Opinion
Case No. 2:01-CV-1256
September 3, 2002
OPINION AND ORDER
This matter is before the Court for consideration of Defendants' Motion to Dismiss (Doc. #9). For the reasons that follow, the motion is denied.
I.
Plaintiff Too, Inc. brings this action against Defendants Kohl's Department Stores, Inc. and the Wormser Company, Inc., for alleged copyright infringement under 17 U.S.C. § 501, et seq. Plaintiff is a Delaware corporation with its principal place of business in Columbus, Ohio. Plaintiff operates LIMITED TOO retail stores throughout the United States. The stores sell clothing and various accessories to girls aged seven to fourteen. Defendant Kohl's, a Delaware corporation with its principal place of business in Menomonee Falls, Wisconsin, is a retail department store that offers various items for sale, including girls' clothing. Defendant Wormser is a manufacturer of infants' and children's sleepwear. Wormser is an Illinois corporation with its principal place of business in Northbrook, Illinois. The Plaintiff invokes this Court's jurisdiction under 28 U.S.C. § 1331 and 1338.
Plaintiff alleges that the Defendants have infringed Plaintiff's copyrights as to four design patterns on LIMITED TOO girls' sleepwear. The first is referred to as the "Rubber Ducky" design. Plaintiff alleges that it created the unique design, which depicts a duck, a bathtub and bubbles, sometime in the year 2000. ( Amended Complaint at ¶¶ 9, 11). The style was manufactured by Defendant Wormser, one of Plaintiff's third-party sources and manufacturers of apparel items. ( Id. at ¶ 11). The Rubber Ducky sleepwear was first sold in Limited Too stores on or about October 26, 2000. ( Id. at ¶ 12). On December 12, 2001, Plaintiff obtained a copyright on the design. ( Id. at ¶ 13). Plaintiff alleges that, at some unspecified time, Defendant Wormser sold certain quantities of the Rubber Ducky design sleepwear to Defendant Kohl's. ( Id. at ¶ 18).
The second design pattern which Defendants allegedly infringed is referred to as the "Overcast" design. The design, which depicts a cloud pattern, was created by Plaintiff sometime in the year 2000 and was manufactured by Defendant Wormser. ( Am. Complaint at ¶ 21). Plaintiff began selling the Overcast design sleepwear in its LIMITED TOO stores on or about September 7, 2000. ( Id. at ¶ 22). Plaintiff obtained a copyright on the design on December 12, 2001. ( Id. at ¶ 23). Plaintiff alleges that, at some unspecified time, Defendant Wormser sold the Overcast design sleepwear to Kohl's. ( Id. at ¶ 28).
The third design pattern at issue is known as the "Leopard" design. The sleepwear bearing this design depicts a leopard animal print. ( Id. at ¶ 29). The design was created by Plaintiff sometime in the year 2000 and was manufactured by Defendant Wormser. ( Id. at ¶ 31). Plaintiff began selling the sleepwear in its LIMITED TOO stores on or about November 16, 2000. ( Id. at ¶ 32). Plaintiff obtained a copyright for the Leopard design sleepwear on December 12, 2001. ( Id. at ¶ 33). Plaintiff claims that, at some unspecified time, Defendant Wormser sold the Leopard design sleepwear to Kohl's. ( Id. at ¶ 38).
The final design pattern at issue is LIMITED TOO's "Frosty" design, which depicts snowmen and stars. ( Am. Complaint at ¶ 39). The Frosty design was also manufactured by Defendant Wormser, and was first sold by Plaintiff on or about November 5, 2000. ( Id. at ¶ 42). Plaintiff obtained a copyright for the design on December 28, 2001. ( Id.). Plaintiff claims that Defendant Wormser sold the Frosty sleepwear to Kohl's without Plaintiff's authorization. ( Id. at ¶ 48).
Plaintiff filed the instant action on December 19, 2001 with a request for preliminary injunctive relief. The parties entered into an Agreed Order Granting Preliminary Injunction on February 22, 2002.
Defendants now move to dismiss Plaintiff's complaint on the basis that Plaintiff cannot state a claim for copyright infringement as to any of the foregoing sleepwear designs. Defendants further argue that because Plaintiff cannot state a claim, this Court lacks subject matter jurisdiction under 28 U.S.C. § 1331 and 1338. Plaintiff opposes the Defendants' motion.
II.
