Case3:10-cv-05696-CRB Document146 Filed11/05/12 Page1 of 9
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`IN THE UNITED STATES DISTRICT COURT
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`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`AMARETTO RANCH BREEDABLES,
`Plaintiff,
`
` v.
`OZIMALS INC. ET AL.,
`Defendants.
` /
`
`No. C 10-5696 CRB
`ORDER GRANTING IN PART AND
`DENYING IN PART MOTION FOR
`SUMMARY JUDGMENT
`
`This is a copyright case between business competitors who sell virtual animals in an
`online simulated world known as Second Life. Presently before the Court is
`Plaintiff/Counterclaim Defendant Amaretto Ranch Breedables’ (“Amaretto”) Motion for
`Summary Judgment on (1) Defendant/Counterclaim Plaintiff Ozimals, Inc.’s (“Ozimals”)
`copyright infringement counterclaim; (2) Amaretto’s declaratory judgment claim, and (3)
`Amaretto’s copyright misuse claim. Dkt. 124.
`I.
`BACKGROUND
`A.
`Threshold Evidentiary Objections
`Both parties lodge voluminous generic objections to huge portions of the record. E.g.,
`Opp’n at 2-3 (over fifty objections in two pages), Reply at 12-14. Many of the so-called
`objections are in fact arguments about the significance of the evidence, not their
`admissibility. The Court’s review revealed that the objections are meritless or, at best,
`grossly overbroad and irrelevant as to material portions of the record. This Court need not
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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-05696-CRB Document146 Filed11/05/12 Page2 of 9
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`address boilerplate evidentiary objections that the parties themselves deem unworthy of
`development, Californians for Disability Rights, Inc. v. Cal. Dep’t of Transp., 249 F.R.D.
`334, 349-50 (N.D. Cal. 2008); Dukes v. Wal-Mart, Inc., 222 F.R.D. 189, 199 (N.D. Cal.
`2004); Cmtys. Actively Living Indep. & Free v. City of L.A., No. CV09-0287CBM (RZX),
`2011 WL 4595993, at *8 (C.D. Cal. Feb. 10, 2011), and the Court accordingly summarily
`overrules the objections.1
` B.
`Factual Background
` Second Life is an online virtual world created by the company Linden Research.
`Represented in the virtual world by an avatar, users of Second Life participate in activities
`like socializing with other users, traveling the virtual world, and engaging in commerce using
`the Second Life currency, the Linden dollar, which users can get by paying Linden real
`money. Stibbards Decl. (Ex. A to dkt. 124-1) ¶¶ 6-9.
`Third-party software developers, using a programming language unique to Second
`Life, can create and market their own 3-D objects that will operate in Second Life’s virtual
`world. Id. ¶¶ 10-13. The parties here are two such companies that developed competing
`“breedable animals” for purchase and use in Second Life; Ozimals developed a virtual
`bunny, and Amaretto a virtual horse. Sargent Decl. (dkt. 129-1) ¶¶ 2. The “breedable” label
`reflects that the virtual animals were programmed to function in certain ways like real
`animals in that, for example, they reproduced and passed on genetic traits. Jadzewski Decl.
`(Ex. B to dkt. 124-1) ¶ 11.
`Ozimals’ bunny product appeared first, Sargent Decl. (dkt 129-1) ¶ 6, and after some
`informal communications between representatives of Ozimals and Amaretto in the ensuing
`months about the possibility that the horse product Amaretto was developing infringed
`Ozimals’ copyright, id., Amaretto released its virtual horse. Id. ¶ 9. Ozimals sent Amaretto a
`cease-and-desist letter in November 2010, see Second Amended Compl. Ex. 1, and a few
`weeks later Ozimals received a registration certificate from the U.S. Copyright Office for its
`
`1Ozimals’ separately filed Objections and Motion to Strike (dkt. 132) concerns declarations
`submitted with Amaretto’s reply brief. The Court does not rely on any of that material in resolving this
`motion, and DENIES Ozimals’ motion as moot.
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`Case3:10-cv-05696-CRB Document146 Filed11/05/12 Page3 of 9
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` “Ozimals Animal Scripts” computer program (the “‘661 Copyright”), Kearns Decl.
`(dkt. 124-1) Ex. I.
`The following month Ozimals sent a Digital Millennium Copyright Act (DMCA)
`takedown notice to Linden, asserting that Amaretto’s horses infringed Ozimals’ copyright,
`and requesting that Linden remove the horse products. See Second Amended Compl. Ex. 3.
