Opinion
22-cv-02488-TSH
03-23-2023
CNC SOFTWARE, LLC, Plaintiff, v. GLOBAL ENGINEERING LIMITED LIABILITY COMPANY, et al., Defendants.
REQUEST FOR REASSIGNMENT WITH REPORT & RECOMMENDATION RE: MOTION FOR DEFAULT JUDGMENT RE: DKT. NO. 29
THOMAS S. HIXSON UNITED STATES MAGISTRATE JUDGE
I. INTRODUCTION
Plaintiff CNC Software, LLC brings this action against Defendants Global Engineering LLC and Edwin Escobar for copyright infringement in violation of 17 U.S.C. § 101 et seq., violation of the Digital Millennium Copyright Act's anticircumvention prohibitions, 17 U.S.C. §§ 1201 and 1203, and for breach of contract. Pending before the Court is CNC's Motion for Default Judgment. ECF No 29. Defendants have neither opposed the motion nor appeared in this case. The undersigned finds this matter suitable for disposition without oral argument. Civ. L.R. 7-1(b). As not all parties have consented to magistrate judge jurisdiction pursuant to 28 U.S.C. § 636(c), the undersigned requests this case be reassigned to a district judge for disposition. Having reviewed the motion and controlling authorities, the undersigned RECOMMENDS the District Court GRANT the motion for the following reasons.
II. BACKGROUND
CNC, headquartered in Connecticut, is in the CAD/CAM (Computer Aided Design / Computer Aided Manufacturing) industry. Compl. ¶ 25, ECF No. 1. CNC's Mastercam® software is the most widely used CAM system software in the market today and is used in a wide variety of industries including Aerospace, Medical, and Transportation. Id. ¶ 26. CNC's Mastercam® software is protected by several United States copyrights. Id. ¶¶ 12-24, 27-30.
CNC does not sell or assign the ownership to its copyrights, or other intellectual property rights, in its Mastercam® software or to its associated services; instead, CNC licenses its software to its customers through resellers for a fee. Id. ¶ 31. CNC prevents unauthorized access of Mastercam® software through the use of a security mechanism. Id. CNC's license agreement states that customers are not allowed to use the Mastercam® software without the security mechanism, and that Mastercam® can detect the installation or use of illegal copies of the Mastercam® software and collect and transmit data about those illegal copies. Id.
Software hackers reverse engineer the security mechanism and then provide processes and utilities to bypass the license enforcement to allow unauthorized use of the software. Id. ¶ 34. These processes and utilities mimic the license verification technology to allow pirated software to function fully as legally purchased software. Id. Software utilities that mimic the license verification technology are often referred to as “cracked” licenses. Id. Piracy Detection and Reporting Security Software (“PDRSS”) exists to identify instances of pirated software in use and provides the identity and location of organizations utilizing the pirated software to the software providers. Id. ¶ 37.
Global is a California domestic limited liability company located at 3233 De La Cruz Boulevard, Suite C, Santa Clara, California 95054. Id. ¶ 2. Escobar is Global's President. Id. ¶ 5. CNC discovered Defendants were illegally downloading, copying, accessing and using its Mastercam® software via pirated versions of the software modified to bypass CNC's license enforcement technology. Id. ¶¶ 49-54. CNC has identified almost 4,000 instances of detectable infringement of Mastercam® software by Defendants, involving at least 11 computers located at Defendants' offices. Kennedy Decl. ¶¶ 6-7, ECF No. 29-3. Since January 24, 2022, CNC's counsel has made multiple demands to Defendants asking that they cease their unlawful infringement activity, but Defendants have consistently ignored CNC's requests and have continued to use the illegally obtained versions of Mastercam® software. Compl. ¶¶ 55-65.
On April 22, 2022, CNC filed this case against Defendants for direct copyright infringement and contributory and vicarious copyright infringement.1 On June 14 and September 8, 2022, CNC's counsel served Defendants a copy of documents for service. Keshishian Decl. ¶¶ 2-3, ECF No. 29-2; see also ECF Nos. 18-19. After Defendants failed to respond, CNC filed a request for entry of default, which the Clerk of Court entered on October 3, 2022 (Escobar) and November 29, 2022 (Global). ECF Nos. 20-21, 26-27.
CNC filed the present motion on January 5, 2023, seeking a permanent injunction, actual damages totaling $870,000.00; (2) costs of $582.00; (3) attorney's fees of $21,410.50; and (4) any post-judgment interest that accrues pursuant to 28 U.S.C. § 1961(a).
III. LEGAL STANDARD
Federal Rule of Civil Procedure 55(b)(2) permits a court, following default by a defendant, to enter default judgment in a case. “The district court's decision whether to enter default judgment is a discretionary one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980).
At the default judgment stage, the factual allegations of the complaint, except those concerning damages, “together with other competent evidence submitted” are deemed admitted by the non-responding parties. Shanghai Automation Instrument Co. v. Kuei, 194 F.Supp.2d 995, 1000 (N.D. Cal. 2001); see also Fair Hous. of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002) (“With respect to the determination of liability and the default judgment itself, the general rule is that well-pled allegations in the complaint regarding liability are deemed true.”). “However, a defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law.” DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (citation and quotation omitted)). Therefore, “necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1 CNC also named Robert Avila as a defendant but subsequently dismissed its claims against him on September 8, 2022. ECF No. 17 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)); accord DIRECTV, 503 F.3d at 854. Further, the scope of relief is limited by Federal Rule of Civil Procedure 54(c), which states that a “default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.”
