Shady Records, Inc. v. Source Enterprises, Inc.

Full title: SHADY RECORDS, INC., Plaintiff, v. SOURCE ENTERPRISES, INC., DAVID MAYS…

Court: United States District Court, S.D. New York

Date published: Dec 30, 2004

No. 03 Civ. 9944 (GEL) (S.D.N.Y. Dec. 30, 2004)

Opinion

No. 03 Civ. 9944 (GEL).

December 30, 2004

Donald N. David, Kenneth G. Schwarz, Fischbein Badillo Wagner Harding, New York, NY, for Plaintiff and Counterclaim Defendant Shady Records, Inc.

Michael S. Elkin, Thomas P. Lane, Deborah L. Ander, Thelen Reid Priest LLP, New York, NY; L. Londell McMillan, Frank C. Salzano, The McMillan Firm, New York, NY for Defendants Source Enterprises, Inc., David Mays, and Raymond Scott p/k/a Ray Benzino and Counterclaim Plaintiff Source Enterprises, Inc.

Kenneth A. Plevan, Jennifer T. Li-Hochberg, Seth V. Shelden, Skadden, Arps, Slate, Meagher Flom LLP, for Defendant Black Enterprise/Greenwich Street Corporate Growth Management, LLC.

OPINION AND ORDER

GERARD E. LYNCH, District Judge

In this action for copyright infringement, plaintiff Shady Records, Inc. ("Shady"), a record company co-owned by prominent hip-hop artist Marshall Mathers, professionally known as "Eminem," sues Source Enterprises, Inc. ("Source"), publisher of The Source magazine, and two of its officers and directors, David Mays and Raymond Scott (collectively, "the Source Parties"), and Black Enterprise/Greenwich Street Corporate Growth Management LLC ("BE/GS"), an investor in Source, claiming defendants infringed its copyrights in two pieces of recorded music, co-authored by Mathers. Source counterclaims against Shady, alleging that Source holds the rights to the songs. The dispute between these parties has already given rise to two previous opinions of the Court. In one, the Court dismissed the counterclaims of Source as against Mathers, while denying Shady's request for sanctions, Shady Records, Inc. v. Source Enters., Inc., No. 03 Civ. 9944, 2004 WL 1325795 (S.D.N.Y. June 8, 2004), and in the other, the Court found Source and Mays in contempt after links to the lyrics of the recordings reappeared on The Source's website in violation of a temporary restraining order entered by the Court at the time the original complaint was filed. Shady Records, Inc. v. Source Enters., Inc., No. 03 Civ. 9944, 2004 WL 1277993 (S.D.N.Y. June 8, 2004).

As the Court noted in its opinion dismissing the counterclaims against Mathers, the controversy surrounding the principals and the underlying content of the recordings helps to explain the longevity and bitterness of the litigation. The Source Parties have been vocal critics of Mathers, and have used their magazine as a vehicle for challenging his authenticity as a white hip-hop artist in a genre created and dominated by African Americans. Having come into possession of two songs recorded by Mathers featuring crude racist invective denigrating women of color, the Source Parties eagerly publicized the recordings as substantiating their critique of Mathers as a racist profiteer, exploiting black culture for financial gain. The resulting overlitigation of the case serves to obscure what is, at its core, a fairly straightforward dispute as to whether the Source Parties can claim a legitimate fair use defense that Shady's copyrighted materials were used in the interest of disclosing a newsworthy matter. The Court finds that this issue, practically alone of all of the issues raised by the parties in their motions for summary judgment, presents genuine issues of material fact that must await ultimate determination at trial.

BACKGROUND

The events central to this case span a fifteen-year period, and a geographic distance of similar scope, from the basements of Detroit to the upper echelons of hip-hop society in New York City.¹, ² In the late 1980s and early 1990s, four Detroit teenagers and aspiring hip-hop artists collaborated under the name "Bassmint Productions," producing hundreds of music recordings. These four — Marshall Mathers ("Eminem"), James Deel ("Chaos Kid"), and twin brothers, Michael Ruby ("Mannix") and Mathew Ruby ("Butteh Fingez") — worked in various configurations; not every recording featured the work of all four, while some recordings featured the work of other performers. Generally speaking, however, Michael Ruby served as the group's producer, providing beats and music, and keeping their archive, while his brother Mathew supplied "scratches" and "cuts," and Deel and Mathers supplied the raps. The recordings, made in the basement of the Ruby home, were largely so-called "freestyle" raps, which were improvised and lacked written lyrics. The two songs at the center of this dispute, "Oh Foolish Pride" and "So Many Styles" (collectively, "the Works"), were recorded during these "basement days." While the parties differ as to who of the foursome participated in creating the Works, a dispute addressed below as it relates to the parties' rival ownership claims, they agree that it was never the intention of Bassmint Productions to make them public. Apparently, within a year or two of their recording, Mathew Ruby borrowed these tracks from his brother along with others to make a compilation tape, which he then kept in his personal music collection and played occasionally for friends and acquaintances. (Ruby Dep., David Aff. Ex. 2, at 16-18, 73-76.)

1 In summarizing these events, the Court does so not with a view toward factfinding, but rather toward presenting a coherent narrative. Unless otherwise indicated, the facts presented here are those admitted by the Source Parties in their response to the Local Rule 56.1 Statement submitted by Shady in support of its motion for summary judgment.

2 In briefing these motions, the parties submitted extensive materials under seal. All materials are hereby unsealed to the extent used in this Opinion.

Some ten years later in 2002, Mathew Ruby's compilation tape found its way into the hands of Aaron Nieman.³ Nieman, at the time a close friend and employer of Mathew Ruby, and himself once an aspiring musician who had once or twice performed with Mathers, often gave Ruby a ride. Although Ruby does not remember how it happened, and can surmise only from subsequent events that the compilation tape was left at either Nieman's house or in his car (Ruby Dep. 18-19), Nieman recalls listening to "Oh Foolish Pride" while en route to the offices of a local music magazine where Ruby was seeking employment, and was stunned by the heavy racial invective of the now-famous Mathers. (Nieman Dep., David Aff. Ex. 6, at 28-32.) Nieman claims Ruby simply left the tape behind, without comment, and that Ruby neither asked for the tape's return, nor did Nieman ever offer to return it, an account accepted by all parties. Six months later in early 2003, Nieman played the tape for an acquaintance, Ronald Bolos. Although initially resisting Bolos's suggestion that they shop the tape for a potential buyer out of a sense of loyalty and friendship to Ruby, Nieman eventually handed over the tape to Bolos, who offered to give Nieman half of any proceeds from the tape. (Nieman Dep. 32-35.) Bolos, for his part, insists that he was present in the car when Ruby first played the tape for Nieman (Bolos Dep., David Aff. Ex. 4, at 50-51), an account contradicted by both Ruby and Nieman. (Ruby Dep. 18; Nieman Dep. 29.)

3 The Source Parties adamantly insist that they acquired the master cassette recording, and not this compilation tape, apparently relying on the statement of Ronald Bolos that the tape was "an original . . . made in the basement recording studio of DJ [Butteh Fingez]." (Mays Dep., David Aff. Ex. 7, at 49.) But it appears undisputed that whatever tape Mathew Ruby left with Nieman was the tape that made it into the hands of the Source Parties via Bolos.

Bolos did succeed in finding a buyer, Source, after traveling to New York in October 2003 to play the tape for Mays, its founder, director, and CEO. According to Mays, the Source Parties' feud with Mathers was public knowledge, and it was likely for this reason that Bolos took the tape to them. (Mays Dep., David Aff. Ex. 7, at 63-66.) Source and Bolos executed a contract on October 24, 2003; under the terms of the contract, Bolos was to receive $60,000 in installments (the first $15,000 of which he received that day) in exchange for "grant[ing], transfer[ing] and assign[ing] to [Source] . . . the sole and exclusive ownership of the Recording and all rights therein (including, without limitation, all copyrights therein.)" (David Aff. Ex. 8, at 1.) Editors at The Source began investigating the background of the tape, in preparation for a story about the recordings to be published in the magazine. (Mays Dep. 119; R. Scott Dep., David Aff. Ex. 9, at 68-69.)

