Sega Enterprises Ltd; Sega of America, Inc, Plaintiffs

vs.

Sharon Judith Sabella individually and d/b/a Sharon's Data Systems and The Sewer Line, a business of unknown structure; and a/k/a"Sharon" and "DIRTY SCUM" Defendants

In The United State District Court for the Northern DistrictI of California : No. C 93-04260 CW

ORDER GRANTING SUMMARY JUDGMENT IN PART AND DENYING IT IN PART

Plaintiffs Sega Enterprises, Ltd. and Sega of America, Inc., (collectively "Sega") move for summary judgment for copyright infringement (under 17 U.S.C. §§101 et seq.), federal trademark infringement (under 15 U.S.C. §§1051 et seq.), federal unfair competition and false designation of origin (under 15 U.S.C. §1125(a)), California trade name infringement (under California Business and Professions Code §§14401 et seq.) and California unfair competition (under California Business and Professions Code §§14210, 17200-17203) against Defendant Sharon Sabella individually and d/b/a Sharon's Data Systems, and THE SEWER LINE.[1]

This Court has jurisdiction over the causes of action arising under federal law pursuant to 28 U.S.C. §1338(a), and has jurisdiction over the state causes of action pursuant to 28 U.S.C. §1338(b).

Venue is proper in the federal district court where certain Defendants reside and where the-alleged acts of trademark and copyright infringement occurred. 28 U.S.C. §1391(b) and (c). Venue in the instant suit is proper in the Northern District of California.

After careful consideration of the parties' papers and the record as a whole, and good cause appearing, the Court GRANTS summary judgment regarding Sabella's liability for copyright infringement and California trade name infringement. The Court DENIES summary judgment regarding Sabella's liability for federal trademark infringement, federal unfair competition and false designation of origin, and California unfair competition. The Court GRANTS Sega's request for a permanent injunction. prohibiting further copying of Sega games by way of THE SEWER LINE electronic bulletin board, or any other bulletin board run by Sabella.

STATEMENT OF FACTS

I. Sega's Business

Sega [2] is a major manufacturer and distributor of computer video game systems and computer video game programs which are sold under the SEGA logo, its registered trademark. (Federal Registration No. 1,566,116, issued November 14, 1989). As part of its development process, Sega takes care to ensure the quality and reliability of the video game programs and products sold under SEGA trademarks.

Sega also owns the copyright for the game programs that Sega develops, and has federal copyright registrations for several video games, including Sonic Spinball and Jurassic Park.

The Sega game system consists of two major components sold by Sega, the Genesis game console base unit and software programs stored on video game cartridges which are inserted into the base unit. Each cartridge contains a single game program, and sells for between $30 and $70. The base unit contains a microcomputer which, when the unit is connected to a television, permits individuals to play the video game stored on the inserted cartridge. The cartridge format is not susceptible to breakdown or erasure. Defective Sega cartridges are replaced by Sega.

Sega's game system is designed to permit the user only to play video games contained in Sega cartridges. The system does not permit the copying of video game programs. Sega does not authorize the commercial copying or distribution of its video game programs on magnetic storage media such as floppy disks or hard disks.

II. Sabella's business

Sabella was the system operator ("sysop") of an electronic bulletin board system ("BBS") called THE SEWER LINE, and was known on THE SEWER LINE BBS by the pseudonym or handle "Dirty Scum."[3]

A BBS, such as Sabella's THE SEWER LINE, consists of information stored on electronic storage media, such as computer memories or hard disks, which are connected to third party "users" over telephone lines by modem devices, and controlled by a computer. Users of BBSs can transfer information over the telephone lines from their own computers to the storage media on the BBS by a process known as "uploading." Uploaded information is thereby recorded or copied onto the storage media of the host bulletin board, in this case on THE SEWER LINE BBS owned by Sabella. Third party users can also retrieve or copy information from the BBS to their own computer memories by a process known as "downloading." Video game programs, such as Sega's video game programs, are one type of information which can be transferred by means of BBSs. In this way, video game programs can be distributed by a BBS.

Sabella was aware that her BBS contained a directory called "Genesis," a term Sabella knew to be associated with video games.

The names of approximately 20 Sega games were present in this BBS directory as "file descriptors." A file descriptor is the text associated with a file to identify or describe the file. The word "SEGA", the
exact word that is the SEGA trademark, was used in some of these file descriptors. For example, some file descriptors were:

- Jurassic Park (Beta) [SEGA/16M/MGH]
- This works 100% on MGH
- Released ver. of Jurassic Park Genesis
- Sonic Spinball BETA ver.
- US Final Release SonicSpin (or whatever the name was)
- Dashing Desperados [SEGA/SMD/8MEG]

These files were available for download, and the BBS listed the number of times each file had been downloaded.

However, Sabella has declared that she had no knowledge that games had been copied onto her BBS and that she herself had never copied nor authorized others to copy such games. She has also declared that she never used the word Sega in any of her BBS operations.

In some circumstances, Sabella charged users for having downloading privileges from her BBS. A SEWER LINE BBS message stated that the BBS had four access levels, which allowed users to download files under certain conditions. For example, an Elite+ user had no limits on the number of files downloaded per day but was requested to pay a monthly fee, while an Elite user was to maintain a five downloads to one upload ratio. Sabella admitted that she authored the information concerning user access levels.

THE SEWER LINE BBS also posted two main user rules. The first rule concerned console files, and stated:

Now we will take files released from different groups. As some may work on one system and the other on another. We will take BETAs and DEMOs. If a [sic] OLD console file is REQUESTED and the REQUEST IS POSTED on the message base we will love to see that request U/Led or if the request is for a working console file. ANY POSTED REQUES[T] is OK for a U/L. Its ok if the file is not in English * HOWEVER POST it in the description! * OR you will not get credit for the file. (users DO NOT like paying for files they can not understand or play SO POST if it is PLAYABLE.)

