Opinion
Case No. 2:02CV 270.
August 12, 2004
ORDER
This is a motion by World Marketing Alliance (WMA) for summary judgment as to the third, fourth, and fifth claims for relief of the Second Amended Complaint of Plaintiff Franklin Covey Client Sales (FCCS). At a December 3, 2003 hearing, this Court denied, without prejudice, a motion substantially similar to this one, which WMA brought on May 7, 2004. The Court denied the May 7, 2004 motion at a hearing on July 29, 2004, and, in amplification of that denial, now issues the following order.
Defendant World Financial Group joined WMA's motion, (Docket 334-2), but neither briefed nor argued the issues presented.
BACKGROUND
This case arises from business dealings between Plaintiff and Defendants. Franklin Covey Client Sales (FCCS) and World Marketing Alliance (WMA) entered into a three-year Integrated Services Agreement (ISA) in October, 2000, under which FCCS was to supply WMA with certain products and services derived from intellectual property owned by FCCS's parent company, Franklin Covey Company (FCC). (Plaintiff's Motion in Opp. at 4, 10.) While the contract between FCCS and WMA was still in effect, WMA's assets were purchased by World Financial Group, ( Id. at 5), and in the months following this purchase it was not always perfectly clear who was a party to the ISA or, indeed, whether the ISA was still in effect. In order to resolve burgeoning disputes as to who owed obligations to whom under the ISA, FCCS filed suit on February 28, 2002, alleging various theories sounding in the law of contracts and restitution. On April 23, 2003, with leave of Court, FCCS filed an amended complaint which dropped the restitution claims and added trademark and copyright infringement (Claims 3 and 5 of the Second Amended Complaint, respectively), and unfair competition under the Lanham Act (Claim 4). ( Id. at 6.)
WMA moved for summary judgment as to the intellectual property claims on June 23, 2003, maintaining that only an owner of intellectual property has standing to sue for an alleged infringement, and that therefore FCCS lacked standing to sue for infringement of copyrights and trademarks belonging to its parent company FCC. FCCS continued to argue that it had standing to sue based on its status as a wholly owned subsidiary of FCC and on FCC's authorization to sue, but on July 23, 2003, FCC assigned to FCCS its accrued causes of action for trademark and copyright infringement. ( Id. at 10.) This Court heard oral argument on several motions for summary judgment on December 3, 2003, and denied without prejudice WMA's motion for summary judgment as to standing on counts three, four, and five. At that hearing the Court also granted FCCS's motion to file a second amended complaint alleging FCC's assignment of the accrued causes of action. On May 7, 2004, WMA filed a second motion for summary judgment as to counts three, four, and five of the second amended complaint, maintaining that the assignment by FCC to FCCS had not cured alleged defects in the latter's standing.
DISCUSSION
Claims Three and Five for Trademark and Copyright Infringement
Franklin Covey Client Sales's third claim for relief alleges trademark infringement under the Lanham Act, which provides that an infringer "shall be liable in a civil action by the registrant. . . ." 15 U.S.C. § 1114(1). FCCS's fifth claim is for copyright infringement, and thus is subject to the standing requirements of the Copyright Act: "The legal or beneficial owner of an exclusive right under a copyright is entitled . . . to institute an action for any infringement . . . committed while he or she is the owner of it." 17 U.S.C. § 501(b). While neither Act includes language explicitly restricting standing to registrants or owners, WMA urges this Court to adopt such a construction, and has referenced a number of cases it claims lead ineluctably to the conclusion that a party without an ownership interest in intellectual property has no standing to sue.
WMA resists the notion that the standing requirements of copyright and trademark may be analyzed together, since, as they quite correctly point out, different statutory regimes govern copyright and trademark. The interpretive strategy WMA would have the Court adopt, however, is identical with regard to both statutes. The Court's analysis of standing treats the law governing standing in copyright actions as substantially the same as that prevailing in trademark, and uses cases regarding standing in copyright and trademark actions interchangeably. See Gaia Techs. v. Reconversion Techs., 93 F.3d 774, 777 (Fed. Cir. 1996) (conflating analysis of standing in patent and trademark claims) and Quabaug Rubber Company v. Fabiano Shoe Co., Inc., 567 F.2d 154, 159, n. 7 (1st Cir. 1977) (treating analysis of standing under patent and trademark as analogous).
