Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-05597/USCOURTS-cand-4_06-cv-05597-2/pdf.json

Nature of Suit Code: 820
Nature of Suit: Copyright
Cause of Action: 28:1338 Copyright Infringement

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RIVERDEEP INTERACTIVE LEARNING, LTD.,

an Irish Company; RIVERDEEP, INC., a

Delaware Limited Liability Company,

Plaintiffs,

v.

MPS MULTIMEDIA, INC., a California

Corporation; EDGAR CHEN; and

SELECTSOFT PUBLISHING,

Defendants.

 /

No. C 06-5597 CW

ORDER DENYING

PLAINTIFFS'

APPLICATION FOR

TEMPORARY

RESTRAINING

ORDER, AND

GRANTING

EXPEDITED

DISCOVERY AND

PRESERVATION OF

DOCUMENTS

Plaintiffs Riverdeep Interactive Learning, Ltd. (RIL) and its

United States affiliate Riverdeep, Inc. (collectively, Plaintiffs)

move for a temporary restraining order. In addition, they request

that the Court order expedited discovery and document preservation. 

Defendants MPS Multimedia, Inc., d/b/a Selectsoft Publishing (MPS),

and Edward Chen (collectively, Defendants) oppose Plaintiffs'

application. The matter was submitted on the papers. Having

considered the parties' papers, the Court grants Plaintiffs'

request for expedited discovery and document preservation, but it

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denies Plaintiffs' request for a temporary restraining order.

BACKGROUND

Riverdeep and MPS are United States educational software

publishers. In 2001, MPS and Riverdeep's predecessor entered into

a licensing agreement permitting MPS to replicate and distribute

certain children's educational software, including a variety of

"Carmen San Diego" and "Reader Rabbit" titles. That agreement has

been amended and renewed many times. RIL is Riverdeep's indirect

corporate parent and owns the registered copyrights for much of the

software licensed by Riverdeep to MPS under the agreement. RIL

granted Riverdeep license and sub-license rights in its software.

The trademarks for the licensed software are owned by both RIL and

Riverdeep. 

Under the licensing agreement, MPS agreed to pay a fixed

guaranteed license fee plus a per unit license fee calculated on

the number of units it produced. MPS was required to send a

quarterly report showing sales, the number of copies of each

product manufactured by MPS and the calculation of the royalties

for the proceeding quarter. In addition, the agreement required

that MPS permit Riverdeep specific inspection rights to assure

proper computation of royalty payments. 

The agreement permitted MPS to distribute software to the

"Non-mainstream Retail Channel," which included independent

retailers, but excluded "big box" stores and schools. Among MPS'

customers were Software Outlet and Most Significant Bits, which

sold software through their own "brick and mortar" retail stores

and mail orders and, later, also through the internet. 

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In February, 2004, Riverdeep and MPS entered into a new

agreement, which included a provision that prohibited MPS from

selling software to any third party that would sell, market or

distribute the software via the internet. According to MPS,

Riverdeep slipped this change in the "authorized sales channel"

language in a draft of an amendment to the agreement, after MPS had

agreed to make the largest prepaid guaranteed license fee in the

parties' history. Defendant Chen, MPS' Vice President, protested

the change; most, if not all, of MPS' customers, including Software

Outlet and Most Significant Bits, now sold products on the

internet. Riverdeep's Vice President, John Bartlett, however,

assured Defendant Chen that Riverdeep would work with MPS in

preserving those customer relationships. An exception to the nointernet-sale provision was added to the February, 2004 agreement,

allowing MPS to continue sales to internet resellers that also had

"brick and mortar" retail stores. Under this exception, MPS could

continue selling software to Software Outlet and Most Significant

Bits. But, if MPS sold Plaintiffs' products to any third party

internet retailer that did not have a brick and mortar retail

store, Riverdeep had the right to terminate the agreement

immediately.