In determining whether default judgment is appropriate, the Ninth Circuit has enumerated the following factors for courts to consider:
(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).
IV. DISCUSSION
A. Jurisdiction and Service of Process
In considering whether to enter default judgment, a district court must first determine whether it has jurisdiction over the subject matter and the parties to the case. In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). “[T]he district court is not restricted to the face of the pleadings, but may review any evidence, such as affidavits and testimony, to resolve factual disputes concerning the existence of jurisdiction.” McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988) (considering subject matter jurisdiction on a 12(b)(1) motion).
1. Subject Matter Jurisdiction
Federal courts are courts of limited jurisdiction and are presumptively without jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A federal court may dismiss an action if it finds that it lacks subject matter jurisdiction. Fiedler v. Clark, 714 F.2d 77, 78-79 (9th Cir. 1983); see also Fed.R.Civ.P. 12(h)(3) (“If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.”). Here, the Court has subject matter jurisdiction because federal courts have exclusive jurisdiction over copyright infringement actions pursuant to 28 U.S.C. § 1338 and 28 U.S.C. § 1331.
2. Personal Jurisdiction
a. Basis for Personal Jurisdiction
To enter default judgment, the Court must have a basis for the exercise of personal jurisdiction over the defendants in default. In re Tuli, 172 F.3d at 712. “Without a proper basis for [personal] jurisdiction, or in the absence of proper service of process, the district court has no power to render any judgment against the defendant's person or property unless the defendant has consented to jurisdiction or waived the lack of process.” S.E.C. v. Ross, 504 F.3d 1130, 1138-39 (9th Cir. 2007). Traditional bases for conferring a court with personal jurisdiction include a defendant's consent to jurisdiction, personal service of the defendant within the forum state, or a defendant's citizenship or domicile in the forum state. J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 880 (2011). Absent one of the traditional bases for jurisdiction, the Due Process Clause requires that the defendant have “certain minimum contacts with the forum ‘such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'” Int'l Shoe Co. v. State of Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945) (citations and quotation marks omitted). The party seeking to invoke jurisdiction has the burden of establishing that jurisdiction is proper. Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1392 (9th Cir. 1984). “[M]ere ‘bare bones' assertions of minimum contacts with the forum or legal conclusions unsupported by specific factual allegations will not satisfy a plaintiff's pleading burden.” Swartz v. KPMG LLP, 4 76 F.3d 756, 766 (9th Cir. 2007).
As a California limited liability company with its principal place of business in this state, Global is subject to general jurisdiction. Daimler AG v. Bauman, 571 U.S. 117, 137 (2014); Michael Grecco Prods., Inc. v. Enthusiast Gaming, Inc., 2020 WL 7227199, at *4 (N.D. Cal. Dec. 8, 2020) (on motion for default judgment in copyright action, finding personal jurisdiction based on principal place of business in San Francisco). The Court has personal jurisdiction over Escobar because he is domiciled in California, the forum state. See Seiko Epson Corp. v. Straightouttaink, L.P., 2021 WL 7448739, at *3 (N.D. Cal. Dec. 8, 2021), report and recommendation adopted sub nom. Seiko Epson Corp. v. Straightouttaink, LP, 2022 WL 740919 (N.D. Cal. Jan. 28, 2022); Westport Ins. Corp. v. Bornstein, 2020 WL 7133771, at *4 (N.D. Cal. Apr. 1, 2020), report and recommendation adopted, 2020 WL 7133768 (N.D. Cal. Oct. 9, 2020). Venue is proper under 28 U.S.C. § 1391(a)(2) because a substantial part of the events or omissions giving rise to the claim occurred in this District.
b. Service of Process
Personal jurisdiction also requires notice that is “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314 (1950). “A federal court does not have jurisdiction over a defendant unless the defendant has been served properly under [Federal Rule of Civil Procedure 4].” Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 688 (9th Cir. 1988).
On June 14, 2022, CNC personally served Escobar pursuant to Rule 4(e)(2)(A) with a copy of the summons and complaint. ECF No. 19. As a result, Escobar's answer was due within 21 days of service, namely on or before July 5, 2022. On September 8 CNC granted Global's request for waiver of service of summons and complaint pursuant to Rule 4(d)(1). ECF No. 18. As a result, Global's answer was due within 60 days of the request for waiver of service, namely on or before November 7, 2022. As a result of Defendants' failure to appear or otherwise respond to the complaint within the time prescribed by Rule 12(a)(1(A)(ii), on September 26 and November 18, 2022, CNC requested entry of default against Global and Escobar. ECF Nos. 20, 26. On October 3 the Clerk entered default against Escobar; and on November 29 the Clerk entered default against Global. ECF Nos. 21, 27. Thus, all the applicable procedural requirements for entry of default judgment were satisfied.
B. Eitel Factors
Applying the seven Eitel factors, the undersigned finds default judgment is warranted in favor of Plaintiff.
1. The Possibility of Prejudice
The first factor the Court considers is the possibility of prejudice if a default judgment is not entered. Eitel, 782 F.2d at 1471-72. This factor weighs in favor of default judgment “when a defendant has failed to appear or defend against a suit, and the plaintiffs could not otherwise seek relief.” Vietnam Reform Party v. Viet Tan - Vietnam Reform Party, 416 F.Supp.3d 948, 962 (N.D. Cal. 2019) (citations omitted); IO Grp., Inc. v. Jordon, 708 F.Supp.2d 989, 997 (N.D. Cal. 2010) (prejudice exists where denying the requested default judgment would leave the plaintiff without a proper remedy). Here, CNC would suffer prejudice if default judgment is not entered because it would be denied the right to judicial resolution of the claims presented and would be without other recourse for recovery. See Penpower Tech., Ltd. v. S.P.C. Tech., 627 F.Supp.2d 1083, 1088-89 (N.D. Cal. 2008) (“If Defendants continue to sell counterfeit products and products incorporating [Plaintiffs'] software or unlawfully incorporate identical or substantially similar logic, structure, organization, and sequencing of [Plaintiffs'] software into their products, Plaintiffs will likely be without other recourse or recovery. Such a situation qualifies as prejudice.”).