Possibly as a result of these investigations, it was subsequently decided to include Nieman in the contract, and both he and Bolos were flown to New York in November to execute a new contract. (Mays Dep. 140-41.) Nieman, unsure whether he owned copyrights in the Works, requested changes to the contractual language (Nieman Dep. 57), and the final document executed by Source, Nieman, and Bolos on November 4, 2003, conveyed "the sole and exclusive ownership of the Recording and all rights therein (including, without limitation, all copyrights therein that you control)." (David Aff. Ex. 8, at 4.) Shady has argued that the Source Parties made no real attempt to ascertain what if any rights Bolos and Nieman had in the Works, pointing inter alia to the deposition testimony of Mays that proper copyright ownership of the recordings was of little interest to him because he "felt that was pretty clear that . . . as a news organization this was obviously very newsworthy information and material and that we had the right to put [the recordings] out there to the public." (Mays Dep. 157.) But the Source Parties continue to maintain that they had a good faith belief that Nieman and Bolos were licensees of Mathew Ruby, whom they assert was a co-author of the recordings. (Source Parties Opp. Mem. 5-13.) On the same day that the second contract was signed, Mays and Scott met with Jimmy Iovine, co-chairman of Interscope Records, the record label to which Mathers is signed. The Source Parties and Interscope were engaged in a dispute over The Source's coverage of Mathers and Interscope, and Interscope had pulled its advertising from the magazine. (Mays Dep. 200.) A deal was apparently struck not to release the Works, and as provided in the terms of the second contract, Nieman and Bolos each received $7500, and not the additional $30,000 the contract promised if the Works were released.

But the Source Parties nonetheless took several steps to make the Works public. Holding a press conference on November 18, 2003, they announced their intent to release a CD containing the Works along with the February 2004 issue of their magazine, and publicly played at least portions of the Works. (11/18/03 Press Conference Tr., David Aff. Ex. 16.) At about the same time, they posted portions of the lyrics and audio files of the Works to The Source website. Subsequently, Shady sent two letters, one to Source dated December 3, 2003, and one to BE/GS dated December 10, 2003, protesting against the alleged infringement of their copyrights to "Oh Foolish Pride" and "So Many Styles," and threatening litigation if the infringement was not stopped. (David Aff. Exs. 23, 24.) Apparently, and perhaps in anticipation of such litigation, Shady had been doing its own investigation into the authorship of the Works, and in late October, it obtained assignments from Michael Ruby of his interests in all Bassmint Productions recordings on which he performed with Mathers (David Aff. Exs. 12, 13), as well as an assignment from Mathers on December 10, 2003, of his interests in "Oh Foolish Pride" and "So Many Styles" (David Aff. Ex. 20). A copyright registration for four minutes and thirty-five seconds of "Oh Foolish Pride" was filed by Shady on November 25, 2003 (subsequently amended on December 11, 2003), and one for thirty-six seconds of "So Many Styles" was filed on December 11, 2003.⁴

4 Hereinafter, those excerpts of "Oh Foolish Pride" and "So Many Styles" registered with the Copyright Office will be termed "registered portions," "registered recordings," or "registered excerpts," while the term "Works" will refer more generally to the original recordings.

On December 15, 2003, Shady commenced this litigation, filing a complaint against the Source Parties and BE/GS for copyright infringement and seeking damages and equitable relief. A temporary restraining order ("TRO") was also entered by the Court that same day prohibiting defendants from "[r]eproducing, distributing or publicly performing or in any way making available any hard copy or electronic copy" of the Works. The Order was modified on December 23, 2003, to permit Source to utilize a limited amount of content (twenty seconds of the audio recordings and eight lines of lyrics in print) in the interest of "fair use" criticism and journalistic commentary regarding the songs, pending final resolution of the case on the merits. Shady subsequently amended its Complaint on February 13, 2004, alleging an additional count of infringement, after the links to the lyrics reappeared in early January on The Source website (events that were the subject of a subsequent contempt proceeding before this Court), and after the Source Parties went ahead with their plans to include a CD containing portions of the recordings authorized under the modified TRO in certain copies of the February issue of The Source. The Source Parties' Answer to Shady's Amended Complaint alleged eighteen affirmative defenses, and asserted on behalf of Source four counterclaims against Shady and Mathers, including one seeking a declaration of their ownership interests in the Works. Following months of acrimonious discovery, failed settlement negotiations, a contempt proceeding enforcing the TRO, and dismissal of the counterclaims as against Mathers, all parties now move for summary judgment, and BE/GS additionally moves for sanctions against Shady.

DISCUSSION

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A "genuine issue as to any material fact," in turn, is established "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Where a "genuine issue of material fact" exists, the motion will be defeated with respect to those claims that present such genuine issues. In determining the existence of a "genuine issue," this Court must view the evidence in the light most favorable to the nonmoving party.See United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) ("On summary judgment the inferences to be drawn from the underlying facts contained in such materials must be viewed in the light most favorable to the party opposing the motion.").

Shady moves for summary judgment as to the ultimate issue of liability for copyright infringement, and to dismiss Source's counterclaims. The Source Parties move to have the copyright infringement claims dismissed as a matter of subject matter jurisdiction, to bar recovery of damages and attorney's fees and costs, to dismiss the claims as against Mays and Scott, and to dismiss certain of Shady's claims it considers duplicative. Separately, BE/GS moves for summary judgment as to its liability for copyright infringement. Each motion will be discussed in turn, although to the extent that there is overlap between the counterclaims for which Source seeks summary judgment in its favor and the affirmative defenses the Source Parties assert in opposing Shady's summary judgment, these counterclaims will be discussed in connection with Shady's motion.

I. Shady's Motion for Summary Judgment on Liability

Both Shady and the Source Parties have moved for summary judgment on Shady's claims of federal copyright infringement (Am. Compl. ¶¶ 52-71). To establish infringement, a claimant must demonstrate "(1) ownership of a valid copyright; [and] (2) copying of constituent elements of the work that are original."Feist Publ'ns, Inc. v. Rural Tel. Co., 499 U.S. 340, 361 (1991). As it is not disputed that defendants reproduced the registered portions of "Oh Foolish Pride" and "So Many Styles," Shady argues that it has established a prima facie case of infringement because the Source Parties have failed to present any genuine issue of material fact as to Shady's rightful, exclusive ownership. (P. Mem. 12-15.) The Source Parties, while asserting a number of affirmative defenses they claim raise genuine issues of material fact precluding summary judgment in favor of Shady (Source Parties Opp. Mem. 2-16), also urge summary judgment in their favor, asserting a lack of subject matter jurisdiction over the federal copyright infringement claim, due to the invalidity of the underlying copyright registrations (Source Parties Mem. 2-11). Where the Source Parties' affirmative defenses purport to establish their ownership of the Works or contest the validity of Shady's copyright registrations, they coincide with Source's First Counterclaim for a judgment declaring it owner of the Works (Countercl. ¶¶ 50-56) and Second Counterclaim alleging fraud on the Copyright Office (Countercl. ¶¶ 57-64). Shady moves for summary judgment on these counterclaims. (P. Mem. 15-20.)

A. Source's First Counterclaim to be Declared Owner

Shady's copyright infringement claims turn, in part, on whether the Source Parties had any rights at all in the Works and, indeed, Source has asserted a counterclaim asking to be declared owners "by assignment and/or as a non-exclusive licensee." (First Counterclaim, Countercl. ¶¶ 50-56.) In opposing Shady's motion to dismiss this counterclaim, as well as defending against the primary copyright infringement claims at the heart of this case, the Source Parties argue that material factual disputes exist as to whether they were licensees of the Works, via a license granted by alleged co-author Mathew Ruby, or in the alternative, a license created by estoppel. (Source Opp. Mem. 5-13.)

