the screen to move faster and drop more bombs on the player's ship. The district court held that the modifications of the copyrighted display fit "well within the definition of derivative works." Midway Mfg. Co., 547 F. Supp. at 1014.
In this case, the Veritel cassette inserted into Teddy Ruxpin creates a substantially similar audiovisual work which is altered in much the same as a Galaxian game is altered by a speed up kit. Thus, the modification of the copyrighted Teddy Ruxpin toy also falls within the definition of derivative works.
The court in Midway Mfg. Co. was also persuaded by the fact that the kit was designed solely to modify the Galaxian game. This court is convinced that the Veritel tapes were designed to be used solely with Teddy Ruxpin. Defendants have admitted that they conceived the idea of producing the tapes to capitalize on the success of Teddy Ruxpin. Arnstein Dep. Tr. 16-17; Emmick Dep. Tr. 22-23; Baer Dep. Tr. 35; Daly Dep. Tr. 106-107, 109. Robert Arnstein, who was responsible for Veritel's animation programming, had a Teddy Ruxpin in front of him while he programmed the Veritel tapes. Daly Dep. Tr. 112. Marc Emmick, the actor who provided the voice for the Veritel tapes, admitted listening to a Teddy Ruxpin tape. Emmick Dep. Tr. 21, 28; Daly Dep. Tr. 118. There is no evidence that the tapes may be used in any other animated toy. Although the tape may be played in a standard cassette player, the command track which controls Teddy Ruxpin's movements then becomes superfluous. Clearly, the Veritel tapes were designed exclusively for use in Teddy Ruxpin.
In sum, defendants have failed to overcome the presumption of the validity of plaintiff's copyright. In addition, the evidence indicates that Veritel's tapes are derivative works which are substantially similar to W.O.W.'s tapes. Consequently, the court concludes that W.O.W. has demonstrated a substantial likelihood of success on the merits of its copyright infringement claim. In light of this conclusion, it is unnecessary to consider W.O.W.'s likelihood of success on its trademark infringement and unfair competition claims.
C. Irreparable Harm
A showing of a reasonable likelihood of success on the merits of a copyright infringement claim raises a presumption of irreparable harm. Apple Computer, Inc. v. Franklin Computer Corporation, 714 F.2d 1240, 1254 (3d Cir. 1983), cert. dismissed, 464 U.S. 1033, 104 S. Ct. 690, 79 L. Ed. 2d 158 (1984); Entertainment & Sports Programming Network, Inc. v. Edinburg Community Hotel, Inc., 623 F. Supp. 647, 656 (S.D. Tex. 1985). Because W.O.W. has shown a reasonable likelihood of success on the merits of its copyright infringement claim, the court finds that it is entitled to a presumption of irreparable harm. Although defendants deny that W.O.W. will suffer immediate and irreparable harm if the injunction is denied, they offer no evidence to substantiate that position.
Even without the benefit of this presumption, however, the court concludes that W.O.W. had demonstrated that it will suffer irreparable harm unless a preliminary injunction is granted. W.O.W. and Alchemy have invested millions of dollars to develop Teddy Ruxpin into a successful product. The World of Teddy Ruxpin has great commercial value in terms of sales of Teddy Ruxpin units, as well as the tapes, clothing and other plush toys associated with the line. In addition, sales of merchandise licenses are commercially valuable. Sales of the Veritel tapes undermine the carefully tailored image of Teddy Ruxpin developed by W.O.W. The court agrees with a recent decision by the United States District Court in the Northern District of Ohio, in a closely analogous case,
that the popularity of the Teddy Ruxpin product is jeopardized when tapes altering the image of Teddy Ruxpin are played. It would be impossible to compute the diminution in commercial value of Teddy Ruxpin; thus, W.O.W. will suffer irreparable damage if a preliminary injunction is not granted. Worlds of Wonder, Inc. v. Vector Intercontinental, Inc. and New Age Communication Center, Inc., 653 F. Supp. 135 (N.D.Ohio 1986), Memorandum Opinion at 11.
D. Balance of Hardships
W.O.W. has invested millions of dollars in the development of the "World of Teddy Ruxpin." By the end of 1986, W.O.W. will have invested an estimated $ 20 million on advertising alone. By contrast, the evidence indicates that Veritel's investment has been only a tiny fraction of that amount. As stated earlier, net sales on the Teddy Ruxpin product line exceeded $ 90 million in the first year. Revenues from future sales of products in the line coupled with merchandise licenses and television rights can be conservatively estimated to be well in excess of the $ 90 million. Thus, W.O.W. stands to lose far greater sums if the preliminary injunction is not granted than Veritel stands to lose if it is enjoined from distributing tapes pending the resolution of this suit.
Veritel contends that it will be "put out of business" if a preliminary injunction is granted. Veritel alleges that it lost a potential individual investor and that a Maryland bank cancelled a line of credit after this court's temporary restraining order was issued. While a preliminary injunction would no doubt have some adverse financial impact on Veritel, defendants have not produced evidence indicating that it will be rendered insolvent if the injunction is issued. In fact, the evidence indicates that Veritel is either producing or planning to produce a number of products unrelated to Teddy Ruxpin, including three home videotapes, at least two audiotapes and a series of products for Coleco. Daly Dep. Tr. 179.
Even if Veritel could establish, however, that the injunction would have a devastating effect on its business, the court does not believe that this factor would be sufficient to deny preliminary injunctive relief. As the Third Circuit has stated:
If that were the correct standard, then a knowing infringer would be permitted to construct its business around its infringement, a result we cannot condone.
Apple Computer, 714 F.2d at 1255. See also Helene Curtis Industries v. Church & Dwight Co., Inc., 560 F.2d 1325, 1333 (7th Cir. 1977), cert. denied, 434 U.S. 1070, 55 L. Ed. 2d 772, 98 S. Ct. 1252 (1978), quoting My-T Fine Corp. v. Samuels, 69 F.2d 76, 78 (2d Cir. 1934). If Veritel has chosen to base its business on copyright infringement, it cannot prevent the issuance of an injunction by alleging that enforcement of W.O.W.'s copyright will seriously impact its business.
E. The Public Interest
Defendants contend that granting injunctive relief here will disserve the public interest, but they fail to come forward with any evidence of an adverse effect. This court concludes that an injunction will not disserve the public interest. On the contrary, the injunction will serve the public interest by preserving the integrity of copyright laws which encourage individual effort and creativity by granting valuable enforceable rights. Atari, 672 F.2d at 620; Worlds of Wonder, Inc. v. Vector Intercontinental, Inc. and New Age Communication Center, Inc., 653 F. Supp. 135, (1986), Memorandum Opinion at 12.
This court concludes that W.O.W.'s motion for a preliminary injunction should be GRANTED to the following extent: Until further order of this court, defendant Veritel, its officers, employees, agents and attorneys, including defendant Daly, and all persons in active concert with them, will be restrained from shipping, distributing, selling or otherwise placing in commerce cassette tapes which activate the Teddy Ruxpin animation system, or purport to do so, or which contain a voice confusingly similar to the Teddy Ruxpin voice. This restraint does not extend to Veritel's manufacture of its cassette tapes. If W.O.W. is ultimately successful in this case, however, Veritel and Daly may be permanently enjoined from selling or otherwise using any tapes they may produce.