`Amaretto responded with a counter-DMCA notice to Linden, id. Ex. 4, and filed the instant
`action in this Court, where it secured a temporary restraining order and preliminary
`injunction preventing Linden from removing the virtual horses. See dkts. 29, 49.
`Among other claims, Amaretto alleged that Ozimals’ DMCA notice was copyright
`misuse under 17 U.S.C. § 512(f), and also sought a declaration from this Court that its horses
`did not infringe. See Complaint (dkt. 1) ¶ 35, Application for TRO (dkt. 3). Ozimals
`counterclaimed for copyright infringement. See Answer (dkt. 106).
`Following discovery and motion practice that narrowed the scope of the case, see dkts.
`81, 104, Amaretto now moves for summary judgment on three remaining claims: (1)
`Amaretto’s declaratory judgment claim, (2) Amaretto’s copyright misuse claim, and (3)
`Ozimals’ infringement counterclaim. Dkt. 124.
` II.
`LEGAL STANDARD
`Summary judgment is proper when “the movant shows that there is no genuine
`dispute as to any material fact and the movant is entitled to a judgment as a matter of law.”
`Fed. R. Civ. P. 56(a). An issue is “genuine” only if there is a sufficient evidentiary basis on
`which a reasonable fact finder could find for the nonmoving party, and a dispute is
`“material” only if it could affect the outcome of the suit under governing law. See Anderson
`v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A principal purpose of the summary
`judgment procedure “is to isolate and dispose of factually unsupported claims.” Celotex
`Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). “Where the record taken as a whole could not
`lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for
`trial.’” Matsushita Elec. Ind. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).
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`III. DISCUSSION
`A.
`Ozimals’ Infringement Counterclaim
`The parties do not dispute the basic facts regarding the creation of the code for
`Ozimals’ bunny program. Three individuals–Candace Sargent, Cameron Holt, and Edward
`Distelhurst–were involved. Holt and Distelhurst wrote portions of the code, Sargent Depo.
`(Ex. L to dkt. 129-1) at 76-78, while Sargent described herself as contributing “the structure
`in the menus and the text that the user sees, [and] the design” of the program–though no
`actual code. Id. at 77-78; see also Holt Depo. (Ex. M to dkt. 129-1) at 41. All three were
`listed on the ‘661 Copyright application and registration certificate as co-authors. See Exs. I,
`J to Kearns Decl.
`Sargent and Holt executed documents purporting to transfer to Ozimals each of the
`authors’ “entire right, title, interest, and privilege, in and to the Ozimals Animals Scripts, . . .
`including, without, limitation, all rights of . . . copyright” in exchange for unspecified
`consideration. See Assignment, Exs. 16, 17 to Sargent Depo. Distelhurst, however, never
`attempted to transfer his rights to Ozimals.
`On the contrary; he sued Ozimals (and Sargent) in Texas state court, arguing that they
`breached a contract with him to help write the bunny code, and that they owed him money.
`See Second Amended Petition, Ex. N to Kearns Decl. That case settled. A settlement
`agreement, signed by Distelhurst, Sargent, and an agent of Ozimals, included the following
`provision:
`[Distelhurst] acknowledges that he is a joint author under copyright registration
`number TX007251661 along with Candace Sargent and Cameron Holt.
`[Distelhurst] further acknowledges that he will not assign his interest in the
`copyright under registration number TX0007251661.
`Rule 11 Settlement Agreement, Ex. P to Kearns Decl. (“Settlement Agreement”). Thus, of
`the three original authors of the code, only two arguably transferred their interests in the ‘661
`Copyright to Ozimals.2
`
`2Amaretto does not concede that Sargent and Holt’s contributions to the coding process made
`them co-owners of the copyright, but argues (correctly) that it does not matter for purposes of this issue
`since Distelhurst was certainly an owner and he never assigned his rights.
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`That settlement agreement may or may not have any force at all. A later agreement in
`the same case expressly stated that it “supersede[d] and replace[d] any previous” agreement
`in the case, and the new agreement made no mention whatsoever of the ‘661 copyright or
`joint ownership. See Ex. B to Kearns Reply Decl. (dkt. 131). The Court need not rely on
`either agreement or treat one as operative over the other, because the outcome would be the
`same under either (or if no agreement had been made at all).
`In Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008), the Ninth
`Circuit confronted a factually analogous situation. Sybersound and UAV were competitors
`in the business of producing karaoke records. Id. at 1141. Sybersound sued UAV for
`copyright infringement, alleging that UAV produced karaoke records with songs for which
`Sybersound owned copyrights. Id. at 1142. Sybersound argued that it acquired copyright
`over the relevant songs through a written assignment-of-rights agreement with one of the
`original co-owners of the copyrights, TVT Music Publishing. Id.
