Petition for Writ of Certiorari — U. E. Enterprises, Inc. v. New York Chinese TV Programs, Inc.

Supreme Court brief1992

Ask Donna

What actually matters in this document.

Text

FILED

JUN 12 1992

OFFICE CF THE CLERK

No. 91-

IN THE

Supreme Court of the Gnited States

October Term, 1992

U.E. ENTERPRISES, INC.; FLUSHING STAR, INC.;

CHAN’S VIDEO & TRADING, INC.; GONG PICTURES, INC.;

DANG’S VIDEO, INC.; PO YUEN,

. Petitioners,

NEW YORK CHINESE TV PROGRAMS, INC.,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

PETITION FOR WRIT OF CERTIORARI

KENNETH J. CHESEBRO

Counsel of Record

1600 Massachusetts Avenue

Cambridge, Massachusetts 02138

(617) 661-4423

Po W. YUEN

STEVEN GLEIT

41 Mott Street

New York, New York 10013

(212) 966-6704

Counsel for Petitioners

June 11, 1992

BATEMAN & SLADE. INC BOSTON, MASSACHUSETTS

|OO

QUESTION PRESENTED

Whether the Court of Appeals for the Second Circuit

exceeded the Judicial power, and invaded the prerogative of the

Executive, in ruling that Taiwan is a "nation" -- contrary to the

President’s declaration in the Joint Communique of December

15, 1978 (reaffirmed repeatedly, and most recently on December

19, 1991), announcing official United States foreign policy that

"all Chinese on either side of the Taiwan Strait maintain there is

but one China and that Taiwan is part of China."

TABLE OF CONTENTS

oy eB yy) i

po ise) : iv

ee ee ee | I

Se ee ee ee ee ee ee ee oe l

CONSTITUTIONAL AND STATUTORY PROVISIONS ... 1

ROME UEPEUE GOP SOU CA 6 tt ce cee 2

REASONS FOR GRANTING THE WRIT ............ 5

1. This Court Should Grant Review to Reverse the Second

Circuit’s Finding that Taiwan is a “Nation” --

a Finding that Overrides the Consistent Executive

Determination for the Past Two Decades to the Contrary ... 5

2. This Court Should Grant Review to Protect

the President's Powers Over the Foreign Affairs

ee a ee ee ee 10

ke re 12

TABLE OF AUTHORITIES

Cases

Department of the Navy v. Egan,

OA re eee 11

Jones v. United States, 137 U.S. 202 (1890) ........ 11

Morrison v. Olson, 487 U.S. 654 (1988) ........... 11

United States v. Belmont, 301 U.S. 324 (1937) ....... 11

United States v. Munoz-Flores, 110 S. Ct. 1964 (1990) .. 11

United States v. Nixon, 418 U.S. 683 (1974) ........ 10

United States v. Verdugo-Urquidez,

ke ES a re ee 11

W.S. Kirkpatrick & Co., Inc. v. Environmental

Tectonics Corp., 493 U.S. 400 (1990) ........... 11

Webster v. Doe, 486 U.S. 592 (1988) ............. 11

Zschernig v. Miller, 389 U.S. 429 (1968) .......... 11

Constitutions, Statutes and Regulations

U.S. Constitution, Article II, §§ 2,3 ............. l

De SA EE oo ee ae Ce eee ee l

President Carter’s Joint Communique with China,

14 Weekly Comp. of Pres. Doc. 2264,

gg Pe era oe eee eee ee 6

Taiwan Relations Act, 22 U.S.C. §§ 3301, et seg. .... 3, 10

wremes GA POPON Ce) cc vc Kc he we eww eens 10

Treaty of Friendship, Commerce and Navigation,

Nov. 4, 1946, 63 Stat. 1299 (1946) ............ 3

TABLE OF AUTHORITIES (cont.)

Miscellaneous

Hungdah Ghiu, Certain Legal Aspects of Recognizing

the People’s Republic of China, 11 CASE W.RES.

hoe ee i, re eee ae ee eee 4

11 New Encyclopedia Britannica 511 (15th ed. 1988)

(Micropedia: Taiwan) ......-----++++erree: 6

Restatement (Third) of the Foreign Relations

Law of the United States (1987) .... 5, 8,9, 10, 11, 12

White House Briefing, Federal News Service,

Shee. OR. TO nin ot ee en ee eee 9, 10

The Economist, March 7, 1992, at35 .......----- 8

N.Y. Times., Aug. 18, 1982, at Al2, col. 1 ........- 9

A Strong Vote for One China, N.Y. Times,

Dec. 24, 1991, at Al8, col. 1 ......---------- 7

Morton I. Abramowitz, One China, and the Moment

of Truth, N.Y. Times, Jan. 18, 1992, at oe ia

Editorial, N.Y. Times, Feb. 22, 1992, at ee ae

Nicholas D. Kristof, As China Looks at World Order, It Detects

New Struggles Emerging, N.Y. Times, Apr. 21, 1992, at Al,

ot % aa wee eee eee 8

Nicholas D. Kristof, Taiwan Becomes a Tiger

With an Identity Crisis, N.Y. Times,

Jan. 12, 1992, § 4, & 4, col. 1 .......+5+----: 7

Drew Torchia, Voters Say Taiwan is Part of China,

The Independent, Dec. 23, 1991 ......-------: 7

James L. Tyson, Taiwan Voters Opt for Stability,

Christian Science Monitor, Dec. 24, 1991, at4 ..... 7

OPINIONS BELOW

The decision of the United States Court of Appeals for the

Second Circuit, affirming the district court’s finding that

petitioners are liable for copyright infringement, is reported at

954 F.d 847, and is reprinted as Appendix A, at page Al.

(References to the appendices bound with this Petition are styled

"A___"). The opinion and order of the United States District

Court for the Southern District of New York finding liability,

from which appeal was taken, is reported at Copy. L. Rep.

(CCH) 426,398, and is reprinted as Appendix B, at page Al4.

The opinion and order of the District Court setting damages is

reported at Copy. L. Rep. (CCH) 426,778, and is reprinted as

Appendix C, at page A47.

JURISDICTION

The decision of the Court of Appeals was entered on January

24, 1992. A timely petition for rehearing and suggestion for

rehearing en banc was denied on March 23, 1992. See Appendix

D, at page A79. The jurisdiction of this Court is invoked under

28 U.S.C. § 1254(1).

STATUTORY AND CONSTITUTIONAL |.

PROVISIONS INVOLVED

Art. II, § 2, cl. 2 of the U.S. Constitution provides in

relevant part that:

[The President] shall have Power, by and with the Advice

and Consent of the Senate, to make Treaties, provided two

thirds of the Senators present concur... .

Art. II, § 3 of the U.S. Constitution provides in relevant part

that:

{The President] shall receive Ambassadors and other public

Ministers... .

Section 104(b)(1) of the Copyright Act of 1978, 17 U.S.C.

§ 104(b)(1), states:

Section 104. Subject matter of copyright:

National origin.

(b) Published Works. -- The works specified by sections

102 and 103, when published, are subject to protection

under this title if -- (1) on the date of first publication, one

or:more of the authors is a national or domiciliary of the

United States, or is national, domiciliary, or sovereign

authority of a foreign nation that is a party to a copyright

treaty to which the United States is also a party, or is:a

Stateless person, whenever that person may be domiciled.

STATEMENT OF THE CASE

The decision of the Court of Appeals below, declaring the

island of Taiwan a "nation" despite consistent declarations to the

contrary by the President of the United States, is a fundamental

violation of the separation of powers because it strikes at the core

of the Executive power over foreign affairs. The decision

ignores both the Constitution and this Court’s careful guarding

of Executive prerogative and cannot be allowed to stand.

The relevant facts are uncontested and were stipulated below.

(A25). Petitioner U.E. Enterprises, Inc. ("U.E."), a New York

corperation, is in the business of distributing, in the Northeast

United States, videotapes of television programs aired in Hong

Kong. Petitioner Po W. Yuen is the chief executive officer of

U.E; the other petitioners are affiliates or customers of U.E.

(collectively, "U.E."). From 1986 to 1988, U.E. sold and

rented videotapes of various television “soap opera" programs

originally aired in Taiwan. (A16, A18).

On June 16, 1988, respondent New York Chinese TV

Programs, Inc., brought suit against U.E. in the United States

District Court for the Southern District of New York, claiming

that it held a valid copyright interest in the television programs

being distributed by U.E., and seeking injunctive and monetary

relief. Respondent alleged, in relevant part, that it was an

exclusive sub-licensee of the three Taiwanese television stations

that had originally aired the programs in Taiwan, and that

acerca aaeentiaiete arate el

the Copyright Act of 1978, which makes an original work

eligible for copyright protection if

on the date of first publication, one or more of the authors

is a national or domiciliary of the United States, or is a

national, domiciliary, or sovereign authority of a foreign

nation that is a party to a copyright treaty to which the

United States is also a party.

U.E. conceded that the “authors” of the programs -- the

Taiwanese television stations that produced them -- are

"domiciliaries" of Taiwan. U.E. based its defense, and its claim

that all its activities were entirely legal and indeed protected by

the First Amendment, on the ground that the island of Taiwan is

not a "foreign nation that is a party to a copyright treaty to which

the United States is also a party."

As the decision of the Second Circuit below recognized in

confronting U.E.’s claim (A9-A11), the plain language of Section

104(b)(1) specifies that copyright protection cannot be found by

a court without a threshhold finding by the court that Taiwan is

a “nation.” Without such a finding, the inquiry ends; it becomes

clear that U.E.’s activities were constitutionally protected; and

the judgment below becomes unsustainable.

Yet the district court never took on this central task. Its

opinion did analyze various constitutional issues raised by

petitioners bearing on the status of the 1946 Treaty of

Friendship, Commerce, and Navigation ("FCN Treaty"), 63 Stat.

1299 (1946), negotiated between the United States and the

government of the Republic of China before its leaders fled to

Taiwan upon losing the Chinese civil war (A5-AS). Specifically,

the district court considered whether the FCN Treaty is today in

force as a “treaty” within the meaning of Section 104(b)(1) of the

not even definitively resolve these issues. Instead, it held that

“the constitutional issues defendants seek to raise may be

properly avoided" by regarding the Taiwan Relations Act

("TRA"), 22 U.S.C. §§ 3301, ef seq., as having impliedly

accomplished a de facto amendment of the Copyright Act so as

to read out of the Act, for purposes of Taiwan, the necessity to

eae

find either "nationhood" or a “treaty” -- thus viewing the TRA

"as a domestic law extending to Taiwan the provisions of the

FCN Treaty pertaining to copyright protection despite

derecognition and the cessation of formal diplomatic relations."

(A37).

On appeal in the Second Circuit, the United States as amicus

urged the court of appeals to adopt the “de facto Copyright Act

amendment" theory and avoid the various constitutional issues

raised by petitioners. See Brief for the United States as Amicus

Curiae, filed October 18, 1991, at 8-16. The Second Circuit

ignored this suggestion, perhaps because the suggestion presents

its Own constitutional concerns about how far Congress can go

in announcing a general intent to amend statutes toward a given

ends, but then essentially delegating to the Judiciary the

responsibility of working out the details and language.

Regardless of why, in the core of its opinion the Second Circuit

usurped a fundamental Executive prerogative by declaring that

Taiwan is a “nation.” (Al1-A12).

Rather than inquiring whether the President had addressed the

question of Taiwan’s status as a “nation” in the exercise of his

powers over foreign affairs, the Second Circuit troated the point

as an objective issue of fact and performed its own independent

analysis. The Second Circuit applied a summary of “four

essential elements of statehood under international law,"' which

it found were met: "“(1) a defined territory; (2) a permanent

population; (3) a government; (4) the ability to engage in

relations with other nations." (A11).

In conducting its factual analysis, the Second Circuit assumed

(incorrectly) that prior to the United States’ derecognition of the

Republic of China in 1979 (A6-A7), the island of Taiwan was

clearly a "nation" -- a "nation" controlled by members of the

Nationalist government that had ruled on mainland China prior

to losing to the Communists in the Chinese civil war. The

" Hungdah Chiu, Certain Legal Aspects of Recognizing the People's

Republic of China, 11 CASE W.REsS.J.INT’L L. 389, 395-96 (1979).

a a ae

Second Circuit decided that the “nation” requirement of the

of Taiwan implies that Taiwan is no longer a ‘nation.’" (A10)

(emphasis added). Citing Restatement (Third) of the Foreign

Relations Law of the United States § 202, cmts. a, b (1987), the

court stated that "[a]n entity’s status as a nation, however, does

not depend on whether it receives diplomatic recognition from

other nations," and the court quickly concluded: “We hold,

therefore, that the United States’ derecognition of Taiwan did not

change Taiwan’s status as a nation. Because Taiwan is still a

nation, the United States may continue to honor its treaties with

Taiwan." (A11.)

The case for certiorari hinges on whether this determination

usurps the President’s foreign policy powers under the

Constitution.

REASONS FOR GRANTING THE WRIT

Perhaps intending to promote “the wishes of the elected

branches of government," (A10), the Second Circuit in fact took

the extraordinary step of re-making U.S. foreign policy with

respect to Taiwan. By doing so it entangled itself in an

emotionally charged and politically sensitive international issue:

the national status of Taiwan. In addition to being plainly

wrong, the decision below presents an ideal opportunity for this

Court to recanvass principles of judicial restraint, and Executive

primacy, in the foreign policy realm.

1. This Court Should Grant Review to Reverse the Second

Circuit’s Finding that Taiwan is a "Nation" -- a Finding

that Overrides the Consistent Executive Determination

for the Past Two Decades to the Contrary

The Second Circuit’s approach to the matter of Taiwan’s

national status was fundamentally misdirected. The question is

not whether an entity can be a "nation" without being recognized

by other nations; petitioners acknowledge such a possibility.

This inquiry is irrelevant, for it does not show that Taiwan is a

"nation" to begin with. At least since 1661, Taiwan has never

been a "nation." (A4-A5). One need go no further than 11 New

Encyclopedia Britannica 511 {15th ed. 1988) (Micropedia:

Taiwan), which observes that Taiwan is an

island situated 100 mi (160 km) off the southeast coast of the

China mainland . . . governed by the Republic of China, or

National Chinese, who aiso claim jurisdiction over the whole

of the mainland China; the island, in their view, is Taiwan

Area, or Taiwan District. The People’s Republic of China,

in turn, claims jurisdiction over Taiwan. Both governments

agree that Taiwan is a province of China.

The Court of Appeals failed to honor decades of Chinese history

and the consistent policy of the Executive Branch concerning the

status of Taiwan.

What the United States derecognized in 1979 was not

"Taiwan," but rather "the Republic of China" -- a government,

not a land mass -- which for several decades was recognized as

the sole legitimate government of all of China, including the

province of Taiwan. The United States had never before then

recognized "Taiwan" as any sort o. independent entity, much less

a “nation.” Upon derecognition of the Republic of China, the

United States recognized “the People’s Republic of China"

("PRC") -- again, a government, not a land mass -- as the sole

legitimate government of all of China, including the province of

Taiwan.

President Carter expressly reaffirmed the status of Taiwan as

part of China, and removed any possibility that it could be

considered a “nation” on its own, in the Joint Communique he

approved with the PRC on December 15, 1978. In that

document, the United States acknowledged that "all Chinese on

either side of the Taiwan Strait maintain that there is but one

China and that Taiwan is part of China," and recognized that the

PRC is "the sole legal Government of China." 14 Weekly Comp.

of Pres. Doc. 2264 (Dec. 18, 1978).

The Joint Communique, of course, merely reflected reality

-- that under standard principles of international law, there was

simply no basis for suggesting that Taiwan was a nation. The

aati iam iinaiieiiiial

key reality under international law is that neither the governing

authorities on Taiwan nor those on the mainland claim that

Taiwan is a nation. Indeed, politicians on Taiwan favoring

independence for Taiwan recently suffered a crushing defeat at

the polls. During the campaign debate over independence,

authorities on the mainland repeated their long-standing vow to

invade Taiwan if its people attempt to secede from China.?

> A small sampling of major press articles spanning the past six

months shows that no serious claim exists that Taiwan is a "nation":

"For the last four decades, the Nationalist government has insisted that

the island remains part of China and will one day be politically reunited

with the mainland... . In Saturday’s general election, the first . . . in

which opposition candidates dared to campaign openly for independence,

Taiwanese had a chance to reverse that policy. By handing the Nationalist

Party a crushing victory in the polls, voters showed they wanted Taiwan

to remain legally part of the ‘Chinese motherland’.". Drew Torchia, Voters

Say Taiwan is Part of China, The Independent, Dec. 23, 1991, at 8.

¢ “The [Nationalist Party] won more than 70 percent of the vote. That

margin testifies to public support for the [Nationalist Party’s] ‘One China’

doctrine, holding that eventual reunification with the mainland is inevitable

and that Taiwan's independence is inconceivable. The main opposition

party, the Democratic Progressives, openly backed independence, and lost

support." A Strong Vote for One China, N.Y. Times, Dec. 24, 1991, at

Al8, col. 1.

e “The ruling party considers advocacy of independence a form of

sedition and had threatened to dissolve the [opposition party] after the

election. Also, China has said it would invade Taiwan if the island

formally breaks from the mainland." James L. Tyson, Taiwan Voters Opt

for Stability, Christian Science Monitor, Dec. 24, 1991, at 4.

¢ "[B]ecause of the fear of inviting military attack from Beijing, a

Nationa! Assembly election last month -- the first full election on Taiwan

in four decades -- led to a crushing defeat for the opposition party after it

proposed a declaration of independence from China." Nicholas D. Kristof,

Taiwan Becomes a Tiger With an Identity Crisis, N.Y. Times, Jan. 12,

1992, § 4, at 4, col. 1.

¢ Currently, “Beijing, Taipei and Washington agree on the unity of

China. In the National Assembly election last month, the people of Taiwan

voted for the status quo, for prudence and prosperity." Morton I.

