Opinion
02 Civ. 7710 (CSH)
November 26, 2002
MEMORANDUM OPINION
This opinion is being filed pursuant to the Order issued on October 4, 2002 by this Court denying the motion of plaintiff DownloadCard, Inc. ("DownloadCard") for a preliminary injunction against defendant Universal Music Group, Inc ("UMG").
DownloadCard obtained an order to show cause on September 25, 2002, by which it sought to enjoin UMG from the retail and wholesale distribution of Bounce, an album recorded by the musical group Bon Jovi, scheduled for release on October 8. The Court issued an opinion and order on October 4, 2002, denying a preliminary injunction and outlining in brief the reasons for doing so. The exigencies of time prevented the preparation of a more comprehensive opinion to accompany the order of denial. This is that opinion.
Factual Background
DownloadCard is a company that provides record promotions a system "for managing and tracking customers using Personal Identification Numbers ("PIN's) printed on collectible cards, stickers, CDs or other items." Plaintiffs Memorandum of Law in Support of Its Motion for a Preliminary Injunction ("Plaintiffs Memorandum") at 1. The services it provides allow clients, like UMG, to collect and monitor demographic data about individual customers, and give purchasers of the CDs access to promotional items that non-purchasers do not have, thereby providing an anti-piracy incentive. Plaintiffs Memorandum at 1-3.
From March 2002 to July 2002, DownloadCard worked with UMG to create a promotional framework for the impending release of Bounce, an album recorded by the musical group Bon Jovi scheduled for release on October 8, 2002. The Bounce project was never finalized and DownloadCard's services were dropped for this particular album. However, on September 16, 2002, an article in the Wall Street Journal appeared describing the promotional campaign to be implemented with the release of Bounce. The article stated that every copy of the album would contain a PIN through which PIN-holders could obtain premium offers and content, and enumerated the anti-piracy advantages of the campaign. DownloadCard alleges that it was surprised by the article, since the campaign described therein was essentially the one it had created for UMG, stripped only of DownloadCard itself. Plaintiffs Memorandum at 2.
DownloadCard alleged that the Bounce campaign violated signed agreements between itself and UMG and constituted a misappropriation of trade secrets, thereby violating the Lanham Act and New York State law. It further alleged that because it had no adequate remedy at law, the promotional campaign accompanying the release of Bounce must be prevented by a preliminary injunction. Plaintiffs Memorandum at 3.
Discussion
The standard for obtaining a preliminary injunction in the Second Circuit is as follows:
To obtain a preliminary injunction, a party "must show (a) that it will suffer
irreparable harm in the absence of an injunction; and (b) either (i) a likelihood of success on the merits or (ii) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the movant's favor."Fabkom, Inc. v. R.W Smith Associations, Inc., et al., 1996 WL 531873, *5 (S.D.N.Y.) (quoting Tom Doherty Assoc., Inc. v. Saban Entertainment, Inc., 60 F.3d 27, 33 (2d Cir. 1995)). Thus a plaintiff must first show that he will suffer irreparable harm in the absence of an injunction. If the plaintiff can show this, he must then demonstrate either a likelihood of success on the merits, or that there are sufficiently serious questions to be litigated and that the balance of hardships tip decidedly in his own favor. The Court will address each of these inquiries below.
The Second Circuit cases articulating these familiar principles are legion. Judge Mukasey's opinion in Fabkom arises out of the somewhat analogous context of computer software. The parties at bar discuss the case in their briefs.
A. Whether DownloadCard has shown it will suffer irreparable harm
DownloadCard makes two arguments in support of its claim that it will suffer irreparable harm: (1) that "reverse passing off' the product, here the Bounce promotion, creates confusion as to its origin from which non-compensable damages follow; and (2) that irreparable damages are presumed by operation of law where a defendant has misappropriated a trade secret. Plaintiffs Memorandum at 16-17. For reasons discussed below, I find neither argument persuasive on the current record.
