Hill Design v . Hodgdon, et a l . CV-03-074-M 05/27/03 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Hill Design, Inc., Plaintiff
v. Civil N o . 03-74-M Opinion N o . 2003 DNH 086 Vivian Hodgdon, Art in Cooking, Inc., Patricia Carpenter, and The Garden Shed, LLC, Defendants
O R D E R
Plaintiff Hill Design, Inc. (“HDI”) has sued defendants in
nine counts, seeking both injunctive relief and damages for,
inter alia, copyright and trademark infringement. In a Report
and Recommendation dated April 7 , 2003 (document n o . 1 6 ) , the
Magistrate Judge granted in part and denied in part plaintiffs’
request for injunctive relief. Before the court is plaintiff’s
objection to the Magistrate Judge’s Report and Recommendation
(document n o . 2 4 ) . For the reasons given below, the Magistrate
Judge’s Recommendation is not accepted and the matter is remanded
for further consideration. Standard of Review
A Magistrate Judge’s Report and Recommendation on a motion
for injunctive relief is reviewed de novo. 28 U . S . C . §
636(b)(1). This court “may accept, reject, or modify, in whole
or in part, the findings or recommendations made by the
magistrate . . . or recommit the matter to the magistrate with
instructions.” Id.; see also F E D . R . C I V . P . 72(b).
Background
The factual background of this case is set out in detail in
the Magistrate Judge’s Report and Recommendation. Defendants do
not challenge the Magistrate Judge’s factfinding. In brief, this
dispute grows out of a proposed, but never fully consummated,
business deal between H D I and Hodgdon under which H D I was to
grant Hodgdon licenses to produce and distribute various cookie
molds, shortbread pans, and recipe booklets that were created by
H D I and on which H D I holds copyrights and/or trademarks. The
parties cooperated in various ways in anticipation of a formal
agreement. Hodgdon made some cookie molds in the H D I facility,
under the supervision of H D I personnel, and H D I authorized
Hodgdon to service some of its customers and sell some of its
2 products. However, for reasons not pertinent to this order, HDI
called off the deal and terminated its relationship with Hodgdon.
According to H D I , defendants continued to sell HDI merchandise,
without authorization, after April 1 1 , 2002, the date on which
HDI severed its relationship with Hodgdon.
Specifically, HDI accuses defendants o f : (1) taking and
selling HDI products it did not own, without permission; and (2)
attaching stickers to the HDI merchandise it sold that covered
HDI’s copyright notice and misled consumers into believing that
defendants had an ongoing business relationship with HDI. Three
categories of merchandise are at issue here: (1) items made and
sold by HDI that were collected by Hodgdon; (2) items made by
Hodgdon at the HDI facility, under the supervision of HDI
personnel, in anticipation a formal licensing agreement between
HDI and Hodgdon; and (3) objects purchased from HDI by Helen Ross
and stored at HDI’s facility. Defendants have sold merchandise
from all three categories. HDI’s suit consists of nine counts,
asserting claims o f : (1) infringement of its reproduction and
distribution rights under the Copyright Act, 17 U.S.C. § 1 0 1 , et
seq., against all defendants; (2) trademark infringement, under
3 15 U . S . C . § 1114(1), against all defendants; (3) trademark
infringement, under 15 U . S . C . § 1125(a), against all defendants;
(4) cyberpiracy, under 15 U . S . C . § 1125(d)(1)(A), against all
defendants; (5) violation of New Hampshire’s Consumer Protection
Act, N . H . R E V . S T A T . A N N . § 358-A, against all defendants; (6)
breach of contract, against Hodgdon; (7) conversion, against
Hodgdon and Carpenter; (8) fraud, against Hodgdon; and (9) breach
of fiduciary duty, against Hodgdon.
The Magistrate Judge ruled in favor of H D I , but only to the
extent that he recommended that defendants be enjoined from: (1)
suggesting or implying that they have an ongoing business
relationship with H D I ; and (2) obstructing or obscuring the
copyright notice stamped into the H D I merchandise they sell. He
denied plaintiff’s requests for further injunctive relief, based
upon his determination that Hill Design had little likelihood of
success on any part of its suit other than its trademark
infringement claims. In particular, he ruled that under the
first-sale doctrine, plaintiff was not likely to succeed on the
merits of its claim that defendants had infringed its
distribution rights under the Copyright Act.
4 Discussion
According to plaintiff, the Magistrate Judge’s factual
findings compelled a ruling that HDI was likely to prevail on its
claims that defendants infringed its distribution rights with
respect to items Hill Design had sold to Helen Ross (the “Ross
inventory”) and items Hodgdon made at the Hill Design facility
(the “HDI inventory”) prior to April 1 1 , but sold after that
date.1 Specifically, plaintiff argues that the first-sale
doctrine does not apply to either the Ross inventory or the HDI
inventory because Hodgdon was never the legal owner of either
category of items. Plaintiff further argues that any
authorization Hodgdon may have had to distribute HDI products
terminated on April 1 1 .