In 2005, Riverdeep sued Software Outlet. Unbeknownst to MPS,

Software Outlet had closed its brick and mortar retail stores in

favor of mail order and internet sales. Defendant Chen states

that, when he learned of the law suit, he asked Mr. Bartlett what

Riverdeep expected of MPS. According to Defendant Chen, Mr.

Bartlett stated that MPS did not have to stop selling Riverdeep

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1Riverdeep alleges that, in addition to selling Riverdeep

products to Software Outlet and Most Significant Bits, MPS was also

selling Riverdeep products to Arcamax and www.nothingbutsoftware. 

According to Riverdeep's investigations, these two internet

retailers sell software exclusively on the internet and do not have

a "brick and mortar location." Defendants do not address these

allegations in their opposition.

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titles to Software Outlet. A year later, however, another

Riverdeep Vice President, Bill Cunningham, approached Mr. Chen and

asked him to stop selling Riverdeep titles to Software Outlet. 

Defendant Chen agreed not to sell Plaintiffs' software to Software

Outlet.

Shortly after MPS informed Software Outlet that MPS could no

longer sell Riverdeep titles to it, Defendant Chen learned that

Riverdeep was settling its lawsuit with Software Outlet. As part

of the settlement, Software Outlet would buy its Riverdeep titles

directly from Riverdeep. Around the same time, Defendant Chen

learned that Mr. Cunningham had approached MPS' customer, Most

Significant Bits, encouraging it to buy direct from Riverdeep,

instead of from MPS.

In May, 2006, after learning that MPS was selling to internet

retailers operating without a brick and mortar retail store,1

Riverdeep sought an audit of MPS' manufacturing and sales. As part

of the audit, Riverdeep demanded that its auditors have access to

MPS' customer lists. MPS refused. According to Riverdeep, MPS'

refusal to allow auditors to see the identity of MPS' customers

thwarted a meaningful independent audit. 

On August 16, 2006, Riverdeep sent a letter to Defendant Chen. 

The letter stated that, because MPS materially breached the

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agreement by distributing Riverdeep products outside authorized

channels and repudiated Riverdeep's audit demand, Riverdeep had no

option but to terminate the agreement. Upon termination for

violation of authorized channels, MPS' rights terminated

immediately; MPS did not have the right to sell off any remaining

inventory. 

Plaintiffs learned that, after the agreement was terminated,

MPS continued to market, sell and distribute Riverdeep products. 

On September 12, 2006, Plaintiffs filed a complaint against MPS,

Defendant Chen and Selectsoft Publishing, alleging breach of the

license agreement, copyright and trademark infringement and other

claims. On September 22, 2006, Plaintiffs filed an application for

a temporary restraining order, seeking to enjoin Defendants'

alleged ongoing infringement of Plaintiffs' copyrights and

trademarks through MPS' marketing and sale of Plaintiffs' software

without a license.

LEGAL STANDARD

A temporary restraining order may be issued only if "immediate

and irreparable injury, loss, or damage will result to the

applicant" if the order does not issue. Fed. R. Civ. P. 65(b). To

obtain a temporary retraining order, the moving party must

establish either: (1) a combination of probable success on the

merits and the possibility of irreparable harm, or (2) that serious

questions regarding the merits exist and the balance of hardships

tips sharply in the moving party's favor. See Rodeo Collection,

Ltd. v. West Seventh, 812 F.2d 1215, 1217 (9th Cir. 1987).

The test for granting a temporary restraining order, like that

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for a preliminary injunction, is a "continuum in which the required

showing of harm varies inversely with the required showing of

meritoriousness." Id. (quoting San Diego Comm. Against

Registration & the Draft v. Governing Bd. of Grossmont Union High

Sch. Dist., 790 F.2d 1471, 1473 n.3 (9th Cir. 1986)). The moving

party ordinarily must show "a significant threat of irreparable

injury," although there is "a sliding scale in which the required

degree of irreparable harm increases as the probability of success

decreases," and vice versa. United States v. Odessa Union

Warehouse Co-op, 833 F.2d 172, 174, 175 (9th Cir. 1987).