Abramowitz, One China, and the Moment of Truth, N.Y. Times, Jan. 18,

1992, at 23, col. 2. a

The dispositive nature of Chinese politics to the issue of

Taiwan’s "nationhood" is clear from the section of the

Restatement (Third) of the Foreign Relations Law of the United

States (1987) immediately preceding the section cited by the

Second Circuit at All. Section 201, cmt. f, adds a caveat after

listing the four standard elements relied on by the Second

Circuit:

While the traditional deiinition does not formally require it,

an entity is not a state if it does not claim to be a state. For

example, Taiwan might satisfy the elements of the definition

in this section, but its authorities have not claimed it to be

a state, but rather part of the state of China. See Reporters’

Note 8, and § 203, comment /-

(Emphasis added).

Reporters’ Note 8 to comment f, cited here, further states:

8. Taiwan. After the Second World War Japan

renounced claims to Taiwan (Formosa). Both the regime

governing Taiwan and the regime governing the mainland of

China have claimed Taiwan as part of China, and other

e “Both Taiwan’s ruling Nationalist Party and the Communist

Government in Beijing insist that there is but one China, encompassing

Taiwan and the mainland. Taiwan’s voters passed their own verdict when

the dealt the Democratic Progressives a* stinging electoral defeat."

Editorial, N.Y. Times, Feb. 22, 1992, at 22, col. 1.

e "No one in China thinks of Taiwan as anything but a renegade

province that will eventually be rejoined to China." The Economist,

March 7, 1992, at 35.

e "China regards Taiwan as a renegade province and reserves the nght

to use force to resolve what it considers to be its own ‘internal affair.’ A

confrontation in the Taiwan Strait could well happen if Taiwan’s opposition

movement gets its way and declares independence from China. ‘If Taiwan

declares independence, we'll have to attack them’ said a Chinese official

with ties to senior generals." Nicholas D. Kristof, As China Looks at

World Order, It Detects New Struggles Emerging, N.Y. Times, Apr. 21,

1992, at Al, col. 3.

aaah aia aia

states have either confirmed or acquiesced in that claim.

[S]ince the authorities on Taiwan do not claim that

Taiwan is a state of which they are the government, the

issue of its statehood has not arisen. See Comment f._ If

Taiwan should claim statehood, it would in effect be

purporting to secede from China.

(Emphasis added).

In sum, the governing authorities situated on Taiwan do not

claim that Taiwan is a "state," "nation," or other independent

entity of any kind; they insist that it is a province of China. The

PRC, which rules from mainland China, insists likewise.

President Carter, out of an acknowledged desire to maintain

smooth relations with all Chinese people, adamantly agreed -- as

have all subsequent presidents.* The only dissenting voice in

* In a Joint Communique issued by the United States and China on

August 17, 1982, President Reagan promised to cut back United States

arms assistance to Taiwan, and reaffirmed: “Respect for each other’s

sovereignty and territorial integrity. and noninterference in each other’s

internal affairs constitute the fundamental principles governing United

States-China relations. These principles were confirmed in the Shanghai

Communique of Feb. 28, 1972, and reaffirmed in the Joint Communique

on the Establishment of Diplomatic Relations which came into effect on

Jan. 1, 1979. Both sides emphatically state that these principles continue

to govern all aspects of their relations." ¢ 3. President Reagan also

promised: "The United States Government attaches great importance to its

relations with China, and reiterates that it has no intention of infringing on

Chinese sovereignty and territorial integrity, or interfering in China’s

internal affairs, or pursuing a policy of ‘Two Chinas’ or ‘one China, one

Taiwan.’" {|S (emphasis added). See N.Y. Times., Aug. 18, 1982, at

Al2, col. 1 (text of Joint Communique).

President Bush reaffirmed these principles in a press conference held on

December 19, 1991, in which he refused to comment on the debate central

to elections in Taiwan concerning whether Taiwan should declare its

independence. He was asked: "If [independence] became reality, do you

think the United States would change its China policy, one-China policy?"

President Bush responded:

That question is too hypothetical. Everyone here that keeps up with

these matters is familiar with our obligations under the Shanghai

Communique. ... We don’t need any more tensions in that area.

this country is the Second Circuit in its decision below, which

has declared that Taiwan is clearly a "nation," and therefore that

defendants in 1986-88 were not engaging in protected First

Amendment activity, and may be held liable for copyright

infringement. Such judicial freelancing is inexcusable, especially

in the foreign policy realm, and this Court should take corrective

action.

2. This Court Should Grant Review to Protect

the President’s Powers Over the Foreign Affairs

of the United States

Not only did the Second Circuit reach an indefensible result

-- that Taiwan is a “nation” -- but, in doing so, the court

interfered with the core exercise of the President’s power over

foreign affairs. This case affords this Court a unique opportunity

to underscore the importance of the separation of powers and the

dangers that result when one branch usurps the responsibilities of

another.

And / know that there’s strong feeling on Taiwan -- continues to be

-- that it is, as they have said all along, a part of China.

White House Briefing, Federal News Service, Dec. 19, 1991 (available on

NEXIS) (emphasis added). Both President Reagan and President Bush, of

course, made these policy announcements well after passage of both the

anything in those Acts inconsistent with these announcements must be

disregarded. See Restatement (Third), supra, § 115, cmt. c, and

Reporters’ Notes | & 5.

The Second Circuit found "significant[]” that each edition since 1979 of

Treaties in Force, published each year by the State Department, "includes

the FCN Treaty as a valid and enforceable treaty." (A7). But the

preamble to the same eniry cited by the Second Circuit, “China (Taiwan), "

also reaffirms consistent Executive policy and destroys the Second Circuit's

holding: "The United States acknowledges the Chinese position that there

is but one China and Taiwan is part of China. The United States does not

recognize the ‘Republic of China’ as a state or government."

This Court has long recognized "‘the very delicate, plenary

and exclusive power of the President as the sole organ of the

federal government in the field of international relations.’"

Webster v. Doe, 486 U.S. 592, 605-606 (1988) (O’Connor, J.,

dissenting) (quoting United States v. Curtiss-Wright Export

Corp., 299 U.S. 304, 320 (1936)). See also Department of the

Navy v. Egan, 484 U.S. 518, 529 (1988) (noting "‘the generally

accepted view that foreign policy [is] the province and

responsibility of the Executive’") (quoting Haig v. Agee, 453

U.S. 280, 293-294 (1981)).*

In the foreign policy context, "‘the courts have traditionally

shown the utmost deference to Presidential responsibilities.’"

Egan, 484 U.S. at 530 (quoting United States v. Nixon, 418 U.S.

683, 710 (1974)).* See, e.g., United States v. Verdugo-

Urquidez, 494 U.S. 259, 274-275 (1990); W.S. Kirkpatrick &

Co., Inc. v. Environmental Tectonics Corp. , 493 U.S. 400, 404-

405 (1990); Morrison v. Olson, 487 U.S. 654, 726 (1988)

(Scalia, J., dissenting) ("What about a special Assistant Secretary

of State, with responsibility for one narrow area of foreign

policy, who would not only have to be confirmed by the Senate

but could also be removed only pursuant to certain carefully

designed restrictions?"). Thus, it is only "{i]n the absence of a

* See generally Restatement (Third), supra, § 204, Reporters’ Note 1.

See also United States v. Belmont, 301 U.S. 324, 330 (1937) (holding that

“the Executive [has] authority to speak as the sole organ of [the national]

government” on questions related to recognition); Jones v. United States,

137 U.S. 202, 212 (1890) (holding that "[w]ho is the sovereign, de jure or

de facto, of a territory is not a judicial, but a political question, the

determination of which by the legislative and executive departments of any

government conclusively binds the judges").

* Courts must protect the office of the Executive regardless of whether

the temporary holder of that office defends the Executive’s interest in a

particular legal proceeding. See Zschernig v. Miller, 389 U.S. 429, 432

(1968) (invalidating Oregon statute that restricted power of probate courts

to award property to citizens of Communist countries as “an intrusion by

the State into the field of foreign affairs which the Constitution entrusts to

the President and the Congress," despite the reluctance of the State

Department to oppose the Oregon law); of. United States v. Munoz-Flores,

110 S. Ct. 1964, 1969-1970 (1990).

Presidential decision [that] a court will decide whether to treat an

entity as a state, or a foreign regime as a government, where

such a determination is necessary for the purposes of a case

before the court." Restatement (Third), supra, § 204, cmt. a

(emphasis added).

This case illustrates that these principles are not mere

platitudes or abstractions. In recent months, the PRC on the

mainland repeatedly threatened to invade Taiwan if its people

chose to declare independence, and in a general election the

people on Taiwan resoundingly reaffirmed that Taiwan is part of

China. See note 2, supra. During this process, President Bush

explicitly refused to alter the consistent foreign policy of the

United States, and he reaffirmed that the United States officially

regards Taiwan as a part of China, not an independent nation.

See note 3, supra. The Second Circuit’s finding -- that Taiwan

is, after all, a nation -- overrides President Bush’s judgment and

directly usurps his constitutional authority to set U.S. foreign

policy.

In the quest for harmonious relations with the Chinese,

particularly the PRC, the past several presidents have all declared

that there is only one China, and that Taiwan is a province of

China, not a separate nation. These declarations are controlling,

and should be vigorously enforced by this Court.

CONCLUSION

For these reasons, this Court should grant the petition for

certiorari.

Respectfully submitted,

KENNETH J. CHESEBRO

Counsel of Record

1600 Massachusetts Avenue

Cambridge, Massachusetts 02138

(617) 661-4423

PO W. YUEN

STEPHEN GLEIT

41 Mott Street

New York, NY 10013

(212) 966-6704

Counsel for Petitioners

June 11, 1992

APPENDICES

APPENDIX A

Decision of the United States Court of Appeals

for the Second Circuit, affirming the district

court’s finding of copyright infringement,

ES eee eee eee eee Al

APPENDIX B

Opinion and Order of the United States District

Court for the Southern District of New York,

finding defendants liable for copyright

infringement, dated March 8, 1989 ............. Al4

APPENDIX C

Opinion and Order of the United States

District Court for the Southern District of

New York, setting damages, dated June 14, 1991 .... A47

APPENDIX D

Denial of petition for rehearing in the United

States Court of Appeals for the District of

Columbia Circuit, dated March 23, 1992 ........ A79

APPENDIX A

UNITED STATES COURT OF APPEALS

For the Second Circuit

No, 91-7694

NEW YORK CHINESE TV PROGRAMS, INC.,

Plaintiff-Appellee,

vs.

U.E. ENTERPRISES, INC.; FLUSHING STAR, INC.;

CHAN’S VIDEO & TRADING, INC.; GONG PICTURES,

INC.; DANG’S VIDEO, INC.; PO YUEN,

Defendants-Appellants,

QUEENS VIDEO LTD.; JOHN DOES 1-50,

Defendants.

January 24, 1992

Before: PRATT, MAHONEY, and McLAUGHLIN, Circuit

Judges. McLAUGHLIN, Circuit Judge:

There are six defendants-appellants: U.E. Enterprises, Inc.

("U.E."); Flushing Star, Inc. ("Flushing Star"); Chan’s Video &

Trading, Inc. ("Chan’s"); Gong Pictures, Inc. ("Gong"); Dang’s

Video, Inc. ("Dang"); and Po Yuen ("Yuen"). They seek to

review a judgment of the United States District Court for the

Southern District of New York (Kathleen A. Roberts, U.S.

Magistrate Judge), finding the six defendants liable for copyright

infringement. For the reasons set forth below, we affirm the

order of the district court.

BACKGROUND

Three television stations in Taiwan (the "Taiwanese Sta-

tions") produce Mandarin language’ soap operas (the "Pro-

' Mandarin is the principal dialect of the Chinese language, and is the

grams"). These Programs are popular among the twenty million

people who live on the island of Taiwan.

There are also many Mandarin speaking people in the United

States. To tap this American market for Mandarin soap operas,

the International Audio Visual Corporation ("IAVC"), a Califor-

nia corporation, contracted with the Taiwanese Stations in 1982

for the right to sell video cassette copies of the Programs in the

United States. The Taiwanese Stations also assigned to IAVC

the right to obtain American copyrights for the Programs.

Shortly after signing this agreement, IAVC registered the

Programs for copyright protection with the United States

In April, 1988, IAVC signed an agreement with plaintiff

New York Chinese TV Programs, Inc. ("New York Chinese").

This agreement granted New York Chinese the exclusive license

to distribute video cassette copies of the Programs in New York

and New Jersey. The agreement also assigned to New York

Chinese the right to sue to protect IAVC’s copyrights in the

Programs throughout New York and New Jersey.

The present controversy arises out of the defendants’

attempts to sell the same Programs in the New York-New Jersey

area. Operatives of defendants Dang and U.E. videotaped the

Programs as they were broadcast in Taiwan, and then imported

these tapes surreptitiously into the United States in boxes labelled

"Gift." Dang and U.E. later made numerous copies of the tapes,

and distributed them to store-front video retail stores operated by

U.E. in the New York metropolitan area, including defendants

Flushing Star, Chan’s, and Gong.

New York Chinese eventually discovered that defendants’

stores were renting out illicit videotapes of the Programs. Of

course, none of the stores had obtained valid sub-licenses from

New York Chinese to do this. New York Chinese filed suit

official language of China, Taiwan, and Singapore. See The Universal

Almanac 545 (John W. Wright ed., 1989).

against U.E., Dang, Flushing Star, Chan’s, Gong, and Mr. Yuen

(the president of both U.E. and Dang) alleging copyright

infringement, and requesting damages and a permanent injunction

to prevent defendants from further copying or marketing the

Programs.

Then-District Judge Walker issued a temporary restraining

order on June 17, 1988, prohibiting defendants from copying,

distributing, renting, or selling any copies of the Programs. He

then assigned the case to Magistrate Judge Kathleen A. Roberts

for all purposes, pursuant to 28 U.S.C. § 636(c),? and she

subsequently bifurcated the liability and damage issues for trial.

On the liability issue, the parties submitted a stipulation of

facts for determination. The district court concluded that

defendants had infringed the copyrights on the Programs, and

permanently enjoined defendants from copying, distributing,

selling, renting or otherwise marketing any copies of the

Programs.

The district court then held a trial to determine damages, and

awarded New York Chinese actual damages of $718,707.85, or,

alternatively, statutory damages of $762,500.° New York

2 28 U.S.C. § 636(c)(1) provides, in pertinent part, "Upon the consent

of the parties, a full-time United States [MJagistrate [Judge] . . . may

conduct any or all proceedings in a jury or nonjury civil matter. . . .” In

such situations, a non-prevailing party “may appeal directly to the

appropriate United States court of appeals from the judgment of the

[Magistrate [Judge] in the same manner as an appeal from any other

judgment of a district court." Id. § 636(c)(3). Thus, we have jurisdiction

to review the judgment of Magistrate Judge Roberts.

> "Actual" damages include “damages suffered by [the copyright

owner] as a result of the infringement, and any profits of the infringer that

are attributable to the infringement and are not taken into account in

computing the actual damages." 17 U.S.C. § 504(b). "Statutory"

damages are awarded by the trial court for each work that has been

infringed “in a sum of not less than $ 500 or more than $ 20,000 as the

court considers just." Id. § 504(c)(1). A copyright owner who prevails

in a copyright infringement action may elect to recover either actual

"damages or statutory damages. /d.

Chinese opted to receive statutory damages, and a final judgment

awarding such damages, plus attorney’s fees, was entered on July

5, 1991.

The parties later stipulated to reduce the damages, but

defendants have appealed the district court’s determination that

they are liable for copyright infringement. Accordingly, the sole

issue we must address is whether there has been a copyright

infringement.

DISCUSSION

To establish a claim for copyright infringement, the plaintiff

must (1) possess a valid copyright in a given work, and (2) show

that the defendant has copied the work. Eckes v. Card Prices

Update, 736 F.2d 859, 861 (2d Cir. 1984). Defendants concede

that New York Chinese has satisfied the second prong of the

Eckes test, but focus their attack on the first prong. Specifically,

they challenge the district court’s ruling that the Programs are

eligible for copyright protection under Section 104(b)(1) of the

disagree, and affirm the conclusion of the district court.

Section 104(b)(1) makes an original work eligible for

on the date of first publication, one or more of the authors

is a national or domiciliary of the United States, or is a

national, domiciliary, or sovereign authority of a foreign

nation that is a party to a copyright treaty to which the

United States is also a party.

Defendants do not question that the "authors" of the Programs

are the Taiwanese Stations, which are Taiwanese nationals. The

sole question, then, is whether Taiwan has a copyright treaty

with the United States. The answer to this question requires

some understanding of the evolution of Taiwan’s place in the

world community.

From 1661 through 1895, the imperial dynasty that ruled

mainland China also controlled the island of Taiwan. In 1895,

following its defeat in the first Sino-Japanese War, the Chinese

monarchy ceded control of Taiwan to Japan in the Treaty of

Shimomoseki. After the collapse of the Chinese monarchy in

1912, a new government -- the Republic of China ("ROC") --

was established to rule over China.

Shortly after the bombing of Pearl Harbor in December

1941, the ROC declared war on Japan. At that time, the ROC

renounced the Treaty of Shimomoseki, and reasserted its claim

to sovereignty over Taiwan. However, Taiwan remained under

Japanese control until Japan surrendered to the Allied powers,

and accepted the Potsdam Declaration on September 2, 1945.

The Potsdam Declaration explicitly stated that Taiwan would

return to Chinese rule. Thus, the post-World War II ROC

included both mainland China and the island of Taiwan.

