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U2 Home Entertainment, Inc. v. Hong Wei International Trading

August 21, 2008

U2 HOME ENTERTAINMENT, INC., PLAINTIFF,
v.
HONG WEI INTERNATIONAL TRADING, INC. AND JIXONG NI D/B/A HONG WEI, INC. DEFENDANTS.



The opinion of the court was delivered by: John F. Keenan, United States District Judge

OPINION & ORDER

Plaintiff U2 Home Entertainment Corp. ("U2 Home" or "Plaintiff"), the exclusive United States distributor of certain Chinese-language television programs produced in Asia, has brought this action for copyright and trademark infringement against Defendants Hong Wei International Trading, Inc. ("Hong Wei") and Jixong Ni ("Ni", and collectively, the "Defendants"), the operators of a Manhattan retail video store, for renting out unlawfully duplicated copies of U2 Home's programs. U2 Home now moves for summary judgment on its copyright claim and dismissal of Defendants' counterclaim for deceptive business practices. For the reasons that follow, U2 Home's motion is granted.

BACKGROUND

The Parties

Plaintiff U2 Home is a California company, doing business under the names Century Home Entertainment, New Image Audio and Video, and Tai Seng Entertainment (formerly known as Tai Seng Marketing). U2 Home is in the business of licensing and distributing Chinese-language films and television programs on videotape, digital versatile discs ("DVDs"), and video compact discs ("VCDs"). U2 Home has exclusive authority in the United States to import, reproduce and distribute a series of Chinese soap operas that are produced in Hong Kong and that encompass numerous titles (the "TVB Series").

Defendant Hong Wei was a New York corporation, and Defendant Ni was its sole principal. Defendants operated a video store at 32 East Broadway, in Manhattan, that sold and rented Chinese-language films and television programs to its retail customers. On December 8, 2005, the Hong Wei store ceased activity, and the business was transferred to HWV Corp., a company that is not a party to this action.

The Prior Action

This is the second time that U2 Home has sued Defendants for unlawful duplication of U2 Home's videoprograms. On July 24, 2002, Plaintiff brought a lawsuit against Defendants in this Court, asserting claims of trademark and copyright infringement on the ground that Defendants were unlawfully duplicating and distributing copies of the TVB Series. See U2 Home Entertainment, Inc. v. Hong Wei International Trading, Inc. et al., No. 02 Civ. 5828 (JFK) (S.D.N.Y.) (the "Prior Action"). Evidence of Defendants' unauthorized copying included 1,769 illegally copied VCDs, representing twenty-three separately copyrighted titles of the TVB Series, that United States Marshals seized from the Hong Wei store. The case proceeded to a bench trial. In the pre-trial order, Defendants stipulated that U2 Home held exclusive rights to a number of separately registered works in the TVB Series. During the bench trial, Defendants admitted that they had copied DVDs of the TVB Series onto their own VCDs.

After the trial had concluded, but before the Court decided the case, the parties reached a "Settlement Agreement." The Settlement Agreement provided that Defendants would pay $100,000 to Plaintiff; consent to the entry of a Court-ordered permanent injunction prohibiting Defendants from further acts of unlawful copying and distribution of U2 Home's programs; and enter into a non-exclusive sublicensing agreement.

On November 21, 2003, the parties executed a "Sublicensing Agreement," pursuant to which Defendants were granted a non-exclusive license to purchase copies of the TVB Series programs from U2 Home and rent those programs to their retail customers. (Aff. of Harvey Shapiro in Support of Mot. for Summary Judgment ("Shapiro Aff."), Ex. C. at 0214.) Under the section entitled "Rights and Obligations of Sublicensee," Defendants represented that

(a) Sublicensee has no rights to and shall not copy or permit or permit to be copied any of the TVB Programs licensed hereunder or any part thereof.

(b) Sublicensee shall not sell any TVB Videograms supplied. (Id. Ex. C.at 0215.) The Sublicensing Agreement included a schedule that set forth, among other things, the fees that Defendants were required to pay to U2 Home, as well as the minimum purchases of TVB Series programs that Defendants were required to make ("Schedule A"). Specifically, Schedule A provided that, from December 1, 2003 to November 30, 2004, Defendants would pay Plaintiff a fee of $100,000, and receive in return a total of 14,800 sets of DVDs of the TVB Series programs. (Id. Ex C. at 0212.) Defendants had the right to purchase additional DVDs of the TVB Series for $6.76 each. Schedule A also contained a paragraph entitled "VCD Minimum Order," which stated that Defendants "shall purchase a minimum of 0 set(s) of each VCD released during the Term." (Id. Ex C. at 0213, ¶ 7.)

