of this feedback manipulation, and not because of Zen Path's take down notices." (Id.) To support this argument, defendant has only provided copies of the feedback that plaintiff received on its elegantfurnishings account. (Nielsen Decl. ¶ 11, Ex. 23 (Docket No. 19).)
(Id. ¶ 16.)
According to Messenger, plaintiff's sales of the furniture have "substantially reduced" defendant's sales and forced it to lower the prices by approximately 20 to 30 percent "in order to compete with" plaintiff's prices. (Messenger Decl. II ¶ 21.) Messenger states that the price reduction "in order to compete was necessary to try to minimize our losses, but it has also eliminated a substantial portion of our profit margins on the furniture at issue." (Id.) Acknowledging that an expert is necessary to determine the correct amount, Messenger estimates: "Conservatively assuming a 25% profit margin, our actual lost profits may be approximately $125,000-$175,000 thus far." (Id. ¶ 22.)
In its Complaint, originally filed in state court, plaintiff asserts claims for (1) misrepresentation of intellectual property infringement in violation of 17 U.S.C. § 512(f) of the Digital Millennium Copyright Act ("DMCA"), (2) tortious interference with a contract, (3) tortious interference with prospective economic advantage, (4) a violation of California's Unfair Competition Law ("UCL"), Cal. Bus. Prof. Code §§ 17200- 17210, and (5) declaratory and injunctive relief. (Docket No. 1 Ex. 1.) On October 1, 2010, the state court granted plaintiff's motion for a TRO. (Docket No. 1 Ex. 15.) Defendant removed the action to this court, and plaintiff requested that the court continue the TRO based on the filings in state court. On October 21, 2010, the court granted plaintiff's request to continue the TRO. (Docket No. 9.) Plaintiff now seeks a preliminary injunction against defendant, enjoining defendant from (1) submitting any further notices of claimed infringement to eBay stating that any particular auction conducted by plaintiff violates defendant's intellectual property rights and (2) further engaging in any action with eBay with the intent of interfering with plaintiff's ability to perform or transact business on eBay.
Defendant has counterclaimed for (1) tortious interference with contractual relations, (2) tortious interference with prospective economic advantage, (3) negligent interference with prospective economic advantage, (4) a violation of DMCA, (5) federal unfair competition, (6) state unfair competition, (7) trade dress infringement, (8) false advertising, (9) common law passing off, (10) copyright infringement, (11) third party beneficiary contract, (12) fraud, (12) common law misappropriation, and (14) constructive trust. (Zen Path's Answer Affirmative Defenses to Compl. for Damages, Counterclaims (Docket No. 24).) Defendant's affirmative defenses are (1) failure to state a claim, (2) fraud, (3) unclean hands, (4) lack of causation, (5) good faith, (6) innocent intent, (7) intent to injure competition, (8) First Amendment, (9) no damages, (10) assumption of the risk, (11) intervening cause, and (12) adequate remedy at law.
II. Discussion
In the Ninth Circuit, "`serious questions going to the merits' and a hardship balance that tips sharply towards the plaintiff can support issuance of an injunction, so long as the plaintiff also shows a likelihood of irreparable injury and that the injunction is in the public interest." Alliance for the Wild Rockies v. Cottrell, 622 F.3d 1045, 1053 (9th Cir. 2010).
A. Merits
The DMCA provides that "[a]ny person who knowingly materially misrepresents under this section . . . that material or activity is infringing . . . shall be liable for any damages . . . incurred by the alleged infringer . . . who is injured by such misrepresentation, as the result of the service provider . . . removing or disabling access to the material or activity claimed to be infringing. . . ." 17 U.S.C. § 512(f); see also Dudnikov v. MGA Entm't, Inc., 410 F. Supp. 2d 1010, 1012 (D. Colo. 2005) (treating a notice of claimed infringement to eBay as an actionable notice under section 512(f), but finding that the alleged copyright owner lacked subjective knowledge of the misrepresentation); UMG Recordings, Inc. v. Augusto 558 F. Supp. 2d 1055, 1065 (C.D. Cal. 2008) (same). Liability does not extend to circumstances where "an unknowing mistake is made, even if the copyright owner acted unreasonably in making the mistake. Rather, there must be a demonstration of some actual knowledge of misrepresentation on the part of the copyright owner." Rossi v. Motion Picture Ass'n of Am. Inc., 391 F.3d 1000, 1005 (9th Cir. 2004) (internal citation omitted).