As the post-war Republic of China sought to enhance its

stature in the world, it set out to forge an especially strong

economic relationship with the United States. To do this, the

ROC signed the Treaty of Friendship, Commerce and Navigation

("FCN Treaty") with the United States in 1946. The FCN

Treaty was then ratified by the United States Senate in June,

1948, and took effect on November 30, 1948. See Treaty of

Friendship, Commerce and Navigation, Nov. 4, 1946,

U.S.-Taiwan, 63 Stat. 1299 (1946). The FCN Treaty lies at the

core of the present controversy. Of paramount importance is

Article IX, which requires both the ROC and the United States

to guarantee the privileges of their own laws to citizens of the

other nation

in regard to copyrights, patents, trademarks, trade names,

and other literary, artistic and industrial property, upon

compliance with the applicable laws and regulations, if any,

respecting registration and other formalities which are or

may hereafter be enforced by the duly constituted authorities

63 Stat. at 1309. Thus, the FCN Treaty empowers the United

States to grant copyright protection to works authored by

Taiwanese citizens.

Before the ROC could enjoy the fruits of the FCN Treaty,

however, civil war broke out in China between Chiang

Kai-Shek’s ROC army, and communist revolutionaries led by

Mao Zedong. The communists ultimately defeated the ROC

army in 1949, and established a government called the People’s

Republic of China ("PRC"). Approximately two million ROC

loyalists fled to Taiwan, and have retained control of that island

to this day.

The United States declined to establish diplomatic relations

with the communist PRC, and continued instead to recognize the

ROC as the sole government of China and Taiwan. The United

States continued to honor all its agreements with the ROC,

which, in effect, meant with Taiwan because, in reality, the ROC

controlled only that area. Thus, because the United States had

honored the FCN treaty prior to the Chinese revolution, it

continued to abide by that treaty’s terms in its dealings with

Taiwan.

By the 1970’s, it had become impossible for the international

community to ignore the reality of the PRC, a nation of nearly

one billion people. In 1971, the United Nations ordered that

China’s U.N. seat be taken from the ROC, and given to the

PRC. This fueled efforts within the United States to give

diplomatic recognition to the PRC, culminating with the United

States establishing full diplomatic relations with the PRC on

January 1, 1979.

Recognition of the PRC, of course, enveloped the ROC in

a diplomatic fog. Neither the PRC nor the ROC asserted that

they were two separate countries. Because both the PRC and the

ROC professed to be the one true "China," the United States

could not pretend that both governments had sovereignty over all

of China. Recognition of the PRC, therefore, necessitated

derecognition of the ROC. Accordingly, on December 30, 1978,

then-President Jimmy Carter signed a memorandum "recognizing

the government of the People’s Republic of China as the sole

legal government of China and . . . terminating diplomatic

relations with the Republic of China." President’s Memorandum

for All Departments and Agencies: Relations With the People on

Taiwan, reprinted in 1979 U.S. Code Cong. & Admin. News 75

(hereinafter President’s Memorandum).

The President’s Memorandum acknowledged that, despite its

termination of diplomatic relations with Taiwan, the United

States still wished to maintain "commercial cultural, and other

relations with the people of Taiwan without official government

representation and without diplomatic relations." Jd. As part of

this policy, the President’s Memorandum directed that

Existing international agreements and arrangements in

force between the United States and Taiwan shall continue

in force and shall be performed and enforced by departments

and agencies beginning January 1, 1979, in accordance with

their terms and, as appropriate, through that instrumentality.

Id.

Since 1979, the Executive Branch has consistently used the

President’s Memorandum’s mandate as a basis for continuing to

honor the FCN Treaty. The State Department annually publishes

Treaties in Force, listing all treaties that are honored by the

United States. Significantly, each edition of Treaties in Force

published since the United States derecognized Taiwan in 1979

includes the FCN Treaty as a valid and enforceable treaty.

Derecognition of Taiwan prodded Congress to ensure that

Taiwan’s status as a major United States trading partner remained

unscathed.* Accordingly, Congress passed the Taiwan Relations

Act ("TRA") codified at 22 U.S.C. § 3301, et seg., “to preserve

and promote extensive, close, and friendly commercial, culturai,

and other relations between the people of the United States and

the people on Taiwan" and to "declare that peace and stability in

* In 1979, Taiwan imported $3 billion of American-made products,

making Taiwan the seventeenth largest importer of American goods. In

the same period, Taiwan exported $5.6 billion of goods to the United

States, ranking it the eighth largest exporter of goods to the United States.

See Official Statistics of the United States Dep’t of Commerce (1979).

the area are in the political, security, and economic interests of

the United States." 22 U.S.C. § 3301(b)(1), (2).

The substantive provisions of the TRA are analogous to the

President’s Memorandum. Like the President's Memorandum,

the TRA states that the

absence of diplomatic relations or recognition shall not affect

the application of the laws of the United States with respect

to Taiwan . . . in the [same] manner that the laws of the

United States applied with respect to Taiwan prior to

January 1, 1979.

22 U.S.C. § 3303(a). More specifically, the TRA mandates

the continuation in force of all treaties and other internation-

al agreements . . . entered into by the United States and the

governing authorities on Taiwan recognized by the United

States as the Republic of China prior to January 1, 1979,

and in force between them on December 31, 1978, unless

and until terminated in accordance with law.

Id. § 3303(c).

That Congress intended to include the FCN Treaty within

the “treaties in force" between the United States and Taiwan is

beyond question. Indeed, the House of Representatives Report

on the TRA explicitly stated Congress’ intent to honor the FCN

Treaty: "[T]he U.S.-ROC Treaty of Friendship, Commerce and

Navigation, which provides a legal foundation for commercial

relations between the United States and Taiwan, will continue

without interruption.” H.R. Rep. No. 26, 96th Cong., Ist Sess.

10-11 (1979).

Despite the overwhelming evidence of both the Executive

and Legislative Branches’ intent to give full effect to the FCN

Treaty, defendants make two arguments that the United States no

longer has a copyright treaty with Taiwan. First, defendants

contend that because the TRA purported to require the United

States to honor the obligations of the FCN Treaty, the TRA itself

had to be a new "treaty" between the United States and Taiwan.

But, the argument runs, the TRA was not made in accordance

with Article II of the United States Constitution and, therefore,

is not a valid "treaty." Defendants conclude that because the

TRA is not a "treaty," the requirement of Section 104(b)(1) that

there be a treaty has not been met. Second, defendants argue

that even if the TRA does not have to meet the "treaty" require-

ment of Section 104(b)(1), the United States cannot constitution-

ally continue to honor the FCN Treaty. We reject both argu-

ments.

1. The "Treaty" Requirement of Section 104(b)(1)

As noted previously, Section 104(b)(1) permits the granting

of copyright protection to works authored by citizens of a foreign

nation if that nation is a party to a copyright treaty with the

United States. Defendants argue that the United States and

Taiwan no longer have such a treaty. This conclusion rests on

two premises. First, defendants contend that the FCN Treaty

lapsed in 1979 when the United States derecognized Taiwan.

Second, defendants assert that the TRA cannot resurrect the

obligations imposed by the FCN Treaty because that would

require a new treaty, and the TRA is not a treaty.

To be sure, the TRA is not a "treaty." A “treaty” is a

contract between nations. 7rans World Airlines v. Franklin Mint

Corp. , 466 U.S. 243, 253 (1984). The TRA is solely a domestic

statute. It was passed by both the House of Representatives and

the Senate, and became law upon the signature of President

Carter. The TRA did not require Taiwanese ratification. The

TRA did not impose any obligations on Taiwan. Therefore, the

TRA is not a contract between the United States and Taiwan, but

rather is a statute that binds just the United States.

The difficulty with the defendants’ argument lies in their

root premise that the FCN Treaty lapsed upon derecognition of

Taiwan. It is well settled that "on the question whether a treaty

has ever been terminated, governmental action in respect to it

must be regarded as of controlling importance." Terlinden v.

Ames, 184 U.S. 270, 285 (1902). Moreover, the judiciary

should refrain from determining whether a treaty has lapsed, and

Al0

instead should defer to the wishes of the elected branches of

government. See Whitney v. Robertson, 124 U.S. 190, 194

(1888). In this case, both Congress and the Executive Branch

have, with rare clarity, determined that the United States must

continue to honor the FCN Treaty, despite official diplomatic

derecognition of Taiwan.

The TRA requires the United States to honor all previous

treaties and international agreements with Taiwan. Among these

obligations is the FCN Treaty, which was explicitly noted by the

House of Representatives in its report on the TRA. H.R. Rep.

No. 26, 96th Cong., Ist Sess. 10-11 (1979). Thus, we find that

Congress indisputably intended that the FCN ae remain a

valid and enforceable treaty.

Similarly, the Executive Branch has not wavered from

honoring the FCN Treaty. Each edition of the State Department

pamphlet Treaties in Force published between 1979 and the

present date lists the FCN Treaty as a valid treaty. Moreover,

we have not located any proclamation from either the President

or any Executive Agency renouncing the United States’ obliga-

tions under the FCN Treaty.

Because both Congress and the Executive Branch agree that

the FCN treaty is to continue in effect, and because of the

deference we owe to the political branches of the government in

treaty matters, we hold that the FCN treaty remains a valid and

enforceable treaty.

2. The Constitutionality of Honoring the FCN Treaty

Defendants contend that if the United States must continue

to honor the FCN Treaty, such a course of action violates the

constitutional mandate that the President "shall have Power, by

and with the Advice and Consent of the Senate, to make Trea-

ties, provided two thirds of the Senators present concur." U.S.

Const. art. II, § 2, cl. 2. Because a treaty is a contract between

nations, see Trans World Airlines, 466 U.S. at 253, defendants

argue that the United States’ derecognition of Taiwan implies that

Taiwan is no longer a “nation,” and, thus, the United States

All

cannot remain bound by any treaties with Taiwan. This argu-

ment is fatally flawed because it confuses two distinct concepts:

nationhood and diplomatic recognition.

A "nation" is an entity with (1) a defined territory; (2) a

permanent population; (3) a government; and (4) the ability to

engage in relations with other nations. See, e.g., Hungdah Chiu,

Certain Legal Aspects of Recognizing the People’s Republic of

China, 11 CASE W. REs. J. INT’L L. 389, 395-96 (1979).

"Diplomatic recognition,” marked by an exchange of diplomats,

is a formal acknowledgement by a nation that another entity

possesses the qualifications for nationhood. An entity’s status as

a nation, however, does not depend on whether it receives

diplomatic recognition from other nations. See Restatement

(Third) of the Foreign Relations Law of the United States § 202

cmts. a, b (1987). Defendants have cited no authority, and we

have found none, that bars treaties between sovereign nations that

do not otherwise maintain diplomatic relations. There is no

reason in logic or policy to require diplomatic recognition as a

sine qua non to the treaty-making power. We hold, therefore,

that the United States’ derecognition of Taiwan did not change

Taiwan’s status as a nation. Because Taiwan is still a nation, the

United States may ccntinue to honor its treaties with Taiwan.

It is significant that Taiwan is not the only nation that has

treaties with the United States despite the absence of diplomatic

relations. Currently, the United States does not accord diplomat-

ic recognition to nine nations:* Albania, Angola, Cambodia,

Taiwan, Cuba, Iran, Libya, Vietnam, and North Korea. Howev-

er, with the exception of Angola and North Korea, each of these

nations has at least one treaty with the United States that is

currently honored. See Treaties in Force, passim. Thus, our

holding that diplomatic recognition is not a prerequisite for a

valid treaty ensures that we do not thwart the ability of the

5 This enumeration does not take into account the recent dissolution of

the U.S.S.R. and the emergence of its constituent republics as independent

nations.

| ————————

Al2

United States to honor treaties with other nations.

Having failed to persuade us that the United States may not

constitutionally honor treaties with unrecognized nations,

defendants make one final argument: that the TRA has unconsti-

tutionally amended the FCN Treaty. They fecus their attack on

section 3303(c) of the TRA, which states:

For all purposes, including actions in any court in the

United States, the Congress approves the continuation in

force of all treaties and other international agreements. . .

entered into by the United States and the governing authori-

ties on Taiwan recognized by the United States as the

Republic of China prior to January 1, 1979, and in force

between them on December 31, 1978, unless and until

terminated in accordance with law.

22 U.S.C. § 3303(c) (emphasis added).

Defendants claim that because the FCN Treaty was signed

by the “Republic of China," the TRA’s approval of all agree-

ments with the "governing authorities on Taiwan recognized by

the United States as the Republic of China prior to January 1,

1979" changes one of the parties to the FCN Treaty. Because

the TRA was not enacted pursuant to the Treaty Clause of the

Constitution, defendants argue that the TRA is, therefore, an

unconstitutional amendment to the FCN Treaty.

We do not quarrel with defendants’ assertion that a signifi-

cant amendment to a treaty must follow the mandate of the

Treaty Clause, and therefore must be proposed by the President,

and be ratified following the advice and consent of the Senate.

We find, however, that the TRA has not amended the FCN

Treaty in such fashion as to implicate the Treaty Clause.

The TRA simply inserted a new name in the FCN Treaty to

replace the derecognized "Republic of China," and to recognize

the realities of a changed political landscape. A change in the

name of a party to a treaty is not an “amendment” to that treaty.

Cf. Arnbjornsdottir-Mendler v. United States, 721 F.2d 679 (9th

Cir. 1983) (treaty between the United States and Denmark

Al3

applied to Iceland after Iceland had declared its independence

from Denmark). Rather, a treaty is "amended" only if the

obligations imposed by that treaty change. The TRA certainly

has not changed any of the substantive requirements of the FCN

Treaty.

Finally, we are mindful of the strong commercial relation-

ship ties between the United States and Taiwan. Indeed,

Taiwan’s trade with the United States has increased nearly

four-fold since 1979.6 This trade would surely go elsewhere if

the FCN, the bedrock of the U.S.-Taiwanese commercial

relationship, were to crumble suddenly. Taiwan, moreover, has

unfailingly relied upon the FCN Treaty to provide protection of

its own copyright laws to works authored by American citizens.

Taiwan would have little reason to honor the FCN Treaty if the |

United States were to turn its back on the Treaty. Thus, our

holding encourages the United States to provide copyright

protection to works authored by Taiwanese citizens, and insures

that Americans will receive copyright protection of their works

in Taiwan.

CONCLUSION

We hold that the FCN treaty is still in effect by virtue of

both Congress’ enactment of the TRA and the Executive

Branch’s position that the FCN has remained in effect, and that

the actions of both of these branches do not violate the Constitu-

tion. The FCN is a valid "treaty" for purposes of Section

104(b)(1) of the Copyright Act. Accordingly, the district court

correctly held that the Programs enjoy copyright protection, and

defendants are liable for copyright infringement.

AFFIRMED.

* In 1990, Taiwan imported over $11 billion of American goods, and

exported over $22 billion of its own goods to the United States. See

Official Statistics of the United States Dep’t of Commerce (1990).

Al4

APPENDIX B

UNITED STATES DISTRICT COURT

For the Southern District of New York

No. 88 Civ, 4170 UMW) (KAR)

NEW YORK CHINESE TV PROGRAMS, INC.,

: Plaintiff-Appellee,

vs.

U.E. ENTERPRISES, INC.; FLUSHING STAR, INC.;

CHAN’S VIDEO & TRADING, INC.; GONG PICTURES,

INC.; DANG’S VIDEO, INC.; PO YUEN,

Defendants-Appellants,

QUEENS VIDEO LTD.; JOHN DOES 1-50,

Defendants.

March 8, 1989

OPINION & ORDER

KATHLEEN A. ROBERTS, UNITED STATES MAGISTRATE:

This action for copyright infringement, violations of Section

43(a) of the Lanham Act, unfair competition and interference

with contractual relations was filed on June 16, 1988.' Plaintiff

seeks damages and an order enjoining defendants from infringing

plaintiff's copyrights and other proprietary rights in and to

certain Chinese language television programs produced by three-

Taiwanese television companies. On June 17, 1988, Judge

Walker issued an ex parte temporary restraining order, which the

parties subsequently agreed would remain in effect pending the

court’s decision on plaintiff's request for a preliminary injunc-

tion. Judge Walker referred the case to me on August 2, 1988,

' An Amended Complaint, adding defendants Po Yuen and Dang’s

Video, Inc., was served on October 31, 1988, and filed on November 10,

1988.

Al5

to conduct a hearing on plaintiff's application for a preliminary

injunction. The parties thereafter agreed that I would conduct all

proceedings in this matter, pursuant to 28 U.S.C. § 636(c) (1968

and Supplement 1988).

Defendants opposed plaintiff's motion for a preliminary

injunction on many grounds, asserting, inter alia, that the

Taiwan Relations Act, 22 U.S.C. § 3301 et seg. (1979) (the

"TRA"), is unconstitutional to the extent the TRA seeks to confer

Treaty of Friendship, Commerce and Navigation (the "FCN

Treaty"). Because defendants raised an issue regarding the

constitutionality of a federal statute, I invited a response from the

Department of Justice, pursuant to 28 U.S.C. § 517 (1968),

which submitted a Statement of Interest of the United States

("Statement of Interest") on September 27, 1988. The Court also

received an amicus curiae brief ("Amicus Brief") on September

29, 1988, from Wang & Wang-USA, a California law firm

specializing in intellectual property right enforcement between the

United States and Taiwan.?

On October 11, 1988, I held oral argument on the legal

issues pertaining to the application and constitutionality of the

TRA. At the same time the parties and I worked to identify and

narrow the disputed facts regarding other issues that would

require an evidentiary hearing on plaintiff's application for a

preliminary injunction. Based upon the success of these efforts

and the extensive briefing of all legal issues pertaining to

plaintiff's infringement claims, I ordered that the hearing on

? Amicus Wang & Wang contends that defendants’ challenge to the

validity of the FCN Treaty “threaten[s] the very comerstone of U. S.

policy and trade relations with Taiwan." Mr. Wang points out that the

FCN Treaty currently serves as “the legal framework through which a host

of essential agreements are negotiated with Taiwan, and brought to fruition

includ{ing] trade navigation, and tariff agreements as well as agreements

to cooperate in educational and cultural matters.“ Amicus Brief at 1. The

reciprocal rights and privileges currently protected by the FCN Treaty are

detailed on pages 13-20 of the Amicus Brief.

Al6

plaintiffs application for a preliminary injunction be consolidated

with the trial of the action on the merits pursuant to Fed. R. Civ.

