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`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`No. C 10-03564 SI
`ORDER GRANTING MOTION TO
`DISMISS COUNTERCLAIMS
`
`ADOBE SYSTEMS INCORPORATED,
`Plaintiff,
`
` v.
`RENEE NORWOOD,
`Defendant.
`___________________________________/
`AND RELATED COUNTER-CLAIMS.
` /
`
`On February 25, 2011, the Court heard argument on the motion by plaintiff/counter-defendant
`Adobe Systems Incorporated (“Adobe”) and third-party defendant Software & Information Industry
`Association (“SIIA”) to dismiss Counts One, Two, Three, Four, Eight, Nine, and Ten of the counter-
`claims filed by defendant/counter-claimant Renee Norwood. Having considered the arguments of
`counsel and the papers submitted, the Court hereby GRANTS the motion to dismiss counterclaims, with
`leave to amend Counts Three, Eight, Nine, and Ten. Count Four may be amended to support a
`declaratory judgment against Adobe, but it is dismissed with prejudice as to any claim for judgment
`against SIIA or damages generally.
`
`BACKGROUND
`Adobe filed this copyright and trademark infringement case on August 13, 2010, alleging that
`Renee Norwood engaged in “systematic, unauthorized copying and distribution of Adobe’s software
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`For the Northern District of California
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`United States District Court
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`Case3:10-cv-03564-SI Document40 Filed03/08/11 Page2 of 9
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`products through sales on the eBay online auction site.”1 Compl. at ¶ 1. Norwood filed an answer on
`November 17, 2010 and on that same date filed ten counterclaims against Adobe and the Software &
`Information Industry Association (“SIAA”), a non-profit trade association, alleging three antitrust and
`unfair competition violations, misuse of copyright, defamation, placing defendant before the public in
`a false light, business disparagement, aiding and abetting, civil conspiracy, and that SIAA was an alter
`ego and/or instrumentality of Adobe. Adobe responded on January 7, 2011 and moves to dismiss all
`of the claims except for the defamation, false light, and business disparagement claims.
`Norwood claims that Adobe and SIAA “made a concerted effort to stop resale distribution
`altogether by [] instituting . . . a coordinated campaign of litigation against small individual re-sellers
`who sell computer software on the secondary market -- computer software lawfully purchased by these
`small computer software re-sellers,” which Norwood argues violates the first sale doctrine. Counter-
`claims, at ¶¶ 11, 13. Norwood claims that Adobe and SIIA “have joined together to embark on a scheme
`to cartelize [the secondary market for computer software] and its [financial] promise for themselves.
`Their goal is simple: to destroy the secondary market for computer software since they no longer owned
`or controlled such software products.” Counterclaims, at ¶ 12. To accomplish this goal, Norwood
`claims that Adobe and SIAA are “specifically targeting small, independent resellers” by filing lawsuits
`and Digital Millennium Copyright Act (“DMCA”) take-down notices in order to “intimidate, harass and
`ultimately eliminate from competition these small re-sellers.” Id. at ¶¶ 13-14. Norwood claims that
`Adobe and SIIA intentionally focus on small resellers with limited financial means in order to avoid
`having to litigate. They “know that their claims of infringement are not valid given the critical
`limitation on copyright, embodied in the First Sale Doctrine.” Id. at ¶ 17.
`Norwood further claims that SIIA issued a press release on October 6, 2010 which contained
`defamatory statements accusing Norwood of piracy. Norwood alleges that the statements were made
`without any evidence to support them and have caused her to suffer “severe emotional, psychological,
`and medical distress and damages . . . as she experienced the destruction of her reputation, identity,
`
`1 The claim for trademark infringement arises because Adobe alleges that Norwood used images
`similar or identical to Adobe’s trademarks to confuse consumers and to promote their products. Compl.,
`at ¶ 16.
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`sense of self-worth, and lost business and customers.” Id. at ¶¶ 28-40. Adobe does not move to dismiss
`the defamation, false light, and disparagement claims, but requests that the remainder of the claims be
`dismissed with prejudice.
`
`LEGAL STANDARD
`Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it
`fails to state a claim upon which relief can be granted. The question presented by a motion to dismiss
`is not whether the plaintiff will prevail in the action, but whether the plaintiff is entitled to offer
`evidence in support of the claim. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other
`grounds by Davis v. Scherer, 468 U.S. 183 (1984).
`In answering this question, the Court must assume that the plaintiff's allegations are true and
`must draw all reasonable inferences in the plaintiff's favor. See Usher v. City of Los Angeles, 828 F.2d
`556, 561 (9th Cir. 1987). Even if the face of the pleadings suggests that the chance of recovery is
`remote, the Court must allow the plaintiff to develop the case at this stage of the proceedings. See
`United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).