2. Substantive Claims and the Sufficiency of the Complaint
The second and third Eitel factors focus on the merits of the substantive claims and the sufficiency of the complaint. Eitel, 782 F.2d at 1471-72. “These two factors are often analyzed together and require courts to consider whether a plaintiff has ‘state[d] a claim on which [it] may recover.'” Vietnam Reform Party, 416 F.Supp.3d at 962 (quoting PepsiCo, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1175 (C.D. Cal. 2002)). “Of all the Eitel factors, courts often consider the second and third factors to be ‘the most important.'” Id. (quoting Sanrio, Inc. v. Jay Yoon, 2012 WL 610451, at *4 (N.D. Cal. Feb. 24, 2012)).
a. Direct Copyright Infringement
The Copyright Act provides protection to authors of original works of authorship. 17 U.S.C. §§ 101-03. To recover for copyright infringement, a plaintiff must show: “(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original.” Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991). CNC is the owner of numerous registered copyrights in various versions of its Mastercam® software. Compl. ¶¶ 12-24; Kennedy Decl. ¶ 3. The copyright registration numbers presumptively satisfy the first element of copyright infringement. 17 U.S.C. § 410(c); S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085-86 (9th Cir. 1989).
To prove the “copying” element, a plaintiff must catch the defendant in the act or can demonstrate “(1) circumstantial evidence of the defendant's access to the copyrighted work; and (2) substantial similarity between the copyrighted work and the defendant's work.” Universal City Studios, Inc. v. Film Ventures Int'l, Inc., 543 F.Supp. 1134, 1140 (C.D. Cal. 1982). Here, “copying is established because the pirated software is a cracked version of the licensed software.” CNC Software, Inc. v. T D Mfg., Inc., 2020 WL 2042330, at *3 (C.D. Cal. Mar. 24, 2020) (citing Xiang Li v. United States, 2017 WL 3222537, at *7 (D. Del. July 28, 2017) (“[I]n the eyes of the individuals who purchased and used the pirated software, the pirated software was substantially identical to non-cracked versions.”). Defendants' loading of the pirated software onto at least one of their computers and unlicensed use of the software constitutes copyright infringement. MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 519 (9th Cir. 1993) (defendants loading of the operating software constituted copying and further “violated [plaintiff's] copyright through the unlicensed use of [plaintiff's] software at [defendant's] headquarters”).
Escobar is also personally liable for the direct infringement because, as Global's President, he allowed the pirated software to be downloaded, installed, and used on at least 11 computers. Compl. ¶¶ 5, 52-54. “A corporate officer or director is, in general, personally liable for all torts which he authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the corporation and not on his own behalf.” Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1021 (9th Cir.1985) (internal quotation marks omitted).
Finally, CNC alleges Defendants' acts of copyright infringement were willful. “[A] finding of ‘willfulness' in [the copyright] context can be based on either ‘intentional' behavior, or merely ‘reckless' behavior.” In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008). “To prove ‘willfulness' under the Copyright Act, the plaintiff must show (1) that the defendant was actually aware of the infringing activity, or (2) that the defendant's actions were the result of ‘reckless disregard' for, or ‘willful blindness' to, the copyright holder's rights.” Island Software & Computer Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 263 (2d Cir. 2005); Peer Int'l Corp. v. Pausa Records, Inc., 909 F.2d 1332, 1335-36 (9th Cir. 1990).
On numerous occasions, Defendants were informed of CNC's copyrights and Defendants' infringement, but Defendants continued using the pirated software in “knowing, intentional and willful” manner. Compl. ¶¶ 52-65; McInnis Decl. ¶¶ 2-14, ECF No. 29-1. “Willfulness can also be inferred from a defendant's failure to defend.” CNC Software, Inc., 2020 WL 2042330, at *4 (citing Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 500 (C.D. Cal. 2003)). Thus, CNC has established that Defendants engaged in willful copyright infringement.
b. Escobar's Contributory/Vicarious Copyright Infringement
Under the traditional test for contributory copyright infringement, a party is liable where it had “knowledge of the infringing activity and induce[d], cause[d], or materially contribute[d] to the [activity].” Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701, 727 (9th Cir. 2007); A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1019-20 (9th Cir. 2001). In addition, a party is vicariously liable for the infringement of another if it has a right and ability to control the infringing activity and derives a direct financial benefit from that activity. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 931 n.9 (2005); A&M Records, 239 F.3d at 1023. Here, Escobar authorized the pirated software to be downloaded, installed, and operated or allowed others to download, install and operate at least 11 computers bearing the pirated Mastercam® software. Compl. ¶¶ 5, 52-54, 65. As a result, Escobar also received direct financial benefit from the infringement. Escobar was informed on numerous occasions of the pirated Mastercam® software installed and used on Global computers, but he did not take any measures to prevent the infringement. Id. ¶¶ 52-54, 65. Default judgment is therefore appropriate against Escobar on CNC's second cause of action for contributory and vicarious copyright infringement. See CNC Software, Inc., 2020 WL 2042330, at *4 (granting default judgment on contributory/vicarious copyright infringement claim where defendant “actively downloaded, installed, and operated or allowed others to download, install and operate several TDM computers bearing the pirated Mastercam® software,” “as the sole shareholder of TDM, also received a direct financial benefit from the infringement,” and “was informed on numerous occasions of the pirated Mastercam® software installed and used on TDM's computers, but did not take any measures to prevent the infringement.”).