The second rule stated:

READ the message bases ... . I and the co-sysop read the user log several times a day and we DO check to be sure each user reads the bases ... .
. . . TAKE PART and support the BBS you call. You are giving very little to have HUNDRED's of $$$$$$$$ worth of games! I do my share won't you [sic] If not then maybe you don't need to be here? And if enough users fee[l] that way. . HAY I'LL get the files ONLY for me and take the BBS down! loss to me! BUT I will save money on my phone bill so think it over . . .

SysOp and Staff

Jack Yang downloaded at least one of these files from Sabella's BBS on November 6, 1993, and was able to play a version of Sega's "Sonic Spinball" video game from one of the files downloaded. The disk file version of the game began with a screen showing the SEGA trademark and SEGA logo, and appeared to be substantially similar to a genuine Sega game. Sega's Sonic Spinball video game was not scheduled for release to the public until November 23, 1993. Several other game programs maintained on THE SEWER LINE BBS included "pre-release" versions of games. Sega did not authorize the copies of Sega's copyrighted video games which were on THE SEWER LINE BBS.

Sabella also owned a business named Sharon's Data Systems, which sold Multi-Game Hunter copiers ("copiers") priced from $350 to $525. The copiers can copy the video game programs from a Sega game cartridge onto other magnetic media such as hard or floppy disks. In conjunction with a Sega console, the copiers can play Sega games directly from floppy disks, without the need for a Sega game cartridge. The copiers also allow a user to save the game play where he or she left off.

Sabella's business Sharon Data Systems advertised the copiers on her BBS. A sample advertisement posted on her BBS stated:

Sharon's Data Systems ... . have been into backup units for consoles since 1990 ... The MGH [Multi-Game Hunter] is a backup system for BOTH the SNES and the Sega Genesis console systems; so if you
own ONE OR BOTH console systems this is the backup system you will want!

Her BBS also contained a related "Hot off the news press" bulletin, posted around November 4, 1993, which stated:

P.S. I have back orders for the MGH's please bare with me as I am in the middle of moving. I have had many MGH's stole from me as I have been robbed 3 times the latest time was this Saturday ... This has been a great lost to me as this is money I sent to HK up front I also lost all my personal things this last time so I am with out and MGH/SNES/Genesis and ALL my games. [sic] In addition to advertising the copiers on her BBS, Sabella allowed copier purchasers the privilege of downloading files from her BBS without charge, subject to a time limit. While one of her advertisements posted on her BBS includes a copyright law warning, another advertisement states that the copiers come with "a gift award [that] when mailed back will give you a 30 day no-ratio on our BBS to get you started right away with your collection of games."

EVIDENTIARY OBJECTIONS

I. SEGA'S MOTION TO STRIKE SABELLA'S OPPOSITION TO SEGA'S MOTION FOR SUMMARY JUDGMENT

Sega moves to strike Sabella's opposition to Plaintiff's motion for summary judgement because Sabella's opposition papers were filed after the deadline set by the Court, and after the deadline set by the Local
Rules. This objection is DENIED because Sega waived this argument by continuing to file papers regarding this motion well after any cutoff dates. Also, even though the opposition papers were considered,
the Court has decided substantially in Sega's favor.

II. SABELLA'S OBJECTION TO SEGA'S EVIDENCE

Sabella objects to the evidence proffered by Sega with respect to the capture file and to evidence obtained after the seizure of her computer equipment.

A. Capture file

Sabella contends that THE SEWER LINE BBS capture file is incomplete and misleading because (a) it does not show all portions of the capture file, and (b) it is possible that the download tracking data shown in the capture file does not correspond to a successful download.

The capture file is an electronic file that contains "snapshots" or screen captures of the screens seen by Jack Yang when he connected to THE SEWER LINE BBS. It includes screens that show the file descriptors and files listed within the Genesis section of the BBS. Next to each file descriptor is the downloading tracking data, which is a number indicating the number of times the file has been downloaded. Sabella contends that this number may also include unsuccessful download events or "false downloads," such as when a user requests to download a file that is listed on the BBS, but download is impossible because the file no longer exists on the BBS computer's hard drive.

Sega admits that the capture file it submitted into evidence does not show all portions of the file. It admits that it redacted material from the capture file, but explains that the redacted material only pertains to personal, user information. Sabella does not assert that any information other than such personal, user information has been redacted. Sega argues that this redaction is not misleading because the redacted material is not relevant to Sega's claims.

With respect to the possibility that the capture file download tracking data includes false downloads, Sega argues that Sabella has no evidence to support its proposition, and that speculation is insufficient to show that the data is unreliable.

The Court finds that the capture file is not misleading. Sabella has neither shown nor alleged that the redacted information is anything other than personal, user information. This personal, user information is irrelevant to the infringement issues in this case. Additionally, Sabella's contention regarding false downloads is mere speculation. Sabella's expert does not declare that false downloads are possible, nor that a false download indication ever occurred. Such speculation is not sufficient to raise an issue regarding the reliability of the capture file. Therefore, the Court will consider the capture file as evidence.

B. Evidence obtained after the seizure date

Sabella contends that the evidence Sega obtained after it seized her computer is false or tainted. She notes that the alleged file directory listings of her computer show a base directory that was not on her computer. She further notes that some files in the directory listings, including SEGASF2.ZIP, have file date stamps that are dated after the computer was taken out of her possession, showing that these files were created or altered after the computer was taken from her. Because of this file alteration, Sabella contends that all of the evidence Sega obtained after Sabella's computer left her possession is tainted and therefore unreliable.

Sega admits that the directory listings shown did contain a different base directory name, and that some of the files did have post-seizure date stamps. Sega explains that the different directory names shown on the file directory listings were created as part of the process to back up Sabella's computer, and that the post-seizure dates on certain files occurred because those files were working, back-up copies. Additionally, Sega has provided a printout of a directory listing, made from the archive tape back-up copy of Sabella's computer, in which all the files are dated prior to the seizure date and which does not contain the added base directory name. However, Sega has also stated that it is actually relying on the capture file rather than the directory listings in its summary judgment motion.