`The agreement between Sybersound and TVT designated Sybersound as the
`“exclusive assignee and licensee of [TVT]’s copyrighted interests for purposes of karaoke
`use, and also exclusive assignee of the right to sue to enforce the assigned copyright interests,
`for both present and past infringements in karaoke exploitation.” Id. at 1145.
`Notwithstanding that broad language, the Ninth Circuit held that because TVT was not the
`exclusive owner of the karaoke-use interest in the copyrights, it could grant Sybersound
`“only a non-exclusive license . . . because TVT may not limit the other co-owners’
`independent rights to exploit the copyright.” Id. at 1146. And, the court concluded, since
`Sybersound was neither an exclusive licensee nor co-owner of the copyrights, it had no
`standing to sue for copyright infringement. Id.
`Leading commentators have criticized Sybersound, see III Goldstein on Copyright
`§ 15.5 (3d ed. 2011); 4 Nimmer on Copyright § 6.10[A][2][d] (rev. ed. 2012); 2 Patry on
`Copyright § 5:103 (2012), and its reasoning has been rejected by at least one court not bound
`by its holding. See Brownmark Films, LLC v. Comedy Partners, 800 F. Supp. 2d 991, 996-
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`97 (E.D. Wis. 2011). Nevertheless, this Court must follow Sybersound, and Ozimals’
`attempts to distinguish it fall short.
`Ozimals first contends that the transfer here was of exclusive rights because
`Distelhurst “expressly relinquished his ownership” interest in the ‘661 Copyright in the state
`court settlement agreement, Opp’n at 10, and so the assignments from Sargent and Holt
`amounted to assignments from all owners. Assuming without deciding that agreement has
`any force, the actual language in that agreement contradicts Ozimals’ claim: “Plaintiff
`[Distelhurst] acknowledges that [the ‘661 Copyright] is jointly owned by Plaintiff
`[Distelhurst], Candace Sargent, and Cameron Holt.” (emphasis added). Distelhurst retained
`an ownership interest in the ‘661 Copyright–an interest he agreed not to assign. Ozimals’
`suggestion in a footnote that Distelhurst “effectively assigned [his interest] to Sargent and
`Holt,” Opp’n at 12 n.22, has no basis in the language of the agreement.
`Next, Ozimals misreads Sybersound, arguing that “the issue [in Sybersound] was
`whether the other joint authors granted an exclusive license to Sybersound, not whether any
`one of the joint authors had standing to sue for infringement. . . . Ozimals is not a licensee, it
`is an owner. ” Opp’n at 11. In declaring that it is a co-owner of the ‘661 Copyright, Ozimals
`begs the question; Sybersound stands for the proposition that, notwithstanding the language
`of the assignment agreements and Sargent and Holt’s apparent intent to completely transfer
`their ownership interests to Ozimals, they had the power to grant Ozimals only a non-
`exclusive license. Ozimals therefore is not a co-owner, but a non-exclusive licensee without
`standing to sue for copyright infringement.
`Accordingly, the Court GRANTS IN PART Amaretto’s Motion for Summary
`Judgment as to Ozimals’ copyright infringement counterclaim.
`B.
`Amaretto’s Declaratory Judgment Claim
`To have standing to pursue a declaratory relief action regarding copyright
`infringement, a plaintiff must show that “under all the circumstances of the case, there is a
`substantial controversy between parties having adverse legal interests, and the controversy is
`of sufficient immediacy and reality to warrant declaratory relief.” Hal Roach Studios, Inc. v.
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`Richard Feiner & Co., 896 F.2d 1542, 1555-56 (9th Cir. 1989). In particular, the plaintiff
`must have “a real and reasonable apprehension that he will be subject to liability if he
`continues” the allegedly infringing conduct. Id. at 1556.
`Moreover, the Declaratory Judgment Act vests district courts with discretion over
`whether to grant declaratory relief. See 28 U.S.C. § 2201 (“[A]ny court of the United States
`. . . may declare the rights and other legal relations . . .” (emphasis added)). As the Supreme
`Court explained in MedImmune, Inc. v. Genentech, Inc., the text of the Declaratory
`Judgment Act “has long been understood to confer on federal courts unique and substantial
`discretion in deciding whether to declare the rights of litigants.” 549 U.S. 118, 136 (2007)
`(internal quotation marks omitted).
