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Karol Western Corp. v. Smith News Company, Inc.

United States District Court, C.D. California

September 2, 2014

KAROL WESTERN CORP., Plaintiff,
v.
SMITH NEWS COMPANY, INC., Defendants.

FINDINGS OF FACT AND CONCUSIONS OF LAW AFTER COURT TRIAL

BEVERLY REID O'CONNELL, District Judge.

I. INTRODUCTION AND PROCEDURAL HISTORY

Plaintiff Karol Western Corp. ("Plaintiff") designs various categories of gifts and souvenirs, with products in over 400 retail stores around the country. Plaintiff has been selling souvenirs in the Las Vegas market for over 25 years. Defendant Smith News Company, Inc. ("Defendant") also sells and designs various categories of gifts and souvenirs in Las Vegas, competing in the same retail stores as Plaintiff. Plaintiff brings this lawsuit, claiming that Defendant is liable for copyright infringement for manufacturing and selling a flask depicting a die-cut rendition of the Las Vegas sign which is very similar to one of Plaintiff's copyrighted works.

On September 7, 2012, Plaintiff filed a complaint demanding a jury trial which alleged a single count of copyright infringement asking for damages and Defendant's profits pursuant to 17 U.S.C. § 504. (Dkt. No. 1.) On November 5, 2012, Defendant filed an answer. (Dkt. No. 7.) On March 12, 2013, Defendant filed a motion for summary judgment. (Dkt. No. 24.) Additionally, on March 12, 2013, Plaintiff filed a motion for partial summary judgment as to Defendant's alleged copyright infringement. (Dkt. No. 25.)

On July 24, 2013, Plaintiff filed a first amended complaint. (Dkt. No. 51.) On August 8, 2013, Defendant filed an answer. (Dkt. No. 54.) On August 8, 2013, Defendant filed a notice of errata and an amended answer. (Dkt. No. 56.) On August 23, 2013, the Court denied both Plaintiff's motion for partial summary judgment and Defendant's motion for summary judgment. (Dkt. No. 57.) On January 29, 2014, (Dkt. No. 76.) On February 28, 2014, the Court denied Defendant's motion for reconsideration of its motion for summary judgment. (Dkt. No. 135.)

On March 5, 2014, Plaintiff filed a stipulation requesting a nonjury trial and waiving its jury demand. (Dkt. No. 139.) On March 7, 2014, the Court granted Plaintiff's stipulation. (Dkt. No. 140.) A bench trial in this matter commenced on March 27, 2014 and ended on April 7, 2014. (Dkt. Nos. 151; 154.) On April 18, 2014, the parties each filed post-trial briefs. After consideration of the parties' post-trial briefs, the evidence presented at trial, and oral argument of counsel, the Court makes the following Findings of Fact and Conclusions of Law.[1]

II. JURISDICTION AND VENUE

This Court has subject matter jurisdiction over this case pursuant to 17 U.S.C. § 101 and 28 U.S.C. §§ 1331, 1338. Further, venue is proper under 28 U.S.C. § 1391.

III. CREDIBILITY DETERMINATIONS

Ninth Circuit Model Jury Instruction 1.11 provides guidance to jurors when assessing credibility. The factors include: (1) the opportunity and ability of the witness to see or hear or know the things testified to; (2) the witness's memory; (3) the witness's manner while testifying; (4) the witness's interest in the outcome of the testimony; (6) the reasonableness of the witness's testimony in light of all the evidence; and, (7) any other factors that bear on believability. Ninth Cir. Model Jury Instr. 1.11 (Civil) (2007). The Court finds these factors helpful in assessing the credibility of the witnesses. After assessing these factors, the Court finds the testimony detailed below to be credible.

IV. FINDINGS OF FACT

A. Trial Testimony

1. Anthony Zoss

Zoss currently serves as the President of Karol Western, Corporation. Karol Western began in 1959 when it started importing souvenir products based upon its designs. Its first territory was Las Vegas. Karol Western sells shot glasses, flasks, ceramics, beach towels, tumblers, magnets, and key chains, including key chains with miniature flasks. Karol Western products are carried in most of the souvenir shops in Las Vegas. In 2009, Karol Western launched the "Shanghai Diamond" line, embodied in Exhibit 102, a flask, and Exhibit 117, a travel mug. Each is sold in multiple colors. Karol Western has sold approximately 436, 000 units in the Shanghai Diamond line, and it ranks approximately number 3 in all sales, totaling approximately $1.8 million.

In seeking copyright protection, Zoss instructed Ileana Salcedo to take a photograph of the Shanghai Diamond design for inclusion in the copyright registration application. In August 2012, Zoss also instructed that Exhibit 2A, the same photograph, be "zoomed in and cropped." He attached Exhibit 2A to copyright application.

