Opinion
CASE NO: 2:08-CV-01333-JAM-EFB.
December 11, 2009
Daniel D. Quick, Michelle Heikka, Dickinson Wright PLLC, Bloomfield Hills, MI, Attorneys for Defendant, INTERMEDIA OUTDOORS, INC.
ORDER GRANTING INTERMEDIA OUTDOORS, INC.'S MOTION FOR SUMMARY JUDGMENT
This matter having come before the Court upon Defendant's, Intermedia Outdoors, Inc.'s, Motion for Summary Judgment, response and reply briefs having been filed, oral argument having been held on November 18, 2009, and the court being otherwise fully advised in the premises:
IT IS HEREBY ORDERED that Defendant's Motion for Summary Judgment is GRANTED for the reasons stated on the record, as evidenced by the transcript attached hereto as Exhibit A. Plaintiff's claims, as against Intermedia Outdoors, Inc., are dismissed with prejudice.
EXHIBIT A IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE JOHN A. MENDEZ, JUDGE
DUSTIN K. ADLER, Plaintiff, vs. No. Civ. S-08-1333 RELYNET, INC., et al., Defendants. AND RELATED ACTIONS.REPORTER'S TRANSCRIPT COURT'S RULINGS WEDNESDAY, NOVEMBER 18, 2009
Reported by: KELLY O'HALLORAN, CSR #6660APPEARANCES
For the Plaintiff:
MILLSTONE PETERSON WATTS, LLP 2267 Lava Ridge Court, Suite 210 Roseville, CA 95661 BY: GLENN W. PETERSON
LAW OFFICES OF JOHN P. COSTELLO 331 J Street, Suite 200 Sacramento, CA 95814 BY: JOHN P. COSTELLO PAMELA W. BERTANI
For the Defendant DiCarlo and RelyNet:
DAVIS LEONARD, LLP 888 Cal Center Drive, Suite 180 Sacramento, CA 95826 BY: STEPHEN L. DAVIS
For the Defendant Internet Brands:
INTERNET BRANDS, INC. LEGAL DEPARTMENT 909 N. Sepulveda Boulevard, 11th Floor El Segundo, CA 90245 BY: WENDY E. GILBERTI
For the Defendant Intermedia Outdoors, Inc.:
DICKINSON WRIGHT 500 Woodward Avenue, Suite 4000 Detroit, MI 48226 BY: MICHELLE R. HEIKKA
SACRAMENTO, CALIFORNIA WEDNESDAY, NOVEMBER 18, 2009
(Excerpt of proceedings.)THE COURT: Okay. I'm prepared to issue the following rulings. I want to start with Intermedia's motion for summary judgment. There are a number of arguments raised by Intermedia in the motion for summary judgment, including as follows:
That the plaintiff, Mr. Adler, is estopped from asserting his copyright claim against Intermedia because, by his own admission, he allowed Mr. DiCarlo to represent to the world that RelyNet held the copyright in the ZeroForum software.
Two, that Mr. Adler admitted that Intermedia copies only the HTML response. And that Intermedia's users automatically save the HTML response generated by RelyNet's servers in the RAM and cache of their computers. An HTML response, according to Intermedia's argument, is not the ZeroForum source code, and therefore Intermedia does not, in fact, copy the ZeroForum source code and is not infringing any copyright in the ZeroForum software.
Third, that Intermedia alternatively argues that if copying the HTML response somehow violates Adler's copyright in the ZeroForum software, such copying constitutes fair use because, among other reasons, its users copy the HTML response for the sole purpose of enhancing Internet usage. Citing Perfect 10, Inc. vs. Amazon.com, 508 F.3d 1146, a Ninth Circuit case 2007, holding that when a web user's computer automatically caches information for the purpose of assisting in accessing the Internet, such is a transformative use and not copyright infringement.
And, finally, Intermedia argues that they can't be liable for copyright infringement. They also can't be held liable for secondary infringement.
Mr. Adler has argued that he's not estopped from asserting his copyrights against Intermedia because, even though he was aware that the copyright notice on RelyNet's website reflected that RelyNet owned the copyright in ZeroForum, he was unsure at the time what a copyright notice meant.
He also argues that because the domain name registration for Zeroforum.com lists only his name and his home address, that Intermedia should have known that he was the sole owner of the ZeroForum software copyright.