Although a co-author would be capable of licensing the Works,see Childress v. Taylor, 945 F.2d 500, 508 (2d Cir. 1991) ("Joint authorship entitles the co-authors to equal undivided interests in the work."), the Source Parties have offered no evidence whatever that Mathew Ruby has a cognizable claim to co-authorship. "A co-authorship claimant bears the burden of establishing that each of the putative co-authors (1) made independently copyrightable contributions to the work; and (2) fully intended to be co-authors." Thomson v. Larson, 147 F.3d 195, 200 (2d Cir. 1998) (summarizing Childress test, 945 F.2d at 507-08). But by his own admission, Mathew Ruby made no contribution to the Works. He has explicitly disavowed any involvement in the recording of "Oh Foolish Pride" (Ruby Dep. 15, 60-61, 69), and has testified that, at least prior to his deposition, he didn't even know to what recording the title "So Many Styles" referred. (Id. at 15.) Upon listening to a recording of "So Many Styles" at his deposition, he identified only his brother Michael Ruby, Deel, and Mathers as contributors and stated that he "didn't even remember being there for that one." (Id. at 67.) Similarly, after listening to "Oh Foolish Pride" at his deposition, he identified only Mathers and Michael Ruby as performing on the track. (Id. at 69.) He makes no claim to any rights in Bassmint Productions recordings in which he did not participate (Id. at 51-52), and Mathers's testimony confirms that Mathew Ruby did not participate in these Works (Mathers Dep., David Aff. Ex. 3, at 38, 43 (stating, after listening to recordings of both songs, that only Mathers and Michael Ruby participated in "Oh Foolish Pride," while Mathers, Deel, and Michael Ruby participated in "So Many Styles").⁵ For his part, Deel stated that he was not present at the recording of "Oh Foolish Pride," and after listening to the entire recording of "So Many Styles" at his deposition, he recognized his voice, the voice of Mathers, and "assum[ed]" Michael Ruby "was doing the beat because at one point [Deel] called out [Michael Ruby's] name." He further stated that he "didn't hear any scratching or anything, so [he didn't] know if [Mathew Ruby] was there, because [he didn't] remember . . . exactly when or where that free-style session was." (Deel Dep., David Aff. Ex. 1, at 114-118.)

5 At his deposition, and prior to having the recordings played for him, Mathers testified that only Deel and Michael Ruby had participated in "So Many Styles," while he and Michael Ruby participated in "Oh Foolish Pride." (Mathers Dep. 32.) After listening to the recordings, he identified himself on "So Many Styles," in addition to Deel and Michael Ruby (Mathers Dep. 38), but at no point did he identify Mathew Ruby as a participant in either recording.

The testimony of the three deposed Bassmint Productions members is therefore consistent and undisputed — Mathers and Michael Ruby created "Oh Foolish Pride," while Mathers, Deel, and Michael Ruby collaborated on "So Many Styles." Mathew Ruby, whatever his role may have been on any other Bassmint Productions recordings, was not a co-author of the Works at issue here, and all those who do claim authorship have assigned their rights to Shady. (See David Aff. Exs. 12, 13 (October 30, 2003, assignment of Michael Ruby's rights in all "Basement Productions" [sic] recordings to Gregory Wier, who in turn then assigned the rights to Shady that same day); David Aff. Ex. 20 (December 10, 2003, assignment of Mathers's rights in "Oh Foolish Pride" and "So Many Styles" to Shady); David Aff. Ex. 22 (January 30, 2004, assignment of Deel's rights in all "musical compositions which embody [Deel's] performances and/or musical contributions together with the performances of [Mathers] which were recorded and/or produced prior to the date" of the agreement).)

Counsel for the Source Parties attempt to create ambiguity where there is none. Their cited reference to a purported admission of Mathers that Mathew Ruby participated in these Works (Source Parties Opp. Mem. 6) is flatly contradicted by a fair reading of the actual deposition transcript. While Mathers testified that Mathew Ruby "did the scratches," that answer was in response to a question asking him to "describe generally what role each of the four [members of Bassmint Productions] played in connection with these recordings," where "these recordings" clearly referred to the hundreds of recordings made by Bassmint Productions. (Mathers Dep. 19-20.) When asked about the specific Works, as discussed above, Mathers at no point identified Mathew Ruby as a participant. The Source Parties' assertion that Mathers claimed his brother Nathan may also have participated in "So Many Styles" (Source Parties Opp. Mem. 6 n. 5) is irrelevant to establishing participation by Mathew Ruby, and is, in any event, contradicted by Mathers' actual testimony to which the Source Parties cite, in which Mathers clearly refers to his brother as the subject of a line in "So Many Styles," not as a co-author of either of the recordings at issue here. (Mathers Video Dep., Ander Opp. Decl. Ex. 3, at 1:03:07.)⁶

6 This remark does not appear in the deposition transcript of Mathers, apparently because it was made by him in an off-hand fashion, talking over the full-length recording of "So Many Styles" as it was being played during the deposition. After a line in which he parodies his younger brother's Nathan request for a ride home, Mathers simply remarks to someone off camera "Nathan . . . that's my little brother."

The Source Parties are left with the hearsay testimony of Paul Rosenberg and Ronald Bolos. Bolos, in a story contradicted by both Nieman and Mathew Ruby, claims he was present in the car when the tape containing "Oh Foolish Pride" and "So Many Styles" was first played, and that Mathew Ruby stated that he had "hummed a melody" through "Oh Foolish Pride" and Bolos had assumed that Ruby had made the beats on "So Many Styles." (Bolos Dep. 50-51.) But Nieman claims Bolos was not in the car when the tape was originally played (Nieman Dep. 29) and Ruby testified that he never played the tape for Bolos. (Ruby Dep. 18.) The hearsay testimony of Bolos, offered for the truth of Ruby's contributions, rather than for Bolos's state of mind as to his rights in the tape, cannot be used to create a genuine issue of material fact as to Ruby's co-authorship. Similarly, Rosenberg's hearsay testimony that Mathers told him all four members of Bassmint Productions, Mathew Ruby included, had participated in both recordings (Rosenberg Dep., Ander Opp. Decl. Ex. 1, at 64-65) is insufficient to create a genuine issue of fact. The witnesses with firsthand knowledge of the recordings, Mathers and Deel, did not attribute any part of either recording to Mathew Ruby, and Ruby himself has disclaimed any involvement. On this record, no reasonable factfinder could conclude that Mathew Ruby was a co-author of the Works, such that he could license copyright interests.

Having so determined, the Court need not unravel the chain of events that the Source Parties claim amount to a licensing of the Works by Mathew Ruby via Nieman and Bolos (Source Parties Opp. Mem. 8-11). In the absence of Ruby's ability to license the Works, at most these transactions would permit the Source Parties to claim physical ownership of the tape, which would not "of itself convey any rights in the copyrighted work embodied in the object." 17 U.S.C. § 202. Accordingly, the Source Parties have no claim to any copyright in the Works.

The Source Parties have argued in the alternative that a license exists by estoppel in that they were entitled to rely on the actions of Mathew Ruby, who did not object to their use of the Works. (Source Parties Opp. Mem. 12.) A copyright holder may be estopped from bringing an infringement suit where "the party to be estopped had knowledge of defendant's infringing conduct, and either intended that his own conduct be relied upon or acted so that the party asserting the estoppel has a right to believe it was so intended. Additionally, the defendant must be ignorant of the true facts and must rely on plaintiff's conduct to his detriment." Lottie Joplin Thomas Trust v. Crown Publishers, Inc., 456 F. Supp. 531, 535 (S.D.N.Y. 1977). Thus, where the copyright owner has acted in a manner that leads the alleged infringer to believe its actions are authorized, the copyright owner will be barred from bringing suit. But the actions on which the Source Parties claim to have relied are those of Mathew Ruby, not Shady, the party it seeks to estop; while the caselaw provides support for substituting a co-owner for the party to be estopped, see id. (co-owner stood in the shoes of plaintiff for purposes of estoppel analysis), as determined above, no reasonable factfinder could conclude Mathew Ruby was a co-author of these recordings. It appears undisputed that Shady did everything in its power to object to the Source Parties' use of its Works as soon as it became aware of defendants' plans, including sending letters to the Source Parties and BE/GS advising them of the infringing nature of the planned use. (See David Aff. Exs. 23, 24 (letters from Shady to David Mays and Source and Earl Graves and BE/GS, respectively)). Summary judgment will be granted, therefore, in favor of Shady, dismissing Source's First Counterclaim to be declared owner of these Works and striking the Source Parties' First (failure to state a claim), Second (standing), Third (assignment), Fourth (license), Fifteenth (estoppel), and Sixteenth (waiver) Affirmative Defenses.

