United States District Court, N.D. California
December 27, 2005.
SONY COMPUTER ENTERTAINMENT AMERICA, INC., Plaintiff,
STEVEN FILIPIAK, ET AL., Defendants.
The opinion of the court was delivered by: JOSEPH SPERO, Magistrate Judge
FINDINGS OF FACT AND CONCLUSIONS OF LAW
On November 10, 2005, the Court conducted a nonjury trial in
the above matter and a hearing on Defendant's Motions to Dismiss
and Request for Judicial Notice. Pursuant to Federal Rule of
Civil Procedure 52(a), the Court hereby makes the following
Findings of Fact and Conclusions of Law. The Court DENIES the
Motions to Dismiss and Request for Judicial Notice.
I. FINDINGS OF FACT
1. Plaintiff Sony Computers Entertainment America, Inc.
("SCEA"), sued Steven Filipiak on June 14, 2004, seeking
injunctive relief and damages for alleged copyright infringement
under the Digital Millennium Copyright Act ("DMCA"),
17 U.S.C. §§ 1201 et seq., contributory infringement under the Copyright
Act, 17 U.S.C. §§ 101 et seq., and unfair competition in
violation of state law. Complaint at 1, ¶ 1. SCEA alleged that
Filipiak operated an on-line retail store that sold devices used
to modify PlayStation and PlayStation 2 video game consoles so as
to circumvent copyright protection mechanisms that prevent copied
games from being played on them. Id. at 2, ¶ 9. 2. Filipiak stipulated to liability under the DMCA and a
permanent injunction was entered against him. See Declaration
of Angus M. MacDonald in Support of Opening Memorandum of
Plaintiff Sony Computer Entertainment America Inc. for the Trial
on the Papers ("MacDonald Decl."), Ex. 30 (Stipulated Permanent
Injunction, filed July 1, 2004 (hereinafter, "the Consent
Judgment")). The remaining issue to be resolved is the amount of
damages. Filipiak, however, has filed two documents the Court
construes as Motions to Dismiss. In these two documents, Filipiak
does not challenge the evidence put forth by SCEA in it Opening
Memorandum in support of its damage calculation. Instead, he asks
the Court to dismiss the action in its entirety for various
reasons. Filipiak subsequently filed a Request for Judicial
Notice asking that the Court take judicial notice of various
documents related to a separate patent infringement action in
which SCEA is a defendant ("the Separate Action") and that the
November 10, 2005 bench trial on the papers be delayed pending
the determination of an appeal in the Separate Action. The Court
denied the request to delay the trial in an Order filed October
28, 2005. The Court's ruling on the Motions to Dismiss and
Request for Judicial Notice (to the extent that request was not
fully resolved in the October 28, 2005 Order) follow its Findings
of Fact and Conclusions of Law regarding damages.
3. In 2002, Filipiak began selling modification chips ("mod
chips") for the Sony PlayStation 2 console. MacDonald Decl., Ex.
3 (Filipiak Depo.) at 47. "Mod chips are computer chips that
circumvent the technological copyright protection measures in
PlayStation consoles and allow users to play unauthorized and
illegal copies of PlayStation video games. A counterfeit,
unlicensed `burnt' game disc will not play in an unmodified
PlayStation console, but if a mod chip is installed in a
PlayStation console, the counterfeit, unlicensed `burnt' game
disc will play." Id., Ex. 30 (Consent Judgment), ¶ 7.
Installation of mod chips generally requires opening up the
console, soldering the chip into it, and attaching a number of
wires. Id., Ex. 3 (Filipiak Depo.) at 38.
4. Customers purchase mod chips in order to play copied games
on their PlayStation consoles. Id., Ex. 4 (Declaration of Chau
Ngo) at ¶ 4.
5. In the fall of 2002, Filipiak quit his day job and opened an
on-line store called the-console-corner.com, devoted entirely to
selling video game accessories and mod chips. Id., Ex. 3
(Filipiak Depo.) at 46-47. 6. Toward the end of 2003, Filipiak opened a second web site
called system-modz.com that sold the same products as were sold
on the-console-corner.com. Id. at 99-100.
7. Starting in June 2004, Filipiak began selling
"HDLoader."*fn1 "HDLoader is software stored on a disc,
which permits a user to make an unauthorized copy of PlayStation
video games onto a separate hard drive connected to PlayStation
consoles. By enabling users to copy and then play unlawful copies
of PlayStation video games from their hard drives, the HDL loader
disc and/or software circumvents the technological copyright
protection measures in PlayStation consoles." Id., Ex. 30
(Consent Judgment), ¶ 6.
