Sony Computer Entm't America, Inc. v. Steven Filipiak, et al.

406 F. Supp. 2d 1068 (N.D. Cal. 2005)

In this case decided in 2005, Sony received over $6 million in a copyright infringement judgment against a small online retailer who violated the Digital Millennium Copyright Act (DMCA), 17 U.S.C. §§ 1201 et seq., by selling computer chips that allowed unauthorized copies of PlayStation games to be played on the PlayStation console.

In 2002, Filipiak opened an online store and began selling modification chips (“mod chips”), which were “computer chips that circumvent the technological copyright protection measures in PlayStation consoles.” Using these mod chips, a user could play pirated video games which would otherwise not function on PlayStations.

On June 11, 2004, after learning about Filipiak’s business, Sony sent him a cease-and-desist letter ordering him to agree to an injunction. Filipiak signed it on June 12 and took the unauthorized devices off his website but continued to sell them anyway, communicating directly with customers via email instead of through the website.

Sony brought suit on June 14 seeking injunctive relief and damages for alleged copyright infringement. On June 16, Filipiak signed a stipulated consent judgment saying he marketed and sold his devices in violation of the DMCA. Sony agreed not to execute the consent judgment as long as Filipiak complied with an injunction to refrain from further sales and pay $50,000 in damages. However, Filipiak continued selling the mod chips privately. Sony found out about Filipiak’s continued sales on June 22 (Filipiak didn’t bother denying it – he just said “Yeah, I shouldn’t have done that”) and rescinded its consent from the consent judgment. The two parties executed a new consent judgment containing provisions requiring that Filipiak turn over relevant information related to his mod chip sales without destroying any such data. Specifying the amount of damages was left for after discovery.

Filipiak then proceeded to provide incomplete data and a computer forensics expert determined that thousands of relevant files had been erased from the hard drive right before it was turned over to Sony. Looking at the available sales records and Filipiak’s testimony, the court estimated that 7,039 circumvention devices were sold before June 12 and 155 were sold after June 12.

Since Filipiak had already admitted his liability under the DMCA in the consent judgment, the court needed only to resolve the amount of damages. According to § 1203(c)(3)(A) of the DMCA, damages from $200 up to $2500 may be awarded for each violation, or device sold, “as the court considers just.”

To determine what was just, the court considered factors including “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.” The last factor considered was “whether a defendant has cooperated in providing particular records from which to assess the value of the infringing material produced.”

Filipiak’s willful conduct had a big impact on the court’s decision. Filipiak’s violation of the DMCA was considered willful because Filipiak knew the mod chips were illegal. He had trouble with suppliers who had similarly been shut down and PayPal terminated his account because its agreement prohibited illegal mod chip sales. His violation of Sony’s cease-and-desist order by continuing sales after signing the agreement was also willful. So, as to the devices sold after June 12, 2004, the court concluded that Filipiak was “even more culpable than he was with respect to previous sales because, as found above, he signed an agreement with Sony 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 Sony he would not, albeit surreptitiously.” Filipiak couldn't complain about any inaccuracies in the estimate of devices sold because he failed to provide complete records and destroyed records, intentionally and in bad faith, violating the consent judgment and discovery obligations.

The court granted Sony’s request that Filipiak pay $800 for each device sold prior to June 12 and the maximum of $2500 for each device sold after June 12. The total award of $6,018,700.00 was considered reasonable, in line with congressional intent, and necessary to discourage wrongful conduct by others who may be tempted to sell illegal contravention devices.

Filipiak filed two motions to dismiss but the court denied both of them. First, Filipiak claimed that he shouldn’t owe damages because he made charitable contributions and he sold legal products in addition to the mod chips on his website. He also alleged litigation misconduct by Sony. But the court said his arguments had no merit and there was no evidence to back up the allegation of misconduct by Sony, so vacating the consent judgment wasn’t justified.

Second, Filipiak asked the judge to dismiss this case because in another case Sony’s PlayStation and PlayStation 2 were found to infringe on Immersion Corp.’s patents. The court quickly dismissed this motion saying “[t]he 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.”

Read the complete court order here.