P. 65(a)(2). In addition, as set forth in greater detail below, the

parties agreed to submit all issues for decision without an

evidentiary hearing, based upon motions for summary judgment

dismissing the complaint or trial on stipulated testimony aid

exhibits.

This Opinion therefore constitutes my decision on the

motions and my findings of fact and conclusions of law pursuant

to Fed. R. Civ. P. 52(a) with respect to plaintiff's claim of

plaintiff's damages and defendants’ counterclaims will be tried

separately .°

BACKGROUND

Plaintiff New York Chinese TV Programs, Inc. ("New York

Chinese") is a New York corporation engaged in the distribution

of Mandarin language videotapes to its authorized sub-licensee

retail outlets for rental purposes. Defendants U.E. Enterprises,

Inc. ("UE"), Flushing Star, Inc. ("Star Video"), Chan’s Video

and Trading, Inc. ("Chan’s Video"), Gong Pictures, Inc. ("Gong

Pictures"), and Queens Video, Ltd. ("Queens Video"), are New

York corporations engaged primarily in selling and renting

Chinese language videotapes. Defendant Dang’s Video, Inc.

("Dang’s Video"), is a subsidiary of UE. Defendant Po Yuen is

the President and owner of UE and Dang’s Video, and an

attorney admitted to practice in New York.

New York Chinese is a _ licensee of International

Audio-Visual Corporation ("IAVC"), a California corporation

* Plaintiff's other. claims involve alleged Lanham Act violations, unfair

competition and interference with contractual relations. At the hearing

before me on November 9, 1988, defendants reserved a possible antitrust

counterclaim, as well as potential cross-claims. In addition, defendant Po

Yuen reserved his right to answer and further contest the issue of his

personal liability for any infringement this court may find by the corporate

defendants. See Transcript of November 9, 1988 conference at 25-27.

Al7

that is the exclusive authorized distributor in the United States

and Canada of Mandarin language television programs ("the

Programs") produced by three Taiwanese television companies.‘

The Programs are delivered to IAVC in Taiwan and sent to

IAVC’s California headquarters where they are edited and copied

for distribution in North America with IAVC’s copyright notice.

Copies of the edited version of each Program have been regis-

tered with the United States Copyright Office.‘

On April 20, 1988, IAVC granted plaintiff an exclusive

license in New York and New Jersey to distribute and rent

videotapes of the Programs to the general public or to selected

sub-licensee retail outlets. A copy of the License Agreement is

annexed to the Amended Complaint as Exhibit C. By written

assignment executed contemporaneously with the License

Agreement, and recorded in the United States Copyright Office

on or about June 10, 1988, IAVC assigned to New York

Chinese: (i) the right, title, and interest in and to the copyrights

in New York and New Jersey of programs created on or after

March 1, 1988, and the right to commence and maintain actions

* Those companies are Taiwan Television Enterprises, Ltd., China

Television Company, and Chinese Television System. IAVC and the

Taiwan television companies have agreed to be bound by the decision of

this court. The Taiwan television companies have assigned the copyrights

to the Programs in the United States to IAVC, and IAVC has duly

recorded the assignment of copyright from each of the Taiwan television

companies in the United States Copyright Office. Copies of IAVC’s

agreements with the Taiwan television companies are annexed to the

Amended Complaint as Exhibit A. Copies of the assignments of copyright

recorded with the Copyright Office are annexed to the Amended Complaint

as Exhibit B.

* IAVC has previously obtained orders restraining unauthorized

distribution of the Programs. Int’! Audio-Visual Communications. Inc. v.

Chen, CV. 84-2328-DWW (MCX) (C.D. Cal. 1984) (copy of order

granting preliminary injunction annexed to Plaintiff's Reply Memo as

Exhibit A); Jnt’l Audio-Visual Communications. Inc. v. Michael Wu, et al.,

No. 85-521 (C.D. Cal. 1985) (copies of TRO and preliminary injunction

annexed to Affidavit of Laurence I. Fox, dated June 15, 1988, as Exhibit

A). See also Affidavit of Eva Young, dated July 22, 1988 4] 8-15.

Al8

for infringement of the copyrights in such programs; (ii) the right

to commence and maintain actions for infringement of programs

created on or before February 29, 1988; and (iii) all proceeds

from judgments obtained with respect to any infringement of the

copyrights in New York and New Jersey. A copy of the Assign-

ment is annexed to the Amended Complaint as Exhibit B. See

also License Agreement { 19. New York Chinese and [AVC

subsequently placed numerous advertisements in Chinese

language newspapers and on Chinese language radio stations

identifying New York Chinese as the only authorized distributor

of the Programs in New York and New Jersey.*®

On or about May 3, 1988, plaintiff determined that defen-

dants UE, Flushing Star, Chan’s Video, Gong Pictures, and

Queens Video (none of which is an authorized sub-licensee of

New York Chinese) were renting videotapes of the Programs to

the public.” Plaintiff filed this action on June 16, 1988, alleging

that defendants’ activities violate the United States copyright

laws, 17 U.S.C. § 101 et seg. (1979) (the "Copyright Act"), the

Lanham Act, 15 U.S.C. § 1125(a) (1982), N.Y. General

Business Law § 350 (McKinney 1988), and constitute common

law unfair competition and interference with contractual rela-

tions.

Through the course of expedited discovery, it was revealed

that the videotapes of the Programs distributed by defendants had

been copied by a “source” in Taiwan directly off the Taiwanese

airwaves (deleting commercials), and shipped to the United States

in boxes marked "gift," to Dang’s Video, which in turn supplied

the tapes to UE for copying and distribution to the other defen-

dants and to the public. UE, Dang’s, Yuen and Queens Video

admit importing, copying and/or distributing copies of the

Programs with knowledge of plaintiff's claim to ownership of the

* Copies of the print edvertisements are annexed to the Affidavit of

“Dick Ying, dated June i3, 1988, as Exhibits D-G.

” See Affidavit and Supplemental Affidavit of Joy Chen Yu Lewis,

dated May 26, 1988 and June 15, 1988, respectively.

Al9

Dang’s/UE tapes.

Defendants, however, challenge plaintiff's claim of copyright ~

infringement on several legal grounds.’

First, defendants contend that because certain differences

exist between the Programs as aired on Taiwanese television and

the videotapes marketed by New York Chinese, plaintiff at best

holds a copyright on a “derivative work." See 17 U.S.C. § 103.

Defendants argue that because they copied the Programs directly

off the Taiwanese airwaves and not from the "edited" version

prepared by IAVC in California, they have not infringed

plaintiff's copyright on the “derivative” work. Defendants

contend that, because IAVC has not registered its copyright on

the "underlying work," i.e., the unedited version aired in

Taiwan, plaintiff cannot prove that defendants have copied a

registered work.

Second, defendants contend that even if the videotapes

copyrighted by IAVC are not "derivative works," IAVC does not

hold valid U. S. copyrights on the Programs. There are two

grounds for this contention: 1) the Programs were "first pub-

lished" in Taiwan and there is no valid treaty in effect between

the United States and Taiwan extending copyright protection to

works by Taiwanese nationals that are first published in Taiwan;

and 2) even if a valid copyright treaty exists between the United

States and Taiwan, IAVC’s copyrights are invalid because [AVC

made material misrepresentations to the U. S. Copyright Office.

Finally, defendants argue that the “sole purpose" of the

* See Affidavit of Laurence I. Fox, dated July 22, 1988, pp. 2-8

(summarizing and annexing deposition testimony of UE owners and

officers Manching Ng and Jack Ho); Affidavit of Sui-Ti-Feng (annexed to

Queens Video Memo of Law); Affidavit and Supplemental Affidavit of Po

Yuen, dated July 12 and July 27, 1988, respectively.

® These defenses have been formally raised and briefed in affidavits

and memoranda submitted by defendant UE, which have been joined in by

all other defendants.

A20

License Agreement between IAVC and plaintiff is the assignment

of the right to litigate disputes over copyright infringement, and

that the Agreement is therefore "champertous" and should not be

enforced by this Court."

DEFENDANTS DERIVATIVE WORK DEFENSE

In order to establish copyright infringement plaintiff "’must

show ownership of a valid copyright and copying by the defen-

dant. Eckes v. Card Prices Update, 736 F.2d 859, 861 (2d Cir.

1984) (quoting Novelty Textile Mills. Inc. v. Joan Fabric Corp.,

558 F.2d 1090, 1092 (2d Cir. 1977)).

A timely obtained certificate of registration "constitute{s]

prima facie evidence of the validity of the copyright * * * ," 17

U.S.C. § 401(c), but "a certificate of registration creates no

irrebutable presumption of validity." Durham Industries Inc. v.

Tomy Corp., 630 F.2d 905, 908 (2d Cir. 1980). Plaintiff has

offered prima facie evidence of a valid copyright by submitting

timely obtained certificates of registration for the Programs,

which were issued by the Copyright Office to plaintiffs assignor,

IAVC. See Affidavit of Eva Young, dated May 27, 1988,

Exhibit H; see also Affidavit of Dick Ying, dated June 13, 1988,

Exhibit A. Defendants’ challenges to the validity of plaintiff's

defendants’ assertion that they have not copied the works

registered by IAVC.

Defendants concede that they have copied and distributed the

Programs as they are broadcast by Taiwan TV (except for

commercials). They contend, however, that they have not copied

the works registered by IAVC, which are “edited” versions of

the Programs. Defendants argue that by submitting to the

* Defendants’ previously asserted opposition to the application for a

preliminary injunction on grounds of delay is moot in light of the

consolidation of that application with trial on the merits of the infringement

action.

A21

(and therefore plaintiff) obtained a copyright on a "derivative

work," or "compilation" leaving the unedited version unprotected

and subject to legal copying by defendants.

Section 103 of the Copyright Act provides that copyright

protection may be obtained for "derivative works," or "“compila-

tions." 17 U.S.C. § 103(a). The Act defines a derivative work

as:

a work based upon one or more preexisting works, such as

a translation, musical arrangement, dramatization,

fictionalization, motion picture version, sound recording, art

reproduction, abridgment, condensation, or any other form

in which a work may be recast, transformed, or adapted. A

work consisting of editorial revisions, annotations, elabora-

tions, or other modifications which, as a whole, represent an

original work of authorship, is a "derivative work".

17 U.S.C. § 101. A compilation is defined as

a work formed by the collection and assembling of preexist-

ing materials or of data that are selected, coordinated, or

arranged in such a way that the resulting work as a whole

constitutes an original work of authorship. The term "compi-

lation" includes collective works.

Id.

In the typical derivative work case, the person accused of

infringment contends that the alleged infringing work is indepen-

dently copyrightable as an original work of authorship. See,

e.g., Durham, 630 F.2d at 909-911; L. Batlin & Son. Inc. v.

Snyder, 536 F.2d 486 (2d Cir.) (en banc), cert. denied, 429 U.S.

857 (1976).

Defendants offer an unusual variation on the classic deriva-

tive work defense. Defendants contend that if IAVC’s edited

version is independently copyrightable as a derivative work, it is

by definition a "different work” than the unedited version, and

the registration of the edited version does not protect the unedited

version. Conversely, if the edited version is not sufficiently

"different" to constitute a derivative work, it is the same work as

—=—

A22

the unedited version and defendants have therefore copied a

registered work."

Without accepting the validity of this approach to the

issue,’? I find that the edited version does not qualify as a

derivative work.

The “‘one pervading element prerequisite to copyright

protection’ * * * is originality," Batlin, 536 F.2d at 489-90

(quoting 1 M. Nimmer, Nimmer on Copyright, § 10 at 32

(1975)). Although the requirement of originality has been

described as "modest," "mimimal," and as establishing a "low

threshhold," see Durham, 630 F.2d at 910, the original aspects

of the work must be “more than trivial." Jd. at 909. As the

court noted in Batlin, "[t]o extend copyright-ability to minuscule

variations would simply put a weapon for harassment in the

hands of mischievous copiers * * * ." Batlin, 536 F.2d at 492.

see also Gaste v. Kaiserman, 863 F.2d 1061, 1066 (2d Cir.

1988) ("slavish copying involving no artistic skill whatsoever

does not qualify" for copyright protection).

The parties have agreed that I may determine whether the

edited versions of the Programs are derivative works by viewing

both versions of representative episodes of a Program entitled

"' Defendants concede that if IAVC registered its copyright on the

Programs as they were broadcast in Taiwan, defendants’ derivative work

defense would be of no avail.

* Plaintiff argues that even if the “edited” version is a derivative work,

the distinction is irrelevant where the same individual owns the copyrights

in both a derivative work and the original. See Rexnord. Inc. v. Modern

Handling Systems. Inc., 379 F. Supp. 1190, 1198-1199 (D. Del. 1974)

(plaintiff acquired a valid copyright in the 1968 version of catalogue when

it was published with notice of copyright, and plaintiff's copyright in the

1970 catalogue therefore protected plaintiff from copying of the 1968

material from the 1970 catalogue); see also 2 M. and D. Nimmer,

pNimmer on Copyright, § 7.16[B][2] at 7-120.1- 121. Because I find that

defendants’ argument is meritless by their own proposed standard, it is not

necessary to decide whether a rule more favorable to plaintiff should be

applied.

A23

"The Kidnapped Pearl."

I have reviewed the videotapes in their entirety’? and make

the following findings of fact regarding the similarities and dif-

ferences between the IAVC version and the Dang’s/UE version:

1. The dramatization of the story "The Kidnapped Pearl,"

including dialogue, universal Chinese subtitles, characters, action

settings, costumes and music, is identical in both versions.

2. Both versions delete commercials.

3. Each tape contains two episodes.

4. The first episode on the IAVC tape is preceded by a

thirty-second display of the IAVC logo and a United States

title, and 2-1/2 minutes of opening credits for "The Kidnapped

Pearl." The first episode on Dang’s/UE tape is preceded only by

the opening credits, which are identical to those shown by IAVC.

5. The Taiwan TV logo appears periodically at identical

points in the action in both versions in the upper right hand

corner of the screen.

6. The end of the first episode on the IAVC tape is followed

by a picture of bamboo with the message "please watch the next

episode" in Chinese. This does not appear on the Dang’s UE

tape. The end of the first episode of the Dang’s/UE version is

followed by 2-1/2 minutes of end credits and highlights from

prior and future episodes.

I received two IAVC tapes containing two episodes each. I received one

Dang’s/UE tape, which defense counsel represented contained four

episodes. In fact, the Dang’s/UE tape contains only two episodes, which

cover the program content of IAVC episodes one and two, and approxi-

mately ten minutes of IAVC episode three. Accordingly, my comparison

is limited to the first two episodes of each version. I find, however, that

this is a sufficient sample for purposes of determining the derivative work

issue raised by defendants.

A24

7. The second episode in the IAVC version is preceded only

by a short title (the name of the program in raised stone letters

with falling leaves) and a brief replay of the last scene in the first

IAVC episode. The second episode of the Dang’s/UE tape is

preceded by 2-1/2 minutes of opening credits (identical to

episode one in the IAVC and Dang’s/UE versions).

8. The end of the second IAVC episode is followed by the

"please watch the next episode" message; the end of the second

episode on the Dang’s/UE tape is followed by 2-1/2 minutes of

end credits and highlights from prior and future episodes; a

time-of-day display appears periodically during the end credits.

9. With the exception of the begining of episode one, the

beginnings and endings of each episode occur at different points

in the action in the two versions. Episode one of the Dang’s/UE

version ends at a point approximately five minutes further into

the story than the IAVC version; epidose two of the Dang’s/UE

version ends approximately ten minutes further into the story

than the IAVC version.'*

Although defendants refer to a number of the differences de-

tailed above, the only original or creative effort identified by de-

fendants is the "creative selection of dramatic endpoints." De-

fendants argue that this creative effort is “beyond the bare mini-

mum necessary to constitute a derivative work." UE October 26,

1988 Letter at 2. I find this argument meritless, if not frivolous.

I find that the mere relocation of a few minutes of the

program from the end of one to the beginning of the next does

not constitute the kind of creative effort and originality required

to qualify the IAVC version as an independent derivative work.

Rather, I find that IAVC’s episode divisions and other additions

or deletions of previews and credits are trivial non-programmatic

“ Defendants incorrectly assert that the Dang’s/UE tapes contains

dialogue not found in the IAVC version and that the Dang’s/UE tapes

contain certain parts of scenes that are not present on the [AVC tapes. UE

Letter, October 26, 1988, p.2, | 3; Affidavit of Po Yuen dated July 12,

1988 at { 12. The program content is in fact identical.

A25

“packaging” changes. See Rohauer v. Killiam Shows Inc., 551

F.2d 484, 494-495 n.12 (videotape of silent film "The Son of the

Shiek" starring Rudolph Valentino with addition of a few new

subtities and newly incorporated music not sufficient to make it

a new work). Under defendants’ theory of the necessary

quantum of creative effort, the mere serialization of a motion

picture preceded by previews of future motion pictures would be

independently copyrightable as a derivative work. Such a result

would render the “modest” originality requirement meaningless.

Accordingly, I find that the defendants have copied and distribut-

ed registered works.

The parties agree that there are no disputed material issues

of fact with respect to this issue and that it may be decided as a

matter of law. The submissions of the parties on this question,

including Local Rule 3(g) statements, have therefore been

considered by me as a motion by defendants for summary

judgment dismissing the complaint.

Section 104(b) of the Copyright Act of 1978 governs

whether videotapes of the Taiwanese broadcasts at issue here

enjoy copyright protection. Section 104(b)(1) grants copyright

protection to works authored by citizens or domiciliaries of a

"foreign nation that is a party to a copyright treaty to which the

United States is also a party." Section 104(b)(2) grants copyright

protection if "the work is first published in the United States or

in a foreign nation that, on the date of first publication, is a party

to the Universal Copyright Convention."

Plaintiff offers two alternative grounds for copyright protec-

tion. First, plaintiff argues that its works were "first published"

in the United States and are therefore protected under §

104(b)(2).'* See, e.g., Reply Memorandum of Law in Support

'S It is conceded that neither the People’s Republic of China nor the

governing authorities on Taiwan has ever been a party to the U.C.C. See

treaty/convention table following 17 U.S.C.A. § 104 (Supp. 1988).

