Sony Computer Entertainment America, Inc. v. Divineo, Inc.

Citations: 457 F. Supp. 2d 957; 81 U.S.P.Q. 2d (BNA) 1045; 2006 U.S. Dist. LEXIS 74878; 2006 WL 2987672Docket: C 04-4200 CW

Court: District Court, N.D. California; September 11, 2006; Federal District Court

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Sony Computer Entertainment America, Inc. filed a motion for summary adjudication regarding its Digital Millennium Copyright Act (DMCA) claims against Frederic Legault, who opposed the motion. Additionally, Sony sought a default judgment against Divineo, Inc., Divineo U.K., Divineo SARL, and Max Louarn, who did not oppose the application. The court, after reviewing the submissions, granted in part Sony's motion against Legault and approved the default judgment concerning the defaulting Defendants.

Sony is the registered copyright holder of over 130 game programs for the PlayStation and PlayStation 2 systems, which it markets in North America. To protect its copyrighted material, Sony employs an authentication process during software disc boot-up. Unauthorized copies fail to replicate a unique code present on authentic discs, blocking access to the content. 

Sony accused the Defendants of distributing devices such as HDLoader and modification chips that enable users to bypass this authentication technology. HDLoader allows unauthorized copying of PlayStation-compatible games to an external hard drive. Mod chips circumvent the authentication system, enabling the console to run unauthorized software. Other devices, including slide cards and Swap Magic, allow for disc swapping without activating the authentication sequence, solely aimed at circumventing Sony's protections.

Mr. Legault is the sole shareholder and president of Divineo, Inc., a Canadian corporation selling video game products online at divineo.com. Divineo SARL, a French corporation, is also involved in promoting and selling video game products, with Mr. Louarn as its officer and founder. Legault managed retail sales for Divineo in Canada and other countries without local stores, including the U.S., occasionally handling wholesale orders directed by Divineo SARL. The divineo.com website has listed various mod chips and devices for sale, notably the HDLoader, targeted primarily at a specialized audience, although Legault acknowledges the HDLoader also appealed to mainstream consumers.

In March 2006, Divineo indicated to the Plaintiff its intent to cease selling certain products to demonstrate good faith to Sony. Evidence presented by the Plaintiff shows Divineo's retail sales of 7,772 circumvention devices in the U.S. from late 2003 to mid-2005, along with wholesale sales, including shipments to California and Ohio residents. Former defendant Chau Ngo stated he placed a wholesale order for HDLoaders and had communications with Legault and Louarn, including a return for refund. Despite Legault's claims of no business dealings with Ngo, evidence suggests payments were made to Divineo UK, and all relations were with Louarn. Legault has not provided evidence to contradict testimonies regarding the functionality of the HDLoader and mod chips, which are primarily to bypass PlayStation's authentication processes.

Mr. Legault presents testimony indicating that certain devices can be utilized with PlayStation systems without infringing on the Plaintiff's copyrighted materials. He notes the existence of over 150 types of homemade software for PlayStation 2 and PSP, including a reprogrammed version of Space Invaders. Legault suggests that software developers might use Divineo's products to test their games as a cost-effective alternative to specialized Sony consoles. He also highlights the HDLoader instruction manual, which claims to enhance game loading times and user convenience by allowing games to be stored on hard disk drives.

Legault includes a legal notice from Divineo that places responsibility on users for the legality of their use of website materials. Following the Plaintiff's lawsuit against Divineo and three California purchasers on October 4, 2004, the Plaintiff sought a stipulation for Divineo and Legault to halt sales of circumvention devices, which they initially refused. However, Legault agreed to stop selling HDLoader software in February 2005.

Legault contests the claim of refusal to cease selling devices, stating he would have stopped sales without admitting liability to avoid legal action. The Plaintiff also initiated legal actions in French courts against Mr. Louarn and Divineo SARL in summer 2004, resulting in an order from the Commercial Court of Paris that required Divineo SARL and Louarn to cease all sales and references to HDLoader software. On September 21, 2004, they signed an Undertaking agreeing to prevent the manufacture or distribution of products that circumvent copy-protection. Legault asserts he was unaware of this agreement until the current proceedings and was assured by Louarn that it would not impact Divineo Canada.