DISCUSSION

I. Temporary Restraining Order

Plaintiffs contend that they are likely to prevail on their

copyright and trademark claims. They argue that irreparable harm

is presumed upon a showing of copyright and trademark infringement

and, therefore, this Court should grant their temporary restraining

order. Defendants disagree. They argue that Plaintiffs are not

entitled to a temporary restraining order: Defendants contend that

Plaintiffs are not likely to prevail on the merits and that, in

these circumstances, irreparable harm cannot be presumed. In

addition, they argue that this Court lacks subject matter

jurisdiction. Because subject matter jurisdiction is a threshold

issue which goes to the power of the Court to hear this case, the

Court will address jurisdiction before discussing merits and harm.

A. Subject Matter Jurisdiction

In their complaint, Plaintiffs allege that this Court has

jurisdiction because this case arises under the Copyright Act and

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the Lanham Act. Defendants argue that Plaintiffs' trademark and

copyrights claims are breach of contract claims in disguise and,

therefore, the Court lacks subject matter jurisdiction over this

contract dispute, which is governed by State law.

It is undisputed that federal courts have exclusive

jurisdiction over actions that arise under the federal copyright

laws and original jurisdiction over actions that arise under the

federal trademark law. 28 U.S.C. § 1338. Nonetheless, as

Defendants note, the Ninth Circuit instructs that a case does not

arise under the federal copyright and trademark laws merely because

the subject matter of the action involves or affects a copyright or

trademark. Topolos v. Caldewey, 698 F.2d 991, 993 (9th Cir. 1983)

("the word 'copyright' is not so compelling as to invoke federal

jurisdiction upon its mere mention") (citation omitted); Postal

Instant Press v. Clark, 741 F.2d 256, 258 (9th Cir. 1984). Thus,

district courts have "dismissed complaints in copyright cases that

present only questions of contract law," as well as complaints in

trademark cases that present only questions of contract law. Dolch

v. United California Bank, 702 F.2d 178, 180 (9th Cir. 1983);

Postal Instant Press, 741 F.2d at 258. However, it is not always

evident "whether a case involving interdependent copyright and

contract claims 'arises under' the federal copyright laws for the

purposes of 28 U.S.C. § 1338(a)"; indeed, this is one of the

“'knottiest problems in copyright jurisprudence,'” Scholastic

Entm't, Inc. v. Fox Entm't Group, Inc., 336 F.3d 982, 983 (9th Cir.

2003) (quoting 3 Melville B. Nimmer & David Nimmer, Nimmer on

Copyrights § 12.01[A], at 12-14 (2003)).

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2

Although Plaintiffs establish that there is at least a

reasonable possibility that the Court has jurisdiction based on

RIL's infringement claim, the Court will again consider whether it

has jurisdiction when it rules on Defendants' motion to dismiss,

which was recently filed.

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Plaintiffs do not address any of the above cases that

Defendants cite in their opposition. Instead, Plaintiffs state

that federal courts regularly decide copyright cases that also

involve contractual licensing disputes, a statement that is

undisputed and that fails to respond to Defendants' arguments

regarding jurisdiction. Plaintiffs do, however, cite Vestron Inc.

v. Home Box Office, Inc., 839 F.2d 1380 (9th Cir. 1988). In

Vestron, the Ninth Circuit determined that the district court had

jurisdiction because the plaintiff's complaint made out an

infringement claim and sought remedies expressly created by federal

copyright law. 839 F.3d at 1381-82. Here, the complaint also

makes out an infringement claim by Plaintiff RIL alone against

Defendants MPS and Chen. RIL seeks damages "in an amount to be

determined at trial, including statutory damages against MPS and

Chen for their knowing and willful infringement of RIL's

copyrights." Complaint, ¶ 29. 