B. Validity of Shady's Copyright Registrations

While the Source Parties have failed to establish any genuine issue of material fact as to ownership of the Works, this conclusion stops well short of proving liability on the ultimate issue of copyright infringement. The Source Parties next oppose Shady's summary judgment motion on the basis of the alleged invalidity of Shady's underlying copyright registrations, the validity of which is a prerequisite for maintaining an infringement suit under the Copyright Act. Source also seeks summary judgment on its Second Counterclaim, alleging fraud on the Copyright Office and seeking invalidation of the copyright registrations. (Countercl. ¶¶ 57-64.)

1. Subject Matter Jurisdiction

As a preliminary matter, the Source Parties argue that the Court lacks subject matter jurisdiction over Shady's infringement claims, because the validity of the underlying copyright registrations is challenged. (Source Parties Opp. Mem. 3-4.) While "registration of the copyright claim" is a prerequisite to instituting a copyright infringement action, see 17 U.S.C. § 411(a), Shady filed copyright registrations for "Oh Foolish Pride" and "So Many Styles" on November 25, 2003 (supplemented on December 11, 2003), and December 11, 2003, respectively (see David Aff. Exs. 19, 21, 25 (copyright registration certificates)), apparently in anticipation of filing their original Complaint in this matter on December 15, 2003. The Source Parties have cited no authority suggesting that the validity of those copyright registrations must first be determined before the Court can exercise its jurisdiction over the infringement suit, and in fact, any such argument would run counter to the statutory scheme, which permits even rejected registration applications to confer standing to sue. 17 U.S.C. § 411(a). In addition, courts have routinely considered pending applications as satisfying the registration prerequisite of § 411(a). See Foraste v. Brown Univ., 248 F. Supp. 2d 71, 77 n. 10 (D.R.I. 2003) (collecting cases). If mere submission or even rejection of an application is sufficient to confer standing to sue, then the Court clearly has jurisdiction here where applications have been accepted and copyright registrations issued.⁷ Therefore the Court strikes the Source Parties' Eleventh Affirmative Defense (lack of subject matter jurisdiction) and proceeds to consider whether the validity of Shady's copyright registrations may be determined as a matter of summary judgment.

7 Moreover, certificates of copyright registration create a rebuttable presumption of validity, 17 U.S.C. § 410(c), and any such rebuttal is routinely adjudicated by the factfinder as potentially negating the first element of a copyright infringement suit, see, e.g., Fonar Corp. v. Domenick, 105 F.3d 99, 104-05 (2d Cir. 1997); Whimsicality, Inc. v. Rubie's Costume Co., 891 F.2d 452, 455 (2d Cir. 1989), not as a jurisdictional issue to be decided by the Court. Indeed, the Source Parties request in the balance of their briefing that the Court adjudicate the validity of Shady's copyright registrations according to the summary judgment standard, and not by resolving disputed issues of fact as would be done on a jurisdictional issue. (Source Parties Opp. Mem. Part II.)

2. Fraud on the Copyright Office

The presumption of validity which attaches to a copyright registration certificate, 17 U.S.C. § 410(c), is only rebuttable by evidence of fraud on the Copyright Office, i.e., that the registrant acted with "the knowing failure to advise the Copyright Office of facts which might have occasioned a rejection of the application." Eckes v. Card Prices Update, 736 F. 2d 859, 861 (2d Cir. 1984) (citations omitted). The registrant, therefore, must have acted with deliberation in providing material misstatements to the Copyright Office: "The party asserting the fraud must establish that the application for copyright registration is factually inaccurate, that the inaccuracies were willful or deliberate, and that the Copyright Office relied on those misrepresentations." Lennon v. Seaman, 84 F. Supp. 2d 522, 525 (S.D.N.Y. 2000) (internal citations omitted). Neither innocent misstatements, nor deliberate, but nonmaterial misstatements, will overcome the presumption of validity. The Source Parties allege that Shady committed fraud on the Copyright Office because Shady "knowingly and purposefully omitted certain of the co-authors of the Recordings" (Source Parties Opp. Mem. 17), and improperly identified "Oh Foolish Pride" as a work-for-hire, created by Mathers for Shady Records, even though Shady Records was formed some ten years after the recording was made. (Source Parties Opp. Mem. 18-19.)

As evidenced by the supplementary registration for "Oh Foolish Pride," filed on December 11, 2003, correcting the list of authors to include Mathers and Michael Ruby and explaining that the work was not made for hire, but rather was created by "(co)author Mathers . . . transferred by assignment to Shady Records Inc." (David Aff. Ex. 19, at 1),⁸ certain omissions and misstatements were made on the original registration. But, by the time this suit was commenced the copyright registration for "Oh Foolish Pride," as supplemented, reflected the correct co-authors, Mathers and Michael Ruby, and the correct copyright claimant; it did not erroneously list the work as one "for hire;" and it was in no way inconsistent with the deposition testimony offered on summary judgment as to its authorship.⁹ See above.

8 As discussed above, Michael Ruby had assigned his rights in "Oh Foolish Pride" to Shady via Gregory Weir by October 30, 2003, while Mathers had assigned his rights in both "Oh Foolish Pride" and "So Many Styles" to Shady on December 10, 2003. (David Aff. Exs. 12, 13, 20.)

9 The Source Parties point to the November 26, 2003, letter of Shady's agent, Eric J. Schwartz, addressed to the Copyright Office, which "verif[ed] that the artist Eminem is a work for hire employee of Shady Records, Inc. as indicated on the application for "Oh Foolish Pride," (Ander Opp. Decl. Ex. 21, at 2) as further evidence of Shady's campaign to mislead the Copyright Office. (Source Parties Opp. Mem. 19). But the letter does no more than verify Mathers's employment status with Shady, and precedes their subsequent amplification to the registration on December 11, 2003, correcting the erroneous statement that "Oh Foolish Pride" was a work-for-hire, and reflecting instead Shady's rights to the song through assignment.

But the Source Parties appear to contend that Shady may not rely on the supplemented registration because the corrections, as corrections to ownership, were improper under the supplementary registration procedure, and that therefore the Court should take account of the omissions and misstatements in the initial registration in determining the existence of fraud. (Source Parties Mem. 10-11; Source Parties Reply Mem. 4-5.)

Supplementary registrations are permitted to "correct an error in a copyright registration or to amplify the information given in a registration," and specific examples of appropriate amplifications include the addition of co-authors or co-claimants where omitted in the initial, so-called "basic registration." 37 C.F.R. § 201.5(a)(1)-(b)(2). A manual of Copyright Office practices further clarifies that "[w]here an employment-for-hire statement was either omitted, given in error, or stated erroneously, the Copyright Office will accept an application for supplementary registration." Copyright Office, Compendium II: Compendium of Copyright Office Practices § 1507.5(c) (1984). Corrections as to ownership after the basic registration is filed, however, are inappropriate. 37 C.F.R. § 201.5(b)(2)(ii)(B)-(iii)(A); see Arthur Rutenberg Homes, Inc. v. Drew Homes, Inc., 829 F. Supp. 1314, 1318-19 (M.D. Fla. 1993) (change as to claim of ownership not permitted by Copyright Office supplementary registration regulations), vacated on other grounds 29 F.3d 1529 (11th Cir. 1994).

The Source Parties contend that because Mathers was not an employee-for-hire of Shady at the time "Oh Foolish Pride" was recorded, and because they did not yet own his rights in the recording when the basic registration was filed, the supplementary registration contained a correction as to ownership, rather than merely the addition of co-authors or the correction of an erroneous "work-for-hire" statement. This characterization overlooks, however, that Shady was indeed an owner of copyright interests in "Oh Foolish Pride" at the time of the basic registration, by virtue of Michael Ruby's assignment of his interests. Thus, the supplementary registration corrected information as to how they were owners (i.e., by assignment, rather than through the "work-for-hire" doctrine), but did not contain a correction as to the fact of ownership itself, and did not violate the Copyright Office's supplementary registration procedures. Therefore, the registration for "Oh Foolish Pride" as supplemented must be given effect by this Court. Since the supplemented registration is not contended to be false, there are no alleged omissions or misstatements to evaluate for fraudulent intent.

