`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
`
`RIVERDEEP INTERACTIVE LEARNING, LTD.,
`an Irish Company; RIVERDEEP, INC., a
`Delaware Limited Liability Company,
`Plaintiffs,
`
`v.
`MPS MULTIMEDIA, INC., a California
`Corporation; EDGAR CHEN; and
`SELECTSOFT PUBLISHING,
`Defendants.
` /
`
`No. C 06-5597 CW
`
`ORDER DENYING
`DEFENDANTS'
`MOTION TO DISMISS
`
`Defendants MPS Multimedia, Inc., d/b/a Selectsoft Publishing
`(MPS), and Edward Chen (collectively, Defendants) move to dismiss
`this action, arguing that the Court lacks subject matter
`jurisdiction and that Plaintiffs Riverdeep Interactive Learning,
`Ltd. (RIL) and its United States affiliate Riverdeep, Inc.
`(collectively, Plaintiffs) fail to state a claim against Defendant
`Chen. Alternatively, Defendants move for a more definite
`statement, contending that Plaintiffs' trademark infringement claim
`is vague and ambiguous. Plaintiffs oppose the motion. The matter
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`Case4:06-cv-05597-CW Document46 Filed12/22/06 Page2 of 11
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`was heard on November 17, 2006. Having considered the parties'
`papers and oral argument, the Court denies Defendants' motion to
`dismiss and its motion for a more definite statement.
`BACKGROUND
`According to Plaintiffs' complaint, this action arises out of
`Defendant MPS' infringement of Plaintiffs' copyrights and
`trademarks and breach of a licensing agreement between Riverdeep
`and MPS.
`Riverdeep is an educational software publisher. It owns
`trademarks for most of the software titles covered by the above
`mentioned licensing agreement. RIL, which owns the registered
`copyrights for the software licensed by Riverdeep to MPS under the
`agreement, granted Riverdeep license and sub-license rights in its
`software.
`The licensing agreement permitted MPS to distribute software
`to the "Non-mainstream Retail Channel," which included independent
`retailers, but excluded "big box" stores and schools. A subsequent
`amendment to the agreement prohibited MPS from selling software to
`any third party that would sell, market or distribute the software
`via the internet, unless that third party also operated a "brick
`and mortar" store.
`Plaintiffs learned that, in spite of the amendment, MPS was
`selling to internet retailers, which did not operate brick and
`mortar locations and sold software exclusively on the internet.
`Plaintiffs contend that these retailers are outside the scope of
`MPS' allowed distribution channel and, therefore, sales to them are
`unlicensed and infringe upon Plaintiffs' copyrights and trademarks.
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`Riverdeep sought an audit of MPS' manufacturing and sales.
`MPS refused access to its sale records. Because MPS refused to
`permit Riverdeep's accountants to conduct a full audit, Plaintiffs
`assert that it is impossible to know the full extent of MPS'
`infringement and breaches of contract.
`When the dispute arose, Riverdeep terminated the licensing
`agreement, which immediately terminated MPS' rights; MPS did not
`have the right to sell any remaining inventory. Nonetheless, MPS
`continued to market, sell and distribute Riverdeep products over
`the internet.
`Plaintiffs filed this action.
`Ten days later, they filed an application for a temporary
`restraining order, seeking to enjoin Defendants' alleged ongoing
`infringement of Plaintiffs' copyrights and trademarks through MPS'
`marketing and sale of Plaintiffs' software without a license. In
`their opposition, Defendants argued that the Court lacked
`jurisdiction because this is a contract dispute, governed by state
`law, not a copyright dispute over which federal courts have
`exclusive jurisdiction. The Court denied Plaintiffs' application
`for a temporary restraining order. The Court found, in part, that
`Plaintiffs had not shown a likelihood of success on the merits of
`their argument that the Court had jurisdiction under the Copyright
`Act and Lanham Act; Plaintiffs had only established that a serious
`question regarding jurisdiction exists. The Court noted that it
`would again consider whether it has jurisdiction over this action
`when it ruled on Defendants' motion to dismiss.
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`LEGAL STANDARD
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`I. Motion to Dismiss
`Dismissal is appropriate under Rule 12(b)(1) when the district
`court lacks subject matter jurisdiction over the claim. Fed. R.
