IP Law Daily, COPYRIGHT—N.D. Ill.: Owner of allegedly infringed copyright succeeded in maintaining injunction on infringer’s sales, (Aug 13, 2024)

By Deirdre Kennedy, J.D.

The copyright owner was able to show that it would succeed on the merits, that it would suffer irreparable harm in the absence of the injunction, and that the relief provided was equitable.

Defendants in a copyright dispute could not persuade the court to dissolve a preliminary injunction against them because they could not show that the plaintiff did not have valid copyrights over the allegedly infringed works, the federal district court in Chicago has held. The defendants also failed to provide adequate documentary evidence showing their sales and profits in their attempt to convince the court to unfreeze their assets (Delta Technology Development LLC v. Bigjoys, No. 1:24-cv-02406 (N.D. Ill. Aug. 12, 2024)).

Delta Technology Development LLC (Delta), a design company that creates and sells inflatable lawn ornaments, sued Defendants BIGJOYS and Seasonblows.com (BIGJOYS), two China-based online retailers that share a common owner, for violating the Copyright Act by selling products online that allegedly violated two of Delta’s copyrights. The court granted Delta an ex parte temporary restraining order (TRO) on March 28, 2024, which it converted into an ex parte preliminary injunction on April 4, 2024. As part of the TRO and preliminary injunction, the court ordered Amazon, the platform through which BIGJOYS sold the allegedly infringing products, to freeze all of BIGJOYS’ assets under its control.

Delta created the drawings and model (the Works) for the inflatables at issue in this case in 2022. Delta obtained Certificate of Registration VAu 1-513-589 from the United States Copyright Office (USCO) for the drawings with an effective date of December 11, 2023, and it obtained Certificate of Registration VAu 1-514-819 from the USCO for the pictures of a model inflatable with an effective date of December 15, 2023. Both Certificates of Registration list the year of completion as 2023, which Delta asserts is a typographical error.

BIGJOYS received copies of the drawings for the inflatable from Shanghai Chengchunjun E-commerce Co., Ltd. (Chengchunjun), Delta’s China-based business affiliate. According to Leilin Liu, owner of BIGJOYS, Chengchunjun provided BIGJOYS with the drawings “to manufacture two pieces of sample Products.” However, after creating the samples, BIGJOYS and Chengchunjun “did not reach a subsequent deal” to mass-produce the inflatables. Liu said that he understood that Chengchunjun decided not to commercialize the Works. Delta did not provide BIGJOYS with permission to create products resembling the Works, and stated that it planned to license the Works to other online retailers.

Despite the lack of a deal, BIGJOYS produced and sold inflatables based off the Works. They successfully produced and sold several units of the inflatables. According to Liu’s declarations, BIGJOYS made 378 sales on Amazon that generated a total of $40,794.28 in revenue. Liu estimates that BIGJOYS derived $4,045.75 in profit from these sales, due to a cost of goods sold (COGS) of $24,003.00, “FBA delivery” expenses of $3,386.88, and other miscellaneous commissions and fees. Liu did not provide business records to explain how he calculated those figures.

After the court imposed the preliminary injunction, BIGJOYS were unable to access any assets contained in Amazon accounts. According to Liu’s declaration accompanying BIGJOYS’ reply brief, BIGJOYS is currently unable to access $92,528.62 held in Amazon accounts. BIGJOYS moved the court to dissolve the preliminary injunction—claiming that Delta lacked valid copyrights over the allegedly infringed works—or, in the alternative, to reduce the asset freeze because the amount of assets frozen exceeds Delta’s potential equitable recovery.

Preliminary injunction. In considering whether or not to grant or remove a TRO or preliminary injunction, courts must weigh the irreparable harm that the moving party would endure without the protection of the preliminary injunction against any irreparable harm the nonmoving party would suffer if the court were to grant the requested relief. Although the court had already granted Delta a preliminary injunction, it did so on an ex parte basis under circumstances that closely resembled a TRO, and without the benefit of adversarial briefing. Thus, Delta bears the burden of persuading the court that it should not disturb the injunction.

BIGJOYS argued that the court should lift the preliminary injunction because Delta failed to satisfy any of the three elements necessary for equitable relief. Delta contended that all three factors weighed in favor of leaving the order in place. The court assessed each element in turn.

Success on the merits. BIGJOYS contended that Delta was unlikely to succeed on the merits of its claim because it could not show “ownership of a valid copyright.” They did not dispute that they used the Works to create the allegedly infringing products, and argued that they lawfully obtained copies of the designs they used to build the allegedly infringing products in 2022 from Chengchunjun—not Delta—and the Certificates of Registration that Delta obtained from the USCO show that Delta created the Works in 2023, long after BIGJOYS first obtained the designs.