3. The Sum of Money at Stake in the Action
Under the fourth Eitel factor, “the Court must consider the amount of money at stake in relation to the seriousness of Defendant's conduct.” Dr. JKL Ltd., v. HPC IT Educ. Ctr., 749 F.Supp.2d 1038, 1050 (N.D. Cal. 2010) (citation and quotation marks omitted). When the amount at stake is substantial or unreasonable in light of the allegations in the complaint, default judgment is disfavored. See Eitel, 782 F.2d at 1472 (affirming the denial of default judgment where the plaintiff sought $3 million in damages and the parties disputed material facts in the pleadings). “However, when the sum of money at stake is tailored to the specific misconduct of the defendant, default judgment may be appropriate.” Yelp Inc. v. Catron, 70 F.Supp.3d 1082, 1100 (N.D. Cal. 2014).
Defendants engaged in the illegal copying, distribution, and use of pirated software for numerous years and ignored numerous cease and desist demands. Compl. ¶¶ 52-54, 65. Defendants caused lost annual royalties for CNC, yet CNC is only seeking reasonable damages for only one year of royalties and support for six computers.2 “Where, as here, the damages sought are within a conservative and permissible range, such an award is not disproportionately large for the purposes of this factor.” CNC Software, Inc., 2020 WL 2042330, at *4 (citing Amini Innovation Corp. v. KTY Int'l Mktg., 768 F.Supp.2d 1049, 1056 (C.D. Cal. 2011)).
4. The Possibility of Dispute Concerning Material Facts
The fifth Eitel factor examines the likelihood of dispute between the parties regarding the material facts surrounding the case. Eitel, 782 F.2d at 1471-72. However, upon entry of default, the defendant is “deemed to have admitted all well-pleaded factual allegations” in the complaint. DirecTV, 503 F.3d at 851 (citing Fed.R.Civ.P. 55(a)). Moreover, as outlined above, CNC has provided the Court with well-pleaded allegations supporting its claims. Accordingly, this factor weighs in favor of default judgment.
2 CNC's original analysis indicated at least eleven Media Access Control (“MAC”) addresses were accessing the Mastercam® software. But as stated in its motion, “taking a conservative approach in favor of Defendants, certain of the computers could have multiple MAC addresses associated because they were used on different networks. The usernames for Defendants' computers are ‘Art, menot, jesus, CARLOS, 5-STAR ENGINEERING, Sergio, JUAN, only4, CNC LATHE, Alex, and Juan Guillen.” Mot. at 11; Kennedy Decl. ¶ 7.
5. Whether Default was Due to Excusable Neglect
The sixth Eitel factor examines whether the defendant's failure to respond to the complaint was the result of excusable neglect. Eitel, 782 F.2d at 1471-72. Here, CNC provided adequate notice of this action, see ECF Nos. 18-19, yet Defendants made no appearance and failed to respond to the present motion. See S.E.C. v. Internet Sols. for Bus. Inc., 509 F.3d 1161, 1166 (9th Cir. 2007) (“A signed return of service constitutes prima facie evidence of valid service which can be overcome only by strong and convincing evidence.”) (simplified). Further, there is nothing in the record suggesting this failure is based on excusable neglect. See Shanghai Automation, 194 F.Supp.2d at 1005 (default after proper service was not excusable neglect). Thus, this factor supports default judgment.
6. Policy Favoring Deciding a Case on its Merits
The last Eitel factor examines whether the policy of deciding a case based on the merits precludes entry of default judgment. Eitel, 782 F.2d at 1472. In Eitel, the Ninth Circuit admonished that “[c]ases should be decided on their merits whenever reasonably possible.” Id. “The existence of Federal Rule of Civil Procedure 55(b), however, shows that this policy is not dispositive.” McMillan Data Commc'ns, Inc. v. AmeriCom Automation Servs., Inc., 2015 WL 4380965, at *11 (N.D. Cal. July 16, 2015) (citing Kloepping v. Fireman's Fund, 1996 WL 75314, at *3 (N.D. Cal. Feb. 13, 1996)). Further, “deciding the case on the merits is impossible where a party refuses to participate.” Vietnam Reform Party, 416 F.Supp.3d at 970. Thus, because Global Engineering Limited Liability Company, et al. made no effort to respond to communication attempts by CNC Software, LLC and in no way participated in the proceedings, “[t]his factor thus weighs against, but does not preclude, entry of default judgment.” Id.
7. Summary of the Eitel Factors
In sum, the majority of the Eitel factors weigh in favor of granting default judgment. Accordingly, the undersigned RECOMMENDS the District Court GRANT CNC's motion and enter default judgment against Defendants.
C. Relief Sought
The Court next turns to the relief CNC Software, LLC seeks. Once liability is established, the plaintiff must then establish that the requested relief is appropriate. Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977). A “default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Fed.R.Civ.P. 54(c).
1. Actual Damages
The moving party has the burden to “prove up” the amount of damages. United States v. Sundberg, 2011 WL 3667458, at *6 (N.D. Cal. Aug. 22, 2011) (citation omitted). Where the amount of damages “is liquid or capable of ascertainment from definite figures contained in documentary evidence or detailed affidavits, the Court may enter default judgment without a hearing on damages.” Id. (internal quotation marks and citation omitted); see also Pope v. United States, 323 U.S. 1, 12 (1944) (“It is a familiar practice and an exercise of judicial power for a court upon default, by taking evidence when necessary or by computation from facts of record, to fix the amount which the plaintiff is entitled to recover and to give judgment accordingly.”).
