The Hangover II Injunction Denied

By Jay Lewis

S. Victor Whitmill v. Warner Bros. Entertainment, Inc., 4:11-cv-752 (E.D. Mo. 2011)

Plaintiff S. Victor Whitmill (“Whitmill”) is the tattoo artist who inked Mike Tyson’s face.  Whitmill sought a preliminary injunction against Warner Brothers Entertainment (“Defendant”) to enjoin the release of “The Hangover II.”  Actor Ed Helms sports an identical tattoo in the film which Whitmill believes infringes on his copyright. Missouri Eastern District Court Judge Catherine D. Perry orally denied Whitmill’s preliminary injunction at the hearing and issued a short one page order.

To obtain a preliminary injunction, the movant must show likelihood of success on the merits, irreparable harm, the balance of equities weighs in favor of the movant, and an injunction is in the public interest.  Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008). 

To be successful on the merits, Whitmill needed to demonstrate he had a valid copyright and the Defendant copied the protected work. See Plaintiff’s Memorandum in Support of his Motion for Preliminary Injunction, p 5, citing, Rottlund Co. v Pinnacle Corp., 452 F. 3d 726 (8th Cir. 2006).  Based on the facts set forth in the Plaintiff’s Memorandum, Whitmill demonstrated both a copyright and an unauthorized copy.  Plaintiff’s Memo, p 5-7. However, according to the Memorandum in Opposition to Plaintiff’s Motion for Preliminary Injunction, seen here, “[t]here are no reported cases addressing the copyrightability of tattoos.” (Memo in Opposition, p. 12).  Regardless, the Judge found a copyright, stating:

Of course tattoos can be copyrighted. I don’t think there is any reasonable dispute about that. They are not copyrighting Mr. Tyson’s face, or restricting Mr. Tyson’s use of his own face, as the defendant argues, or saying that someone who has a tattoo can’t remove the tattoo or change it, but the tattoo itself and the design itself can be copyrighted, and I think it’s entirely consistent with the copyright law.

NY Times, quoting Judge Perry.

The Defendant, in its Memorandum, offered several defenses to Whitmill’s copyright infringement claim. (Memo in Opposition, pp. 18-19).  The Defendant argued that displaying Tyson’s tattoo on a character in the film constituted Fair Use: 

[T]he fair use of a copyrighted work…for purposes such as criticism, comment…is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include — 

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

17 U.S.C. § 107.

Judge Perry rejected the Fair Use argument, stating, “This use of the tattoo did not comment on the artist’s work or have any critical bearing on the original composition. There was no change to this tattoo or any parody of the tattoo itself. Any other facial tattoo would have worked as well to serve the plot device.” NY Times.

The next factor, irreparable harm, is presumed if movant has established the likelihood of success on the merits in a copyright infringement case according to Plaintiff’s Memorandum which cites West Pub. Co. v. Mead Data Central, Inc., 799 F.2d 1219, 1229 (8th Cir. 1986); DF Inst. Inc. v. Marketshare EDS, 84 USPQ 2d 1206, 1212 (D. Minn. 2007).  (Plaintiff’s Memo, page 8).  Based upon the Judge’s statements that a copyright exists and the Defendant infringed upon it, supra, irreparable harm was presumed in this case.

Although Whitmill showed a likelihood of success on the merits and irreparable harm, the balance of harms and public interest tipped too sharply in favor of the Defendant. The Defendant and its partners had invested hundreds of millions of dollars into producing, marketing and distributing the film.  An injunction preventing the opening would have cost the Defendant millions in box office revenues over the Memorial Day weekend.  Additionally, the Defendant argued that a substantial likelihood existed that a delay in the release of the film would create a black market of pirated DVDs based upon the prints that already had been shipped to theaters around the country. (Memo in Opposition, pp. 36-40).

Judge Perry agreed with the Defendant:

The public interest does favor protecting the thousands of other business people in the country as well as Warner Brothers, and not causing those nonparties to lose money, and I think it would be significant, and I think it would be disruptive. I think that tilts the public interest in favor of Warner Brothers on this because all over the country people would be losing money if I were to enjoin this movie.

NY Times.

The Hangover II was released in theaters as scheduled.  It reportedly grossed $86 million over the weekend and $137 million since its release breaking previous box-office records for an R-rated comedy. LA Times.