He also argues that Intermedia has directly copied and therefore infringed his ZeroForum software, that Intermedia's infringement does not constitute fair use, and that there are genuine issues of material fact which remain which would affect his claim for secondary copyright infringement.
Based on the papers and argument of counsel, the Court is going to grant Intermedia's motion for summary judgment. They should not have been named and do not belong in this lawsuit.
In asserting an estoppel claim, a defendant must establish: One, that the party to be estopped must know the facts; two, that he must intend that his conduct shall be acted on or must act that the party asserting the estoppel has a right to believe it is so intended; and three, that the latter must be ignorant of the true facts; and four, he must rely on the former's conduct to his injury. Citing Carmichael Lodge No. 2103 vs. Leonard, a 2009 case, Eastern District of California, September 16, 2009.
In this case, the undisputed facts do show, as found by the Court, that Mr. Adler did hold RelyNet out to Intermedia as the copyright holder of the ZeroForum software. Mr. Adler admitted he knew that Mr. DiCarlo changed the copyright notice to reflect that RelyNet owned the copyright in ZeroForum. Mr. Adler also admitted that he had full access to both the RelyNet servers and the ZeroForum software. Keep in mind that Intermedia has been around in this company and involved with this company since 2002.
In this case, Mr. Adler is not acknowledging or taking responsibility for his own actions. He could have easily changed the copyright notice to indicate he owns the software. Mr. Adler, however, chose to allow Mr. DiCarlo to represent that RelyNet owned the software. As such, his actions with respect to Intermedia were such that Intermedia was justified in relying upon them.
Moreover, Intermedia was unaware that Mr. Adler claimed an ownership interest in the ZeroForum software until Mr. Adler sent his cease and desist letter in 2008, long after Intermedia had already relied upon the alleged faulty copyright notice for six years. Mr. Adler's 2008 letter does not alleviate his previous action of holding RelyNet out as the owner of the software. As such, Mr. Adler's own admissions show there is no genuine issue of material fact that he held RelyNet out to the world as the owner of ZeroForum software and that he intended the world to rely on such claims. Intermedia relied upon Adler's actions to its detriment. And as such, Mr. Adler is estopped with respect to Intermedia from asserting his copyright against Intermedia, and Intermedia's motion for summary judgment is granted.
Mr. Adler has also stated a claim for both contributory and vicarious infringement against Intermedia. A person is liable for contributory infringement if he: One, has knowledge of another's infringement; and two, either materially contributes to or induces that infringement. That's Perfect 10, Inc. vs. Visa International, 494 F.3d 788, a Ninth Circuit case 2007.
Mr. Adler has no direct evidence that Intermedia knew, or should have known, of its acts of alleged copyright infringement. Mr. Adler testified that prior to 2008, he never informed Intermedia of his alleged copyright in the ZeroForum software, his alleged ownership in RelyNet, or his business dispute with DiCarlo.
In this case, again, it's somewhat different with respect to Intermedia as opposed to Internet Brands. Mr. Adler clearly knew about Intermedia. He interacted with them, although he now tries to claim that he didn't know as much, but the undisputed facts conclude otherwise. As indicated, he did testify that prior to 2008, he never informed Intermedia of his alleged copyright or his alleged ownership. That was found at his deposition, pages 228 and page 242. Instead, Mr. Adler's activity hid this information from Intermedia and allowed RelyNet to represent to Intermedia that it held the copyright in the ZeroForum software. Without knowledge of infringing activities of third parties, Intermedia cannot, as a matter of law, be held liable for contributory infringement. As such, Intermedia's motion for summary judgment as to Mr. Adler's contributory infringement claim is granted.
And, finally, Intermedia is not vicariously liable for RelyNet's alleged infringement. To state a claim for vicarious copyright infringement, a plaintiff must allege that defendant has the right and ability to supervise the infringing conduct and a direct financial interest in the infringing activity. Again citing the Perfect 10, Inc. case. There is no genuine issue of material fact that Intermedia lacks any legal right, or ability, to stop RelyNet's alleged infringing activities. As such, Intermedia lacks the requisite control over RelyNet's alleged infringing activities to support a claim for vicarious infringement. Accordingly, Intermedia's motion for summary judgment on Adler's vicarious copyright infringement claim is granted.
