United States District Court, C.D. California
ORDER GRANTING PRELIMINARY INJUNCTION
S. JAMES OTERO, District Judge.
On May 18, 2015, this Court conducted a show cause hearing, as ordered on May 6, 2015, pursuant to the Court's Temporary Restraining Order ("TRO"), Order to Show Cause ("OSC") Regarding Preliminary Injunction, and Order for Leave for Alternative Service. (ECF No. 12.) Plaintiffs Hand & Nail Harmony, Inc. ("Harmony") and Nail Alliance, LLC ("Nail Alliance") (collectively, "Plaintiffs") appeared through their counsel of record, Todd M. Malynn of Feldman Gale, P.A. Defendant International Nail Co., d/b/a Rockstar Nails made no appearance, even though it was served as directed by the Court ( see ECF No. 14) and, as reported by Plaintiffs' counsel, received actual notice of the Court's TRO and OSC re: Preliminary Injunction.
Upon review of Plaintiffs' Complaint, Ex Parte Application for Temporary Restraining Order and Motion for Order to Show Cause Regarding Preliminary Injunction (the "Application") (ECF No. 3), evidentiary submissions and supporting papers, the TRO, and having heard oral argument and GOOD CAUSE appearing therefore, the Court issues the following Orders:
I. FINDINGS OF FACT
In the Complaint filed concurrently with the Application, Plaintiffs allege the following. Plaintiff Harmony creates, promotes, and sells high-quality nail care products and nail care accessories, including soak-off gel polishes ("Harmony Products") under the brand name "Gelish" and other trademarks ("Harmony Marks"). ( See Compl. ¶¶ 3, 24-26, ECF No. 1.) Plaintiff Nail Alliance owns the Harmony Marks, and exclusively licenses the Harmony Marks to Harmony. (Compl. ¶¶ 10, 29.) The Harmony Marks are protected by multiple federal trademark registrations, as well as California common law, and the brand name of each Gelish color is protected under the Lanham Act. (Compl. ¶¶ 25, Ex. A, 27-28.) Further, the photographs of Harmony Products and product packaging used on Harmony's website, as well as other promotional material distributed by Harmony (the "Harmony Works"), are subject to United States Copyright Registrations and protected under federal law. (Compl. ¶¶ 36-38, Ex. B.)
Using a limited number of qualified distributors, Harmony sells Harmony Products to salons and boutiques throughout the world. (Compl. ¶ 8.) Plaintiffs carefully monitor and police the use of the Harmony Marks and Harmony Products, and Harmony's qualified distributors are contractually obligated to exclusively sell Harmony Products to salons and boutiques that are properly trained to apply its products. (Compl. ¶¶ 9, 32.) Harmony's distributor agreements also inform authorized distributors of Plaintiffs' policy against diversion and expressly prohibit the sale of Harmony Products to unauthorized distributors, re-distributors, and diverters, as well as the online sale of Harmony Products. (Compl. ¶ 40.) This is imperative because proper application of Gelish brand gel polish requires application of base coat product, polish product, and top coat product, as well as irradiation of each coat with ultraviolet light. (Compl. ¶ 9.) Application of Harmony Products by a person without proper training and equipment yields uncured and marred finishes. (Compl. ¶ 9.) Further, removal of the cured finishes by a person without proper training can take excessive time, aggravate the user, or result in bacterial infections of the nail bed that cause painful and permanent injuries, all of which injure Harmony's goodwill and reduce Harmony's sales to salon customers. (Compl. ¶¶ 9, 39.)
Harmony uses a number of domain names, including www.gelish.com and www.nailharmony.com, to promote the Harmony Products. (Compl. ¶¶ 3, 35.) Additionally, other domain names direct traffic to Harmony's domains. (Compl. ¶ 3.) At an unspecified time, Defendants International Nail Co. d/b/a Rockstar Nails ("Rockstar") and Does 1 through 10 ("Doe Defendants") (collectively, "Defendants") registered in bad faith the domain name www.harmonygelish.co.uk (the "Domain Name") to improperly associate themselves with Harmony and unlawfully profit at the expense of Harmony. (Compl. ¶¶ 4, 14, 18, 43.)