On December 31, 2003, the Court-ordered permanent injunction was filed, pursuant to the parties' consent (the "Permanent Injunction"). Under the Permanent Injunction, Defendants were "permanently enjoined and restrained" from:

(a) Infringing Plaintiff's exclusive rights under copyright in the motion pictures duly copyrighted by Plaintiff or in which Plaintiff owns exclusive distribution rights;

(b) Importing, manufacturing, copying, duplicating, or knowingly selling, renting, distributing performing or otherwise disposing of any unauthorized videocassette or videodisc copies of the [TVB Series] . . . . (Id. Ex. B.)

After the execution of the Sublicensing Agreement and the entry of the Permanent Injunction, Defendants continued to distribute unlawfully duplicated VCD copies of U2 Home's TVB Series DVDs. U2 Home learned of the continuing infringement and, on April 13, 2004, sent Defendants a cease-and-desist letter, that was addressed to Jixong Ni and that Ni subsequently admitted to having received and understood. Defendants did not respond to the letter. U2 Home subsequently sent undercover agents to the Hong Wei store, where the agents purchased a total of 91 VCDs containing unlawfully copied episodes of eight separately copyrighted TVB Series titles.*fn1 The Contempt Proceedings

On September 28, 2004, U2 Home moved by order to show cause to hold Defendants in contempt for their violation of the Permanent Injunction. The Court held a contempt hearing over several days in December 2004 and January 2005, during which Jixong Ni and Alan Huie ("Huie"), U2 Home's general counsel, among others, testified. On May 3, 2005, the Court issued its Findings of Fact and Conclusions of Law. See U2 Home Entm't, Inc. v. Hong Wei Int'l Trading, Inc., No. 02 Civ. 5828 (JFK), 2005 U.S. Dist. LEXIS 14790 (S.D.N.Y. May 3, 2005) (the "Contempt Order").

In the Contempt Order, the Court found that the terms of the Permanent Injunction were clear and unambiguous and that Jixong Ni, as the Defendants' principal, was aware of his obligations under the settlement agreement, including the Permanent Injunction. The Court further found that, on the basis of copyright registrations submitted by Plaintiff for the eight TVB Series titles that encompassed the 91 VCDs that were purchased from the Hong Wei store, as well as the parties' stipulation in the pre-trial order, Plaintiff was the exclusive owner of copyright in the "Subject TVB Programs." Id. at *6. In addition, the Court found that no authorized VCD versions of any of the TVB Series titles governed by the Sublicensing Agreement had ever been supplied to the Defendants. The 91 VCDs at issue were on plain, silver discs and contained handwritten inventory numbers. As Huie testified, U2 Home had never provided these VCDs, or VCD versions of any TVB Series programs, to the Defendants. The Court credited Huie's testimony, stating that "Plaintiff did not provide Hong Wei any VCD copies of the TVB Programs provided under the TVB Sublicense. As U2's general counsel Alan Huie testified, there are no authorized VCD copies of recent TVB Programs." Id. at *8. Thus, the Court concluded that the VCDs that Plaintiff's undercover agents purchased had been unlawfully copied from the DVDs that Plaintiff had supplied to Defendants under the Sublicensing Agreement. Further, the Court held that the act of selling the VCDs also violated the Sublicensing Agreement because, under the agreement, Defendants were permitted only to rent, and not to sell, the TVB Series programs to their customers. As the Court stated, "Mr. Ni could not rent or sell these VCDs without infringing Plaintiff's copyright and violating the injunction." Id. at *12 (emphasis in original). In sum, the Court determined that U2 Home had established not only clear and convincing evidence of Defendants' noncompliance with the Permanent Injunction, but "noncompliance beyond any doubt." Id. at *18. Accordingly, the Court held Defendants in contempt of the Permanent Injunction and ultimately imposed sanctions of $52,929.92. Defendants filed an appeal from the contempt judgment, but the appeal was dismissed as untimely. See Prior Action, Mandate of Second Circuit, Mar. 6, 2007 (Doc. No. 43).

The Present Action

On August 10, 2004, Plaintiff filed the present lawsuit, asserting claims for copyright infringement under the Copyright Act, 17 U.S.C. §§ 501 et seq., and trademark infringement under the Lanham Act, 15 U.S.C. §§ 1114 and 1125(a). U2 Home sought the issuance of another permanent injunction, impoundment of infringing materials, and an award of statutory damages for each instance of infringement, as well as costs and attorneys' fees. In an amended answer to the complaint, Defendants asserted a counterclaim in which they alleged that U2 Home was culpable of deceptive business practices under Section 349 of New York's General Business Law, for misleading Defendants into believing that Tai Seng was a division of U2 Home when, in fact, Tai Seng was merely one of several "doing business as" names used by U2 Home.

