throbber
Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF WASHINGTON
`NUMBERS LICENSING, LLC, a
`Washington limited liability
`company,
`
`NO. CV-09-65-EFS
`
`ORDER GRANTING DEFENDANTS
`MOTION TO STRIKE AND DENYING
`PLAINTIFF’S MOTION FOR
`PRELIMINARY INJUNCTION
`
`Plaintiff,
`
`v.
`bVISUAL USA, INC., a Delaware
`Corporation; bVISUAL GROUP
`LTD., d/b/a VISUAL WORLD
`DISTRIBUTION LTD., an Irish
`Corporation; bVISUAL S.A., a
`Panamanian Corporationl
`STEPHAN ANTHONY LARSON; BRIAN
`LARSON; JANE DOE LARSON, and
`their marital community; TOM
`BORKOWSKI, an individual; and
`ALLAN HOLBROOK, an
`individual,
`
`Defendants.
`A hearing occurred in the above captioned matter on July 8, 2009,
`in Spokane. Stacie Foster appeared on Plaintiff, Numbers Licensing,
`LLC’s behalf. Phillip Samouris and Chad Mitchell appeared on behalf of
`Defendants’ bVisual Inc, Stephan Larson, Brian Larson, and Alan Holbrook.
`Helen Boyer appeared on Defendant Tom Borkowksi’s behalf. Before the
`Court were Defendants’ motion to strike and Plaintiffs motion for
`1
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`1
`ORDER * 1
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`Motion was filed on behalf of Defendants’ bVisual Inc, Stephan
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`Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
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`preliminary injunction. (Ct. Recs. 47 & 9) After reviewing the submitted
`material and the relevant authority, the Court is fully informed and
`grants Defendants’ motion to strike and denies Plaintiff’s motion for
`preliminary injunction. This order serves to supplement and memorialize
`the Court’s oral rulings.
`
`I. BACKGROUND2
`
`A.
`
`bVisual's Creation
`Tony and Brian Larson founded bVisual in February 2005. (Ct. Rec.
`45-3 at 2.) bVisual's business is developing internet-based audio and
`video conferencing services. Id. At the outset, Tony Larson constructed
`the conceptual framework for this internet-based video conferencing
`platform ("the System"). (Ct. Rec. 66 at 3.) Then, in April 2005,
`bVisual started hiring outside software engineers to turn Tony Larson's
`vision into reality. Id.
`B.
`bVisual's Hires and Compensation Structure
`
`bVisual's first additional software engineer hire was John C.
`Oelund. (Ct. Rec. 45-3 at 3.) Mr. Oelund helped bVisual develop the
`
`Larson, Brian Larson, and Alan Holbrook. Defendant Borkowski joined the
`motion.
`In developing the background, the Court resolved existing
`
`2
`factual disputes after reviewing the submitted evidence. See generally,
`Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1157 (9th Cir.
`2007); Thomas v. County of Los Angeles, 1993 U.S. App. LEXIS 2165 at *10-
`11 (9th Cir. Feb. 12, 1993). These factual findings are for purposes of
`this preliminary injunction only and are not binding. Sierra On-Line,
`Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1423 (9th Cir. 1984).
`ORDER * 2
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`Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
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`System's video transmission and screen-sharing source code. Id. When Mr.
`Oelund left bVisual for personal reasons in June 2006, he had been
`compensated $105,000.00 in cash and stock for his services and understood
`that bVisual had full rights to the code he developed. (Ct. Rec. 45-5
`at 3.)
`bVisual's second software engineer hire was Rand Renfroe. (Ct. Rec.
`45-3 at 3.) Mr. Renfroe worked for Numbers Consulting, Inc., a
`corporation he formed with his wife, Jan Renfroe, in March 2002. (Ct.