Using the Domain Name, Defendants operate a website formed entirely of copyrighted images and trademarks misappropriated from Harmony's website (the "Website") in order to directly compete with Harmony and its authorized distributors. (Compl. ¶ 4, 18, 49, 51-53, 55.) The singular purpose of the Website is to sell unauthorized and infringing Harmony products (the "Merchandise") which they knowingly obtained "in violation of [Harmony's] distributor agreements." (Compl. ¶¶ 5, 49, 57.) In selling the Merchandise, Defendants do not concern themselves with whether a salon or retail customer is trained or qualified to apply Harmony Products to an individual's nails, which in turn harms Harmony's brand and reputation and creates health risks for unsuspecting users of its products. (Compl. ¶¶ 5, 56.) Further, Defendants have "undertaken exceptional efforts" to hide their true identities by obliterating the serial numbers from the gel polish bottles sold on the Website so that Plaintiffs cannot determine which of its distributors is providing Harmony Products to Defendants. (Compl. ¶ 50.)
Plaintiffs also allege the following in information and belief. Rockstar engaged in bad faith, fraudulent and unlawful conduct by: (1) registering a domain name comprised of the Harmony Marks; and (2) providing false, inaccurate, or misleading information to its Registrar during the registration of the Domain Name. (Compl. ¶ 18.) Additionally, Rockstar and its owners, operators, and directors used false, inaccurate, or misleading information in order to conceal their identities while conducting their illegal activities using the Domain Name and Website. (Compl. ¶¶ 19, 50.) Finally, Doe Defendants, whose identities are unknown to Plaintiffs, have distributed, supplied, or sold the allegedly infringing Merchandise in violation of the law. (Compl. ¶ 20.) Plaintiffs maintain that there is no legitimate business purpose to Defendants' Website because it is designed exclusively to facilitate the "unlawful advertisement and sale of Infringing Merchandise." (Compl. ¶¶ 50, 59-60.)
Plaintiffs filed the instant lawsuit on April 13, 2015. In the Complaint, Plaintiffs bring six causes of action for: (1) cybersquatting pursuant to § 43(d) of the Lanham Act, 15 U.S.C. § 1125 (Compl. ¶¶ 62-69); (2) trademark infringement pursuant to § 32 of the Lanham Act, 15 U.S.C. § 1114 (Compl. ¶¶ 70-76); (3) trademark infringement pursuant to § 42 of the Lanham Act, 15 U.S.C. § 1125 (Compl. ¶¶ 77-83); (4) copyright infringement, 17 U.S.C. §§ 501 et seq. (Compl. ¶¶ 84-94); (5) intentional interference with contractual relations or prospective business advantage (Compl. ¶¶ 95-105); and (6) unfair competition in violation of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200 et seq. (Compl. ¶¶ 106-11.)
In order to carry out the terms and intent of this Order, any Finding of Fact contained herein may be deemed to be a Conclusion of Law and any Conclusion of Law may be deemed to be a Finding of Fact. Based upon aforementioned Findings of Fact, the Court makes the following Conclusions of Law.
II. CONCLUSIONS OF LAW
A. Personal Jurisdiction
Due to the ambiguity surrounding Defendants' location (Malynn Decl. ¶ 7; Haile Decl. ¶ 19, ECF No. 5-1), and because "[a] district court must have personal jurisdiction over a party before it can enjoin its actions, " Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 711 n.1 (1982), before turning to the merits of the preliminary injunction, the Court addresses the issue of personal jurisdiction. As a general matter, "[t]he plaintiff bears the burden of establishing that the court has personal jurisdiction, " Fields v. Sedgwick Associated Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986); see also Ziegler v. Indian River Cnty., 64 F.3d 470, 473 (9th Cir. 1995) (citation omitted), and courts accept allegations in the complaint as true for purposes of jurisdiction. Fields, 796 F.2d at 301 (citing Pac. Atl. Trading Co. v. M/V Main Express, 758 F.2d 1325, 1327 (9th Cir. 1985)).