`If the Court dismisses the complaint, it must then decide whether to grant leave to amend.
`Federal Rule of Civil Procedure 15 governs amendment of the pleadings. It states that if a responsive
`pleading has already been filed, the party seeking amendment may amend the party's pleading only by
`leave of court or by written consent of the adverse party and that leave shall be freely given when justice
`so requires. Fed. R. Civ. P. 15(a). This rule reflects an underlying policy that disputes should be
`determined on their merits, and not on the technicalities of pleading rules. See Foman v. Davis, 371
`U.S. 178, 181-82 (1962). The Ninth Circuit has "repeatedly held that a district court should grant leave
`to amend even if no request to amend the pleading was made, unless it determines that the pleading
`could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1130 (9th
`Cir. 2000) (citation and internal quotation marks omitted). Accordingly, the Court must be generous
`in granting leave to amend.
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`Case3:10-cv-03564-SI Document40 Filed03/08/11 Page4 of 9
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`I.
`
`DISCUSSION
`Antitrust and unfair competition counterclaims
`Norwood’s first, second, and third counterclaims are: (1) conspiracy in restraint of trade in
`violation of federal antitrust law, (2) violation of California antitrust law, and (3) violation of the
`California Unfair Competition Act by restraint of trade. Adobe moves to strike these counterclaims,
`arguing that there can be no antitrust conspiracy between Adobe and SIAA, because SIAA is Adobe’s
`agent. In making these arguments, Adobe characterizes Norwood’s first three counterclaims as antitrust
`claims. Norwood argues that the third counterclaim made pursuant to the California Unfair Competition
`Act, Business and Professions Code Section 17200, is broader than a simple antitrust claim, despite the
`fact that the primary allegation in the counterclaim is that “Counter-Defendants conspired to and did
`restrain trade in ways that violated federal and state antitrust laws, and/or that violate the policy and
`spirit of such laws and threatened their incipient violation.” Counterclaims, at ¶ 47 (emphasis added).
`While Norwood attempts to clarify the pleading by explaining that the uncontested defamation, false
`light, or disparagement claims could support the unfair competition claim, the third counterclaim, as
`written, only addresses an antitrust claim.
`Adobe argues that the antitrust conspiracy claims should be dismissed because SIAA is its agent
`and therefore, cannot conspire with Adobe. The Ninth Circuit has held that “[a] corporation cannot
`conspire with its officers or agents to violate the antitrust laws.” Chapman v. Rudd Paint & Varnish
`Co., 409 F.2d 635, 643 n.9 (9th Cir. 1969). Norwood does not provide contradictory case law, but
`argues that “[n]either SIIA nor Adobe have offered any evidence of their relationship whatsoever” and
`that “Norwood offers indisputable evidence that SIIA acts on its own behalf, as well as many other of
`its clients.” Opposition to Motion to Dismiss Counterclaims (“Oppo.”), 6. However, Norwood’s own
`pleadings allege that the relationship between Adobe and SIIA is that of a principal and its agent.
`See Counterclaims, at ¶¶ 3, 13-14 (“SIIA has acted as Adobe’s agent”; “SIIA acting on behalf of its
`association member, Adobe”; “actions of Adobe and its agent, SIIA”).
`Norwood attempts to offer evidence accompanying her opposition to the motion to dismiss. This
`evidence, in the form of two declarations from Norwood and her attorney Mike Rodenbaugh, is clearly
`outside the scope of Norwood’s pleadings and must be excluded from consideration in deciding whether
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`Case3:10-cv-03564-SI Document40 Filed03/08/11 Page5 of 9
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`to dismiss the counterclaims. The declarations are discussed here because they provide guidance in
`deciding whether to grant Norwood leave to amend – and they do not help Norwood. Norwood alleges
`that “[t]he SIIA makes third party demands and has published many press releases about copyright
`enforcement in its own name,” and also that “the SIIA profits from the online resale of Adobe’s software
`as well as the software of its other Premium Resellers, through operation of its Premium Reseller
`Program and presumably through revenue share from direct sales.” Id. at 6-7 (citing Mike Rodenbaugh
`Decl., ¶¶ 3-4). Norwood’s allegation that the SIIA profits from the online resale of software is offered
`to show that SIIA is “a direct competitor to eBay and Amazon Marketplace, and by extension Ms.