8. The Court finds that Filipiak knew at the time he was
selling them that the sale of mod chips and HDLoader was illegal
under the DMCA. The evidence shows that Filipiak experienced
difficulties with suppliers who were either shut down or who
temporarily stopped supplying these devices to him and that he
knew these shut-downs and stoppages were caused by legal problems
experienced by these suppliers because their circumvention
devices were alleged or found to violate the DMCA. See id., Ex.
3 (Filipiak Depo.) at 49-50 (testifying that his first supplier
of mod chips, Lik-Sang, was shut down temporarily and then
stopped supplying mod chips altogether after Sony, Nintendo and
Microsoft successfully sued company for selling mod chips); id
at 164 (conceding that by selling HDLoader Filipiak was breaking
the law); id. at 55 (testifying that another supplier, 321
Studios, was shut down under the DMCA as a result of selling
circumvention devices and that when this happened, Filipiak began
lobbying public officials to change the law). Filipiak also knew
that the sale of mod chips violated the "acceptable use" policies
of both EBay (where Filipiak first sold products on the Internet)
and PayPal (Filipiak's first online payment processor). Id. at
85-86. Filipiak testified that although he began selling other
products on eBay in 2001, he never sold mod chips on eBay because
he knew that their sale violated eBay's acceptable use policy.
Id. at 241-242. Paypal ultimately terminated Filipiak as a
customer for violation of its mod chip provisions. Id. at
C. The June 11, 2004 Cease and Desist Letter and the
Subsequent Stipulated Judgments 9. On June 11, 2004, SCEA's counsel sent a cease-and-desist
letter to the attorney of record for the-console-corner.com
demanding that Filipiak, the-console-corner.com and System Modz
LLC stipulate to an injunction prohibiting the marketing, sale
and distribution of mod chips and HDLoader. See id., Ex. 8
(June 11, 2004 Cease and Desist Letter). Filipiak reviewed the
letter and signed it on Saturday June, 12, 2004. Id., Ex. 9
(June 12 Agreement). In a letter sent to SCEA with the executed
agreement, Filipiak's counsel, John Prusak, represented that
Filipiak did not have any HDLoader sotftware in his possession at
that time and that when Filipiak received a shipment of HDLoader
he was expecting to receive later in the month, he would turn the
software over to SCEA. Id., Ex. 9.
10. After Filipiak signed the June 12 Agreement, he removed the
devices from his website*fn2 but continued to sell them. In
particular, Filipiak admitted in his deposition that four days
after signing the agreement, the expected shipment of HDLoader
devices arrived and he shipped 108 of them to customers who had
already placed their orders. Id., Ex. 3 at 157. In addition, he
made 47 new sales of modchips and HDLoader combined in the three
days after he signed the agreement. Id., Ex. 7 (summary of
devices sold between June 12, 2004 and June 14, 2004).*fn3
E-mail correspondence with customers and potential customers
shows that Filipiak continued to conduct business as usual as to
these products. See id., Exs. 10-18. In response to an inquiry
from one customer about the disappearance from the website of
HDLoader, Filipiak responded, "I hear bad things are coming from
SONY & hide it from the public." Id., Ex. 16 (June 15, 2004
e-mail). Based on this evidence, the Court finds that Filipiak,
at the time he signed the June 12, 2004 agreement, did not intend
to abide by it and wilfully violated the agreement after he
signed it. 11. On June 16, 2004, Filipiak signed a stipulated consent
judgment.*fn4 Id., Ex. 20 (stipulated consent judgment).
In it, he stipulated that he had marketed and sold mod chips and
HDLoader software in violation of the DMCA. Id., ¶ 5. Under the
terms of the injunction, Filipiak was prohibited from marketing
or selling mod chips or HDLoader software. Id. at 3, ¶ 1.
Filipiak also agreed to pay $50,000.00 in damages, while SCEA
agreed not to execute that judgment so long as Filipiak complied
with the terms of the injunction. Id. at 4. On the same day he
signed the stipulated consent judgment, Filipiak responded to at
least two customer inquiries about HDLoader by providing the link
to the page on the-console-corner.com where the device could be
found. Id., Exs. 21, 22. He told these customers that HDLoader
had been removed from the web site because he was "hiding" it and
was no longer selling it "publicly." Id. He continued to offer
to sell mod chips and HDLoader, instructing his "trusted"
customers to e-mail him directly to purchase the devices. Id.,
Exs. 23, 24, 32.