`Rec. 66 at 2.) Mr. Renfroe, with feedback and direction from Tony Larson
`and others, created the source code, i.e., the blueprints, for the
`System. (Ct. Recs. 45 at 3-5; 66 at 4-6.) Over the course of three (3)
`years, bVisual paid Mr. Renfroe $370,000.00 in cash plus 21,965 shares
`of bVisual stock for his services. (Ct. Recs. 45-3 at 8; 66 at 2.)
`bVisual did not pay Mr. Renfroe directly; instead, Numbers Consulting,
`Inc. (“Numbers”) billed and collected for Mr. Renfroe's services. (Ct.
`Recs. 10, Ex. A; 66 at 2.) Numbers was also responsible for Mr.
`Renfroe's tax obligations and employee benefits. (Ct. Recs. 64 at 2; 62
`at 2; 45-3 at 7.)
`bVisual's third additional software engineer hire was Tom Borkowski.
`(Ct. Rec. 45-6.) Mr. Borkowski helped bVisual develop the System's audio
`source code. Id. bVisual compensated Mr. Borkowski approximately
`$250,000.00 in cash and stock for his services; Mr. Borkowski understood
`that bVisual had full rights to the code he developed. Id. at 2.
`C.
`Mr. Renfroe's Employment
`Mr. Renfroe worked with bVisual from July 2005 until November 2008.
`(Ct. Rec. 45-3 at 3.) During this time, he signed bVisual's non-
`disclosure agreement, which required him to keep information confidential
`ORDER * 3
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`while fulfilling his "transactional services" for bVisual. (Ct. Rec.
`45-3, Ex. 1.) Mr. Renfroe did not sign (either as an individual or on
`behalf of Numbers Consulting, Inc.) a contract with bVisual detailing
`compensation, scope of work, or ownership of the intellectual property
`rights being created.
`With a few exceptions, Mr. Renfroe developed the System's source
`code on his own schedule from an office provided by Numbers Consulting,
`Inc. (Ct. Rec. 66 at 3.) He provided daily progress reports to bVisual
`and delivered updated versions of the source code approximately every two
`(2) weeks. (Ct. Rec. 45-3 at 5.) Tony Larson, Mr. Renfroe, and others
`would then discuss the recent updates and what "tweaks" needed to be
`made. (Ct. Rec. 66 at 6-7.) Tony Larson's role in the System's
`development was largely supervisory; that is, while Mr. Larson was
`involved in general discussions about the System's overall design,
`features, and possible ways to fix software bugs, he never performed
`"brass tacks" tasks such as technical code review because he lacked the
`ability to write or understand "code drafting languages" such as C++, C#,
`or the .Net platform. (Ct. Rec. 66 at 6.)
`As the System’s development progressed, Mr. Renfroe began adding
`copyright notices in the source code, which read: "Numbers Consulting for
`bVisual, copyright." (Ct. Rec. 45-3 at 5.) In fact, in 2007, Mr. Renfroe
`explicitly asked bVisual for guidance on how the System's copyright
`notice should read in the code. (Ct. Rec. 45-3, Ex. 5.)
`With respect to equipment and development, bVisual purchased three
`(3) software development tools and miscellaneous telecommunications
`equipment to assist Mr. Renfroe in developing the System's source code.
`(Ct. Rec. 45-3 at 4.) bVisual also paid various software engineers to
`ORDER * 4
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`Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
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`test source code for bugs. (Ct. Rec. 45-3 at 5.) Otherwise, all of
`Mr. Renfroe’s equipment - including computers, test computers, and other
`standard development tools - were purchased by Numbers Consulting, Inc.
`for Mr. Renfroe's use. (Ct. Rec. 66 at 5.)
`After years of development, bVisual conducted a limited beta test
`of the System in February 2008. (Ct. Rec. 45-3 at 6.)
`D.
`Fallout
`Shortly after the February 2008 beta test, bVisual ran out of start-
`up capital and stopped paying every invoice that Numbers Consulting, Inc.
