Case5:07-cv-03457-HRL Document107 Filed11/06/08 Page1 of 9
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`* E-filed DATE *
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`UNITED STATES DISTRICT COURT
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`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`SAN JOSE DIVISION
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`COUPONS, INC.,
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`Plaintiff,
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`v.
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`JOHN STOTTLEMIRE,
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`Case No. CV 07-03457 HRL
`ORDER ON DEFENDANT'S (1) MOTION
`TO DISMISS THIRD AMENDED
`COMPLAINT AND (2) MOTION FOR
`SANCTIONS
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`Defendant.
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`Re: Docket Nos. 96, 97
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` /
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`I.
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`INTRODUCTION
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`Plaintiff Coupons, Inc. ("Coupons") offers online, printable coupons to consumers.
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`Allegedly, the first time a consumer attempts to print a coupon, plaintiff's security software
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`places a registry key on the consumer's computer. TAC ¶ 17. Plaintiff's software then uses the
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`key to authorize that computer's access each time the computer attempts to print a coupon.
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`Authorization is denied if the key shows that the computer has accessed the pre-set limit of
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`printed coupons per computer, called a "device limit." If the computer is authorized, the system
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`transmits the requested coupon to the consumer's printer. In addition, plaintiff's software
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`generates an individual number, and prints it on each coupon. This number denotes the coupon
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`United States District Court
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`11/6/08
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`Case5:07-cv-03457-HRL Document107 Filed11/06/08 Page2 of 9
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`as an authorized copy of a copyrighted coupon.1 (Plaintiff compares this process to numbering
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`lithographs of a copyrighted painting.) TAC ¶ 17. In this way, according to plaintiff, each
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`coupon is "one in a numerically limited series." The number of prints in a series (also called the
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`"campaign limit") is set by Coupons' customers (manufacturers, retailers and advertisers).
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`Plaintiff generally alleges that defendant2 (1) discovered how to remove the registry key,
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`(2) created software that removed the key, and (3) provided the method and the software to
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`others. This permitted computers to gain repeated, unauthorized access to the coupons. Plaintiff
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`claims that its coupons are subject to copyright protection, and that defendant's actions violate
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`17 U.S.C. §1201(a) and §1201(b) of the Digital Millennium Copyright Act ("DMCA").3
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`Plaintiff also asserts related state law claims.
`Pro se defendant John Stottlemire twice previously moved to dismiss the complaint.
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`After defendant's second motion to dismiss was granted in part, Coupons filed its Third
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`Amended Complaint ("TAC"), which defendant now moves to dismiss. Defendant also moves
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`for Rule 11 sanctions. The court held a hearing on November 4, 2008. Based on the papers
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`submitted, and the arguments presented at the hearing, the court now DENIES defendant's
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`motions.
`II.
`LEGAL STANDARD
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`A motion to dismiss under FED. R. CIV. P. 12(b)(6) tests the legal sufficiency of the
`claims alleged in the complaint. See Parks Sch. of Business v. Symington, 51 F.3d 1480, 1484
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`(9th Cir. 1995). Dismissal under Rule 12(b)(6) may be based on either the “lack of a cognizable
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`1 Plaintiff reportedly holds some copyright registrations for its coupons. Registration
`raises a presumption of a valid copyright.
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`2 In its order on the previous motion to dismiss, the court warned plaintiff that unless
`it took prompt steps to amend the complaint to name additional defendants, the Doe
`defendants would be dismissed. The court now dismisses the Does sua sponte under FRCP
`4(m). Pleading "Doe" defendants is disfavored. Molnar v. National Broadcasting Co., 231
`F.2d 684, 687 (9th Cir. 1956). In light of the fact that this case has been pending for over a
`year, and plaintiff has not at any time sought leave to add additional defendants, dismissal of
`the Does is proper. Should plaintiff need to name new defendants, the court will consider the
`request in a motion for leave to amend.
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`3 Unless specified, statutory references are to Title 17 of United States Code.
