Opinion
1-22-CV-00962-DII
08-16-2023
HYDRAFLOW INDUSTRIES NZ LTD., Plaintiff v. THE INDIVIDUALS, BUSINESS ENTITIES, AND UNINCORPORATED ASSOCIATIONS IDENTIFIED IN EXHIBIT 1, Defendant
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
DUSTIN M. HOWELL, UNITED STATES MAGISTRATE JUDGE
TO HONORABLE UNITED STATES DISTRICT JUDGE
Before the Court is Plaintiff Hydraflow Industries' Motion for Default Judgment, Dkt. 33. After reviewing Hydraflow's motion and the relevant case law, the undersigned recommends that Hydraflow's motion be granted.
I. BACKGROUND
Hydraflow designs, manufactures, and distributes “hand-operated utensils that form, fill, and dispense sushi rolls.” Dkt. 1, at 4. To market and sell its products Hydraflow uses photographs it has registered with the U.S. Copyright Office. Hydraflow states that it has “widely used the photographs to promote and sell the Products both in the United States and throughout the world via the world-wide web; and the consuming public associates Plaintiffs' Products with high quality goods.” Id. at 4. Hydraflow claims that Defendants infringe on Hydraflow's intellectual property by advertising, selling, and/or offering for sale products online using duplicates or substantially similar imitations of the registered photographs. Id. at 5. Hydraflow did not approve of the products sold in Defendants' webstore and did not give Defendants permission to use the registered photos. Id.
The registration number for the photos at issue is Registration No. VA0002196865. Dkt. 1, at 3.
For Defendants' alleged violations under 17 U.S.C. § 501, Hydraflow seeks a declaration that Defendants' reproduction of the registered photographs infringes Hydraflow's registration and asks the Court to enjoin Defendants from using the photos and moving or relocating funds in Defendants' online accounts. Id. at 7-10. Hydraflow also seeks maximum statutory damages of $150,000 per Defendant for willful infringement pursuant to 17 U.S.C § 504(c)(2). Id. at 8.
The District Court entered an order authorizing alternate service of process by email. Dkt. 15. Hydraflow served Defendants with the Summons and a copy of the Complaint by email in compliance with the Court's Order for Alternate Service. Dkts. 25; 27, 28-3; 29. Hydraflow filed a Motion for Entry of Clerk's Default against each of the Defaulting Defendants who have not answered the complaint. Dkt. 28. The Clerk of the Court entered default against Does 1-64, Does 66-69, Does 71-76, Does 86-101, Doe 105, Does 107-110, Does 112-139. Dkt. 30. Hydraflow moves for default judgment pursuant to Fed.R.Civ.P. 55(b)(2) against the 121 Defaulting Defendants against whom the Clerk has entered default. Dkt. 33, at 5.
II. LEGAL STANDARD
Under Rule 55 of the Federal Rules of Civil Procedure, federal courts have the authority to enter a default judgment against a defendant that has failed to plead or otherwise defend itself. Fed.R.Civ.P. 55(a)-(b). That said, “[d]efault judgments are a drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme situations.” Sun Bank of Ocala v. Pelican Homestead & Sav. Ass'n, 874 F.2d 274, 276 (5th Cir. 1989). A party is not entitled to a default judgment simply because the defendant is in default. Ganther v. Ingle, 75 F.3d 207, 212 (5th Cir. 1996). Rather, a default judgment is generally committed to the discretion of the district court. Mason v. Lister, 562 F.2d 343, 345 (5th Cir. 1977).
In considering Hydraflow's motion, the Court must determine: (1) whether default judgment is procedurally warranted; (2) whether Hydraflow's complaint sets forth facts sufficient to establish that he is entitled to relief; and (3) what form of relief, if any, Hydraflow should receive. United States v. 1998 Freightliner Vin #: 1FUYCZYB3WP886986 , 548 F.Supp.2d 381, 384 (W.D. Tex. 2008); see also J & J Sports Prods., Inc. v. Morelia Mexican Rest., Inc., 126 F.Supp.3d 809, 813 (N.D. Tex. 2015) (using the same framework).
