`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
`
`No. C 10-02769 CW
`ORDER GRANTING
`ADOBE SYSTEMS
`INCORPORATED AND
`SOFTWARE &
`INFORMATION
`INDUSTRY
`ASSOCIATION’S
`MOTION TO DISMISS
`HOOPS ENTERPRISE,
`LLC’S CLAIMS
`(Docket No. 34)
`
`ADOBE SYSTEMS INCORPORATED,
`Plaintiff,
`
` v.
`ANTHONY KORNRUMPF, a/k/a TONY
`KORNRUMPF; and HOOPS ENTERPRISE, LLC,
`Defendants.
` /
`HOOPS ENTERPRISE, LLC,
`Counter-Claimant,
`
` v.
`ADOBE SYSTEMS INCORPORATED,
`Counter-Defendant,
`
` and
`SOFTWARE AND INFORMATION INDUSTRY
`ASSOCIATION,
`Third-Party Defendant.
` /
`
`Plaintiff and Counter-Defendant Adobe Systems Incorporated and
`Third-Party Defendant Software and Information Industry Association
`(SIIA) move to dismiss the claims of Defendant and Counter-Claimant
`Hoops Enterprise, LLC. Hoops and Defendant Anthony Kornrumpf
`oppose the motion. The motion was taken under submission on the
`papers. Having considered the papers submitted by the parties, the
`Court GRANTS Adobe and SIIA’s motion.
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`For the Northern District of California
`For the Northern District of California
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`United States District Court
`United States District Court
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`Case4:10-cv-02769-CW Document47 Filed01/19/11 Page2 of 12
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`BACKGROUND
`Adobe, a California corporation, initiated this copyright and
`trademark infringement lawsuit on June 24, 2010. It alleges that
`Defendants are Tennessee residents and that they use, among other
`services, the Internet auction site eBay to offer for sale and sell
`Adobe software.1 Adobe avers that it has not licensed Defendants
`to make or distribute copies of its software. Adobe also pleads
`that Defendants use, without a license, images similar or identical
`to Adobe trademarks as part of their online business. Adobe seeks
`relief pursuant to the Copyright Act, 17 U.S.C. §§ 101, et seq.,
`and the Lanham Act, 15 U.S.C. §§ 1501, et seq.
`On September 3, 2010, Defendants filed an amended answer,
`which includes a defense of copyright misuse.2 Am. Answer ¶ 23.
`In addition, Hoops filed counterclaims against Adobe and claims
`against third-party Defendant SIIA3 for copyright misuse and a
`violation of California’s Unfair Competition Law (UCL), Cal. Bus. &
`Prof. Code §§ 17200, et seq. Hoops alleges that SIIA is a trade
`association for the software industry which enforces copyrights on
`behalf of its members, such as Adobe. Hoops avers that Adobe and
`
`1 Adobe’s original claimed named only Kornrumpf as a
`Defendant. However, in November, 2010, Adobe filed an amended
`complaint naming Hoops as a Defendant, along with a stipulation
`deeming the amended complaint to be filed on June 24, 2010. (Docket
`No. 33.)
`2 In the stipulation noted above, the parties deemed Hoops and
`Kornrumpf’s amended answer to be filed on September 3, 2010.
`(Docket No. 33.)
`3 For brevity, the Court hereinafter collectively refers to
`Hoops’s counterclaims against Adobe and claims against third-party
`Defendant SIIA as “claims.”
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`SIIA misuse Adobe’s copyrights by attempting to extend their
`protections beyond those granted under the Copyright Act. In
`particular, Hoops alleges that Adobe’s and SIIA’s conduct
`impermissibly expands Adobe’s copyrights beyond the limits imposed
`by the first sale doctrine, as codified in 17 U.S.C. § 109. This
`conduct includes suing “small, independent software re-sellers such
`as Hoops, who purchase and re-sell Adobe software products.” Hoops
`Countercl. ¶ 12. Hoops further avers that Adobe’s and SIIA’s
`conduct constitutes unfair competition and is intended to eliminate
`the “secondary sales market” in which Hoops and other software re-
`sellers operate. Hoops Countercl. ¶¶ 15-16. Hoops seeks
`compensatory and declaratory relief based on its claims.