Delta responded that it did create the Works in 2022 and simply erred when filing its application for the Certificates of Registration, which it argued does not invalidate its copyrights. Delta further stated that Chengchunjun was its China-based business partner, and that Delta gave Chengchunjun permission to share the Works with BIGJOYS for them to manufacture physical products to sell. Delta pointed to Liu’s first declaration in which he acknowledged that Chengchunjun gave him “the design drawing to manufacture two pieces of sample Products” and that he “did not reach a subsequent deal with [Chengchunjun] for mass production” of goods based on the Works as evidence that he understood his company was infringing the Works.

This evidence showed that Delta was likely to succeed in proving that it owned valid copyrights to the Works and that BIGJOYS infringed them, the court found. Delta was correct that the error it made in registering the Works with the USCO does not invalidate its copyright protections. The Copyright Act clearly states that a copyright certificate is valid “regardless of whether the certificate contains any inaccurate information” unless the applicant included the inaccurate information “with knowledge that it was inaccurate” and the inaccuracy “would have caused the Register of Copyrights to refuse registration.” BIGJOYS did not argue that Delta knowingly submitted incorrect information when it obtained its Certificates of Registration, or that Delta’s copyrights were invalid for other reasons. Accordingly, the court found that Delta possessed valid copyrights over the Works.

The court also found that BIGJOYS copied the Works. BIGJOYS admitted to obtaining the Works from Chengchunjun, which is Delta’s business affiliate in China. BIGJOYS’ owner, Liu, stated that he received “the design drawing to manufacture two pieces of sample Products” and that he “did not reach a subsequent deal with [Chengchunjun] for mass production” of goods. The fact that his companies then produced and sold products resembling the Works created a presumption of infringement.

With both elements of the test for copyright infringement satisfied, the court found that Delta was likely to succeed on the merits of its claim.

Irreparable harm. While Delta was likely to succeed on the merits of its claim, it also must show that it would likely suffer irreparable harm absent an injunction. BIGJOYS argued that Delta failed to persuasively argue that it would suffer irreparable harm because it “failed to provide any evidence that the quality of [BIGJOYS’] goods is substandard, or that any consumers have been tricked into believing that they are purchasing products offered by [Delta], or that any brand confidence or reputation has actually been harmed.”

The court determined that BIGJOYS’ demand for conclusive proof that Delta will certainly suffer irreparable harm asked too much of Delta at the preliminary injunction stage. It was enough for Delta to “point[] towards potential harm to goodwill, reputation, brand confidence, potential lost market share, and relinquished control of nature and quality of germane products in connection with their copyright.” Although Delta’s licensing plans have not yet come to fruition, BIGJOYS has already sold at least 378 units of an allegedly infringing product making Delta’s concerns well-founded. Therefore, the court found that Delta was likely to face irreparable harm absent injunctive relief.

Balance of equities. Finally, the court considered whether the balance of equities justified a preliminary injunction. “This involves considering the public interest and effects of the preliminary injunction on ‘people and institutions that are not parties to the case.’ BIGJOYS’ argument that the asset freeze the injunction imposes prevents it from engaging in normal operations did not give the court reason to find that the public’s interest weighed against the injunction. Accordingly, the court found that the balance of equities justified injunctive relief. Because all three elements of the test for a preliminary injunction favored Delta, the court found that the preliminary injunction already in place was justified and denied BIGJOYS’ motion to dissolve it.

Freeze of assets. BIGJOYS had also asked the court to reduce the asset freeze to the amount of its profits from allegedly infringing sales or to lift the asset freeze in its entirety and allow it to post a bond. The court noted, however, that Liu failed to submit adequate documentary evidence to support the amount of profit he claimed BIGJOYS derived from the allegedly infringing sales. Liu provided no business documents or other proof to support the numbers he submitted to the court. Accordingly, the ccurtourt found that BIGJOYS failed to meet its burden to justify modifying the asset restraint.

The Case is No. 1:24-cv-02406.

Judge: Ellis, S.

Attorneys: Abby Marie Neu (Whitewood Law PLLC) for Delta Technology Development LLC. Benjamin Solter (Cross-Boarder Counselor, LLP) for BigJoys and Seasonblows.com.

Companies: Delta Technology Development LLC; BigJoys; Seasonblows.com

Cases: Copyright TechnologyInternet IllinoisNews