Merritt Forbes & Co. v. Newman Inv. Securities
| Decision Date | 20 February 1985 |
| Docket Number | No. 84 Civ. 4618 (RWS).,84 Civ. 4618 (RWS). |
| Citation | 604 F. Supp. 943 |
| Parties | MERRITT FORBES & COMPANY INCORPORATED, Plaintiff, v. NEWMAN INVESTMENT SECURITIES, INCORPORATED; Newman and Associates, Inc.; Security Pacific National Bank; and Security Pacific Corporation, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Saterlee & Stephens by James F. Rittinger, New York City, Saidman, Sterne, Kessler & Goldstein, Washington, D.C., for plaintiff; Edward J. Kessler, Robert W. Sacoff, Washington, D.C., of counsel.
O'Melveny & Myers, New York City, for defendants; Sally A. Treweek, Astrid R. Baumgardner, Lani A. Adler, New York City, of counsel.
Plaintiff Merritt Forbes & Co. ("Merritt Forbes") has brought this action alleging copyright infringement under 17 U.S.C. § 501 et seq., false designation of origin under 15 U.S.C. § 1125(a), common law service mark infringement and unfair competition, and misappropriation. Defendants Newman Investment Securities, Inc., Newman and Associates, Inc., Security Pacific National Bank and Security Pacific Corporation (collectively "Newman") now move to dismiss the complaint under Rule 12(b)(6) and for summary judgment. Skilled counsel have ably presented this unique issue in which protection is sought for certain bond offering documents. On the facts and conclusions set forth below, the motions are granted in part and denied in part.
The following facts are not in dispute except where noted. Merritt Forbes and Newman underwrite and market various types of securities, including tax-exempt municipal bonds ("bonds"). Bonds are offered to investors by means of disclosure documents, which may be styled as official statements, offering memoranda, "offering circulars" or "reoffering circulars" ("bond underwriting documents"). These documents describe the product, the issuer, and the underwriter and are intended to disclose all facts material to an investor's decision to purchase the bonds.
Between 1981 and 1983 Merritt Forbes developed a municipal bond program involving long-term tax-exempt bonds to which an option is attached giving the bond holder the option to "put" or "tender" the bond back to the seller prior to its stated maturity. According to Newman, similar bonds had previously been offered by several securities firms underwriting municipal issues. Merritt Forbes contends, however, that its bond program was unlike any other known to the bond market at that time because of a combination of unique features.
Merritt Forbes' program, which it referred to as its Tender Option Program, was described and outlined in three principal documents: the Secondary Reoffering Circular and its associated Supplement, the "Executive Summary of Tender Option Program" (the "Executive Summary"), and the "Presentation to Name of institution regarding the TENDER OPTION PROGRAM for the Sale of Below Market Tax-Exempt Securities Portfolios" (the "Presentation Package"). The Secondary Reoffering Circular and its Supplement was publicly distributed without qualification to broker/dealers, institutional investors, and potential seller institutions.
Starting in the fall of 1983, Merritt Forbes employees began to contact major financial institutions that were known to have substantial portfolios of long-term municipal bonds to determine their interest in the program. Those institutions which exhibited an interest in the program were usually sent the Executive Summary upon the approval of an authorized person at Merritt Forbes and, if further interest was shown, were thereafter sent the Presentation Package. According to Merritt Forbes, the Executive Summary and Presentation Package were given to institutions with oral and written understanding that the information therein would be held in confidence.
Between October and December 1983 Merritt Forbes began using the trade identity designations TOP'ssm, TENDER OPTIONsm, and TENDER OPTION PROGRAMsm (collectively, "the Marks") to identify the services offered in connection with its new program. All secondary reoffering circulars published by Merritt Forbes in conjunction with this program stated "TOP's, TENDER OPTION, and TENDER OPTION PROGRAM are service marks of Merritt Forbes & Company Incorporated." On May 30, 1984, Merritt Forbes filed application with the United States Patent and Trademark Office to secure Federal Service Mark Registrations for each of these marks.
On May 30, 1984 Merritt Forbes also registered a copyright in two Secondary Reoffering Circulars dated February 1 and March 1, 1984 and two associated Supplements dated February 13 and March 1, 1984 ("copyrighted material") circulated in conjunction with the bond transactions offered to the public in February and March of 1984 and received a certificate of copyright registration. The copyrighted material was originally published without notice of copyright.