`Norwood.” Id. The fact that SIIA acts on its own behalf in issuing press releases and demands does
`not preclude it from being Adobe’s agent with regard to the events relevant to the antitrust claims.
`Further, Norwood’s allegations of SIIA profiting from the online resale of Adobe’s software seems to
`point toward an agency relationship between SIIA and Adobe rather than away from it.
`Norwood also offers a printout from SIIA’s website that provides detail on SIIA’s “Premier
`Reseller Program” in which “SIIA recognizes outstanding software resellers and promotes them to
`potential software buyers.” Rodenbaugh Decl., Ex. 4. The website also contains a link to an Adobe
`sales website. Id. It does not contain any information regarding any way in which SIIA profits from
`the “Premium Reseller” program. Norwood’s assumptions that SIIA profits from the program and
`speculations about presumable revenue sharing are not supported by the information on SIIA’s website.
`The Court GRANTS Adobe’s motion to dismiss Counts One and Two, with prejudice.2 As for
`Count Three, the California unfair competition claim, Norwood argues that it can be supported by other
`causes of action rather than antitrust, including the uncontested defamation, business disparagement,
`and/or false light claims.3 Therefore, the Court GRANTS Adobe’s motion to dismiss Count Three for
`
`2 Norwood also names “Does 1-10" in her complaint, defining them as “principals, supervisory
`employees, employees, agents, or associates of Adobe and/or SIIA.” As such, the doe defendants could
`not be named as conspirators with Adobe or SIIA. Id. at ¶ 4.
`3 At the hearing, Adobe argued that a state-law unfair competition claim predicated on copyright
`misuse would be preempted by the federal Copyright Act, but did not brief this matter. Norwood did
`not articulate such a basis for her unfair competition claim and the Court will address preemption, if
`necessary, when Norwood submits her amended counterclaims.
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`the reasons discussed above, but GRANTS Norwood leave to amend.4
`
`II.
`
`Misuse of copyright
`Norwood’s fourth counterclaim is for misuse of copyright. It is based primarily on the allegation
`that Adobe’s actions are in violation of the first sale doctrine. Adobe argues that misuse of copyright
`is a defense and cannot support a claim for damages or declaratory judgment. Adobe also argues that
`Norwood fails to state a misuse of copyright claim because she is a licensee and not a purchaser of the
`copyrighted work.
`
`Copyright misuse as a defense
`A.
`Copyright misuse, which is nearly always regarded as a defense, “forbids a copyright holder
`from securing an exclusive right or limited monopoly not granted by the Copyright Office” by
`preventing “copyright holders from leveraging their limited monopoly to allow them control of areas
`outside the monopoly.” A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1026 (9th Cir. 2001)
`(internal quotations omitted). Here, Norwood alleges that Adobe and SIIA have attempted to control
`the resale of Adobe’s software products beyond their first sale in contravention of the first sale doctrine.
`Counterclaims, at ¶ 53.
`Many district courts have held that copyright misuse does not support a claim for damages.
`Adobe Systems, Inc. v. Kornrumpf, No. C 10-02769 CW, 2011 WL 181375 at *2 (N.D. Cal. Jan. 19,
`2011); Ticketmaster L.L.C. v. RMG Techs., Inc., 536 F. Supp. 2d 1191, 1198 (C.D. Cal. 2008); Online
`Policy Group v. Diebold Inc., 337 F. Supp. 2d 1195, 1198 n.4 (N.D. Cal. 2004). As Norwood
`identifies no legal authority suggesting otherwise and amendment would not cure the deficiency, the
`Court dismisses with prejudice Norwood’s request for damages for copyright misuse.
`Norwood does identify a case that suggests that copyright misuse may be asserted as a
`counterclaim for declaratory judgment. In Apple Inc. v. Psystar Corp., No. C 08-03251 WHA, 2009
`WL 303046, *2 (N.D. Cal. 2009), the court concluded Psystar’s copyright misuse counterclaim was
`
`4 The request for judicial notice filed by Adobe and SIIA is DENIED as moot.
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`proper because Apple Inc. asserted copyright claims against Psystar, and because “Psystar’s interest in
`the issue may not be limited solely to the defense of those claims.” Norwood argues that she has a
`“legitimate interest in establishing misuse of Adobe’s copyrights, to clarify that in fact her resales of
`sealed, boxed, authorized software - each copy individually sold and authenticated by Adobe - are
`lawful,” because Adobe is acting in violation of the first sale doctrine and, ultimately, that “Adobe and
`SIIA deserve the requisite penalty for misuse of the Adobe copyrights.” Oppo., at pgs. 9-10.