I. Relevant Law
Under the Copyright Act, “the owner of copyright under this
title has the exclusive rights to do and to authorize . . .
distribut[ion] [of] copies or phonorecords of the copyrighted
work to the public by sale or other transfer of ownership, or by
1 HDI concedes that defendants were entitled to sell any HDI products that they lawfully purchased from HDI or others.
5 rental, lease, or lending.” 17 U.S.C. § 106(3). Violation of a
copyright owner’s exclusive right of distribution constitutes
infringement. 17 U.S.C. § 501(a). However, “[n]otwithstanding
the provisions of section 106(3), the owner of a particular copy
or phonorecord lawfully made under this title, or any person
authorized by such owner, is entitled, without the authorization
of the copyright owner, to sell or otherwise dispose of the
possession of that copy or phonorecord.” 17 U.S.C. § 109(a).
Section 109(a) is often referred to as the first-sale doctrine.
II. The Ross Inventory
The Magistrate Judge did not find that defendants “had any
right to take and sell the items in the Helen Ross Inventory,”
but went on to rule that Ross’s ownership of those items
precluded plaintiff from claiming infringement of its
distribution right, under the first-sale doctrine. The first-
sale doctrine is inapplicable to the items in the Ross inventory
because: (1) the Magistrate Judge did not find that defendants
owned those items or that defendants were authorized by their
owner to sell them; and (2) an accused infringer of the
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Hill Design v . Hodgdon, et a l . CV-03-074-M 05/27/03 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Hill Design, Inc., Plaintiff
v. Civil N o . 03-74-M Opinion N o . 2003 DNH 086 Vivian Hodgdon, Art in Cooking, Inc., Patricia Carpenter, and The Garden Shed, LLC, Defendants
O R D E R
Plaintiff Hill Design, Inc. (“HDI”) has sued defendants in
nine counts, seeking both injunctive relief and damages for,
inter alia, copyright and trademark infringement. In a Report
and Recommendation dated April 7 , 2003 (document n o . 1 6 ) , the
Magistrate Judge granted in part and denied in part plaintiffs’
request for injunctive relief. Before the court is plaintiff’s
objection to the Magistrate Judge’s Report and Recommendation
(document n o . 2 4 ) . For the reasons given below, the Magistrate
Judge’s Recommendation is not accepted and the matter is remanded
for further consideration. Standard of Review
A Magistrate Judge’s Report and Recommendation on a motion
for injunctive relief is reviewed de novo. 28 U . S . C . §
636(b)(1). This court “may accept, reject, or modify, in whole
or in part, the findings or recommendations made by the
magistrate . . . or recommit the matter to the magistrate with
instructions.” Id.; see also F E D . R . C I V . P . 72(b).
Background
The factual background of this case is set out in detail in
the Magistrate Judge’s Report and Recommendation. Defendants do
not challenge the Magistrate Judge’s factfinding. In brief, this
dispute grows out of a proposed, but never fully consummated,
business deal between H D I and Hodgdon under which H D I was to
grant Hodgdon licenses to produce and distribute various cookie
molds, shortbread pans, and recipe booklets that were created by
H D I and on which H D I holds copyrights and/or trademarks. The
parties cooperated in various ways in anticipation of a formal
agreement. Hodgdon made some cookie molds in the H D I facility,
under the supervision of H D I personnel, and H D I authorized
Hodgdon to service some of its customers and sell some of its
2 products. However, for reasons not pertinent to this order, HDI
called off the deal and terminated its relationship with Hodgdon.
According to H D I , defendants continued to sell HDI merchandise,
without authorization, after April 1 1 , 2002, the date on which
HDI severed its relationship with Hodgdon.
Specifically, HDI accuses defendants o f : (1) taking and
selling HDI products it did not own, without permission; and (2)
attaching stickers to the HDI merchandise it sold that covered
HDI’s copyright notice and misled consumers into believing that
defendants had an ongoing business relationship with HDI. Three
categories of merchandise are at issue here: (1) items made and
sold by HDI that were collected by Hodgdon; (2) items made by
Hodgdon at the HDI facility, under the supervision of HDI
personnel, in anticipation a formal licensing agreement between
HDI and Hodgdon; and (3) objects purchased from HDI by Helen Ross
and stored at HDI’s facility. Defendants have sold merchandise
from all three categories. HDI’s suit consists of nine counts,
asserting claims o f : (1) infringement of its reproduction and
distribution rights under the Copyright Act, 17 U.S.C. § 1 0 1 , et
seq., against all defendants; (2) trademark infringement, under
3 15 U . S . C . § 1114(1), against all defendants; (3) trademark
infringement, under 15 U . S . C . § 1125(a), against all defendants;
(4) cyberpiracy, under 15 U . S . C . § 1125(d)(1)(A), against all
defendants; (5) violation of New Hampshire’s Consumer Protection
Act, N . H . R E V . S T A T . A N N . § 358-A, against all defendants; (6)
breach of contract, against Hodgdon; (7) conversion, against
Hodgdon and Carpenter; (8) fraud, against Hodgdon; and (9) breach
of fiduciary duty, against Hodgdon.