The Court finds that the differences in the file directory base name and file date stamps alone do not support the inference that Sega improperly tampered with the data on Sabella's computer. Sabella has not offered any evidence other than these differences in the file directory listing to support her allegations of tampering, nor has she offered any argument to rebut or call into question Sega's explanation regarding these discrepancies. Sabella's unsupported speculation regarding these discrepancies is not sufficient to create an issue regarding the authenticity of the evidence in question in light of Sega's undisputed explanation of it.

However, because Sega states that it is relying on the capture file and presumably related events for this motion, the Court will not consider the directory listings nor data obtained from Sabella's computer after the seizure date.

STANDARD FOR GRANTING SUMMARY JUDGMENT

Summary judgment is properly granted when no genuine and disputed issues of material fact remain, and when, viewing the evidence most favorably to the non-moving party, the movant is clearly entitled to prevail as a matter of law. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Eisenberg v. Insurance Co. of North America, 815 F.2d 1285, 1288-89 (9th Cir. 1987).

The moving party bears the burden of showing that there is no material factual dispute. Therefore, the Court must regard as true the opposing party's evidence, if supported by affidavits or other evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815 F.2d at 1289. The Court must draw all reasonable inferences in favor of the party against whom summary judgment is sought. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Intel Corp. v. Hartford Accident and Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991).

Material facts which would preclude entry of summary judgment are those which, under applicable substantive law, may affect the outcome of the case. The substantive law will identify which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the party moving for summary judgment meets its initial burden of identifying for the Court the portions of materials on file which it believes demonstrate the absence of any genuine issue of material fact, the nonmoving party may not rely on mere allegations in the pleadings in order to preclude summary judgment. T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Assn., 809 F.2d 626, 630 (9th Cir.1987).

DISCUSSION

I. Copyright Infringement

Sega contends that Sabella is liable for copyright infringement under direct, contributory, and vicarious liability theories. Sabella contends that she is not liable under any of these theories, and that any copying done falls within the fair use defense.

A. Direct Infringement

Sega argues that Sabella is directly liable for copyright infringement because she was the most active systems operator of the BBS, she monitored the uploading and downloading of games in great detail, and she sold copiers and downloading privileges to users. Sabella argues that she never copied any games, and that her function as a systems operator Of her BBS does not make her directly liable.

To establish a prima facie case of direct copyright infringement, Sega must prove (1) ownership of a valid copyright in the infringed work, and (2) "copying" by the defendant. See Sid & Marty Kroft Television Productions, Inc. v. McDonald's Corp., 562 F.2d 1157, 1162 (9th Cir. 1977); Religious Technology Center v. Netcom On-line Communication Services, Inc., 907 F.Supp. 1361,
1366-67 (N.D. Cal. 1995).

A certificate of copyright registration establishes a presumption that the copyright is valid. 17 U.S.C. §410(c). Sega has submitted several certificates of copyright registration for its video games, including certificates for Sonic Spinball and Jurassic Park. These certificates establish a presumption that Sega owns a valid copyright in those video game programs. Apple Computer, Inc. v. Formula Int'l Inc., 725 F.2d 521, 523 (9th Cir. 1984).

The Ninth Circuit has held that "copying," for the purposes of copyright law, occurs when a computer program is transferred from a permanent storage device to a computer's random access memory. Mai Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 529 (9th Cir. 1993), cert. dismissed, 501 U.S. 1033 (1994). In this case, copies were made when the Sega game files were uploaded to or downloaded from Sabella's BBS. Thus, copying by someone is established.

This does not end the inquiry, however, because it does not establish whether Sabella, as the BBS operator, is directly liable for the copying. In Netcom, the court found that the Internet provider was not directly liable for copyright infringement of a copyrighted work posted and distributed through its system. Netcom, 907 F.Supp. at 1368-70. The Netcom court held that "[a]lthough copyright is a strict liability statute, there should be some element of volition or causation which is lacking where a defendant's system is merely used to create a copy by a third party." Id. at 1370. "Where the infringing subscriber is clearly directly liable for the same act, it does not make sense to adopt a rule that could lead to the liability of countless parties whose role in the infringement is nothing more that setting up and operating a system that is necessary for functioning of the Internet," even where the Internet provider has knowledge of potential copyright infringement by its subscribers. Id. at 1372-73.

Sega argues that the Netcom decision, which focused on innocent, non-participating defendants, is inappropriate here, where Sabella ran a dedicated, private BBS, and was an active systems operator who monitored the uploading and downloading of games in great detail.

While the Court agrees that Sabella's actions in this case are more participatory than those of the defendant's in Netcom, the Court finds Netcom persuasive. Sega has not shown that Sabella herself uploaded or downloaded the files, or directly caused such uploading or downloading to occur. The most Sega has shown is that Sabella should have known such activity was occurring, that she sold copiers that played games such as those on her BBS, and that she gave her copier customers downloading privileges on her BBS. However, whether Sabella knew her BBS users were infringing on Sega's copyright, or encouraged them to do so, has no bearing on whether Sabella directly caused the copying to occur. Id. at 1372. Furthermore, Sabella's actions as a BBS operator and copier seller are more appropriately analyzed under contributory or vicarious liability theories. Therefore, because Sega has not shown that Sabella directly caused the copying, Sabella cannot be liable for direct infringement.[4]

B. Contributory Infringement

Sega argues that Sabella is liable for contributory copyright infringement because Sabella knew that her BBS users were making copies of Sega games and she directly participated in their copying. Sabella argues that she did not have knowledge of the infringing activities, nor was she given any notice by Sega of possible infringement.[5]

Although the Copyright Act does not expressly impose liability on anyone other than direct infringers, courts have long recognized that in certain circumstances, liability for contributory infringement will be imposed. Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 261 (9th Cir. 1996) (citing Sony v. Universal City, 464 U.S. 417, 435 (1984)). Contributory copyright infringement stems from the notion that one who directly contributes to another's infringement should be held liable. Id. at 264. Such liability is established where the defendant, "with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another." Id. (quoting Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2nd Cir. 1971)); see also Religious Technology Ctr. v. Netcom On-Line Communication Serv., Inc., 907 F.Supp. 1361, 1372 (N.D. Cal. 1995).