Nonetheless, by citing this one case and ignoring the cases

Defendants cite, Plaintiffs have not shown likelihood of success on

the merits of their jurisdictional argument. Plaintiffs have only

established that serious questions regarding the merits exist.2

 

However, the Court notes that the licensing agreement between

Riverdeep and MPS provides that all claims and lawsuits in

connection with the agreement must be brought in a Massachusetts

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3

Plaintiffs' application for a temporary restraining order

states that Riverdeep and RIL are likely to prevail on their

trademark claims. According to the complaint, however, RIL only

brings a claim for copyright infringement; it does not bring a

trademark infringement claim.

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court. In their complaint, Plaintiffs state that RIL is not a

party to the agreement, and thus not bound by that language, and

that Riverdeep "waives" its right to have this dispute adjudicated

in Massachusetts. As Defendants note, however, Plaintiffs cannot

unilaterally change the forum selection clause in the license

agreement. Thus, even if there is federal jurisdiction,

Riverdeep's claims against MPS may be brought in the wrong court

and subject to transfer or dismissal. 

B. Likelihood of Success on the Merits

The parties dispute whether Plaintiffs are likely to succeed

on the merits of their claims. 

To prevail on their copyright and trademark infringement

claims,3

 Plaintiffs must show ownership of a valid copyright and

trademark and that Defendants violated their exclusive rights under

the Copyright Act and the Lanham Act. See Ellison v. Robertson, 

357 F.3d 1072, 1076 (9th Cir. 2004). Plaintiffs note that there is

no dispute regarding their ownership. Nor is there a dispute that

Defendants sold software to internet-only retailers. Defendants do

not deny that they continue to sell licensed software, even after

they received notice of termination of the licensing agreement. 

Instead, Defendants contend that, in light of representations made

by Plaintiffs, they were entitled to sell Plaintiffs' software to

MPS' existing customers. Because Defendants do not respond to

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Plaintiffs' allegations concerning MPS selling software to Arcamax

and www.nothingbutsoftware, it is not known whether these two

companies were existing customers. Plaintiffs argue that

Defendants' subjective beliefs regarding the agreement, based on

alleged assurances by Mr. Barlett, are irrelevant under California

law because the licensing agreement is an integrated agreement. It

is not clear, however, that California law governs the contract. 

The agreement states that "its validity, construction and

performance shall be governed in all respects by the laws of the

Commonwealth of Massachusetts." Regardless of what State law

governs, the Court finds that Plaintiffs have not shown that they

are likely to succeed on the merits; they have shown only that

serious questions exist regarding the merit of their copyright and

trademark infringement claims.

C. Irreparable Harm and Balance of Hardships 

Plaintiffs note that "a presumption of irreparable injury

arises if the plaintiff is able to show a likelihood of success on

the merits of its copyright infringement claim." Cadence Design

Sys., Inc. v. Avant! Corp., 125 F.3d 824, 826-27 (9th Cir. 1997). 

The same presumption arises in trademark infringement cases. 

Nautilus Group, Inc. v. ICON Health and Fitness, Inc., 372 F.3d

1330, 1334 (Fed. Cir. 2004). But, here, Plaintiffs were unable to

show a likelihood of success on the merits of their copyright or

trademark infringement claims. Thus, there is no presumption of

irreparable injury.

Instead, the Court must determine whether the balance of

hardships tips sharply in Plaintiffs' favor. Plaintiffs contend

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that it does because they will suffer actual irreparable harm if

MPS is not enjoined. According to Plaintiffs, Riverdeep has

licensed other parties to distribute its software over the internet

and operates its own internet-based direct-to-consumer website;

therefore, to the extent that MPS continues to represent that it is

an authorized distributor, to copy and to distribute Plaintiffs'

software and to use Plaintiffs' trademarks, MPS' conduct harms

Riverdeep's market, brand name and other distributors. 

MPS disagrees that any such harm to Plaintiffs would be

irreparable. It contends that there is no conceivable harm to

Plaintiffs that cannot be remedied through monetary damages. 