The Magistrate Judge ruled in favor of H D I , but only to the
extent that he recommended that defendants be enjoined from: (1)
suggesting or implying that they have an ongoing business
relationship with H D I ; and (2) obstructing or obscuring the
copyright notice stamped into the H D I merchandise they sell. He
denied plaintiff’s requests for further injunctive relief, based
upon his determination that Hill Design had little likelihood of
success on any part of its suit other than its trademark
infringement claims. In particular, he ruled that under the
first-sale doctrine, plaintiff was not likely to succeed on the
merits of its claim that defendants had infringed its
distribution rights under the Copyright Act.
4 Discussion
According to plaintiff, the Magistrate Judge’s factual
findings compelled a ruling that HDI was likely to prevail on its
claims that defendants infringed its distribution rights with
respect to items Hill Design had sold to Helen Ross (the “Ross
inventory”) and items Hodgdon made at the Hill Design facility
(the “HDI inventory”) prior to April 1 1 , but sold after that
date.1 Specifically, plaintiff argues that the first-sale
doctrine does not apply to either the Ross inventory or the HDI
inventory because Hodgdon was never the legal owner of either
category of items. Plaintiff further argues that any
authorization Hodgdon may have had to distribute HDI products
terminated on April 1 1 .
I. Relevant Law
Under the Copyright Act, “the owner of copyright under this
title has the exclusive rights to do and to authorize . . .
distribut[ion] [of] copies or phonorecords of the copyrighted
work to the public by sale or other transfer of ownership, or by
1 HDI concedes that defendants were entitled to sell any HDI products that they lawfully purchased from HDI or others.
5 rental, lease, or lending.” 17 U.S.C. § 106(3). Violation of a
copyright owner’s exclusive right of distribution constitutes
infringement. 17 U.S.C. § 501(a). However, “[n]otwithstanding
the provisions of section 106(3), the owner of a particular copy
or phonorecord lawfully made under this title, or any person
authorized by such owner, is entitled, without the authorization
of the copyright owner, to sell or otherwise dispose of the
possession of that copy or phonorecord.” 17 U.S.C. § 109(a).
Section 109(a) is often referred to as the first-sale doctrine.
II. The Ross Inventory
The Magistrate Judge did not find that defendants “had any
right to take and sell the items in the Helen Ross Inventory,”
but went on to rule that Ross’s ownership of those items
precluded plaintiff from claiming infringement of its
distribution right, under the first-sale doctrine. The first-
sale doctrine is inapplicable to the items in the Ross inventory
because: (1) the Magistrate Judge did not find that defendants
owned those items or that defendants were authorized by their
owner to sell them; and (2) an accused infringer of the
distribution right may only invoke the first-sale doctrine when
6 he or she “qualif[ies] as the lawful owner of that particular
copy.” 2 MELVILLE B . NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT §
8.12[B][1][a]. In other words,
[i]n certain instances, the distribution right may be invoked by the copyright owner with respect to the initial sale or even resales, notwithstanding the fact that ownership of the copies or phonorecords in question may be vested in another. This would arise where the seller is one who has stolen or otherwise wrongfully obtained the copies or phonorecords from a licensee or other person who owned them. In such circumstances, the sale would not be by the owner of the copies or phonorecords, and hence, Section 109(a) would not be applicable.
Id. § 8.12[B][6]. Accordingly, the Magistrate Judge’s Report and
Recommendation is necessarily rejected to the extent it relies on
the first-sale doctrine to support a finding that plaintiff is
not likely to succeed on the merits of its copyright infringement
claim as to the Ross inventory.
III. The HDI Inventory
It is unclear how the first-sale doctrine might apply to the
HDI inventory. That inventory consists of items that Hodgdon
made at the HDI facility, under the supervision of HDI personnel.
There is no suggestion that those items were ever sold to
7 Hodgdon. Because there are any number of ways in which Hodgdon
could have made the items in the HDI inventory, without obtaining
legal ownership of them, and because the Magistrate Judge made no
finding that actual legal ownership of those items had ever
vested in any of the defendants, the first-sale doctrine may be
inapplicable to the HDI inventory on the record as it stands.
Accordingly, the Report and Recommendation is necessarily
rejected to the extent it relies on the first-sale doctrine, on
this record, to support a finding that plaintiff is not likely to
succeed on the merits of its copyright infringement claim
relative to the HDI inventory.
Conclusion
This matter is recommitted to the Magistrate Judge for
reconsideration of the applicability of the first-sale doctrine
in light of the relevant facts. To the extent denial of a
preliminary injunction hinges on Hodgdon’s having been authorized
to sell items for H D I , the Magistrate Judge should make findings
regarding whether and how such authorization was affected by
HDI’s April 1 1 , 2002, decision to “pull the rug” on its deal with
Hodgdon.
8 SO ORDERED.
Steven J. McAuliffe United States District Judge
May 2 7 , 2003
cc: David P. Eby, Esq. Garfield B . Goodrum, Jr., Esq. Vivian Hodgdon Edmund J. Waters, Jr., Esq.