Xoom, Inc. v. Imageline, Inc.

• Decision Date: 21 March 2003
• Docket Number: No. 02-1121.,02-1121.
• Citation: 323 F.3d 279
• Parties: XOOM, INCORPORATED; Aztech New Media International Corporation (Joined); Media Graphics International, Incorporated (Joined), Plaintiffs-Appellees, and MacMillan Digital Publishing USA, a division of Prentice-Hall, Incorporated (Joined), Plaintiff, v. IMAGELINE, INCORPORATED; George P. Riddick, III, Defendants-Appellants, and Compliance Services, Incorporated; Wayne K. Nystrom; Sprint Software Party Limited, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

323 F.3d 279

XOOM, INCORPORATED; Aztech New Media International Corporation (Joined); Media Graphics International, Incorporated (Joined), Plaintiffs-Appellees, and MacMillan Digital Publishing USA, a division of Prentice-Hall, Incorporated (Joined), Plaintiff, v. IMAGELINE, INCORPORATED; George P. Riddick, III, Defendants-Appellants, and Compliance Services, Incorporated; Wayne K. Nystrom; Sprint Software Party Limited, Defendants.

No. 02-1121.

United States Court of Appeals, Fourth Circuit.

Argued: December 3, 2002.

Decided: March 21, 2003.

COPYRIGHT MATERIAL OMITTED

ARGUED: Thomas Henry Oxenham, III, Chandler, Franklin & O'Bryan, Charlottesville, Virginia; Wyatt B. Durrette, Jr., Durrette Bradshaw, P.L.C., Richmond, Virginia, for Appellants. Tobey Baroukh Marzouk, Marzouk & Parry, Washington, D.C., for Appellees.

ON BRIEF: Bradford M. Young, Chandler, Franklin & O'Bryan, Charlottesville, Virginia, for Appellants. Thomas M. Parry, Marzouk & Parry, Washington, D.C.; Robert M. Tyler, McGuirewoods, L.L.P., Richmond, Virginia, for Appellees.

Before MICHAEL and GREGORY, Circuit Judges, and JAMES H. MICHAEL, Jr., Senior United States District Judge for the Western District of Virginia, sitting by designation.

Affirmed in part, reversed in part, and remanded by published opinion. Judge GREGORY wrote the opinion in which Judge MICHAEL and Senior Judge MICHAEL joined.

OPINION

GREGORY, Circuit Judge:

Xoom, Inc. ("Xoom") filed suit in federal district court against Imageline, Inc. ("Imageline"), seeking relief under federal and state law for alleged violations of the Copyright Act of 1976 ("Copyright Act") and interference with contractual rights. In response, Imageline filed a counterclaim alleging copyright infringement, false advertising, unfair competition, and business conspiracy. Subsequently, Xoom filed motions for partial summary judgment and summary judgment, which the district court granted. Imageline appealed to this Court. For the reasons that follow, we affirm in part and remand to the district court.

I.

Imageline introduced PicturePak SuperBundle ("SuperBundle") on CD-ROM in 1994. SuperBundle contained 1,580 individual electronic clip-art images in CGM, WMF, and EPF formats. Imageline registered the art, text, and packing design for CD-ROM and diskette media with the United States Copyright Office ("Copyright Office").¹ The SuperBundle copyright registration became effective on March 12, 1996. The registration covered SuperBundle in its entirety; there was no specific mention of the individual clip-art images. However, Imageline deposited printed and electronic copies of each clip-art image with its registration application. The Copyright Office issued a second copyright to Imageline, effective May 3, 1996, for its database, Imageline Master Gallery ("Master Gallery"), which contained updated versions of black and white line-art images that Imageline acquired from another company in 1991 and new images based on WMF software. Master Gallery encompassed 9,618 individual clip-art images in varying file formats for use in different operating systems and user environments.²

Xoom began distributing a CD product called Web Clip Empire 50,000 in 1997. That product contained 50,000 software clips, including clip art images. Xoom later expanded its collection and distributed Web Clip Empire 75,000, Web Clip Empire 150,000 and Web Clip Empire 250,000 (collectively, "Web Clip Empire Products"). The Web Clip Empire Products are distributed through Xoom's website and also through third parties who market the products to end-users. Some of the images used in the Web Clip Empire Products were designed by commissioned artists, while other images were licensed to Xoom by third parties.

In 1998, Imageline sent a letter to Xoom advising that it was infringing Imageline's copyrights by: (i) sublicensing certain Imageline clip-art images to other software publishers; (ii) including certain Imageline clip-art images in Xoom's own CD software products; and (iii) making certain Imageline clip-art images available for free downloading from Xoom's website. Each Web Clip Empire Product that Xoom distributed included statements that: (i) the "web clips" were "copyright cleared"; (ii) Xoom's clip-art images were "proprietary"; and (iii) Xoom commissioned artists around the world, most on an exclusive basis, to develop web objects.

