John Wiley & Sons, Inc. v. Supap Kirtsaeng et al

Filing 15

BRIEF re: 14 Brief ISRAEL DECLARATION. Document filed by Supap Kirtsaeng. (Attachments: # 1 Exhibit Israel aff exh 1, # 2 Exhibit Israel decl exh 2, # 3 Exhibit ISRAEL DECL EXH 3, # 4 Exhibit ISRAEL DECL EXH 4, # 5 Exhibit ISRAEL DECL EXH 5, # 6 Exhibit ISRAEL DECL EXH. 6, # 7 Exhibit ISRAEL DECL EXH. 7)(Israel, Sam)

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ISRAEL DECLARATION EXHIBIT 1

3 of 3 DOCUMENTS
ORIGINAL APPALACHIAN ARTWORKS, INC., Plaintiff, - against - GRANADA
ELECTRONICS, INC., Defendant
No. 85 Civ. 9064 (WCC)
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK
1986 U.S. Dist. LEXIS 29114; 229 U.S.P.Q. (BNA) 54; Copy. L. Rep. (CCH) P25,898;
1986-1 Trade Cas. (CCH) P66,986

February 20, 1986

COUNSEL:
[*1]
WYATT, GERBER, SHOUP,
SCOBEY & BADIE, ESQS., Attorneys for Plaintiff, 261
Madison Avenue, New York, New York 10016,
GERARD F. DUNNE, ESQ., BRUCE N. PROCTOR,
ESQ. Of Counsel, VAUGHAN, PHEARS, ROACH,
DAVIS & MURPHY, ESQS., One Ravinia Drive, Suite
1500, Atlanta, Georgia 30346, WILLIAM H. NEEDLE,
ESQ., The Carnegie Building, Suite 400, 133 Carnegie
Way, N.W., Atlanta, Georgia 30303 Of Counsel.
HAAS, GREENSTEIN, HAUSER, SIMS, COHEN &
GERSTEIN, ESQS., Attorneys for Defendant, 122 East
42nd Street, New York, New York 10168, NOEL W.
HAUSER, ESQ. Of Counsel
OPINION BY: CONNER
OPINION
CONNER. D. J
OPINION AND ORDER
Plaintiff Original Appalachian Artworks, Inc.
("OAA"), the owner of American and foreign copyrights
and trademarks in the phenomenally popular Cabbage
Patch Kids dolls, brought this action against defendant
Granada Electronics, Inc. ("Granada") for alleged copyright and trademark infringement under the Copyright
Act of 1976, 17 U.S.C. §§ 101-810 (1982 & Supp. II
1984), and the Trademark Act of 1946, or Lanham Act,
15 U.S.C. §§ 1051-1127 (1982 & Supp. II 1984). In response, Granada has charged OAA with violations of the
federal antitrust laws and the New York State Donnelly

[*2] Act, N.Y. Gen. Bus. Law § 340 (McKinney 1968 &
Supp. 1986).
This matter is now before the Court on OAA's motion for a preliminary injunction to enjoin Granada from
importing or distributing Cabbage Patch Kids dolls that
have not been authorized for sale in United States, and
on OAA's motion to dismiss Granada's antitrust counterclaims. For the reasons set forth below, OAA's motion
for a preliminary injunction is denied pending a consolidated evidentiary hearing on the motion and an expedited
trial on the merits pursuant to rule 65(a)(2), Fed. R. Civ.
P. OAA's motion to dismiss Granada's counterclaims is
granted.
Background
As noted above, OAA is the owner of certain domestic and foreign copyrights and trademarks in Cabbage Patch Kids dolls. It has licensed Coleco Industries,
Inc. of West Hartford, Connecticut to manufacture and
sell those dolls within the United States. OAA has licensed others outside the United States to manufacture
and sell the dolls under foreign copyrights, but none of
these foreign licensees has permission to export the dolls
to non-licensees in the United States.
One of these foreign licensees is Jesmar, S.A.
("Jesmar"), a Spanish corporation. OAA [*3] has
granted Jesmar a license to manufacture and sell Cabbage Patch Kids dolls in Spain, the Canary Islands, Andorra, and Ceuta Melilla. OAA has not authorized Jesmar to sell dolls outside that territory.
OAA alleges that Granada has imported and distributed within the United States wholesale quantities of the
Cabbage Patch Kids dolls manufactured by Jesmar under