`Civ. P. 12(b)(1). Federal subject matter jurisdiction must exist
`at the time the action is commenced. Morongo Band of Mission
`Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1380 (9th
`Cir. 1988). A federal court is presumed to lack subject matter
`jurisdiction until the contrary affirmatively appears. Stock West,
`Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989).
`A Rule 12(b)(1) motion may either attack the sufficiency of
`the pleadings to establish federal jurisdiction, or allege an
`actual lack of jurisdiction which exists despite the formal
`sufficiency of the complaint. Thornhill Publ’g Co. v. Gen. Tel. &
`Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979); Roberts v.
`Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987). In deciding a
`Rule 12(b)(1) motion, the court assumes the truth of the
`allegations in the complaint, unless controverted by undisputed
`facts in the record. Roberts, 812 F.2d at 1177.
`Dismissal is appropriate under Rule 12(b)(6) when the
`plaintiff fails to state a claim upon which relief can be granted.
`Fed. R. Civ. P. 12(b)(6). A motion to dismiss for failure to state
`a claim will be denied unless it is “clear that no relief could be
`granted under any set of facts that could be proved consistent with
`the allegations.” Falkowski v. Imation Corp., 309 F.3d 1123, 1132
`(9th Cir. 2002), citing Swierkiewicz v. Sorema N.A., 534 U.S. 506
`(2002). All material allegations in the complaint will be taken as
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`true and construed in the light most favorable to the plaintiff.
`NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).
`A complaint must contain a “short and plain statement of the
`claim showing that the pleader is entitled to relief.” Fed. R.
`Civ. P. 8(a). “Each averment of a pleading shall be simple,
`concise, and direct. No technical forms of pleading or motions are
`required.” Fed. R. Civ. P. 8(e). These rules “do not require a
`claimant to set out in detail the facts upon which he bases his
`claim. To the contrary, all the Rules require is ‘a short and
`plain statement of the claim’ that will give the defendant fair
`notice of what the plaintiff’s claim is and the grounds on which it
`rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957).
`II. Motion for More Definite Statement
`In evaluating a motion under Rule 12(e), the proper test "is
`whether the complaint provides the defendant with a sufficient
`basis to frame his responsive pleadings." Federal Sav. and Loan
`Ins. Corp. v. Musacchio, 695 F. Supp. 1053, 1060 (N.D. Cal. 1988)
`(citing Famolare Inc. v. Edison Bros. Stores, Inc., 525 F. Supp.
`940, 949 (E.D. Cal. 1981)).
`"Motions for a more definite statement are viewed with
`disfavor and are rarely granted because of the minimal pleading
`requirements of the Federal Rules." Sagan v. Apple Computer, Inc.,
`874 F. Supp. 1072, 1077 (C.D. Cal. 1994). "Rule 12(e) is designed
`to correct only unintelligibility in a pleading not merely a
`claimed lack of detail." FRA S. p. A. v. Surg-O-Flex of America,
`Inc., 415 F. Supp. 421, 427 (S.D.N.Y. 1976). The proper tool for
`eliciting additional detail is discovery, not a Rule 12(e) motion.
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`Musacchio, 695 F. Supp at 1060 (citing Kuenzell v. United States,
`20 F.R.D. 96, 98 (N.D. Cal. 1957)).
`A Rule 12(e) motion may be granted, however, "where the
`complaint is so general that ambiguity arises in determining the
`nature of the claim or the parties against whom it is being made."
`Sagan, 874 F. Supp. at 1077.
`DISCUSSION
`Defendants argue that this a mere contract dispute between two
`parties concerning the scope of a license and, therefore, this
`Court lacks jurisdiction. Defendants contend that, if the Court
`finds that it has jurisdiction, the Court should dismiss
`Plaintiffs' claims against Defendant Chen for failure to state a
`claim and order Plaintiffs to provide a more definite statement of
`their trademark infringement cause of action.
`I. Subject Matter Jurisdiction
`In their complaint, Plaintiffs allege that this Court has
`jurisdiction because this case arises under the Copyright Act and
`the Lanham Act. As noted above, Defendants argue that Plaintiffs'
`trademark and copyrights claims are breach of contract claims in
`disguise and, therefore, the Court lacks subject matter
`jurisdiction over this contract dispute, which is governed by state
`law.