A26

of Plaintiff's Motion for a Preliminary Injunction ("Plaintiff's

Reply Memo"), at 16-18. Second, plaintiff contends that, even

assuming arguendo that Taiwan is the place of first publication,

the works are protected under § 104(b)(1) because Taiwan is a

party to a copyright treaty with the United States, i.e., the FCN

Treaty signed by the United States and the Republic of China

("ROC") in 1946 and entered into force on November 30,

1948." Article IX of the FCN Treaty provides that each

country shall make copyright privileges available to the nationals

of the other country on the same basis as to its own citizens.

Following the derecognition of the ROC, the FCN Treaty was

extended to Taiwan pursuant to the TRA, which continued in

force all treaties “entered into by the United States and the

governing authorities on Taiwan recognized by the United States

as the Republic of China prior to January 1, 1979 and in force

between them on December 31, 1978 * * * ." 22 U.S.C. §

3303(c) (Supplement 1988).

Defendants concede that the FCN Treaty is a “copyright

treaty" within the meaning of the copyright laws.'’ Defendants

contend, however, that plaintiff does not hold valid United States

copyrights on the Programs because the works were first

published in Taiwan and because the TRA does not and cannot

constitutionally be interpreted to extend copyright protection

under the FCN Treaty to Taiwanese nationals.

For the reasons set forth below, I find that the TRA does

and may constitutionally be interpreted to provide copyright

protection to Taiwanese nationals. I therefore find that the

Programs are protected under 17 U.S.C. § 104(b)(1), and do not

reach the issue of whether the works were first published in

Taiwan or the United States.

‘* A copy of the FCN Treaty is annexed to Plaintiff's Reply Memo as

Exhibit B.

'’ The FCN Treaty is listed on the treaty/convention table following 17

U.S.C. § 104 (Supplement 1988).

' |

A27

Historical Context

In order to understand defendants’ statutory and constitution-

al claims, it is necessary to provide a brief historical overview of

the United States’ changing relationship with the ROC and the

People’s Republic of China ("PRC"), as well as the facts

surrounding the FCN Treaty, the derecognition of the ROC, and

the enactment of the TRA.

Japan assumed control of the island of Taiwan following

Japan’s victory over China in 1895 in the first Sino-Japanese

war, and pursuant to the Treaty of Shimonoseki. The ROC

renounced the Treaty of Shimonoseki on December 9, 1941,

when the ROC formally declared war on Japan. Taiwan

remained in Japanese control until it was restored to the ROC

following Japan’s surrender and acceptance of the Potsdam

Deciaration on September 2, 1945.

The ROC entered into the FCN Treaty with the United

States in 1946, ensuring reciprocal protection for intellectual

property, and solidifying important trade relations. Within two

years of the signing of the FCN Treaty, however, the leaders of

the ROC, including Chiang Kai-Shek, had reiocated on Taiwan,

following their overthrow by the Communists and the establish-

ment of the PRC.

The United States continued to honor all commitments it had

made with the ROC before relocation, but simply confined the

scope of the agreements to the island of Taiwan. The United

States did not have any formal relations with the PRC, and

asseited that the ROC, temporarily exiled on Taiwan, was the

legitimate ruler of all of China.

The passage of several decades eventually led to an opening

of relations with the PRC. Visits to the mainiand by Secretary

of State Henry Kissinger (the so-called “secret trip to Peking")

in 1971, followed by President Nixon’s trip in early 1972, and

the pledge in the Shanghai Communique to normalize relations,

culminated in President Carter’s Memorandum of December 30,

1978, terminating diplomatic relations with the ROC and

A28

recognizing the PRC as "the sole legal government of China."

Memorandum of December 30, 1978, ("Memorandum") reprinted

in U. S. Code Cong. & Ad. News (96th Cong. Ist session 1979)

ae. 72.

At the same time, however, President Carter took steps to

assure the Taiwanese that they were not being abandoned by the

United States. In a communique dated December 15, 1978,

President Carter reserved the right to sell "defensive" arms to

Taiwan in the event the PRC and Taiwan remained hostile to one

another. See Senate Report No. 96-7 at p. 6, reprinted in U. S.

Code Cong. & Ad. News (96th Cong. Ist session 1979) at p. 41

(hereinafter “Senate Report"). Congress explicitly adopted this

policy inthe TRA. 22 U.S.C. § 3302(a). President Carter also

declared in his December 30 Memorandum that "the American

people will maintain commercial, cultural and other relations

with the people of Taiwan without official government represen-

tation and without diplomatic relations." Memorandum (first full

paragraph). Specifically, President Carter directed that existing

international agreements between the United States and Taiwan

continue in force. Jd. { (B).

The Senate, and particularly the Senate Committee on

Foreign Relations and the Senate Committee on Finance, became

integrally involved in determining how to structure and conduct

post-derecognition relations with Taiwan. The Senate passed a

bill (S.245) establishing a detailed structure for the conduct of

post-derecognition relations. The House of Representatives also

passed a bill to "promote extensive, close and friendly relations"

with the people of Taiwan. See House Conference Report No.

96-71, reprinted in U. S. Code Cong. & Ad. News (96th

Congress, Ist Session, 1979). The House bill (H.R. 2479)

integrated much of the text of the Senate bill, and the House bill

* This Memorandum was issued pursuant to the President’s constitu-

tional authority to recognize and derecognize nations. See National

Petrochemical Co. of Iran v. The M/T Stolt Sheaf, 860 F.2d 551 (2d Cir.

1988); Chang v. Northwestern Memorial Hospital, 506 F. Supp. 975, 977

(N.D. Ill. 1980).

A29

became the TRA (P.L. 96-8) when it was passed by both houses

and approved by President Carter on April 10, 1979. The TRA

was retroactively effective as of January 1, 1979, the date

President Carter’s Memorandum became effective. The TRA

contains several provisions relevant to the disposition of this

case.

First, the TRA provides that "[t]he absence of diplomatic

relations or recognition shall not affect the application of the laws

of the United States with respect to Taiwan, and the laws of the

United States shall apply with respect to Taiwan in the manner

that the laws of the United States applied with respect to Taiwan

prior to January 1, 1979." 22 U.S.C. § 3303(a).

The TRA reiterates the provision of President Carter’s

Memorandum that "[w]herever the laws of the United States refer

or relate to foreign countries * * * those laws shall apply with

respect to Taiwan," 22 U.S.C. § 3303(b)(1), and provides that

"[t]he absence of diplomatic relations and recognition with

respect to Taiwan shall not abrogate, infringe, modify, deny, or

otherwise affect in any way any rights or obligations * * *

heretofore or hereafter acquired by or with respect to Taiwan."

22 U.S.C. § 3303 (b)(3)(A).

The TRA further provides that "[n]o requirement, whether

expressed or implied, under the laws of the United States with

respect to maintenance of diplomatic relations or recognition shall

be applicable with respect to Taiwan." 22 U.S.C. § 3303(b)(8).

Finally, and most importantly for purposes of this case, the TRA

provides that "[flor all purposes, including actions in any court

in the United States, the Congress approves the continuation in

force of all treaties and other international agreements, including

multilateral conventions, entered into by the United States and

the governing authorities on Taiwan recognized by the United

States as the Republic of China prior to January 1, 1979, and in

force between them on December 31, 1978, unless and until

terminated in accordance with law." 22 U.S.C. § 3303(c).

The TRA defines Taiwan as "the islands of Taiwan and the

Pescadores, the people on those islands, corporations and other

A30

entities and associations created or organized under the laws

applied on those islands, and the governing authorities on Taiwan

recognized by the United States as the Republic of China prior

to January 1, 1979, and any successor governing authorities * *

* "U.S.C. § 3314(2).

The FCN Treaty is listed as a treaty in force between the

United States and “China (Taiwan)" in the State Department

publication, “7Jreaties in Force: A Lisi of Treaties and other

International Agreements of the United States in Force on

January 1, 1987" (excerpt annexed as Exhibit C to Plaintiff's

Memorandum in Response to UE Supplementary Memorandum

of Law) ("Pl. Resp. Memo").

Validity of the FCN Treaty Prior to 1979

Defendants initially asserted that at the time the FCN Treaty

was negotiated and became effective, Taiwan was still under

Japanese control and that the ROC governed only what is known

as "mainland" China. Defendants therefore argued that because

the FCN Treaty was made in the context of an "expressly

territorial relationship between the United States and the main-

land," the Nationalist Government did not succeed to the FCN

Treaty following its defeat by Communist forces in 1949 and

subsequent flight to Taiwan. See UE Supplementary Memoran-

dum of Law ("UE Supp. Memo") at 13-16, 18-19. Defendants

asserted that "[p]ursuant to the normal principles of international

law, and absent special, affirmative action by the United States,

the [People’s Republic of China] would have succeeded to the

treaties that were in force at the time the Nationalists were routed

“eee * wits.

Defendants substantially retreated from this position after

amicus Wang and Wang demonstrated that Taiwan was in fact

under ROC control when the FCN Treaty was signed and that

references in that FCN Treaty to the "territories of the ROC"

therefore included the territory of Taiwan. See Amicus Brief at

5-10. See also Declaration of Dr. Tao-Tai Hsia, (Amicus Brief,

Exhibit A) at 1-3. In addition, the Government’s Statement of

—

A31

Interest demonstrated that wholly apart from the question of the

ROC’s control of Taiwan in 1946, or its lack of control over the

mainland after 1949, the determination that a government is a

party to a treaty covering a particular territory is exclusively the

function of the executive branch, pursuant to its power to

recognize and derecognize governments. See Statement of

Interest at 8-9.

In their reply brief defendants concede that

in determining who is a party to a particular treaty covering

a certain territory, a court must first look to who the

President recognizes as legitimate government of that

territory, and it does not matter whether that government

actually controls the territory. Thus, the FCN Treaty was

perhaps preserved from 1949 to 1979, with the Republic of

China as the party to it, even though that government did

not control the territory covered by the FCN Treaty -- or at

best * * * controlled only a small portion of it.

Memorandum of law in Reply to the Three Briefs Opposing its

Suppiementary Memorandum of Law ("UE Reply Memo") at 8

n.8.

Post-Derecognition Validity of FCN Treaty

Defendants now focus their argument on the asserted

invalidity of the FCN Treaty following derecognition of the ROC

in 1979. Defendants acknowledge that the TRA expressly

approves “the continuation in force of all treaties and other

international agreements * * * entered into by the United States

and the governing authorities on Taiwan recognized by the

United States as the Republic of China prior to January 1, 1979,

and in force between them on December 31, 1978 * * * ." 22

U.S.C. § 3303(c). They argue, however, that because the TRA

refers to treaties entered into by the United States and "the

governing authorities on Taiwan," the TRA applies only to

treaties entered into with the Taiwan authorities while they were

on Taiwan. UE Supp. Memo at 27; UE Reply Memo at 15.

Defendants’ theory is essentially that the words “on Taiwan" in

A32

§ 3303(c) are meant to draw a distinction according to where the

governing authorities were when the treaty was entered into--"on

Taiwan" or “on the Chinese mainland." Because the FCN

Treaty was entered into with the governing authorities while they

were on the mainland in 1946, defendants conclude that the FCN

Treaty is not covered by the TRA.

This interpretation of the TRA is contrary to both its

language and legislative history, which demonstrate that Congress

intended the TRA to apply to all treaties and international

agreements that were in force between the United States and the

Republic of China as of December 31, 1978, and not only those

concluded after the governing authorities moved to Taiwan.

The language of the TRA makes clear that "governing

authorities on Taiwan" refers to the government recognized by

the United States as the Republic of China until January 1, 1979.

Indeed, § 3304(c) makes the term “governing authorities on

Taiwan" the functional equivalent of the term “Republic of

China." The use of the qualifying phrase "recognized by the

United States as the Republic of China prior to January 1, 1979"

clearly indicates that the phrase “governing authorities on

Taiwan" was meant to refer to the governing authorities formerly

recognized as the Republic of China.”

The legislative history of § 3303(c) makes this even clearer:

This section was added by the Committee to remove any

doubt concerning the validity of the international agreements

in force between the United States and the entity recognized

as the Republic of China prior to the normalization of

relations with the People’s Republic of China. Its effect is

to make clear that these agreements have not "lapsed" and

that they continue in effect between the United States and

the people on Taiwan. The reference to all courts "in" the

United States expresses the Committee’s intent that this rule

'? These governing authorities are consistently referred to throughout

the TRA as the “governing authorities on Taiwan." See 22 U.S.C. $§

3301(a), 3303(b)(3)(B), 3309(b), 3311(6)(1), 3314(2).

A33

of substantive Federal law be applied by both Federal and

State courts.

Senate Report at p. 30.

The Senate Report similarly describes the Senate version of

this provision as:

added by the [Foreign Relations] Committee to remove any

doubt concerning the validity of the international agreements

in force between the United States and the entity recognized

as the Republic of China prior to the normalization of

relations with the People’s Republic of China.

Senate Report at p. 25.

In addition, the legislative history specifically mentions the

FCN Treaty as an example of a treaty covered by the TRA. The

House Report states that the House version of the legislation is:

designed to make clear that all treaties and international

agreements between the United States and the Republic of

China which were in force before derecognition will

continue to be in force. For example, the U.S. ROC Treaty

of Friendship, Commerce and Navigation, which provides

a legal foundation for commercial relations between the

United States and Taiwan, will continue without interrup-

tion. No United States-Republic of China treaty or interna-

tional agreement would be terminated except that which is

terminated under its terms or otherwise, pursuant to U.S.

law.

House Report, H.R. Rep. No. 26, "House Report together with

Additional Views", accompanying H.R. 2479 (printed pamphlet)

(96th Cong., Ist Sess. 1979) at pp. 10-11.

The final bill, as described in the Conference Report,

combines both the general House provisions and the more

specific Senate provisions without weakening or narrowing

the applicability of any of the provisions adopted. * * * The

conference substitute further provides that the Congress

A34

approves the continuation in force of all treaties and other

international agreements, including multilateral conventions,

between the United States and Taiwan which were in force

prior to January 1, 1979, * * * with regard to the issue of

conditioning the right to sue and be sued on reciprocity, the

Committee of Conference noted that the Treaty of Friend-

ship, Commerce, and Navigation between the United States

and the Republic of China continues in force.

Conference Report, H.R. Report 7, reprinted in U. S. Code

Cong. & Ad. News (96th Cong. Ist Sess. 1979) at p. 99.

Finally, consistent testimony by Executive Branch witnesses

- supports this reading of § 3303(c). See e.g., Implementation of

Taiwan relations Act: Issues and Concerns, Hearings Before the

Subcomm. on Asian and Pacific Affairs of the House Comm. on

Foreign Affairs, 96th Cong., Ist Sess. 12 (1979) (statement of

Assistant Secretary of State Richard Holbrooke, noting that

international agreements with Taiwan remain in force, with

specific mention of the FCN Treaty); Taiwan Hearings Before

the Senate Comm. on Foreign Relations, 96th Cong., Ist Sess.

74, 77 (1979) (State Department responses to questions by

Senator Stone note that all international agreements (except the

Mutual Defense Treaty and other related agreements), including

the FCN Treaty, remain in force); id. at 106 (response by State

Department Legal Adviser Hansell to question by Senator Percy

notes that TRA provides for continuation in force of the FCN

Treaty).

There can therefore be no doubt that Congress intended the

TRA to continue the provisions of the FCN Treaty in force

between the United States and Taiwan.”

Defendants next argue that if the TRA purports to extend the

provisions of the FCN Treaty to Taiwan, as I find it does,

* At least two other courts have reached this conclusion. See Int’!

Audio-Visual Audio-Visual Communications v. Chen, supra, n.5; Chang

506 F. Supp. at 978.

A35

Congress has unlawfully "amended" the FCN Treaty 1) by

changing the other "High Contracting Party" from the ROC to

"the governing authorities on Taiwan" and 2) by eliminating

those provisions of the FCN Treaty that may be read to require

the existence of official diplomatic relations between the contract-

ing parties. Such "amendments," defendants contend, are

unconstitutional because under the Treaty Clause, only the

President, with the advice and consent of the Senate, may make

or amend a treaty.” See UE Supp. Memo at 25-26; UE Reply

Memo at 11.

Plaintiff argues that the TRA does not constitute an "amend-

ment” of the FCN Treaty because "the governing authorities on

Taiwan" are the same "High Contracting Party" that entered into

the FCN Treaty in 1948, i.e¢., the nationalist government that

previously ruled the ROC. Moreover, as the Government also

points out, a change in the name of one of the parties to a treaty,

as a result of succession or modification of States, a govern-

ment’s renaming of a state, or changes in recognition, is not

normally considered an “amendment” requiring further Senate

action. Statement of Interest at 11.4. See, e.g., Arnbjorns-

dottir-Mendler v. United States, 721 F.2d 679 (9th Cir. 1983)

(treaty between United States and Denmark remained in force

vis-a-vis Iceland after Iceland declared its independence from

Denmark). Rather, such matters fall within the recognition

power of the Executive Branch. Accordingly, because the

Executive Branch has consistently maintained since the derecog-

nition of the ROC that the FCN Treaty remains in force with the

governing authorities on Taiwan, and because Congress has

concurred in that view, the FCN Treaty may constitutionally

continue in force with Taiwan.

The Government also persuasively argues that even if the

TRA were construed as an “amendment” of the FCN Treaty, or,

4 Article II, § 2 cl. 2 provides: "He [the President] shall have Power,

by and with the advice and Consent of the Senate, to make Treaties,

provided two thirds of the Senators present concur * * *."

A36

for that matter, as an attempt to make an entirely new interna-

- tional agreement with Taiwan, there is no constitutional impedi-

ment to such action, because Congress and the President may

constitutionally enter into "legislative-executive agreements" that

are as binding in United States law as treaties. Statement of

Interest at 11 n.4. See, e.g., Weinberger v. Rossi, 456 U.S. 25,

32 (1982) (equating Military Base Labor Agreement with the

Republic of the Phillipines, authorized by statute, with "treaty"

for purposes of United States law); Star-Kist Foods Inc. v.