`submitted on Mr. Renfroe's behalf. (Ct. Recs. 10, Ex. A; 11 at 3; 66 at
`8.) In November 2008, Mr. Renfroe demanded - not accounting for the
`unpaid invoices - a 100,000-share bonus for "killing [himself] to get
`this product done." (Ct. Rec. 45-3, Ex. 6.) Tony Larson countered with
`a $500,000.00 bonus proposal. Mr. Renfroe rejected the offer, stopped
`all work on the System, and formally resigned all services to bVisual.
`(Ct. Recs. 45-3, Ex. 6; 66 at 8.)
`Around the same time, Numbers Consulting, Inc. began the process of
`obtaining an expedited copyright registration for the System’s video
`source code. (Ct. Rec. 11 at 3.) In early December 2008, Numbers
`Consulting, Inc. transferred all of its right, title, and interest in the
`System to Numbers Licensing, LLC. Id. Shortly thereafter, Numbers
`3
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`3
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`Numbers Consulting, Inc., is the entity which provided
`
`services. Numbers Licensing, LLC., is the entity created simply for
`copyright ownership purposes. Both entities are wholly owned by the
`Renfroes; therefore for purposes of this motion, “Numbers” refers to the
`entities collectively.
`ORDER * 5
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`A.
`
`Licensing LLC received a Copyright Certificate of Registration for the
`System. (Ct. Rec. 11, Ex. B.)
`In February 2009, the Renfroes learned that bVisual had hired other
`software engineers to modify the System's source code. (Ct. Rec. 66 at
`8.) Unwilling to let other "technologically proficient individuals"
`view, copy, and modify Numbers’ copyrighted source code, they filed the
`copyright infringement action and preliminary injunction request now
`before the Court. (Ct. Rec. 63, Ex. A.)
`II. DISCUSSION
`bVisual’s Motion to Strike (Ct. Rec. 47)
`bVisual moves to strike selected paragraphs from Jan Renfroe's
`Declaration as hearsay, unsupported generalities, and conclusory legal
`characterizations. (Ct. Rec. 49 at 2.) Numbers counters that
`Ms. Renfroe's declaration, to the extent that it is deficient, is cured
`by subsequently-filed declarations and considers the issue moot. (Ct.
`Rec. 68 at 1-2.)
`Federal Rule of Civil Procedure 65, which addresses preliminary
`injunctions, does not state the minimum evidentiary criteria required for
`declarations submitted in support of preliminary injunctions; Rule 56,
`however, provides a useful guide. Rule 56 states that “[a] supporting
`or opposing affidavit must be made on personal knowledge, set out facts
`that would be admissible in evidence, and show that the affiant is
`competent to testify on the matters stated.” FED. R. CIV. P. 56(e)(1). An
`exception to this rule permits a district court to consider otherwise
`inadmissible evidence when ruling on a preliminary injunction if exigent
`circumstances exist (e.g., a time-sensitive issue requiring expedited
`briefing where evidentiary compliance cannot be obtained). See Flynt
`ORDER * 6
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`Distrib. Co. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 1984) ("The urgency
`of obtaining a preliminary injunction necessitates a prompt determination
`and makes it difficult to obtain affidavits from persons who would be
`competent to testify at trial.”).
`Here, bVisual identified valid evidentiary deficiencies in
`Ms. Renfroe’s declaration. For example, Ms. Renfroe alleges in ¶ 4 that
`her husband was paid $60.00 an hour for his services. Ms. Renfroe lacks
`personal knowledge to make such a statement. And because there are no
`exigent circumstances warranting a deviation from Rule 56(e) (Numbers had
`several months to obtain declarations from the proper people after
`learning of bVisual’s infringing activities), full compliance with the
`evidentiary rules is appropriate and the deficient paragraphs are
`properly stricken. It should be noted that Numbers essentially admits
`to the deficiencies in its opposition. (Ct. Rec. 68.) 4
`B.
`Numbers’ Motion for Preliminary Injunction (Ct. Rec. 9)
`1.