Following the resolution of the contempt proceedings in the Prior Action, fact discovery proceeded in this case.*fn2 During discovery, Defendants produced several hundred rental cards that were routinely used in the course of Hong Wei's business. The rental cards, and the manner in which Hong Wei maintained its rental records, were discussed by Ni during his testimony at the contempt hearing. A rental card was filled out by Defendants each time a customer rented a TVB Series title from the Hong Wei store. The rental card contained the date of the rental, the title and inventory number of the TVB Series title, the customer's store membership number, and the number of episodes contained on the disc rented by the customer. If the rental was for a TVB Series work that was on DVD, the letters "DVD" were listed on the rental card. If the rental listing did not include the "DVD" notation, the rental was of a VCD.*fn3

U2 Home analyzed cards that listed rentals of TVB Series programs from December 31, 2003 (the date of the filing of the Permanent Injunction) to December 8, 2005 (the date on which the Hong Wei store ceased operation) (the "Relevant Period"). Plaintiff tallied the number of separately copyrighted TVB Series works that were rented out in VCD format to Hong Wei's customers during the Relevant Period.*fn4 U2 Home has submitted a schedule of TVB Series titles that were rented out by the Hong Wei store during the Relevant Period (the "Amended Schedule"). (See Supplemental Aff. of Harvey Shapiro in Further Support of Pl. Mot. for Summary Judgment ("Shapiro Supp. Aff."), Ex. G ). The Amended Schedule lists 70 separately copyrighted titles of the TVB Series, comprising a total of 1,236 separate episodes.*fn5 Plaintiff has produced copyright registrations for each of the 70 titles at issue, as well as documents demonstrating the valid chain of title for those works. (See Huie Aff., Exs. A-C.) Plaintiff's valid exclusive ownership of copyright for each of the 70 TVB Series works is uncontested.

U2 Home contends that the undisputed evidence establishes that each rental of a VCD version of a TVB Series work during the Relevant Period constituted a violation of U2 Home's copyright. U2 Home has submitted the affidavit of Huie, who states here, as he stated at the contempt hearing, that "U2 Home does not distribute copies of the new TVB Series releases in VCD format but only in digital versatile disc ('DVD') format," and that "no store has ever been authorized to duplicate copies of the TVB Series." (Alan T. Huie Aff. in Support of Plaintiff's Mot. for Summary Judgment ("Huie Aff.") ¶ 21.) Thus, the "VCDs distributed by Hong Wei are illegally duplicated and in violation of U2 home's rights under copyright." (Id.)

Defendants do not affirmatively claim or offer any evidence to show that the 70 TVB Series titles listed in the Amended Schedule were ever supplied to them in authorized VCD format. Rather, Defendants have submitted evidence, consisting of shipping invoices, dated July 29, 1998 to July 5, 2002, to show that, prior to the execution of the 2003 Sublicensing Agreement, they received certain titles of Plaintiff's videoprograms in authorized VCD format. (See Decl. of Jixong Ni in Opp. To Pl. Mot. for Summary Judgment ("Ni Decl."), Ex. G.) In addition, Defendants have submitted a letter, dated December 6, 2005, written by U2 Home's sales manager, Cindy Ng ("Ng") to HWV Corp., shortly before the transfer or sale of the Hong Wei store, in which Ng states that "[a]ccording to our records, 29,293 TVB program DVD and VCD discs were supplied to Hong Wei Company." (Ni Decl., Ex. C, at 00084.) Defendants also offer the affidavit of Ni, who states that, beginning in 1998, an oral agreement arose between Defendants and U2 Home. Under this agreement, Ni states that in return for the payment of a monthly fee of $2,000, Defendants were authorized by U2 Home to sell and/or rent U2 Home's programs in both DVD and VCD format. Ni asserts that this arrangement continued until December 2005, when the Hong Wei store was transferred to HWV Corp. Ni also asserts that "[b]etween 1998 and 2002, Cindy [Ng] had always assured me that, as long as Hong Wei made a monthly purchase of its video programs, her company would not take any legal action against Hong Wei for renting out these video programs." (Ni Decl. ¶ 16.) Defendants also point to a provision of the Sublicensing Agreement that purportedly raises an issue of fact about whether Defendants were actually authorized to distribute VCD versions of the TVB Series programs and a release-and-waiver clause in the Settlement Agreement that purportedly bars U2 Home from now asserting a claim of copyright infringement with respect to a number of the titles listed on the Amended Schedule.

U2 Home seeks summary judgment in favor of its copyright claim and an award of statutory damages of $750 per incident of infringement.*fn6 U2 Home contends that each of the 1,236 episodes on the unlawfully duplicated VCDs that were rented to Hong Wei's customers during the relevant period constituted an incident of infringement. Accordingly, U2 Home seeks damages in the amount of $927,000. In addition, U2 Home requests reasonable attorneys' fees and costs, as permitted under the Copyright Act. Finally, Plaintiff seeks summary judgment dismissing Defendant's deceptive practices counterclaim under New York General Business Law § 349, on the ground that Defendants have produced no evidence and thus raised no issue of triable fact as to whether Plaintiff's use of the "Tai Seng" name was a deceptive practice within the meaning of Section 349.

ANALYSIS

Summary Judgment ...


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