The Court need not and does not rule on the remaining arguments to grant summary judgment in Intermedia's favor and, as such, declines to reach the merits of those remaining issues.
It's Ms. Heikka; right?
MS. HEIKKA: Yes.
THE COURT: I'll ask you to prepare an order with respect to the Court's ruling. Run it by Mr. Peterson so that he can approve it as to form, and we will execute the order granting summary judgment.
Turning to Internet Brands' motion for summary judgment, there are, as I've indicated, seven arguments raised by Internet Brands as set forth on page 2 of their opening brief. As to the first three arguments, as the Court's comments have indicated, I think that Internet Brands' arguments are, unfortunately for Internet Brands, tied to RelyNet.
And as I've indicated, I think there are clearly genuine issues of material fact that need to be tried to a jury as to whether, in fact, Mr. Adler owns or does not own the copyrighted material; that even if he owned the copyright material, whether he gave a nonexclusive license with rights to sublicense to RelyNet, which it's undisputed RelyNet did license this software to Internet; and whether Internet Brands' defense that it does, and there's no dispute that it does, have a nonexclusive license to use this copyright material, whether that would be a complete defense. That, in turn, depends upon whether RelyNet really had a valid right to issue that license in the first place. So I can't grant, and will not grant, summary judgment on those first three motions.
But I want to turn to the damages issues. And those arguments are that even if this Court found, and I'm not finding, so the record's clear, that Internet Brands infringed upon plaintiff's copyright. I'm simply saying there's genuine issues of material fact that preclude summary judgment on that issue.
Internet Brands argues that plaintiff has no evidence of actual damages or profits attributable to the infringement. In this case, Internet Brands has argued that plaintiff never disclosed, and there is, in fact, no documents contained in the summary judgment motions in which plaintiff has disclosed a document, witness testimony, or any other evidence of copyright damages. Mr. Peterson has attempted to argue that he now has that evidence, that it comes from the testimony of a person most knowledgeable, but it is, in fact, untimely. Mr. Peterson has admitted in the opposition that there is, in fact, no evidence and there was no evidence at the time of the summary judgment motion of actual damages. He suggested in the brief that he would in the future disclose such evidence. However, the deadline for disclosing all expert testimony, including rebuttal testimony, was July 20, 2009. The deadline for completion of discovery was September 4, 2009. And again, there is an admission that there is no evidence in this summary judgment motion of damages.
Plaintiff has not sought relief under Rule 56(f) and, in fact, at the time of the summary judgment — actually, discovery had ended September 4, 2009. Mr. Adler has not, as a matter of law, met his burden of proof with respect to actual damages and infringer's profits. As such, I am granting Internet Brands' motion for summary adjudication on this issue of actual damages as a result of any alleged copyright infringement by Internet Brands.
Turning to statutory damages, Internet Brands argues that plaintiff, as a matter of law, cannot meet his burden on the allegation of willful infringement. They argue that, as a matter of law, Internet Brands was an innocent infringer, if it infringed at all.
And, finally, that plaintiff, as a matter of law, can't recover more than $30,000 against defendant Internet Brands.
Statutory damages, in the Court's discretion, can range from $750 and $30,000 under 17 USC Section 504(c)(1). The statutory award may be increased or decreased if the infringement was willful or innocent, respectively. That's 17 USC Section 504(c)(2).
In order to prove a willful violation, plaintiff must demonstrate the infringer knowingly and deliberately engaged in copyright infringement. Sony Computer Entertainment America, Inc. vs. Filipiak, a Northern District case 2008, 406 F.Supp.2d 1068. The plaintiff bears the burden of proving willfulness by showing defendant actually knew or should have known that it was infringing plaintiff's copyrights. As a matter of law, this Court will not infer willfulness whenever the alleged infringement occurs in the context of a disputed title to the copyrighted material. Danjaq LLC vs. Sony Corp., 263 F.3d 942, a Ninth Circuit case 2001.
In this case, plaintiff has not and cannot meet his burden of proof regarding willfulness. Internet Brands used the copyrighted material pursuant to a written license. That's undisputed. Internet Brands obtained representations and warranties that RelyNet was, in fact, the true and lawful owner of the copyrighted material. In addition, the ZeroForum website held out that RelyNet owned the copyrights to ZeroForum software. Internet Brands did not know of any competing interest in the copyrights of ZeroForum until or after September 15, 2008.