`
`Federal courts have exclusive jurisdiction over actions that
`arise under the federal copyright laws and original jurisdiction
`over actions that arise under the federal trademark law. 28 U.S.C.
`§ 1338. Nonetheless, the Ninth Circuit instructs that a case does
`not arise under the federal copyright and trademark laws merely
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`because the subject matter of the action involves or affects a
`copyright or trademark. Topolos v. Caldewey, 698 F.2d 991, 993
`(9th Cir. 1983) ("the word 'copyright' is not so compelling as to
`invoke federal jurisdiction upon its mere mention") (citation
`omitted); Postal Instant Press v. Clark, 741 F.2d 256, 258 (9th
`Cir. 1984). Thus, district courts have "dismissed complaints in
`copyright cases that present only questions of contract law," as
`well as complaints in trademark cases that present only questions
`of contract law. Dolch v. United California Bank, 702 F.2d 178,
`180 (9th Cir. 1983); Postal Instant Press, 741 F.2d at 258.
`However, it is not always evident "whether a case involving
`interdependent copyright and contract claims 'arises under' the
`federal copyright laws for the purposes of 28 U.S.C. § 1338(a)";
`indeed, this is one of the “'knottiest problems in copyright
`jurisprudence,'” Scholastic Entm't, Inc. v. Fox Entm't Group,
`Inc., 336 F.3d 982, 983 (9th Cir. 2003) (quoting 3 Melville B.
`Nimmer & David Nimmer, Nimmer on Copyrights § 12.01[A], at 12-14
`(2003)); see also id. at 986 ("federal courts walk a fine line
`between usurping the power of state courts and providing redress
`for copyright infringement"). As explained in Scholastic, the
`Ninth Circuit follows the majority rule, outlined in T.B. Harms Co.
`v. Eliscu, 339 F.2d 823 (2d Cir. 1964), to determine whether
`copyright subject matter jurisdiction exists. In T.B. Harms, Judge
`Friendly stated that:
`an action “arises under” the Copyright Act if and only if the
`complaint is for a remedy expressly granted by the Act, e.g.,
`a suit for infringement or for the statutory royalties for
`record reproductions, or asserts a claim requiring
`construction of the Act . . . or, at the very least and
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`perhaps more doubtfully, presents a case where a distinctive
`policy of the Act requires that federal principles control the
`disposition of the claim.
`T.B. Harms, 339 F.2d at 828.
`The Ninth Circuit has also instructed that, to determine
`whether a case arises under the copyright laws, the court should
`focus on the nature of the principal claim asserted by the
`plaintiff. Topolos, 698 F.2d at 994 ("Courts have directed inquiry
`to what they have variously described as the 'primary and
`controlling purpose' of the suit, the 'principal issue,' the
`'fundamental controversy,' and the 'gist' or 'essence of the
`plaintiff's claim") (citations omitted). See Fantasy v. Amerco,
`Inc., 1999 WL 155696 (N.D. Cal. 1999) (noting both the T.B. Harms
`and "primary issue" analyses).
`Plaintiffs focus on the T.B. Harms analysis. They cite
`Vestron Inc. v. Home Box Office, Inc., 839 F.2d 1380 (9th Cir.
`1988), where, relying on T.B. Harms, the Ninth Circuit determined
`that the district court had jurisdiction because the plaintiff's
`complaint made out an infringement claim and sought remedies
`expressly created by federal copyright law. 839 F.3d at 1381-82.
`Here, the complaint also makes an infringement claim by Plaintiff
`RIL against Defendants MPS and Chen. RIL seeks damages "in an
`amount to be determined at trial, including statutory damages
`against MPS and Chen for their knowing and willful infringement of
`RIL's copyrights." Complaint, ¶ 29. Because, on the face of their
`complaint, Plaintiffs assert infringement and request remedies
`provided by the Copyright Act, Plaintiffs contend that the Court
`has jurisdiction. Id. at 1382 ("Where there is a fatal flaw on the
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`face of a complaint that purports to assert an infringement action,
`the suit should be dismissed for lack of subject matter
`jurisdiction. If no such flaw appears, the federal courts have
`jurisdiction.").
