Amaretto Ranch Breedables Llc v. Ozimals Inc.

• Decision Date: 22 April 2011
• Docket Number: No. C 10–05696 CRB.,C 10–05696 CRB.
• Citation: 790 F.Supp.2d 1024,98 U.S.P.Q.2d 1898
• Court: U.S. District Court — Northern District of California
• Parties: AMARETTO RANCH BREEDABLES, LLC, Plaintiff,v.OZIMALS, INC., et al., Defendants.

790 F.Supp.2d 1024

98 U.S.P.Q.2d 1898

AMARETTO RANCH BREEDABLES, LLC, Plaintiff,

v.OZIMALS, INC., et al., Defendants.

No. C 10–05696 CRB.

United States District Court, N.D. California.

April 22, 2011.

Kenneth E. Keller, Anne Elizabeth Kearns, Garth Aaron Rosengren, Michael David Lisi, Krieg Keller Sloan Reilley & Roman LLP, San Francisco, CA, Stevan Lieberman, Greenberg & Lieberman, LLC, Washington, DC, for Plaintiff.Stephen S. Wu, Cooke Kobrick & Wu LLP, Los Altos, CA, Paul Matthew Sykes, Bradley Arant Boult Cummings LLP, Birmingham, AL, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

CHARLES R. BREYER, District Judge.

This is a copyright case between business competitors who sell virtual animals in the virtual world known as Second Life. The case started when Plaintiff Amaretto Ranch Breedables filed a Complaint and sought a temporary and preliminary restraining order preventing Linden Research, Inc. from removing Amaretto's virtual horse product line from the Second Life world in response to a Digital Millennium Copyright Act (“DMCA”) Takedown Notification sent to Second Life by Defendant Ozimals, Inc. This Court granted Amaretto's request for a TRO and ultimately issued a preliminary injunction requiring Ozimals to withdraw all DMCA Takedown Notifications from Second Life and to file no further notifications.

Presently before the Court is Ozimals's Motion to Dismiss the Second through Fifth causes of action in Amaretto's First Amended Complaint (“FAC”).¹ Dkt. 72. Specifically, Ozimals moves to dismiss Amaretto's claims for (1) misrepresentation under 17 U.S.C. § 512(f); (2) tortious interference with prospective business advantage; (3) unfair competition under California Business and Professions Code § 17200; and (4) misuse of copyright under 17 U.S.C. § 102(B).

Ozimals's Motion is GRANTED in part and DENIED in part. Specifically:

• The section 512(f) claim is DISMISSED with prejudice.

• The tortious interference with contract claim is DISMISSED without prejudice.

• The Motion to Dismiss is DENIED in all other respects.

• The Preliminary Injunction shall REMAIN IN EFFECT.

I. BACKGROUND ²

Second Life is a virtual world operated by Linden. FAC (dkt. 68) ¶ 15. Users can create three dimensional environments through the use of tools offered by Linden. Id. ¶ 16. One such tool is the Linden Scripting Language (“LSL”), a universal coding language used to add functionality to virtual objects. Id. Linden owns the copyright to LSL. Id.

Creators of virtual objects can set “permissions” that allow varying degrees of interaction and/or alteration of an object. Id. ¶ 17. Setting “permissions” at the proper level is important because many creators sell their objects in virtual stores in Second Life for real world currency. Id. ¶ 18.

One type of popular user-created object sold in Second Life is the breedable animal. Id. ¶ 19. Essentially, these objects mimic the life cycle of a real animal; they eat to survive, sleep, and replicate. Id. Amaretto created a breedable horse and associated virtual horse food, both of which it sells in Second Life. Id. ¶ 20. Amaretto competes in the market of virtual animal sellers with Ozimals, which owns and sells virtual breedable bunnies. Id. ¶ 22–23.

In early November 2010, Ozimals sent Amaretto a “cease-and-desist” letter alleging that (1) Amaretto's virtual horses were a “virtual clone” of Ozimals's virtual bunnies and (2) Amaretto was infringing Ozimals's copyrights. Id. ¶ 23. The assertions in the cease-and-desist letter were false. See id. ¶ 23–24. Ozimals made similar false statements to “other members of the Second Life community.” Id. ¶ 25. Amaretto responded to Ozimals's cease-and-desist letter in late November 2010, asserting that it was not and could not be infringing any valid copyrights. Id. ¶ 26.