Plaintiffs "reverse passing off' claim arises out of case law generated by section 43(a) of the Lanham Act, 15 U.S.C. § 1125 (a), which prohibits misrepresentation likely to cause confusion about the source of the product. It is unclear whether or not this legal principle can be applied to the case at bar, since previous cases relying on "passing off' or "reverse passing off' involve literary, documentary, or graphic works that lend themselves to copyright protection. See e.g., Waldman Publ'g Corp. v. Landoll, Inc., 43 F.3d 775 (2d Cir. 1994) (involving the publishing of material substantially similar to that originating with plaintiff without designating origin); Carell v. The Shubert Organization, Inc., 104 F. Supp.2d 236 (S.D.N.Y. 2000) (involving copyright of facial makeup designs and sketches for the musical Cats); Margo v. Weiss, 1998 WL 2558 (S.D.N.Y. 1998) (analyzing as reverse passing off claim songwriter's allegations of failure to provide ownership credit); Netzer v. Continuity Graphics Assocs, Inc., 963 F. Supp. 1308 (S.D.N.Y. 1997) (alleging misattribution of comic book character); Rosenfeld v. W.B. Saunders, 728 F. Supp. 236 (S.D.N.Y. 1990) (involving a multivolume treatise on plastic surgery). Assuming without deciding that the facts alleged by DownloadCard are covered under this theory, there is still insufficient evidence to demonstrate that DownloadCard meets the four-pronged test of "reverse passing off."
Judge Schwartz has usefully written that § 43(a)(1)(A) of the Lanham Act "forbids not only "passing off,' in which A promotes A's products under B's name, but also "reverse passing off,' in which A promotes B's products under A's name." Carrel, 104 F. Supp.2d at 259. To succeed on a reverse passing off claim, a plaintiff must establish: "(i) that the work at issue originated with the plaintiff; (ii) that the origin of the work was falsely designated by the defendant; (iii) that the false designation of origin was likely to cause consumer confusion; and (iv) that the plaintiff was harmed by the defendant's false designation of origin." Id. (citing Waldman Publ'g, 43 F.3d at 781-85). Plaintiff falls short on the first and third prongs of this standard.
Regarding the first inquiry, other than a bare allegation that the Bounce promotional campaign originated with DownloadCard during the brainstorming sessions that occurred between March and July 2002, there is no further evidence submitted that the details of the promotion created by DownloadCard were incorporated in the eventual promotion undertaken by UMG. DownloadCard provides (1) copies of an e-mail exchange regarding whether DownloadCard could furnish the promotional cards without furnishing the rest of the services, and (2) documents regarding varying levels of service that DownloadCard could provide along with their respective price quotes. Affirmation of Eric Holt, Exs. B C. However, providing price quotes and simply discussing a PIN-related promotion alone do not illustrate that the work at issue, namely the entirety of the Bounce campaign, originated with the plaintiff. At most DownloadCard has made an argument that it planted the seed for a promotion that revolves around the use of PINs and without further evidence, this does not suggest that the promotion originated with the plaintiff.
The plaintiff also fails on the third prong of the inquiry, regarding whether or not the false designation of origin is likely to cause consumer confusion. Plaintiff included e-mails from individuals who purchased CD recordings who communicated with it directly regarding varying album promotions, Affirmation of Eric Holt, Ex. A, to indicate that it is so tied to the notion of PIN-related promotions that consumers bypass the album promoter and go directly to it, the promotion servicer. However, five such e-mails from different album consumers is insufficient to prove such a connection. DownloadCard also encloses an e-mail from Janet Stampler, the Vice President of New Media at Atlantic Records, Id., Ex. D, which states: "Got a question for you . . . read about this Bon Jovi promotion with Vivendi Universal. Is that you guys working with them?" to illustrate confusion of origin. Notwithstanding the Declaration of Janet Stampler, submitted by the defendants, that indicated she did not assume that DownloadCard "is the only company capable of providing access to secure Internet content via an individual serial number, " her e-mail does not indicate that she did so assume. It illustrates a curiosity about origin, but this curiosity should not be conflated with confusion.
For these reasons, DownloadCard cannot base a showing of irreparable harm upon a reverse passing off theory. Plaintiff asserts in the alternative that irreparable harm should be presumed since UMG misappropriated a trade secret. However, DownloadCard does not provide adequate evidence to support the underlying claim. There are multiple tests involved in determining whether (a) the knowledge at issue constitutes a trade secret and (b) it was misappropriated. The Court need not go through this second inquiry because DownloadCard never articulates the "formula, pattern or device or compilation of information which is used on one's business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it," Fabkom, Inc. v. R. W. Smith Assos., Inc., 1996 WL 531873, *6 (S.D.N.Y.) (quoting Restatement of Torts § 757, cmt. b (1939)), with sufficient specificity to find a trade secret.