`Necessity for an Evidentiary Hearing
`As an initial matter, it is necessary to decide whether the Court
`should hold an evidentiary hearing before ruling on the preliminary
`injunction. An evidentiary hearing need not occur as a matter of course
`5
`before a district court rules on a preliminary injunction. Kenneally v.
`Lungren, 967 F.2d 329, 334 (9th Cir. 1992) (citation omitted). "[I]f the
`disputed [] facts are simple and little time would be required for an
`
`4
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`This ruling has little to no effect on the preliminary
`
`injunction motion because Numbers submitted admissible equivalent
`evidence in subsequently-filed declarations.
`
`The parties did not request an evidentiary hearing.
`5
`ORDER * 7
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`evidentiary hearing, proceeding on affidavits alone might be
`inappropriate. But an evidentiary hearing should not be held when the
`magnitude of the inquiry would make it impractical." Int'l Molders' &
`Allied Workers' Local Union, No. 164 v. Nelson, 799 F.2d 547, 555 (9th
`Cir. 1986).
`The Court finds that an evidentiary hearing is unnecessary; the
`declarations on file provide a sufficient basis for the Court to make an
`informed decision. Moreover, the complex nature of the disputes cannot
`be practically resolved in an evidentiary hearing. For example,
`resolving the copyright ownership question will require detailed
`inquiries into Tony Larson’s involvement in the System’s source code
`design - this will likely require expert testimony regarding computer
`programming. Practical resolution in an evidentiary hearing therefore
`would be difficult. As such, it is appropriate to rule on the motion
`without holding an evidentiary hearing. See id. at 555.
`2.
`Preliminary Injunction Standard
`“A preliminary injunction is not a preliminary adjudication on the
`merits: it is an equitable device for preserving the status quo and
`preventing the irreparable loss of rights before judgment." Textile
`Unlimited v. A..bmhand Co., 240 F.3d 781, 786 (9th Cir. 2001).
`Preliminary injunctive relief is available to a party who demonstrates
`either: 1) a combination of probable success on the merits and the
`likelihood of irreparable harm; or 2) that serious questions as to
`success on the merits are raised and the balance of hardships tips in its
`favor. Stormans, Inc. v. Selecky, No. 07-36039, op. at 8465-66 (9th Cir.
`July 8, 2009) (citations omitted). "These two formulations represent two
`points on a sliding scale in which the required degree of irreparable
`ORDER * 8
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`harm increases as the probability of success decreases." A&M Records v.
`Napster, Inc., 239 F.3d 1004, 1013 (9th Cir. 2001). Given that two
`related but independent avenues exist for obtaining a preliminary
`injunction, each test will be addressed in turn.
`3.
`First Test: Probable Success on the Merits and the Likelihood
`of Irreparable Harm
`A.
`Probable Success on the Merits
`1)
`Prima Facie Case of Copyright Infringement
`Numbers claims that it can establish probable success on the merits
`because it owns a registered copyright in the System’s source code. To
`establish probable success on the merits, Numbers must first demonstrate
`a prima facie case of copyright infringement, which requires a showing
`of 1) ownership of the copyright, and 2) copying of an expression
`protected by the copyright. Johnson Controls, Inc. v. Phoenix Control
`Sys., Inc., 886 F.2d 1173, 1174 (9th Cir. 1989).
`The Court finds that Numbers establishes a prima facie case of
`copyright infringement. First, Numbers holds a copyright certificate of
`registration in the System’s video source code, which constitutes prima
`facie evidence of copyright validity. See 17 U.S.C. § 410(c) (2009); see
`also Triad Sys. Corp. v. Se. Exp. Co., 64 F.3d 1330, 1335 (9th Cir. 1995)
`(noting that production of a certificate of registration raises a
`presumption of validity in a copyright). Second, it is undisputed that
`bVisual has a copy of the System’s source code and is using and modifying
`it. (Ct. Recs. 13 ¶ 38-39; 63-2, at 5.)