Here, the Complaint alleges that although Defendants' Domain Name is registered to the Bismarck Address neither Rockstar Nails nor International Nail Co. is registered to conduct business in North Dakota or organized under its laws. (Compl. ¶¶ 14-15.) Further, when Plaintiffs retained an Investigator to purchase Merchandise sold on the Website, the purchased goods included a Santa Monica, California return address, and the terms and conditions on Defendants' website purport to be "governed by the laws of the State of California." (Compl. ¶ 16.) Based on the foregoing, Plaintiffs allege, on information and belief,  that "Rockstar is a business entity" that "resides and operates within this judicial district in the State of California." (Compl. ¶¶ 16, 22.) Because "[a] federal court can exercise general personal jurisdiction as to persons domiciled within the forum state at the time the action is commenced, " Lietzke v. Cnty. of Montgomery, No. CV 06-01410 ST, 2006 WL 2947118, at *2 (D. Or. Oct. 16, 2006) (citing Milliken v. Meyer, 311 U.S. 457 (1940)), such allegations are sufficient to establish personal jurisdiction.
Further, even assuming the Defendants are not California residents,  the Court finds that Plaintiffs have sufficiently alleged facts establishing personal jurisdiction for the following reasons. California's long-arm statute "allows courts to exercise personal jurisdiction over defendants to the extent permitted by the Due Process Clause of the United States Constitution." Harris Rutsky, 328 F.3d at 1129 (citing Cal. Civ. Proc. Code § 410.10). Courts may exercise personal jurisdiction over a non-resident defendant if the defendant has "at least minimum contacts' with the relevant forum such that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice.'" Dole Food Co. v. Watts, 303 F.3d 1104, 1110-11 (9th Cir. 2002) (citation omitted). Under the Ninth Circuit's three-prong test, a court may exercise specific personal jurisdiction over a non-resident defendant when: (1) the non-resident defendant purposefully directs his activities or consummates some transaction with the forum or resident thereof; or performs some act by which he purposefully avails himself of the privileges of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (2) the plaintiff's claim arises out of or relates to the defendant's forum-related activities; and (3) the forum's exercise of jurisdiction comports with fair play and substantial justice. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004) (citation omitted).
"In the internet context, the Ninth Circuit utilizes a sliding scale analysis under which passive' websites do not create sufficient contacts to establish purposeful availment, whereas interactive websites may create sufficient contacts, depending on how interactive the website is." Allstar Mktg. Grp., LLC v. Your Store Online, LLC, 666 F.Supp.2d 1109, 1121 (citations and quotation marks omitted). While "passive' websites... merely display information, such as an advertisement... interactive' websites... function for commercial purposes and [allow] users [to] exchange information." Am. Auto. Ass'n, Inc. v. Darba Enters., Inc. ("AAA"), No. CV 09-00510 SI, 2009 WL 1066506, at *4 (N.D. Cal. Apr. 21, 2009) (citations omitted). Thus, "[p]ersonal jurisdiction is appropriate when an entity is conducting business over the internet.'" Id. (quoting Stomp, Inc. v. NeatO, LLC, 61 F.Supp.2d 1074, 1078 (C.D. Cal. 1999)).
Here, Plaintiffs allege that "Defendants are subject to personal jurisdiction in this judicial district because they direct business activities toward and conduct business with consumers within the State of California... through... the fully interactive commercial Internet website www.harmonygelish.co.uk." (Compl. ¶ 22.) Accepting Plaintiffs' allegations as true, see Fields, 796 F.2d at 301, the Court finds that Plaintiffs have established that Defendants purposefully availed themselves of the privileges of conducting business in California by directing business toward and conducting business with customers in California via the Website. See Schwarzenegger, 374 F.3d at 802; Stomp, 61 F.Supp.2d at 1078.