At some point between December of 1983 and late February of 1984 Merritt Forbes allegedly held telephone discussions with Dudley E. Stewart, ("Stewart"), and Joseph Irwin, ("Irwin"), both officials of Security Pacific Bank, and Pat Woosley ("Woosley") and Jeff Dorfman ("Dorfman"), employees of the Bank, about Merritt Forbes' Tender Option Program. Following these conversations, Merritt Forbes allegedly sent Irwin an Executive Summary and in mid-February 1984 sent Irwin a Presentation Package. According to Merritt Forbes, Security Pacific agreed to keep information about the program confidential. Irwin has no recollection of having requested or received the Executive Summary, although he received a copy of the Presentation Package. According to Irwin, the Presentation Package was only distributed to two members of Security Pacific's legal department and no one else.
On April 5, 1984 Newman Investment Securities, Inc. served as underwriter and Newman and Associates Inc. served as marketing agent in a transaction offered to the public on April 5, 1984 by means of Newman's reoffering circular and supplement. ("Newman's offering documents"). The bonds in Newman's transaction were supported by a letter of credit from Security Pacific National Bank. Newman's securities were called "tender option securities."
In June 1984 Merritt Forbes initiated this suit alleging copyright infringement, unfair competition, service mark infringement, and misappropriation of proprietary information in connection with the Newman offering. In its complaint, Merritt Forbes claims first that Newman's Offering Documents were substantially copied from Merritt Forbes' copyrighted works and therefore infringe Merritt Forbes' copyright. In addition, Merritt Forbes alleges that Newman made unauthorized use of the service marks adopted and used by Merritt Forbes and that this use constitutes both a violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and common law service mark infringement and unfair competition in violation of the laws of New York. Merritt Forbes also claims that Security Pacific and Newman conspired to violate Merritt Forbes' rights by misappropriating the confidential information supplied by Merritt Forbes to Security Pacific in Merritt Forbes' Executive Summary and Presentation Package.
In its motion, Newman contends, first, that the copyright infringement claim must be dismissed because Merritt Forbes does not have a valid copyright in its bond documents; second, that Merritt Forbes' claims of false designation of origin, service mark infringement, and unfair competition must be dismissed because the term "tender option" is generic; and, third, that Merritt Forbes misappropriation claim must be dismissed because there is no showing that Newman made use of Merritt Forbes' disclosures.
In order to establish an actionable claim for copyright infringement, a plaintiff bears the burden of establishing both ownership of a valid copyright and actual copying by the defendant. Eden Toys, Inc. v. Marshall Field & Co., 675 F.2d 498, 499 (2d Cir.1982). A copyright registration certificate constitutes prima facie evidence of the validity of the copyright, 17 U.S.C. § 410(c), but validity will not be assumed where other evidence in the record casts doubt on the validity of the copyright. Shapiro & Son Bedspread Corp. v. Royal Mills Associates, 568 F.Supp. 972, 975 (S.D. N.Y.1983). Two of the elements that are necessary for ownership of a valid copyright are copyrightability of the subject matter and originality in the author. 3 Nimmer on Copyright, § 13.01A (1984). Newman challenges Merritt Forbes' claim of a valid copyright on the grounds that as a matter of law Merritt Forbes is unable to establish either of these elements with respect to its copyrighted documents.
Section 102 of the Copyright Act of 1976, 17 U.S.C. § 102, confers copyright protection "in original works of authorship fixed in any tangible medium of expression." The Act lists seven broad categories included within the concept of "works of authorship," a list which is intended to be "illustrative and not limitative" and provide "sufficient flexibility to free the courts from rigid or outmoded concepts of the scope of particular categories." House Report on the Copyright Act of 1976, Report No. 94-1476, p. 53 ("House Report"), U.S. Code Cong. & Admin.News 1976, 5659, 5666. Included in that list is the category of "literary works," a term which House Report, p. 54. Given the breadth of the classification, Merritt Forbes' bond documents qualify as copyrightable "literary works," given their similarity in form to other works held to have been so qualified. See Financial Information, Inc. v. Moody's Investors Service, Inc....
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