Under Section 504(a), a plaintiff may recover: “(1) the copyright owner's actual damages and any additional profits of the infringer, as provided by subsection (b); or (2) statutory damages, as provided by subsection (c).” 17 U.S.C. § 504(a). Here, Defendants' default prohibited CNC's opportunity to unearth the scope of Defendants' sales and profits for disgorgement purposes. However, CNC's piracy detection software identified at least 11 computers used by Defendants to copy and use the pirated software, and CNC submitted Ms. Kennedy's declaration in support of its actual damages based on lost license fees and support fees. Kennedy Decl. ¶ 8-9.
“Actual damages are usually determined by the loss in the fair market value of the copyright, measured by the profits lost due to the infringement or by the value of the use of the copyrighted work to the infringer.” Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 708 (9th Cir.2004) (quoting McRoberts Software, Inc. v. Media 100, Inc., 329 F.3d 557, 566 (7th Cir. 2003)). “[I]t is not improper . . . to consider either a hypothetical lost license fee or the value of the infringing use to the infringer to determine actual damages, provided the amount is not based on ‘undue speculation.'” Id. at 709 (quoting McRoberts Software, 329 F.3d at 566). CNC is entitled to its actual damages of a full suite Mastercam® license comprising $73,950.00 per computer and annual maintenance of $13,050.00 per computer. Kennedy Decl. ¶ 8. Thus, based on the usernames (i.e., computers) identified in the PDRSS data, CNC is entitled to actual damages of $870,000.00. Id. ¶¶ 7-8; Jarvis v. K2 Inc., 486 F.3d 526, 533-34 (9th Cir. 2007) (“[I]n situations where the infringer could have bargained with the copyright owner to purchase the right to use the work, actual damages are what a willing buyer would have been reasonably required to pay to a willing seller for plaintiffs' work.”); CNC Software, Inc., 2020 WL 2042330, at *5 (finding CNC was entitled to its actual damages in the amount of $336,416.00 where its piracy detection software identified four computers used by defendants to copy and use pirated software, comprising $75,500.00 per computer and annual maintenance of $8,604 per computer).
2. Permanent Injunction
“A permanent injunction is an appropriate remedy in default judgment cases involving claims of copyright infringement.” CNC Software, Inc., 2020 WL 2042330, at *6 (citing Amini, 768 F.Supp.2d at 1057 (“The Copyright Act allows a court to grant an injunction in addition to monetary remedies ‘on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.'”); 17 U.S.C. § 502(a)). “A permanent injunction is appropriate where a plaintiff shows: (1) irreparable harm; (2) that monetary damages are inadequate; (3) that the balance of hardships favors plaintiff; and (4) that an injunction would benefit the public interest.” CNC Software, Inc., 2020 WL 2042330, at *6 (citing eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391-92 (2006). Each of these four factors is satisfied here.
a. Irreparable Harm and Inadequacy of Monetary Damages
“[J]eopardy to [a corporation's] competitive position” caused by copyright infringement satisfies the irreparable harm requirement. Apple Computer, Inc. v. Formula Int'l Inc., 7 25 F.2d 521, 525-26 (9th Cir. 1984). “The threat of the loss of prospective customers, goodwill, or reputation also supports a finding of irreparable harm.” CNC Software, Inc., 2020 WL 2042330, at *6 (citing Design Furnishings, Inc. v. Zen Path, LLC, 2010 WL 5418893, at *5 (E.D. Cal. Dec. 23, 2010)). “These intangible injuries are irreparable because quantifying their harm is impractical, and such injuries cannot be fully remedied with a financial award.” Id. (citing MySpace, Inc. v. Wallace, 498 F.Supp.2d 1293, 1305 (C.D. Cal. 2007)).
CNC's complaint alleges that, absent injunctive relief, its business and reputation will be irreparably damaged by the pirated software because it may not function properly or introduce malware. Compl. ¶ 32. “Thus, a permanent injunction is the only remedy available to CNC to limit the potential of future injury.” CNC Software, Inc., 2020 WL 2042330, at *6 (citing Apple Inc. v. Psystar Corp., 673 F.Supp.2d 943, 950 (N.D. Cal. 2009) (money damages are insufficient where they would not prevent defendant from continuing to infringe on copyrights), aff'd, 658 F.3d 1150 (9th Cir. 2011)).
b. The Balance of Hardships Favors CNC
While CNC will be severely harmed by the continued infringement of its software, the harm to Defendants if injunctive relief is granted is remote: “While Defendants will be able to continue in business, [they] will simply have to do without using pirated software.” Id. (citing Cadence Design Sys., Inc. v. Avant! Corp., 125 F.3d 824, 829-30 (9th Cir. 1997)). Therefore, any potential harm to Defendants is slight in comparison to the potential injury suffered by CNC if an injunction does not issue.
c. Injunctive Relief Serves the Public Interest
“It is ‘virtually axiomatic that the public interest can only be served by upholding copyright protections, and correspondingly, preventing the misappropriation of the skills, creative energies, and resources which are invested in the protected work.'” Id. (quoting Apple Computer, Inc. v. Franklin Computer Corp., 7 14 F.2d 1240, 1255 (3rd Cir. 1983)). Here, “Defendants' competitors' interests would be protected because their project bids would not be undercut by Defendants' bids, where Defendants avoid software costs through use of pirated software. ‘Injunctions are regularly issued pursuant to the mandate of Section 502, because the public interest is the interest in upholding copyright protections.'” Id. (quoting Arista Records, Inc. v. Beker Ent., Inc., 298 F.Supp.2d 1310, 1314 (S.D. Fla. 2003)).
