Adobe Sys. Inc. v. Kornrumpf

• Decision Date: 19 January 2011
• Docket Number: No. C 10–02769 CW.,C 10–02769 CW.
• Court: U.S. District Court — Northern District of California
• Parties: ADOBE SYSTEMS INCORPORATED, Plaintiff,v.Anthony KORNRUMPF, a/k/a Tony Kornrumpf; and Hoops Enterprise, LLC, Defendants.Hoops Enterprise, LLC, Counter–Claimant,v.Adobe Systems Incorporated, Counter–Defendant,andSoftware and Information Industry Association, Third–Party Defendant.

780 F.Supp.2d 988

97 U.S.P.Q.2d 1647

ADOBE SYSTEMS INCORPORATED, Plaintiff,

v.Anthony KORNRUMPF, a/k/a Tony Kornrumpf; and Hoops Enterprise, LLC, Defendants.Hoops Enterprise, LLC, Counter–Claimant,

v.Adobe Systems Incorporated, Counter–Defendant,andSoftware and Information Industry Association, Third–Party Defendant.

No. C 10–02769 CW.

United States District Court, N.D. California.

Jan. 19, 2011.

J. Andrew Coombs, Annie S. Wang, J. Andrew Coombs, A Prof. Corp., Glendale, CA, for Plaintiff.

ORDER GRANTING ADOBE SYSTEMS INCORPORATED AND SOFTWARE & INFORMATION INDUSTRY ASSOCIATION'S MOTION TO DISMISS HOOPS ENTERPRISE, LLC'S CLAIMS (Docket No. 34)

CLAUDIA WILKEN, District Judge.

Plaintiff and Counter–Defendant Adobe Systems Incorporated and Third–Party Defendant Software and Information Industry Association (SIIA) move to dismiss the claims of Defendant and Counter–Claimant Hoops Enterprise, LLC. Hoops and Defendant Anthony Kornrumpf oppose the motion. The motion was taken under submission on the papers. Having considered the papers submitted by the parties, the Court GRANTS Adobe and SIIA's motion.

BACKGROUND

Adobe, a California corporation, initiated this copyright and trademark infringement lawsuit on June 24, 2010. It alleges that Defendants are Tennessee residents and that they use, among other services, the Internet auction site eBay to offer for sale and sell Adobe software.¹ Adobe avers that it has not licensed Defendants to make or distribute copies of its software. Adobe also pleads that Defendants use, without a license, images similar or identical to Adobe trademarks as part of their online business. Adobe seeks relief pursuant to the Copyright Act, 17 U.S.C. §§ 101, et seq., and the Lanham Act, 15 U.S.C. §§ 1501, et seq.

On September 3, 2010, Defendants filed an amended answer, which includes a defense of copyright misuse.² Am. Answer ¶ 23. In addition, Hoops filed counterclaims against Adobe and claims against third-party Defendant SIIA ³ for copyright misuse and a violation of California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code §§ 17200, et seq. Hoops alleges that SIIA is a trade association for the software industry which enforces copyrights on behalf of its members, such as Adobe. Hoops avers that Adobe and SIIA misuse Adobe's copyrights by attempting to extend their protections beyond those granted under the Copyright Act. In particular, Hoops alleges that Adobe's and SIIA's conduct impermissibly expands Adobe's copyrights beyond the limits imposed by the first sale doctrine, as codified in 17 U.S.C. § 109. This conduct includes suing “small, independent software re-sellers such as Hoops, who purchase and re-sell Adobe software products.” Hoops Countercl. ¶ 12. Hoops further avers that Adobe's and SIIA's conduct constitutes unfair competition and is intended to eliminate the “secondary sales market” in which Hoops and other software re-sellers operate. Hoops Countercl. ¶¶ 15–16. Hoops seeks compensatory and declaratory relief based on its claims.

LEGAL STANDARD

A complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). Dismissal under Rule 12(b)(6) for failure to state a claim is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds on which it rests. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In considering whether the complaint is sufficient to state a claim, the court will take all material allegations as true and construe them in the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986). However, this principle is inapplicable to legal conclusions; “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements,” are not taken as true. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955).

When granting a motion to dismiss, the court is generally required to grant the plaintiff leave to amend, even if no request to amend the pleading was made, unless amendment would be futile. Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 246–47 (9th Cir.1990). In determining whether amendment would be futile, the court examines whether the complaint could be amended to cure the defect requiring dismissal “without contradicting any of the allegations of [the] original complaint.” Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir.1990). Leave to amend should be liberally granted, but an amended complaint cannot allege facts inconsistent with the challenged pleading. Id. at 296–97.