12. On June 22, 2004, SCEA's counsel discovered that Filipiak
was continuing to ship HDLoader software to his customers. Id.,
¶ 8. SCEA's counsel called Filipiak to inform him that SCEA was
withdrawing its consent from the stipulated consent judgment
because of Filipiak's violations. Id., ¶ 9. Filipiak did not
dispute that he had continued to ship the HDLoader devices and
responded by saying "Yeah, I shouldn't have done that." Id. The
parties thereafter executed a new consent judgment, containing
the same representations as before, signed by Filipiak on June
28, 2004. Id., Ex. 30 ("the Consent Judgment"). Under the
Consent Judgment, judgment was entered against Filipiak in an
amount to be determined based on further discovery. Id. at 7.
The parties also agreed to conditions for conducting discovery.
Id. at 4-6. One of these was a provision prohibiting Filipiak
from destroying or deleting any documents or computer files
reflecting sales of HDLoader software or mod chips. Id. at 4.
The Consent Judgment also required that Filipiak turn over to
SCEA all documents, including electronic files, reflecting his
sales of HDLoader and mod chips. Id. at 5. The Court entered
the Consent Judgment on July 1, 2004. Id. D. Violation of Non-Destruction Order
13. On July 19, 2004, Filipiak delivered to SCEA's counsel a
hard drive that he said he used in his business. Id., ¶ 40. The
hard drive contained e-mail correspondence for a four-month
period in 2004, a few documents pre-dated 2004 and a sampling of
invoices and other standard business documents. Id., ¶ 41. A
computer forensics expert, however, determined that thousands of
files had been deleted from the hard drive within the three-day
period prior to production of the hard drive. Declaration of
Bradford Rothschild in Support of Opening Memorandum of Plaintiff
Sony Computer Entertainment America Inc. for the Trial on the
Papers Regarding Damages ("Rothschild Decl."). Among these files
were numerous documents whose titles indicate they related to
sales figures, for example, a document entitled "System-Modz
Sales Records 1-23-03 to date." See MacDonald Decl., Ex. 31.
Based on this evidence, the Court finds that Filipiak
intentionally and in bad faith violated the terms of the Consent
Judgment as well as his discovery obligations under Rule 26 of
the Federal Rules of Civil Procedure.
E. The Number of Circumvention Devices Sold
14. Filipiak did not provide a calculation of the total number
of devices he sold in response to SCEA's interrogatories. Id.,
Ex. 3 at 227. Instead, he provided incomplete reports of sales
from three on-line payment processing vendors that he used
between 2002 and 2004: 1) PayPal for intermittent periods between
2002 and the end of 2004; 2) PaySystems from January through
November 2003; and 3) Payfuse for the first six months of 2004.
Id. at 264-266, 87-88.
15. Based on these documents, as well as Filipiak's own
testimony, the Court finds that Filipiak sold at least 7,039
circumvention devices between 2002 and June 12, 2004, and an
additional 155 devices between June 12, 2004, and June 14, 2004.
This finding is calculated based on estimates of sales as to each
of the three payment process vendors, as set forth below.
16. First, Filipiak produced evidence that his total receipts
through PayPal were $879,124.64. Id., Ex. 34 (PayPal Record of
Receipts). Filipiak testified that 18% of his business consisted
of mod chip sales for PlayStation consoles. Id., Ex. 3 at 131.
This yields PayPal receipts for mod chips in the amount of
approximately $158,000.00. Dividing this amount by an average
selling price of approximately $31.00 per mod chip, see
MacDonald Decl., ¶ 45 (explaining basis for calculation of
average price), gives rise to an estimate of 5,096 mod chips sold
through PayPal. 17. Second, as to his PaySystems transactions during the first
eleven months of 2003, a summary report provided by Filipiak
shows that he sold 1,145 mod chips, that is, around 100 a month.
Id., Ex. 5.
18. Third, as to his Payfuse sales of circumvention devices,
Filipiak produced records only for the period June 1, 2004,
through June 14, 2004, showing that he sold 380 circumvention
devices (237 mod chips and 157 HDLoaders). Id., Ex. 6 and ¶ 15.