An amended complaint filed on June 3, 2005, names Mr. Legault and other defaulting Defendants, alleging violations of the DMCA, the federal Copyright Act, the Lanham Act, and California's unfair competition law.

On September 12, 2005, Mr. Legault and Divineo responded to the amended complaint, acknowledging the Court's personal jurisdiction and admitting that mod chips can be used by consumers to play copied discs on PlayStation systems, but denying that this is their primary use. They asserted that they do not sell circumvention devices to resellers or wholesalers and primarily engage in retail sales, with limited exceptions. Mr. Legault admitted to inadequately responding to initial discovery requests, attributing this to the plaintiff's failure to negotiate and the constraints of Canadian law, referencing relevant Canadian privacy legislation.

On February 8, 2006, the plaintiff served additional discovery requests, to which Divineo and Mr. Legault failed to respond by the March 10, 2006 deadline and did not request an extension. Deposition notices were issued but stayed at Mr. Legault's request for time to secure new counsel, which did not occur. Mr. Legault expressed difficulties in communication due to limited English proficiency but did not demonstrate how this affected his representation. The plaintiff objected to Mr. Legault's declaration on hearsay and relevance grounds, and the court overruled some objections while denying others as moot.

The legal standard for granting summary judgment requires that no genuine disputes of material fact exist, favoring the nonmoving party's evidence and drawing reasonable inferences in their favor. The moving party must demonstrate the absence of material factual disputes, with material facts defined by substantive law.

A moving party that does not bear the burden of proof in a trial can meet its burden of production in two ways: by presenting evidence that negates an essential element of the nonmoving party's case or by demonstrating that the nonmoving party lacks sufficient evidence to meet its burden of persuasion at trial. If the moving party shows an absence of evidence supporting the nonmoving party’s claim, the burden shifts to the nonmoving party to provide specific evidence to establish that a dispute exists. Conversely, if the moving party negates an essential element of the nonmoving party's claim, it must provide affirmative evidence of that negation, after which the nonmoving party must again produce evidence to show a material fact dispute. If the moving party fails to meet its initial burden, the nonmoving party is not required to present any evidence, even if it ultimately bears the burden of persuasion at trial. When the moving party holds the burden of proof on an issue, it must make a prima facie showing with evidence that would entitle it to prevail if uncontradicted at trial. Once this is established, the nonmoving party must present specific facts to counter the moving party's prima facie case, maintaining a significant burden to contradict the evidence presented. The standard remains unchanged regardless of the factual complexity of the issue. 

The DMCA, enacted on October 28, 1998, prohibits circumventing technological measures that control access to copyrighted works. It also forbids the manufacture, importation, or distribution of products primarily designed to circumvent these measures, particularly if they have limited significant use beyond that purpose or are marketed for such circumvention.

Section 1201(b)(1) prohibits trafficking in devices specifically designed to circumvent technological measures that protect the rights of copyright owners. Circumvention is defined as avoiding, bypassing, or impairing such measures. A technological measure is considered effective if it limits the exercise of a copyright owner's rights. 

The Plaintiff has established a prima facie case that Mr. Legault violated the DMCA by trafficking in devices intended to bypass the PlayStation authentication system, which controls access to its copyrighted games. Mr. Legault's evidence fails to dispute the assertion that the primary function of the accused devices is circumvention. His claim that these products could be used without infringing copyright does not exempt him from liability for trafficking, as downstream users' lawful uses are irrelevant to the defendant's liability under the DMCA.

Mr. Legault contends that the PlayStation authentication process does not qualify as a technological measure under the DMCA due to its ineffectiveness against certain circumvention methods. However, the court rejects this argument, affirming that the presence of circumvention devices does not negate the effectiveness of technological measures. The court also cites precedent indicating that the statute protects against trafficking in circumvention devices, regardless of the circumstances or technological sophistication of users. Moreover, Divineo's legal notice to customers does not affect its liability under the DMCA.

