St. Paul Fire & Marine Ins. Co. v. Giganews, Inc.

• Decision Date: 17 June 2016
• Docket Number: Case No. A-15-CA-89-SS
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. GIGANEWS, INC. and Livewire Services, Inc., Defendants.
• Court: U.S. District Court — Western District of Texas

193 F.Supp.3d 745

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff,

v.GIGANEWS, INC. and Livewire Services, Inc., Defendants.

Case No. A-15-CA-89-SS

United States District Court, W.D. Texas, Austin Division.

Signed June 17, 2016

Marcie L. Schout, William Lance Lewis, Quilling Selander Lownds Winslett & Moser, PC, Dallas, TX, for Plaintiff.

Gregory C. Salton, Leslie C. Thorne, Haynes & Boone LLP, Austin, TX, for Defendants.

ORDER

SAM SPARKS, UNITED STATES DISTRICT JUDGE

BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically Plaintiff St. Paul Fire and Marine Insurance Company's Motion for Summary Judgment [#28]; Defendants Giganews, Inc. and Livewire Services, Inc.'s Cross-Motion for Summary Judgment and Response [#37] thereto; Plaintiff's Reply in Support of its Motion for Summary Judgment and Response [#43] thereto; and Defendants' Reply in Support of their Cross-Motion for Summary Judgment [#44], Having reviewed the documents, the governing law, and the file as a whole, the Court now enters the following opinion and orders.

Background

This is an insurance coverage dispute between Plaintiff St. Paul Fire and Marine Insurance Company and its insureds, Defendants Giganews, Inc. and Livewire Services, Inc. The dispute arises out of copyright claims asserted by Perfect 10, Inc., an adult entertainment company, in an underlying lawsuit filed in California federal court (the Underlying Suit). St. Paul seeks a judicial declaration it had no contractual duty to defend Defendants in the Underlying Suit pursuant to a commercial general liability policy issued by St. Paul (the Policy). Defendants believe they were entitled to a defense, and have filed a counterclaim for breach of contract, violations of the Texas Insurance Code, and breach of the duty of good faith and fair dealing, and seeking reasonable attorney's fees. The case is now before the Court on cross-motions for summary judgment. For the following reasons, the Court finds summary judgment is due to be granted in favor of St. Paul as to all claims.

Background

I. The Underlying Lawsuit

On March 28, 2011, Perfect 10 filed the Underlying Suit, styled Perfect 10 Inc. v. Giganews, Inc., Livewire Services, Inc. and Does 1 through 100, in the United States District Court for the Southern District of California. The case was subsequently transferred to the United States District Court for the Central District of California. The original complaint asserted claims for copyright infringement, trademark infringement, trademark dilution, unfair competition, and violations of rights of publicity. See Compl. [#1] (Underlying Compl.), Perfect 10 Inc. v. Giganews, Inc. et al., 2:11-cv-07098-AB-JPR (C.D. Cal. filed Mar. 28, 2011) (Underlying Suit). On March 26, 2013, Perfect 10 filed an amended complaint, which asserted only claims for copyright infringement. First Am. Compl. [#101] (Am. Underlying Compl.), Underlying Suit. The Underlying Complaint and Amended Underlying Complaint are based on the same facts and can be summarized as follows.¹

Giganews is a USENET service provider that owns and operates the websites giganews.com and supernews.com.² Giganews sells internet users monthly subscription access to electronic media stored on USENET servers. Id. ¶¶ 5,23-32. Giganews owns and operates various USENET servers, which store electronic content uploaded by USENET users. Id. ¶ 26. Livewire is also a USENET service provider, but does not own any of its own USENET servers. Instead, Livewire contracts with Giganews for USENET content, which it then sells to its customers for a monthly fee. Id. ¶¶ 6, 59. According to their Digital Millennium Copyright Act (DMCA) filings, Defendants' operations are located in Austin, Texas. Id. ¶ 7. Giganews' USENET servers are also located in Austin. Id. ¶ 8.

Perfect 10 Inc. is an adult entertainment company. Id. ¶ 4, 13–17. Perfect 10 produces, markets, and sells adult entertainment products, including photographs, magazines, videos, and other merchandise, and owns thousands of copyrighted photographs, videos, and other materials. Id. ¶¶ 4, 13, 18. Perfect 10 also owns and operates the website perfect10.com. Id. ¶ 16. Perfect 10 sells access to copyrighted content on this website for a membership fee of $25.50 per month and Perfect 10's revenues are predominantly derived from this source. Id. ¶¶ 16-17. Perfect 10 invests substantial sums of money, time, effort, and talent to produce its copyrighted adult entertainment products, and the success of Perfect 10's business is almost entirely dependent on its intellectual property rights. Id. ¶¶ 18, 22.³