III. DISCUSSION
A. Procedural Requirements
To determine whether entry of a default judgment is procedurally warranted, district courts in the Fifth Circuit consider six factors: “[1] whether material issues of fact are at issue, [2] whether there has been substantial prejudice, [3] whether the grounds for default are clearly established, [4] whether the default was caused by a good faith mistake or excusable neglect, [5] the harshness of a default judgment, and [6] whether the court would think itself obliged to set aside the default on the defendant's motion.” Lindsey v. Prive Corp., 161 F.3d 886, 893 (5th Cir. 1998).
On balance, the Lindsey factors weigh in favor of entering a default judgment against the Defaulting Defendants. Because they have not filed a responsive pleading, there are no material facts in dispute. See Nishimatsu Constr. Co., Ltd. v. Hous. Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (“The defendant, by his default, admits the plaintiff's well-pleaded allegations of fact.”). The Defaulting Defendants' failure to appear and respond has ground the adversary process to a halt, prejudicing Hydraflow's interest in pursuing its claim for relief. See J & J Sports, 126 F.Supp.3d at 814 (“Defendants' failure to respond threatens to bring the adversary process to a halt, effectively prejudicing Plaintiff's interests.”) (internal citation and quotation marks omitted). The grounds for default are established: Defendants were properly served and failed to appear and participate at all, much less timely file a responsive pleading. There is no indication that the default was caused by a good faith mistake or excusable neglect. The undersigned finds that default judgment is procedurally warranted.
B. Sufficiency of Hydraflow's Complaint
Default judgment is proper only if the well-pleaded factual allegations in Hydraflow's complaint establish a valid cause of action. Nishimatsu Constr. Co., 515 F.2d at 1206. By defaulting, a defendant “admits the plaintiff's well-pleaded allegations of fact.” Id. In determining whether factual allegations are sufficient to support a default judgment, the Fifth Circuit employs the same analysis used to determine sufficiency under Rule 8. Wooten v. McDonald Transit Assocs., Inc., 788 F.3d 490, 498 (5th Cir. 2015). A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The factual allegations in the complaint need only “be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Wooten, 788 F.3d at 498 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). While “detailed factual allegations” are not required, the pleading must present “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
Hydraflow asserts a cause of action against the Defaulting Defendants for copyright infringement. Dkt. 1, at 6-7. For Hydraflow to prevail on its claim, it must show that: (1) it owns a valid copyright; and (2) the Defaulting Defendants copied constituent elements of Hydraflow's work that are original. Baisden v. I'm Ready Productions, Inc., 693 F.3d 491, 499 (5th Cir. 2012). Further, § 106 of the U.S. Copyright Act states that “the owner of copyright under this title has the exclusive rights ... to authorize ... [reproduction of] ... the copyrighted work in copies [and to distribute] . copies . of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease or lending..” 17 U.S.C. § 106.
Hydraflow has demonstrated the elements of its copyright infringement claim. Hydraflow owns a valid and protectable copyright, VA-0002196865, Sushezi 2006, covering the photographs at issue. Dkt. 1-2, at 1. The Defaulting Defendants violated the exclusive rights granted to Hydraflow as a copyright owner as provided in § 106 of the Copyright Act by copying, reproducing, uploading, downloading, publicly displaying, and distributing the Copyrighted Photographs to a global audience through their respective internet webstores, without ever obtaining a license or consent from Hydraflow. Dkt. 1-3, at 25-770 (showing Defendants' infringing publication and use of Hydraflow's product images).
Hydraflow's factual allegations and the record before the undersigned are enough to raise Hydraflow's right to relief above a speculative level as to Hydraflow's copyright claim. The undersigned finds that default judgment is substantively warranted.
C. Relief
Federal Rule of Civil Procedure 54(c) states that “[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). In other words, the relief prayed for in a complaint defines the scope of relief available on default judgment. Id.
A defendant's default concedes the truth of the allegations of the complaint concerning the defendant's liability, but not damages. United States v. Shipco Gen. Inc., 814 F.2d 1011, 1014 (5th Cir. 1987). Ordinarily, damages will not be awarded without a hearing or a demonstration by detailed affidavits establishing the necessary facts. United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir. 1979). However, when the amount of damages or costs can be determined with certainty by reference to the pleadings and supporting documents, and when a hearing would not be beneficial, a hearing is unnecessary. James v. Frame, 6 F.3d 307, 310 (5th Cir. 1993). A sum capable of mathematical calculation is one that can be “computed with certainty by reference to the pleadings and supporting documents alone.” Id. at 311.