`LEGAL STANDARD
`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). Dismissal under Rule 12(b)(6) for failure to state a
`claim is appropriate only when the complaint does not give the
`defendant fair notice of a legally cognizable claim and the grounds
`on which it rests. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
`(2007). In considering whether the complaint is sufficient to
`state a claim, the court will take all material allegations as true
`and construe them in the light most favorable to the plaintiff. NL
`Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).
`However, this principle is inapplicable to legal conclusions;
`“threadbare recitals of the elements of a cause of action,
`supported by mere conclusory statements,” are not taken as true.
`Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949-50 (2009)
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`(citing Twombly, 550 U.S. at 555).
`When granting a motion to dismiss, the court is generally
`required to grant the plaintiff leave to amend, even if no request
`to amend the pleading was made, unless amendment would be futile.
`Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911
`F.2d 242, 246-47 (9th Cir. 1990). In determining whether amendment
`would be futile, the court examines whether the complaint could be
`amended to cure the defect requiring dismissal “without
`contradicting any of the allegations of [the] original complaint.”
`Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990).
`Leave to amend should be liberally granted, but an amended
`complaint cannot allege facts inconsistent with the challenged
`pleading. Id. at 296-97.
`
`DISCUSSION
`
`I.
`
`Copyright Misuse Claims
`The equitable doctrine of copyright misuse “forbids a
`copyright holder from ‘secur[ing] an exclusive right or limited
`monopoly not granted by the Copyright Office.’” A&M Records, Inc.
`v. Napster, Inc., 239 F.3d 1004, 1026 (9th Cir. 2001) (quoting
`Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 977-79 (4th Cir.
`1990)). The doctrine “prevents copyright holders from leveraging
`their limited monopoly to allow them control of areas outside the
`monopoly.” A&M Records, 239 F.3d at 1026. Copyright misuse “does
`not invalidate a copyright, but precludes its enforcement during
`the period of misuse.” Practice Mgmt. Info. Corp. v. Am. Med.
`Ass’n, 121 F.3d 516, 520 n.9 (9th Cir. 1997) (citation and internal
`quotation marks omitted).
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`Hoops’s copyright misuse claims, premised on the theory that
`Adobe and SIIA have attempted to control the distribution of
`copyrighted Adobe software products beyond their first sale in
`contravention of the first sale doctrine, suffer from numerous
`defects.
`A.
`
`Compensatory Damages and Declaratory Relief for Copyright
`Misuse
`Hoops does not identify any authority granting it a right of
`action for damages arising from Adobe’s and SIIA’s alleged misuse
`of Adobe’s copyrights. Other district courts have concluded that
`no legal authority supports an award of damages for copyright
`misuse. See, e.g., Ticketmaster L.L.C. v. RMG Techs., Inc., 536 F.
`Supp. 2d 1191, 1199 (C.D. Cal. 2008) (dismissing with prejudice
`claim for damages for misuse of copyright, noting that it is “an
`affirmative defense to a claim for copyright infringement”); Online
`Policy Group v. Diebold, Inc., 337 F. Supp. 2d 1195, 1199 n.4 (N.D.
`Cal. 2004) (finding no legal authority “that allows an affirmative
`claim for damages for copyright misuse”). Because it cannot be
`cured by amendment, the Court dismisses with prejudice Hoops’s
`request for damages for copyright misuse.