However, Filipiak also testified that he experienced a 10%
increase in sales of mod chips in the early months of 2004 as
compared to 2003. Using this figure, it can be estimated that in
the first five months of 2004, Filipiak sold a minimum of 573
circumvention devices.*fn5 These two figures give rise to
total Payfuse sales of 953 devices. Of these sales, 155 of were
made between June 12 and June 14, 2004. See id., Ex. 7.
19. Combining the above numbers, the Court finds that a minimum
of 7,039 circumvention devices were sold by Filipiak before June
12, 2004 that is, 1145 through PaySystems, 5,096 through PayPal
and 798 through Payfuse and 155 circumvention devices were sold
by Filipiak after June 12, 2004.
II. CONCLUSIONS OF LAW
A. The Amount of Statutory Damages
20. The DMCA makes it illegal to "manufacture, import, offer to
the public, provide, or otherwise traffic in any technology,
product, service, device, component, or part thereof, that . . .
is primarily designed or produced for the purpose of
circumventing a technological measure that effectively controls
access to a work protected" by copyright. 17 U.S.C. § 1201(a)(2).
Filipiak has stipulated to liability under this provision and on
that basis the Court concludes that Filipiak has violated the
21. Under the DMCA, a plaintiff may elect to recover statutory
damages in an action to enforce § 1201. 17 U.S.C. § 1203(c)(3).
In particular, the DMCA provides for an award of statutory
damages as follows: At any time before final judgment is entered, a
complaining party may elect to recover an award of
statutory damages for each violation of section 1201
in the sum of not less than $200 or more than $2,500
per act of circumvention, device, product, component,
offer, or performance of service, as the court
17 U.S.C. § 1203(c)(3)(A). Section 1203(c)(5)(A) further provides
that the Court may reduce the award of damages "in any case in
which the violator sustains the burden of proving, and the court
finds, that the violator was not aware and had no reason to
believe that its acts constituted a violation."
22. The Court concludes that § 1203(c)(3)(A) authorizes a
separate award of statutory damages for each device sold. See
DirecTV, Inc. v. Hendrix, 2005 WL 757562 (N.D. Cal.) at *5-6
(calculating statutory damages under Federal Communications Act
by multiplying the number of illegal theft devices sold by the
23. Because there are no decisions construing what is "just"
under § 1203(c)(3)(A), the Court looks to cases that construe a
similar provision, 17 U.S.C § 504(c), which also provides for
statutory damages "as the court considers just." See Howard B.
Abrams, 2 The Law of Copyright § 17:62 (West: 2005) ("Although
there have been no judicial precedents as yet about the award of
statutory damages under the provisions of section 1203, it seems
quite reasonable to assume that the precedents concerning
statutory damages under section 504(c) of the Copyright Act are
highly persuasive if not determinative"). "Factors the Court can
consider in determining the amount of a damages award [under §
504(c)] are: the expense saved by the defendant in avoiding a
licensing agreement; profits reaped by defendant in connection
with the infringement; revenues lost to the plaintiff; and the
willfulness of the infringement. . . . The Court can also
consider the goal of discouraging wrongful conduct." Controversy
Music v. Shiferaw, 2003 WL 22048519 at *2 (N.D. Cal.) (citations
24. "In the copyright infringement context, `willful' means
acting with knowledge that one's conduct constitutes copyright
infringement." Dolman v. Agee, 157 F.3d 708, 715 (9th Cir.
1998); see also In re Aimster Copyright Litig., 334 F.3d 643
(7th Cir. 2003) ("[w]illful blindness is knowledge, in copyright
law (where indeed it may be enough that the defendant should have
known of the direct infringement)").
25. SCEA asks the Court to award $800 per circumvention device
for the devices estimated to have been sold by Filipiak before
June 12, 2004, and $2,500 for the 155 devices sold or shipped
after June 12, 2004 (the date he executed the original June 12
Agreement).*fn6 The Court finds that these "per
infringement" amounts are just.
26. First, as discussed above, the evidence clearly shows that
Filipiak was aware at all times that he was violating the DMCA
when he sold mod chips and HDLoader. Therefore, the Court
concludes that Filipiak willfully violated the DCMA.
27. Second, although the estimate of devices may not be exact,
it is reasonable. Further, any uncertainty as to the exact amount
sold is a result of Filipiak's own conduct, including his failure
to provide complete responses to SCEA's discovery requests
concerning his sales and his intentional deletion of thousands of
files from his hard drive, including documents that might have
allowed the Court to determine the actual level of his sales.
Under such circumstances, it is appropriate that SCEA be awarded
significant statutory damages. See Fitzgerald Publ'g Co. v.