DownloadCard asserts that its trade secret lies in "a novel and original system for managing and tracking customers using Personal Identification Numbers ("PIN's) printed on collectible cards, stickers, CDs or other items." Plaintiffs Memorandum at 1. It states that it offers its clients advantages "not available from any other source" including "extremely focused tracking of individual customers and markets, unique demographic information on the customer base" and anti-piracy features in the form of access to promotional materials available only to those with PINs. Plaintiffs Memorandum at 5.
A trade secret is defined by six factors:
(1) The extent to which the information is known outside of the plaintiffs business;
(2) The extent to which it is known by employees and others involved in his business;
(3) The extent of measures taken by him to guard the secrecy of the information;
(4) The value of the information to him and to his competitors;
(5) The amount of effort or money he invested in developing the information; and
(6) The ease or difficulty with which the information could be properly acquired or duplicated by others.
Fabkom, 1996 WL 531873 at *6 (quoting Restatement of Torts § 757, cmt. b (1939)). According to these factors, DownloadCard's system for managing and tracking customers, as presented on the current record, is not a trade secret. As defendant contends without contradiction, the use of PINs is widespread and did not originate with DownloadCard. UMG notes that the use of serialization to track durable goods, assign individual account numbers for banks and credit cards, and distribute frequent flyer miles for airlines are earlier manifestations of the PIN. Defendant's Brief at 4. Furthermore, the defendant notes that "passwords and PINs are essential to the functionality of the Internet," id. at 6, and that consumer product companies, such as Pepsi Cola Company, the Coca-Cola Company, and Tropicana/FritoLay "have similarly adapted serialization or PIN technology for use in a variety of on-line promotions." Id. at 6-7. UMG also gives a list of examples from the music industry of companies, like DownloadCard, who facilitate PIN-regulated, web-based promotions. Id. at 8.
Given the widespread use of PINs, it is doubtful that DownloadCard can build a case for a trade secret on any of the six factors used in identifying a trade secret, let alone all six. DownloadCard, seemingly recognizing these infirmities, contended at oral argument that its unique combination of elements, which individually are public knowledge, comprises its trade secret. Hearing Transcript ("Tr.") 10-11. However, there is no evidence on the record to prove that the combination of business acumen, demographic knowledge, and PIN technology is sufficiently unique to be a trade secret.
Plaintiff relies on Fabkom, where the court granted a preliminary injunction because "Fabkom has demonstrated that it will likely be able to prove that ZIA misappropriated the content, if not the source code, of its MTS software. Thus, losses from the unauthorized copying cannot be measured monetarily. Fabkom's dominant position in the broker market is threatened by ZIA's software." 1996 WL 531873 at *6 (emphasis added). The rationale of Fabkom does not assist DownloadCard because DownloadCard has not disclosed a specific blend of technology and services that would constitute a trade secret, nor has it demonstrated its dominance in the market.
DownloadCard has not demonstrated that it will suffer irreparable harm, and since it is a requisite for granting injunctive relief, the Court's analysis can end here. However, this Court holds that in the alternative, assuming that DownloadCard did in fact show irreparable harm, its request for a preliminary injunction would fail because it cannot show a either a likelihood of success on the merits, or a "balance of hardships tipping decidedly in the movant's favor."
B. Whether DownloadCard Has Shown a Likelihood of Success on the Merits
DownloadCard advances four separate grounds on which it will allegedly succeed on the merits:
(1) UMG's promotion in the Bounce campaign violates the Lanham Act under the "reverse passing off" theory;
(2) UMG's promotion of Bounce constitutes common law unfair competition;
(3) UMG's promotion of Bounce constitutes a breach of contract;
(4) UMG's promotion of Bounce constitutes a misappropriation of a trade secret. Claims (1) and (4) were discussed above, and for the same reasons there is insufficient evidence under those claims to show irreparable harm, there is insufficient evidence to show a likelihood of success on the merits. Furthermore, claim (2) is the New York common law version of the federal Lanham Act. This Court expresses no opinion as to whether or not this unfair competition claim is preempted by the Lanham Act, but assuming it is not, it would also fail for the same reason claim (1) fails. Finally, claim (3) fails in the context of a request for preliminary injunction because if the plaintiff were to succeed on this claim alone, there could be no irreparable harm. A breach of contract inevitably yields damages that can be monetized, whose harm is reparable. While DownloadCard may have shown a possibility of success on the merits, it has not presented sufficient evidence to demonstrate a likelihood of success on the merits.
