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SONY COMPUTER ENTERTAINMENT AMERICA v. FILIPIAK

December 27, 2005.

SONY COMPUTER ENTERTAINMENT AMERICA, INC., Plaintiff,
v.
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

  A. Introduction

  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.

  B. Background

  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 88-89.

  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 ...


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