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`legal theory” or on “the absence of sufficient facts alleged under a cognizable legal theory.”
`Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Hence, the issue here is
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`not whether the claimant will ultimately prevail, but whether the claimant is entitled to offer
`evidence to support the claims asserted. Gilligan v. Jamco Development Corp., 108 F.3d 246,
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`249 (9th Cir. 1997). In considering such a motion, all material factual allegations should be
`accepted as true and construed “in the light most favorable to the nonmoving party.” Cahill v.
`Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996).
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`The Federal Rules require only “a short and plain statement of the claim showing that
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`the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). This was recently interpreted to mean
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`that the “[f]actual allegations must be enough to raise a right to relief above the speculative
`level." Bell Atlantic Corp. v. Twombly, --- U.S. ----, ---- - ----, 127 S.Ct. 1955, 1964-65 (2007)
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`(citations omitted).4 Therefore, the complaint must contain more than mere conclusions of law.
`Epstein v. Washington Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996). Nevertheless,
`"heightened fact pleading of specifics" is not required to survive a motion to dismiss. Bell
`Atlantic Corp., 127 S.Ct. at 1973-74. Rather, the complaint need only “give the defendant fair
`notice of what the ... claim is and the grounds upon which it rests.” Erickson v. Pardus, --- U.S.
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`----, ----, 127 S.Ct. 2197, 2200 (2007) (citations omitted).
`III.
`DISCUSSION
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`A.
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`FIRST AND SECOND CAUSES OF ACTION
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`As in its previous complaints, Coupons alleges the defendant violated both § 1201(a)
`and § 1201(b). See TAC ¶¶ 46-63. The enactment of § 1201(a) and § 1201(b) created new
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`prohibitions on circumvention.
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`The first provisions target circumvention of technological measures that effectively
`control access to a copyrighted work; the second targets circumvention of technological
`measures that impose limitations on the use of protected works.
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`4 This decision “retires” the oft-quoted language from Conley v. Gibson, 355 U.S. 41,
`45-46 (1957) that “a complaint should not be dismissed for failure to state a claim unless it
`appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which
`would entitle him to relief." See, Bell Atlantic Corp., 127 S.Ct. at 1968-69.
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`U.S. v. Elcom Ltd., 203 F.Supp.2d 1111, 1119-20 (N.D.Cal. 2002) (emphasis in original).
`Plaintiff's § 1201(a) claims were previously dismissed because the Second Amended Complaint
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`did not specify whether each coupon was a unique, derivative work, or a licensed copy, and
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`what it did assert appeared to be logically inconsistent. Plaintiff has more clearly articulated the
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`supposed facts in the TAC, and now claims that each print's identification number marks it as an
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`authorized copy of a copyrighted work, and does not create a derivative work.
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`Defendant alleges that plaintiff has failed to plead sufficient facts to support its
`§ 1201(a) claims. To state a claim under § 1201(a), a plaintiff must allege: (1) ownership of a
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`copyrighted work; (2) effectively controlled by a technological measure which has been
`circumvented. See Chamberlain Group, Inc. v. Skylink Technologies, Inc., 381 F.3d 1178, 1203
`(Fed. Cir. 2004). Defendant claims that plaintiff's TAC fails to adequately allege either element.
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`At the hearing, there was some discussion about whether plaintiff claimed copyright
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`protection for its coupons as printed, for the digital form of the coupons, or for the coupons in
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`all forms. Defendant alleged that the digital form of the coupon is not copyrightable, and that
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`the printed coupon is "analog," not rightly protected by the "digital" copyright act. These
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`arguments are best addressed once the parties have engaged in discovery. In the context of a
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`motion to dismiss, the question is only whether the plaintiff has adequately alleged facts that,
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`drawn in its favor, support it's claim. Without affirming or denying the validity of plaintiff's
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`copyright, the court finds that the plaintiff has adequately alleged "ownership of a copyrighted
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`work."