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1986 U.S. Dist. LEXIS 29114, *; 229 U.S.P.Q. (BNA) 54;
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OAA's foreign copyrights. OAA alleges that since it has
never given Granada authority or permission to import or
distribute the copyrighted dolls into the United States,
Granada has infringed OAA's American copyrights and
trademarks.
To appreciate some of the issues before the Court, it
is necessary to understand the unique manner in which
OAA markets Cabbage Patch Kids dolls. According to
OAA, the tremendous appeal of its dolls lies largely in
the fact that the dolls are not merely purchased by the
consumer, but "adopted" by their recipients. OAA's Vice
President for Licensing, Della H. Tolhurst, explains that
when a child receives a Cabbage Patch Kids doll, the
child is provided with a birth certificate and adoption
papers which can be sent to a local address provided with
the doll. When the birth certificate and adoption [*4]
papers are filled out by the purchaser and sent to this
local address, they are returned to the child with the
doll's date of "birth" stamped on them. OAA or its agent
then sends a birthday card to the child on the one-year
anniversary of the doll's adoption. Affidavit of Della H.
Tolhurst dated December 19, 1985, PP 12-13.
Tolhurst avers that Cabbage Patch Kids dolls diverted from abroad are not intended for sale in the
United States, and that the accompanying documentation, including the birth certificate and adoption papers,
is different from that provided with domestic dolls. For
example, she explains the dolls manufactured by Jesmar
come with birth certificates and adoption papers printed
in Spanish, and contain an address outside of the United
States for carrying out the dolls' "adoption." Id. PP 1415. OAA contends that the expectations of Americans
buying foreign Cabbage Patch Kids dolls are frustrated
because they have difficulty getting the dolls adopted,
and that they impute responsibility for their frustration
and disappointment to OAA and its American licensee,
Coleco.
Tolhurst further states that Cabbage Patch Kids dolls
are "in effect the 'engine' [that] pulls [*5] the rest of the
Cabbage Patch Kids line of products," Id. P 17, and contends that if the dolls suffer any loss of reputation with
the American public, OAA's success will suffer irreparable harm. Therefore, OAA seeks a preliminary injunction
restraining Granada from importing or distributing any
foreign Cabbage Patch Kids dolls.
Granada, on the other hand, alleges that OAA's international territorial licensing scheme violates the federal and state antitrust laws. Granada is rather vague
about the respects in which OAA's licensing arrangement
is allegedly unlawful. Indeed, its federal antitrust counterclaims are set forth in just two conclusive paragraphs:

4. Plaintiff has, through the exclusive licensing agreements described in the complaint and the enforcement thereof against
its licensees, and direct and indirect customers of such licensees, divided the markets of the world into exclusive marketing
territories.
5. The acts and conduct of the plaintiff, including the institution and prosecution of this action has impaired, impeded
and prevented competition in the sale and
distribution of "Cabbage Patch Kids
Dolls" throughout the world and in the
United States and in and within [*6] the
State of New York in violation of the provisions of the Federal Anti-Trust Laws, 15
U.S.C. 1 et. seq.

Defendant's Answer PP 5, 6. Granada's state law claim is
pleaded with even less particularity; it appears in this
single sentence: "The acts and conduct of the plaintiff
aforesaid constitute a violation of the New York State
Donnelly Act, General Business Law, §340 et. seq." Defendant's Answer P 7.
Not surprisingly in view of these barbone allegations, OAA has moved to dismiss these antitrust counterclaims on two separate grounds. First, OAA argues that
Granada has failed to provide a "short and plain statement of the claim showing that [it] is entitled to relief" as
required by rule 8(a), Fed. R. Civ. P., and second, it argues that Granada lacks standing to assert these claims
since it has not suffered any "antitrust injury."
Discussion
A. Plaintiff's Motion for a Preliminary Injunction.
The settled law of this circuit is that a preliminary
injunction may be granted only upon a showing of "(a))
irreparable harm and (b) either (1) likelihood of success
on the merits or (2) sufficiently serious questions going
to the merits to make them a fair ground for [*7] litigation and a balance of hardships tipping decidedly toward
the party requesting the preliminary relief.'" Hasbro
Bradley, Inc. v. Sparkle Toys, Inc., No. 85-7302, slip op.
at 672 (2d Cir. Dec. 17, 1985, (quoting Jackson Dairy.
Inc. v. H.P. Hood & Sons. Inc., 596 F.2d 70, 72 (2d Cir.
1979) (per curiam)). The moving party has the burden of
proving each of these elements. Bell & Howell: Mamiya
Co. v. Masel Supply Co., 719 F.2d 42, 45 (2d Cir. 1983);
Robert W. Stark, Jr., Inc. v. New York Stock Exch., Inc.,
466 F.2d 743, 744 (2d Cir. 1972) (per curiam). OAA
contends that it has met this burden with respect to both
its copyright and trademark claims.