1. Copyright Damages
The Copyright Act allows a plaintiff alleging copyright infringement to recover statutory damages in an amount between $750 and $30,000 per infringement with respect to any one work as the court deems just, in lieu of actual damages and profits at any time before final judgment. 17 U.S.C. § 504(c)(1). If the infringement was willful, “the court in its discretion may increase the award of statutory damages to a sum of not more than $150,000.” 17 U.S.C. § 504(c)(2).
The Court has “virtually unfettered” discretion to set an amount it considers just within the statutory range. Cullum v. Diamond A Hunting, Inc., 484 Fed.Appx. 1000, 1002 (5th Cir. 2012). In copyright infringement cases, statutory damages should be awarded in an amount sufficient to deter future copyright infringement by making compliance less costly than violation. EMI Apr. Music Inc. v. Jet Rumeurs, Inc., 632 F.Supp.2d 619, 625 (N.D. Tex. 2008); Future World Elecs., LLC v. Over Drive Mktg., LLC, No. 3:12-CV-2124-B, 2013 WL 5925089, at *4 (N.D. Tex. Nov. 5, 2013) (“Ultimately, statutory damages are intended not merely for the restitution of profits or reparation of injury, but to deter wrongful conduct.”).
Hydraflow alleges that the Defendants acted willfully and seeks statutory damages under the Copyright Act of $150,000, the statutory maximum, against each Defaulting Defendant for infringing Hydraflow's copyright. Dkt. 33, at 15. Here, Hydraflow has requested that the Court award relief without a hearing since the Defaulting Defendants have not appeared in this action. Id. at 19.
While the Copyright Act does not define the term “willful,” according to the Fifth Circuit, a defendant acts “willfully” within the meaning of the Act when the infringer “knows his actions constitute an infringement,” even if the actions were not malicious. See Broad. Music, Inc. v. Xanthas, Inc., 855 F.2d 233, 236 (5th Cir. 1988). Hydraflow argues that Defendants “have been using the Infringing Photographs on the Infringing Webstores without [Hydraflow]'s authorization, which demonstrates that the Defaulting Defendants had knowledge that their activities infringed on [Hydraflow]'s rights.” Dkt. 33, at 13. Therefore, argues Hydraflow, the Defendants' infringements were committed willfully. Id. at 12. Given that the record shows that the Defaulting Defendants used the infringing photos to sell and market products that were similar to Hydraflow's products, the undersigned agrees with Hydraflow that Defendants' infringing reproduction of Hydraflow's protected images was willful.
As stated above, Hydraflow seeks statutory damages in the amount of $150,000, the statutory maximum, against each Defaulting Defendant for a total of $18,150,000. Dkt.33, at 15. Hydraflow argues that the statutory maximum per violation will compensate Hydraflow for its injury and deter Defendants from further infringement in the future. Id. at 15.
While the undersigned agrees that Hydraflow is entitled to statutory damages for willful conduct, Hydraflow's requested damages of $150,000 per Defaulting Defendant is excessive. R A Guthrie Co., Inc. v. Boparai, No. 4:18-CV-080-ALM-KPJ, 2021 WL 1148957, at *14 (E.D. Tex. Mar. 1, 2021), report and recommendation adopted, No. 4:18-CV-080-ALM-KPJ, 2021 WL 1141667 (E.D. Tex. Mar. 25, 2021) (stating that in most cases in the Fifth Circuit “rarely [do statutory damages awards] reach the statutory maximum of $150,000 per infringed work” and “[t]o the Court's best knowledge, there has only been one case in which a district court in the Fifth Circuit awarded the maximum award of $150,000 per infringement).
Instead, the undersigned finds that granting Hydraflow $5,000.00 for each copyrighted work or video infringed per Defaulting Defendant for a total of $605,000 is reasonable. In light of the fact that Hydraflow requested the damages be determined without a hearing, the undersigned relies on Hydraflow's pleadings and default judgment motion. Hydraflow states that it has “provided information regarding lost revenues” attributable to Defendants' infringement, yet none appears in the record. Dkt. 33, at 15. Further, Hydraflow states that it has expended “considerable resources advertising, marketing, and promoting” its products, yet provides no figures evidencing these expenditures. Id. at 3. Hydraflow also does not provide sample licensing fees that might guide the undersigned's award determination. Compare Sadowski v. Tex. Insider, Inc., No. 1-23-CV-00064-DAE, 2023 WL 3848392, at *4 (W.D. Tex. June 5, 2023), report and recommendation adopted, No. 1:23-CV-64-DAE, 2023 WL 4759304 (W.D. Tex. July 26, 2023) (where default judgment plaintiff provided information about past licensing fees for the copyrighted works at issue to guide the statutory damages award determination). The undersigned concludes that $5,000 per Defaulting Defendant is sufficient to compensate Hydraflow for the infringement, to penalize Defendants for their willful conduct, and deter Defendants and similar sellers from engaging in this type of infringement.