To impose liability on Sabella for contributory infringement, Sega must first establish that the users of Sabella's THE SEWER LINE BBS directly infringed Sega's copyright. Second, Sega must establish that (i) with knowledge of the users' infringing activity, (ii) Sabella induced, caused, or materially contributed to their infringing activity.

1. Direct infringement by THE SEWER LINE BBS users

As discussed above, Sega has established that copies were made when unauthorized copies of Sega game files were downloaded from, or uploaded to, Sabella's BBS by Sabella's BBS users. Therefore, Sega has established direct copyright infringement by Sabella's BBS users.

2. Sabella's knowledge of her users' activities

To establish Sabella's knowledge of the users' infringing activity, Sega must show that Sabella actually knew, or had reason to know, of her users' infringing activities. See Casella v. Morris, 820 F.2d 362, 365 (11th Cir. 1987) (quoting Gershwin, 443 F.2d at 1162.) Here, Sega has established the following: Sabella was the system operator of her BBS; files on Sabella's BBS were labeled as Sega Genesis games; Sabella had the ability to track user uploads and downloads of these files; Sabella advertised on her BBS the copiers which played unauthorized copies of Sega games; one of Sabella's advertisements offered a gift award that would give users privileges on her BBS to "get [them] started right away with [their] collection of games"; Sabella gave downloading privileges to customers that bought copiers; and Sabella sold downloading privileges to others. Additionally, postings on her BBS indicated that downloadable files were playable and warned that she and the co-sysop "read the user log several times a day." These facts establish the inference that Sabella had reason to know of her users' infringing activity.

3. Sabella's participation in her users' activities

The Ninth Circuit has recently stated that "providing the site and facilities for known infringing activity is sufficient to establish contributory liability," at least in a swap meet context. Fonovisa, 76 F.2d at 264. In this case, Sabella provided the BBS as a central depository site for the unauthorized copies of games, and allowed subsequent distribution of the games by user downloads. She provided the facilities for copying the games by providing, monitoring, and operating the BBS software, hardware, and phone lines necessary for the users to upload and download games.

However, even under an alternative and higher standard of "substantial participation," Sabella is liable. Under this standard, Sabella is only liable if she knew of the users' infringing actions, and substantially participated by inducing, causing or materially contributing to the users' infringing conduct. Netcom, 907 F.Supp. at 1382. In this case, Sabella did more than provide the site and facilities for for the known infringing conduct. She provided a road map on the BBS for easy identification of Sega games available for downloading. Through the same THE SEWER LINE BBS medium, she offered copiers for sale to facilitate playing the downloaded games. Another court has found that the sale of such copying devices constitutes contributory infringement. Nintendo of America, Inc. v. Computer and Entertainment, Inc., 1996 WL 511619, *4 (W.D. Wash. 1996). Moreover, Sabella's business, Sharon's Data Systems, provided limited free downloading of games to customers who had purchased copiers, and advertised that the downloading was provided so they could start their "collection of games." The Court concludes that Sabella engaged in contributory copyright infringement by providing facilities, direction, and encouragement for the unauthorized copying of Sega games.

Because the Court finds that Sega has established a prima facie case of contributory copyright infringement liability, it need not address whether Sabella is also liable under the theory of vicarious liability.

C. Fair Use Defense

Sabella argues that the fair use defense applies because (1) the use alleged does not deprive of profits nor does it have a commercial nature; (2) digital browsing of a game file to determine the game's worth prior to purchasing it is a fair use; and (3) the copiers have substantial, non-infringing uses.

Under the fair use defense, there is no infringement, even where a person violates one of the copyright holder's exclusive rights, if that person's use is a fair one. Title.17 U.S.C. §107. In determining whether a use is fair, the following four, non-exclusive factors are considered: the purpose and character of the use; the nature of the copyrighted work; the amount and substantiality of the copyrighted work used; and the effect of the use upon the potential market for the copyrighted work. Id.; Campbell v. Acuff-Rose Music, Inc., [baseline.rule length=1pi] U.S. [baseline.rule length=1pi], 114 S. Ct. 1164, 1170-71 (1994). Because fair use is an affirmative defense, Sabella carries the burden of demonstrating it. Acuff-Rose, 114 S. Ct. at 1177.

1. Purpose and character of use

Sabella argues that she should not be liable because there has been no commercial or profit-depriving use. She suggests that if her users copied games from her BBS, they only did so to "browse" the games in order to make an independent determination of the games' worth before buying them.

However, Sabella provides no evidence to support her theory of digital browsing. It is her burden to show that the fair use doctrine applies. Mere speculation is insufficient to suggest that her BBS' users' actions were of a non-commercial nature.

Furthermore, the evidence indicates that her BBS users were encouraged to download games from the BBS in order to avoid having to buy video game cartridges from Sega. Postings on her BBS suggest that participation in her BBS would provide "HUNDRED's of $$$$$$$$ worth of games." Additionally, one of her copier advertisements offered a gift award that would give users downloading privileges to "get [them] started right away with [their] collection of games." Such a purpose weighs against the fair use defense. See American Geophysical Union v. Texaco, Inc., 802 F.Supp. 1, 14-16 (S.D.N.Y. 1992), aff'd 60 F.3d 913 (2nd Cir. 1994), cert. dismissed 116 S. Ct. 592 (1995) (no fair use where scientists photocopied publication to avoid cost of purchasing additional copies from publisher).

Because the BBS users were able to avoid purchasing the Sega cartridges, their copying is distinguished from that in Lewis Galoob, where the users did have to purchase an authorized game cartridge. See Lewis Galoob Toys, v. Nintendo of America, Inc., 964 F.2d 965, 970 (9th Cir. 1992), cert. denied, 5078 U.S. 985 (1993) (fair use found where users necessarily had to purchase Nintendo's game cartridges in order to use a device called the "Game Genie," which altered features of Nintendo's copyrighted games during home play.) This factor weighs against a finding of fair use.

