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In re Mann
MEMORANDUM DECISION
PETER H. CARROLL, Bankruptcy Judge
Plaintiff, Symantec Corporation ("Symantec") seeks a summary judgment against Defendant, Calvin Kwong Mann ("Mann") determining that Mann's debt to Symantec is nondischargeable under 11 U.S.C. § 523(a)(6). The court, having considered the pleadings, evidentiary record, and arguments of counsel, makes the following findings of fact and conclusions of law pursuant to F.R.Civ.P. 52(a)(1), as incorporated into FRBP 7052 and applied to adversary proceedings in bankruptcy cases.
The court also adopts and incorporates by reference into this Memorandum Decision the Separate Statement of Undisputed Facts and Conclusions of Law in Support of Symantec Corporation's Motion for Summary Judgment, except Conclusion of Law No. 145. To the extent that any finding of fact is construed to be a conclusion of law, it is hereby adopted as such. To the extent that any conclusion of law is construed to be a finding of fact, it is hereby adopted as such.
I. STATEMENT OF FACTS
Symantec designs, manufactures, publishes, and distributes software including Norton System Works, Norton Antivirus, Norton Utilities, pcAnywhere, Norton Ghost, WinFax PRO, Partition Magic, and Norton Internet Security. It owns a registered trademark for each of these products. Symantec owns registered copyrights for Norton Antivirus, Norton Utilities, Norton Internet Security, NortonGhost, and CleanSweep. Symantec contracts with a third-party, DisCopy Laboratories ("DCL") to manufacture the software. DCL ensures that all products are produced to Symantec's standards. Symantec sells its software only to authorized dealers, and produces software to be included with new computers as "original equipment manufacturer" or "OEM" disks. OEM disks are sold only to vendors and not to retail customers. Symantec's software contains certain characteristics that are not present in unauthorized replications of the software. If the software does not contain these characteristics, the software is not authorized by Symantec and is counterfeit.
Mann, who has also used the name Calvin Chik, operated a fictitious business entity known as Rowcal Distribution. Mann was in charge of ordering all Symantec software for the business. Mann's suppliers were Ted Wu ("Wu") and Lily Zheng ("Zheng"), who operated HiTech Computer Services and Tedly Electronics, LLC. Mann advertised, marketed, and sold Symantec software primarily on the website www.rowcal.com. Mann purchased counterfeit copies of Symantec's proprietary works. Each disk obtained by Mann contained unauthorized copies of Symantec's copyrighted material. Mann admits that he was banned from selling Symantec products on eBay. Mann testified by deposition that he remembered clearly not being able to sell Symantec software on eBay because he was banned. On March 24, 2005, Mann was visited by William R. Baird ("Baird"), a Symantec employee, who informed Mann that the products that he was selling were counterfeit. Mann turned over 45 CDs to Baird on March 24, 2005. Each of these disks bore one or more of Symantec's registered trademarks. Each of these disks were determined by Symantec to be counterfeit and made to look exactly like authorized products of Symantec. On March 25, 2005, Symantec sent a letter to Mann informing him that he was selling counterfeit Symantec products and demanding that he immediately cease and desist from further sales of counterfeit software. Mann stopped selling the counterfeit Symantec software products for a few days, but then resumed marketing the counterfeit software for approximately a year. Mann did not contact Symantec to confirm whether the software he was continuing to sell was authentic. On June 21, 2005, Symantec sent written notice to Tedley Computer, Hi-Tech Computer Services, Tedley Electronics, LLC, Wu, and Zheng informing them that they were selling counterfeit copies of Symantec software products. Symantec's written demand that they cease and desist from doing so was ignored.
On January 29, 2007, Symantec filed a Complaint against Mann, Rowcal Distribution, and other non-debtor third-parties in Case No. 07-00676 -ODW (FFMx), styled Symantec Corporation v. Mann, et al. , in the United States District Court, Central District of California, seeking damages for alleged 1) trademark infringement; 2) false designation of origin under the Lanham Act; 3) copyright infringement; 4) fraud; 5) trafficking in counterfeit labels, documentation and/or packaging in violation of 18 U.S.C. § 2318; 6) unfair competition; 7) common law unfair competition; 8) state law false advertising; 9) intentional interference with prospective economic advantage; and 10) negligent interference with prospective economic advantage. A default judgment was entered against the non-debtor defendants.
On February 29, 2008, Mann filed a voluntary petition under chapter 7 of the Bankruptcy Code. Mann received a discharge on May 28, 2008, and the case was closed as a "no-asset" case on June 12, 2008.