Plaintiffs have also established the second prong for personal jurisdiction: that "the claim asserted in the litigation arises out of [the] defendant's forum related activities.'" Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1322 (9th Cir. 1998). When examining this prong, courts "must determine whether plaintiff would not have been injured but for defendant's forum-related activities." AAA, 2009 WL 1066506, at *5 (citing Panavision, 141 F.3d at 1322). Here, Plaintiffs allege that Defendants have used the Website, which advertise the allegedly infringing Merchandise using Harmony's registered copyrights, to conduct business with California consumers. (Compl. ¶¶ 22, 51-52.) Further, Defendants' Website has harmed Plaintiffs' brands, reputation, and relationships with its authorized distributors and customers by permitting its products to be sold to untrained, unqualified persons, thereby increasing the risk of customer dismay and injury. ( See Compl. ¶¶ 5-6, 40.) Finally, Plaintiffs maintain that by selling the allegedly infringing Merchandise, Defendants are in "direct competition with Plaintiffs and authorized distributors." (Compl. ¶ 55.) Based on the foregoing, the Court finds that Plaintiffs have established that they would not have been harmed but for Defendants' forum-related activities. See AAA, 2009 WL 1066506, at *5.
Finally, based on the foregoing, the Court finds that the exercise of personal jurisdiction over Defendants would be reasonable based on the factors articulated by the Ninth Circuit in Panavision.  Because the burden is on Defendants to "present a compelling case that the presence of some other considerations would render jurisdiction unreasonable, " Core-Vent Corp. v. Nobel Indus. AB, 11 F.3d 1482, 1487 (9th Cir.1993),  and because there is no indication at this time that the exercise of personal jurisdiction over Defendants, who Plaintiffs allege are California residents, (Compl. ¶¶ 22-23), would be unreasonable, the Court finds that Plaintiffs have established that the Court has personal jurisdiction over Defendants.
B. Preliminary Injunction Analysis
To obtain preliminary injunctive relief, the moving party must show: (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm to the moving party in the absence of preliminary relief; (3) that the balance of equities tips in favor of the moving party; and (4) that an injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008); see also Save Our Sonoran, Inc. v. Flowers, 408 F.3d 1113, 1120 (9th Cir. 2005). The Ninth Circuit also employs an alternative, sliding scale test whereby the existence of "serious questions going to the merits and a balance of hardships that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the public interest." Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011) (internal quotation marks omitted).
1. Likelihood of Success on the Merits
"A preliminary injunction is an extraordinary remedy never awarded as of right." Winter, 555 U.S. at 9. As a result, a plaintiff seeking injunctive relief must demonstrate a "likelihood of success on the merits." Munaf, 553 U.S. at 676 (internal quotations marks omitted) (citation omitted). Such an inquiry, in turn, looks at the "probable outcome [of plaintiff's claim] on the merits." Mayo v. U.S. Gov't Printing Office, 839 F.Supp. 697, 700 (N.D. Cal. 1992). Here, Plaintiff's request for a preliminary injunction centers on its claims for copyright and trademark infringement, cybersquatting, and unfair competition. ( See generally Case 2:15-cv-02718-SJO-AJW Document 27 Filed 05/22/15 Page 10 of 25 Page ID #:408 Compl.; Mem.) Thus, the Court must determine whether Plaintiffs are likely to succeed on the merits of these claims.
a. Copyright Infringement
"Plaintiffs must satisfy two requirements to present a prima facie case of direct [copyright] infringement: (1) they must show ownership of the allegedly infringed material and (2) they must demonstrate that the alleged infringers violate[d] at least one exclusive right granted to copyright holders under 17 U.S.C. § 106." A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir. 2001). Under 17 U.S.C. § 106, "the owner of copyright... has the ...