Defendant does not dispute that section 512(f) applies to a notice of claimed infringement to eBay.
To succeed on its DMCA claim, plaintiff must first establish that defendant falsely misrepresented a claim of copyright infringement. See 17 U.S.C. § 512(f). To establish copyright infringement, an alleged owner must show (1) ownership of the copyright, and (2) copying of the protected expression by the defendant. Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1119 (9th Cir. 1999). A valid certificate of copyright registration creates a presumption of originality of the work for five years from the date of registration. Swirksy v. Carey, 376 F.3d 841, 851 (9th Cir. 2004). "[T]his presumption is fairly easy to rebut because the Copyright Office tends toward cursory issuance of registrations." Universal Furniture Int'l, Inc. v. Collezione Europa USA, Inc., Nos. 07-2180, 09-1437, 2010 WL 3278404, at *7 (4th Cir. Aug. 20, 2010) [hereinafter Universal II] (per curiam). "[T]he presumption of validity may be rebutted where other evidence in the record casts doubt on the question," such as "evidence that the work had been copied from the public domain or by evidence that the work was a non-copyrightable utilitarian article." Fonar Corp. v. Domenick, 105 F.3d 99, 104 (2d Cir. 1997) (internal citations and quotation marks omitted).
In the Ninth Circuit, an applicant may bring an infringement claim upon filing for registration. Cosmetic Ideas, Inc. v. IAC/Interactivecorp., 606 F.3d 612, 621 (9th Cir. 2010).
The Copyright Act excludes from copyright protection any "useful article," defined as an article having "an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information." 17 U.S.C. § 101. The Act extends copyright protection to "pictorial, graphic, and sculptural works." Id. The Act provides that "the design of a useful article . . . shall be considered a pictorial, graphic, or sculptural work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article." Id. The courts have recognized two types of separability: physical and conceptual. Leicester v. Warner Bros., 232 F.3d 1212, 1219 n. 3 (9th Cir. 2000). Physical separability means that "a `pictorial, graphic or sculptural feature incorporated into the design of a useful article . . . can be physically separated from the article without impairing the article's utility and if, once separated, it can stand alone as a work of art traditionally conceived.'" Id. (quoting Paul Goldstein, Copyright § 2.5.3, at 2:64 (1999)) (alteration in original). Conceptual separability means that "a pictorial, graphic or sculptural feature `can stand on its own as a work of art traditionally conceived, and . . . the useful article in which it is embodied would be equally useful without it.'" Id. (quoting Goldstein, Copyright § 2.5.3, at 2:67) (alteration in original).
As a general rule, a "purely utilitarian article — such as bedroom furniture — receives no protection." Amini Innovation Corp. v. Anthony Cal., Inc., 439 F.3d 1365, 1369 (Fed. Cir. 2006) (applying Ninth Circuit copyright law and upholding copyright protection of ornamental carvings on furniture, not the furniture as a whole). Nonetheless, "if the shape of a utilitarian article incorporates features, such as artistic sculpture, carving, or pictorial representation, which can be identified separately and are capable of existence independently as a work of art, such features will be eligible for registration." Fabrica Inc. v. El Dorado Corp., 697 F.2d 890, 893 (9th Cir. 1983); see also Superior Form Builders, Inc. v. Dan Chase Taxidermy Supply Co., 74 F.3d 488, 493 (4th Cir. 1996) ("Thus, the industrial design of a unique, aesthetically pleasing chair cannot be separated from the chair's utilitarian function and, therefore, is not subject to copyright protection. But the design of a statute portraying a dancer, created merely for its expressive form, continues to be copyrightable even when it has been included as the base of a lamp which is utilitarian.");Universal II, 2010 WL 3278404, at *7 (despite earlier upholding of the denial of a preliminary injunction, finding the ornamental design on the furniture to be original and conceptually distinct from the utilitarian aspects of the furniture); Universal Furniture Int'l., Inc. v. Collezione Europa USA, Inc., 196 Fed. App'x 166, 172 (4th Cir. 2006) [hereinafter Universal I] (upholding the denial of a preliminary injunction and expressing concern that finding the designs copyrightable would "potentially enlarge the law of copyright beyond its intended borders by extending copyright protection to two entire furniture collections based on their `ornate, opulent' look alone").