United States, 169 F. Supp. 268 (Cust. Ct. 1958), aff'd, 275

F.2d 472 (C.C.P.A. 1959) (Congress has authority to authorize

the President to enter into executive agreements). See also

Treaties and Other International Agreements: The Role of the

United States Senate. A Study Prepared for the Senate Comm.

on Foreign Relations, 98th Cong., 2d Sess. 71-77 (1984); M.

McDougal and A. Lans, “Treaties and Congressional-Executive

Agreements: Interchangeable Instruments of National Policy”, 54

YALE L.J. 181, 216-218 (1945); Restatement (Third) of the

Foreign Relations Law of the United States §§ 302(2) and 303

(1987). - Indeed, the author of defendants’ brief on this issue,

Professor Laurence Tribe, acknowledges in his treatise on

American Constitutional law that such congressional-executive

agreements are "coextensive with the treaty power." L. Tribe,

American Constitutional Law (1979) at p. 170 n.18. Accord L.

Henkin, Foreign Affairs and the Constitution (1972) at p. 173

n.l.

Defendants counter that even if a congressional-executive

agreement had been created, it would not satisfy § 104(b)(1) of

the copyright Act, which requires a treaty entered into pursuant

to Article II. UE Reply Memo at 5 n.4, 17-18. I disagree.

Nothing in the Copyright Act suggests such a rigid requirement

and defendants cite no authority for this assertion. In any event,

the TRA clearly eliminated any such requirement with respect to

Taiwan.

Finally, as defendants concede, Congress could at any time

constitutionally pass a law that would grant Taiwanese nationals

A37

to January 1, 1979. UE Reply Memo at 14, 19. Thus, the

constitutional issues defendants seek to raise may properly be

avoided by considering the TRA not as an amendment of a treaty

or a "hybrid" international agreement, but as a domestic law

extending to Taiwan the provisions of the FCN Treaty pertaining

to copyright protection despite derecognition and the cessation of

formal diplomatic relations. See Statement of Interest at 3, 10-14

(Congress, in the TRA, could constitutionally consider the FCN

Treaty to be in force for purposes of the Copyright Act, irrespec-

tive of the TRA’s effect on the international obligations of the

United States). See also Chang v. Northwestern Memorial

Hospital, 506 F. Supp. 975 (N.D. Ill. 1980); Int’ Audio-Visual

Communications, Inc. v. Chen, No. CV 84-23Z28-DWW (MCX)

(C.D. Cal. 1984) (opinion annexed as appendix A to Plaintiff’s

Reply Memo).

For all of the above reasons, I find that the TRA constitu-

tionally continues in force those provisions of the FCN Treaty

providing reciprocal copyright protection to Taiwanese nationals

and deny defendants’ motion to dismiss the complaint on this

ground.

CHAMPERTY

Although defendants acknowledge that the question of

whether an agreement is champertous is normally a question of

fact, see UE Memo at 12, defendants have restricted their

challenge to the IAVC -- New York Chinese License Agreement

to the face of the document,” which they argue is champertous

as a matter of law, and therefore void.”

= Because defendants have chosen to limit their attack to the face of

the agreement, I do not address the assertions contained in their submis-

sions regarding the subjective motives of plaintiff's President, Dick Ying.

* "Champerty is a bargain between a stranger and a party to a lawsuit

by which the stranger pursues the party’s claim in consideration of

receiving part of any judgment proceeds. It is one type of ‘maintenance,’

the more general term, which refers to maintaining, supporting, or

promoting another person’s litigation." Alexander v. Unification Church

A38

In support of their argument that the Agreement is champer-

tous on its face, defendants point to the following provisions:

1) As part of the “consideration” for the assignment, New

York Chinese agrees to commence and maintain "such actions

with respect to any infringements or imitations of the licensed

tapes as it deems advisable for the protection of its rights * * *

." Agreement 10(a).”

2) Plaintiff is not required to pay IAVC the yearly license

fee of $360,000 until 30 days after plaintiff obtains its first

preliminary injunction in an infringement action. Agreement 4

3(a).

3) IAVC may terminate the agreement at the end of one year

if plaintiff has been unable to obtain a preliminary injunction.

Agreement 11(a)(iv).

4) IAVC specifically conveys to New York Chinese the right

to sue for infringements which occurred prior to the Agreement

and the right to retain "all monetary judgments obtained as a

result of such actions." Agreement { 10(b).

5) IAVC agrees to permit plaintiff's $40,000 security deposit

to be placed in escrow with plaintiff's attorneys, and to be

applied to plaintiff's legal fees in prosecuting infringement

actions. Agreement { 10(c).

Defendants’ assertion that the assignment of IAVC’s

of America, 634 F.2d 673, 677 n.5 (2d Cir. 1980). Champerty is a viable

defense to another’s claim to the extent it is outlawed by statute. Sedgwick

against Stanton, 14 N.Y. 289, 294-95 (1856); see also Irvin v. Curie, 171

N.Y. 409, 411 (1902). A champertous assignment is null and void. See

Koro Co., Inc. v. Bristol-Myers Co., 568 F. Supp. 280, 288 (D.D.C.

1983) (applying New York’s champerty law to invalidate a contract); Lost

Lots Associates. Lid. v. Bruyn, 415 N.Y.S.2d 99 (3rd Dep’t 1979); see

also Alexander, 634 F.2d at 677 n.6.

* The Agreement is annexed to the Amended Complaint as part of

Exhibit C.

A39

upon Section 489 of the New York Judiciary Law (McKinney

1983 and Supplement 1989).?* The landmark case interpreting

the New York champerty statute is Moses v. McDivitt, 88 N.Y.

62 (1882). In Moses the court held that the statute "prohibits the

purchase by attorneys * * * of choses in action ‘with the intent

and for the purpose’ of bringing a suit thereon." Moses, 88

N.Y. at 65 (emphasis original) (quoting predecessor statute).

The purpose of the statute is to prevent trafficking and specula-

tion in lawsuits. Koro Co. Inc. v. Bristol-Myers Co., 568 F.

Supp. 280, 288 (D.D.C. 1983) (applying New York law); see

also Fairchild Hiller Corp. v. McDonnell Douglas Corp., 28

N.Y.2d 325, 321 N.Y.S.2d 857, 860 (1971) (section 489 is

designed to prevent the "strife, discord, and harassment which

could result from permitting attorneys and corporations to

purchase claims for the purpose of bringing actions thereon").

-It is well-established that a violation of § 489 is established

only when the purchase is made for the purpose of bringing a

lawsuit, to the “exclusion of any other purpose," and that an

assignment is lawful where the intent to bring a suit is merely

"incidental and contingent" to other rights conveyed. Moses, 88

N.Y. at 65; see also Sygma Photo News. Inc. v. Globe Int'l.

Inc., 616 F. Supp. 1153, 1157 (S.D.N.Y. 1985); Koro, 568 F.

Supp. at 286-287; Welch v. Corp. Inc., 97 F. Supp. 185, 186

(S.D.N.Y. 1951); Fairchild, 28 N.Y.2d at 330, 321 N.Y.S. 860;

Sprung v. Jaffe, 3 N.Y.2d 539, 544, 169 N.Y.S.2d 456, 460

(1959); Realty Corp. v. USwiss Realty Holding, Inc., 492

N.Y.S.2d 754, 755-756 (1st Dep’t 1985); 10/5 Gerard Realty

% Section 489 of the New York Judiciary Law provides in pertinent

part as follows:

No * * * corporation or association, directly or indirectly, itself or

by or through its officers, agents or employees, shall solicit, buy or

take an assignment of a * * * thing in action, or any claim or

demand, with the intent and for the purpose of bringing an action or

proceeding thereon; * * *. Any corporation or association violating

the provisions of this section shall be liable to a fine of not more than

five thousand dollars * * *.

A40

Corp. v. A & S Improvements Corp., 457 N.Y.S.2d 821 (ist

Dep’t 1983); Prudential Oil Corp. v. Phillips Petroleum Co. , 415

N.Y.S.2d 217, 218 (1st Dep’t 1979); American Express Co. v.

Control Data Corp., 376 N.Y.S.2d 153, 154 (1st Dep’t 1975)

(per curiam).

Applying these legal principles to the facts of this case, |

find that the License Agreement and Assignment between IAVC

and New York Chinese is not champertous. The Assignment

conveys actual and valuable rights, namely, the exclusive right

to distribute the Mandarin language tapes in New Jersey and

New York, as well as the right to enter into sub-license agree-

ments with retailers. See License Agreement, § 3(b). The

License Agreement spells out the details of the parties’ ongoing

business relationship, including, inter alia, the minimum number

of program hours annually that plaintiff will receive from IAVC,

how delivery of the tapes is to be effected, and the continuing

advertising rights and obligations of IAVC. At the same time,

IAVC and plaintiff were clearly aware that infringement of the

Mandarin language tapes had taken place in the New York area,

and that it would undoubtedly continue if not prosecuted.

Accordingly, the provisions regarding prosecution of infringe-

ment reflect one of the realities of copyright ownership: the

continuing battle to stem infringement that threatens to diminish

the value of the copyright. Indeed, because of this reality, an

assignee generally owes an affirmative duty to its assignor to sue

for infringements the assignee learns of, and the failure to do so

could potentially lead to an action for rescission, and possibly

damages, against the assignee. See 3 M. and D. Nimmer,

12-28.

I find that the "right to sue" provisions of the Assignment

are not champertous, but “incidental and contingent" to the

assignment of valuable distribution rights in New York and New

Jersey, and that the license agreement and assignment are

therefore fully enforceable. Defendants’ motion to dismiss the

complaint on this ground is therefore denied.

A4l

FRAUD ON THE COPYRIGHT OFFICE

Defendants contend that IAVC’s copyright is invalid and

unenforceable by plaintiff because IAVC knowingly misrepre-

sented or failed to present to the U. S. Copyright Office material

facts regarding the Programs. Defendants assert that if the

correct information had been provided to the Copyright Office,

IAVC’s applications would have been rejected. See Russ Berrie

& Co. Inc. v. Jerry Elsner Co. Inc., 482 F. Supp. 980, 988

enforcement on the ground of unclean hands if it finds that the

applicant knowingly failed to advise the Copyright Office of facts

which might have occasioned a rejection of the application); see

also 3 Nimmer § 13.09(b) at 13-142 - 13-148; 2 Nimmer § 7.20

at 7-147.

Following discovery, defendants waived an evidentiary

hearing on this issue and agreed that the court could make

findings of face and conclusions of law on the merits of their

claim of fraud on the Copyright Office based upon documentary

evidence and the deposition testimony of Julia Baker Huff (a

ing Arts Section of the United States Copyright Office); Eva

Young (the treasurer of IAVC); and Ronald L. Yin, Esq. (the

attorney for IAVC who represented IAVC in connection with its

applications to the Copyright Office for these Programs).

The following facts are undisputed: each of the Programs is

broadcast once over the Taiwanese airways. Following this

broadcast, a 3/4" “mastertape" is delivered to IAVC’s office in

Taipei, Taiwan, where the quality of the mastertape is reviewed.

IAVC then sends the mastertape (uncopied and unedited) to its

home office in Brisbane, California, where the Program is

edited, copied onto a 1/2" videotape and distributed for rental to

the public. The Taiwanese television stations are paid by

IAVC’s office in Taipei. For several years prior to 1984, IAVC

submitted to the Copyright Office a registration application for

each Program, accompanied by a 1/2" tape of the version edited

by IAVC in California. IAVC did not submit the 3/4" master-

A42

tape and did not include in its applications any reference to the

fact that the 3/4" tape had been sent to IAVC’s Taipei office for

review prior to shipment to the United States, or to the fact that

the 1/2" tape is an edited ‘version of the Program as broadcast

in Taiwan. The applications did state, however, that the Pro-

grams were "first published" in Taiwan, because Mr. Yin

mistakenly believed that the broadcast in Taiwan constituted

publication under the Copyright Act. The Copyright Office at no

time questioned the application of the Copyright Act to works

first published in Taiwan.

Examiner Julia Huff. Ms. Huff told Mr. Yin that she believed

IAVC should be submitting the 3/4" mastertape as the “best

edition" of the work as first published in Taiwan. Ms. Huff’s

memorandum to the file regarding this conversation reads as

follows:

I questioned best edition as first published. He said that

works first aired and then a 3/4 inch tape sent to U.S. where

1/2 inch tapes made and distributed. We discussed publica-

tion . . . definition in law and possibility that were published

by a network or station authorized copies to made (sic) at

time of airing and these copies to be used for later airdates

or further distribution. He will discuss publication with

client. And he will discuss best edition. We may have to

Exhibit #1, Exhibits to Deposition of Julia Baker Huff ("Huff

Dep. Exh."). With respect to this conversation, Ms. Huff

testified that it was the practice of the Copyright Office to inquire

as to what was the best edition as first published when it received

1/2" videotapes (apparently because videotapes are generally

originally produced on 3/4" tapes). Huff Tr. 8-9.% She

recalled that she and Mr. Yin discussed “the general meaning of

* References to “Huff Tr." refer to transcript pages of her deposition

testimony. References to "Yin Tr." similarly refer to transcript pages of

his deposition testimony.

A43

publication,” and that she probably read him the legal defini-

tion.?” Huff Tr. 11-12, 31. She advised Mr. Yin that the mere

broadcast of the Program did not constitute a publication, but

only a performance. Huff Tr. 16-17, 32; Huff Dep. Exh. #4

(letter from Mr. Yin recounting their discussion); Huff Dep.

Exh. #5 (letter from Ms. Huff to Mr. Yin). They also discussed

"an extension of the understanding of publication in the video

industry, that it might have been possible that copies were * * *

authorized to have been made from the airing of the Program.

And then those copies might have been used at a later date some-

where else, either for distribution or for later air dates [by other

stations or the same station]." Huff Tr. 33. They did not discuss

the distribution of a 3/4" videotape to IAVC in Taiwan; nor did

they discuss the fact that the 1/2" tapes were “edited” versions

of the 3/4" tape. Huff Tr. 11-12. Mr. Yin’s testimony, as well

as his handwritten notes and a March 29, 1984 letter to IAVC

regarding this conversation, are essentially consistent with Ms.

Huff's memorandum and testimony regarding the March 21

discussion. Yin Tr. 7, 9-14, 16, 25-27; Exhibit #2 to Exhibits

to Deposition of Ronald L. Yin and Eva C. Young ("Yin Dep.

Exh.") (3/19/84 letter); Yin Dep. Exh. #9 and #10 (Mr. Yin’s

handwritten notes).

In a letter to Mr. Yin dated April 13, 1984, Ms. Huff again

questioned the submission of a 1/2 inch videotape, stating

For registration of a work first published outside the United

States, we need a complete copy of the work as first

published. If the 1/2 inch copies are the copies as first

published in Taiwan, please give us your written confirma-

tion. Otherwise, you should send a copy of each as first

71 The Copyright Act is somewhat ambiguous about what constitutes

"first publication.” 17 U.S.C. § 101 defines “first publication” as the

“distribution of copies * * * of a work to the public by sale * * * or by

rental, lease or lending. The offering to distribute copies or phonorecords

to a group of persons for purposes of further distribution * * * constitutes

publication." Professor Nimmer notes that "broadcasting per se” does not

constitute a publication. 1 Nimmer § 4.11[B] at 4-55.

Aad

published. Or, if this is not possible, you may request

special relief from the deposit requirements. Such a request

should be made in writing to the Chief of the Examining

Division and should explain why your client is unable or

unwilling to deposit the copies as first published in Taiwan

and should explain what copies they have sent instead.

Yin Dep. Exh. #3 (emphasis original).

Mr. Yin subsequently determined from IAVC that the lo~al

Taiwan TV stations did not have the authority to tape a d

rebroadcast the programs." Accordingly, Mr. Yin wrote to

Ms. Huff on May 9, 1984:

I am returning all of the attached Form PA in accordance

with your letter of April 13, 1984. Please note that the

publication dates have all been changed, and that the nation

of publication has also been changed. This is pursuant to

our discussion that merely airing of the TV programs in

Taiwan constitutes only the performance of the work -- not

the publication. In the U.S., the applicant, international

Audio-Visual Communication Inc., sells the works in 1/2

inch tape cassettes, copy of which were previously submit-

ted. Thus, the copies previously submitted were the copies

first published.”

Yin Dep. Exh. #4.

Ms. Huff testified that following receipt of this letter she

allowed the applications. Huff Tr. 17. IAVC never requested

"special relief" from depositing the 3/4" tape.

* Mr. Yin does not recall if he was ever informed that a 3/4" tape was

transferred from the Taiwan TV Station to IAVC in Taiwan, or if he was

told that [AVC edits the 3/4" tape in California. Tr. 7.

”* Notwithstanding this letter, [AVC continued to submit applications

stating Taiwan as the nation of first publication, prompting further

correspondence between Mr. Yin and Ms. Huff. See Ms. Huff's letter to

Mr. Yin dated June I, 1984 and Ms. Huff's letter to IAVC dated July 20,

1984 (annexed as exhibits to Ms. Huff's telephonic deposition taken on

November 8, 1988).

A45

Defendants’ first contention is that Mr. Yin’s decision to

change the place of first publication was not based upon his

learning that the broadcast in Taiwan did not constitute publica-

tion. Rather, defendants assert that Mr. Yin knew that the

delivery of the 3/4" mastertape to IAVC’s Taipei office was itself

a publication and that Mr. Yin changed the place of first

publication from Taiwan to the United States because he knew

that the validity of the FCN Treaty was being challenged in

litigation in California, and was concerned that IAVC’s

entitlement to copyright protection for works first published in

Taiwan was threatened. Defendants therefore conclude that Mr.