Verizon Litigation

 By Jay Lewis

Part III

 

After finding that Verizon had met all the four factors, the Court turned to the Defendants’ arguments:

  1. Mootness of Injunctive Relief
  2. Dormant Commerce Clause
  3. Primary Jurisdiction Doctrine
  4. Unclean Hands

The Court found that each of the Defendants’ arguments failed.  The Defendants argued that the injunctive relief was moot because Verizon already shut them out of the network therefore an injunction was irrelevant.  However, the Defendants had been shut out once before but were again on the network violating the MMA Best Practices.  The Court held that if Defendants were not enjoined, they could legally attempt to regain access again and again.

The Dormant Commerce Clause invalidates state regulation if it excessively burdens interstate commerce.  The Court found the Defendants did not make a showing that the ACFA discriminates against out-of-state commerce or that the burdens imposed by the ACFA are excessive in light of the local benefits.

Under the primary jurisdiction doctrine, the Defendants argued that the Court could not decide the standards to apply in this case as the industry is regulated by the Federal Communications Commission and the Federal Trade Commission.  The Court countered by stating the MMA Best Practices applied because the Defendants contractually agreed to those standards.

The defense of unclean hands is an equitable remedy whereby the asserting party must prove inequitable conduct by the opposing party.  Defendants alleged that Verizon misrepresented Defendants’ web pages to the Court, released false press releases, misrepresented business practices to the Texas Attorney General, and alleged that the Defendants’ corporate structure was rife with criminal conspiracy while Verizon maintained a complicated corporate structure.  The Court found Verizon’s conduct did not rise to the level of fraud nor was its conduct false or misleading.

The Court granted Verizon’s request for preliminary injunction effective upon payment of a relatively token $25,000 bond.

 

Verizon Litigation

By Jay Lewis

 Part II

Verizon filed a motion for preliminary injunction based on Defendants’ deceptive acts, which induced customers to purchase non-compliant premium services.  Verizon also claimed that the customers, in turn, threatened to leave the Verizon network because of Defendants’ actions.  The Court granted Verizon’s motion for a preliminary injunction after conducting a hearing. 

The Court cited Winter v. Natural Res. Def. Council, 555 U.S. 7 (2008) for the general factors a plaintiff must show to obtain a preliminary injunction:

  1. A likelihood of success on the merits of the legal claim,
  2. Irreparable harm in the absence of preliminary relief,
  3. The balance of equities tips in the favor plaintiff’s favor, and
  4. The relief is in the public interest.

The Court further cited Alliance for Wild Rockies v. Cottrell, 622 F.3d 1045 (9th Cir. 2010) for the 9th Circuit sliding scale balancing test.  Under this 9th Circuit test, if the balance of hardships tips sharply in the plaintiff’s favor, likelihood of success on the merits becomes less of a factor to consider. Alliance, 1049-53.

Verizon based its request for preliminary injunction on three legal bases:

  1. Arizona Consumer Fraud Act (“ACFA”),
  2. Tortious Interference with Contract, and
  3. Unjust Enrichment.

ACFA, the Court decided, did not apply in this case.  AFCA protects the merchant-consumer relationship.  It provides a means for consumers to bring an action against merchants for deceptive or fraudulent practices.  Here, Verizon was not a purchaser of Defendants services but merely a conduit to the customers.  Therefore, Verizon would not likely succeed on the merits of its AFCA claim.

The Court held that Verizon would likely succeed on the merits of its claim for tortious interference with contractual relations.  The Court affirmatively stated that, under Arizona law, a civil defendant can be held liable for tortious interference with contractual relations if the interference made the plaintiff’s compliance with a contract more expensive. This is an extension of Arizona precedent where the facts of previous tortious interference cases indicate the contract ended in breach or termination.  In Verizon’s case, the Court applies Restatement (Second) of Torts §767 (1979) which punishes tortious actions that merely burden the plaintiff’s performance on an existing contract.  The fact that Verizon paid reimbursement fees to retain customers and monitoring fees to prevent continued deception met the criteria set forth in §767.

The Court found that Verizon’s theory for unjust enrichment would not likely succeed on the merits.  Specifically, Verizon did not suffer the required impoverishment.  In fact, Verizon gained an estimated $24 million from Defendants’ actions.