Xoom filed suit against Imageline in district court, seeking relief under both federal and state law. The complaint sought injunctive and declaratory relief based on the Copyright Act, money damages based on interference and conspiracy to interfere with contractual rights,³ and indemnification against another defendant. Imageline filed a counterclaim against Xoom seeking relief under federal and state law for copyright infringement, false advertising and unfair competition, and business conspiracy. Xoom subsequently filed several motions for summary judgment and partial summary judgment. One of its motions for partial summary judgment, Motion No. 2, requested a dismissal or stay of Imageline's copyright claims for lack of subject matter jurisdiction or, alternatively, requested a limitation of possible statutory damages as to those claims. In a separate motion, Xoom sought summary judgment with respect to Imageline's false advertising and unfair competition claim.

In a written opinion issued on April 5, 1999, the district court granted partial summary judgment in favor of Xoom on Motion No. 2, issued a stay in the case, and limited possible statutory damages to one award per registration. On April 19, 2001, the district court granted summary judgment in favor of Xoom with respect to Imageline's counterclaims of false advertising and unfair competition. In a final order entered on January 7, 2002, the court disposed of all counts in Xoom's complaint and Imageline's counterclaim. Imageline timely filed this appeal.

II.

A district court's award of summary judgment is reviewed de novo. See A.T. Massey Coal Co., Inc. v. Massanari, 305 F.3d 226, 235 (4th Cir.2002). To the extent there are issues of law in dispute, those questions will also be reviewed de novo. See Nelson-Salabes, Inc. v. Morningside Dev., LLC, 284 F.3d 505, 512 (4th Cir.2002).

III.

Imageline asserts that the district court erred: (1) in finding that it did not hold copyright in the individual clip-art images or in the computer program creating the images found in SuperBundle and Master Gallery; (2) in holding that Imageline was entitled to only one award of statutory damages per work infringed; and (3) in granting summary judgment to Xoom on Imageline's false advertising and unfair competition claim. We address each of these issues in turn.

A.

Imageline's counterclaim alleged that Xoom infringed Imageline's copyright in the individual clip-art images contained in SuperBundle and Master Gallery. The issue on appeal centers around the question of whether Imageline effectively registered its copyright in the materials it claims Xoom infringed. Copyright registration is a jurisdictional prerequisite to bringing an action for infringement under the Copyright Act. See 17 U.S.C. § 411(a) (1996); Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 658 (4th Cir.1993). The district court found that Imageline had no basis for litigating claims of infringement with respect to the individual images because, as registered, the copyright claims were only in the works as a whole and not in the individual images. Imageline appeals to this Court, asserting that its copyright registration of SuperBundle and Master Gallery extended to the individual clip-art images contained in both products and in the computer programs used to create those images. We examine each of these assertions in turn.⁴

1.

Imageline argues that it registered, and therefore owned, copyright in the individual clip-art images through its copyright registrations of SuperBundle and Master Gallery as compilations or derivative works. We decline to make a determination of whether the individual clip-art images were effectively registered through the registrations of SuperBundle and Master Gallery and find that Imageline's registration of SuperBundle and Master Gallery was sufficient to provide copyright protection to the underlying preexisting works of each.

In the instant case, Imageline created SuperBundle and Master Gallery, both compilations or derivative works, and the underlying works which those products encompassed. The Second Circuit held, in Morris v. Bus. Concepts, Inc., 259 F.3d 65, 68 (2d Cir.2001), that where an owner of a collective work also owns the copyright for a constituent part of that work, registration of the collective work is sufficient to permit an infringement action of the constituent part. Similarly, in 1997, a district court in Kansas held that registration of a derivative work is sufficient to allow an infringement claim based on the copying of material, whether newly added or contained in the underlying work. In Re Indep. Serv. Orgs. Antitrust Litig., 964 F.Supp. 1469 (D. Kan.1997); see also Foxworthy v. Custom Tees, Inc., 879 F.Supp. 1200, 1218 (N.D.Ga.1995) (holding that "preexisting materials may be subject to copyright protection under the umbrella of a compilation copyright."). We adopt this view and reverse the district court, finding that because Imageline owned copyright in SuperBundle and Master Gallery and in the underlying works of each, its registration of SuperBundle and Master Gallery was sufficient to permit an infringement action on the underlying parts, whether they be new or preexisting.⁵

Based on this holding, we do not address the issue of whether the registration of the products covered the individual clip-art images. If Xoom improperly used any copyrightable image contained in SuperBundle and Master Gallery, new or preexisting, that usage would give rise to potential statutory damages.

2.

Imageline also asserts that it...