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An aggressive and persistent effort by a major distributor of Chinese-language films in the United States to protect its copyright has resulted in a significant damages award against a Chinatown video retailer. Judge Denise Cote of the U.S. District Court for the Southern District of New York, in U2 Home Entertainment Inc. v. Lai Ying Music & Video Inc., 04 Civ. 1233, last week ordered a retail video store to pay $7.35 million in damages for infringing upon the distributor’s rights. The ruling was the latest step in a four-year effort by the plaintiff, U2 Home Entertainment Inc., to stop Lai Ying Music & Video Inc. from wrongfully importing and selling movies to which U2 has copyrights. In February 2001, U2 accused the retail store owner of importing and selling Chinese language films for which U2 had been designated the exclusive distributor in the American market. A month later, the parties entered into a settlement agreement that included a permanent injunction barring Lai Ying from infringing U2′s copyrights on movies listed in its complaint as well as other unlisted titles. The settlement did not end their dispute. In February 2004, U2 initiated a second action after its investigators found that the retailer continued to sell unauthorized copies of U2 films. Working with the U.S. Marshals Service, U2 seized the unauthorized copies from Lai Ying’s store. Last summer, U2 again found that Lai Ying was selling unauthorized copies. It then seized 138 copies of 23 different films. In all, it seized or purchased, through its investigators, 174 unauthorized copies of 42 different titles. Such investigations and concomitant seizures are common occurrences in the anti-piracy arena. The Motion Picture Association of America, the umbrella trade group representing American movie makers, seized 350,000 videocassettes in 2000 alone. Each year, the association reported on its Web site, it initiates 600 investigations and has hundreds of active cases. U2 had taken similar measures, though on a smaller scale, in pursuing Lai Ying, and it has six similar cases against other video retailers pending in the Southern and Eastern districts, said its lawyer, Harvey Shapiro of Sargoy, Stein, Rosen & Shapiro. After the seizures, U2 asked the court for maximum statutory damages allowable under federal copyright law. Judge Cote granted the request. But first, the judge answered whether U2, as an importer of a copyrighted work with an exclusive license, had the standing to sue. Under the “first sale doctrine,” Cote wrote, “a copyright owner is deemed to have consented to subsequent sales of a copyrighted work once the copyright owner has authorized the first sale of the item.” In other words, explained Shapiro, a legal purchase allows a buyer to resell a copyrighted work freely. Application of this doctrine would have blocked U2 from bringing a case. But citing a U.S. Supreme Court decision, Cote held that “the importation of copies into the United States of a work manufactured in a foreign country can form the basis for a copyright infringement claim by an exclusive licensed U.S. distributor without regard to the first sale doctrine.” The court found that because Lai Ying’s procurement of the movies was unauthorized, the doctrine did not apply. After crossing this hurdle, Cote went on to calculate damages. “If there was any question as to the defendants’ knowledge that their importation of films from Asia would violate U2′s copyrights, that question was eliminated as the conclusion of the prior action with the Injunction,” the judge wrote, referring to the settlement agreement reached between the parties in 2001. “Since the injunction’s issuance, however, the defendants have flagrantly disregarded it,” Cote wrote. The judge noted that Lai Ying continued to sell unauthorized works after the seizure in February 2004 and “refused to participate in discovery in any meaningful way.” Taken together, “[m]aximum statutory damages for willful and reckless infringement in the amount of $150,000 per infringed title are therefore appropriate,” the court held. Under copyright law, U2 has the right to sue for actual damages and lost profits or the statutory maximum allowable if the court finds willful infringement. “In the absence of access to the defendants’ business records it is difficult to calibrate the sanction to the damages suffered from the contemptuous conduct,” Cote ruled, pointing to the dearth of discovery materials handed over by Lai Ying, “it is appropriate to apply the statutory formula for damages as a reasonable proxy.” Multiplied by the 47 copyright infringement claims made by U2, the total damages reached $7.05 million. Finding that Lai Ying violated a previous court order, Cote also added a $300,000 civil contempt fine, bringing the total damages and fines to $7.35 million and also granted attorney fees. Lai Ying’s lawyer, Harold Wm Suckenik of Wu & Kao, said his client will appeal. Among other things, he said that the awarded damages may far exceed the actual losses U2 suffered and that the court’s determination of the first sale doctrine, an area of the law he called unsettled, may be incorrect.

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