Mr. Legault claims that witnesses Mr. Jessop and Mr. Ngo lack objectivity, with Mr. Jessop being a long-time Sony employee and Mr. Ngo cooperating with the Plaintiff to mitigate his liability. Despite potential bias, the Court determines that the witnesses' uncontradicted statements remain admissible, supporting the Plaintiff's motion for summary adjudication. The Court acknowledges some confusion between Mr. Legault and Mr. Louarn, but finds that the documents provided by Divineo and Mr. Legault, particularly the summary of sales of circumvention devices from late 2003 to mid-2005, sufficiently demonstrate their liability. Mr. Legault's additional evidence, which includes unrelated criticisms of Sony's antipiracy technology, does not create a factual dispute regarding his liability under the DMCA.

Under the DMCA, Plaintiffs may seek statutory damages ranging from $200 to $2,500 per violation. The Plaintiff has opted for statutory damages, and while Mr. Legault claims ignorance of the applicability of an agreement between Mr. Louarn and the Plaintiff, this does not negate his responsibility under the DMCA. The Court concludes that Mr. Legault's actions were willful following the Plaintiff's lawsuit filing in November 2004. 

A factual dispute exists over whether Mr. Ngo's wholesale purchases are attributable to Mr. Legault, as evidence presented is largely hearsay, and Mr. Legault denies selling devices to Mr. Ngo. The Court focuses on the undisputed evidence of retail sales, indicating Divineo sold 7,772 devices from November 2003 to June 2005, with an estimated additional 3,890 devices sold from July 2005 to March 2006 based on a disputed average monthly sales figure. Despite Mr. Legault's arguments that the average is skewed, he does not propose an alternative calculation. The Court determines a reasonable estimate for the last reported period is 224 devices per month, leading to a total of approximately 10,012 circumvention devices sold. Consequently, the Plaintiff is awarded a minimum statutory amount of $2,002,400.00.

The Court has granted the Plaintiff's request to enhance the statutory award against Mr. Legault to $800 per violation, totaling $3,750,200. This increase is based on Mr. Legault's incomplete discovery responses and willful violations of the DMCA, although his pro se status mitigated the consideration of discovery failures. The Court dismissed claims of greater harm beyond typical DMCA violations, deeming the damages sufficient as a sanction.

Additionally, the Court awarded reasonable attorneys' fees and costs due to Mr. Legault and Divineo's willful violations. For the defaulting defendants, Divineo U.K., Divineo SARL, and Max Louarn, the Plaintiff established liability for approximately 11,032 DMCA violations, resulting in a minimum statutory damages amount of $2,206,400. The Court enhanced the damages for 5,975 willful violations occurring after the defendants signed a prior undertaking, bringing their total to $5,791,400.

The Plaintiff's motion for default judgment was granted for the DMCA claims against these defaulting defendants, but the application for default judgment on copyright, Lanham Act, and California state law claims was denied and dismissed for lack of prosecution. The Court's ruling on the DMCA claims against both Mr. Legault and the defaulting defendants stands confirmed.

Plaintiff's claims against the defaulting Defendants are dismissed. The Court awards Plaintiff $3,750,200.00 in statutory damages from Mr. Legault and Divineo, jointly and severally, and $5,791,400.00 from Divineo U.K., Divineo SARL, and Mr. Louarn, jointly and severally. Plaintiff is also entitled to recover costs and reasonable attorneys' fees related to its DMCA claims, with Defendants jointly and severally liable for these fees. Remaining claims for trial include Plaintiff's federal copyright, Lanham Act, and California State law claims against Mr. Legault, as well as issues of additional damages related to purported wholesale sales by Mr. Legault and Divineo. Should Plaintiff choose not to pursue these claims, it may request dismissal, leading to a judgment on DMCA claims against all Defendants. A notification of this decision and an application for fees must be submitted within ten days to avoid a case management conference. The Court permanently enjoins all Defendants and their affiliates from selling or distributing devices that circumvent PlayStation security measures. The Court retains jurisdiction for three years post-judgment to modify or enforce this order, with potential for triple damages for violations found within that timeframe. Additional notes clarify procedural aspects, including Mr. Legault's awareness of summary judgment requirements, the limited probative value of shipping account data, and the hearsay status of certain statements. Divineo is in default due to lack of legal representation following the withdrawal of its counsel.