DISCUSSION

I. Copyright Misuse Claims

The equitable doctrine of copyright misuse “forbids a copyright holder from ‘secur[ing] an exclusive right or limited monopoly not granted by the Copyright Office.’ ” A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1026 (9th Cir.2001) (quoting Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 977–79 (4th Cir.1990)). The doctrine “prevents copyright holders from leveraging their limited monopoly to allow them control of areas outside the monopoly.” A & M Records, 239 F.3d at 1026. Copyright misuse “does not invalidate a copyright, but precludes its enforcement during the period of misuse.” Practice Mgmt. Info. Corp. v. Am. Med. Ass'n, 121 F.3d 516, 520 n. 9 (9th Cir.1997) (citation and internal quotation marks omitted).

Hoops's copyright misuse claims, premised on the theory that Adobe and SIIA have attempted to control the distribution of copyrighted Adobe software products beyond their first sale in contravention of the first sale doctrine, suffer from numerous defects.

A. Compensatory Damages and Declaratory Relief for Copyright Misuse

Hoops does not identify any authority granting it a right of action for damages arising from Adobe's and SIIA's alleged misuse of Adobe's copyrights. Other district courts have concluded that no legal authority supports an award of damages for copyright misuse. See, e.g., Ticketmaster L.L.C. v. RMG Techs., Inc., 536 F.Supp.2d 1191, 1199 (C.D.Cal.2008) (dismissing with prejudice claim for damages for misuse of copyright, noting that it is “an affirmative defense to a claim for copyright infringement”); Online Policy Group v. Diebold, Inc., 337 F.Supp.2d 1195, 1199 n. 4 (N.D.Cal.2004) (finding no legal authority “that allows an affirmative claim for damages for copyright misuse”). Because it cannot be cured by amendment, the Court dismisses with prejudice Hoops's request for damages for copyright misuse.

Nor does Hoops articulate any authority for its request for a declaration of copyright misuse. Hoops did not cite any provision of the Copyright Act affirmatively providing such relief. Thus, the Court presumes Hoops seeks a declaration pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201(a). If an actual case or controversy exists, a court has discretion to assert jurisdiction over a declaratory judgment claim. Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1222–23 (9th Cir.1998). In determining whether it should exercise its discretion, a court weighs various factors, including whether the claim would generate duplicative litigation. Id. at 1225.

Adobe argues that, in light of its copyright infringement claim, Hoops's copyright misuse counterclaim for declaratory relief is inappropriate. The Ninth Circuit has not opined directly on the propriety of declaratory relief for copyright misuse in cases where a copyright holder has asserted a claim of copyright infringement.⁴ It is true that the court has referred to copyright misuse as a defense. See, e.g., Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1090 (9th Cir.2005); A & M Records, Inc., 239 F.3d at 1026. However, the court has never foreclosed asserting the doctrine through a counterclaim for declaratory relief.

District courts within the circuit have reached disparate conclusions. In Ticketmaster, the court dismissed with prejudice a counterclaim for declaratory relief for copyright misuse, reasoning that litigating a counterclaim and an affirmative defense of copyright misuse would be duplicative. 536 F.Supp.2d at 1199; see also Metro–Goldwyn–Mayer Studios Inc. v. Grokster, Ltd., 269 F.Supp.2d 1213, 1225–27 (C.D.Cal.2003). In contrast, the court in Apple Inc. v. Psystar Corp. opined that a counterclaimant “may well have a legitimate interest in establishing misuse independent of” its need to defend an infringement claim “to clarify the risks it confronts by marketing the products at issue ... or others it may wish to develop.” 2009 WL 303046, at *2 (N.D.Cal.). Also, the Apple court noted, “misuse would bar enforcement (for the period of misuse) not only as to defendants who are actually a party to the challenged license but also as to potential defendants not themselves injured by the misuse who may have similar interests.” Id. The Apple court expressly disagreed with the holdings in Ticketmaster and Metro–Goldwyn–Mayer. Id. at *3.

Although there may be circumstances that justify providing declaratory relief on a counterclaim for copyright misuse, Hoops has not presented them here. As explained below, Hoops's allegations, even if true, do not establish that Adobe engaged in copyright misuse.

With respect to SIIA, Hoops has not asserted a counterclaim, but rather a claim against a third-party Defendant that does not assert a copyright infringement claim in this action. However, Hoops has not established that a declaration of copyright misuse against SIIA would be appropriate. Hoops alleges only that SIIA is an agent of Adobe; the association does not apparently own any of the copyrights being asserted against Hoops. Because a declaration of misuse could disable Adobe's copyrights for the period of misuse, Adobe, not SIIA, appears to be the appropriate party against which declaratory...