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The United States Court of Appeals for the Ninth Circuit joins what appears to be the majority and holds there is a rebuttable presumption that a wrongfully enjoined party is entitled to have the bond executed and recover provable damages up to the amount of the bond.
The Nintendo Entertainment System ("NES") was manufactured by Nintendo of America, Inc. Several years after Nintendo introduced the NES, Lewis Galoob Toys, Inc. announced its intention to begin selling the Game Genie, an electronic device allowing NES owners to change aspects of NES video games. One month after Galoob’s announcement, Nintendo obtained a preliminary injunction against the sale of Game Genie. Nintendo’s lawsuit and request for a preliminary injunction responded to an earlier lawsuit filed by Galoob in which Galoob sought a declaratory judgment that its Game Genie did not violate any of Nintendo's intellectual property rights. The district court required Nintendo to post a $ 100,000 bond as security for the injunction. This amount was later raised to $ 5 million and then to $ 15 million. Nintendo resisted these increases, but nevertheless posted bond in the increased amounts. At the copyright infringement trial, Galoob contended that the Game Genie was a fair use of Nintendo's copyrights under 17 U.S.C. § 107 and that the game did not create infringing derivative works. Galoob prevailed at trial and the district court vacated the injunction. The district court ordered the execution of the bond in favor of Galoob "in an amount to be determined by the Court." The court then held a “lost sales” hearing and a “profits hearing” to determine the number of Game Genie sales Galoob lost because of the injunction. The court determined that Galoob lost at least 1.6 million Game Genie sales, and suffered at least $ 15,138,048 in lost profits due to the injunction. The District Court consequently ordered that Galoob be awarded the entire bond amount posted by Nintendo. Nintendo challenged the decision.
Did the district court err in awarding to Galoob the entire bond amount posted by Nintendo?
The court affirmed the decision that awarded Galoob the entire bond amount posted by Nintendo, holding that Galoob was wrongfully enjoined when it turned out that Galoob had the right to do what it was enjoined from doing. The court concluded that the damage award was not punitive but compensatory. Every dollar awarded to Galoob compensated it for the injury it had suffered because of the injunction. The court stated that Galoob had proven by a preponderance of the evidence that it sustained actual injury as a result of the wrongful issuance of the preliminary injunction. The court held that there was no error in determining damages because the standard applied was explicitly named and Galoob met that burden. The court held the method of calculating the numbers was not erroneous.