Yin knowingly and deliberately failed to advise the Copyright

Office of the delivery of the 3/4" master to IAVC in Taiwan and

falsely represented the place of first publication to be the United

States. See Defendants’ Post-Trial Brief at 13-14, 21-27.

I find absolutely no evidence in the record before me to

support this allegation.

First, Mr. Yin knew that the Copyright Office had already

granted registration to hundreds of tapes that were stated to be

first published in Taiwan. Second, it is undisputed that Ms. Huff

at no time suggested that the place of publication had any bearing

on the acceptance of IAVC’s applications. Indeed, but for Ms.

Huff’s inquiry regarding “best edition," there can be no doubt

that Mr. Yin would have continued to submit IAVC applications

stating Taiwan as the place of first publication, based upon his

erroneous belief that broadcast constituted publication. More-

over, apart from the lack of any showing of fraudulent intent,

defendants cannot show that presentation of the full facts, ie. ,

advising the Copyright Office of the delivery of the 3/4"

mastertape to IAVC in Taiwan “might have occasioned a

rejection of the application." There is no evidence that the

IAVC in Taiwan to be a publication. Moreover, since the

% Int'l Audio-Visual Communications v. Chen, supra n.20 and n.5.

A46

first published in Taiwan, the worst possible consequence for

IAVC would have been that the Copyright Office would insist on

the submission of the 3/4" mastertape or an application for

special relief. IAVC clearly had no reason whatsoever to fear

denial of registration on the basis of the first publication in

Taiwan.

Defendants’ second contention is that IAVC fraudulently

failed to advise the Copyright Office of “the scope of its

monopoly." Defendants’ Post-Trial Brief at 26. This contention

pertains to IAVC’s failure to inform the Copyright Office that the

programs IAVC sent for registration were edited versions of the

programs as broadcast in Taiwan. Here again, defendants have

failed to show that the submission of this information would have

resulted in rejection of IAVC’s applications. Assuming, arguen-

do, that the Copyright Office would consider the edited version

a “derivative work," IAVC would at worst be required to register

both the edited and unedited versions.

I therefore find that the enforceability of the copyright

assigned to plaintiff is not barred by any fraud on the Copyright

Office.

CONCLUSION

For the reasons set forth above I find that plaintiff has

demonstrated that defendants have infringed plaintiff's valid

ants’ challenges to the validity of the copyright are meritless. I

therefore find that plaintiff is entitled to a permanent injunction

prohibiting the copying, sale, rental or other distribution of the

Programs by defendants. Plaintiff is directed to submit a

proposed judgment and permanent injunction on 5 days’ notice

no later than March 20, 1989. The parties are directed to appear

for a status conference on March 27, 1989 at 10:00 a.m. in

Courtroom 631 of the United States Courthouse.

SO ORDERED.

DATED: New York, New York March 8, 1989

A47

APPENDIX C

UNITED STATES DISTRICT COURT

For the Southern District of New York

No. 89 Civ, 6082 (RWS) (KAR)

NEW YORK CHINESE TV PROGRAMS, INC.,

Plaintiff-Appellee,

VERSUS

U.E. ENTERPRISES, INC.; FLUSHING STAR, INC.;

CHAN’S VIDEO & TRADING, INC.; GONG PICTURES,

INC.; DANG’S VIDEO, INC.; PO YUEN,

QUEENS VIDEO LTD.; JOHN DOES 1-50,

Defendants.

June 14, 1991

OPINION AND ORDER

KATHLEEN A. ROBERTS, United States Magistrate Judge.

This action for copyright infringement, violations of Section

43(a) of the Lanham Act, unfair competition and interference

with contractual relations was filed on June 16, 1988,' and

thereafter referred to me for all purposes pursuant to 28 U.S.C.

§ 636(c). In an Opinion and Order dated March 8, 1989, |

found that defendants had infringed plaintiff's copyrights to

certain Chinese language television programs produced by three

Taiwanese television companies, and entered an order enjoining

any further infringement. A trial was held on September 27 and .

28, 1989, to receive evidence pertaining to plaintiff's damages,

which was followed by the submission of post-trial briefs and

additional stipulations of fact on March 13, March 23, and

‘ An Amended Complaint, adding defendants Po Yuen and Dang’s

Video, Inc., was served on October 31, 1988, and filed on November 10,

1988.

A48

September 14, 1990. At a conference held on May 24, 1990,

plaintiff advised the court that it wishes to pursue only its claims

and remedies under the Copyright Act, and withdraws all other

asserted causes of action without prejudice; at the same confer-

ence, defendants agreed to withdraw their counterclaims without

prejudice. This Opinion constitutes my findings of fact and

conclusions of law, pursuant to Fed. R. Civ. P. 52(a), with

respect to plaintiff's damages on its Copyright Act claims.

BACKGROUND

Plaintiff New York Chinese TV Programs, Inc. ("New York

Chinese") is a New York corporation engaged in the distribution

of Mandarin language videotapes to its authorized sub-licensee

retail outlets for rental purposes. Defendants U.E. Enterprises,

Inc. ("UE"), Flushing Star, Inc. ("Flushing Star"), Chan’s Video

and Trading, Inc. ("Chan’s Video"), Gong Pictures, Inc. (“Gong

Pictures"), and Queens Video, Ltd. (“Queens Video"),? are New

York corporations engaged primarily in selling and renting

Chinese language videotapes. Defendant Dang’s Video, Inc.

("Dang’s"), is a subsidiary of UE. Defendant Po Yuen is an

attorney admitted to practice in New York and, at the time of

defendants’ infringement of plaintiff's copyrights, was the

President and a one-third owner of UE and Dang’s Video.

New York Chinese is a licensee of International Audio--

Visual Corporation ("iAVC"), a California corporation that is the

exclusive authorized distributor in the United States and Canada

of Mandarin language television programs ("the Programs")

produced by three Taiwanese television companies. The Pro-

grams are delivered to IAVC in Taiwan and sent to IAVC’s

California headquarters where they are edited and copied for

distribution in North America with IAVC’s copyright notice.

Copies of the edited version of each Program have been regis-

tered with the United States Copyright Office.

On April 20, 1988, IAVC granted plaintiff an exclusive

2 Queens Video has failed to defend the damages phase of this action.

A49

license in New York and New Jersey to distribute and rent

videotapes of the Programs to the general public or to selected

sub-licensee retail outlets. A copy of the License Agreement is

annexed to the Amended Complaint as Exhibit C and was

admitted at trial as Plaintiff's Exhibit ("PX") 5. By written

assignment executed contemporaneously with the License

Agreement and recorded in the United States Copyright Office on

or about June 10, 1988, IAVC assigned to New York Chinese:

(i) the right, title, and interest in and to the copyrights in New

York and New Jersey of programs created on or after March 1,

1988, and the right to commence and maintain actions for

infringement of the copyrights in such programs; (ii) the right to

commence and maintain actions for infringement of programs

created on or before February 29, 1988; and (iii) all proceeds

from judgments obtained with respect to any infringement of the

copyrights in New York and New Jersey. A copy of the Assign-

ment is annexed to the Amended Complaint as Exhibit B; see

also License Agreement 4 10. New York Chinese and IAVC

subsequently placed numerous advertisements in Chinese

language newspapers and on Chinese language radio stations

identifying New York Chinese as the only authorized distributor

of the Programs in New York and New Jersey.

On or about May 3, 1988, plaintiff determined that defen-

dants UE, Flushing Star, Chan’s Video, Gong Pictures, and

Queens Video (none of which is an authorized sub-licensee of

New York Chinese) were renting videotapes of the Programs to

the public. It was ultimately discovered that the videotapes of

the Programs distributed by defendants had been copied by a

“source” in Taiwan directly off the Taiwanese airwaves (deleting

commercials), and shipped to Dang’s in the United States in

boxes marked “gift";> Dang’s in turn copied and supplied the

tapes to UE and to the other defendants for distribution to the

public. UE, Dang’s, Po Yeun and Queens Video admitted

importing, copying and/or distributing copies of the Programs

> One of the boxes in which Dang’s received tapes from Taiwan was

submitted at the damages trial as PX 11.

ASO

with knowledge of plaintiff's claim to ownership of the copy-

right,‘ and the other defendants acknowledged distributing the

Dang’s/UE tapes. Defendants, however, challenged plaintiff's

claim of copyright infringement on several legal grounds, each

of which was rejected in my March 8, 1989 Opinion and Order.

THE APPLICABLE LAW

The Copyright Act of 1976 entitles a copyright owner to

choose between statutory damages, as provided under 17 U.S.C.

§ 504(c), or the “actual damages suffered by him or her as a

result of the infringement, and any profits of the infringer that

are attributable to the infringement and are not taken into account

in computing the actual damages." 17 U.S.C. § 504(b).

The legislative history of the Act explains that section 504(b)

recognizes the different purposes served by awards of

damages and profits. Damages are awarded to compensate

the copyright owner for losses from the infringement, and

profits are awarded to prevent the infringer from unfairly

benefiting from a wrongful act. Where the defendant’s

profits are nothing more than a measure of the damages

suffered by the copyright owner, it would be inappropriate

to award damages and profits cumulatively, since in effect

they amount to the same thing. However, in cases where

the copyright owner has suffered damages not reflected in

the infringer’s profits, or where there have been profits

attributable to the copyrighted work but not used as a

measure of damages, subsection (b) authorizes the award of

doth.

H.R. No. 1476, 94th Cong., 2d Sess. 161, reprinted in 1976

U.S. Code & Admin. News 5659, 5777 ("House Report").

* UE had attempted to negotiate an agreement with IAVC to be the

exclusive distributor for the IAVC tapes. Only after the negotiations failed

did UE discuss the prospect of getting the tapes directly from a source in

Taiwan. Deposition of UE President Jack Ho (PX 12) at 34-35, 52.

AS1

Actual Damages and Infringer’s Profits

In general, the copyright owner’s actual damages are equal

to the profits he would have accrued but for the defendant’s

infringement 3 M. Nimmer, Nimmer on Copyright § 14.02[A] at

14-7 to 14-8 (1990) ("Nimmer"); see Lauratex Textile Corp. v.

Allton Knitting Mills, Inc., 519 F. Supp. 730, 733 (S.D.N.Y.

1981). The court’s inquiry on the issue of actual damages

focuses on "what sales probably would have been made without

the infringement." Stevens Linen Assocs., Inc. v. Mastercraft

Corp., 656 F.2d 11, 15 (2d Cir. 1981); see also Fitzgerald

Publishing Co. v. Baylor Publishing Co., 807 F.2d 1110, 1118

(2d Cir. 1986) ("the primary measure of recovery is the extent

to which the market value of the copyrighted work at the time of

the infringement has been injured or destroyed by the infringe-

ment"). To make this determination, the court must “necessarily

engage in some degree of speculation." Stevens Linen, 656 F.2d

at 14. For instance, where there is a disparity in price between

the infringed and the infringing products, the court may assume

that the copyright owner would not have sold the same amount

of goods as was sold by the infringer. Jd. 14-15; Lauratex, 519

F. Supp. at 733. Further, the fact that the infringer made no

profit does not preclude the copyright owner from recovering

actual damages. Fitzgerald Publishing, 807 F.2d at 1118.

Although § 504(b) allows the recovery of actual damages

and the infringer’s profits, it expressly bars double counting of

these amounts. Abeshouse v. Ultragraphics, Inc. , 754 F.2d 467,

469-70 (2d Cir. 1985). Thus, to the extent that the copyright

owner’s lost profits are a component of the actual damages, the

court must deduct them from the infringer’s profits. 3 Nimmer

§ 14.01[A] at 14-5.

To allow the court to compute the infringer’s profits, the

revenues; the infringer then has the burden of proving deductible

expenses. 17 U.S.C. § 504(b); see Sygma Photo News, Inc. v.

High Soc’y Magazine, Inc., 778 F.2d 89, 91 (2d Cir. 1985);

Abeshouse, 754 F.2d at 470. The infringer may deduct only

AS2

those expenses that he can show relate specifically to the

infringing work. 3 Nimmer § 14.03{B] at 14-18. For example,

overhead that is not directly attributable to the production of the

infringing goods may not be subtracted from the infringer’s

profits. Gaste v. Kaiserman, 863 F.2d 1061, 1071 (2d Cir.

1988); Taylor v. Meirick, 712 F.2d 1112, 1121 (7th Cir. 1983).

Nor may the infringer deduct expenses incurred to conceal the

infringement. Sygma, 778 F.2d at 93. Moreover, "[w]hen a

defendant infringer’s own failure to keep records results in

uncertainty, all doubt must be resolved in favor of the plaintiff."

Gaste, 863 F.2d at 1070-71; see Sygma, 778 F.2d at 95 (court

should err on the side of guaranteeing plaintiff full recovery).

Statutory Damages

The copyright owner may elect to recover statutory damages

"at any time during the trial before the court has rendered its

final judgment." House Report at 162; see 17 U.S.C. §

504(c)(1); Glazier v. First Media Corp. , 532 F. Supp. 63, 67-68

(D. Del. 1982) (before entry of judgment, plaintiff was required

to choose either verdict of jury as to actual damages and profits

-- a legal remedy -- or court’s award of statutory damages -- an

equitable remedy). The provision for statutory damages serves

a dual purpose -- to compensate copyright owners and to deter

potential infringers. Fitzgerald Publishing, 807 F.2d at 1117;

Lauratex, 519 F. Supp. at 733. The election of statutory

damages precludes not only the recovery of actual damages, but

also of the infringer’s profits. 3 Nimmer § 14.01 [B] at 14-6.

Under § 504(c) (1), the court must award from $250 to

$10,000, “as the court considers just," for each work infringed.

The House Report explains: "A single infringer of a single work

is liable for a single amount between $250 and $10,000, no

matter how many acts of infringement are involved in the action

* * * Where the suit involves infringement of more than one

separate and independent work, minimum statutory damages for

each work must be awarded." House Report at 162. Under §

504(c)(2), the court has discretion to increase the award to

$50,000 where it finds that the infringement was committed

A5S3

"willfully"; conversely, it may reduce the award to $100 for an

infringement committed innocently.* For purposes of enhancing

Statutory damages, a defendant has acted willfully within the

meaning of § 504(c) (2) when he has knowledge that his actions

constituted infringement. Fitzgerald Publishing, 807 F.2d at

1115; 3 Nimmer § 14.04[B][3] at 14-40.3 to 14-40.4. The court

may infer such knowledge. See Fallaci v. New Gazette Literary

Corp., 568 F. Supp. 1172, 1173 (S.D.N.Y. 1983); Lauratex,

519 F. Supp. at 733.

In general, statutory damages are appropriate where the

measure of actual damages is difficult to prove. Lauratex, 519

F. Supp at 732. Statutory damages serve to compensate copy-

right owners and to provide a deterrent for potential infringers.

Lottie Joplin Thomas Trust v. Crown Publishers, Inc. , 592 F.2d

651, 657 (2d Cir. 1978). Indeed, “courts have repeatedly

emphasized that defendants must not be able to sneer in the face

of copyright owners and copyright laws. Rather defendants must

‘be put on notice that it costs less to obey the copyright laws than

to violate them.’" Jnternationai Korwin Corp. v. Kowalczyk, 665

F. Supp. 652, 659 (N.D. Ill. 1987) (quoting Music City Music

v. Alfa Foods, Lid., 616 F. Supp. 1001, 1003 (E.D. Va. 1985)),

aff'd, 855 F.2d 375 (7th Cir. 1988).

Within these broad guidelines, among the factors the court

may consider in determining statutory damages are the expenses

saved and the profits reaped by the infringer, the revenues lost

by the plaintiff, the value of the copyright, whether the defendant

has supplied adequate records to assess the value of the infring-

ing material produced, and the deterrent effect of the award on

the defendant and other potential infringers. Fitzgerald Publish-

ing, 807 F.2d at 1117.

* For infringements committed after March 1, 1989, the effective date

of the Berne Convention, all of the amounts provided in § 504 are doubled.

See 17 U.S.C. § 504(c); 3 Nimmer § 14.04[B][1][b] at 14-39 to 14-40.

This revision to the statute does not apply in the instant case because all

infringements occurred prior to June 20, 1988.

A54

THE EVIDENCE PERTAINING TO DAMAGES

Based upon the Dang’s “Masters Received Record,"®

Dang’s invoices to the UE and non-UE retail stores,’ and the

Flushing Star and UE Video program lists,* plaintiff alleges that

defendants imported and/or distributed illegal copies of 130

programs for which plaintiff has submitted certificates of

registration.” The titles of the programs infringed by each

defendant are listed in Plaintiff's Summary Chart A (submitted

with Plaintiff’s Post-Trial Memorandum of Law ("Pl. Memoran-

dum")). Plaintiff seeks to recover the lost profits of IAVC and

New York Chinese as well as defendants’ profits on the

infringing tapes from January 1987 through June 20, 1988."°

Defendants contend that neither IAVC nor New York

Chinese suffered any actual lost sales because the defendants

would not have been willing to pay the fees charged by IAVC or

New York Chinese. Defendants also assert that they themselves

made no profits from the sale and/or rental of the infringing

tapes because there was an extremely limited market for Manda-

rin language tapes during the period at issue. See Defendants’

Post-Trial Brief on Damages ("Def. Br.") 3, 22. Defendants

contend that they distributed the infringing tapes at a substantial

loss as part of a “promotional program" and that they derived

most of their revenue from sales and rentals of Cantonese

language tapes, for which there existed a much larger market.

Def. Br. at 20-21.

* Defendants’ Exhibit ("DX") B.

™PX 1.

* PX 2, 3, respectively.

* PX 4 (certificates of registration).

Order, which was extended by consent until the entry of a permanent

injunction on March 8, 1989.

A55

Plaintiff’s Lost Profits

Plaintiff seeks recovery of lost profits for two distinct

infringing periods: (1) from January 1987 until April 20, 1988,

during which time IAVC was the exclusive distributor of the

tapes; and (2) from April 20, 1988 to June 20, 1988, during

which time New York Chinese held the right as IAVC’s assignee

to distribute the tapes in New York and New Jersey. Plaintiff

contends that all of the sales made by Dang’s to the UE and

non-UE retail stores in the New York area" between January

1987 and June 20, 1988, were sales that would otherwise have

been made by IAVC or New York Chinese.