WMA recognizes exclusive licensees as a possible exception to the rule that only owners may sue for infringement, and references in its briefs a debate among the circuits as to whether exclusive licensees of a copyright have standing. (Memo ISO Motion to Dismiss at 9 n. 6.) The case WMA cites in its brief in connection with this circuit split, however, Bateman v. Mnemonics, Inc., 79 F.3d 1532 at 1539-41 (11th Cir. 1996), is of-at best-tangential relevance to this topic. Another of the cases on which WMA relies, however, states unequivocally that the holder of an exclusive license does have standing to sue for infringement, but traces its authority directly to statute, rather than case law: "The Copyright Act authorizes only two types of claimants to sue for copyright infringement: (1) owners of copyrights, and (2) persons who have been granted exclusive licenses by owners of copyrights." Eden Toys, Inc. v. Florelee Undergarment Co., Inc., 697 F.2d 27, 32 (2d Cir. 1982). Other circuits which have explored the question have expressed doubts as to an exclusive licensee's standing, and have based that analysis on case law, rather than the language of the statute. See Icee Distributors, Inc., v. JJ Sanck Foods Corp., 325 F.3d 586, 597-8 (5th Cir. 2003); DEP Corp. v. Interstate Cigar Co., Inc., 622 F.2d 621, 624 n. 2 (2d Cir. 1980). Whether the authority to include exclusive licensees in the category of parties with standing derives from statute or case law is instructive in its demonstration that the taxonomy of suitable plaintiffs outlined by § 501(b) may not be so unambiguous as WMA would have the Court believe, it is not directly relevant to the question before the Court here; FCCS is by all accounts a non-exclusive licensee.
For its part, FCCS offers two grounds on which its standing could be upheld: 1) the assignment by FCC of the accrued causes of action for copyright and trademark infringement, and 2) its status as a wholly owned subsidiary of the copyright and trademark owner. The first of these arguments rests upon the assumption that the rights incident to intellectual property are not all of a piece, but are capable of separation and individual alienation. That an accrued cause of action arising out of a copyright may be transferred without an accompanying transfer of ownership of the copyright is not an idea novel to this action; Nimmer declares that an "assignee of an accrued infringement cause of action has standing to sue without the need to join his assignor, even if the latter retains ownership of all other rights under the copyright." 3 Nimmer on Copyright § 12.02[B] at 12-54 and n. 27 (2000).
This distinction between accrued causes of action for infringement and copyright itself has been observed by courts which have had the issue squarely before them. See Abkco Music, Inc. v. Harrisongs Music, Ltd., 944 F.2d 971, 980 (2d Cir. 1991) ("Thus, a copyright owner can assign its copyright but, if the accrued causes of action are not expressly included in the assignment, the assignee will not be able to prosecute them."); De Silva Construction Corp. v. Herrald, 213 F. Supp. 184, 192 (M.D.Fla. 1962) (quoting Ball, Copyright and Literary Property 543.) ("A mere assignment of a copyright does not of itself transfer to the assignee any cause of action for infringements that occurred prior to the assignment. Unless the assignment of copyright contains language explicitly transferring causes of action for prior infringements, the assignee cannot maintain a suit for infringements which happened before the effective date of the assignment."); Kriger v. MacFadden Publications, Inc., 43 F. Supp. 170, 172 (S.D.N.Y. 1941) (holding that a publisher who had assigned copyright, but not accrued causes of action for infringement, retained standing to sue for accrued causes of action: "the publisher "had a chose in action upon which he alone could sue . . ."). Once this "divisibility of ownership," of the various aspects of the rights inherent in copyright is recognized, Abkco 944 F.2d at 980, the implications of vesting different aspects of the rights in different owners may be considered.