After determining that Verizon has a likelihood of success on the merits for tortious interference, the Court found the three other factors of a preliminary injunction had been met:

  • Verizon would suffer irreparable harm to its business reputation if Defendants were allowed to continue deceiving customers; damage to goodwill constituted irreparable harm.
  • The balance of harms tipped in Verizon’s favor as Verizon has an interest in protecting its customer relationships and Defendants have no legitimate interest in accessing the network through deceptive means. 
  • The public interest in this matter is to protect contractual relationships from exploitation through improper means.

 Part III shall discuss the Defendants' arguments.

 

Verizon Litigation

Written by Jay Lewis

Cellco Partnership d/b/a Verizon Wireless v. Jason Hope, et al., CV11-0432-PHX-DGC (D. Ariz. 2011)

In the United Stated District Court for the District of Arizona, Verizon Wireless (“Verizon”) filed a complaint and motion for preliminary injunction against Jason Hope, Wayne Destefano, and Eye Level Holdings, LLC, d/b/a JAWA (“Defendants”) to prevent ongoing deceptive practices. The court granted Verizon’s motion.  The facts are as follows:

Verizon operates a wireless telephone network.  Defendants market and sell premium short message service (“PSMS”) on Verizon’s network.  PSMS sends content to the user’s wireless device such as ring tones, horoscopes, recipes, celebrity gossip and news alerts for a standard monthly fee.  The fee appears on the customer’s Verizon bill.

Verizon requires that companies who seek access to Verizon’s customers comply with guidelines for marketing practices developed by the Mobile Marketing Association (“MMA Best Practices”).  Under the guidelines, content providers like the Defendants, must submit details of their marketing and sales programs to Verizon through a third-party, known as an aggregator.  Once approved, the content provider can begin to provide services like PSMS on the Verizon network.  After the services begin, Verizon uses a third-party auditor, Aegis, to ensure that the provider is not violating the MMA Best Practices.

Previous to this lawsuit, the Defendants had been suspended from the Verizon network for violating the MMA Best Practices.  As a result of the suspension, Verizon required Defendants to identify themselves as Hope and Destefano when submitting a marketing and sales plan to the aggregator.  Instead, the Defendants set up separate limited liability companies in the names of other employees with principal places of business at various UPS stores throughout the country. This was a ploy to prevent Verizon from associating the LLCs and their applications for network access with the named Defendants.  The Defendants were successful in regaining access to the Verizon network and its customers.

Defendants sell their services through their websites.  A customer will visit one of Defendants’ websites and enter information to sign up for the premium services.  Verizon requires these websites to be MMA Best Practices compliant.  This includes details on price, terms, conditions, cancellation policy, as well as requirements for font size and font color.  The MMA Best Practices also requires that certain disclosures appear on the first page of the site.  The third-party auditor, Aegis, monitors the sites for compliance.

At first, the Defendants operated websites that were MMA Best Practices compliant. However, they soon began dropping prices from the site, reducing font size, failing to provide termination information, and removing terms and conditions from the first page.  In order to avoid detection, Defendants used either a firewall or cloaking software to prevent Aegis from viewing the non-compliant landing pages.  When an Aegis auditor attempted to review the Defendants non-compliant website, the software would detect the auditor’s Internet Protocol address and redirect that auditor to a compliant site.

Aegis and Verizon eventually caught on to Defendants’ actions and barred them from the Verizon network.  Verizon also took remedial steps in satisfying customer complaints by refunding subscription fees and increasing the costs of monitoring the Defendants’ actions.

PART II will discuss the legal aspects of this case.

Chinese Telecom Wins Injunction Against Rival

By: Jay Lewis

On the international front, Chinese telecom equipment supplier, Huawei, has won another battle in the intellectual property war against its rivals.  On May 12, 2011, a German court awarded Huawei with an injunction preventing ZTE from using a trademark designed by Huawei.  The trademark was used to signify compliance with European environmental standards.  Full article here.  ZTE has filed patent infringement cases against Huawei and has applied to have Huawei's trademark revoked.

Back in February, Huawei had been successful in winning an injunction against Motorola who was on the verge of selling assets to Nokia Siemens.  Huawei had provided competitive trade secrets to Motorola when helping develop and design communication networks.  The court ruled that Huawei would suffer irreperable harm if Motorola was allowed to sell assets to Nokia.  Article here.  Huawei later settled the dispute for an undisclosed amount which cleared the way for the Motorola-Nokia deal.