Here, the court has already found that it is likely that defendant's furniture will not be entitled to copyright protection. Indeed, in the intervening time, the USCO denied the copyright registration applications for the furniture. The industrial design of the furniture clearly may not be copyrighted. Defendant has not sufficiently identified any aspect of the furniture that physically or conceptually could stand alone as a piece of art traditionally conceived. Leicester, 232 F.3d at 1219 n. 3.
In addition to showing that its furniture was not infringing, plaintiff must show that defendant had subjective knowledge of the misrepresentation of infringement to succeed on its claim under section 512(f). Rossi, 391 F.3d at 1005. Based on the few cases that have applied section 512(f) to notices of claimed infringement to eBay, this subjective knowledge requirement appears to be a difficult hurdle for plaintiffs. See Dudnikov, 410 F. Supp. 2d at 1012; UMG Recordings, Inc., 558 F. Supp. 2d at 1065.
The fact that a party has filed a copyright registration application, see Cosmetic Ideas, Inc. v. IAC/Interactivecorp., 606 F.3d 612, 621 (9th Cir. 2010), does not necessarily mean that it was honest in notifying eBay of claimed infringement. When Hayes and Messenger exchanged emails in June of 2010, Hayes asked Messenger for proof of her intellectual property rights in the furniture and Messenger failed to produce it. Nearly three months passed until defendant filed the copyright registration applications. The copyright application described the work as a sculpture/3-D artwork and an ornamental design, yet the photographs clearly show outdoor wicker patio furniture with solid-colored cushions and brown wicker. (Banuelos Decl. Ex. A-D.)
Defendant was never able to point to the specific feature of the furniture that could be copyrighted when asked by plaintiff, yet defendant filed 63 notices of claimed copyright infringement. Defendant has never been able to point to what can be copyrighted. In court, when finally pressed, defendant's counsel referred to the design of the wicker. The court cannot conclude that defendant thought it had a copyright in the design of the wicker when it notified eBay. Further, even if it could be argued that defendant initially believed it had a valid copyright claim, it is substantially more implausible to argue that defendant could continue to entertain such a belief now that its claim has been rejected by both the USCO and this court. At a minimum, there are serious questions going to the merits.
B. Irreparable Harm
Mere monetary harm "will not usually support injunctive relief." Am. Trucking Ass'ns, 559 F.3d at 1057; see also Cal. Pharmacists Ass'n v. Maxwell-Jolly, 563 F.3d 847, 851-52 (9th Cir. 2009). However, intangible injuries that are incapable of measurement, like reputation or goodwill, may constitute irreparable harm. Rent-A-Center, Inc. v. Canyon Television Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991). The threatened loss of prospective customers also constitutes irreparable harm. Stuhlbarg Int'l Sales Co. v. John D. Brush Co., 240 F.3d 832, 841 (9th Cir. 2001) (trademark case);Super-Krete Int'l, Inc. v. Sadleir, No. CV 10-01966, 2010 WL 1688533, at *8 (C.D. Cal. Apr. 22, 2010) ("Even without this presumption [of irreparable harm in a trademark case], Plaintiff has demonstrated irreparable injury based on the threatened loss of prospective customers who would be diverted away from its website should it be unable to gain control over the domain name."). The harm must be "likely" and thus "merely speculative" harm will not support injunctive relief. Am. Trucking Ass'ns, 559 F.3d at 1058.
Here, questions remain as to eBay's likely responses upon receipt of notices of claimed infringement. Possible responses include termination of a listing, decrease in policy violation ratings, temporary restrictions on selling, suspension of an account, or termination of an account. (See Hayes Decl. ¶¶ 8-11; Messenger Decl. I ¶ 3, Ex. A.) In Dudnikov v. Chalk Vermilion Fine Arts, Inc., 514 F.3d 1063, 1069 (10th Cir. 2008), the Tenth Circuit described in dicta eBay's policies as they existed in 2008:
Under this [Verified Rights Owner ("VeRO")] program, eBay will automatically terminate an ongoing auction when it receives a notice of claimed infringement ("NOCI") from a VeRO member stating, under penalty of perjury, that it has a good-faith belief that an item up for auction infringes its copyright. The complaint, if unresolved, can also result in the suspension of the seller's account. Under the VeRO program, a targeted seller may file a "counter notice" with eBay contesting the validity of the copyright claim. Upon receipt of such a filing, eBay notifies the initial complainant that it will reinstate the contested auction in 10 days unless it is notified that there is pending legal action seeking to adjudicate the parties' rights. If the complaining party does initiate legal proceedings within 10 days, eBay will continue to suppress the contested auction pending the outcome of litigation.Id. Based on the declarations submitted by the parties, the court concludes that, if defendant continues to submit notices of copyright infringement to eBay, it is likely that eBay would terminate listings, temporarily restrict plaintiff from selling on one or both of its accounts, or suspend or terminate plaintiff's accounts. eBay's responses to defendant's notices would likely deter prospective customers and adversely affect plaintiff's reputation and goodwill on a web site from which it generates 95 percent of its revenues. See Rent-A-Center, Inc., 944 F.2d at 603; Stuhlbarg Int'l Sales Co., 240 F.3d at 841. Plaintiff's accounts' policy violation ratings would also likely decrease if plaintiff continues to sell the furniture and defendant continues to submit notices to eBay. The decrease in the policy violation ratings would also cause irreparable harm.