2. Nature of the copyrighted work

This factor provides that the closer the copyrighted work is to the core of intended copyright protection, the more difficult it is to establish the fair use defense. Acuff-Rose, 114 S. Ct. at 1175. In assessing this factor, one consideration is whether the copyrighted work is informational or creative. Netcom, 907 F.Supp. at 1379. Because the Sega video games are for entertainment uses and involve fiction and fantasy, which are more creative than informational, consideration of the nature of the copyrighted work weighs against a finding of fair use. See Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 563 (1985); Stewart v. Abend, 495 U.S. 207, 237-38 (1990); Playboy Enter. Inc. v. Frena, 839 F.Supp. 1552, 1558 (M.D.Fla. 1993).

3. Extent of the work copied

The third factor concerns both the percentage of the original work that was copied, and whether what was copied constitutes the "heart" of the copyrighted work. Netcom, 907 F.Supp. at 1379 (citing Harper & Row, 471 U.S. at 564-65). Although not a per se rule, the copying of an entire work will ordinarily militate against a finding of fair use. Id. (citing Sony, 464 U.S. at 449-450).

Here, Sega has shown that the BBS users copied virtually entire copyrighted works by way of their uploads and downloads of Sega games, and that these games were available through Sabella's BBS. While this does not per se preclude a finding of fair use, Sabella has not shown any public benefit nor explanation for the complete copying. Cf. Sega Enter., Ltd. v. Accolade, Inc., 977 F.2d 1510, 1526--27 (9th Cir. 1992) (fair use found despite total copying where total copying was necessary to carry out the defendants' beneficial purpose of reverse engineering software to get at the ideas found in the source code). Therefore, this factor weighs against a finding of fair use.

4. Effect of the use upon the market

The fourth and final statutory factor concerns whether unrestricted and widespread conduct of the sort engaged in by the defendant would result in a substantially adverse impact on the potential market for the copyrighted work. Campbell 114 S. Ct. at 1177. While all factors must be weighed together, id. at 1171, the fourth factor is the most important consideration. Los Angeles News Service v. Tullo, 973 F.2d 791, 798 (9th Cir. 1992) (citing Harper & Row, 471 U.S. at 566).

By utilizing Sabella's BBS, users are able to download and distribute one or more copies of Sega video game programs from a single copy of a Sega video game program on the BBS, and thereby obtain unauthorized copies of Sega's copyrighted video game programs.

This unauthorized copying of Sega video game programs works to decrease Sega's sales of video game cartridges. The copiers could be used for copying Sega's video game programs onto disks, and for playing unauthorized, copied games. The copiers sold and advertised by Sabella through her BBS came with downloading privileges to the purchaser, giving the purchaser the ability to copy Sega copyrighted video game programs from her BBS. Copier purchasers were thus able to duplicate and play the games without purchase of Sega game cartridges. The copiers in conjunction with the BBS supplanted the need to purchase the genuine Sega video games.

While Sabella contends that the copiers have other non-infringing uses the Court is unpersuaded by this argument It is unlikely that customers would pay $350 to back up the Sega game cartridges which are not susceptible to breakdown and which sell for between $30 and $70. The Court finds that the only substantial use of the copiers is to avoid having to buy video game cartridges from Sega by copying the video game program and playing such unauthorized, copied games. See Nintendo, 1996 WL 511619 at *4 (finding that there were no substantial non-infringing uses for a game-copying device such as the Super UFO, which copies Nintendo games from cartridges to disk).

5. Analysis

All of the factors discussed above weigh against the application of the fair use defense. Because the fair use defense does not apply, and Sega has met its burden to show contributory copyright infringement by Sabella, the Court GRANTS Sega's motion with respect to its copyright claim.

D. Willfulness

Sega contends that Sabella's actions show that she willfully infringed upon their copyrights, which would entitle it to greater damages under 17 U.S.C. §504(c)(2).

Infringement is willful if the responsible party acts with knowledge that he or she is infringing a copyright. Peer Intl. Corp. v. Pausa Records, Inc., 909 F.2d 1332, 1335 (9th Cir. 1990), cert. denied 498 U.S. 1109 (1991); Twin Peaks Productions, Inc. v. Publications Intern., Ltd., 996 F.2d 1366, 1382 (2nd Cir. 1993). Willfulness may also be found where the defendant's infringing actions are undertaken with reckless disregard for the copyright holder's rights. Video Views, Inc. v. Studio 21, Ltd., 925 F.2d. 1010 1020-21 (7th Cir 1991) Such knowledge may be inferred from the defendant's conduct. N.A.S. Import Corp. v. Chenson Enter., Inc., 968 F.2d 250 252 (2nd Cir 1992). Generally, a determination as to willfulness requires an assessment of a party's state of mind, a factual issue that is not usually susceptible to summary judgement. Silverman v. CBS, Inc., 632 F.Supp. 1344, 1352-53. n.11 (S.D.N.Y. 1986), modified 870 F.2d 40 (2nd Cir. 1989); see also Frank Music Corp. v. Metro Goldwin-Mayer, Inc., 772 F.2d 505, 515 (9th Cir. 1985), cert. denied 494 U.S. 1017 (1990) (a finding of willfulness is a factual determination).

In this case, there is an issue of fact as to whether Sabella's contributory infringement actions as a BBS operator were willful in light of (1) her declaration of ignorance regarding her users' action in uploading and downloading the the uncertainty as to which of the incriminating BBS postings were actually authored by her. If Sabella's contributory infringement activities were based solely on her BBS operation activities, this would create a material issue of fact regarding her willfulness.