`2)
`Defenses
`
`Although Numbers can establish a prima facie case of copyright
`infringement, bVisual raises the following four (4) infringement
`ORDER * 9
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`defenses: 1) bVisual owns the copyright under the “work-made-for-hire”
`doctrine; 2) bVisual has rights to use and modify the work under an
`implied license; 3) bVisual owns the work as a purchaser of computer
`software; and 4) Numbers’ failure to identify the specific work at issue
`precludes the Court from issuing a preliminary injunction as a matter of
`law. Each defense is addressed in turn.
`a.
`Work-Made-for-Hire Exception
`bVisual argues that Numbers’ copyright ownership is invalid under
`the work-made-for-hire exception because 1) Mr. Renfroe was working as
`an "employee" of bVisual, and 2) bVisual ordered the work for use as
`contribution to a "collective work." (Ct. Rec. 45 at 4.)
`The Copyright Act provides that a protected work vests initially in
`the work’s author or authors. 17 U.S.C. § 201(a). Under the work-made-
`for-hire exception, however, copyright ownership will vest with an
`author’s employer or in a third party in two (2) scenarios: 1) when a
`work is prepared by an employee within the scope of his or her
`employment; or 2) when a work is specially ordered or commissioned for
`use as a contribution to a collective work and the parties expressly
`agree in a written statement signed by them that the work shall be
`considered a work-made-for-hire. Id. §§ 101, 201(b).
`i..
`First Exception - Scope of Employment
`Turning to the first work-made-for-hire exception, bVisual argues
`that Mr. Renfroe was a bVisual employee and, therefore, that it owns the
`System’s source code copyright. (Ct. Rec. 45 at 5-6.) Numbers responds
`that Mr. Renfroe was an independent contractor, not a bVisual employee.
`When determining whether a hired party is an "employee" under the
`work-made-for-hire exception, courts apply common law agency principles,
`ORDER * 10
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`which identify the following non-determinative factors: 1) the hiring
`party's right to control the manner and means by which the product is
`accomplished; 2) the skill required to complete the task; 3) the extent
`of the hired party's discretion over when and how long to work; 4) the
`method of payment; 5) the source of the instruments and tools used;
`6) the location and duration of the relationship and work; 7) the extent
`to which the hiring party has the right to assign additional projects;
`and 8) the tax treatment and the provision for employee benefits provided
`to the hired party. Cmty. for Creative Non-Violence v. Reid, 490 U.S.
`730, 751-52 (1989) (citation omitted).
`The Court finds that Mr. Renfroe was an independent contractor and
`not a bVisual employee based on the following seven (7) facts: First,
`since 2002, Mr. Renfroe worked for Numbers Consulting, Inc., a
`corporation that he formed with his wife, and provided services to
`bVisual through Numbers. Numbers then sent weekly invoices to bVisual
`6
`for Mr. Renfroe’s work. (Ct. Recs. 45-3 at 3; 66 at 2 ¶¶ 4-5.) Second,
`Numbers was responsible for Mr. Renfroe's payroll obligations, tax
`obligations, and employee benefits. (Ct. Recs. 64 at 2; 62 at 2; 45-3 at
`7.) Third, although bVisual purchased some software development tools
`and miscellaneous telecommunications equipment for Mr. Renfroe’s use,
`Numbers supplied much of the equipment used, including computers, test
`computers, and other standard development tools. (Ct. Recs. 45-3 at 4;
`66 at 5.) Fourth, while it is true that Tony Larson was heavily involved
`in some aspects of the source code’s creation, he was not capable of
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`Mr. Renfroe did not work for anyone else during this time. (Ct.
`6
`Rec. 45-3 at 3 ¶ 7).