In early 2012, Zoss received an email informing him of Defendant's "extremely similar product." Zoss then instructed an employee to purchase the products, and after examining the UPC code Zoss determined that Smith Novelty distributed the products. Seventy-nine of those ninety-five stores also purchase products from Karol Western, such as ABC Stores, Hudson News, Marshall Retail Group, among others. Zoss has seen Exhibit 101 products in ABC Stores, Walgreen's and Bonanza Gifts. Zoss first went to Bonanza Gifts and saw both Karol Western and Smith Novelty products. On his second visit, he noticed that Smith Novelty products occupied shelf space previously allocated to Karol Western.

In addition, Zoss prepared Exhibit 140C, containing additional sales figures for Smith Novelty's sales of the design created by Urbiztondo. Zoss determined that ninety-five stores sell products from Smith Novelty. Exhibit 145 accurately reflects Karol Western's overall sales of Shanghai Diamond flasks. Zoss prepared an analysis of lost profits, included in Smith Novelty information in Exhibit 120 and his analysis in Exhibit 140B. Zoss estimates that Karol Western suffered lost profits of $92, 807.60. Zoss's analysis assumes that for every sale of a Smith Novelty product, that sale is a lost sale to Karol Western.

2. Bruce Miller

Karol Western employs Miller as its Vice President of sales and operations. Miller received his Bachelor of Arts from Stanford University, his Masters in Business Administration, in finance and accounting, from the University of California Los Angeles (UCLA) in 1981 and his Juris Doctor from UCLA in 1981 as well. After practicing law, Miller worked for a souvenir company, Pinnacle Designs, in 1995 and joined Karol Western in 2008. Miller is involved in product development. Miller spends time "coming up with concepts" which he then communicates to Karol Western's art department. The art department then turns the concepts into artwork used on its products. Miller developed the Shanghai Diamond design, seeking to create a glittery product. Miller wanted to create a reverse die cut representation of the Las Vegas sign. Exhibit 143 represents the reverse die cut because he did not want to "clutter up" the design with the words. Miller considers the design to the background of stainless steel reflection, the stencil die cut and the glitter paper. The Shanghai Diamond series is their best selling unit.

3. Kenneth Glaser, Jr.

For the last twenty-five years, Glaser has been the President and Chief Executive Officer of Smith Novelty Company. In 2004 or 2005, Smith Novelty entered the Las Vegas market. He spends a substantial amount of time in the art department creating new products. Smith Novelty art department creates 95 to 98 per cent of everything sold by Smith Novelty. Glaser and Brett Rankin would discuss a sample and make decisions. The samples are not made available to the art department[2], although the sample might be put in the showroom.

In 2004, Glaser instructed Urbiztondo to create artwork of the Las Vegas sign. Glaser asked Urbiztondo to create a flask wrapping glitter fabric around the flask and then use a die cut image of the Las Vegas sign, permitting the metal to show through the glitter paper. Thereafter, Urbiztondo created the drawing, then a "trace" for use by the manufacturer to stamp through the glitter fabric. In 2005, Smith Novelty created Exhibit 40 which was one of the first designs of the Las Vegas sign. In 2006, Urbiztondo created another drawing of the Las Vegas sign. In sum, Exhibits 39 through 43 were created from Exhibit 8. Ninety-five per cent of the Smith Novelty's products depict the Las Vegas sign. Glaser never believed that Smith Novelty's design would infringe Karol Western's design.

Most of Smith Novelty's principal accounts also carry Karol Western products. At times, his sales representatives sent him samples of competitors' products. Glaser reviewed the expense reports for Mr. Lumen and found only one report seeking reimbursement for the purchase of a competitor's product. It is Exhibit 101, the Smith Novelty creation. Prior to November 2011, Glaser estimates that it happened more than 10 times, but less than 30 times. At the time of Smith Novelty's design, Glaser had seen Karol Western's Shanghai Diamond products, as well as a glitter paper product from RTSI (another competitor). Glaser went to Las Vegas to investigate and identified the Las Vegas sign as an iconic image appearing on more souvenirs than any other image. Exhibits 50, 51, 52, 54-58 are products depicting the Las Vegas sign from Smith Novelties' competitors. Glaser purchased Exhibits 65, 66, 67, 69, 70, 71, 72, 74, 75, 77, 78, 79, 80, 81, 82, reflecting competitors' products, such as tumblers, flasks and key chain flasks. Glaser purchased Exhibits 69 and 70 from the store M & K, approximately one year ago and six months ago. Glaser estimates that each item has been on the market for at least two years, that is, around 2010.

Exhibit 85 is a computer spreadsheet of the sales of Smith Novelty's glitter flask products. Glaser does not have a die cut glitter fabric flask that pre-dates Karol Western's Shanghai Diamond. Karol Western was the first company to produce a die cut glitter fabric flask and Glaser was aware of its product. Prior to 2010, Smith Novelty never produced a tumbler made with glitter ...


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