On December 1, 2010, Ozimals filed with Linden a DMCA Takedown Notification pursuant to 17 U.S.C. § 512(c)(3). Id. ¶ 27. The Notification sought, among other things, the removal from Second Life of Amaretto's virtual “food” and “water.” Had the takedown occurred, the virtual horses would have “died” from “starvation” and/or “thirst” within 72 hours. Id. ¶ 28. A takedown would have caused a significant disruption in Amaretto's business during a critical selling season. Id. ¶ 33.

Among other actions in response to the DMCA Takedown Notification, Amaretto eventually sought and obtained from this Court preliminary relief in the form of an injunction requiring Ozimals to withdraw all pending DMCA notifications concerning Amaretto's horses. Id. ¶ 32; see also Dec. 21, 2010 Order, 2010 WL 5387774 (dkt. 29); Jan. 7, 2011 Order (dkt. 49). Meanwhile, Ozimals filed a copyright infringement action against Amaretto in the United States District Court for the Northern District of Alabama on December 20, 2010. See Complaint (dkt. 1) Ozimals v. Amaretto Ranch Breedables, LLC, 2:10 cv–03520–KOB. That Complaint has not been served.

At the Court's direction, the parties engaged in preliminary discovery designed to determine whether Amaretto copied Ozimals's code when Amaretto created the virtual horses. It was the Court's hope that early exchange of code might shed light on the merits of Ozimals's allegation that Amaretto violated its copyrights and perhaps facilitate early resolution of this and the related copyright infringement action in Alabama. The parties exchanged that discovery. Although it appears that they agree that no literal copying occurred, they disagree as to whether nonliteral copying occurred. See Joint Case Management Statement (dkt. 70) at 15 (“The Sylint Group [ (Ozimals's expert) ] did not find wholesale copying of the written source code from among the files it examined. Instead, The Sylint Group found Ozimals code produced certain traits, while Plaintiff's code produced the same traits using a different set of written code.”).

Ozimals has now moved to dismiss each of Amaretto's claims other than its claim for declaratory relief.³ As mentioned above, those claims are for (1) misrepresentation under 17 U.S.C. § 512(f); (2) tortious interference with prospective business advantage; (3) unfair competition under California Business and Professions Code § 17200; and (4) misuse of copyright under 17 U.S.C. § 102(B).

II. LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in a complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199–1200 (9th Cir.2003). Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” “Detailed factual allegations” are not required, but the Rule does call for sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). According to the Supreme Court, “a claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 1949–50. Whether a complaint states a plausible claim is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 1950.

III. DISCUSSIONA. The Section 512(f) Misrepresentation Claim Is Not Viable Because No Takedown Occurred

Section 512(f) provides in pertinent part as follows.

Any person who knowingly materially misrepresents under this section—(1) that material or activity is infringing ... shall be liable for any damages, including costs and attorneys' fees, incurred by the alleged infringer, by any copyright owner or copyright owner's authorized licensee, or by a service provider, who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing ....

17 U.S.C. § 512(f) (emphasis added).

Ozimals argues that, because Linden never removed the horses from Second Life, Amaretto cannot have been “injured ... as the result of the service provider ... removing or disabling access to the material ... claimed to be infringing.” Id. (emphasis added); Mot. to Dismiss (dkt. 72) at 4–5; see also Lenz v. Universal Music Corp., No. C. 07–3783 JF, 2010 WL 702466 at *10 (N.D.Cal. Feb. 25, 2008) (“A fair reading of the statute, the legislative history, and similar statutory language indicates that a § 512(f) plaintiff's damages must be proximately caused by the misrepresentation to the service provider and the service provider's reliance on the misrepresentation.”) (emphasis in original).

Amaretto argues that applying section 512 as written and thereby excluding claims where, as here, no takedown occurred, is inconsistent with the legislative purpose of “deter[ing] knowingly false allegations to service provides in recognition that such misrepresentations are detrimental to the rights holders, service providers, and Internet users.” S. Rep. 105–190, May 11, 1998 at 49; Opp'n to Mot. to Dismiss (dkt. 74) at 3. Amaretto is right that limiting suits for damages to those caused by an actual takedown is a less effective deterrent than allowing suits based merely on the filing of a false Takedown Notification. But the statute is unambiguous in entitling an alleged infringer to damages caused “as the result of the service provider ... removing or disabling access to the material ....” 17 U.S.C. § 512(c). Moreover, that limitation does not create so perverse a result as to suggest that this Court ought to read the phrase “as the result of the service provider ... removing or disabling access” out of the statute. See Lenz, 2010 WL 702466 at *10 (quoting Quilter & Urban, Efficient Process or “Chilling Effects”? Takedown...