`ORDER * 11
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`detailed code review. As such, Mr. Renfroe’s services were sought for
`a specific purpose - his specialized programming knowledge. bVisual
`therefore had no right to assign additional projects to Mr. Renfroe as
`they would to a regular, salaried employee. (Ct. Recs. 45-3 at 3 ¶ 7; 60-
`2 at 5; 66 at 4 ¶ 12.) Fifth, while Mr. Renfroe would go to bVisual’s
`office on occasion to de-bug software, he wrote the System’s source code
`primarily at his Numbers’ office on his own schedule, with discretion as
`to how he performed his work. (Ct. Rec. 66 at 3 & 5 ¶¶ 12 & 25.) Sixth,
`while Mr. Renfroe is alleged to have held himself out as bVisual’s Chief
`Technology Officer, there are instances where Mr. Renfroe explicitly
`denies being a bVisual employee. For example, when signing a document
`acknowledging receipt of bVisual’s employee handbook, Mr. Renfroe
`specifically crossed out “employee” and wrote “contractor” before signing
`the acknowledgment. (Ct. Recs. 45-3 at 8 ¶ 19; 45-3 Ex. 6 & 10; 66 at 2
`¶ 6.) Seventh, communication between bVisual and Mr. Renfroe is replete
`with a “we” versus “you” mentality. By way of example, the
`confidentiality agreement Mr. Renfroe signed states “You . . . will
`receive confidential and secret information from bVisual . . . for the
`purpose of fulfilling your services to the company (‘Transaction’).” (Ct.
`Recs. 45-3, Ex 1, Ex.6, & Ex. 10.)
`These facts, when taken together, support a finding that Mr. Renfroe
`was an independent contractor. See Reid, 490 U.S. at 752-53 (finding
`independent contractor status when a highly skilled sculptor was working
`on his own time, in his own studio, supplying his own tools, and was
`provided neither employee benefits nor placed on the company payroll).7
`
`While Mr. Renfroe did write on one occasion that “I’ve worked
`
`
`7
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`Second Exception - Collective Works
`ii.
`Turning to the second work-made-for-hire exception, bVisual argues
`that they are the original copyright owners because the code was part of
`a collective work in the System as a whole. (Ct. Rec. 45 at 8-9.) Numbers
`claims that this position is unfounded because the parties did not
`execute a signed, written agreement expressing this intent. (Ct. Rec. 60-
`2 at 7.)
`A signed writing expressing the intent to have a work-made-for-hire
`is a prerequisite to establishing a collective work. 17 U.S.C. § 101(2).
`The writing requirement accomplishes Congress’s intent to have certainty
`in copyright disputes. See Reid, 490 U.S. at 749 (noting that "with
`[a writing requirement], the parties at the outset can settle on relevant
`contractual terms, such as the price for the work and the ownership
`reproduction rights.").
`The Court finds that the second work-made-for-hire exception is
`inapplicable. Neither party produced a signed, written agreement
`expressing an intent to place initial ownership rights with bVisual. The
`work-made-for-hire exception therefore lacks the necessary writing
`component. bVisual argues that the writing requirement is evidenced
`through the “communication” embedded in the source code where Mr. Renfroe
`added the copyright notice “Numbers Consulting for bVisual, copyright.”
`This position is untenable and is inconsistent with the Congressional
`intent to have certainty in copyright ownership at the outset. Moreover,
`
`for this company for the last three years. . .,” the Court places little
`emphasis on this e-mail because it is unclear whether Mr. Renfroe is
`referring to his status as a contractor. (Ct. Rec. 45-3, Ex. 6.)
`ORDER * 13
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`to the extent that these code entries satisfy the writing requirement,
`they lack the parties’ signatures. See id. at 750. 8
`iii. Summary: Work Made for Hire
`In sum, neither work-made-for-hire exception applies. bVisual
`cannot, for purposes of this preliminary injunction, establish that
`Mr. Renfroe was a bVisual “employee” or that Mr. Renfroe produced the
`work under the specially-ordered collective work. Therefore, bVisual
`cannot establish original copyright ownership.
`b.