3. Destruction of Infringing Software
Impounding and destroying infringing works is recognized under the Copyright Act. 17 U.S.C. § 503(a); Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 433-34 (1984) (“The Copyright Act provides the owner of a copyright with a potent arsenal of remedies against an infringer of his work, including . . . the impoundment and destruction of all reproductions of his work made in violation of his rights”). Based on Defendants' past conduct and continued wrongful use of the infringing software after notice, it is possible that Defendants are still using and operating the Mastercam® software on devices disconnected from the Internet. Kennedy Decl. ¶ 10. Accordingly, the undersigned recommends the Court order that Defendants must, within 30 days of the entry of judgment in this matter, both (1) delete all infringing software from their computers and (2) file with the Clerk of this Court and serve CNC a report in writing, under oath, setting forth in detail the manner and form in which they have complied with the foregoing injunction. See CNC Software, Inc., 2020 WL 2042330, at *6 (ordering the same procedure in granting default judgment against defendants who failed to appear).
4. Attorneys' Fees
CNC originally sought $21,410.50 in attorney's fees, but it subsequently lowered that amount to $19,743.50. See ECF No. 32 at 1. The Copyright Act provides for awarding a “reasonable” attorney's fee. 17 U.S.C. § 505. Reasonable attorneys' fees are generally based on the traditional “lodestar” calculation set forth in Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). See Fischer v. SJB-P.D., Inc., 214 F.3d 1115, 1119 (9th Cir. 2000). A reasonable fee is determined by multiplying (1) “the number of hours reasonably expended on the litigation” by (2) “a reasonable hourly rate.” Hensley, 461 U.S. at 433. The lodestar amount may also be adjusted based on an evaluation of the factors articulated in Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 70 (9th Cir. 1975), which have not been subsumed in the lodestar calculation. See Fischer, 214 F.3d at 1119 (citation omitted).
a. Reasonableness of Hourly Billing Rate
To determine the appropriate lodestar amount, the Court must first assess the reasonableness of counsel's claimed hourly billing rate. Credit Managers Ass'n of S. Cal. v. Kennesaw Life & Accident Ins. Co., 25 F.3d 743, 750 (9th Cir. 1994). Courts look to the prevailing market rates in the relevant community for similar work by attorneys of comparable skill, experience, and reputation. Camacho v. Bridgeport Fin., Inc., 523 F.3d 973, 979 (9th Cir. 2008). Generally, the relevant community is the forum where the district court sits. Id. The applicant bears the burden to produce sufficient evidence that the rates claimed for its attorneys are in line with prevailing market rates. Fischer, 214 F.3d at 1121 (citing Hensley, 461 U.S. at 433). “Affidavits of the plaintiffs' attorney and other attorneys regarding prevailing fees in the community, and rate determinations in other cases, particularly those setting a rate for the plaintiffs' attorney, are satisfactory evidence of the prevailing market rate.” U. Steelworkers of Am. v. Phelps Dodge Corp., 896 F.2d 403, 407 (9th Cir. 1990). Put differently, the party seeking fees bears the burden to prove the reasonableness of hours expended using detailed time records documenting completed tasks and time expended. Hensley, 461 U.S. at 437; Roberts v. City of Honolulu, 938 F.3d 1020, 1024 (9th Cir. 2019) (“It is the responsibility of the attorney seeking fees to submit evidence to support the requested hourly rate.”).
When a party seeking fees submits declarations, courts must consider those declarations and cannot substitute that analysis by only considering previous fee awards. Roberts, 938 F.3d at 1024 (“The district court diverged from the applicable standard in discarding the declarations entirely and considering only previous fee awards in determining the prevailing market rate.”) (emphasis in original). Indeed, the Ninth Circuit has explained that solely “[e]xamining prior fee awards to [even the same attorneys] in the district [is] not an acceptable substitute for considering declarations submitted by [that attorney], and explaining why those declarations did or did not establish the prevailing hourly rate in the district.” Id. at 1025.
CNC's counsel, McInnes, LLP and Milord & Associates, P.C., seeks $575/hour for senior attorneys, $435/hour for senior associate attorneys, $300/hour for associate attorneys, and $195/hour for legal assistants. Keshishian Suppl. Decl., ECF No. 32-1. CNC provides the following background information in support of this request:
• Milord A. Keshishian ($575/hour) is a Southern California-based intellectual property attorney with more than 24 years of experience. Keshishian Suppl. Decl. ¶ 1, Ex. 1.
• John McInnes ($575/hour) is an East Coast-based intellectual property attorney with more than 19 years of experience. Id. ¶ 2, Ex. 2.
• Stephanie V. Trice ($435/hour) is a Southern California-based senior intellectual property associate attorney with four years of experience who has worked with Milord & Associates for the past 20 years on a broad range of business and intellectual property disputes. Id. ¶ 3, Ex. 3.
• Evan T. Chavez ($300/hour) is a Southern California-based intellectual property associate attorney with two years of experience as an attorney and prior experience working at the USPTO. Id. ¶ 4, Ex. 4.