Unless otherwise indicated, all "Code, " "chapter" and "section" references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330 after its amendment by the Bankruptcy Abuse and Consumer Prevention Act of 2005, Pub. L. 109-8, 119 Stat. 23 (2005). "Rule" references are to the Federal Rules of Bankruptcy Procedure ("F.R.Civ.P."), which make applicable certain Federal Rules of Civil Procedure ("FRBP").
On May 19, 2008, Symantec timely filed its complaint in this adversary proceeding seeking a determination that Mann's debt to Symantec is nondischargeable under 11 U.S.C. §§ 523(a)(2), (a)(4), and (a)(6). Mann filed an answer to Symantec's complaint on August 18, 2008. On January 13, 2009, Symantec moved for summary judgment on its cause of action under 11 U.S.C. § 523(a)(6). On February 3, 2009, Mann filed his response in opposition to the motion. Symantec filed its reply to Mann's opposition on February 12, 2009. After a hearing on March 31, 2009, the matter was taken under submission.
II. DISCUSSION
This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (I), and (O). Venue is appropriate in this court. 28 U.S.C. § 1409(a). To prevail under 11 U.S.C. § 523(a)(2)(A), (a)(4), or (a)(6), the plaintiff must establish the allegations of the complaint by a preponderance of the evidence. Grogan v. Garner , 498 U.S. 279, 291 (1991). Objections to the dischargeability of a debt are to be literally and strictly construed against the objector and liberally construed in favor of the debtor. Quarre v. Saylor (In re Saylor) , 108 F.3d 219, 221 (9th Cir. 1997).
A. Summary Judgment Standard.
Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." F.R.Civ.P. 56(c). "The purpose of summary judgment is to avoid unnecessary trials when there is no dispute as to the [material] facts before the court." Nw. Motorcycle Ass'n v. U.S. Dep't of Agric. , 18 F.3d 1468, 1471 (9th Cir. 1994). Under Rule 56(c), the moving party bears the initial burden to establish that there are no genuine issues of material fact to be decided at trial. Celotex Corp. v. Catrett , 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248-50 (1986). "A material fact' is one that is relevant to an element of a claim or defense and whose existence might affect the outcome of the suit. The materiality of a fact is thus determined by the substantive law governing the claim or defense." T.W. Elec. Serv. v. Pac. Elec. Contractors Ass'n , 809 F.2d 626, 630 (9th Cir. 1987). Genuine issues of material fact are those "factual issues that make a difference to the potential outcome and that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.'" Svob. v. Bryan (In re Bryan) , 261 B.R. 240, 243 (9th Cir. BAP 2001) (quoting Anderson , 477 U.S. at 250). If the movant bears the burden of persuasion, the motion must be supported by evidence establishing the existence of each and every element essential to its case. See Daubert v. Merrell Dow Pharmaceuticals, Inc. , 43 F.3d 1311, 1315 (9th Cir. 1995), cert. denied, 516 U.S. 869 (1995).
The burden then shifts to the nonmoving party to produce "significantly probative evidence" of specific facts showing there is a genuine issue of material fact requiring a trial. T.W. Elec. Serv. , 809 F.2d at 630 ( citing F.R.Civ.P. 56(e)). The nonmoving party cannot "withstand a motion for summary judgment merely by making allegations; rather, the party opposing the motion must go beyond its pleadings and designate specific facts by use of affidavits, depositions, admissions, or answers to interrogatories showing there is a genuine issue for trial." In re Ikon Office Solutions, Inc., Sec. Lit. , 277 F.3d 658, 666 (3d Cir. 2002). If the nonmoving party fails to establish a triable issue on an essential element of the movant's case, the moving party is entitled to judgment as a matter of law. See United States v. Shumway , 199 F.3d 1093, 1104 (9th Cir. 1999).
B. Trademark Infringement & False Designation of Origin.
The elements necessary to establish a trademark infringement claim under § 32 of the Lanham Act are: 1) the existence of a mark; and 2) the subsequent use of that mark by another in a manner likely to create consumer confusion. 15 U.S.C. § 1114(1); Comedy III Productions, Inc. v. New Line Cinema , 200 F.3d 593, 594 (9th Cir. 2000). False designation of origin claims under § 43(a) of the Lanham Act apply to both registered and unregistered marks and protect against a wider range of practices. 15 U.S.C. § 1125(a)(1); Brookfield Communications, Inc. v. West Coast Entertainment Corp. , 174 F.3d 1036, 1046 n.6 & 1047 n.8 (9th Cir. 1999). The elements necessary to establish a false designation of origin claim are identical to those for trademark infringement. Id.