Instead, it focuses on the considerable hardship it would suffer if

the Court granted Plaintiffs' application for a temporary

restraining order. MPS notes that it would be unable to fill

orders from customers and would thereby jeopardize long-term

business relationships; it also notes that it would be stuck with a

considerable inventory for which it has already paid. 

Plaintiffs' argument that the Court should ignore any possible

hardship to Defendants is unpersuasive. In Cadence Design, the

Ninth Circuit instructs that, where the defendant contends that it

will lose profits "from an activity which has been shown likely to

be infringing," the defendant's hardship "merits little equitable

consideration." Cadence Design, 125 F.3d at 830. But, as noted

above, Plaintiffs have not shown that they are likely to succeed on

their claims. Thus, the Court considers Defendants' hardship. 

The Court finds that Plaintiffs do not show that the balance

of hardships tips sharply in their favor. Plaintiffs provide no

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evidence that their brand name, market or other distributers are

harmed by MPS' conduct. Any loss in profits would be compensable

with money damages. 

II. Expedited Discovery and Preservation Order

While Plaintiffs are unable to show that they are entitled to

a temporary restraining order, they may, with additional evidence,

be able to show that they are entitled to a preliminary injunction. 

Plaintiffs seek expedited discovery for their preliminary

injunction motion. In addition, Plaintiffs ask the Court to issue

a document preservation order to require Defendants to preserve any

documents and communications relating to the assignment,

manufacturing, sale, distribution or copying of Plaintiffs'

products.

Courts allow expedited discovery upon a showing of good cause. 

Semitool, Inc. v. Tokyo Electron Am., Inc., 208 F.R.D. 273, 276

(N.D. Cal. 2002) (noting that courts have recognized that good

cause is frequently found in cases involving claims of infringement

and unfair competition). In Semitool, the court explained, "Good

cause may be found where the need for expedited discovery, in

consideration of the administration of justice, outweighs the

prejudice to the responding party." Id. The Court finds that

there is good cause for expedited discovery; such discovery would

allow Plaintiffs to present their motion for preliminary injunction

on a more fully developed record and would assist the Court in

determining whether a preliminary injunction should be granted.

Defendants do not contest a document preservation order.

Although Defendants disagree with Plaintiffs' arguments regarding

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the need for expedited discovery, they are willing to agree that

the parties may propound and respond to discovery in less than the

standard time frame. Defendants seek two weeks to gather the

documents Plaintiffs request. Two weeks is a reasonable amount of

time. 

Defendants, however, state that they will produce certain

responsive documents only if a protective order is in place. 

Specifically, they request that the Court order that any production

of MPS' customers list be made "for attorneys' eyes only." Given

the relationship between the parties, this request is reasonable. 

The Court is not persuaded that designating the customer lists "for

attorneys' eyes" will hamper Plaintiffs' counsel's efforts in

preparing the preliminary injunction motion. Plaintiffs' counsel

can do their own research concerning whether certain of MPS'

customers are internet-only retailers, without a brick and mortar

store. 

The Court orders that any production of MPS' customer lists be

made "for attorneys' eyes only." In addition, although defense

counsel likely has already instructed Defendants regarding document

preservation, the Court orders Defendants to preserve all relevant

documents.

CONCLUSION

For the foregoing reasons, Plaintiff's Application for a

Temporary Restraining Order, Expedited Discovery and Preservation

of Documents (Docket No. 3) is GRANTED IN PART and DENIED IN PART. 

Specifically, the Court denies Plaintiffs' application for a

temporary restraining order, but grants Plaintiffs' request for

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expedited discovery and document preservation. Defendants shall

produce, within two weeks from the date of this order, the

documents requested in Plaintiffs' First Request for Production,

attached to Plaintiffs' proposed order as Exhibit A. The identity

of buyers shall be confidential and "for attorneys' eyes only." In

addition, Defendants are ordered to preserve any documents and

communications relating to the assignment, manufacturing, sale,

distribution or copying of Plaintiffs' software.

IT IS SO ORDERED.

Dated: 10/11/06 

CLAUDIA WILKEN

United States District Judge

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