Choses of action are ordinarily incidents of property that may be assigned to and pursued by others. If there is no statutory or common law bar to the assignment of choses of action arising out of the ownership of intellectual property, then the standing question before this Court may be reduced to a "simple assignment of a chose in action." Prather v. Neva Paperbacks, Inc., 410 F.2d 698 (5th Cir. 1969). Under this analysis, the separability of the bundle of rights comprising ownership of copyright is analogous to the separability of the rights incident to the ownership of other forms of property, and an assignment of accrued causes of action is amenable to the same analysis as other such assignments: "Such an assignment [of an accrued cause of action for copyright infringement] is like assignment of any other chose in action under contract theory." Silvers v. Sony Pictures Entertainment, Inc., 330 F.3d 1204, 1208 (9th Cir. 2003).
While Silvers has recently been selected for rehearing en banc and vacated, 370 F.3d 1252, it remains open to a district court in the Tenth Circuit to consider for its persuasive value the reasoning of a case from another circuit.
It is precisely this identity of copyright with other forms of property, with regard to assignment of choses in action, that WMA, and the most cogent authority on point it cites, take issue. Under the rubric articulated by the Second Circuit Court of Appeals in Eden Toys v. Florelee Undergarment Co., the Copyright Act accords standing to owners of copyright and their exclusive licensees alone, and precludes assignment of choses in action that purport to vest standing in other parties: "We do not believe that the Copyright Act permits holders of rights under copyrights to choose third parties to bring suits on their behalf . . . the Copyright Law is quite specific in stating that only the `owner of an exclusive right under a copyright' may bring suit." 697 F.2d 27, 32 (2d Cir. 1982). WMA would have this Court add "only" to the beginning of the subsection on which they rely, apparently assuming that such a reading is the only, or at least the most obvious, one available. The congressional intention embodied in § 501(b), however, is as plausibly permissive as restrictive. That is, § 501(b) may confer standing on one class of plaintiffs without closing the category of parties capable of having standing to complain of copyright infringement.
Strictly read, the holding of the Second Circuit Court of Appeals in Eden could very well preclude the holding of the same court ten years later in Abcko, that the publisher which had assigned a copyright, but not accrued causes of action associated with it, alone retained standing to sue on those accrued causes of action. While it is true that the publisher in Abkco was the former owner of the copyright, the Copyright Act, does not, on its face, permit former owners of copyright to sue: "the legal or beneficial owner of an exclusive right under a copyright is entitled . . . to institute an action for any infringement." 15 U.S.C. § 501(b). A reading of § 501(b) that inserts "only" at the beginning of the subsection may create a number of restrictions alien to congressional intent.
The proposition that § 501(b) is not an exhaustive list of those with standing finds support in the Act itself, which provides that the "ownership of a copyright may be transferred in whole or in part by any means of conveyance or by operation of law. . . ." 17 U.S.C. § 201(d). This provision assumes the divisibility of aspects of ownership of copyright, and nowhere is there manifest in the Act a congressional intention to set apart accrued causes action from other incidents of ownership separable from an underlying copyright. See Silvers 330 F.3d at 1208. WMA asks this Court to read into the neutral entitlement of § 501(b) a prohibition which was not clearly intended by Congress, and which also runs counter to the general principles undergirding the law of standing.
Federal Rule of Civil Procedure 17(a), which permits ratification by the real party in interest of a law suit initiated by a party lacking standing, simultaneously prevents the enforcement of a party's rights against his or her will, and avoids the delays attendant on forcing a real party in interest to recommence litigation. If a copyright owner is permitted a mechanism by which to ratify an action commenced by a party other than the owner, then the advantages yielded by the procedural flexibility of Fed.R.Civ.P. 17(a) may be realized in copyright actions as well. To insist that FCCS reconvey the accrued causes of action to its parent, force FCC to bring suit for the alleged infringements of its intellectual property, and to consolidate the actions in order to arrive at the stage in the proceedings the Court and the parties now occupy, requires more commitment to empty formalism than the Court is willing to embrace.
The rule provides that
Every action shall be prosecuted in the name of the real party in interest . . . No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification or commencement of the action by, or joinder or substitution of, the real party in interest; and such ratification, joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.
Fed.R.Civ.P. 17(a).