`Nor does Hoops articulate any authority for its request for a
`declaration of copyright misuse. Hoops did not cite any provision
`of the Copyright Act affirmatively providing such relief. Thus,
`the Court presumes Hoops seeks a declaration pursuant to the
`Declaratory Judgment Act, 28 U.S.C. § 2201(a). If an actual case
`or controversy exists, a court has discretion to assert
`jurisdiction over a declaratory judgment claim. Gov’t Employees
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`Ins. Co. v. Dizol, 133 F.3d 1220, 1222-23 (9th Cir. 1998). In
`determining whether it should exercise its discretion, a court
`weighs various factors, including whether the claim would generate
`duplicative litigation. Id. at 1225.
`Adobe argues that, in light of its copyright infringement
`claim, Hoops’s copyright misuse counterclaim for declaratory relief
`is inappropriate. The Ninth Circuit has not opined directly on the
`propriety of declaratory relief for copyright misuse in cases where
`a copyright holder has asserted a claim of copyright infringement.4
`It is true that the court has referred to copyright misuse as a
`defense. See, e.g., Altera Corp. v. Clear Logic, Inc., 424 F.3d
`1079, 1090 (9th Cir. 2005); A&M Records, Inc., 239 F.3d at 1026.
`However, the court has never foreclosed asserting the doctrine
`through a counterclaim for declaratory relief.
`District courts within the circuit have reached disparate
`conclusions. In Ticketmaster, the court dismissed with prejudice a
`counterclaim for declaratory relief for copyright misuse, reasoning
`that litigating a counterclaim and an affirmative defense of
`copyright misuse would be duplicative. 536 F. Supp. 2d at 1199;
`see also Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 269 F.
`Supp. 2d 1213, 1225-27 (C.D. Cal. 2003). In contrast, the court in
`Apple Inc. v. Psystar Corp. opined that a counterclaimant “may well
`have a legitimate interest in establishing misuse independent of”
`
`4 However, courts have entertained declaratory relief claims
`for copyright misuse in cases where a copyright holder has not
`asserted claims of copyright infringement. See, e.g., Practice
`Mgmt., 121 F.3d at 520-21; Open Source Yoga Unity v. Choudhury,
`2005 WL 756558 (N.D. Cal.). Such cases are distinguishable
`because, here, Adobe has sued for copyright infringement.
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`its need to defend an infringement claim “to clarify the risks it
`confronts by marketing the products at issue . . . or others it may
`wish to develop.” 2009 WL 303046, at *2 (N.D. Cal.). Also, the
`Apple court noted, “misuse would bar enforcement (for the period of
`misuse) not only as to defendants who are actually a party to the
`challenged license but also as to potential defendants not
`themselves injured by the misuse who may have similar interests.”
`Id. The Apple court expressly disagreed with the holdings in
`Ticketmaster and Metro-Goldwyn-Mayer. Id. at *3.
`Although there may be circumstances that justify providing
`declaratory relief on a counterclaim for copyright misuse, Hoops
`has not presented them here. As explained below, Hoops’s
`allegations, even if true, do not establish that Adobe engaged in
`copyright misuse.
`With respect to SIIA, Hoops has not asserted a counterclaim,
`but rather a claim against a third-party Defendant that does not
`assert a copyright infringement claim in this action. However,
`Hoops has not established that a declaration of copyright misuse
`against SIIA would be appropriate. Hoops alleges only that SIIA is
`an agent of Adobe; the association does not apparently own any of
`the copyrights being asserted against Hoops. Because a declaration
`of misuse could disable Adobe’s copyrights for the period of
`misuse, Adobe, not SIIA, appears to be the appropriate party
`against which declaratory relief could be sought. Further, as is
`the case with Adobe, Hoops’s allegations do not suggest that SIIA
`engaged in copyright misuse.
`For these reasons and those below, Hoops’s claims for
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`copyright misuse, to the extent they rest on a request for
`declaratory relief, are dismissed with leave to amend. Although
`the Court doubts that Hoops can justify the exercise of the Court’s
`discretion to provide such relief, the Court cannot be certain that
`it is futile. In any amended pleading, Hoops must also justify the
`grounds for declaratory relief against SIIA.