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1986 U.S. Dist. LEXIS 29114, *; 229 U.S.P.Q. (BNA) 54;
Copy. L. Rep. (CCH) P25,898; 1986-1 Trade Cas. (CCH) P66,986
Our court of appeals has noted that a showing of irreparable injury is "'[p]erhaps the single most important
prerequisite for the issuance of a preliminary injunction.'" Bell & Howell, 719 F.2d at 45 (quoting 11 C.
Wright & A. Miller, Federal Practice and Procedure §
2948, at 431 (1973)). I have carefully considered OAA's
application, and I cannot say, on the basis of the documentary evidence before me, that OAA has made a sufficient demonstration that it will suffer irreparable harm if
a preliminary injunction [*8] does not issue.
I am aware that irreparable harm may ordinarily be
presumed in a copyright infringement action. Hasbro
Bradley, slip op. at 673; Wainwright Sec., Inc. v. Wall St.
Transcript Corp., 558 F.2d 91, 94 (2d Cir. 1977), cert.
denied, 434 U.S. 1014 (1978); Robert Stigwood Group
Ltd. v. Speber, 457 F.2d 50, 55 (2d Cir. 1972). This is
not, however, the ordinary case. This case is peculiar in
that OAA collects a royalty from Jesmar for every foreign doll that allegedly infringes OAA's American copyrights. Thus, depending on the royalties OAA receives
from Coleco and Jesmar for each doll they produce,
OAA may not suffer any direct monetary harm from
Granada's alleged infringement, let alone an irreparable
one. If Jesmar pays OAA a larger royalty per doll than
Coleco, OAA may even benefit financially from Granada's alleged infringement, even assuming that every
Jesmar doll sold means that one less Coleco doll is sold,
which is not at all apparent on the present record.
Moreover, even if Jesmar pays OAA a lower royalty
per doll than Coleco, and the sale of every Jesmar doll
does result in the loss of a sale of one of the more lucrative Coleco dolls, it is still [*9] not clear that OAA has
suffered irreparable harm. There is nothing in the record
before me that demonstrates that monetary damages
could not compensate OAA for this reduction in royalty
receipts, or that Granada could not pay such damages in
the event it is eventually found liable.
OAA sidesteps these questions and argues, as noted
above, that it will suffer irreparable harm because purchasers of Jesmar Cabbage Patch Kids dolls are unable to
have their dolls "adopted" in the United States and do not
receive birth certificates or adoption records printed in
English. OAA alleges that this leads to consumer dissatisfaction, and may result in a general decline in the popularity and success of its Cabbage Patch Kids dolls and
related products.
I am reluctant to accept this argument solely on the
basis of the present record. First of all, it is apparently
undisputed that, at least in theory, purchasers of Jesmar
dolls can obtain a birth certificate and adoption papers by
writing to the address in Spain that is included with the
dolls. Second, notwithstanding OAA's conclusive claims
to the contrary, it is not clear that American consumers