A motion to dismiss for failure to state a claim pursuant to Fed R. Civ. P. 12(b)(6) "should not be granted unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). All well-pleaded allegations must be taken as true and be construed most favorably toward the non-movant. Schuer v. Rhodes, 416 U.S. 232, 236 (1974); Mayer v. Mylod, 988 F.2d 635, 637 (6th Cir. 1993). While a court may not grant a Rule 12(b)(6) motion based on disbelief of a complaint's factual allegations, Lawler v. Marshall, 898 F.2d 1196, 1199 (6th Cir. 1990), the court "need not accept as true legal conclusions or unwarranted factual inferences." Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987). Consequently, a complaint will not be dismissed pursuant to Rule 12(b)(6) unless there is no law to support the claim made, the facts alleged are insufficient to state a claim, or there is an insurmountable bar on the face of the complaint.
III.
The Copyright Act vests holders of copyrights with the exclusive right to distribute their works. In particular, the Act states:
Subject to sections 107 through 120, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:
(1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords 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.
The copyright holder's right is limited by, inter alia, § 109(a), which states:
(a) Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord. . . .17 U.S.C. § 109(a).
The provision codified at § 109(a) is known as the "first sale doctrine." Under the doctrine, once a copyright holder has transferred its "material ownership" to another, the holder is divested of the right to control future transfers of particular copies of the copyrighted work. Columbia Pictures Industries, Inc. v. Aveco, Inc., 800 F.2d 59, 63-64 (3rd Cir. 1986). The voluntary disposition of interest in the copyrighted work negates the copyright owner's control over further or "downstream" transfers. See Quality King Distrib. v. L'anza Research Int'l, Inc., 523 U.S. 135, 142-44 (1998). In the absence of such a transfer of interest, "an unwitting purchaser who buys a copy in the secondary market can be held liable for infringement if the copy was not the subject of a first sale by the copyright holder. Thus, unless title to the copy passes through a first sale by the copyright holder, subsequent sales do not confer good title." American Int'l Pictures v. Foreman, 576 F.2d 661, 664 (5th Cir. 1978). The alleged infringer bears the burden of tracing the chain of title to prove that the first sale doctrine applies. Microsoft v. Harmony Computers Elecs., Inc., 846 F. Supp. 208-212-14 (E.D. N.Y. 1994).
Defendants contend that the first sale doctrine applies to this case and that, therefore, Plaintiff cannot state a claim for copyright infringement. Plaintiff argues that the doctrine does not apply because Defendant Wormser was never vested with an ownership interest in the sleepwear at issue. Defendants acknowledge that Wormser manufactured the sleepwear pursuant to a contract with Plaintiff. Defendants argue that Wormser "delivered the desired quantities of the sleepwear to Too. Wormser then sold the unused but lawfully manufactured inventory to Kohl's." ( Memorandum in Support of Motion to Dismiss at 5). This is the only articulated basis on which Defendant Wormser claims it had an ownership interest in the sleepwear for purposes of the first sale doctrine.
The Court notes that attached to Defendants' motion are various purchase orders for the sleepwear at issue. Defendants proffer the exhibits in support of their assertion that they were under contract with Plaintiff to manufacture the sleepwear. Plaintiff makes this allegation in the Amended Complaint. Thus, the Court finds consideration of the exhibits unnecessary.
In regard to relevant legal authority, Defendants cite the case of Bourne v. Walt Disney Co., 68 F.3d 621 (2nd Cir. 1995). In that case, Plaintiff Bourne, the successor-in-interest to various copyrighted musical compositions held by composer Irving Berlin, sued Walt Disney Co. regarding Disney's use of the compositions in connection with the sales of Disney videocassettes and in television commercials. During the 1930s, employees of Defendant Disney composed music for use in the motion pictures "Snow White" and "Pinocchio" as well as for use in various other short cartoons. Disney assigned the copyrights for the compositions to Berlin. Berlin and Disney agreed to Disney's later use of certain compositions. For example, beginning in 1933 until 1939, Berlin gave Disney the right to use compositions to certain cartoons in exchange for Disney giving Berlin a share of the revenues received from such use. In contrast, when Disney assigned Berlin copyrights to the Snow White compositions in 1937, Disney was not given a right to use the same. When the copyrights to the music for Pinocchio were assigned to Berlin in 1939, Berlin and Disney agreed that Disney had certain rights to use the Pinocchio compositions.
