Penske Media Corp. v. Shutterstock, Inc.

• Decision Date: 09 July 2021
• Docket Number: 1:20-cv-04583 (MKV)
• Citation: 548 F.Supp.3d 370
• Parties: PENSKE MEDIA CORPORATION, Plaintiff, v. SHUTTERSTOCK, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

548 F.Supp.3d 370

PENSKE MEDIA CORPORATION, Plaintiff,

v.SHUTTERSTOCK, INC., Defendant.

1:20-cv-04583 (MKV)

United States District Court, S.D. New York.

Signed July 9, 2021

Cynthia S. Arato, Amelia Courtney Hritz, Shapiro Arato Bach LLP, New York, NY, Lauren Marie Brody, Miller Barondess, LLP, Los Angeles, CA, for Plaintiff.

Eleanor Martine Lackman, Marissa Brooke Lewis, Mitchell Silberberg & Knupp LLP, New York, NY, for Defendant.

OPINION AND ORDER

MARY KAY VYSKOCIL, United States District Judge:

Defendant Shutterstock, Inc. moves [ECF No. 35] to dismiss several of Plaintiff Penske Media Corporation's claims in this action. For the reasons that follow, Defendant's motion is denied.

BACKGROUND

The facts as stated herein are taken from Plaintiff's Amended Complaint, ECF No. 29 ("AC") and are assumed to be true for the purposes of this motion. See Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

Plaintiff Penske Media Corporation is the company behind a number of notable fashion and entertainment publications, including Women's Wear Daily, Variety, Deadline Hollywood , and Rolling Stone. AC ¶ 10. As a result of the longevity of these publications, Penske owns a vast archive of photographs taken for and/or used in those magazines and websites. AC ¶ 10. Relevant to this case, Defendant Shutterstock, Inc. is a company that licenses "stock" and "editorial" photographs, videos, and other illustrations to media publications, commercial actors, and others. AC ¶ 11.

In June 2015, Penske signed the "Archive & Event Image Hosting and Licensing Agreement" (the "Agreement") with Shutterstock. AC ¶ 15. Among other things, the Agreement provided Shutterstock an exclusive worldwide right and license to the photographs, videos, and audio in Penske's archive for a period of six years, absent termination by either party. AC ¶ 16; see also Agreement, ECF No. 37-1, ¶ 3(a).¹ In exchange, Shutterstock paid Penske a royalty on Shutterstock's licensing and distribution of Penske-owned media, and, each year, provided an advance on the royalties to Penske. AC ¶ 22; Agreement ¶ 6.

In addition to providing access to the existing Penske archive, the Agreement also provided that Shutterstock would produce photographs for Penske, which would then become part of the Penske archive. Specifically, the Agreement provided that Penske would grant Shutterstock access to all events that Penske hosted and to which "third parties are invited generally," in order to allow Shutterstock photographers to attend the event. AC ¶ 17; Agreement ¶ 3(a)(ii). The Agreement provides, and Shutterstock does not dispute, that Shutterstock had an obligation to attend all such Penske-hosted events. See Agreement ¶ 3(a)(ii) ("During the License Period, Shutterstock will provide editorial photographic event coverage, at Shutterstock's expense, for all [Penske] Events.").

For events that Penske did not host ("Third Party Events"), the Agreement provides that Penske "will provide credentials, passes, and VIP access to significant events around the world to which [Penske] has access." Agreement ¶ 3(a)(iii). In relation to these Third Party Events, the Agreement further provided that Shutterstock held "the right to be the sole third party to leverage and utilize [Penske's] credentials and access to capture Third Party Event Content at Third Party Events." Agreement ¶ 3(a)(iii). While the Agreement also provided that Penske's in-house staff photographers could also use Penske's credentials at Third Party Events, see Agreement ¶ 3(e), Shutterstock otherwise held an exclusive right to Penske's credentials at such events. Importantly, and with few exceptions, Penske retained ownership of the copyright for all photographs produced as a result of the Agreement. See Agreement ¶ 3(c).

According to Penske, the Agreement was fruitful for both parties for several years. In addition to the royalties each company received based on Shutterstock's licensing of Penske-owned photographs to customers, Shutterstock allegedly gained "credibility" in the markets for editorial and news photography. AC ¶ 24. Penske alleges that Shutterstock leveraged the access Penske provided to develop relationships with event organizers in the fashion and entertainment industries. AC ¶ 25. Of particular note, Shutterstock began to receive its own credentials to cover Third Party Events, meaning that it could become less dependent on Penske in the future. AC ¶ 25.