As to "So Many Styles," however, no supplementary registration was filed and there are inconsistencies between the registration certificate and deposition testimony as to its authorship. The application for "So Many Styles," filed on December 11, 2003, listed "Marshall Bruce Mathers III" as the author, and Shady as the "copyright claimant" by virtue of assignment (David Aff. Ex. 25), facts which are undisputed. But Mathers testified that Deel and Michael Ruby also participated in the creation of "So Many Styles," and thus the form omits the two as co-authors.

Shady argues that because the portion of the recording deposited for copyright only contained the voice of Mathers, it made no omission on its copyright registration. (P. Opp. Mem. 4; David Supp. Aff. Ex. 3.) While it seems clear that Deel did not rap on the portion of the recording deposited with the Copyright Office (Mathers Dep. 37-38), the extent of Michael Ruby's participation is unknowable on the record before us. Mathers identified Michael Ruby's voice only after hearing the entire recording (Mathers Dep. 38), but Deel, after listening to the entire recording, stated that he "assum[ed]" Michael Ruby "was doing the beat because at one point [Deel] called out [Michael Ruby's] name." (Deel Dep. 115.) The "beat," presumably, ran throughout the recording. Moreover, if Mathers, Deel, and Michael Ruby are considered joint authors, in that they "intend[ed] their contributions to be merged into inseparable parts of a unitary whole," Childress, 945 F.2d at 507, discussed above, then they would be co-authors with rights in the entirety of the work, including whatever portion of the work was deposited with the Copyright Office. 17 U.S.C. § 201(a).

No record has been developed as to whether these three had the requisite intent at the time the recording was created to be considered joint authors, although Shady argues in passing that the extemporaneous nature of the recordings suggests the absence of any such intent. (P. Mem. 19.) But given the immateriality of the co-author omissions discussed below, the status of Deel and Mathers as potential co-authors need not be decided. Instead, the Court assumes arguendo that a genuine issue of material fact exists as to whether omissions were made either because at least Michael Ruby participated in the portion of the recording deposited with the Copyright Office, or because Mathers, Deel, and Michael Ruby could be considered joint authors, such that the rights of Deel and Ruby extend even to those portions of the recording in which they did not directly participate.

Nonetheless, such omissions would not have been material to the Copyright Office's disposition of the application, and therefore, as a matter of law, they do not invalidate Shady's copyright. Material facts on a copyright registration application are those which go toward the registrability of the materials themselves, such as originality, see, e.g., Russ Berrie Co. v. Jerry Elsner Co., 482 F. Supp. 980, 988 (S.D.N.Y. 1980) (evidence that subject of copyright registration was copied from the public domain sufficient to rebut presumption of copyright registration's validity), the nature of materials to be copyrighted, see Whimsicality, Inc. v. Rubie's Costume Co., 891 F.2d 452, 455-56 (2d Cir. 1989) (characterization of costumes as "soft-sculpture" on copyright registration to evade non-copyrightable nature of clothing invalidated registration), and contested claims of authorship and ownership, see Medforms, Inc. v. Healthcare Mgmt. Solutions, Inc., 290 F.3d 98, 109 (2d Cir. 2002) (denial of motion for new trial on infringement claims affirmed where jury could have invalidated copyright registration on the basis of its conclusion that the putative author was not actually an author of the copyrighted material).

That the very fact of an additional author or claimant does not itself affect registrability is evidenced by the Copyright Office supplementary registration regulations, discussed above, explicitly permitting "amplification" of a copyright registration to include the "identity of a co-author or co-claimant," where such supplementary registration then has the effect of "augment[ing]" but not "supersed[ing]" the registration, which is neither "expunged" nor "cancelled." 37 C.F.R. § 201.5(b)(2)(ii)(A), 201.5(d)(2). If failure to include all co-authors were material to disposition of the registration, the Copyright Office would invalidate, rather than permit amplification of registrations suffering such omissions.

This result makes sense as a matter of copyright policy, since registration does not immediately affect the rights of co-authors not listed in the registration. Co-authors may seek amplification of the registration, but they may also institute a civil action under the Copyright Act seeking a declaration of co-authorship and associated remedies, such as an accounting of profits as between co-authors. See Willsea v. Theis, No. 98 Civ. 6773 (BSJ), 1999 WL 595629, at *9 n. 10 (S.D.N.Y. 1999) (noting, without deciding, that omission of co-authors would not appear to constitute fraud on the Copyright Office because inter alia the Copyright Act itself provides for a mechanism of vindicating the rights of co-authors not included in the registration).

In contrast, a misrepresentation as to the ownership of the copyright would clearly affect the ability of the Copyright Office to properly register the copyright to a true owner. Courts have held that if the misstatement goes toward true authorship affecting ownership, or true ownership due to faulty assignments between author and copyright claimant, the registration is invalid, where coupled with evidence of an intent to defraud. The cases cited by the Source Parties in support of their proposition that omission of co-authors is material fall into this category. See, e.g., Medforms, 290 F.3d at 109; Billy-Bob Teeth v. Novelty, Inc., 329 F.3d 586, 591 (7th Cir. 2003) (whether assignment between author and copyright claimant was faulty went toward validity of claimant's copyright registration, but was question of fact for the jury to resolve); Sunham Home Fashions, Inc. v. Pem-America, Inc., No. 02 Civ. 6284 (JFK), 2002 WL 31834477, at *13 (S.D.N.Y. Dec. 17, 2003) (misrepresentation of copyrighted materials as "works for hire" was material to validity of copyright registration because the putative author and copyright claimant had no claim to authorship where actual authors were not employees).

But no such misstatements as to actual ownership are claimed. By December 11, 2003, Shady owned the copyright interests of Mathers and Michael Ruby as to "So Many Styles," see above, and was clearly entitled to register its copyright claim, regardless of whether there might have been other claimants also so entitled (including James Deel, who did not assign his rights in "So Many Styles" to Shady until January 30, 2004).

It is true that there appear to be no cases directly holding that omissions of co-authors are immaterial to Copyright Office determinations, and the Second Circuit has entertained the materiality of co-author omissions on at least one occasion. InMedford, the Court of Appeals reviewed a jury charge as to the defense of "unclean hands" (equivalent to fraud on the copyright office) in an infringement action which defined material misrepresentations to include a misrepresentation as to sole authorship. While holding that objection to the charge was waived, it commented that even if it were to disregard the waiver "it is by no means clear to us that information about other authors' contributions to a work is never material to copyright registration. . . . [Although] the regulation . . . allows a co-author to obtain a copyright registration in his or her name after another author previously obtained a registration in his or her name alone, [the regulation] does not state . . . that the author who originally obtained the registration did not need to provide information about the co-author's contribution to the work." 290 F.3d at 12-13. But the facts of the case show why the Court of Appeals might have been inclined to ascribe materiality to a claim of sole authorship: In the underlying infringement action, defendants asserted that they were the licensee of another co-author. Id. at 103-105. Co-author omissions in the instant case are completely distinguishable. At most the omissions here were of Deel and Michael Ruby. These omissions have no bearing on the claimed rights of the Source Parties, which do not even claim rights deriving from the omitted alleged co-authors, and which, as set forth above, in fact acquired no rights through any co-author.