are dissatisfied with that procedure. OAA does not [*10]
assert that Jesmar dolls are themselves inferior to
Coleco's products. Admittedly, the birth certificate and
adoption papers that accompany the Jesmar dolls are
printed in Spanish and not English, but it is not unimaginable that there may be some additional mystique in
adopting "naturalized" Cabbage Patch Kid dolls from a
distant land. In any event, even if American children
wish to adopt only home-grown dolls, it is not altogether
clear that the purchasers of Jesmar dolls impute to OAA
responsibility for any dissatisfaction or disappointment
they may have in receiving papers printed in Spanish. It
is conceivable that they might feel some ill will toward
Coleco, OAA's American licensee, but even that is not
adequately established by the record.
In short, I am not persuaded that OAA has made a
showing of irreparable harm. There has been no evidentiary hearing on this motion, and all I have before me
now are the untested affidavits of the parties. In view of
the peculiar facts of this case, I do not believe this sparse
paper record is an adequate basis on which to issue an
injunction. However, I likewise cannot determine that
OAA will not suffer irreparable harm if injunctive relief
[*11] is denied. Accordingly, to protect the interests of
both parties, as permitted by rule 65(a)(2), Fed. R. Civ.
P., I will schedule this case for a consolidated evidentiary hearing on the motion and an expedited trial on the
merits to begin Wednesday, February 26, 1986 at 11:00
a.m. in Courtroom 129. 1
1 Of course, it may be useful to Granada's counsel to obtain copies of OAA's royalty agreements
with Jesmar and Coleco so that he can make appropriate inquiries at the consolidated evidentiary
hearing and trial as to whether OAA might suffer
an overall loss of royalties from the importation
of Jesmar dolls. OAA has declined to produce
these documents to Granada's counsel unless he
agrees to sign a stipulation preserving the confidentiality of the agreements. Granada's counsel
has refused to do so. OAA has produced these
documents to the Court for an in camera inspection, and I have determined that the agreements
do contain confidential trade information. Accordingly, if Granada's counsel wishes to acquire
copies of these documents, he must enter into an
appropriate confidentiality agreement with OAA.
B. Plaintiff's Motion to Dismiss Defendant's Counterclaims.
I now turn [*12] to OAA's motion to dismiss Granada's antitrust counterclaims. OAA's first ground for
dismissal, that Granada has failed to set forth its claim in
sufficient detail to satisfy rule 8(a), Fed. R. Civ. P., is

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1986 U.S. Dist. LEXIS 29114, *; 229 U.S.P.Q. (BNA) 54;
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well taken. As noted above, Granada's counterclaims are
pleaded in a very conclusory fashion, and thus fail to
meet the long-standing rule that "'[t]o state a cause of
action under the anti-trust laws, specific facts must be
stated showing that the statutes have been contravened
and that as a consequence injury has resulted to the party
complaining.'" Thurston v. Setab Computer Inst., 48
F.R.D. 134, 135 (S.D.N.Y. 1969) (quoting Reliable
Mach. Works, Inc. v. Furtex Mach. Corp., 11 F.R.D. 525,
526 (S.D.N.Y. 1951)). However, since this defect could
be easily remedied by an amendment, and since Granada
has made its basic argument clear in its motion papers
and in discussions at pretrial conferences, I believe it is
more expeditious to excuse Granada's conclusory pleadings and turn to OAA's second ground for dismissal.

Action Industries, Inc. ("AII"), had acquired Hummel
figures from authorized vendors in Europe and imported
them into this country, by-passing Goebel's authorized
distributors. Goebel alleged that AII's unauthorized importation of the figures infringed Goebel's American
copyrights.

Granada's basic complaint is that OAA's territorial
licensing scheme constitutes a vertical restraint of trade,
eliminating intra-brand competition and artificially [*13]
raising the price of Cabbage Patch Kids dolls in each
territory. See Defendant's Memorandum of Law in Opposition to Motion for Preliminary Injunction and to
Dismiss Antitrust Issues at 11-15. OAA suggests that
even taking these facts as true, Granada has failed to
demonstrate that it has suffered any "antitrust injury,"
and argues that it therefore lacks standing to assert any
antitrust claims.

Like OAA, Goebel moved to dismiss AII's counterclaim on the ground that AII had not suffered an antitrust
injury. Judge Goettel granted the motion, noting that AII
may have actually benefitted from Goebel's allegedly
restrictive trade practices. Id. at 766. He reasoned that it
was the very fact that Goebel had allegedly inflated the
prices of Hummel figures in the United States that made
it possible for AII to purchase the figures in Europe and
undersell the authorized Goebel distributors. "Thus, in
the absence of the complained of practices, AII would
never even have had the financial attraction to import the
Hummel figures." Id.