However Sabella is also liable for contributory infringement due to her activities in selling the copiers In that regard, one of her advertisements states that copier purchases will be given a "gift award" of downloading privileges Even accepting that she did not actually know that her BBS users were uploading and downloading unauthorized Sega game files, her advertisement clearly shows her intent to link her copier sales with her customers' acquisition of infringing Sega games. Furthermore, her acknowledgement of the effect of copyright laws in other Sharon Data Systems advertisements shows that she knew such customer activity to be infringing. This intent displays a reckless disregard for Sega's copyright rights, and amounts to willfulness.

II. Federal Trademark Infringement

Sega maintains that Sabella is liable for federal trademark infringement because her use of the Sega mark on her BBS caused a likelihood of consumer confusion. Sabella contends that she is not liable because she herself never used the mark, nor was she aware that the mark was being used on her BBS.

Under the Lanham Act, 15 U.S.C. §1114, any person is liable for trademark infringement if that person, without the consent of the trademark registrant:

(a) use[s] in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which use is likely to cause confusion, or to cause mistake, or to deceive.

15 U.S.C. §1114.

A prima facie case for trademark infringement under the Lanham Act is established by a showing that (1) the mark is owned by or associated with a particular plaintiff, and (2) the defendant's use of the mark is likely to cause confusion or mistake among the public as to the origin of the goods. New West Corp. v. NYM Co. of California Inc., 595 F.2d 1194 1201-02 (9th Cir. 1979); see also Jockey Club Inc. v. Jockey Club of Las Vegas, 595 F.2d 1167 (9th Cir. 1979). The latter element can be broken down into two requirements: (a) that use of the mark is likely to cause confusion, and (b) that the defendant used the mark. See Alchemy II, Inc. v. Yes! Enter. Corp., 844 F. Supp. 560, 569 (C.D. Cal. 1994) (citing HMH Publishing Co. v Lambert, 482 F.2d 595, 598 (9th Cir. 1973)).

A. Ownership

Sega owns the SEGA trademark which is the subject of Federal Trademark Registration No. 1,566,116. Sega's federal trademark registration is conclusive evidence of Sega's exclusive right to use the registered mark in commerce. 15 U.S.C. §1115(a).

B. Likelihood of Confusion

In AMF Inc. v. Sleekcraft Boats, the Ninth Circuit found the following factors to be relevant to the determination of a likelihood of confusion: (1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) the defendant's intent in selecting the mark; and (8) likelihood of expansion of product lines. AMF Inc. v. Sleekcraft, 599 F.2d 341, 348 (9th Cir. 1979). Because each of these factors is not necessarily relevant to every case, the list of factors functions as a guide and is neither exhaustive nor conclusive. Metro Pub., Ltd. v. San Jose Mercury News, 987 F.2d 637, 640 (9th Cir. 1993).

1. Proximity of the Goods.

The danger is that the public will mistakenly assume there is an association between the producers of related goods, although no such association exists Sleekcraft 599 F 2d at 350. The greater the similarity between the two products, the greater the likelihood of confusion. See Exxon Corp. v. Texas Motor Exchange of Houston, Inc., 628 F.2d 500, 505 (5th Cir. 1980). The games downloaded from THE SEWER LINE BBS are substantially identical to genuine Sega games. BBS users or third parties who may receive copies of Sega games from BBS users are likely to confuse the unauthorized copies downloaded and transferred from THE SEWER LINE BBS with genuine Sega video game programs.

2. Similarity of Marks

Here, there is no issue as to the similarity of the mark. The mark displayed when the games are played is identical to Sega's actual trademark. Moreover, the same word, "Sega," the only word used in the SEGA trademark, appears as part of the file descriptors for the game files appearing on Sabella's BBS.

3. Intention in adopting the mark

While a knowing adoption of a mark raises a presumption of confusion, Harley-Davidson, Inc. v. Seghieri, 29 U.S.P.Q.2d 1956 (N.D. Cal. 1993) (citing Sleekcraft, 599 F.2d at 341), an innocent state of mind is irrelevant on the issue of likelihood of confusion because the lack of intent to deceive does nothing to alleviate the confusion created. Playboy. Enter., Inc. v. Frena, 839 F. Supp. 1552, 1561 (M.D. Fla. 1993).

Evidence suggests that Sabella intentionally adopted or allowed others to use the mark on her BBS. Sabella had the ability to police her BBS, and nonetheless allowed users to identify Sega game files with the word Sega on her BBS. She solicited users to upload playable files onto her BBS, and advertised her copiers through her BBS as well. However, Sabella has also declared that she did not know that Sega games bearing the Sega trademark were being uploaded to or downloaded from her BBS. Because there is a dispute of material fact as to this factor, the Court will not consider it in its determination of likelihood of consumer confusion.

4. Actual Confusion

While Sega has not shown any evidence of actual confusion, the Ninth Circuit has held that "neither actual confusion nor intent are necessary to finding a likelihood of confusion under the Lanham Act." New West Corp. v. NYM Co. of Cal., Inc., 595 F.2d at 1201-02. Similarly, Sega need not show that users of the BBS are likely to be confused. Once a product is put into commerce, the likelihood of confusion, mistake, or deception occurring at some future time is sufficient to establish liability for trademark infringement. Rolex Watch, U.S.A., Inc. v Canner, 645 F.Supp 484 492 (S. D. Fla 1986).

5. Analysis

From an examination of the factors mentioned above, the Court concludes that the use of the Sega mark on Sabella's BBS is likely to confuse customers. The word Sega, which is the only word used in the Sega mark, is displayed on Sabella's BBS to identify files containing video games that are virtually identical to Sega's games. These facts are very similar to the facts in Playboy, in which the court held the defendant liable for trademark infringement because files containing Playboy photographic images were loaded on his BBS and were identified in their file descriptions with the Playboy trademark. Playboy, 839 F.Supp. at 1559-61. When the game files downloaded from Sabella's BBS were played using copiers, such as those sold by Sabella, the Sega trademark appeared. Any member of the public who logged onto Sabella's BBS was likely to think that the trademark indicated that the games were sponsored by or affiliated with Sega. Additionally, any member of the public that played such a game using a copier sold by Sabella was also likely to be confused as to whether the game played with the copier was sponsored by, or affiliated with Sega.[6]

C. Use of the Mark

Sega has not established as a matter of law that Sabella adopted, used, or even authorized the use of the Sega mark on her BBS. Sega points to evidence in the capture file that shows that Sabella had reason to know that the Sega mark was being used as a file descriptor on her BBS and that the mark was displayed when those files were played. However, Sabella stated in her declaration that she did not know that Sega games were being uploaded and downloaded from her BBS, and that she never used the mark herself in any of her BBS operations.