The cases cited by Shady (P. Mem. 18 n. 33) in support of its motion couple the issue of omission of co-author(s) with that of intent to defraud, and it is not clear that their holdings can rest on the immateriality of co-author omission, rather than absence of intent to defraud, see, e.g., Thomas Wilson Co. v. Irving J. Dorfman Co., 433 F.2d 409, 412 (2d Cir. 1970);Tuff-N-Rumble Mgmt. Inc. v. Sugarhill Publ'g, Inc., 99 F. Supp. 2d 450, 456 (S.D.N.Y. 2000); Carl Falkenstein, Inc. v. Lustrelon, Inc., 1989 WL 69692, at *11 (E.D. Pa. June 19, 1989). Yet consideration of the caselaw as to what has been determined to be material, in the context of a statutory scheme which provides for correction of co-author omissions without invalidation of the initial registration, persuades this Court that omissions of the kind at issue here cannot constitute material misstatements to the Copyright Office. Defendants have failed, therefore, to meet the first requirement of a fraud claim — the existence of material inaccuracies — and therefore there is no need to address whether these issues were intended to mislead. Shady's copyright registrations will not be invalidated on this basis, and the Source Parties' Seventh (unclean hands) and Eighth (fraud on the Copyright Office) Affirmative Defenses are stricken.

3. Failure to Submit Complete, Bona Fide Copies

Registration of copyright interests in unpublished works requires, in addition to submission of the application form and payment of a fee, deposit of "one complete copy or phonorecord." 17 U.S.C. § 408(a)-(b). The regulations further clarify that a complete copy is one which "represent[s] the entire copyrightable content of the work for which registration is sought." 37 C.F.R. § 202.20(b)(2)(i). The Source Parties' final challenge to the validity of the copyright registrations claims that Shady failed to comply with this deposit requirement in that it did not deposit complete copies of the Works, and that the copies deposited were not bona fide copies. The Source Parties have characterized these challenges primarily as efforts to invalidate the registrations for failure to conform to registration requirements (Source Parties Mem. 2-6),¹⁰ although their briefings make a minor cross-reference to these alleged failures as supporting their allegations of fraud as well (Source Parties Opp. Mem. 19 n. 24). Regardless, the Court finds that there are no genuine issues of material fact as to Shady's compliance with the deposit requirement, and that therefore it does not matter whether these would have been just technical defects, or defects potentially capable of supporting a claim of fraud.

10 The Source Parties contend that any finding of invalidity would go toward subject matter jurisdiction of the Court, an argument already addressed and dismissed above. See Part I.B.1. Validity goes only toward whether Shady will be allowed to maintain its infringement suit. The Court clearly has subject matter jurisdiction simply by virtue of Shady's filing of its copyright registration applications.

First, as a comparison of the deposited versions with the full-length Works reveals, and as is apparently uncontested by the parties, only portions of "Oh Foolish Pride" and "So Many Styles" were deposited and registered with the Copyright Office. In the case of "Oh Foolish Pride," the registered excerpt is four minutes and thirty-five seconds (Ander Decl. Ex. 6; David Supp. Aff. Ex. 2), somewhat shorter than the four minute and forty-six second recording obtained by the Source Parties from Aaron Nieman and Ronald Bolos. (Ander Decl. Ex. 1, Track 10.) And the registered excerpt of "So Many Styles" is thirty-six seconds (Ander Decl. Ex. 5; David Supp. Aff. Ex. 3), far less than the version obtained by the Source Parties, which runs to over thirteen minutes. (Ander Decl. Ex. 1, Track 1.) But as the regulations cited above make clear, a copyright claimant is only required to deposit that for which it seeks registration: The completeness required is the entirety of the work that is to be registered, without regard to whether there are other parts of a larger work for which the claimant does not seek registration.Cf. Pacific Southern Co. v. Duncan, No. C81-1106, 1982 WL 1270, at *2 n. 2 (N.D. Ga. June 25, 1982) (complete copy requirement "permits a copyright holder to register [one minute and forty-five second clip excerpted from a ninety minute local news broadcast] as a discrete entity, without reference to its placement in the larger work").

The cases cited by the Source Parties are inapposite, because they deal with works deposited in versions altered from the original in some material way. See Coles v. Wonder, 283 F.3d 798, 801-02 (6th Cir. 2002) (reconstruction of a song produced by artist from memory and deposited with the Copyright Office was not a "copy" satisfying complete copy requirement); Hoyt v. Daily Mirror, 31 F. Supp. 89, 90 (S.D.N.Y. 1939) (copies of photographs deposited for registration omitted copyright notice which accompanied original, published photographs for which copyright protection was sought and were therefore not "complete"). There is no claim here that the copies deposited with the Copyright Office were altered in any way from the original, aside from length, nor that this infringement action seeks recovery for copying of any portion of the work beyond those registered by Shady. If Shady sought only to register its copyright to excerpts of each song, there is nothing in the Copyright Act or regulations to suggest that it may not do so.¹¹

11 A moment's thought about the process of artistic creation makes clear why this must be so. An author or composer may well, in the process of creation, develop an extensive manuscript, but later decide to edit the "work" down to a smaller size, and seek to register only the portion he or she ultimately decides to publish or otherwise exploit. It is for the author to decide the extent of the "work" he or she seeks to register, not for a court at some later date to decide that the work registered was in fact merely a portion of a putative "complete" work represented by the unedited manuscript.

Second, the Source Parties claim that it is implicit in the "complete copy" requirement that deposit copies must have been recorded from the original or master cassette recording, and that the copies deposited by Shady cannot satisfy this requirement since they were not made from the master cassette recording, which the Source Parties claim to have had in its exclusive possession during the relevant time period. (P. Mem. 5-6.) But the Court can discern no such requirement, and indeed, the caselaw from other Circuits shows that copies made from bona fide copies of the original will satisfy the deposit requirement.Kodadek v. MTV Networks, Inc., 152 F.3d 1209, 1212 (9th Cir. 1998) ("once a bona fide copy [i.e., a copy that is `virtually identical to the original' and made `by directly referring to the original'] is made . . . subsequent copies can be made by directly referring to that copy"; Coles, 283 F.3d at 802 (citing Kodadek). Moreover, bona fide copies may be made through a variety of means, not always involving, in the case of sound recordings, direct copying of the original recording.See, e.g., Coles, 283 F.3d at 802 (recordings made from listening to copy of original, or from tearaway sheet or written summary of original, would have satisfied deposit requirement). What is not permissible is reconstruction of works without any reference at all to the original version,i.e., reconstruction from memory, see Coles, 283 F. 3d at 802; Kodadek, 152 F. 3d at 1212; Seiler v. Lucasfilm, Ltd., 808 F.2d 1216, 1321-22 (9th Cir. 1986). While characterizing the deposited versions as "reconstructions" (Source Parties Mem. 5), the Source Parties allege only that the copies deposited were not made from the original master recording. This allegation provides no basis for finding any genuine issue of material fact that the deposit copies were not bona fide copies or copies of bona fide copies as required.¹²

12 Moreover, the Source Parties's claim that it possessed the original master tape is without evidentiary foundation. The only witness with firsthand knowledge of the creation of Source's tape, Mathew Ruby, testified without contradiction that the tape he had was a compilation tape he had made himself from original recordings maintained by his brother Michael.

Thus, the Source Parties have failed to show any fraud on the Copyright Office, or that Shady was not in compliance with the deposit requirement. As defendants have advanced no other basis for invalidating the registrations, the Court finds as a matter of law that Shady possesses valid copyright registrations for the excerpts of "Oh Foolish Pride" and "So Many Styles" deposited with the Copyright Office and that Shady is therefore entitled to maintain this copyright infringement action. Summary judgment dismissing Source's Second Counterclaim seeking invalidation of Shady's copyright registrations and striking the Source Parties' Tenth (invalidity of copyright) Affirmative Defense is granted.

C. Remaining Affirmative Defenses

Based on the foregoing, the Court finds that Shady has demonstrated valid ownership of a copyright, and thus a prima facie case of copyright infringement. Against this, the Source Parties have asserted a number of affirmative defenses, in addition to those rejected above: fair use (Fifth Affirmative Defense), innocent intent (Sixth Affirmative Defense), misuse and/or abuse of copyright (Ninth Affirmative Defense), the unavailability of monetary damages because of the equity nature of the declaratory relief sought (Twelfth Affirmative Defense) and/or the bar on statutory damages under the Copyright Act for infringements commencing prior to registration (Thirteenth Affirmative Defense), duplication of claims (Fourteenth Affirmative Defense), failure to join indispensable parties (Seventeenth Affirmative Defense) and destruction of the copyrights' value (Eighteenth Affirmative Defense). As only the fair use defense raises genuine issues of material fact, the other remaining defenses will be addressed first.¹³

13 The affirmative defenses (Sixth, Twelfth, and Thirteenth) as to the measurement of damages do not go to liability, and are considered separately in connection with the Source Parties' motion for summary judgment on Shady's damages claims.