`Here, Amaretto faces no serious prospect of copyright infringement liability regarding
`the ‘661 Copyright, and so it lacks standing to seek a declaratory judgment that its virtual
`horses do not infringe that copyright. As explained above, Ozimals cannot sue for
`infringement. Neither–as demonstrated by their failure to do so in this suit–can the
`individual defendants Sargent and Holt sue for infringement, since they voluntarily
`relinquished their rights to do so in exchange for consideration through assignment
`agreements. Accordingly, Amaretto has failed to demonstrate that it has standing to bring its
`declaratory relief claim.
`And for the same reasons, the Court would decline to exercise its discretion to reach
`Amaretto’s declaratory relief claims even if Amaretto could satisfy the bare minimum “case
`or controversy” requirement. The possibility Amaretto will face any liability on the ‘661
`copyright is too speculative to warrant the requested declaration.
`Amaretto suggested during oral argument that the merits of the case may remain
`justiciable on account of Amaretto’s potential entitlement to attorneys’ fees. That argument
`more commonly arises in the context of mootness, where it consistently fails when, as here,
`the controversy ends before a decision is reached on the merits. E.g., Lewis v. Cont’l Bank
`Corp., 494 U.S. 472, 480-81 (1990); 13C Wright et al., Federal Practice & Procedure
`§ 3533.3 at n.68 (3d ed. 2008) (collecting cases). The Court sees no reason to treat the issue
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`differently where the problem is standing instead of mootness, see Steel Co. v. Citizens for a
`Better Environment, 523 U.S. 83, 107 (1998) (“The litigation must give the plaintiff some
`other benefit besides reimbursement of costs that are a byproduct of the litigation itself.”);
`Jacobsen v. Katzer, 609 F. Supp. 2d 925, 931 (N.D. Cal. 2009), and anyway any entitlement
`to fees would be an ancillary issue that would not preserve the copyright-related claims.
`Cammermeyer v. Perry, 97 F.3d 1235, 1238 (9th Cir. 1996).
`C.
`Amaretto’s Copyright Misuse Claim
`This Court previously permitted Amaretto’s copyright misuse claim to go forward as
`an independent cause of action notwithstanding a split of authority on whether copyright
`misuse can only be asserted as a defense. See dkt. 80 at 11-12. However, as noted in that
`Order and the cases cited permitting copyright misuse as a freestanding cause of action, such
`claims are nothing more than actions for declaratory relief. E.g., Elec. Data Sys. Corp. v.
`Computer Assoc. Int’l, Inc., 802 F. Supp. at 1465-66 (“To the extent [Plaintiff] seeks a
`declaration that it has not infringed [Defendant’s] copyrights because of [Defendant’s]
`alleged misuse of such copyrights, the court will permit the claim to be asserted.”). As a
`result, Amaretto’s misuse claim fails for the same reasons just discussed.
`During oral argument on this motion, Amaretto cited a district court case suggesting
`that the doctrine of copyright misuse permits plaintiffs to assert claims “to clarify the risks it
`confronts by marketing the products at issue” and to assert claims on behalf of (unnamed)
`third parties who might conceivably be injured by the defendant’s conduct, thus providing
`standing even where the plaintiff itself might not face harm. See Apple Inc. v. Psystar Corp.,
`No. 08-03251 WHA, 2009 WL 303046, at *2 (N.D. Cal. Feb. 6, 2009) (unpublished).
`Putting aside the absence of any explanation as to why basic principles of standing
`should be compromised in service of plaintiffs asserting copyright misuse, here Defendants
`lack the ability to sue anyone for infringing the ‘661 Copyright, and so third parties face the
`same non-risk of liability as Amaretto faces in marketing its horse product. Moreover, the
`Psystar court rested its holding on the premise that “subject-matter jurisdiction [otherwise]
`exist[ed] over the declaratory judgment action,” id. at *3, which is not the case here.
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`IV. CONCLUSION
`Ozimals lacks standing to pursue its counterclaim, and so the Court GRANTS IN
`PART Amaretto’s Motion for Summary Judgment as to the counterclaim. Because Amaretto
`has not established a reasonable likelihood of facing copyright infringement liability, the
`Court finds that Amaretto lacks standing to pursue its remaining claims; it also finds that the
`possibility of harm is so speculative that the Court would not exercise its discretion to rule on
`the declaratory relief claims even if the threshold standing requirements were met.
`Accordingly, the Court DENIES IN PART Amaretto’s motion for summary judgment as to
`the declaratory judgment and copyright misuse claims, and DISMISSES those claims for lack
`of subject matter jurisdiction.
`IT IS SO ORDERED.
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`Dated: November 5, 2012
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`CHARLES R. BREYER
`UNITED STATES DISTRICT JUDGE
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