Symantec has established the first element-the existence of a mark. Symantec owns a registered trademark for Symantec, Norton System Works, Norton Antivirus, LiveUpdate, Goback, CleanSweep, Norton Utilities, pcAnywhere, Norton Ghost, and WinFax Pro. Mann admits that Symantec owns these trademarks. These facts are undisputed.
Symantec has also established that Mann used one or more of these trademarks in a manner likely to create consumer confusion. To determine whether there is a likelihood of confusion, a court considers the following eight factors: (1) similarity of marks; (2) relatedness of the plaintiff's and defendant's products or services; (3) marketing methods; (4) strength of plaintiff's marks; (5) defendant's intent in selecting the mark; (6) evidence of actual confusion; (7) likelihood of expansion into other markets; and (8) the degree of care likely to be exercised by purchasers. Downing v. Abercrombie & Fitch , 265 F.3d 94, 1008 (9th Cir. 2001) (citing AMF v. Sleekcraft Boats , 599 F.2d 341, 348 (9th Cir. 1979)). Some of these factors are more important than others and they must be reviewed on a case-by-case basis. Brookfield Comm'n, 174 F.3d at 1058. In applying the factors to this case, the court finds that Mann's actions created a likelihood of consumer confusion.
1. Similarity of Marks
Mann admits turning over 45 CDs to Baird. Mann also admits that each of these disks contained copies of Symantec's copyrighted material, including copyrighted software and manuals contained in different versions of Symantec's products. Each of these CDs bore one or more of Symantec's registered trademarks. The CDs were counterfeit and made to look exactly like Symantec's authorized products. Symantec has established that Mann sold software with marks similar to those registered by Symantec. Because there is a likelihood that consumers were confused by the similarity of the products, the court finds that this factor weighs against Mann.
2. Relatedness of Symantec's and Mann's Products or Services
Mann admits that all of the CDs sold were produced to look exactly like genuine Symantec products. Because it is likely that the public would believe that Mann was selling an authentic Symantec product when, in fact, the product was counterfeit, this factor weighs against Mann
3. Marketing Methods
Mann admits that he advertised, marketed, and sold the counterfeit Symantec products on the Internet at www.rowcal.com. Symantec also has a website through which consumers are directed to authorized distributors. Rowcal Distribution is not an authorized dealer of Symantec products, but Mann engaged in the business of advertising, marketing, and selling products through Rowcal Distribution purporting to be genuine Symantec products. There is a likelihood that consumers could be confused that Rowcal Distribution was authorized to sell Symantec products when, in fact, it was merely a distributor of counterfeit software.
4. Strength of Symantec's Marks
There is no dispute that Symantec's marks are strong and recognizable. Mann admits that Symantec has used their registered trademarks continuously to identify its products. These trademarks are used both domestically and internationally. This factor is undisputed and weighs against Mann.
5. Defendant's Intent in Selecting the Mark
Mann admits that the counterfeit software sold was intended to look exactly like Symantec's software. Mann advertised, marketed and sold his counterfeit products to the same pool of customers targeted by Symantec. In so doing, Mann sought to profit from the good will and business reputation that had attached to Symantec, its trademarks and copyrighted products. This factor weighs against Mann.
6. Evidence of Actual Confusion
According to the declaration of Marc Brandon, Symantec's director of Global Brand Protection, Symantec received numerous inquiries and requests for support from consumers who had purchased software from Mann. Symantec examined copies of the software purchased by a number of these consumers from Mann and determined them to be counterfeit. The court infers from this evidence that consumers were actually confused by Mann's actions.
7. Likelihood of Expansion into Other Markets
The summary judgment evidence establishes that Mann intended to advertise and sell the counterfeit products to Symantec's target market. When the goods are closely related, any expansion is likely to result in direct competition. Sleekcraft , 599 F.2d at 354. Symantec and Mann sold their products to the same pool of customers. Mann's actions created direct competition with Symantec thereby creating a likelihood of confusion as to the authenticity of the product. This factor weighs against Mann.
8. The Degree of Care Likely to be Exercised by Purchasers
There is a strong likelihood that a reasonably prudent consumer would be confused given the similarities existing between genuine Symantec's products and the counterfeit products sold by Mann. The counterfeit CDs sold by Mann were produced to look exactly like Symantec's registered software. This factor weighs against Mann.