1. Misuse/Abuse of Copyright

The defense of misuse and/or abuse of copyright asserted by the Source Parties overlaps with Source's Third Counterclaim (Countercl. ¶¶ 65-74), against which Shady has moved for summary judgment. In its countercliam, Source alleges Shady extended its uses beyond those normally accorded to copyright owners, in an effort to "suppress facts, silence Source Enterprises and censor Source Enterprises' efforts to report on the Works and the racist sentiments embodied therein." Id. ¶ 67. Shady counters that a defense of misuse or abuse of copyright is only appropriate in the context of antitrust law to prevent copyright holders from "leverag[ing] their copyright monopoly to achieve control in areas outside the monopoly." (P. Mem. 21.)

Within the Second Circuit, misuse or abuse of copyright is not firmly established as either a counterclaim or an affirmative defense, and there is some disagreement in the other Circuits as to whether it can give rise to a defense outside the context of antitrust violations, let alone an independent counterclaim. See Reliability Research Inc. v. Computer Assocs. Int'l, Inc., 793 F. Supp. 68, 69 (E.D.N.Y. 1992) (contrasting approaches of the Seventh Circuit (defense only applies in antitrust context, Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191, 1200 (7th Cir. 1991)) and of the Fourth Circuit (defense exists in all contexts where copyright is being used in a manner violative of the public policy underlying copyright protection, Lasercomb Am. Inc. v. Reynolds, 911 F. 2d 970, 978 (4th Cir. 1990))); Warner/Chappel Music, Inc. v. Pilz Compact Disc, Inc., No. Civ. A 99-293, 1999 WL 999332, at *6 n. 5 (E.D. Pa. 1999) ("[There is] virtually no authority in any Circuit for [an affirmative claim of copyright abuse].").

But assuming, without deciding, that an affirmative defense and claim of copyright misuse exist, and are not limited to the antitrust context, the Court finds the Source Parties have produced no evidence of any such misuse. In seeking to prevent the Source Parties from reproducing the registered excerpts of its copyrighted Works, Shady is doing no more than refusing to authorize the publication of its Works, which it clearly has the right to do under the Copyright Act. 17 U.S.C. § 106 (enumerating exclusive rights of copyright holder to reproduction, adaptation, publication, performance, and display); Harper Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 564 (1985). To the extent that the Source Parties claim the existence or nature of the Works is so newsworthy that they have a First Amendment right to make limited use of them for the purpose of news reporting, this is properly brought as a fair use claim, discussed below, and not as a basis for denying Shady copyright protection or imposing liability on Shady for a good faith lawsuit brought to enforce its copyrights. Summary judgment is thus granted striking the Source Parties' Ninth Affirmative Defense and dismissing Source's Third Counterclaim.

2. Duplication of Claims

The Source Parties assert a duplication of claims as a Fourteenth Affirmative Defense, and also move on summary judgment to dismiss either Count I or Count II and Count IV of Shady's Amended Complaint as duplicative. (Source Parties Mem. 22-23.) This request merits little discussion and is of no practical significance. Counts I and II rely on different alleged acts of infringement, with Count I seeking relief for infringement which occurred before the entry of the TRO (Am. Compl. ¶¶ 52-60), and Count II seeking relief for the infringement which resumed some time later when the lyrics of the registered excerpts were re-posted to Source's website and a CD containing twenty seconds of the Works was included with the February 2004 issue (Am. Compl. ¶¶ 61-71). Nothing prevents Shady from pleading these allegations as two separate counts, rather than as different events supporting a single count of copyright infringement. Regardless, the factfinder at trial will have to examine the various acts alleged, and decide whether any or all meet the legal standards for infringement. Neither is there any basis for dismissing Count IV (¶¶ 80-84). While that count seeks permanent injunctive relief based on the facts alleged in support of its copyright infringement claims in Counts I and II, it is nonetheless distinct from the temporary relief Shady seeks in Count I (Am. Compl. ¶ 56) in scope and duration, and therefore entirely appropriate.

3. Failure to Join Indispensable Parties

In their Seventeenth Affirmative Defense, the Source Parties assert that the suit must be dismissed because Shady has failed to join all the co-owners of the Works. (Source Parties Opp. Mem. 24.) But the Source Parties misunderstand the law, which merely permits courts to require joinder of co-owners where desirable.See 17 U.S.C. § 501. Generally speaking, joinder will be desirable where the validity of the copyright is challenged such that the outcome of the litigation may permanently affect the rights of the co-owner, but not where infringement alone is alleged. See, e.g., Wales Indus., Inc. v. Hasbro Bradley, Inc., 612 F. Supp. 510, 517 (S.D.N.Y. 1985) (Weinfeld, J.). This action does not call into question the underlying validity of Shady's copyright, although the Source Parties' challenges to the validity of the copyright registrations have necessarily required the Court to draw conclusions regarding the actual authorship of the Works, which might have some potential for affecting the rights of co-owners. Any further consideration of whether the alleged failure to join indispensable parties is unnecessary given the Court's conclusions above that no genuine issue of material fact exists as to the authorship of the registered excerpts: Michael Ruby and Mathers participated in "Oh Foolish Pride," while Michael Ruby, Mathers, and Deel contributed to "So Many Styles," assuming arguendo that the latter was a joint work, such that Deel and Ruby were co-authors even as to the portion of the Work deposited with the Copyright Office not containing their direct contributions. By the time the Amended Complaint was filed on February 13, 2004, Shady owned the copyright interests of all possible co-owners by virtue of the assignments executed by Michael Ruby, Mathers, and Deel. (David Aff. Exs. 12, 13, 20, 22.) Therefore, there are no other co-owners who could have been joined in this action, and the Source Parties' Seventeenth Affirmative Defense is dismissed as lacking any basis in fact.

4. Destruction of Value

The Source Parties have asserted as their Eighteenth Affirmative Defense that Shady has destroyed the value of the Works by withholding the recordings from the public, and that therefore Shady should be barred from vindicating its copyright interests (Source Parties Opp. Mem. 25). Although Shady objects that the Source Parties have no standing to bring a destruction of value claim because they are not the copyright owners of the Works (P. Reply Mem. 10), the Source Parties have styled this as an affirmative defense rather than as a counterclaim, citing to cases where a joint author's use of the work to the exclusion of a co-author constituted destruction of value such that the co-author was entitled to an accounting. Maurel v. Smith, 271 F. 211, 216 (2d Cir. 1921);Shapiro, Bernstein Co. v. Jerry Vogel Music Co., 73 F. Supp. 165, 168 (S.D.N.Y. 1947). Whether or not destruction of value can ever provide a defense as a matter of law to a copyright infringement action, a question on which it is unnecessary to rule, the concept is wholly inapplicable to the facts at issue. The Source Parties have failed to allege facts which would support a finding that Shady has done anything but exercise its right as the copyright holder to refrain from publication. In so doing, it has neither impaired the value of the copyright, nor any rights of the Source Parties, who own no copyright interests in the Works. The Eighteenth Affirmative Defense is dismissed.

5. Fair Use

It is only in asserting a fair use defense (Fifth Affirmative Defense) that the Source Parties finally get to the heart of the real dispute here: Once the detritus of their blunderbuss assault is cleared away, what remains is whether and to what extent the Source Parties were entitled to make use of the Works in reporting on the alleged racism of a prominent entertainer. For the reasons explored below, the Court finds that this defense presents a triable issue of fact, which prevents granting summary judgment to Shady on the ultimate issue of liability.

Where established, a fair use defense operates as a complete bar to liability for copyright infringement. Examples of fair use include use for "purposes such as criticism, comment, news reporting, teaching, scholarship, or research." 17 U.S.C. § 107. Whether a particular use constitutes a "fair use" within the meaning of the statute is determined by reference to the following four factors: "(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work." Id.