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`Defendant also claims that plaintiff's software does not "effectively control access" to its
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`coupons because once the coupon is printed, nothing protects it. Moreover, defendant claims
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`that no existing technology controls access to copyrighted works printed on plain paper. At the
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`hearing, defendant pointed out that plaintiff's technology only controls "access" in the first
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`instance (i.e. when a consumer first prints a coupon), but does nothing to control all the other
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`times a person "accesses" the coupon. For example, if a consumer prints a coupon, and hands it
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`to a friend, the friend has now accessed the coupon without a computer, and without engaging
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`plaintiff's software. Therefore, according to defendant, plaintiff has failed to allege, and in fact
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`can never allege, facts sufficient to state a claim for a violation of § 1201(a) since "effective
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`control of access" is a prerequisite.
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`Plaintiff calls these arguments "frivolous," noting that the gift of a coupon between
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`consumers does not create a new copy of the coupon. It is access to authentic coupons (with a
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`unique identification number) that plaintiff's software controls. At the hearing, plaintiff claimed
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`that the fact that consumers do not personally have to install plaintiff's software to get coupons
`(because friends can give them to each other), is irrelevant because someone must have installed
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`plaintiff's software (and permitted installation of the registry key) before it can be given away.
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`Defendant's arguments about the "effectiveness" of plaintiff's technology are better raised once
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`the relevant evidence has been developed. Plaintiff has sufficiently alleged facts that, drawn in
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`the light most favorable to it, support its theory that defendant violated § 1201(a). Defendant's
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`motion as to plaintiff's first cause of action is DISMISSED.
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`In its second cause of action, plaintiff claims defendant violated § 1201(b), the DMCA's
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`"use control" provision. This section forbids the circumvention of technological measures that
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`protect rights granted by the Copyright Act. Defendant claims that plaintiff's software works
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`solely as an access control: once a consumer has been granted access to the coupon (after the
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`registry key is authenticated by plaintiff's system), plaintiff's software does nothing to protect
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`plaintiff's rights. Plaintiff claims that the same software that permits (or denies) access to the
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`coupons simultaneously protects its rights to control copying and distribution of its copyrighted
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`coupons. Plaintiff has alleged that its software controls copying and distribution in two ways:
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`the registry key limits the number of coupons distributed to a single computer (simultaneously
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`limiting the number of authentic copies that the computer can print), and the software's
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`"counter" limits the number of authentic coupons distributed as a whole. Ultimately, plaintiff
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`will have to prove that its software actually works as both an "access" and "use" control.
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`Plaintiff has, however, sufficiently alleged facts that support its theory that defendant violated
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`§ 1201(b), and it should be allowed, in due course, to offer its proof. Defendant's motion as to
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`plaintiff's second cause of action is DENIED.
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`//
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`B.
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`REMAINING CAUSES OF ACTION
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`Defendant next takes issue with Coupons' third and fourth causes of action for Unlawful
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`Business Practices under Calif. Bus. & Prof. Code § 17200 et seq. and for common law unfair
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`competition. A statutory unlawful business practices claim requires plaintiff to have suffered
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`injury in fact and lost money or property as the result of defendant's actions. California Business
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`& Professional Code § 17204. "The [statute] covers a wide range of conduct. It embraces
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`anything that can be properly called a business practice and that at the same time is forbidden
`by law.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal 4th 1134, 63 P.3d 937 at 943
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`(internal quotations omitted).
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`Defendant claims that plaintiff has not established that it suffered an "injury in fact"
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`because plaintiff failed to allege that it "lost money or property." Plaintiff, however, does allege
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`that it was "required to undertake expensive corrective measures, required management to
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`spend time and resources responding to industry concerns, and required plaintiff to expend
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`attorney's fees and costs." TAC ¶ 16. That allegation, taken in the light most favorable to
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`plaintiff, sufficiently claims an injury in fact. Defendant's motion to dismiss the third cause of
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`action is DENIED.