Based on the foregoing, Symantec has established a prima facie case of infringement by Mann of Symantec's registered trademarks in violation of 15 U.S.C. § 1114(1) and false designation of origin in violation of 15 U.S.C. § 1125(a)(1).
C. Copyright Infringement.
Symantec owns registered copyrights for Norton AntiVirus, pcAnywhere, Norton Ghost, Norton System Works, Norton Internet Security, WinFax PRO, and their component software programs. The owner of a registered copyright has exclusive rights to authorize or distribute copies of the copyrighted work to the public. 17 U.S.C. § 106(3); Parfums Givenchy, Inc. v. Drug Emporium, Inc. , 38 F.3d 477, 480 (9th Cir. 1994). Distribution of unauthorized copyrighted materials is grounds for a cause of action for infringement. Id. at 479. The summary judgment evidence supports a finding that Mann advertised, marketed, and sold counterfeit copies of Symantec's copyrighted works to the public without Symantec's authorization and in violation of Symantec's oral and written demand to cease and desist. Therefore, Symantec has established a prima facie case of infringement by Mann of Symantec's registered copyrights in violation of 17 U.S.C. § 106(3).
D. Trafficking in Counterfeit Labels.
Any copyright owner who is injured, or threatened with injury, by one who knowingly traffics in a counterfeit label affixed to, enclosing, or accompanying a copy of a computer program in violation of 18 U.S.C § 2318(a)(1)(B) may bring a civil action for reasonable attorneys fees and costs together with actual damages and profits or, alternatively, statutory damages. 18 U.S.C. § 2318(f). For the reasons previously stated, the court finds that Symantec has established a prima facie case that Mann trafficked in counterfeit labels by Mann in violation of 18 U.S.C. § 2318(a)(1)(B).
D. Section 523(a)(6)
Section 523(a)(6) excepts from discharge debts resulting from "willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). A "deliberate or intentional injury" is required before § 523(a)(6) will render a debt nondischargeable. See Kawaaukau v. Geiger , 523 U.S. 57, 61 (1998) (stating that nondischargeability under § 523(a)(6) "takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury"). Section 523(a)(6) requires separate findings on the issues of "willful" and "malicious." The "willful" injury requirement of § 523(a)(6) is met "when it is shown either that the debtor had a subjective motive to inflict injury or that the debtor believed that injury was substantially certain to occur as a result of his conduct." Carrillo v. Su (In re Su) , 290 F.3d 1140, 1144 (9th Cir. 2002) (quoting Petralia v. Jercich (In re Jercich) , 238 F.3d 1202, 1208 (9th Cir.), cert. denied, 533 U.S. 930 (2001)). A "malicious injury" involves "(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse." Id. at 1146-47 (quoting Jercich , 238 F.3d at 1209). See, e.g., Diamond v. Kolcum (In re Diamond) , 285 F.3d 822, 829 (9th Cir. 2002) (holding that a state court jury finding that the debtors "intentionally caused injury" to the creditor "without just cause" was entitled to preclusive effect for purposes of § 523(a)(6)); Murray v. Bammer (In re Bammer) , 131 F.3d 788, 791 (9th Cir. 1997) (en banc) (stating that malice under § 523(a)(6) "does not require a showing of biblical malice, i.e., personal hatred, spite or ill-will").
1. Willful Injury
Symantec asserts that the willful requirement is satisfied because the evidence shows that: (1) Mann advertised, marketed, and sold counterfeit Symantec products; (2) Mann continued to advertise, market, and sell counterfeit Symantec products after being banned from eBay for doing so; and (3) Mann continued to advertise, market, and sell counterfeit Symantec products after receiving oral and written demands from Symantec to cease and desist selling the counterfeit software.
Based on the summary judgment record, the court finds that Mann's conduct was willful. The evidence establishes that Mann sold counterfeit software that was produced to look exactly like Symantec software. On March 24, 2005, Mann was notified in person by Baird, Symantec's representative, to stop purchasing and selling the counterfeit software. On March 25, 2005, Mann was given written notice from Symantec demanding that he cease and desist selling the counterfeit software. Mann admits that he was banned from selling Symantec products on eBay. He testified by deposition remembering clearly not being permitted to sell Symantec software on eBay because he was banned. Mann admitted that, despite being banned from selling Symantec products on eBay and being instructed to stop selling counterfeit copies of Symantec software, he continued to sell counterfeit software for approximately one year. Mann did not close his business until March of 2006. In sum, Mann's actions were deliberate and intentional. Mann had a subjective motive to inflict injury on Symantec.
