Ningob Mizhihe I&E Co., LTD v. Does 1-200

Background

Ningbo Mizhihe I&E Co., Ltd. sued Does 1-200, Dreshow, 4Memorys, Deng Kai, and others. It alleged copyright infringement under federal copyright law and related state common-law claims. According to the opinion, Ningbo Mizhihe makes children’s apparel, bags, and luggage displaying copyrighted unicorn depictions, and alleged that the defendants created, marketed, and sold products containing the design.

On October 21, 2019, the clerk entered default against Deng Kai, Dreshow, and 4Memorys at Ningbo Mizhihe’s request. Those defendants moved to vacate, or set aside, the entry of default. Ningbo Mizhihe cross-moved for default judgment, which would have resolved the claims based on the defendants’ failure to respond.

Rule for Setting Aside Default

Under Federal Rule of Civil Procedure 55(c), a court may set aside an entry of default for “good cause.” The court considered three main factors: whether the default was willful, whether the defendants had a potentially valid defense, and whether setting aside the default would prejudice Ningbo Mizhihe. The court also considered the preference for resolving disputes on their merits rather than by default.

Willfulness

The defendants said the parties had reached a settlement in principle and had exchanged several drafts of a settlement agreement. The court concluded that the defendants had satisfactorily explained their delay and that the failure to respond resulted from carelessness, not an intentional effort to delay or obstruct the case. The court also noted that the defendants had filed an answer, although late.

Potentially Meritorious Defenses

The defendants argued that Ningbo Mizhihe’s copyrights were fraudulently obtained or invalid because the designs were derived from other unicorn designs that had been widely available online before Ningbo Mizhihe obtained its copyrights. They also argued that the designs were not sufficiently original. The defendants submitted images that they said showed other entities using similar unicorn designs.

The court did not decide whether these defenses would ultimately succeed. It held that the defendants had provided more than conclusory denials and had shown the basic elements of a potentially valid defense. The court stated that the strength of those defenses should be decided on the merits.

Prejudice

Ningbo Mizhihe argued that it would be harmed by continued infringement and by the attorney’s fees and costs it had already incurred. The court held that ongoing infringement could not establish prejudice at this stage because infringement was still an issue to be decided. The court also held that delay alone was not enough to show prejudice and that the fees and costs incurred because of the default did not justify denying the defendants an opportunity to litigate.

Ningbo Mizhihe also argued that the defendants had not fully complied with a preliminary injunction. The court said it could not determine from the briefing whether the defendants had violated that injunction and stated that it would consider an appropriate remedy if a violation were later found.

Ruling

Judge Alvin K. Hellerstein granted the defendants’ motion to vacate the entry of default and denied Ningbo Mizhihe’s cross-motion for default judgment. He rejected Ningbo Mizhihe’s request to strike the defendants’ late answer and granted the defendants permission to file and serve that answer. The parties were ordered to appear at a January 10, 2020 status conference to plan the litigation. The order did not decide whether the defendants infringed Ningbo Mizhihe’s copyrights or whether their asserted defenses would prevail.