`The Court agrees with Psystar that copyright misuse can, in some cases, be a claim for
`declaratory relief. However, as Adobe Systems, Inc. v. Kornrumpf makes clear, such a claim can only
`survive where the claimant alleges facts showing the applicability of the first sale doctrine. 2011 WL
`181375, at *2.
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`First sale doctrine
`B.
`The first sale doctrine “permits one who has acquired ownership of a copy to dispose of that
`copy without the permission of the copyright owner.” UMG Recordings, Inc. v. Augusto, 628 F.3d
`1175, 1177 (9th Cir. 2011) (citing 17 U.S.C. § 109(a)). However, the doctrine “does not apply to a
`person who possesses a copy of the copyrighted work without owning it, such as a licensee.” Vernor
`v. Autodesk, Inc., 621 F.3d 1102, 1107 (9th Cir. 2010) (citing 17 U.S.C. § 109(d)). “[A] software user
`is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is
`granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes
`notable use restrictions.” Id. at 1111.
`Norwood bears the burden of alleging facts sufficient to support her cause of action. See Bell
`Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In order to support her copyright misuse claim and
`avail herself of the first sale doctrine, Norwood must plead facts that distinguish her case from Vernor.
`See Kornrumpf, 2011 WL 181375, at *4 (claimant must “plead . . . facts to suggest that [she] owned .
`. . particular copies of Adobe software that [she] resold” and “allege that Adobe . . . sold, gave away or
`transferred title to the particular copies of the software at issue”). Norwood only makes conclusory
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`allegations that her purchase of the software from “other third party distributors” was “legitimate.”5 See,
`e.g., Counterclaims, at ¶ 11. Norwood fails to plead facts to suggest that title was transferred to her, nor
`does she provide information regarding the terms under which the third party distributors obtained the
`software. See Kornrumpf, 2011 WL 181375, at *4 (claimant must establish “under what terms these
`distributors obtained the copies”).
`Further, Kornrumpf concluded that naming SIIA as a counter-defendant for the copyright misuse
`claim was inappropriate, given that SIIA did not own any copyright in question. Id., at *3. The same
`is true here; SIIA is Adobe’s agent and does not own any relevant copyright. As in Kornrumpf, any
`claim that SIIA engaged in copyright misuse is properly dismissed.
`For these reasons and those above, Adobe’s motion to dismiss Count Four of the counterclaims
`is GRANTED. Norwood has leave to amend to show grounds for bringing a claim against Adobe only,
`for declaratory judgment only. In any amended pleading, Norwood must plead facts showing that title
`of the software in question was properly transferred to her in order to sustain her copyright misuse claim
`against Adobe.
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`III.
`
`Failure to state separate causes of action
`Norwood’s eighth, ninth, and tenth counterclaims are for aiding and abetting, civil conspiracy,
`and alter ego/instrumentality respectively. Adobe argues that counterclaims eight through ten are not
`independent causes of action, but derivative liability legal doctrines that are “best understood as
`doctrines applied to the other Counterclaims.” Mot. to Dismiss, at pg. 9. “Upon reflection, Norwood
`generally agrees and thus would like the opportunity to amend the Counterclaims to clarify that, and to
`better clarify SIIA’s independent actions and liabilities.” Oppo., at pg. 13. Therefore, the Court
`GRANTS Adobe’s motion to dismiss Counts Eight through Ten of the counterclaims, with leave to
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`5 Norwood attempts to supplement her claim by offering a declaration that was filed with her
`opposition. Adobe argues that this declaration should not be considered because it is outside the scope
`of the initial pleading. However, the declaration only offers conclusory allegations of the legitimacy
`of Norwood’s purchase, without giving further detail as to whether title was transferred. See Norwood
`Decl., ¶¶ 2-3. Norwood’s allegation that “[t]he third party distributor has provided written assurance
`that the copies are resellable” still do not provide information about the status of the title of the software
`as they do not explain the circumstances under which the “third party distributor” obtained the software.
`Id. at ¶ 3.
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`amend, provided that the amended pleadings are not inconsistent with anything in this order.
`
`CONCLUSION
`For the foregoing reasons and for good cause shown, the Court hereby GRANTS Adobe’s
`motion to dismiss Counts One, Two, Three, Four, Eight, Nine and Ten of the Counterclaims (Docket
`No. 26). Counts One and Two are dismissed with prejudice. Norwood has leave to amend the
`remaining claims, except for her damages request in Count Four by March 18, 2011.
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`IT IS SO ORDERED.
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`Dated: March 8, 2011
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`SUSAN ILLSTON
`United States District Judge
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