It seems only too likely that each of the steps limned above would be met with fierce opposition, making the procedure outlined above the merest sketch of the cost, complexity, and delay which would be created by forcing FCC to attempt to substitute itself as plaintiff on the intellectual property claims.
Even if the general principles governing standing and the assignment of property did not support recognition of FCCS's standing, the peculiarly close relationship between intellectual property owner and plaintiff in this action, as well as the nature of FCCS's interest in the intellectual property at issue, are factors weighing in favor of allowing standing on these facts. While WMA has mustered an array of case law which blandly recites ownership as one of the requirements for bringing an action for copyright, none of those authorities directly address a relationship, both to the intellectual property and its owner, as intimate as the one this plaintiff enjoys. FCCS is the wholly owned subsidiary of the owner of the intellectual property, a factor which has been taken into consideration by other courts in determining questions of standing in intellectual property cases. In DEP Corp. v. Interstate Cigar Co., Inc., 622 F.2d 621, 623 (2d Cir. 1980), the Second Circuit Court of Appeals distinguished its finding that a purported plaintiff lacked standing to sue because that plaintiff had been given contractual rights to sue for trademark infringement by a company which itself had no interest in the mark at issue from two other cases based on corporate relationships. DEP is distinguished from G.H. Mumm Champagne v. Eastern Wine Corp., 142 F.2d 499 (2d Cir. 1944), in which the Second Circuit awarded standing to a non-owner plaintiff, on the basis that in Mumm, the owner of the mark also owned 53% of the plaintiff's common stock and all of its preferred stock. Id. Alfred Dunhill of London, Inc. v. Kasser Distillers Products Corp., 350 F. Supp. 1341 (E.D.Pa. 1972), aff'd per curiam 480 F.2d 917 (3d Cir. 1973), is distinguished on the basis that in that case the non-owner plaintiff "was not only a sole user of a British company's mark in the United States on some products, but was also a wholly-owned subsidiary of the British company." Id. at 624. See also Quabaug Rubber Company v. Fabiano Shoe Co., Inc., 567 F.2d 154, 159, n. 7 (1st Cir. 1977)) (distinguishing the case before it from Dunhill because the non-owner plaintiff in Dunhill was the wholly-owned subsidiary of the trademark owner).
FCCS's relationship to the intellectual property owner is not the only factor weighing in favor of its suitability as a plaintiff; FCCS's relationship to the intellectual property itself also warrants consideration. The "core business" of FCCS is to license FCC's intellectual property to other business organizations and to sell goods and services "oriented around" that intellectual property. (Plaintiff's Motion in Opp. at 10.) While FCCS's interest in the intellectual property at issue falls short of an ownership interest, FCC does possess a commercial interest in the intellectual property and its protection.
The fact that FCCS is very far from a stranger to the intellectual property at issue is underscored by FCC's willingness for FCCS to prosecute the alleged infringement on its behalf. The assignment of the accrued causes of action by the undisputed owner to FCCS, the question of the effectiveness of such assignments in conferring standing aside, offers another factor the Court has considered in reaching its conclusion that the equities favor allowing FCCS to proceed as plaintiff. FCC's assignment eliminates the spectre of an owner's rights being enforced against that owner's will, as well as the threat of multiple litigation regarding the same allegedly infringing acts and defendants. Claim Four for Unfair Competition Under the Lanham Act
WMA's final argument warrants considerably less discussion. The Lanham Act confers standing in a suit for unfair competition under § 43a on "any person who believes that he or she is likely to be damaged" by a violation of the Act. 15 U.S.C. § 1125(a)(1). This standard is a low one, requiring only that a prospective plaintiff under this section demonstrate "a reasonable interest to be protected." Stanfield v. Osborne Industries, Inc., 52 F.3d 867, 873 (10th Cir. 1995). Given the nature of the relationship, outlined above, of FCCS to the intellectual property at issue, FCCS has no difficulty in meeting the applicable standard.
CONCLUSION
Defendant World Marketing Alliance's Motion for Summary Judgment as to the Third, Fourth, and Fifth Claims in Plaintiff's Second Amended Complaint is DENIED.
IT IS SO ORDERED.