The parties have stipulated that between January 1987 and

April 20, 1988, Dang’s copied and distributed 50,162 infringing

tapes, and that 47,527 of these tapes are protected by copyright

registrations introduced at trial by plaintiff; between April 20 and

June 20, 1988, Dang’s copied and distributed 10,929 infringing

tapes, of which 10,272 are protected by copyright registrations

introduced at trial. Letter to the Court dated September 14, 1990

("September 14 Letter"), at 1.

With respect to the number of tapes distributed by Dang’s to

the UE retail stores, the parties have stipulated that between

January 1987 and April 20, 1988, Dang’s distributed 47,721

infringing tapes to the UE retail stores, and that 45,274 of these

tapes are protected by copyright registrations introduced at the

damages trial; between April 20 and June 20, 1988, Dang’s

distributed 9,918 infringing tapes to the UE retail stores, of

which 9,313 are protected by copyright registrations introduced

at the damages trial. September 14 Letter at 1-2.

With respect to the number of tapes distributed by Dang’s to

the non-UE defendants, the parties have stipulated as follows:

"' These include sales to defendants UE, Gong Pictures, Flushing Star,

Queens Video, and Chan’s Video, as well as non-defendants Tasi’s

Oriental Import, Inc., Jing Jing Video, Inc., Tempo Video, Inc., Queens

Public Library, Oriental Marketing, Inc., 8th Avenue Store Corp., and

Review Electronics. See PX 1.

AS6

Tapes Tapes with

Distributed IAVC registration

_By Dang’s_ Introduced at Trial

Flushing Star 1,117 (927/190)? 1,039 (863/176)

Queens Video 909 (758/151) 849 (708/141)

Chan’s Video 77 (50/27) 77 (50/27)

Gong Pictures 60 (0/60) 55 (0/55)

2,163 (1,735/428) 2,020 (1,621/399)

September 14 Letter at 2. Dang’s distributed to all non-UE retail

stores (defendants as well as non-defendants) a total of 3,212

(2,253/959) tapes for which copyright registrations were

introduced at the damages trial. See September 14 Letter (total

distributed by Dang’s minus total purchased by UE retail stores).

In order to establish the amount of its lost profits on sales by

Dang’s, plaintiff offered the testimony of Eva Young, the

treasurer of IAVC. She testified that prior to April 20, 1988,

[AVC distributed Taiwan TV tapes in New York and New Jersey

by a nonexclusive license agreement,'® charging $17 for each

tape."* Tr. 38-39. Customers with a lease agreement with

IAVC for one year who returned old tapes for redubbing

received a $5.00 credit against the $17.00 charge. Tr. 40.

_ Plaintiff offered no documentary evidence of IAVC’s

expenses. Tr. 43, 49. Young testified, however, that based

upon her analysis of IAVC’s records, IAVC incurred the

following costs for each $17.00 tape: blank tape ($4.00); labeling

and shipping supplies ($.02);'* customer returns and defects

($.25). Tr. 40, 47-48. She therefore calculated IAVC’s profit

The numbers in parentheses represent sales prior to/after April 20,

1988.

» A copy of the standard licensing agreement used by IAVC prior to

April 20, 1988, was received at the damages trial as PX 7.

* IAVC’s sales reports for January 1986 through May 1988 were

received at the damages trial as PX 10.

'S The shipping costs are paid by IAVC’s customers. Tr. 43-44.

AS7

as $12.73 per tape. Tr. 48, 50. Young testified that approxi-

mately 18% of IAVC’s tapes were subject to the $5 credit

arrangement, for which IAVC incurred only packaging and

redubbing costs of $.42, leaving a profit of $11.58. Tr. 40-41,

50-53. Combining both types of pricing, Young computed

IAVC’s average profit as approximately $12.50 per tape. Tr.

40-41, 50-51. On cross-examination Young described a third

pricing option in which IAVC charged $17 per tape for the first

three tapes and $10 per tape for the fourth and subsequent tapes.

Young testified that the expenses on a $10 tape were the same a3

those for a $17 tape, and that less than 10% of IAVC’s tapes

were distributed at the $10 rate. Tr. 53-54. Counsel for

plaintiff acknowledged that [AVC realized a lower profit on the

$10 tapes, which would reduce the $12.50 average profit per

tape, and agreed for purposes of this proceeding to use an

average profit figure of only $11.80." Pl. Memorandum at

6-8.

Young did not include in her calculations the cost of

royalties paid by IAVC to Taiwan TV (which she testified

amount to only a few cents per tape), because no additional

royalty payments would have been required for the sales

allegedly diverted by Dang’s. Tr. 41-42; 49-50. Similarly,

Young did not include any labor or overhead expenses, because

no additional labor or overhead expenses would have been

incurred to generate the sales made by Dang’s. See Tr. 44.!”

Multiplying the total number of tapes distributed by Dang’s

between January 1987 and April 20, 1988, for which plaintiff has

submitted copyright registrations (47,527) by an average per tape

profit of $11.80, results in total lost profits of $560,818.60.

New York Chinese president Dick Ying testified that since

"* This calculation assumes a profit of $12.73 on 72% of the tapes

sold, $11.58 on 18% of the tapes sold and $5.73 on 10% of the tapes sold.

'’ Young testified that IAVC’s capacity is about 28,000 tapes per

month and that there is additional overhead only if the company produces

more than that number of tapes. Tr. 44.

AS8

April 20, 1988, New York Chinese has distributed the Taiwan

TV program tapes through sublicensees, who paid New York

Chinese $5,000 per month in 1988-1989 and $6,000 per month

in 1989-1990. Tr. 9-10."* Plaintiff contends that its lost profits

for the period April 20, 1988 to June 20, 1988, are $10,000

($5,000 per month) for each of the retail outlets supplied by

Dang’s, i.e., the seven (7) UE stores and the four (4) defendant

non-UE stores, which totals $110,000. Subsequent to the

damages trial, however, plaintiff's counsel acknowledged that

this figure actually represents plaintiff's gross receipts, not its

profits, plaintiff's counsel also acknowledged that plaintiff

offered no evidence of its expenses during this period.

Also relevant on the issue of plaintiff's lost profits are the

IAVC sales records for January 1986 through April 1988. PX

10. These records show that IAVC sold approximately 428

fewer tapes per month in the New York area between January

1987 and April 1988 than it had in the twelve months preceding

defendants’ commencement of infringement.'® At an average

per-tape profit of $11.80, this represents lost profits totalling

$80,806.40 (428 X 16 months X $11.80) for January 1987

through April 1988 and projected lost profits of $10,100.80 (428

X 2 months X $11.80) for May and June 1988.”

Defendants’ Profits

Dang’s invoiced the UE retail stores $6.00 per tape, and

* Plaintiff's sublicense agreements with 16 stores for 1988-1989 and

1989 to the date of the damages trial were received into evidence as PX 6.

'* The drop in monthly sales is calculated by dividing the total number

of tapes sold in 1986 by twelve (20,860/12 = 1738) and subtracting the

quotient of the total number of tapes sold in.1987 and through April 1988

divided by sixteen (the number of months of infringing activity) (20,970/16

= 1310) (1738 - 1310 = 428). During a post-hearing conference, counsel

for plaintiff and defendants agreed that the court’s calculations from the

IAVC sales records are substantially correct.

* IAVC made no actual sales in New York after its agreement with

New York Chinese on April 20, 1988.

AS9

invoiced all other retailers an average of $12.75 per tape. PX 1;

Tr. 132.71 Each Dang’s tape contained four episodes in con-

trast to the two episodes offered on the IAVC tapes (usually sold

for $17 or $12). Tr. 16-17, 81. Apart from the Dang’s invoices

and records of payments to Dang’s by the non-UE retail stores

(PX 9),”* the only documentary evidence of defendants’ receipts

and expenses consists of two (2) consolidated financial statements

for Dang’s and the UE retail stores, entitled "UE ENTERPRIS-

ES, INC. General Ledger INCOME STATEMENT," for the

six-month period ending June 30, 1988 (PX 18) and the

twelve-month period ending December 31, 1988 (PX 19). These

Statements do not provide a separate accounting of income and

expenses for Dang’s and the UE retail Stores; nor do they

provide a separate accounting of income and expenses attribut-

able to the distribution of Mandarin and Cantonese tapes.

Dang’s

According to UE’s President Jack Ho, Dang’s incurred costs

totalling $6.35 for each infringing tape: $3.50 (blank tape); $.25

(video sleeve); $.15 (spine label); $.05 (wareing label); $2.00

(production and duplication); $.40 (fee to source) (corroborated

by PX 17 showing total payments to “Aips", a Taiwan source,

** Approximately 25% of the infringing tapes were sold to Queens

Video for $12.00; with a few exceptions, the remaining tapes were sold for

$13.00. See PX 1.

= The parties have stipulated that Dang’s received $32,794.15 from the

sale of infringing tapes to all non-UE stores (defendants as well as

non-defendants) from January 1987 through April 20, 1988, and $7,086.85

from sales between April 20 and June 20, 1988. September 14 Letter at

2; PX 9. There are no records reflecting payments to Dang’s by the UE

retail stores.

” UE’s accountant testified at trial that the statements pertained to "all"

UE tape rentals, but testified at her deposition that the income and

expenses reflected on the statements were attributable solely to UE’s

distribution of Cantonese tapes. Tr. 169-73.

A60

of $22,553).% Tr. 85-86. Ho testified that these costs were

paid by UE even though they were Dang’s expenses. Tr. 104.

These costs result in an average profit of $6.40 on tapes sold to

the non-UE stores, and a $.35 loss on tapes sold to UE. Defen-

dants concede however, that the UE retail stores recycled tapes

(costing $3.50). Tr. 108-10. Dang’s profit was therefore

approximately $3.15 per tape on sales to the UE retail stores.

Based upon Ho’s testimony, Dang’s realized profits for the

period January 1, 1987 through April 20, 1988, of $142,613.10

($3.15 x 45,274) on sales to the UE retail stores, and $14,419.20

($6.40 x 2,253) on sales to the non-UE retail stores (defendants

and non-defendants) (totalling $157,032.30). Between April 20

and June 20, 1988, Dang’s realized profits of $29,335.95 ($3.15

x 9,313) on sales to the UE retail stores and $6,137.60 ($6.40 x

959) on sales to the non-UE retail stores (totalling $35,473.55).

Retail Defendants

The only documentary evidence of record pertaining

specifically to the retail defendants are the invoices issued by

Dang’s and Dang’s records of payments received from the

non-UE defendants. See PX 1 and PX 9.

In order to estimate the gross receipts of the retail defen-

dants, the parties offered testimony and some documentary

evidence regarding the rental charge for each infringing tape and

~ the “opinion” testimony of plaintiff's president, Dick Ying, and

UE’s president, Jack “Ho, regarding the number of times a

Taiwan TV tape was usually rented. See Tr. 4. The parties

agreed that the court would then determine the defendants’ gross

* Other than a handwritten record of payments to Alps (PX 17) and

the UE Income Statements (PX 18, 19), which do not distinguish between

UE and Dang’s, defendants produced no documentary evidence of Dang’s

expenses. See Tr. 106-13, Tr. 174-80.

5 The parties have agreed that Ho’s testimony regarding the rental fee

and average number of times a tape is rented also applies to the non-UE

defendants.

A6l

receipts by deciding whose testimony was most credible and then

multiplying the rental charge by the average number of times

each tape was rented.

As to the price charged to defendants’ retail customers, the

parties stipulated that, on May 3, 1988, an infringing tape was

rented to plaintiff's investigator as a "nonmember" at each of the

seven retail stores operated by UE, for $3.00 plus a $50 deposit.

Tr. 62-63; PX 8 (receipts given to plaintiff’s investigator). It is

undisputed, however, that almost all of the infringing tapes (each

containing four episodes) were rented to "members" for $2.00.

Tr. 102-03; see also Tr. 98-99 (deposition testimony).

Ho testified that each infringing tape was rented “about

twice." Tr. 85. Ho’s testimony therefore suggests that the UE

retail stores lost $2.00 per tape ($6.00 less $4.00 for two

rentals), and that the non-UE defendants lost $8.00 or $9.00 per

tape ($12.00 or $13.00 less $4.00 for two rentals).

Ying testified that IAVC tapes (containing twe episodes)

were rented to members at a price of $100 for 100 tapes ($1.00

per tape). Tr. 10, 16-17. Ying testified that each IAVC Manda-

rin TV tape has a "life" of from 3 to 5 months and is rented an

average of 15 times during that period. Tr. 13, 15. Ying’s

testimony suggests that prior to April 20, 1988, IAVC licensees

lost $2.00 on each $17.00 tape and realized a $3.00 profit on

each $12.00 tape. See Tr. 15-17.

_ DISCUSSION

I. Identification of Works Infringed

In order to establish which infringing tapes were imported

and distributed by Dang’s or rented by the retail defendants,

plaintiff submitted Dang’s invoices (PX 1), and program lists

distributed by the UE retail stores (PX 3) and by Flushing Star

(PX 2) (all by program title and in Chinese). See also DX B

(Dang’s "Masters Received Record"). A total of 130 program

titles for which plaintiff has submitted copyright registrations

appear on these documents. See Plaintiff's Summary Chart B.

A62

Defendants argue that plaintiff has failed to prove that any of the

tapes distributed by defendants are actually copies of the

registered works, asserting that “mere comparison or matching

of titles is not sufficient to support a finding of copyright

infringement." Def. Br. at 5-6, 11 n.6; Defendants’ Reply to

Plaintiff's Post-Trial Memorandum of Law ("Def. Reply") at 16.

Accordingly, they argue that the court may not award any

damages, either actual or statutory. I find that defendants are

, precluded from raising this issue by a stipulation offered during

the liability phase of this action, and that their argument is in any

event meritless.

In order to spare the court and counsel the burden of a

program-by-program comparison of the registered and allegedly

infringing tapes, all parties agreed during the liability trial to

submit a representative sample of an IAVC tape and a tape of the

same title distributed by defendants, and stipulated that the

relationship between the other allegedly infringing tapes and the

TAVC tapes of the same title was essentially the same. Plaintiff

was entitled to rely upon this agreement for purposes of estab-

lishing its damages -- especially since defendants failed to

identify this issue in their proposed findings of fact and conclu-

sions of law with respect to damages, or otherwise advise

plaintiff prior to or during the damages trial that they intended to

raise this issue. In any event, based upon all of the evidence

presented to the court during both the liability and damages

phases of this action regarding the manner in which defendants

copied and distributed the Taiwan TV programs, I find that

plaintiff's submission of defendants’ invoices and program lists

containing titles identical to the registered programs establishes

by a preponderance of the evidence that defendants in fact

distributed copies of the registered works of the same title.

II. Plaintiff's Lost Profits

Plaintiff contends that all of the sales madc by Dang’s to the

UE and non-UE retail stores in the New York area between

January 1987 and June 20, 1988, were sales that would otherwise

have been made by IAVC or New York Chinese. See supra

A63

pages 11 to 15. This contention ignores the substantial price

disparity between the IAVC and Dang’s tapes. See Stevens

Linen, 656 F.2d at 14. The IAVC tapes, containing two epi-

sodes, were sold to retailers for either $17 or $12 -- a per-

episode price of $8.50 and $6.00, respectively. By contrast, the

Dang’s tapes, containing four episodes, were sold to non-UE

retail stores at an average per-episode price of $3.19 ($12.75/4),

and to the UE retail stores (constituting nearly 95% of Dang’s

sales) at a per-episode price of $1.50 ($6.00/4). Given this

disparity, it is inconceivable that all of the sales made by Dang’s

would, but for the defendants’ infringing activity, have been

made by IAVC between January 1, 1987, and April 20, 1988.

For substantially the same reason, I cannot accept plaintiff's

contention that each of the retail stores supplied by Dang’s would

have been willing or financially able to pay a $5,000 per-month

license fee to New York Chinese in May and June 1988.”

On the other hand, defendants’ assertion that plaintiff has

failed to offer any evidence of lost sales (Def. Br. at 22-26; Det.

Reply at 20-21) must also be rejected. The IAVC sales records

reflect a substantial drop in sales following the commencement

of infringement -- a period in which sales could in fact be

expected to increase in what defendants acknowledge was ar

expanding mar-ket for Mandarin tapes. See Tr. 164-65. Ata

minimum, this drop in sales can reasonably be attributed to

defendants’ infringing activity. Accordingly, I find that plaintiff

has demonstrated actual lost sales as a result of defendants’

infringement of its copyrights of at least 428 tapes per month for

the period January 1987 through June 1988 (7,704 tapes). See

supra page 16. I fur-ther find, based upon the credible testimony

of IAVC’s treasurer, Eva Young, see supra pages 13-14, that

IAVC would have realized an average per-tape profit of $11.80

on these lost sales, resulting in lost profits totalling $90,907.20.

See supra page 16. .

* The IAVC sales records reflect that Queens Video and Gong’s

Pictures never bought more than $2,550 worth of video from IAVC in any

month.

A64

There is no doubt that plaintiff suffered greater lost profits

as a result of defendants’ infringing activity than these calcula-

tions reflect, especially since defendants concede there was a

growing market for Mandarin tapes. Nevertheless, in the absence

of some additional direct evidence of plaintiff’s lost sales, I find

that any larger assessment of lost profits would be unduly

speculative.

III. Defendants’ Profits

As set forth above, supra pages 17-18, I find that based on

Jack Ho’s own testimony, Dang’s realized profits of at least

$192,505.85 during the infringing period. Plaintiff is entitied to

recover defendants’ profits, to the extent they are not taken into

account in computing piaintiff’s lost profits. See 17 U.S.C. §

504(b). I therefore find that plaintiff may recover Dang’s profits

in the amount of $101,598.65.

The evidence of record with respect to the receipts and ex-

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.