`B.
`First Sale Doctrine
`A copyright holder has the exclusive right to “distribute
`copies . . . of the copyrighted work to the public by sale or other
`transfer of ownership, or by rental, lease, or lending.” 17 U.S.C.
`§ 106(3). The first sale doctrine enables an “‘owner of a
`particular copy’ of a copyrighted work to sell or dispose of his
`copy without the copyright owner’s authorization.” Vernor v.
`Autodesk, Inc., 621 F.3d 1102, 1107 (9th Cir. 2010) (quoting 17
`U.S.C. § 109(a)). The doctrine “does not apply to a person who
`possesses a copy of the copyrighted work without owning it, such as
`a licensee.” Vernor, 621 F.3d at 1107 (citing 17 U.S.C. § 109(d)).
`“Notwithstanding its distinctive name, the doctrine applies
`not only when a copy is first sold, but when a copy is given away
`or title is otherwise transferred without the accouterments of a
`sale.” UMG Recordings v. Augusto, ___ F.3d ___, 2011 WL 9399, at
`*3 (9th Cir.) (citations omitted). However, “not every transfer of
`possession of a copy transfers title.” Id. at *4. For instance,
`in the context of computer software, “copyright owners may create
`licensing arrangements so that users acquire only a license to use
`the particular copy of software and do not acquire title that
`permits further transfer or sale of that copy without the
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`permission of the copyright owner.” Id.
`In Vernor, a declaratory judgment action, the Ninth Circuit
`addressed the resale of copyrighted software on eBay. 621 F.3d at
`1103. There, Vernor sought a declaration that he did not infringe
`the copyright of Autodesk, a software company. Id. Vernor had
`purchased copies of Autodesk’s software from Cardwell/Thomas &
`Associates (CTA), one of Autodesk’s direct customers, and then
`attempted to resell them on eBay. Id. CTA had obtained the copies
`under a software license agreement, which imposed significant
`restrictions on their transfer and use. Id. at 1104. Based on
`this agreement, the Ninth Circuit rejected Vernor’s assertion of
`the first sale doctrine, concluding that neither he nor CTA were
`owners of the particular copies. Id. at 1111. The court reasoned
`that CTA was only a licensee and that Autodesk retained title to
`the software. Id.
`Here, Hoops does not plead any facts to suggest that it owned
`any of the particular copies of Adobe software that it resold or
`that it obtained the copies from entities that had owned them. Nor
`does Hoops allege that Adobe ever sold, gave away or transferred
`title to the particular copies of the software at issue. Hoops
`avers that it resold Adobe products it “purchased from third party
`intermediary distributors,” Hoops Countercl. ¶ 8, but offers no
`facts regarding under what terms these distributors obtained the
`copies. Although it maintains that these copies did not infringe
`“Adobe’s right of reproduction,” id., Hoops says nothing about
`Adobe’s right of distribution, to which the first sale doctrine
`applies.
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`In lieu of addressing these defects, Hoops offers an
`unpersuasive argument that it has not sold Adobe’s copyrighted work
`but rather sold discs containing copies of that work. This
`attempted distinction illuminates the flaw in Hoops’s theory.
`Adobe does not allege that Hoops unlawfully transferred ownership
`of Adobe’s copyrighted software. It alleges that Hoops and
`Kornrumpf sold copies of Adobe’s software in violation of Adobe’s
`exclusive distribution right. To avail itself of the first sale
`doctrine, Hoops must demonstrate that it owned the copies of the
`Adobe software it resold; it is irrelevant whether Hoops owned the
`discs on which the copies were stored. A copyright attaches to an
`original work of authorship, not the particular medium in which it
`was initially fixed.