Penske's commenced this action in 2020 after Shutterstock terminated the Agreement. Penske's primary claim in this case asserts that Shutterstock terminated the Agreement without cause, and thereafter refused to pay royalties and advances as set forth in the Agreement. AC ¶¶ 27, 29-31. For its part, Shutterstock argues that its termination of the Agreement in May 2020 was valid because most, if not all, in person events at that time were cancelled as a result of the COVID-19 pandemic. AC ¶¶ 27-28. Shutterstock argues that the lack of live events to photograph frustrates the purpose of the companies’ Agreement. AC ¶¶ 28-29. Penske alleges that the termination of the Agreement, Shutterstock's resulting refusal to pay the royalties and advances due in 2020 and 2021, and certain other events, constitute a breach of the Agreement by Shutterstock. AC ¶¶ 40-41, 55-60 (Count One). Penske also asserts claims for breach of the implied covenant of good faith and fair dealing (Count Two), and two claims related to copyright protection of the photographs (Counts Three and Four).

The claim for breach of the implied covenant of good faith and fair dealing relates to the timeframe before Shutterstock terminated the Agreement. Specifically, Penske alleges that despite holding an exclusive right to use Penske's credentials at Third Party Events, Shutterstock instead used its own credentials to photograph high-profile Third Party Events. AC ¶¶ 45-46, 61-64. Penske alleges that Shutterstock had an implied obligation to use Penske's credentials at any event for which they were available. AC ¶ 46. Shutterstock argues in its motion that no such obligation existed.

As for the copyright-related claims, Penske asserts that it owns the copyright in approximately 2,300 photographs that Shutterstock created pursuant to the Agreement (i.e. photographs taken by Shutterstock either at Penske-sponsored events or at Third Party Events where Shutterstock used Penske's credentials).² AC ¶¶ 47-48. While Shutterstock held a license to use and market these images pursuant to the Agreement, Penske alleges that upon termination of the Agreement, Shutterstock was required immediately to remove the images from its website and to stop all distribution of the photographs. AC ¶ 50. Shutterstock's failure to do so, according to Penske, constitutes copyright infringement. AC ¶¶ 75-79. Penske's other copyright-related claim alleges a violation of the Digital Millennium Copyright Act. Penske claims that, both before after Shutterstock terminated the Agreement, Shutterstock falsely stated that it, and not Penske, owned the copyright to the photographs in question. AC ¶¶ 52-53, 65-74. Shutterstock denies both claims on a number of grounds.

Shutterstock has filed a motion to dismiss Penske's Amended Complaint for failure to state a claim. The breach of contract claim is not subject to the current motion. Instead, Shutterstock seeks to dismiss the other three claims asserted in Penske's Amended Complaint. In support of the motion, Shutterstock filed a memorandum of law [ECF No. 36] ("Def. Br.") and a declaration of counsel attaching the Agreement [ECF Nos. 37, 39]. Penske filed an opposition to the motion [ECF No. 45] ("Opp."), and Shutterstock thereafter submitted a reply [ECF No. 49] ("Reply"). At a previously scheduled status conference in this case on July 7, 2021, the Court ruled that the motion was denied. See Order, ECF No. 69. This opinion memorializes the Court's reasoning.

ANALYSIS

In its motion, Shutterstock seeks dismissal of Penske's implied covenant and copyright-related claims. Essentially, Shutterstock argues, first, that the obligations Penske seeks to impose through the implied covenant claim are not intrinsic to the parties contract, and cannot be imposed on it. See Def. Br. at 8-15. In addition, Shutterstock seeks dismissal of the copyright claims on the ground that Penske has failed to allege that Shutterstock took any action to infringe Penske's copyright and lacked the necessary mental state for the claims. See Def. Br. at 15-24. As further set out below, Shutterstock's arguments regarding the implied covenant run contrary to long-established contract law, and the claim survives. Similarly, the attempts by Shutterstock to dismiss the copyright claims at the outset of this case fail, as Penske has satisfied its burden necessary to state a claim at the pleading stage.

Before addressing the merits of the parties’ arguments, the Court notes that significant portions of Shutterstock's arguments in support of its motion, both in its opening brief and in its reply, are made only in footnotes. Shutterstock includes 17 footnotes in its 25-page opening brief and another 16 footnotes in its 10-page reply brief. Most of these footnotes contain at least one citation (to either the record or precedent), and in total add more than 175 lines of text—nearly eight additional pages—to Shutterstock's briefing. While Shutterstock's abuse of footnotes is more apparent, Penske also adds nearly 115 lines—5 pages—across 13 footnotes in its opposition. The Court's Individual Practices impose page limits on counsel's briefs for a reason. While footnotes may be appropriate when used correctly in limited circumstances, counsel's abuse of them in connection with this motion is not appropriate.

Courts "routinely decline[ ] to consider arguments mentioned only in a footnote on the grounds that those arguments are inadequately raised." Fin. Guaranty Ins. Co. v. Putnam Advisory Co., LLC , 2020...