Courts in this District have awarded fees for senior attorneys at markedly higher rates in recent comparable copyright cases than those requested by CNC's counsel. See, e.g., Facebook, Inc. v. Holper, 2022 WL 17167958, at *15 (N.D. Cal. Sept. 27, 2022), report and recommendation adopted as modified, 2022 WL 17169836 (N.D. Cal. Nov. 22, 2022) (default judgment in trademark infringement and breach of contract, plaintiff's attorney fees of $1,165/hour for managing partner with 30 years of experience, $725/hour for a senior associate with significant practice experience, and $530/hour for second year associate reasonable); Recouvreur v. Carreon, 940 F.Supp.2d 1063 (N.D. Cal. 2013) (approving a rate of $700/hour for plaintiff's attorney with over twenty years' experience in an Lanham Act trademark infringement suit); Moonbug Ent. Ltd. v. Babybus (Fujian) Network Tech. Co., 2022 WL 1289048, at *8 (N.D. Cal. Apr. 29, 2022) (in a copyright infringement action, anti-SLAPP motion, court granted a blended hourly rate of $587.65 per hour for plaintiff's counsel).
The rates charged by CNC's associate attorneys, $300 and $435, are similarly reasonable by comparison. See, e.g., Reiffer v. Shearwater Pac. Cap. Mgmt. LLC, 2020 WL 7048307, at *9 (N.D. Cal. May 13, 2020), report and recommendation adopted, 2020 WL 7050026 (N.D. Cal. June 22, 2020) (finding rates of $395 to $450 per hour for plaintiff's counsel was reasonable in copyright action at motion for default stage); Vanngo v. Beauty Advisor, LLC, 2022 WL 2289066, at *4 (N.D. Cal. Mar. 21, 2022) (finding rate of $380.00/hour for plaintiff counsel was reasonable on motion for default judgment in copyright action); Myeress v. USA World Business Servs., Inc., 2017 WL 990587, at *6 (N.D. Cal. Mar. 3, 2017), report and recommendation adopted, 2017 WL 976916 (N.D. Cal. Mar. 14, 2017) (finding rate of $395/hour for associate with four years of experience reasonable in copyright action at motion for default judgment stage action); Glynn v. Cigar Store, Inc., 2018 WL 3145683, at *6 (N.D. Cal. June 27, 2018) (finding rate of $395/hour for plaintiff's counsel, practicing for ten years, and paralegal at $175/hour was reasonable in copyright action at motion for default judgment stage); Livingston v. Art.com, Inc., 2015 WL 4319851 at *12 (N.D. Cal., Apr. 17, 2015), report and recommendation adopted, 2015 WL 4307808 (N.D. Cal. July 15, 2015) (noting that the average hourly rate for intellectual property attorneys in San Francisco is $547 and awarding $325 hourly rate for attorney with 2.5 years of experience); Michael Grecco Prods., Inc. v. 8 Decimal Cap. Mgmt., LLC, 2021 WL 2534567 (N.D. Cal. June 1, 2021), report and recommendation adopted, 2021 WL 2531093 (N.D. Cal. June 21, 2021) (finding a rate of $380 for an intellectual property practicing for five years to be reasonable in a copyright infringement action).
Finally, Milord & Associates' support staff hourly rate is $195, which is in the reasonable range for support staff. See In re Linked In User Priv. Litig., 309 F.R.D. 573, 591 (N.D. Cal. 2015) (noting that “reasonable hourly rates . . . for paralegals and litigation support staff [range] from $150 to $240” in the Bay Area).
Based upon the foregoing, the undersigned finds CNC has met its burden to present evidence that its attorneys' fees are comparable to those “prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation.” Chaudhry v. City of Los Angeles, 751 F.3d 1096, 1110 (9th Cir. 2014).
b. Reasonableness of Hours Billed
Having determined the reasonable hourly rate to be applied, the undersigned proceeds to determine the number of hours reasonably expended on the litigation. Fischer, 214 F.3d at 1119. The Court “may not attempt to impose its own judgment regarding the best way to operate a law firm, nor to determine if different staffing decisions might have led to different fee requests.” Moreno v. City of Sacramento, 534 F.3d 1106, 1115 (9th Cir. 2008). At the same time, however, the Ninth Circuit has recently explained that “district courts have a duty to ensure that claims for attorneys' fees are reasonable, and a district court does not discharge that duty simply by taking at face value the word of the prevailing party's lawyer for the numbers of hours expended on the case. Rather, a district court must ensure that the winning attorneys have exercised billing judgment.” Vogel v. Harbor Plaza Center, LLC, 893 F.3d 1152, 1160 (9th Cir. 2018) (emphasis in original and quotation marks and citations omitted).