Plaintiff argues that Internet Brands willfully copyrighted the ZeroForum software by relying on: One, the existence of the copyright certificates; and, two, an alleged cease and desist order. However, plaintiff cites no authority for the proposition that the mere existence of a copyright certificate automatically elevates an infringement to willful.
Furthermore, plaintiff has not produced and I still have not seen the alleged cease and desist letter that he claims was sent to Internet Brands. There is, in fact, no letter in the record, the disclosures, or otherwise. Plaintiff's only evidence of the letter is his own declaration which the Court has granted a motion to strike. And even in that declaration, he states only that he instructed his attorneys to send the letter. He does not in his declaration say that the letter was ever sent. Plaintiff cannot rely on a document that he has not produced and no one admits to seeing, including himself.
As a matter of law, the undisputed facts show that Internet Brands is not a willful infringer. Even if the title was not in dispute, plaintiff has not produced evidence that Internet Brands willfully violated his copyrights, and there is no genuine issue of material fact that precludes that conclusion. As such, plaintiff's statutory damages award against Internet Brands cannot exceed $30,000.
Defendant Internet Brands also argues — correct me if I'm wrong, but I think you're arguing also that damages in this case — you are — on page 15 of your brief, that the Court may reduce the statutory award of damages if the infringement was innocent. In a case where the infringer sustains the burden of proving, and the court finds, that such infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court, in its discretion, may reduce the award of statutory damages to a sum of not less than $200. That's found at 17 USC Section 504(c)(2).
An innocent infringement will be found when the alleged infringer did not know the use of the copyrighted material constituted infringement. Citing Branch vs. Ogilvy Mather, Inc., 772 F.Supp. 1359, a Southern District of New York case 1991.
Internet Brands used the copyrighted material pursuant to a written license. Internet Brands obtained representations and warranties that RelyNet was the true and lawful owner of the copyrighted material. The ZeroForum website held out that RelyNet owned the copyrights to ZeroForum software.
At worst, and the Court finds as a matter of law, that Internet Brands is an innocent infringer, and therefore the Court grants summary adjudication and finds that the maximum allowable statutory damages, if any, can only be $200.
Finally, Internet Brands argues that it's entitled to an award for attorney's fees and costs. The Court is declining to take up that issue at this time. There are procedures under our local rules for motions for attorney's fees to be filed and also under the Federal Rules of Civil Procedure. I only address those issues when and, in fact, a proper motion for attorney's fees is presented to the Court.
So if you want to file that motion, you are free to do so. Just make sure it's in compliance with the Federal Rules of Civil Procedure and our local rules, in particular, and then I will take up that issue if and when it's properly presented to me.
Then finally turning to the motion for summary judgment brought by Mr. DiCarlo and RelyNet. This is the crux of this case, and it is, as I said, a case which needs to be tried. There are a number of arguments raised by Mr. Adler which I think warrants that he have his day in court. Obviously, I don't agree that the lawsuit should be expanded to include either Intermedia or Internet Brands. I'm not sure why Vortex Media Group never responded. And I take it that you took their default.
Anybody know why they didn't respond?
MR. PETERSON: If anybody does, they're not saying, because we've asked.
THE COURT: Okay. Do they still exist?
MR. PETERSON: As far as we know.
MR. DAVIS: I believe they still do exist.
THE COURT: Okay. Interesting. Be that as it may, that's not before me. As I said, this case clearly on the copyright infringement claim cries out for a trial. And as I indicated, out of 40 undisputed facts, 34 of them were disputed. There's a real issue of whether Mr. Adler, for example, was ever compensated for his contributions to RelyNet.
And I wish your clients were here, because it is of obvious concern to me that two people that have known each other since second grade have ended up in a federal district court over this. I make that comment just as an aside. But I guess money does a lot of things to people, and obviously everything changed when 2.6 million came into the hands of Mr. DiCarlo. It's unfortunate. Be that as it may, it's before me, and we're going to go forward.
Because there are so many issues, genuine issues of material fact that have been raised by Mr. Adler with respect to the copyright infringement claim, the Court is precluded from granting summary judgment in RelyNet and Mr. DiCarlo's favor on that claim, and we will go forward on that claim.