The Supreme Court has held that in order to assert a
federal antitrust claim, "[p]laintiffs must prove antitrust
injury, which is to say injury of the type the antitrust
laws were intended to prevent and that flows from that
which makes defendants' acts unlawful. The injury
should reflect the anticompetitive effect either of the
violation or of anticompetitive acts made possible by the
violation." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
429 U.S. 477, 489 (1977) (emphasis in original). In other
words, the plaintiff must show more than a mere violation of the antitrust laws; it must also show an injury that
is a direct result of the anticompetitive behavior of the
defendant. New York courts require a plaintiff to make a
similar showing in order to bring an action for a violation
[*14] of the Donnelly Act. See Van Dussen-Storto Motor Inn, Inc. v. Rochester Tel. Corp., 63 A.D.2d 244, 25152, 407 N.Y.S.2d 287, 293 (4th Dep't 1978); Lerner
Stores Corp. v. Parklane Hosiery Co., 86 Misc. 2d 215,
217-19, 381 N.Y.S.2d 968, 969-70 (Sup. Ct. Monroe
County 1976).
On the question of antitrust injury, this case is
analogous to W. Goebel Porzellanfabrik v. Action Indus.,
Inc., 589 F. Supp. 763 (S.D.N.Y. 1984). In that case, the
plaintiff, W. Goebel Porzellanfabrik ("Goebel"), held
American copyrights on ceramic figurines known as
"Hummel figures." Goebel authorized only three American wholesalers to import the figures into the United
States and to distribute them to retailers. The defendant,

As in this case, the defendant counterclaimed against
the plaintiff for alleged violations of the federal antitrust
laws. The thrust of the counterclaim was "that Goebel
was using its copyrights to [*15] limit the quantity of
Hummel figures being imported into this country,
thereby keeping prices artificially high." Id. at 765. AII
alleged that this amounted to misuse of the copyright,
and argued that it stripped Goebel of the antitrust immunity normally extended by the copyright laws. Id.

The same is true in this case. If, as Granada alleges,
OAA's territorial licensing restrictions have artificially
inflated the price of Cabbage Patch Kids dolls, Granada
has been a beneficiary, and not a victim, of that practice.
The allegedly inflated [*16] price of domestic Cabbage
Patch Kids dolls is what makes it economically feasible,
and profitable, for Granada to purchase Jesmar dolls in
Europe and import them into the United States. Accordingly, I conclude that Granada has failed to allege any
injury resulting from OAA's allegedly anticompetitive
practices. Granada therefore lacks standing to assert a
federal or state antitrust claim, and its counterclaims
must be dismissed.
Granada also contends that the institution and prosecution of this infringement action is part of OAA's pattern of anticompetitive conduct. See Defendant's Answer
P 5. However, as Judge Goettel stated in W. Goebel Porzellanfabrik, "[w]here the holder of a valid copyright
brings suit in good faith and based on reasonable
grounds, '[w]hatever other anticompetitive activity the
[copyright holder] may be guilty of, the [copyright laws]
would seem to authorize him to bring such a nonfrivolous suit.'" 589 F. Supp. at 767 (quoting Ansul Co.
v. Uniroyal, Inc., 488 F.2d 872 (2d Cir. 1971), cert. denied, 404 U.S. 1018 (1972)). He explained that "the seeking of governmental action, whether legislative, judicial,

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or administrative, is immune [*17] from antitrust strictures under the Noerr-Pennington Doctrine, absent a
showing that the action is sought without probable cause,
or is instituted in bad faith." Id. (citing Clipper Exxpress
v. Rocky Mountain Motor Bureau, Inc., 674 F.2d 1252,
1262-63 (9th Cir.), modified, 690 F.2d 1240 (9th Cir.
1982), cert. denied, 459 U.S. 1227 (1983)). Granada has
not made any allegation or showing that OAA instituted
this action in bad faith or with any intent to harass. Accordingly, this aspect of Granada's counterclaims must
also be dismissed.

Conclusion
For the reasons set forth above, OAA's motion for a
preliminary injunction is denied pending a consolidated
evidentiary hearing on the motion and an expedited trial
on the merits on Wednesday, February 26, 1986, at 11:00
a.m. in Courtroom 129. OAA's motion to dismiss Granada's federal and state antitrust counterclaims is
granted.