Sega contends that Sabella's declaration is a sham, and should be disregarded. Sega points to the rules posted on her BBS, which solicit others to upload files that are "playable." However, Sega has not shown as a matter of law that Sabella authored all of these postings, nor has it shown that her declaration directly contradicts statements made at her deposition. Because of this, the Court cannot say at this time that her declaration is a sham and should be disregarded. Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 267 (9th Cir. 1991).

Therefore, her denial that she used the mark or knew that users did so raises a material issue as to whether Sabella actually used, adopted, or authorized others to use the mark on her BBS. Sabella's denial distinguishes this case from Playboy, in which the defendant knew that the registered Playboy marks were used in the file descriptors for the images found on his BBS, and tacitly authorized their use, even though he denied actually typing in the mark himself. Sabella's denial also distinguishes this case from Sega Enterprises v. Maphia, C93-04262 CW, where the defendant BBS operator knew that the mark appeared when the games were played, knew that the word Sega was used to identify game files, and had created a file area entitled "Sega" on his BBS.

The Court notes that the evidence presented by Sega may establish contributory trademark infringement, which only requires reason to know of the infringing activity. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 854 (1982). However, contributory trademark infringement has not been alleged by Sega, nor briefed by the parties.

D. Conclusion

Because a material issue of fact exists as to whether Sabella herself adopted, used, or authorized the use of the mark, Sega's motion for summary judgment with respect to direct trademark infringement is DENIED.

III. Federal Claim for False Designation of Origin

Sega claims that Sabella violated the Lanham Act, 15 U.S.C. §1125 by using the Sega trademark and trade name to establish a false connection between the games available on Sabella's BBS and Sega. 15 U.S.C. §1125(a) provides:

Any person who, on or in connection with any goods or services, uses in commerce any word, term, name, symbol ... . or any combination thereof, or any false designation of origin ... which ... is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person ... as to the origin, sponsorship, or approval of his or her goods ... shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such an act.

To prevail on its false designation claim under the Lanham Act, Sega must establish that Sabella's use of the mark will cause a likelihood of consumer confusion. New West Corp., 595 F.2d at 1201. Like that used in trademark infringement, the test is whether the public is likely to be deceived or confused by the similarity of the marks. Id. For the same reasons set forth regarding Sega's trademark infringement claim, the Court finds that the use of the Sega trademark on Sabella's BBS with respect to the Sega game files is likely to be confusing and to cause damage to Sega. However, because a material issue of fact exists as to whether Sabella used or adopted the mark, summary judgment with respect to this claim is DENIED.

IV. State Law Trade Name Infringement Claim.

Sega claims that Sabella is liable for California trade name infringement under Cal. Bus. & Prof. Code §§14401 et seq. Section 14402 provides that, "Any court of competent jurisdiction may restrain, by injunction, any use of trade names in violation of the rights defined in this chapter." Cal. Bus. & Prof. Code §14402. Section 14415 provides that the filing of articles of incorporation creates a rebuttable presumption that the corporation has the exclusive right to use its corporate name as a trade name. Cal. Bus. & Prof. Code §14415.

"In both trademark and trade name cases, the test of infringement is whether a likelihood of confusion exists." Jockey Club, Inc. v. Jockey Club of Las Vegas, Inc., 595 F. 2d 1167, 1168 (9th Cir. 1979). For the reasons set forth above, Sega has established that a likelihood of confusion exists with the use of Sega's trade name on Sabella's BBS. Because ?14402 gives the Court the power to enjoin "any use" of a trade name that infringes on the trade name rights provided by statute, and because Sega has established that the use of its trade name on Sabella's BBS violates its rights, the Court GRANTS Sega's motion with respect to this claim.

V. State Claim for Unfair Competition

Sega claims that Sabella is liable under California unfair competition law because Sabella's distribution and sale of counterfeit games and use of Sega's trademarks would deceive others. Sega argues that Sabella is liable for California unfair competition for the same reasons it alleges that Sabella is liable for trademark infringement under the Lanham Act. Because a material issue of fact exists concerning Sabella's use of Sega's trademark in regard to Sega's Lanham Act claims, the same issue of fact exists with respect to its unfair competition claim. Summary judgment on this claim is DENIED.

VI. REMEDIES

A. Injunctive Relief

Sega is entitled to injunctive relief under copyright law. A court may order a permanent injunction "to prevent or restrain infringement of [the owner's] copyright." 17 U.S.C. §502. A showing of copyright infringement liability and the threat of future violations is sufficient to warrant a permanent injunction. Mai Systems, 991 F.2d at 520. Here, Sabella's violations of Sega's copyright through her BBS, combined with the return of her computer equipment to her constitute a threat of continued violations absent an injunction. Specifically, because Sabella maintains the computer and other equipment necessary to run her BBS and may continue in the facilitation of the uploading and downloading of Sega game programs, there is a threat of continued violation. Therefore, Sega is entitled to permanent injunctive relief. This relief applies with respect to all of its copyrighted video games. See Encyclopedia Britannica Educational Corp. v. Crooks, 542 F.Supp. 1156, 1187-88 (W.D.N.Y. 1982).

Sega is also entitled to injunctive relief with respect to the use of its trade name on Sabella's BBS with respect to Sega's California trade name infringement claim. Cal. Bus. & Prof. Code ?14402.