`Implied License
`bVisual next argues that if it cannot establish initial copyright
`ownership, then, at a minimum, it has an implied license to use the
`System’s source code. (Ct. Rec. 45 at 10.) Numbers disagrees, arguing
`that it has not granted bVisual a license, implied or otherwise, to use
`the copyrighted work. (Ct. Rec. 60-2 at 10.)
`Though exclusive licenses must be in writing, grants of non-
`exclusive licenses need not be in writing, and may be granted orally or
`by implication. Asset Mktg. Sys., Inc. v. Gagnon, 542 F.3d 748, 754 (9th
`Cir. 2008) (cert. denied). An implied license will be found when 1) a
`person (the licensee) requests the creation of a work, 2) the creator
`(the licensor) makes that particular work and delivers it to the licensee
`who requested it, and 3) the licensor intends that the licensee-requestor
`
`bVisual’s reliance on Warren v. Fox Family Worldwide, 328 F.3d
`
`8
`1136, 1141 (9th Cir. 2003), for the proposition that an employment
`agreement does not require specific “work-made-for-hire” language is
`unpersuasive. In Fox, a written agreement existed placing copyright
`ownership with the hiring party. Here, there is no agreement.
`ORDER * 14
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`Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
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`copy and distribute his work. Id. at 754-55. “[T]he relevant intent is
`the licensor’s objective intent at the time of the creation and delivery
`of the software as manifested by the parties’ conduct.” Id. at 756.
`Because Numbers concedes that the first two (2) requirements for an
`implied license exist, only the third requirement - licensor’s intent -
`merits discussion. (Ct. Rec. 60-2 at 10.)
`The Ninth Circuit finds three (3) factors persuasive in determining
`a licensor’s intent to convey a license: 1) whether the parties were
`engaged in a short-term discrete transaction as opposed to an ongoing
`relationship; 2) whether the creator utilized written contracts providing
`that copyrighted materials could only be used with the creator's future
`involvement or express permission; and 3) whether the creator's conduct
`during the creation or delivery of the copyrighted material indicated
`that use of the material without the creator's involvement or consent was
`permissible. Gagnon, 542 F.3d at 756 (citations omitted). These are
`known as the Gagnon-intent factors.
`The Court finds that bVisual obtained an implied license to continue
`using and modifying the System’s source code. Under the three (3)
`Gagnon-intent factors, Numbers has not introduced objective evidence of
`intent to retain ownership in the copyright before resigning services
`from bVisual.
`Under the first Gagnon-intent factor (short-term transaction versus
`ongoing relationship), the Ninth Circuit, unfortunately, has not yet
`clarified whether the existence of an ongoing relationship favors an
`implied license finding. See id. Numbers argues that the ongoing
`9
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`It should be noted, however, that while the Ninth Circuit’s
`
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`ORDER * 15
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`Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
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`relationship here created an expectation of future involvement sufficient
`to establish that Mr. Renfroe did not intend to grant bVisual a license.
`(Ct. Rec. 60-2 at 11.) This argument is unpersuasive. Mr. Renfroe, like
`the software developer in Gagnon, was an independent contractor, a status
`that should not create any long-term or permanent expectations of
`involvement in the company. Moreover, the ongoing relationship provided
`numerous opportunities for Mr. Renfroe to communicate his intent to deny
`bVisual a license. Instead, three-and-a-half years passed before
`Mr. Renfroe made known his intent to retain his rights in the System’s
`source code. In fact, he was silent about his ownership when licensing
`was discussed (e.g., upon request, Mr. Renfroe inserted bVisual’s End
`User License Agreement into the System’s source code but did not claim
`ownership in the license). (Ct. Rec. 45 at 9.)
`Under the second Gagnon-intent factor (creator’s use of a written
`contract), Numbers’ failure to obtain a written agreement retaining
`licensing rights supports finding of an implied license. Not only was
`there no agreement, but also bVisual and Numbers never discussed
`licensing arrangements and Numbers never denied bVisual a license until
`the relationship ended. When a license has not been denied and
`substantial sums of money are paid for the copyrighted work, the absence
`of a licensing agreement supports the finding of an implied license. See
`Gagnon, 542 F.3d at 757 (noting that a belated statement denying a
`
`decision in Gagnon lacked substantive analysis of the first Gagnon-intent
`factor, it ultimately found that an implied license existed when the
`parties had an ongoing three-and-a-half year relationship.
