Mon Cheri Bridals, LLC v. Cloudflare, Inc.

District Court, N.D. California·Decided April 1, 2021·No. 3:19-cv-01356·Unknown

Opinion

MON CHERI BRIDALS, LLC, et al., Case No. 19-cv-01356-VC (TSH)

Plaintiffs, DISCOVERY ORDER v. Re: Dkt. Nos. 98, 102, 103 CLOUDFLARE, INC., et al., Defendants.

We are here on cross-motions to compel brought by Plaintiffs Mon Cheri Bridals, LLC, et al., and Defendant Cloudflare, Inc. ECF Nos. 98, 102, 103. The Court held a hearing on March 30, 2021, and this order follows. A. Cloudflare’s Discovery of Mon Cheri’s Profits Plaintiffs produced annual financial statements in October 2020, but they redacted every line item in the statements except for their annual sales totals. Thus, for example, all information relating to costs and profits was redacted. Cloudflare asks for this information to be unredacted, and for financial statements from Mon Cheri for 2018 and 2019. Cloudflare also seeks business records (such as year-end reviews or management updates) discussing the reasons for Plaintiffs’ financial performance. Plaintiffs oppose these requests. The issue that divides the parties is whether any of Plaintiffs’ financial information other than Plaintiffs’ revenues is relevant to this case, in which Plaintiffs seek statutory damages for copyright infringement but do not seek actual damages. By way of background, 17 U.S.C. § 504(c)(1) states that a court may award statutory damages per infringed work “of not less than $750 or more than $30,000, as the court considers just.” If the infringer proves the infringement cap becomes $150,000. Id. §(c)(2). “The statute does not provide guidelines in determining an award that would be considered just,” Broadcast Music, Inc. v. Shabby Inc., 2006 WL 8442289, *3 (N.D. Cal. Apr. 27, 2006), adopted 2006 WL 8442290. Under the case law, “[i]n determining an appropriate award of statutory damages, courts have considered factors such as: (1) ‘the expenses saved and the profits reaped;’ (2) ‘the revenues lost by the plaintiff;’ (3) ‘the value of the copyright;’ (4) ‘the deterrent effect on others besides the defendant;’ (5) ‘whether the defendant’s conduct was innocent or willful;’ (6) ‘whether a defendant has cooperated in providing particular records from which to assess the value of the infringing material produced;’ and (7) ‘the potential for discouraging the defendant.’” Id. at *3; see also Microsoft Corp. v. Nop, 549 F. Supp. 2d 1233, 1237 (E.D. Cal. Apr. 17, 2008) (listing the same seven factors). In addition, “[c]ourts should ensure that statutory damages awards . . . ‘bear[] a ‘plausible relationship to Plaintiff’s actual damages.’” Adobe Systems Inc. v. Nwubah, 2020 WL 3432639, *15 (N.D. Cal. June 23, 2020) (default judgment case) (quoting Yelp Inc. v. Catron, 70 F. Supp. 3d 1082, 1102 (N.D. Cal. Jan. 19, 2010)); see also BMG Rights Mgmt. LLC v. Cox Communications, Inc., 149 F. Supp. 3d 634, 677 (E.D. Va. 2015) (“A plaintiff’s actual damages are a relevant consideration in determining statutory damages under the Copyright Act.”), rev’d on other grounds, 881 F.3d 293 (4th Cir. 2018); Fitzgerald Pub. Co., Inc. v. Baylor Pub. Co., Inc., 670 F. Supp. 1133, 1140 (E.D.N.Y. 1987) (“Undoubtedly these [statutory] damages should bear some relation to the actual damages suffered”). Plaintiffs rely on the cases that list the seven factors used in determining statutory damages, which include defendants’ profits and plaintiff’s lost revenues (but not plaintiff’s lost profits) to argue that their lost profits are irrelevant. Cloudflare relies on the cases stating that statutory damages awards should bear some relationship to actual damages to argue that Plaintiffs’ profits are relevant because lost profits (not lost revenue) are a measure of actual damages. It must be acknowledged that decisions in this district are in tension with each other on this point. On the one hand, there is a line of decisions holding that statutory damages on default judgment should 3432639, *15 (quoting Yelp Inc., 70 F. Supp. 3d at 1102, in turn citing a series