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FIRMA MELODIYA & BMG v. ZYX MUSIC GMBH

March 16, 1995

FIRMA MELODIYA and BMG MUSIC, Plaintiffs, against ZYX MUSIC GmbH, ZYX MUSIC DISTRIBUTION, INC., PG RECORDS PTY. LTD., MELODIYA AUSTRALIA PTY. LTD., UNIDATA SOLUTIONS PTY. LTD., HDA ENTERTAINMENT GROUP PTY. and PHILIP ALLWOOD, Defendants.


The opinion of the court was delivered by: DENNY CHIN

 CHIN, D.J.

 Plaintiffs Firma Melodiya ("Melodiya") and BMG Music ("BMG") commenced this action on September 19, 1994, alleging that defendants' unauthorized manufacture, distribution and sale of Melodiya's recordings in the United States constituted federal and state copyright and trademark infringement, unfair competition, trademark dilution, false advertising and deceptive acts and practices under federal and New York state law. Subsequently, plaintiffs moved for a preliminary injunction against ZYX Music GmbH and ZYX Music Distribution Ltd. (collectively, "ZYX" or the "ZYX Defendants"), PG Records Pty. Ltd., Melodiya Australia Pty. Ltd., Unidata Solutions Pty. Ltd., HDA Entertainment Group Ptd. and Philip Allwood (collectively, the "Allwood Defendants"). A hearing was held on the preliminary injunction motion at which all parties presented witnesses and exhibits. Memoranda of law and numerous affidavits were filed prior to the hearing, and the parties were given the opportunity to submit post-hearing briefs. For the reasons stated below, plaintiffs' motion is granted. My findings of fact and conclusions of law follow.

 The ZYX Defendants move to dismiss the complaint against them based on the doctrine of forum non conveniens. That motion is denied.

 Background

 This is an intricate case of international intrigue, involving players from the United States, Germany, Australia and the former Soviet Union as well as allegations of forgery, fraud and deception. The ZYX Defendants admit marketing compact discs containing copies of plaintiffs' master recordings and bearing plaintiffs' trademarks in the United States and claim that they have the right to do so under a license purchased from the Allwood Defendants. In turn, the Allwood Defendants claim the right to plaintiffs' music and trademarks under an agreement purportedly signed in 1988. Plaintiffs, however, claim that the agreement is a forgery and contend that the Allwood Defendants had no right to give the ZYX Defendants any license to distribute their recordings in the United States.

 The Parties

 Melodiya, a state enterprise organized and existing under legislation enacted by the Russian Federation, records musical sound recordings and manufactures and distributes phonorecords containing those recordings. Melodiya's extensive music catalogue includes classical, jazz, rock, religious and ethnic music; the classical music catalogue contains compositions by Tchaikovsky, Rachmaninov, Stravinsky and Prokofiev, as well as renditions by the USSR Symphony Orchestra and the Leningrad Philharmonic Orchestra and performances by Olega Kagan and Mstislav Rostropovich. *fn1" Melodiya has been in existence since 1964 and since September 1993 has been formally known as Firma Melodiya.

 Before April 1, 1989, Melodiya was represented by Mezhdunarodnaya Kniga ("MezhKniga"), an agency of the USSR Ministry of Foreign Trade. MezhKniga entered into license agreements with companies outside the Soviet Union for the distribution and sale of Melodiya's recordings. In 1989, the Soviet government authorized Melodiya to represent itself exclusively as of April 1, 1989 and gave it exclusive rights to license the distribution of its recordings.

 For many years, Melodiya's recordings have been sold worldwide under its trademarks MELODIYA, MELODIYA in Cyrillic letters, and a stylized "M" set on concentric circles. In May and September 1992, Melodiya registered the Cyrillic MELODIYA and the "M" logo as its trademarks with the United States Patent and Trademark Office for "prerecorded audio cassettes and records featuring music." (Complaint P 14).

 BMG, a New York partnership, manufactures, distributes and sells phonorecords. By agreement dated January 1, 1994, Melodiya granted BMG a license to distribute Melodiya recordings and exploit the Melodiya trademarks in the United States until the year 2012 (the "BMG License"). Plaintiffs allege that this license is exclusive and that any rights previously given by Melodiya or MezhKniga to distribute Melodiya recordings in the United States either expired or terminated before the effective date of the BMG License.