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`ORDER * 16
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`

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`Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
`
`license is not sufficient after substantial sums were paid for the work);
`see also Effects Assoc., Inc. v. Cohen, 908 F.2d 555, 558-59 (9th Cir.
`1990) (noting that if no implied license was found, the plaintiff’s
`contribution would be of minimal value - a conclusion that cannot be
`squared considering the plaintiff was paid $56,000 for his work).
`Similarly, because Numbers was paid a substantial sum - both in money and
`stock - for the delivery of the System’s source code, an implied license
`should be found absent objective factors indicating the denial of a
`license. No substantive evidence that Numbers denied bVisual a license
`at the time of the System’s delivery has been introduced.
`Under the third Gagnon-intent factor (the creator’s conduct),
`Mr. Renfroe’s conduct on three (3) separate occasions objectively
`demonstrates that he did not intend to deny bVisual use of the System’s
`source code. First, Mr. Renfroe inserted the copyright notice “Numbers
`Consulting for bVisual, copyright” 112 times in the source code. No
`10
`claims of copyright ownership were made by Mr. Renfroe at this time.
`Second, Mr. Renfroe confirmed to Brian Larson that bVisual would be the
`owner of the copyrights in the program when discussing the insertion of
`the End User License Agreement into the code. (Ct. Doc. 45-4 at 2 ¶ 2.)
`
`While Plaintiff argues that “Numbers Consulting for bVisual,
`
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`Copyright” is ambiguous and does not demonstrate intent to grant
`copyright ownership to bVisual, the Court does not find this language
`ambiguous; Mr. Renfroe explicitly asked bVisual for guidance on how the
`System's copyright notice should read in the code. (Ct. Rec. 45-3, Ex.
`5.)
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`

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`Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
`
`Again, Mr. Renfroe made no claims of copyright ownership. Id. Third,
`according to Tony Larson, from February 2008 until the time that Mr.
`Renfroe resigned his services, he was aware of the licensing and
`subscription management process used by bVisual in its beta test to
`obtain licensing agreements and fees from end-users of the bVisual
`system. (Ct. Rec. 102 at 4 ¶ 11.) No copyright ownership claims was made
`by Mr. Renfroe with respect to the subscriber license fees collected by
`bVisual. Id.
`
`Other defenses
`c.
`Given the strength of bVisual’s implied license defense, it is
`unnecessary to consider the remaining two (2) defenses.
`B.
`Irreparable Harm
`Under the circumstances, consideration of irreparable harm is also
`unnecessary; bVisual’s implied license defense raises serious questions
`to the probability that Numbers will succeed on the merits.
`C.
`Summary: First Test
`In sum, the Court finds that bVisual’s implied license defense
`raises serious questions to the merits of Numbers’ copyright infringement
`claim; therefore, Numbers cannot demonstrate probable success of this
`claim for purposes of this motion.
`Given that two (2) related, but independent tests exist for
`obtaining a preliminary injunction, the Court now turns to the second
`test.
`
`4.
`
`Second Test: Serious Questions are Raised and the Balance of
`Hardships Tips in Favor of the Moving Party.
`In evaluating the balance of hardships, a court must consider the
`impact that granting or denying a motion for a preliminary injunction
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`Case 2:09-cv-00065-EFS Document 126 Filed 07/15/09
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`will have on the respective enterprises. Int’l Jensen, Inc. v.
`Metrosound, U.S.A., Inc., 4 F.3d 819, 827 (9th Cir. 1993).
`1)
`Hardships for Numbers
`Numbers argues in its briefing that the balance of hardships tips
`in its favor because a fa

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