Baylor Publ'g Co., Inc., 807 F.2d 1110, 1117 (2d Cir. 1986)
(noting that in determining the appropriate level of statutory
damages under § 504(c) of the copyright act, courts may consider
"whether a defendant has cooperated in providing particular
records from which to assess the value of the infringing material
28. Third, as to the devices sold after June 12, 2004, the
Court concludes that Filipiak was even more culpable than he was
with respect to previous sales because, as found above, he signed
an agreement with SCEA that he would immediately discontinue
selling and distributing circumvention devices without intending
to abide by it and proceeded to engage in the exact behavior he
had promised SCEA he would not, albeit surreptitiously.
29. Accordingly, the Court finds that SCEA is entitled to
statutory damages in the amount of $5,631,200.00 (that is, 7,039
× 800) for the pre-June 12, 2004 sales and $387,500.00 (that is,
155 × 2,500) for the sales after June 12, 2004, giving rise to a
total of $6,018,700.00 in damages. While this award of damages is
substantial, the Court concludes that it is both consistent with
Congressional intent and necessary to discourage wrongful conduct by other potential
retailers who might be tempted to engage in what might otherwise
appear to be a lucrative business selling illegal contravention
C. Filipiak's Motions to Dismiss
30. In his First Motion to Dismiss, Filipiak asks the Court to
dismiss this action on the basis of alleged litigation misconduct
on the part of SCEA. He also asserts the action should be
dismissed because he has made unspecified charitable
contributions and because he sells many items on his web site
that are not illegal. In his Second Motion to Dismiss, Filipiak
asserts the action should be dismissed on the basis of a ruling
by the trial court in a separate action ("the Separate Action")
in which it was held that SCEA's PlayStation and PlayStation 2
infringe patents held by Immersion Corporation. In connection
with this Motion, Filipiak also requests that the Court take
judicial notice of various newspaper articles and documents in
that case. The Court concludes that Filipiak's arguments have no
31. Given that the issue of liability was resolved in the
Consent Judgment, the Court construes Filipiak's Motions to
Dismiss as requests to vacate the Consent Judgment. Courts may
exercise their inherent equitable powers to vacate or modify an
interlocutory order where it is in the interest of justice. A &
A Sign Co. v. Maughan, 419 F.2d 1152, 1155 (9th Cir. 1969). "The
major grounds justifying reconsideration of interlocutory orders
are an intervening change of controlling law, the availability of
new evidence, or the need to correct a clear error or prevent
manifest injustice." Reich v. Hall Holding Co., Inc.,
990 F. Supp. 955, 965 (N.D. Ohio 1998) (citations omitted). The Court
finds nothing in Filipiak's Motions that justifies vacating the
32. The allegations of misconduct fail both because they are
not supported by the evidence and because, even if true, there is
no suggestion Filipiak was prejudiced in any way. Filipiak
asserts that SCEA committed misconduct when it failed to
reimburse him for travel expenses SCEA agreed to pay in
connection with a mediation in San Francisco. SCEA, however, has
filed a declaration in which SCEA's counsel states he was simply
waiting for verification of Filipiak's expenses and that once it
was received, a check was issued and sent to Filipiak. See
Declaration of Angus M. MacDonald in Opposition to Defendant Steven L. Filipiak's July 14, 2005 Motion to Dismiss
and his September 12, 2005 Motion to Dismiss and Request for
Judicial Notice ("MacDonald Opposition Decl."), ¶ 6. Filipiak has
presented no evidence to the contrary. Filipiak also points to
the fact that SCEA did not send him a copy of his deposition
transcript. SCEA, however, correctly notes that it was Filiak's
responsibility to request a copy of the transcript from the court
reporter. Nonetheless, SCEA sent Filipiak a copy of the
transcript free of charge. Id., ¶ 11. Therefore, the Court
rejects Filipiak's assertion that SCEA's misconduct requires that
the Consent Judgment be vacated.
33. Filipiak's reliance on developments in the Separate Action
involving alleged patent infringement by SCEA also is misplaced.
The fact that components of PlayStation and PlayStation 2 may
infringe patents owned by a third party has no bearing on the
issues raised in this action. For the same reason, the Court
declines to take judicial notice of the documents relating to
that action filed by Filipiak.
For the forgoing reasons, the Court finds in favor of Plaintiff
and against Defendant and awards damages in the amount of
IT IS SO ORDERED.
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