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`Defendant also takes issue with plaintiff's fourth cause of action for common law unfair
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`business practices. Common law unfair competition has four elements: (1) a substantial
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`investment of “time, skill or money in developing its property”; (2) appropriation and use of the
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`property by another company at little or no cost; (3) the appropriation and use of the "property
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`was without the authorization or consent"; and (4) injury by the appropriation and use by the
`other company. City Solutions, Inc. v. Clear Channel Communications, 365 F.3d 835 at 842
`(2004) (citing Balboa Ins. Co. v. Trans Global Equities, 218 Cal.App.3d 1327, 1342 (1990)).”
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`Defendant complains that plaintiff failed to allege that he "attempted to secure plaintiff's
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`clients as his own." He points out that plaintiff lists manufacturers and advertisers as its clients,
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`and that the complaint alleges defendant sold coupons to consumers, via an online business
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`called "The Coupon Queen." TAC ¶ 26. Plaintiff is not required to allege that defendant
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`attempted to secure its clients. Plaintiff only needs to allege facts specific to the elements above,
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`and it has done so. Defendant's motion to dismiss the fourth cause of action is DENIED.
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`The sole argument defendant offers to dismiss the fifth cause of action is dependant on
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`the court dismissing plaintiff's DMCA claims. As the court has not dismissed the DMCA
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`claims, defendant's motion must be DENIED.
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`C.
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`DEFENDANT'S MOTION FOR SANCTIONS
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`Defendant also moves for Rule 11 sanctions, accusing plaintiff of a factual
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`misrepresentation in the TAC. The misrepresentation defendant decries is plaintiff's claim that
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`its security features "block an individual computer's access to a particular coupon offer
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`altogether if that computer does not have the proper registry keys in place (has not previously
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`been identified as a unique computer)." Defendant claims that plaintiff's security features do not
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`ever "block access" in the absence of the proper registry keys. Instead, plaintiff's system assigns
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`the computer a registry key, and then allows access. Apparently, defendant is concerned that
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`this misrepresentation will result in the court erroneously finding that plaintiff stated a
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`§ 1201(a) claim.
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`Plaintiff insists the security features work precisely the way it described. Plaintiff
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`explains that after a consumer clicks "print" to obtain a coupon, its security features seek a
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`registry key. If the key is not located, its security features delivery one to the consumer's
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`computer. The consumer can only access a coupon once the key is in place.
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`The sentence defendant objects to does appear to imply that access is denied in the
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`absence of registry keys, when in fact, it seems that a registry key is automatically placed on the
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`consumer's computer (if one is not found) when the consumer clicks "print." It does not appear,
`from plaintiff's own description, that access is ever really blocked in the absence of a registry
`key. Regardless, the court does not find that this inartfully crafted sentence warrants the
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`imposition of Rule 11 sanctions. The court's analysis of plaintiff's § 1201(a) claim did not turn
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`on any misinterpretation of the sentence in question.
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`//
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`//
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`Case5:07-cv-03457-HRL Document107 Filed11/06/08 Page8 of 9
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`The motion for sanctions is DENIED.
`IT IS SO ORDERED.
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`Dated:
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`HOWARD R. LLOYD
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`UNITED STATES MAGISTRATE JUDGE
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`For the Northern District of California
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`United States District Court
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`11/6/08
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`Case5:07-cv-03457-HRL Document107 Filed11/06/08 Page9 of 9
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`5:07-cv-3457 Notice has been electronically mailed to:
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`Carly O Alameda calameda@fbm.com, lcoles@fbm.com
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`Dennis M. Cusack dcusack@fbm.com, adugan@fbm.com, calendar@fbm.com,
`lwarren@fbm.com
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`Neil A. Goteiner ngoteiner@fbm.com, calendar@fbm.com, karentsen@fbm.com
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`Jennifer Ann Lynch jlynch@law.berkeley.edu
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`John Allan Stottlemire jstottl@comcast.net
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`* Counsel are responsible for providing copies of this order to co-counsel.
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`Dated:
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` /s/ MPK
` Chambers of Magistrate Judge Lloyd
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`For the Northern District of California
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