To defeat Symantec's summary judgment motion, Mann had the burden of producing significantly probative evidence to establish a triable issue on an essential element of Symantec's case. Essentially, Mann argues that he only continued selling the counterfeit software after March 2005 because Zheng, a Hi-Tech owner, assured him that the products were different from Symantec products and not counterfeited. However, Mann's opposition is not supported by Zheng's declaration or any evidence other than his own representation. Mann has not produced significantly probative evidence to raise a genuine issue of fact regarding willfulness. The summary judgment evidence supports a finding that Mann knew that he was selling counterfeit software, and continued to do so despite a specific demand from Symantec to cease and desist.
2. Malicious Injury
A malicious injury involves: "(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse. Carrillo v. Su (In re Su) , 290 F.3d 1146-47 (9th Cir. 2002) (citing Petralia v. Jerich ( In re Jercich , 238 F.3d 1202, 1209 (9th Cir. 2001)). Malice cannot be implied from willfulness. In re Barbazoa, 543 F.3d 712. However, the facts used to establish malice and willfulness may overlap. Id.
Based on the summary judgment record, the court finds that the evidence establishes that Mann's conduct was malicious. Mann committed a wrongful act, and intentionally caused injury to Symantec. Mann sold counterfeit Symantec software, and continued to do so despite a specific demand from Symantec to cease and desist. Mann's wrongful conduct necessarily caused injury to Symantec. Symantec is in the business of producing and selling software. Symantec's registered trademarks and copyrights ensure that their product will be only be used as authorized by Symantec. Mann advertised, marketed and sold his counterfeit products to the same pool of customers targeted by Symantec. In so doing, Mann sought to profit from the good will and business reputation that had attached to Symantec, its trademarks and copyrighted products. Mann's unauthorized actions were intentional and necessarily caused damage to Symantec's proprietary interests in its registered trademarks and copyrights. Finally, Mann has not provided a just cause or excuse. Mann has not produced any evidence to establish that it was reasonable to continue to sell counterfeit products after told to quit. Mann had already been banned from eBay and the evidence indicates that he knew it was wrong to sell counterfeit software. Mann's limited business experience and cultural limitations are not valid excuses and are not supported by evidence.
Symantec is entitled to a partial summary judgment against Mann on all elements of Symantec's claim for relief against Mann under § 523(a)(6), except the issue of damages, as a matter of law.
E. Damages.
In its motion, Symantec has elected to seek the maximum amount of statutory damages (1) permitted under 15 U.S.C. § 1117(c) attributable to Mann's trademark infringement; (2) permitted under 17 U.S.C. § 504(c) attributable to Mann's copyright infringement; and (3) permitted under 18 U.S.C. § 2318(f)(4) attributable to Mann's trafficking in counterfeit labels. However, the court has wide discretion in awarding statutory damages and Symantec has not provided evidence to assist the court on the issue of damages. Therefore, the court finds there is a genuine issue of material fact regarding Symantec's damages attributable to Mann's trademark infringement, copyright infringement, and trafficking in counterfeit labels.
Where a counterfeit mark is used, the victim of infringement "may elect, at any time before final judgment is rendered by the trial court, to recover, instead of actual damages and profits under [15 U.S.C. § 1117(a)], an award of statutory damages for any such use in connection with the sale, offering for sale, or distribution of goods or services in the amount of -
Where liability for an infringement has been established, the copyright owner "may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits [under 17 U.S.C. § 504(b)], an award of statutory damages for all infringements involved in the action, with respect to any one work... in a sum of not less than $750 or more than $30, 000 as the court considers just." 17 U.S.C. § 504(c)(1). If the court finds that the infringement was willful, "the court in its discretion may increase the award of statutory damages to a sum of not more than $150, 000." 17 U.S.C. § 504(c)(2).
CONCLUSION
Symantec is entitled to a partial summary judgment against Mann on all elements of Symantec's claim for relief against Mann under § 523(a)(6), except the issue of damages. The issue concerning the amount of Symantec's nondischargeable claim against Mann under § 523(a)(6) will be reserved for trial.
A separate order and judgment will be entered consistent with this opinion.
(1) not less than $500 or more than $100, 000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just; or
(2) if the court finds that the use of the mark was willful, not more than $1, 000, 000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.
15 U.S.C. § 1117(d).
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