In general, the undersigned finds counsel exercised sound billing judgment. Records submitted by CNC are itemized by the timekeeper and clearly detail the amount of time spent on each billed task. See Keshishian Suppl. Decl., Exs. 5-6. The records do not suggest duplicative billing or an unreasonably high number of hours spent on any task. However, CNC also seek relief for work which is clerical in nature, as highlighted below:
| Date | Employee | Hours | Dollars | Task |
| 4/22/22 | SVT | 0.70 | 304.50 | A103 Draft/revise L210 Pleadings: Finalize and file 0.70 $435.00 Complaint, Civil Cover Sheet, Report re Copyright, and Proposed Summons; Update docket and calendar relevant events. |
| 9/14/22 | JH | 0.20 | 39.00 | Check status; Review Case Management Order; Update docket and calendar relevant events. |
| 9/26/22 | JH | 0.50 | 97.50 | Finalize and file Request to Enter Default (Edwin Escobar); Escobar); Serve via U.S. Mail; Update docket and calendar relevant events. |
| 10/4/22 | SVT | 0.20 | 87.00 | Review Entry Default Judgment re Escobar and Notice $435.00 of Default Judgment Procedure; Correspondence to John re deadlines; Update docket and calendar relevant events. |
| 10/14/22 | EM. | 0.50 | 97.50 | Finalize and file POS on Notice of Default Judgment Procedures; File update - Court docket ECF No. 23 (POS re Ntc of Default Judgment Procedures) Update docket and calendar relevant events |
| 1/6/23 | EM | 0.50. | 97.50 | File update - Court docket ECF No(s). 29 (Motion for Default Judgement); Update docket and calendar relevant events; Serve Defendants Motion for Default Judgment by mail and personal service |
In Missouri v. Jenkins, the Supreme Court observed that “purely clerical or secretarial tasks should not be billed at a paralegal [or lawyer's] rate, regardless of who performs them.” 491 U.S. 274, 288 n.10 (1989). Instead, such clerical tasks should be “subsumed in firm overhead.” Nadarajah v. Holder, 569 F.3d 906, 921 (9th Cir. 2009) (“filing, transcript, and document organization time was clerical in nature and should have been subsumed in firm overhead rather than billed at paralegal rates”); Hernandez v. Spring Charter Inc., 2020 WL 1171121, at *7 (N.D. Cal. Mar. 11, 2020) (“preparing proofs of service, processing records, posting letters for mail, photocopying, three-hole punching, internal filing, calendaring, and preparing the summons and complaint for filing have been found to be purely clerical tasks”); League of Wilderness Defs./Blue Mountains Biodiversity Project v. Turner, 305 F . Supp. 3d 1156, 1171 (D. Or. 2018), appeal dismissed sub nom. League of Wilderness Defs./Blue Mountains Biodiversity Project v. United States Forest Serv., 2019 WL 4453723 (9th Cir. Mar. 8, 2019) (“Tasks considered clerical include, but are not limited to, filing motions with the court, filling out and printing documents, preparing affidavits and drafting certificates of service, organizing files, calendaring dates, rescheduling depositions, and sending documents.”) (citation omitted).
In other cases, judges in this district have deducted 0.1 hour per clerical task interspersed in entries with non-clerical tasks. See Hernandez, 2020 WL 1171121, at *8; Crandall v. Starbucks Corp., 2016 WL 2996935, at *4 (N.D. Cal. May 25, 2016). Following this rule and the data above, the undersigned recommends the Court deduct .26 hours of time, amounting to a total deduction of $72.30.
c. Lodestar Calculation
Based on this analysis, the undersigned finds Plaintiffs' counsel's rates and hours expended are reasonable and therefore recommends the District Court award Plaintiff attorneys' fees in the amount of $19,671.20.
5. Costs
The Copyright Act provides that “the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof.” 17 U.S.C. § 505. Allowable costs under section 505 include costs for service of process, depositions expenses, copying, computer assisted legal research, expert witness fees, and travel costs. See, e.g., Exper Exchange, Inc. v. Doculex, Inc., 2010 WL 1881484, at *12 (N.D. Cal. May 10, 2010); Yue v. Storage Tech. Corp., 2008 WL 4185835, at *6 (N.D. Cal. Sept. 5, 2008); Trs. of Const. Industry and Laborers Health and Welfare Trust v. Redland Ins. Co., 460 F.3d 1253, 1258-59 (9th Cir. 2006). CNC requests a cost award in the amount of $635.21, comprised of the $402 filing fee, $180 for the process server to serve the summons and complaint, and $53.21 in mailing fees. Keshishian Decl. ¶ 12; Keshishian Suppl. Decl. ¶ 8. The record supports these costs, and the undersigned therefore recommends the Court award costs in the amount of $635.21.
6. Interest
“Interest shall be allowed on any money judgment in a civil case recovered in a district court.” 28 U.S.C. § 1961(a); Autodesk, Inc. v. Flores, 2011 WL 337836, at *10 (N.D. Cal. Jan. 31, 2011) (awarding post-judgment interest in a default judgment proceeding). Interest is “calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.” 28 U.S.C. § 1961(a). Accordingly, the undersigned recommends the Court award CNC any post-judgment interest that accrues pursuant to 28 U.S.C. § 1961(a).
V. CONCLUSION
In sum, the undersigned RECOMMENDS the Court:
1. GRANT CNC's Motion for Default Judgment;
2. PERMANENTLY ENJOIN Defendants, their officers, agents, servants, employees and representatives and all other persons, firms or corporations in active concert or participation with them from:
a. copying, producing, downloading, distributing or otherwise using any software that is substantially similar to CNC's copyrighted Mastercam® software; and b. engaging in any other activity constituting an infringement of CNC's Mastercam® copyrights;
3. AWARD CNC (1) its actual damages totaling $870,000; (2) reasonable attorney's fees and costs totaling $20,306.41 ($19,671.20 in attorney's fees and $635.21 in costs); and (3) any post-judgment interest that accrues pursuant to 28 U.S.C. § 1961(a); and
4. ORDER that Defendants, within 30 days of the entry of judgment in this matter, must both (1) delete all infringing software from their computers and (2) file with the Clerk of Court and serve on CNC a report in writing, under oath, setting forth in detail the manner and form in which Defendants have complied with the foregoing injunction.
CNC shall serve a copy of this Report and Recommendation upon Defendants and file proof of service thereafter. Pursuant to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b)(2), a party may serve and file any objections within 14 days after being served. Failure to file objections within the specified time may waive the right to appeal the district court's order.
IT IS SO RECOMMENDED.