The court is unpersuaded by defendant's argument that the plaintiff would not be irreparably harmed because eBay permits counter-notices that would restore a listing if the alleged owner does not commence a civil action within a given period. Even if plaintiff files counter-notices to every notice submitted by defendant throughout the course of this action, plaintiff would likely have listings terminated, at least temporarily, and experience a decrease in policy violation ratings, temporary restrictions on selling, suspension of an account, or termination of an account. Moreover, now that plaintiff has counterclaimed for copyright infringement, eBay would not necessarily restore a terminated listing based on a claim of copyright infringement, even if plaintiff filed a counter-notice. Accordingly, the court finds a likelihood of irreparable harm to plaintiff.
C. Balance of Equities
"A preliminary injunction is an extraordinary remedy never awarded as of right." Winter, 129 S. Ct. at 376. "In each case, a court must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief." Amoco Prod. Co. v. Vill. of Gambell, Alaska, 480 U.S. 531, 542 (1987).
eBay's likely responses to numerous notices from defendant if plaintiff continues to sell the furniture would likely cause plaintiff to lose prospective customers, goodwill, and its reputation. Defendant claims that the furniture at issue constitutes 75 to 80 percent of defendant's sales and that plaintiff's eBay listings have "substantially reduced" those sales. (Messenger Decl. II ¶ 7.) The court, nonetheless, finds the balance of equities tips sharply in plaintiff's favor because of the irreparable harm that would result from eBay's likely responses. Cf. Biosafe-One, Inc. v. Hawks, 524 F. Supp. 2d 452, 468 (S.D.N.Y. 2007) ("Furthermore, while it is true that if defendants' website is ordered restored their harm will be greatly reduced, if plaintiffs continue to send DMCA notices defendants will be burdened, financially and otherwise, with arranging for alternative companies to host their website outside the country. A preliminary injunction barring plaintiffs from sending additional DMCA notices, absent court approval, however, would impose little or no burden on plaintiffs.").
D. Public Interest
"In exercising their sound discretion, courts of equity should pay particular regard for the public consequences in employing the extraordinary remedy of injunction." Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982). "The public interest analysis for the issuance of a preliminary injunction requires [the court] to consider `whether there exists some critical public interest that would be injured by the grant of preliminary relief.'" Indep. Living Ctr. of S. Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644, 659 (9th Cir. 2009) (quoting Hybritech Inc. v. Abbott Lab., 849 F.2d 1446, 1458 (Fed. Cir. 1988)).
Here, as this court observed in its Order granting the request to continue the TRO, the public interest is in fact benefitted by granting a preliminary injunction, because absent eBay's policies, designed to avoid eBay's liability for intellectual property infringement, it would be the claimed copyright holder who would bear the burden of proving the copyright infringement.See, e.g., Universal I, 196 Fed. App'x at 172. That burden is essentially shifted under eBay's policies. To withhold a preliminary injunction would allow anyone to effectively shut down a competitor's business on eBay simply by filing numerous notices that the seller's products allegedly infringe on the complaining party's copyright.
Defendant argues that the burden is not shifted to the alleged infringer because eBay permits a counter-notice, which would restore a terminated listing absent commencement of a civil action by the alleged owner. (Zen Path Opp'n at 15:14-16:11.)
Based on the record evidence of eBay's policies, eBay's policies still shift the burden even in light of the availability of a counter-notice. Even if a counter-notice is allowed, (1) a notice of claimed infringement would still terminate the listing, at least temporarily, and (2) a notice of claimed infringement would likely cause eBay to temporarily restrict the alleged infringer's ability to sell. Moreover, even though an alleged owner must commence a civil action to maintain the termination of the listing, the alleged owner would not have to obtain a restraining order from a court because eBay would maintain the termination. The record also suggests that numerous notices of claimed infringement, even if rebutted by counter-notices, would negatively affect an alleged infringer's policy violation rating, which could lead to eBay suspending or terminating an account.