`Hoops appears to argue that Vernor is distinguishable because
`that case involved a license agreement. However, Hoops’s
`allegations are not sufficient to determine whether Vernor is
`analogous; as noted above, Hoops offers no insight into the
`circumstances under which it obtained the copies of Adobe software.
`Finally, Hoops alleges that Adobe and SIIA misuse Adobe’s
`copyrights because their conduct attempts to hamper competition by
`eliminating the secondary market of copies of Adobe software.
`However, because Hoops has not established that it, or any other
`re-seller, sold copies subject to the first sale doctrine, this
`allegation is unavailing. It is not a misuse of copyright to
`dismantle a market of allegedly infringing copies of software.
`Thus, Hoops fails to allege any facts to suggest Adobe or SIIA
`engaged in copyright misuse. For this reason and those stated
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`above, Hoops’s copyright misuse claims for declaratory relief are
`dismissed with leave to amend.
`II. Claims for Violations of California’s Unfair Competition Law
`The UCL prohibits any “unlawful, unfair or fraudulent business
`act or practice.” Cal. Bus. & Prof. Code § 17200. The UCL
`incorporates other laws and treats violations of those laws as
`unlawful business practices independently actionable under state
`law. Chabner v. United Omaha Life Ins. Co., 225 F.3d 1042, 1048
`(9th Cir. 2000). Violation of almost any federal, state or local
`law may serve as the basis for a UCL claim. Saunders v. Superior
`Court, 27 Cal. App. 4th 832, 838-39 (1994). In addition, a
`business practice may be “unfair or fraudulent in violation of the
`UCL even if the practice does not violate any law.” Olszewski v.
`Scripps Health, 30 Cal. 4th 798, 827 (2003).
`Hoops does not plead clearly under which prong of the UCL its
`claims arise. However, it does not allege that Adobe or SIIA
`violated a federal, state or local law or committed fraud. Thus,
`Hoops’s counterclaim appears to arise under the unfair prong of the
`UCL. In UCL actions involving claims of unfair conduct by a
`competitor, a plaintiff must plead that “conduct that threatens an
`incipient violation of an antitrust law, or violates the policy or
`spirit of one of those laws because its effects are comparable to
`or the same as a violation of the law, or otherwise significantly
`threatens or harms competition.” Cel-Tech Commun’s, Inc. v. L.A.
`Cellular Telephone Co., 20 Cal. 4th 163, 187 (1999).
`Although Hoops alleges that Adobe and SIIA are attempting to
`harm competition by eliminating the resale market, this allegation
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`is unavailing. As noted above, Hoops has not alleged facts to
`suggest that Adobe and SIIA are not lawfully enforcing Adobe’s
`copyrights. Lawful enforcement of valid copyrights does not
`constitute unfair competition.
`Accordingly, Hoops’s UCL claims are dismissed with leave to
`amend to plead a cognizable violation of the UCL.
`CONCLUSION
`For the foregoing reasons, the Court GRANTS Adobe and SIIA’s
`motion to dismiss. (Docket No. 34.) Hoops’s request for damages
`based on its copyright misuse claims is dismissed with prejudice.
`Hoops’s copyright misuse claims for declaratory relief and its UCL
`claims are dismissed with leave to amend. Hoops must plead facts
`that justify the exercise of the Court’s discretion to hear
`declaratory relief claims against Adobe and SIIA and that suggest
`Adobe and SIIA engaged in copyright misuse and violated
`California’s UCL.
`If it intends to file an amended pleading, Hoops shall do so
`within fourteen days of the date of this Order. If Hoops does so,
`Adobe and SIIA shall answer or file a motion to dismiss twenty-one
`days thereafter. If Adobe and SIIA move to dismiss, Hoops’s
`opposition shall be due fourteen days after the motion is filed.
`Any reply shall be due seven days after that. The motion will be
`taken under submission on the papers.
`IT IS SO ORDERED.
`Dated: 1/19/2011
`
`
`CLAUDIA WILKEN
`United States District Judge
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