C. Whether the Balance of Hardships Tip Decidedly in DownloadCard's Favor
However the Court's analysis, assuming again that DownloadCard has shown irreparable harm, cannot end here. Even though DownloadCard has not demonstrated a likelihood of success on the merits, I am prepared to say (although the question is close) that it has presented "sufficiently serious questions going to the merits to make them a fair ground for litigation, " Fabkom, 1996 WL 531873 at *5, The final question is then whether DownloadCard has shown that the balance of hardships tipped decidedly in its favor. On this question there can be no doubt that, as the Court indicated in the previous Order, "judicial interference with the October 8 distribution of the Bounce CD would cause significant expense, marketing disruption, and commercial embarrassment, in part impossible to quantify, to defendant and to third-party Bon Jovi, whose interests this Court of equity is required to consider," whereas the hardship to DownloadCard is on the present record too speculative to warrant relief.
In terms of the hardship to UMG, the relief sought by DownloadCard would have delayed the release of 725,000 CDs, most of which were already in record stores by the time of the hearing. Tr. 23. Furthermore, DownloadCard's requested relief would have required UMG to change the promotional materials, reprint the CD booklets with the directed promotional material, recall the CDs from the stores and warehouses, remove them from their shrink wrap, remove the old booklets, stuff them with the new booklets, shrink wrap each CD, and re-release it with a publicity campaign tied to the new release date and promotional material. Id. Aside from the "colossal" time, labor, and financial investment this would take on UMG's part, simply interfering with the release date would result in "serious injury to [UN4G's] reputation with consumers who buy CDs from record company [sic], with our artists who don't have to sign next time with Island records or UMG, or with our retailers and customers the people who distribute our music." Id. at 24.
Moreover, it would interfere with the Bon Jovi group's own efforts to promote its album and potentially moot the activities the band had undertaken thus far in an attempt to gain momentum for Bounce's release. In a letter to this Court counsel for Jon Bon Jovi highlights for the Court the problems associated with changing a release date. He states:
In the record industry, the release date of a band's album is a singularly important date. Concert tours, television appearances, press interviews, advertising and marketing campaigns, internet events and many other activities are carefully planned to anticipate and capitalize upon the realease date. In the case of Jon Bon Jovi and Captain Kidd, they and their representives have been working virtually around-the-clock to launch a multi-faceted press, marketing, and promotional campaign for Bounce targeted to its October 8th release date.
Letter from L. Peter Parcher, Counsel to Jon Bon Jovi, to the Hon. Charles S. Haight. Jr. 4 (October 3, 2002).
Counsel for Bon Jovi, who also participated in the hearing on DownloadCard's motion for a preliminary injunction, clarified that "Jon Bon Jovi is in a fight for his creative life here every time he releases an album. . . . [H]e's done everything he can to create an atmosphere which for the moment is commanding the attention of a widespread audience on what he's done." Tr. 27. Counsel also stated that Bounce conveyed "a tone of sadness and concern for what happened to us, and the tone of course is optimism [sic]." Id. at 29. This was a reference to the events of 9/11. Thus beyond imposing financial loss, delaying the release and undermining previous efforts to generate buzz for the album could hinder Bon Jovi's fight for creative life and thwart the timeliness of the album's emotional content.
On the other hand, it is unclear what the damage is to DownloadCard of not granting the injunction. DownloadCard could not convince the Court that irreparable harm would flow either from the "reverse passing off' or the theft of trade secret arguments discussed supra. At the hearing, DownloadCard further argued that consumers will associate the Bounce promotion with itself, and the Bounce promotion would suffer from missteps yielding consumer dissatisfaction because no other company has the expertise to make such promotions run smoothly. DownloadCard concluded that its reputation would suffer from such missteps and that this loss of reputation would be immeasurable. Tr. 19-20. However, because there is insufficient evidence to prove that (1) the music industry and public associate PIN-related promotions with DownloadCard and (2) other such companies will make mistakes when undertaking such promotions that DownloadCard would not have made, any claim of equitable damages is too speculative to afford relief. When weighing the balance of hardships then, it tips decidedly in favor of UMG and the interested third party, Bon Jovi.
Conclusion
This Court holds that DownloadCard did not show that it would face irreparable harm in the absence of a preliminary injunction. This Court further holds that even if DownloadCard did prove that it would suffer irreparable harm, a preliminary injunction would be denied because while there may be sufficiently serious questions going to the merits, the balance of hardships tips decidedly in UMG's and Bon Jovi's favor.
For these reasons, DownloadCard's request for a preliminary injunction was denied.