`Defendants respond that it is not enough that the complaint
`seeks a remedy expressly granted by the Copyright Act or alleges a
`copyright infringement claim. They argue that the copyright remedy
`must also be a principal issue in the case and here it is not; the
`principal issue of this case is one of contract. Topolos supports
`this argument, but Vestron does not. See Topolos, 698 F.2d at 993
`(describing both the T.B. Harms analysis and the "primary issue"
`analysis). In Vestron, the Ninth Circuit explained that the T.B.
`Harms "test sets forth three independent grounds for sustaining
`federal jurisdiction in copyright cases. If any of these three
`grounds is satisfied, the federal courts have jurisdiction." 839
`F.2d at 1381.
`Defendants do not deny that the first ground set forth in T.B.
`Harms is satisfied. Rather, they argue that Vestron is out-of-
`date. But that argument is unpersuasive, especially in that they
`rely on Topolos, which was decided five years before Vestron.
`Because there is no "fatal flaw" on the face of the complaint,
`which asserts a claim for infringement, the Court has jurisdiction
`and, therefore, Defendants' motion to dismiss for lack of subject
`matter jurisdiction is denied. See Vestron, 839 F.2d at 1382.
`Acknowledging that "the results are similar," the Ninth Circuit
`instructs, "If an action survives this scrutiny and affidavits or
`other materials reveal the infringement claim to be spurious, then
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`the proper avenue is dismissal for failure to state a claim under
`federal copyright law." Id.
`II. Claims Against Defendant Chen
`As noted above, Defendants argue that the Court should dismiss
`Plaintiffs' claims against Defendant Chen, contending that
`Plaintiffs have failed to state a claim against him. Defendants
`note that Plaintiffs' allegations concerning Defendant Chen's
`misconduct are confined to a single paragraph: "Chen, as MPS'
`President and CEO, directs, controls and ratifies the actions of
`MPS including the unlicensed and unauthorized replication and
`distribution of Riverdeep software." Complaint, ¶ 27. Defendants
`argue that a corporate officer cannot be held liable for actions of
`the corporation in which the officer did not personally
`participate, of which the officer has no knowledge or to which the
`officer has not consented and, therefore, the Court should dismiss
`the copyright infringement claim against Defendant Chen.
`Plaintiffs respond that corporate officers "are personally
`liable for the corporation's copyright and trademark infringements
`when they are a 'moving, active conscious force' behind the
`corporation's infringement." Novell, Inc. v. Unicom Sales, Inc.,
`2004 WL 1839117, *17 (N.D. Cal. 2004). Defendants do not address
`Novell in their reply. The Court finds that Plaintiffs have
`alleged sufficient facts to state a claim against Defendant Chen.
`Therefore, the Court denies Defendants' motion to dismiss the claim
`against Defendant Chen.
`III. More Definite Statement
`Defendants contend that, if the Court does not dismiss
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`Plaintiffs' complaint, the Court should require Plaintiffs to
`identify the specific trademarks that they believe have been
`infringed and the specific section of the Lanham Act that they
`believe Defendants have violated. Plaintiffs respond that their
`trademark claim meets notice pleading standards. As Defendants
`note, the complaints at issue in the cases Plaintiffs cite
`identified the allegedly infringed trademarks and the specific
`sections of the Lanham Act at issue. See, e.g., Perfect 10, Inc.
`v. Cybernet Ventures, Inc., 167 F. Supp. 2d 1114, 1122 (C.D. Cal.
`2001). Nonetheless, Plaintiffs' complaint is not so vague as to
`fail to provide Defendants with a sufficient basis to frame their
`responsive pleadings. Federal Sav. and Loan Ins. Corp., 695 F.
`Supp. at 1060. Plaintiffs' trademark infringement claim, while
`lacking in detail, is not unintelligible. And the specific
`trademarks and sections of the Lanham Act issue can easily be
`ascertained through discovery.
`Therefore, Defendants' motion for a more definite statement is
`denied.
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`CONCLUSION
`For the foregoing reasons, Defendants' motion to dismiss and,
`in the alternative, for more definite statement (Docket No. 34) is
`DENIED.
`IT IS SO ORDERED.
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`Dated: 12/22/06
`
`
`CLAUDIA WILKEN
`United States District Judge
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