Plaintiff has shown that there are serious questions going to the merits and a likelihood of irreparable harm. The balance of equities tips sharply in plaintiff's favor and the public interest would be benefitted by a preliminary injunction. Accordingly, the court will grant plaintiff's motion for a preliminary injunction.
The court declines to find that plaintiff is barred from a preliminary injunction based on the unclean hands doctrine. The "unclean hands" doctrine "closes the door of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant." Precision Instrument Mfg. Co. v. Automotive Maint. Mach. Co., 324 U.S. 806, 814 (1945). The thrust of defendant's unclean hands argument is that "apparently" plaintiff learned of defendant's Chinese manufacturer through "underhanded means." (Zen Path Opp'n at 16:26-27.) At this stage, the allegation is unsupported. Defendant has presented evidence that plaintiff used defendant's photographs when it contacted and later contracted with Anji and that plaintiff has stated "we are the factory" in its eBay listings. Without more, the court declines to exercise its discretion and bar plaintiff from equitable relief.
Rule 65 of the Federal Rules of Civil Procedure requires that "[e]very order granting an injunction . . . shall set forth the reasons for its issuance; shall be specific in terms; [and] shall describe in reasonable detail . . . the act or acts sought to be restrained." Fed.R.Civ.P. 65(d). Generally, "an injunction must be narrowly tailored to remedy only the specific harms shown by the plaintiffs rather than to enjoin all possible breaches of the law." Iconix, Inc. v. Tokuda, 457 F. Supp. 2d 969, 998-1002 (N.D. Cal. 2006). Here, plaintiff requests that the court enjoin defendant from (1) submitting notices of claimed infringement to eBay stating that any auction conducted by plaintiff violates any of defendant's intellectual property rights and (2) engaging in any action with eBay with the intent of interfering with plaintiff's ability to perform or transact business on eBay. The proposed injunction would enjoin defendant from notifying eBay of infringement of intellectual property rights in non-furniture products; infringement of other intellectual property rights, other than copyright, in the furniture; infringement of intellectual property rights in defendant's text and photographs; and violations of eBay's policies. The court declines to issue such a broad injunction and instead limits the injunction to the complained-of conduct. The court will enjoin defendant from notifying eBay that defendant has copyrights in the furniture and that plaintiff's sales violate these copyrights.
E. Bond
As a condition for issuing a preliminary injunction, the court must require that plaintiff post security in an amount which the court deems proper. Fed.R.Civ.P. 65(c). "The Ninth Circuit has no steadfast rule as to the amount of a bond as a result of the issuance of a preliminary injunction." Garrett v. City of Escondido, 465 F. Supp. 2d 1043, 1059 (S.D. Cal. 2006). "Generally, the bond amount should be sufficient `to protect [the] adversary from loss in the event that future proceedings prove that the injunction issued wrongfully.'" Id. (quoting Edgar v. MITE Corp., 457 U.S. 624, 649 (1982)).
Defendant proposes a bond of $500,000.00 because defendant estimates its lost profits over the last six months to be $125,000 to $175,000 and defendant estimates that the action will last 18 to 24 months. However, defendant relies on Messenger's estimate, who admits that she cannot quantify the losses sustained over the last six months without the help of an expert. (Messenger Decl. II ¶ 22.) Plaintiff proposes the bond be set at zero, or some other nominal amount, such as $500.00, because no harm will befall defendant. However, to the extent it should later be determined that the injunction was issued in error, defendant will have been harmed by its inability to notify eBay. At the hearing on December 20, 2010, plaintiff's counsel represented to the court that plaintiff's estimated annual profits from the furniture at issue are $200,000.00. Assuming, without deciding, that a fair royalty would be 50 percent of the profits, the court will set bond in the amount of $100,000.00.
IT IS THEREFORE ORDERED that plaintiff's motion for a preliminary injunction be, and the same hereby is, GRANTED. Defendant is therefore enjoined from notifying eBay that defendant has copyrights in the wicker patio furniture offered for sale by plaintiff and that plaintiff's sales violate those copyrights. This preliminary injunction shall take effect immediately upon the posting with the Clerk of the Court a bond in the amount of $100,000.00.