Other examples of factual disputes include whether Mr. Adler actually wrote the ZeroForum software exclusively for use by RelyNet, as well as RelyNet customers, and whether Mr. Adler freely consented to the use by RelyNet of this software for its business and to the use of the software by RelyNet customers. There's the issue of whether he actually received consideration for the alleged implied license. This whole issue that we discussed about derivative software and what was intended by the parties, what was understood by the parties, all those issues need to be presented to a jury. They may ultimately result in the Court being involved, once I hear the testimony and there are Rule 50 motions filed, but at this point I can't decide this as matter of law that RelyNet and DiCarlo are entitled to summary judgment on that claim.
The fraud claim is different. And there are a number of defenses that have been raised as to the fraud claim. The arguments are as follows:
To sustain a fraud claim, Mr. Adler must prove that Mr. DiCarlo made a false promise or statement of fact to Mr. Adler; that at the time he made it, Mr. DiCarlo knew it was false; that Mr. DiCarlo intended to induce Mr. Adler's reliance upon the fraud; that Mr. Adler did, in fact, rely upon the false statement or promise, and that his reliance was justifiable and reasonable; and, finally, that Mr. Adler suffered damage as a result of his reliance upon the fraud. That's In re Napster, Inc. Copyright Litigation, 479 F.3d 1078, a Ninth Circuit case 2007.
Defendants have argued that Mr. Adler's claims for fraud are barred by the three-year statute of limitations. That the only fraudulent act that Mr. Adler alleges within the three-year limitations period is, in fact, Mr. DiCarlo's execution of the June 2005 letter agreement. That act, however, on its face, as a matter of law, cannot support a claim for fraud. That's the defendants' argument. And also the defendants argue that the undisputed facts show that Mr. Adler did not detrimentally rely upon Mr. DiCarlo's alleged promise.
There wasn't a lot of opposition in the papers, as I indicated, to the fraud claim, but simply the somewhat conclusory argument that the statute of limitations does not bar this fraud claim because the fraud claim relates directly to the act of signing the 2005 letter agreement.
On the fraud claim, the Court finds, as a matter of law, that it is, in fact, barred by the statute of limitations because Mr. Adler was aware of the fraud more than three years before filing his suit. The complaint itself admits that the fraud claim is based upon, quote, continuing promises and representations, close quote, by Mr. DiCarlo to Mr. Adler dating back to before October of 2002. Mr. Adler argues that the clock restarted when Mr. DiCarlo signed that 2005 letter agreement. However, the 2005 letter agreement on its face does not support a claim for fraud. On its face, the promise contained in the 2005 letter agreement was not, in fact, an unconditional promise to deliver Adler 49 percent of the RelyNet stock. Rather, it was a memorandum acknowledging an understanding between the parties. If Mr. DiCarlo did not deliver 49 percent of the stock to Mr. Adler by January 1st, 2006, Mr. Adler would terminate his employment with RelyNet. As such, Mr. Adler was, in fact, not promised anything in the 2005 letter. Accordingly, this letter agreement cannot sustain his claim for fraud, and, in fact, it does not and did not restart the clock for his fraud claim.
Accordingly, Mr. Adler's fraud claim is barred by the statute of limitations, and defendants' motion for summary judgment as to the fraud claim is granted.
Those are the Court's rulings. Mr. Davis, I'll have you prepare the proposed order with respect to your motion for summary judgment. Submit it to Mr. Vine.
We have a pretrial conference set very soon, I think. When is that set for, Mr. Vine?
THE CLERK: December 16th, your Honor.
THE COURT: Internet Brands and Mr. Adler can discuss whether you want to continue to keep them in the case given the Court's rulings. That's up to you. Right now, you're not necessarily out of the case. When is the pretrial?
THE CLERK: December 16th.
THE COURT: Okay. Intermedia, you do not have to be here for the December 16th pretrial. And we'll see everybody on December 16th. Joint pretrial conference statements are due, what, a week before?
THE CLERK: Seven days prior.
THE COURT: Seven days prior. Make sure it really is a joint pretrial statement, not a this is my view and this is your view type of statement. I know there are disagreements. Let's see if you can actually agree on some things and we can focus on what the trial's going to be about. Okay.
MR. PETERSON: Yes, your Honor.
THE COURT: All right. Thank you, everyone.
(Proceedings concluded at 3:26 p.m.)
I certify that the foregoing is a correct transcript from the record of proceedings in the above-entitled matter.