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October 22, 1986

WORLDS OF WONDER, INC., a California Corporation, Plaintiff,
Veritel Learning Systems, Inc., and Christopher J. Daly, Defendants

The opinion of the court was delivered by: FISH

 This case is before the court on the motion of plaintiff Worlds of Wonder, Inc. ("W.O.W.") for a preliminary injunction against defendants Veritel Learning Systems, Inc. ("Veritel") and Christopher J. Daly ("Daly"). Upon review of the motion, memoranda, affidavits and exhibits, the court is of the opinion that plaintiff's motion is meritorious. Consequently, for the reasons stated below, plaintiff's motion is granted. *fn1"

 I. Nature of the Case

 Plaintiff W.O.W. brought suit against Veritel for copyright infringement, trademark infringement, and unfair competition in connection with Veritel's production of cassette tapes for a toy bear named Teddy Ruxpin. Teddy Ruxpin is the principal character in "The World of Teddy Ruxpin" product line marketed by W.O.W. When a specially designed tape is inserted into the back of Teddy Ruxpin, his eyes, nose and mouth move in synchronization with his voice as he sings and tells stories. The tapes used to achieve this life-like animation have two tracks: (1) an audio track for the voice and other sounds and (2) another track programmed with digital information transmitted to the electromechanical motors which move Teddy Ruxpin's eyes, nose and mouth.

 "The World of Teddy Ruxpin" line includes Grubby, Teddy's best friend. Grubby can be connected to Teddy Ruxpin by a cable, and when a W.O.W. tape is played in Teddy Ruxpin, both characters are animated in synchronization with their voices. "The World of Teddy Ruxpin" also includes other non-animated plush toys. W.O.W. and its licensor, Alchemy II ("Alchemy"), have developed 24 separate stories, each contained on a specially programmed tape. Six additional stories are now under development. Each story is designed to teach children lessons about friendship, love, integrity, and other aspects of life and growing up.

 By any measure, Teddy Ruxpin and related toys have been a spectacular commercial success. Since their introduction last year, more than 1.5 million Teddy Ruxpin units have been sold. In its first fiscal year, net sales on the entire "World of Teddy Ruxpin" product line exceeded $ 90 million. Teddy Ruxpin has consistently been ranked as one of the top ten toys in the country. W.O.W. has granted merchandise licenses to 25 companies for such products as lunch boxes, children's apparel, books, towels, and linens. The popularity of Teddy Ruxpin is further evidenced by the fact that he has starred in two network television specials and will be featured in a series of 65 half-hour television episodes.

 W.O.W. has obtained registered copyrights and trademarks for Teddy Ruxpin. A certificate of copyright registration, registration number PA 288-501, has been issued by the Register of Copyrights for the Teddy Ruxpin audiovisual work. Certificate of copyright registration number VA 171-809 covers Teddy Ruxpin as a plush toy. "Teddy Ruxpin" and "Animagic" are federally registered trademarks (registration numbers 1,344,800 and 1,359,397, respectively). W.O.W. is the exclusive licensee under all Teddy Ruxpin copyrights and trademarks. A confirmatory license agreement has been filed and recorded with the Copyright Office reflecting W.O.W.'s status as the exclusive licensee.

 Veritel manufactures and offers for sale specially designed cassette tapes which animate Teddy Ruxpin. W.O.W. alleges that the audiovisual work created when a Veritel tape is used in Teddy Ruxpin is substantially similar to the Teddy Ruxpin audiovisual work. As a result, W.O.W. charges, the Veritel tapes alter Teddy Ruxpin's character by taking him out of the "World of Teddy Ruxpin." W.O.W. further maintains that the animation command track of the Veritel tapes contains a large quantity of high frequency distortion, which can cause a loss of synchronization or overdriving of the electromechanical motors. According to W.O.W., this phenomenon produces excessive wear on the motors, which in turn can lead to shortened battery life and premature product failure. W.O.W. is concerned that consumers are likely to blame problems arising from the use of Veritel tapes on W.O.W., thus irreparably damaging the commercial value of Teddy Ruxpin.

 To prevent such irreparable damage, W.O.W. seeks to enjoin Veritel and Daly from manufacturing, selling, offering for sale, or otherwise distributing cassette tapes that, it contends, infringe the copyrights and trademarks on Teddy Ruxpin and injure its reputation and goodwill.

 II. Analysis

 A. The Legal Standard

 To obtain a preliminary injunction, it is well established that a movant must show: (1) a substantial likelihood of success on the merits; (2) a substantial threat that irreparable injury will result if the injunction is not granted; (3) the threatened injury outweighs the threatened harm to the non-movant; and (4) granting the injunction is not adverse to the public interest. Boyd v. Roland, 789 F.2d 347, 349 (5th Cir. 1986); Mississippi Power & Light Co. v. United Gas Pipe Line Co., 760 F.2d 618, 621 (5th Cir. 1985); Vision Center v. Opticks, Inc., 596 F.2d 111, 114 (5th Cir. 1979), cert. denied, 444 U.S. 1016, 62 L. Ed. 2d 646, 100 S. Ct. 668 (1980); Canal Authority of State of Florida v. Callaway, 489 F.2d 567, 572 (5th Cir. 1974).

 The decision to grant or deny a preliminary injunction is left to the sound discretion of the district court. A preliminary injunction is a extraordinary remedy which should only be granted if the movant has carried his burden of persuasion on all four of the factors described above. Mississippi Power & Light, above, 760 F.2d at 621. This court concludes that W.O.W. has satisfied its burden on each of the four factors. *fn2"

 B. Substantial Likelihood of Success on the Merits

 Holders of copyrights possess the following exclusive rights:

(1) to reproduce the copyrighted work in copies . . .;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies . . . of the copyrighted work to the public by sale . . .;
(4) in the case of literary, musical, dramatic, and choreographic works, pantomines, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; and
(5) in the case of literary, musical, dramatic, and choreographic works, pantomines, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other ...

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