The Defaulting Defendants identified in Hydraflow's motion, against whom the Clerk has entered default are: Does 1-64, Does 66-69, Does 71-75, Does 86-101, Doe 105, Does 107-110, Does 112-139. Dkts. 33-2; 30. There are 121 Defaulting Defendants remaining in total.
2. Attorneys' Fees
Hydraflow also seeks to recover its reasonable and necessary attorneys' fees and costs. Dkt. 33, at 10. Pursuant to 17 U.S.C. § 505, “the court in its discretion may allow the recovery of full costs by or against a party... the court may also award reasonable attorneys' fee to pay the prevailing party as part of the costs.” See 17 U.S.C. § 505. The factors considered when deciding to award attorneys' fees include the “frivolousness, motivation, objective unreasonableness (both in factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.” Fogerty v. Fantasy, Inc., 510 U.S. 517, 535 (1994). Fee awards in copyright infringement cases are the rule rather than the exception and should be awarded routinely. See Positive Black Talk, Inc. v. Cash Money Records, Inc., 394 F.3d 357, 381 (5th Cir. 2004); Canopy Music Inc. v. Harbor Cities Broad., Inc., 950 F.Supp. 913, 917-18 (E.D. Wis. 1997) (awarding attorneys' fees award on a motion for default judgment.). In view of the willful nature of the Defendants' infringement and their failure to defend or otherwise participate in this action, leading to unjustified delays and increased costs and fees, an award of reasonable costs and attorneys' fees is appropriate. The undersigned recommends granting Hydraflow these fees and costs in full.
Upon entry of a final judgment, Hydraflow is the prevailing party in this action and is advised that it must file a separate motion for attorneys' fees once default judgment is granted by the District Court.
3. Hydraflow's Request for Permanent Injunction
Hydraflow also seeks a permanent injunction against the Defaulting Defendants. Dkt. 33, at 16. A plaintiff seeking a permanent injunction must generally satisfy a four-factor test: (1) the plaintiff has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate compensation; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) a permanent injunction would not disserve the public interest. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). All four factors weigh in favor of granting a permanent injunction against the Defaulting Defendants.
Hydraflow has demonstrated that it has suffered an irreparable injury by demonstrating that Defendants have used Hydraflow's copyrighted photographs to advertise and sell counterfeit products that are similar to Hydraflow's. Dkt. 1-3, at 25-770. Further, monetary damages are insufficient as the possibility of harm to the Hydraflow's reputation and the market value its copyrighted photographs constitutes irreparable harm sufficient for a permanent injunction. See Valley v. Rapides Parish Sch. Bd., 118 F.3d 1047, 1056 (5th Cir. 1997) (finding irreparable harm based upon potential damage to reputation). The balance of hardships weighs in Hydraflow's favor because the Defaulting Defendants have not appeared in this lawsuit but apparently continue to use the copyrighted photographs. Dkt. 33, at 17. The public interest factor also weighs in favor of an injunction because the public interest would be undermined if the Defaulting Defendants' improper conduct is allowed to continue. Accordingly, a permanent injunction is warranted.
IV. RECOMMENDATION
In accordance with the foregoing discussion, the undersigned RECOMMENDS that the District Court GRANT Hydraflow's Motion for Default Judgment against the Defaulting Defendants, Dkt. 33. Hydraflow should be awarded statutory damages in the amount of $5,000.00 per each Defaulting Defendant, reasonable costs and attorneys' fees and court costs. Further, the Defaulting Defendants should be permanently enjoined from using, reproducing, or displaying Hydraflow's registered and copyrighted photographs. The referral of this case should now be CANCELED.
The Defaulting Defendants are: Does 1-64, Does 66-69, Does 71-75, Does 86-101, Doe 105, Does 107-110, Does 112-139. Dkts. 33-2; 30. There are 121 Defaulting Defendants in total.
V. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987). A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).