On June 24, 1986, plaintiff, Worlds of Wonder, Inc. ("W.O.W."), filed the above-captioned case against defendants, Vector Intercontinental, Inc. ("Vector") and New Age Communication Center, Inc. d/b/a Suma Recording Studio ("Suma"), alleging violations of the Copyright Laws, 17 U.S.C. § 101 et seq.; the Lanham Trademark Act, 15 U.S.C. § 1115 et seq. and state laws against unfair business practices. Jurisdiction is invoked pursuant to 28 U.S.C. §§ 1332,
W.O.W. is a California corporation that manufactures, markets and distributes Teddy Ruxpin, an animated toy bear, under an exclusive licensing agreement with Alchemy II, a design and development company which created Teddy Ruxpin. (Larsen, Tr. 62). Teddy Ruxpin is animated by electromechanical motors near its eyes, nose and mouth, a modified cassette player, and programmed cassette tapes. The cassette tapes contain two tracks similar to stereo tapes. The first track, the audio track, contains songs and stories; the second track, the command track, contains digital information that activates the eyes, nose and mouth. (Larsen, 67). W.O.W.'s tapes are not intended for use in a stereo. The cassette player transmits the recordings from the audio track to a speaker in Teddy Ruxpin and those from the command track to the motors. The player contains a "kill switch" that blocks the transmission of signals to the motors if a standard stereo tape is inserted.
The audio track and the command track are synchronized so that the eyes, nose and mouth of Teddy Ruxpin move in a life-like fashion as it plays songs and stories. W.O.W. and Alchemy II cooperated to develop a fantasy, the World of Teddy Ruxpin, by creating adventure stories with Teddy Ruxpin as the central of about twelve characters. The stories teach children values such as love, honesty, loyalty and friendship. (Goldberg, Tr.). Among other characters are Grubby, Teddy's best friend, and Fobs. Grubby, a plush toy, is animated by a cord plugged into Teddy Ruxpin. (Goldberg, Tr. 10). Fobs are hand puppets children use to interact with characters in the stories. (Goldberg, Tr. 11). In the adventures, Teddy and his friends travel in an "airship" through the land of Grundo. (Goldberg, Tr. 12). As part of the World of Teddy Ruxpin, W.O.W. has designed a map of Grundo, "poseable miniatures", a model "airship" and Teddy Ruxpin clothing. (Goldberg, Tr. 12).
Teddy Ruxpin is a commercial success. Since Fall 1985, more than one and a half million Teddy Ruxpins have been sold. For the fiscal year ending March 31, 1986, W.O.W.'s net sales were Ninety-Three Million Dollars ($93,000,000.00), and the Toy Manufacturers Association ranked Teddy Ruxpin among the ten best selling toys. (Goldberg Tr. 19, 21).
Vector, a toy company, has manufactured cassette tapes which are intended to and do activate Teddy Ruxpin. (Singer, Tr. 165, 166, 218, 220). Like the W.O.W. tapes, the Vector tapes contain an audio track and a command track, but the stories on the Vector tapes are not set in the World of Teddy Ruxpin but rather are public domain fairy tales. Vector hired Suma to produce these tapes with audio and command tracks synchronized for use with Teddy Ruxpin and intends to distribute and sell them with notice that they will activate Teddy Ruxpin. (Bishop, Tr. 135, 136, Ex. C). When Vector conceived the idea to produce Teddy Ruxpin compatible tapes, Carey Singer, its president, knew of the toy's commercial success and admitted that he intended to capitalize on that success.
In a copyright infringement case the Court may issue a preliminary injunction if:
1) there is a substantial likelihood that the plaintiff will prevail on the merits of his claim,
2) the balance of hardships tips in favor of the plaintiff and,
3) it is in the public interest.
Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3rd Cir. 1983), cert. dismissed, 464 U.S. 1033, 104 S. Ct. 690, 79 L. Ed. 2d 158 (1984). Atari, Inc. v. North American Philips Consumer Electronics Corp., 672 F.2d 607 (7th Cir.), cert. denied, 459 U.S. 880, 103 S. Ct. 176, 74 L. Ed. 2d 145 (1982).
SUBSTANTIAL LIKELIHOOD OF SUCCESS
Copyright infringement is defined under Section 501 of Title 17 as follows:
(a) Anyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 118 . . . is an infringer of the copyright.
Section 106 of Title 17 provides in pertinent part:
The owner of copyright under this title has the exclusive rights to do and to authorize any of the following:
(1) to reproduce the copyrighted work in copies or ...