Perfect 10 alleges "Giganews has at least 10,000,000 customers" to whom it "sells access to at least 9,000,000,000,000,000 bytes (9,000 trillion bytes) of stolen movies, songs, computer software, images, and other material ..., [including] virtually every major popular movie, popular song, popular software program, and image ever created, for anywhere from $4.99 per month up to $34.99 a month, depending on the amount of material desired by the user and the speed of delivery." Id. ¶¶ 5, 24. Livewire's service apparently operates in a substantially similar way, selling the material it receives from Giganews to subscribers at different prices, depending upon usage. Id. ¶ 59. In exchange for this payment, Giganews provides its customers with a username and password, which can be used to log in to the USENET via a newsreader/browser program such as Giganews's proprietary "Mimo" browser. Id. ¶ 27. Once logged in, customers can use the newsreader's search functions to locate and view specific media on the USENET servers. Id. ¶¶ 24, 29-32. Using these search functions, Giganews and Livewire customers can download and view a massive amount of Perfect 10 copyrighted materials, including but not limited to all of the material Perfect 10 publishes on its website in a given year or complete versions of Perfect 10 magazines. Id. ¶¶ 30, 31.

In this way, Perfect 10 alleges Defendants knowingly reproduce and publicly display thousands of Perfect 10 copyrighted images, which Giganews stores on its servers and offers to its customers. Id. ¶ 33. Perfect 10 claims Defendants have caused and induced the unauthorized copying, reproduction, public display, distribution, and sale of more than 267,000 Perfect 10 copyrighted materials without its consent. Id. ¶¶ 65, 72. According to Perfect 10, while the USENET may once have contained a significant amount of legal materials, "Defendants' ability to generate monthly subscriptions and revenues is based almost exclusively on the demand for pirated copyrighted works." Id. ¶ 55.

On November 14, 2014, summary judgment was entered in favor of Giganews and Livewire on Perfect 10's copyright claims. See Nov. 14, 2014 Order [#619], Underlying Suit; Nov. 14, 2014 Order [#620], Underlying Suit. These decisions are currently on appeal to the Ninth Circuit.

II. The Policy

Defendants are both named insureds under the Policy, which was issued by St. Paul and covered the one-year term from March 15, 2009, to March 15, 2010. The Policy provides commercial general liability coverage with $2 million in aggregate policy limits and umbrella excess commercial general liability coverage with $5 million in limits. Pl.'s Mot. Summ. J. [#28-4] Ex. A-1 (the Policy) at 100, 215. Pursuant to the Policy terms, St. Paul has a duty to defend against a claim or suit for covered injury or damage. See id. at 105. The Policy provisions relevant to coverage are as follows:

What This Agreement Covers

Advertising injury liability. We'll pay amounts any protected person is legally required to pay as damages for covered advertising injury that:

• results from the advertising of your products, your work, or your completed work; and

• is caused by an advertising injury offense committed while this agreement is in effect.

Advertising injury means injury, other than bodily injury or personal injury, that's caused by an advertising injury offense.

Advertising injury offense means any of the following offenses:...

• Unauthorized use of any advertising material, or any slogan or title, of others in your advertising.

Advertising means attracting the attention of others by any means for the purpose of:

• seeking customers or supporters; or

• increasing sales or business.

Advertising material means any covered material that:

• is subject to copyright law; and

• others use and intend to attract attention in their advertising.

Slogan means a phrase that others use and intend to attract attention to their advertising.

But we won't consider slogan to include a phrase used as, or in, the name of:

• any person or organization, other than you;

• any business, or any of the premises, products, services, work, or completed work, of any person or organization other than you.

Title means a name of a literary or artistic work.

Id. at 104–05. The Policy also contains the following exclusion:

Intellectual property. We won't cover injury or damage or medical expenses that result from any actual or alleged infringement or violation of any of the following rights or laws:

• Copyright.

• Patent.

• Trade dress.

• Trade name.

• Trade secret.

• Trademark.

• Other intellectual property rights or laws.

Nor will we cover any other personal injury or advertising injury that's alleged in any claim or suit which also alleges any such infringement or violation.

But we won't apply this exclusion to bodily injury or property damage that results from your products or your completed work.

Nor will we apply this exclusion to advertising injury that results from the unauthorized use of any:

• copyrighted advertising material;

• trademarked slogan; or

• trademarked title;

of others in your advertising.

Id. at 43, 119.

III. Procedural History

Defendants timely provided notice of the Underlying Suit to St. Paul.⁴ In a reservation of rights letter dated June 16, 2011, St. Paul denied any duty to defend Defendants under the Policy. Defs.' Cross-Mot. Summ. J. [#37]...