In considering Disney's use of various compositions in connection with sales of videocassettes and in commercials, the Second Circuit looked to the parties' agreements with respect to Disney's right to later use of the copyrighted compositions. The Court concluded that Disney indeed had a license to use certain compositions. As to Disney's right to distribute videocassettes using the compositions, Disney argued that because it had the right to use certain compositions, the later distribution of videocassettes fell within the first sale doctrine, codified at Section 27 of the Copyright Act of 1909. The Court concluded that the doctrine applied to Disney's actions.
The case at bar, however, is unlike the situation in Bourne. In this case, there is no allegation that Wormser was ever given the right to use the LIMITED TOO sleepwear for any other purpose than manufacture for Plaintiff. Further, Defendant makes no allegation as to the basis on which an interest in the sleepwear was allegedly conferred. Thus, this case is unlike the situation in Bourne where it was clear that an interest in the copyrighted work was conveyed. Defendants' reliance on the Bourne case is misplaced.
As Plaintiff points out, the fact that Plaintiff conveyed its copyrighted designs to Defendant Wormser for the purpose of manufacture, does not equate with the conveyance of an ownership interest in the finished product. Section 109 specifically states:
(d) The privileges prescribed by subsections (a) and (c) do not, unless authorized by the copyright owner, extend to any person who has acquired possession of the copy or phonorecord from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it.17 U.S.C. § 109 (d). Indeed, Plaintiff's Amended Complaint clearly alleges that the Defendants' acts "were performed without the permission, license or authority of plaintiff, and/or were performed in deliberate, intentional, or reckless disregard of plaintiff's rights in its copyrighted Rubber Ducky, Overcast, Leopard and Frosty Designs." ( Am. Complaint at ¶ 49). Assuming the allegations to be true, as this Court must do in the context of the present motion, the Court cannot conclude that Defendant's acts were authorized so as to trigger application of the first sale doctrine, at least as a matter of law. As stated above, it is the alleged infringer that must establish the chain of title. When the record in this case develops, Defendants may present evidence, if it exists, as to Wormer's alleged authority to distribute the Plaintiff's copyrighted designs. For purposes of the present motion, however, the allegations must be construed in Plaintiff's favor and, upon so doing, this Court cannot conclude that Plaintiff could prove no set of facts that would entitle it to relief.
The Court notes that Plaintiff offers the Declaration of Kent A. Kleeburger, Executive Vice President and Chief Financial Officer of Too, Inc., in support of its allegation that Plaintiff never authorized Wormser to distribute the sleepwear at issue. The Court will not consider the declaration in connection with resolution of the instant motion. The Court simply determines, at this juncture, whether Plaintiff states a claim on which relief can be granted. Evidence as to the merits of the claims must await presentation at the summary judgment or trial stage.
The Court notes that, in their Reply Memorandum, Defendants argue that Plaintiffs failed to take possession of all of the manufactured sleepwear and, as a result, Defendant Wormser was vested with authority, under Ohio law, to dispose of the garments by selling them to Kohl's. Defendants cite R.C. § 1302.80 in support of this argument.
The statute provides that a seller may resell goods under the conditions stated in § 1302.77, which provides that:
Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract under section 1302.70 of the Revised Code, then also with respect to the whole undelivered balance, the aggrieved seller may:
(A) withhold delivery of such goods;
(B) stop delivery by any bailee as provided in section 1302.79 of the Revised Code;
(C) proceed under section 1302.78 of the Revised Code respecting goods still unidentified to the contract;
(D) resell and recover damages as provided in section 1302.80 of the Revised Code;
(E) recover damages for non-acceptance as provided in section 1302.82 of the Revised Code or in a proper case the price as provided in section 1302.83 of the Revised Code;
(F) cancel.
R.C. § 1302.77.
The Court cannot resolve the applicability of Ohio law to Defendants' actions at this juncture. The Ohio statute presupposes a "wrongful" rejection of goods manufactured by a seller; this issue cannot be resolved under Rule 12(b)(6) given the state of the pleadings. At this point, Plaintiff clearly alleges that the Defendants acted without authority to sell the copyrighted sleepwear and does not admit that it wrongfully rejected goods manufactured by the Defendant. On this basis, the Court finds that Plaintiff states a claim for relief under the Copyright Act against Defendants Wormser and Kohl's.
IV.
In light of the foregoing, Defendants' Motion to Dismiss ( Doc. #9) is DENIED.