of cases involving Adobe and Microsoft). The overriding concern in these cases is that “[w]hile a plaintiff in a trademark or copyright infringement suit is entitled to damages that will serve as a deterrent, it is not entitled to a windfall.” Yelp, 70 F. Supp. 3d at 1102. On the other hand, there is Apple Inc. v. Psystar, 673 F. Supp. 2d 926 (N.D. Cal. 2009). In that case, the court recited the normal seven factors to be considered in determining statutory damages, which do not include consideration of plaintiff’s profits, and then relied heavily on Bly v. Banbury Books, Inc., 638 F. Supp. 983 (E.D. Pa. 1986). The court explained that “the Bly court pointed to the legislative history, which stated ‘the plaintiff in an infringement suit is not obliged to submit proof of damages and profits and may choose to rely on the provision for minimum statutory damages.’ Likewise, Apple is not obliged to provide proof of its own profits when it has elected to seek statutory damages.” Id. at 928-29 (citations omitted). The court explained that “Psystar has not demonstrated that evidence of Apple’s profit margins is required for Apple to seek statutory damages for its copyright infringement claim,” and on that basis denied Psystar’s motion to compel Apple to produce its profit information. This would leave Apple’s actual damages unknown, see Fitzgerald, 670 F. Supp. at 1138 (“The primary measure for the recovery of actual damages under 17 U.S.C. § 504(b) is the extent to which the market value of the copyrighted work at the time of infringement has been harmed or destroyed by the infringement. The best method available for measuring this diminution in market value is the profit lost by the plaintiff due to the infringements.”) (citations omitted), so there would be no way to compare them to the claimed statutory damages. This Court agrees with Psystar that a copyright plaintiff seeking only statutory damages is not required to introduce evidence of its lost profits. However, the question presented by this motion to compel is whether the defendant can obtain evidence that there were no lost profits to argue that the high statutory damages the plaintiff seeks amount to a windfall. The default judgment cases indicate the answer should be yes. And there is nothing about the nature of a default judgment proceeding that limits concerns about windfall damages to that context because avoiding windfall damages is also important in litigated cases. The Court observes that the submit proof of damages and profits and may choose to rely on the provision for minimum statutory damages.” H.R. Rep. No. 1476, 94th Cong., 2d Sess. 161 (emphasis added). And Bly repeated that statement: “Moreover, the legislative history of the Copyrights Act, while not entirely clear on this point, seems to contemplate that when a plaintiff does not establish that any damage has resulted from an infringement, the minimum amount of $250 will be awarded.” 638 F. Supp. at 987-88 (emphasis added). That holding does seem to harmonize the case law. Where a plaintiff seeks only the minimum statutory damages, there is no possibility of a windfall, and the plaintiff’s lost profits are irrelevant. By contrast, if a plaintiff seeks more than the minimum in statutory damages, then its lost profits become relevant. And that is indeed the factual scenario in the default judgment cases cited above – the plaintiffs were seeking more than the minimum statutory damages. Here, Plaintiffs

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Mon Cheri Bridals, LLC v. Cloudflare, Inc., (N.D. Cal. 2021).

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Related

Bly v. Banbury Books, Inc.
638 F. Supp. 983 (E.D. Pennsylvania, 1986)
Microsoft Corp. v. Nop
549 F. Supp. 2d 1233 (E.D. California, 2008)
Apple Inc. v. Psystar Corp.
673 F. Supp. 2d 926 (N.D. California, 2009)
Fitzgerald Pub. Co., Inc. v. Baylor Pub. Co., Inc.
670 F. Supp. 1133 (E.D. New York, 1987)
BMG Rights Management (US) LLC v. Cox Communications, Inc.
149 F. Supp. 3d 634 (E.D. Virginia, 2015)