 

 

 

 

Avisena, Inc, v. Santalo, Case No. 3D10-178 (Fla. 3d DCA 2011)

By: Jay Lewis

On September 15, 2008, Alberto C. Santalo was terminated by Avisena, Inc., a Florida corporation. On September 16, 2009, Santalo’s newly formed business, CareCloud, began to compete with Avisena. Santalo had been the founder, president and chief executive officer of Avisena before his termination. Avisena filed a complaint and request for a temporary injunction claiming that Santalo was violating the non-compete clause of his employment contract. The employment contract included a post-employment restrictive convenant with time restrictions dependent on how his employment was terminated. If the Santalo was terminated for cause, he could not compete for 18 months. If the he was terminated without cause, Santalo could not compete for one year. Finally, if Santalo terminated his own employment without cause, he could not compete for a period of two years. Although the parties stipulated that Santalo was terminated by the company without cause, Avisena requested that the two-year restriction be placed on Santalo.

In the preliminary hearing, Santalo testified that he formed CareCloud in January, 2009, but he did not begin to compete with Avisena until after the twelve-month restriction had expired. Avisena argued the two-year, not the twelve-month, non-compete applied. The trial court agreed with Santalo’s interpretation of the contract and refused Avisena’s request for a preliminary injunction. Avisena appealed.

Florida law requires a party seeking a temporary injunction to establish all four of the traditional elements: (1) a likelihood of irreparable harm and the unavailability of an adequate remedy at law; (2) a substantial likelihood of success on the merits; (3) the threatened injury to the petitioner outweighs any possible harm to the respondent, and (4) the granting of a temporary injunction will not disserve the public interest. The burden of persuasion rests on the applicant. See Cordis Corp. v. Prooslin, 482 So. 2d at 489, 490 (Fla. 3d DCA 1986).

The appellate court affirmed the lower court’s finding that Avisena had failed to prove a substantial likelihood of success on the merits. The appellate court interpreted the underlying employment contract to provide for a twelve-month non-competition period following a termination by the company without cause. Avisena asserted the applicable restrictive clause states, "Employee shall not for a period of two (2) years during the period of time immediately following the Employee's termination of employment with the company [compete with the company]” However, the court highlighted the language “...Employee’s termination of employment…” and interpreted it to mean that if the employee decided to terminate his own employment, only then will a two-year restriction apply. But because the Avisena had stipulated that it had terminated Santalo without cause, the court determined a one year restriction applied.

Additionally, the appellate court found no evidence that Santalo had violated the clause by soliciting Avisena’s customers or employees prior to the expiration of the one-year restriction. The court cited Harllee v. Professional Serv. Indus., Inc., 619 So.2d 298 (Fla. 3d DCA 1992) which held that “mere preparation to open a competing business, such as assisting in the opening of a bank account, the obtaining of office space and other services with respect to the future employer are insufficient to demonstrate a breach.”

The dissent argued that the majority is “read[ing] language into the parties' agreement that simply is not there.” The dissent further asserted that in the case of ambiguity in contract interpretation, extrinsic evidence should be considered so as to do justice to the contracting parties’ intent. The dissent pointed to Avisena’s testimony that it was both parties’ intent to have Santalo restricted for two years after termination. Santalo did not recall any such conversation. The dissenting justice argued that if an individual does not recall an event it does not mean that the event did not happen and therefore the majority should have looked to parole evidence to make its decision.

The Weinstein Company Crow-ing over Distribution Rights, Part II

A preliminary matter likely to be raised in Relativity’s Response, as was raised in Ms. Genis’ letter, is whether the Superior Court of the State of California will entertain a motion for a preliminary injunction despite an arbitration clause in the Contract.  Ms. Genis states that the arbitration clause “sets forth the arbitration forum, rules, and appeal process.”  But without further examination of the terms, we cannot be certain whether the clause is applicable in this situation.  

However, the location of the claim can be a key indicator as to whether a Court will grant a preliminary injunction.  The Ninth Circuit has held that even though a dispute is arbitrable, that does not foreclose the right of preliminary relief pending arbitration if the elements for an injunction are met. (See PMS Distrib. Co. v. Huber & Suhner, A.G., 863 F. 2d 639, (9th Cir. 1988). 

Therefore, the Court may grant a preliminary injunction to preserve the status quo if it finds that the elements are met.  From Ms. Genis' letter, the underlying Contract and the possible breaches smacks of a need for full scale arbitration.  As such, TWC desires an injunction to prevent Relativity from causing irrevocable harm to TWC's distribution rights while the matter is sorted out in arbitration.

We will report back when more information becomes available.