B. Monetary Damages For Copyright Infringement.

1. Statutory damages

The Copyright Act, 17 U.S.C. §504, provides that the copyright holder may elect either actual damages or statutory damages as a remedy for copyright infringement. Harris v. Emus Records Corp., 734 F.2d 1329, 1335 (9th Cir. 1984). Sega has elected to seek a statutory damage award.

The Copyright Act provides that where the infringement was committed "willfully," as is the case here, the court in its discretion may award statutory damages in a sum of not more than $100,000 for the infringement of each particular work. 17 U.S.C. §504(c)(2). The court has wide discretion in determining the amount of statutory damages to be awarded. Nintendo of America, Inc. v. Dragon Pacific Intl., 40 F.3d 1007, 1010 (9th Cir. 1994), cert. denied U.S. , 115 S. Ct. 2256 (1995).

In Dragon Pacific, the court found that a statutory damage award of $5000 for the defendant's willful infringement of one of Nintendo's video games was appropriate. Id. Because this case is similar to Dragon Pacific in that they both involve the willful infringement of similar types of video games, the Court finds that a statutory award of $5000 per infringed work is appropriate. Here, Sega has established that at least two of its copyrighted video games were infringed, namely Jurassic Park and Sonic Spinball. Therefore, the Court awards statutory damages in the amount of $10,000.

2. Costs and Attorneys' fees

Under 17 U.S.C. §505, the Court may in its discretion award the prevailing party reasonable attorneys' fees and costs. In determining whether to grant attorneys' fees, the Court may consider the degree of success obtained by the prevailing party; frivolousness; motivation; objective unreasonableness in both the factual and legal arguments of the case; the need in the particular circumstance to advance considerations of compensation and deterrence; and promotion of the Copyright Act's objectives. Jackson v. Axton, 25 F.3d 884, 890 (9th Cir. 1994). Exceptional circumstances are not a prerequisite to such an award. Historical Research v. Cabral, 80 F.3d 377, 378 (9th Cir. 1996). Additionally, while willful infringement is an important factor favoring an award of fees, it does not, in itself, compel an award. Id. at 379.

In this case, several of the factors weigh in favor of granting costs and attorneys' fees. Sega is the prevailing party in its copyright claim. Several of Sabella's arguments for denying copyright infringement liability and for objecting to the evidence are weak or frivolous. She had reason to know of the infringing activity. She also actively encouraged the sale of copiers that did not have any substantial non-infringing uses, and intended for her copier customers to compile a "collection of games" through downloading privileges.

Moreover, the award of attorneys' fees may help prevent future copyright infringements like the one at issue here. Active BBS operators like Sabella who (1) have reason to know from the information on their BBS that unauthorized copies copyrighted software files are being uploaded and downloaded from their BBS, (2) are also advertising on the same BBS products whose only substantial use is to run such software, and (3) provide BBS downloading privileges to product purchasers, should be held accountable. Unchecked, this type of activity could quickly cause widespread, unauthorized distribution of a copyright holder's software and adversely impact the market for the work. The Copyright Act's objective of encouraging production of such work is better served in this case by discouraging Sabella's actions to the fullest extent possible.

In light of the foregoing, the Court GRANTS Sega's request for attorneys' fees. Sega may file a post-judgment motion for fees in accordance with Local Rule 54-5.

CONCLUSION

For the foregoing reasons, Sega's motion for summary judgment is GRANTED with respect to its copyright and California trade name claims. It is DENIED with respect to its other claims. Additionally,
Sega's request for a permanent injunction against use of the Sega trade name on a BBS run by Sabella is GRANTED. Sega shall notify the Court within one week of the date of this order whether it wishes to
pursue its claims that were not summarily adjudicated in this order. If it does not, those claims will be dismissed and judgment will enter.

IT IS SO ORDERED.

Dated: Dec. 18, 1995

Claudia Wilken United States District Judge

FOOTNOTES

[1] While Sega's complaint names various Defendants, its motion for summary judgment refers primarily to Sabella. The Court therefore makes no judgment with regard to the remaining
Defendants. Unless Sega evidences an intent to prosecute the case against them, they will be dismissed when judgment enters in this case.
[2] Sega Enterprises, Ltd. is a corporation organized and existing under the laws of Japan. Sega of America, Inc. is a California corporation.
[3] Another user, known by the handle "Ender Wiggins," also had some control over Sabella's BBS, and was listed as the "co-sysop." However, the hardware used to run the BBS was located at Sabella's residence.
[4] This holding is consistent with this Court's earlier order, Sega Enter., Ltd. v. Maphia, 857 F.Supp. 679 (N.D. Cal. 1994), a preliminary injunction in a case which similarly involved a BBS where Sega games were uploaded and downloaded. In that order, the Court noted that Sega had shown direct copying of its games by someone, and that the defendant BBS operator knew, facilitated, and encouraged the copying. Id. at 686. The Court specifically found that this activity amounted to contributory copyright infringement. Id. at 687. It did not make a similar, specific conclusion of law with respect to direct copyright infringement. To the extent that order can be read to suggest that a BBS operator may be liable for direct copyright infringement, the Court notes that that order case concerned a preliminary injunction motion. Summary judgment has since been granted in Maphia, in an opinion which clarifies and supersedes the preliminary injunction order.
[5] Sabella also argues that she has done nothing wrong because (1) her BBS is similar to the Sega channel, or (2) her BBS is like a library. The Court finds both of these arguments frivolous
because (1) Sega has authorized and licensed the use of Sega games through the Sega channel but not through Sabella's BBS, and (2) copyrighted works are generally borrowed, not copied, from the library.
[6] Sabella argues that, if the files are found to be copied games, they are true and correct replications, and therefore not counterfeits. Apparently, Sabella is arguing that the game files are
genuine products, and therefore, do not fall within the scope of the Lanham Act. However, distribution of these games on Sabella's BBS was not authorized by Sega, nor subject to Sega quality controls. As such, they cannot be considered genuine for the purposes of the Lanham Act. Hunting World, Inc. v. Reboans Inc., 24 U.S.P.Q.2d 1844, 1849 (N.D. Cal. 1992).

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