 ZYX Music GmbH ("ZYX GmbH") is a German corporation that also manufactures distributes and sells phonorecords. ZYX Music Distribution Ltd. is a New York corporation that distributes phonorecords for ZYX GmbH. The ZYX Defendants are relative newcomers to the classical music industry in the United States and their catalogue is significantly smaller than Melodiya's. HDA Entertainment Group Pty. Ltd., an Australian corporation, manufactures, distributes and sells music records. Philip Allwood is an Australian citizen and the director of HDA. *fn2"

 The Alleged Infringement

 In May 1987, MezhKniga entered an agreement granting a license to the Allwood Defendants to distribute some 200 of Melodiya's recordings (the "Melodiya Recordings") in Australia and New Zealand for three years (the "1987 Agreement"). This agreement was signed by Nikolai Minaev, an Assistant Trade Representative for the USSR in Australia from 1985 through 1988, and Boris Fomichev, who was stationed in the Soviet Union's consulate in Australia. The Agreement was amended in 1988 to include Hong Kong and to extend the license to April 1993. Philip Allwood also attempted in 1988 to get an extension of the Agreement to include distribution rights in the United States, but was rejected. *fn3" By letter dated December 28, 1989, MezhKniga advised Allwood that the 1987 Agreement would expire in May 1990 due to the marked changes occurring in the Soviet Union, and that Melodiya would have exclusive rights to the recordings at issue. *fn4"

 In June 1994, ZYX began shipping compact discs containing the Melodiya Recordings into New York. The disc labels state "Made in Germany" and bear the ZYX name and logo, as well as the word MELODIYA in English, Melodiya's registered trademark M and design logo, and the claim "Made under license from Melodiya Australia C. 1987." Plaintiffs learned of the distribution in June 1994 and wrote to the ZYX Defendants' counsel on June 29, 1994, demanding that the distribution cease on the grounds that ZYX was not licensed to exploit the Melodiya catalogue. Counsel for the ZYX Defendants responded with a request that plaintiffs refrain from instituting litigation while they investigated plaintiffs' claims.

 The ZYX Defendants later maintained that they were entitled to exploit the Melodiya Recordings in the United States based on two documents: 1) an agreement between the ZYX Defendants and Philip Allwood pursuant to which ZYX paid a license fee of $ 225,000 to Allwood in exchange for the exclusive right to distribute the Melodiya Recordings in the United States until 1999 (the "ZYX License"); and 2) an addendum to the 1987 Agreement dated November 26, 1988, allegedly signed by an MezhKniga representative and purportedly giving Melodiya Australia the right to distribute the Melodiya Recordings in the United States, Japan and Europe (the "U.S. Addendum"). In support of this claim, Allwood submitted an affidavit dated August 16, 1994, stating that the U.S. Addendum was legitimate, that a MezhKniga official named Nikolai Minaev signed the Addendum, and that Allwood had the original Addendum in his possession.

 Plaintiffs subsequently commenced an investigation to determine the validity of the U.S. Addendum, which took two months and led them to Europe and Russia, and finally concluded that the U.S. Addendum was a forgery. Based on their belief that ZYX's authorization to distribute the Melodiya Recordings in the United States was premised on a forged document, plaintiffs commenced this action.

 DISCUSSION

 I. Plaintiffs' Motion for Preliminary Injunction

 A. Standards for Preliminary Injunction

 To succeed on their motion for a preliminary injunction, plaintiffs must demonstrate irreparable harm and either 1) likelihood of success on the merits, or 2) serious questions on the merits to make them fair ground for litigation with the balance of hardships tipping decidedly in their favor. Fisher-Price, Inc. v. Well-Made Toy Manufacturing Corp., 25 F.3d 119, 122 (2d Cir. 1994). With respect to plaintiffs' trademark infringement claims, irreparable harm may be presumed upon a showing that plaintiffs' trademark is protectible and that a likelihood of confusion exists as to the ownership or source of goods in question. *fn5" Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1038 (2d Cir. 1992); Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70, 73 (2d Cir. 1988). Proof of confusion also serves as evidence of likelihood of success on the merits in the preliminary injunction context since an essential element of any trademark infringement claim is a likelihood of confusion as to the source of a product arising from the unauthorized use or copy of a trademark. ...


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