The four factors "raise essentially factual issues [and] are normally questions for the jury," DC Comics, Inc. v. Reel Fantasy, Inc., 696 F.2d 24, 28 (2d Cir. 1982), although "when parties do not dispute the relevant historical facts underlying each of the [fair use] factors, courts have not hesitated to grant summary judgment." Consumers Union, Inc. v. New Regina Corp., 664 F. Supp. 753, 759 (S.D.N.Y. 1987). But because the fair use doctrine "permits [and requires] courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster,"Stewart v. Abend, 495 U.S. 207, 236 (1990) (internal quotation marks and citation omitted), the four factors cannot be applied according to a mathematical formula. Instead, all four are to be considered together in determining whether a fair use exists, and no single factor is dispositive. See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577-78 (1994). Thus, where there are significant factual issues as to any of the factors, summary judgment will generally be precluded.

In the instant case, the first factor, "purpose and character of the use," presents significant issues of material fact, as to which there are stark disagreements between the parties. Although there appear to be no fact issues regarding the other factors — the record clearly establishes the nature of the recordings as unpublished (second factor) and which portion of the registered excerpts were reproduced (third factor),¹⁴ and the Source Parties' contention that the market for the recordings was unaffected by their use (fourth factor) went unchallenged by Shady in their reply briefing — the parties disagree as to the weight to be given to each factor. Any effort by the Court to weigh each of the factors where the underlying facts are not in dispute, leaving it only to the factfinder to "fill in the blank" as to which way the first factor weighs, would be utterly inconsistent with the flexible design of the fair use test, and would introduce a narrowing stiffness ill-suited to accomplish the required weighing of public interest against the rights of the copyright holder.¹⁵ Accordingly, it will be left to the factfinder to resolve the factual disputes underlying the first factor, and then to engage in its own balancing of all facts relevant to the fair use defense. The Court does no more here than set out those disputes which prevent it from weighing the first factor, and in turn, from reaching a decision on summary judgment as to the merits of the Source Parties' fair use defense.

14 The parties disagree about what portion of the recordings was posted to the website, but the confusion appears to stem not from a factual dispute about what was posted, but from a legal disagreement about whether the amount posted is to be measured as a proportion of the registered excerpts, or as a proportion of the original Works. The Court's comparison of the lyrics posted to Source's website (Ander Opp. Decl. Ex. 13), with the deposit copies of the recordings (Ander Decl. Exs. 5, 6), shows that Source posted lyrics for approximately three minutes and thirty-two seconds of "Oh Foolish Pride," and for eighteen seconds of "So Many Styles"; it is assumed that the corresponding audio files were of this length as well. The Source Parties' claim that they did not reproduce the entirety of the recordings (Source Parties Opp. Mem. 14-15) appears to be an assertion that they did not reproduce the entirety of the original Works, since their briefing refers to song lengths that correspond to what the Source Parties claim is the "master cassette recording." (Ander Decl Ex. 1). Shady's allegation that they did reproduce the entire recordings appears to refer to the entirety of the registered portions of the songs. (P. Reply Mem. 8.)
The Court considers that the appropriate denominator in the instant case is the length of the original Works, the entirety of which is protected by Shady's copyright, even if suit may only be brought with regard to the registered portions. Where registration takes place before an alleged infringement, this rule would allow infringers to claim fair use of the entirety of a registered work simply because it represents a sufficiently small percentage of a larger putative "work" for which the author has not claimed registration. For reasons discussed above, see note 11 above, this would be inconsistent with the realities of artistic creation. But in the instant case, registration of the Works took place after the recordings were first publicized by the Source Parties, on November 18, 2003, the date of Source's press conference and near-simultaneous posting of the lyrics and audio files to Source's website. At the time the recordings were first publicized, the Source Parties had no way of knowing what would be registered, and therefore, to the extent any determination was made by them as to what proportion of the works could be published under the fair use doctrine, that determination could only have been made in reference to the full length recordings they had obtained from Bolos and Nieman. As the fair use inquiry turns, in part, on the good faith of the copier in using no more than necessary to effectuate their fair use, see below, it would be prejudicial to the Source Parties to use the length of the registered recordings now (thereby increasing the proportion of the recordings used and possibly tipping this factor in favor of Shady), when the length of the registered recordings simply could not have factored into their decisionmaking, and when Shady could effectively manipulate this fair use factor by determining ex post to register only those portions of the Works that had been copied.

15 For example, evaluation of the third factor, amount and substantiality of the portion used, turns on whether "more of the original is copied than necessary" to effectuate the asserted, legitimate purposes of the copier. Rogers v. Koons, 960 F.2d 301, 311 (2d Cir. 1992). The third factor, therefore, cannot be weighed without reference to the first, as to which there are substantial issues of material fact regarding the true purposes of the Source Parties in engaging in the alleged infringing activities.

Shady presses two arguments to support a finding that the "purpose and character of use" factor ought to be weighed in its favor. First, Shady maintains that because the tape obtained by the Source Parties was stolen from Mathew Ruby, and the Source Parties made no genuine inquiries into what copyright interests Nieman and Bolos actually had in the Works, the Source Parties acted in bad faith, which would weigh against a finding of fair use. (P. Reply Mem. 6-7.) Good faith is certainly a relevant consideration in determining the "character of the use." Harper Row, 471 U.S. at 562-63. However, as a matter of law, in this Circuit, the absence of good faith alone will not vitiate a fair use defense, but must be considered in light of the totality of the circumstances. NXIM Corp. v. Ross Inst., 364 F.3d 471, 479 (2d Cir. 2004). So, for example, a factfinder, even while imputing bad faith to the Source Parties, may nonetheless conclude that this is outweighed in the final analysis by the importance of the dissemination of the recordings to the public. Thus, even if bad faith were indisputably present, summary judgment would be unavailable, given the disputed facts concerning the purposes for which the copyrighted material was used.

Moreover, as a matter of fact, whether the Source Parties acted in bad faith presents sharply disputed factual issues. It has not been established that the tape was stolen, rather than simply abandoned by Mathew Ruby, who apparently left the tape with Nieman and never asked for its return, nor apparently even noticed that it was missing. (Ruby Dep. 19.) Moreover, even if the tape was stolen, it is disputed whether the Source Parties had any reason to know that fact, as Mays testified that Nieman and Bolos told him only that they had gotten the tape from Ruby, without providing further details. (Mays Dep. 56, 137.) Finally, although Shady cites to several facts in the record arguably indicating that the Source Parties turned a blind eye to whether Bolos or Nieman actually had any copyright interests (e.g., May's apparent lack of interest in acquiring proper copyrights, particularly after Nieman objected that he did not know whether he had copyrights that could be conveyed to Source, id. at 154-57), the Source Parties have maintained they believed they had properly licensed the recordings and a factfinder could reasonably agree, particularly based on Bolos's representations to Mays that he had acquired the tape from Mathew Ruby, whom he alleged was a co-author (id. at 49-50). Thus, the Court cannot conclude as a matter of law that the Source Parties acted in bad faith, such that it can properly weigh the "character of the use" on summary judgment in favor of either party.

Second, Shady argues that the "predominantly commercial" use of the registered excerpts creates a presumption against fair use. (P. Reply Mem. 7.) Commercial use is an element to be considered in assessing the first factor, but it is again not dispositive; where the commercial use is only secondary, and the primary use is "transformative" in that it "adds something new, with a further purpose or different character, altering the [original work] with new expression, meaning, or message," the secondary commercial use will be entitled to little weight in the fair use analysis. Campbell, 510 U.S. at 579. Here, Shady's characterization of the use as "predominantly commercial" skips too lightly over disputed factual issues. The Source Parties claim that their use of the registered excerpts was news reporting, disseminating evidence of the racism of one of the country's most successful hip-hop artists (Source Parties Opp. Mem. 8), whose relationship with black culture had often been the subject of media attention. Seen in this light, the copying of the registered excerpts would be "transformative," and therefore potentially protected by fair use, in that the copying altered the message of the Works to one about the (co-) author himself. If the genuine motive was news reporting, the fact that there was some commercial element to their reporting, such as a hoped-for increase in the sales of their February 2004 issue containing the CD, would not automatically preclude a fair use defense.Campbell, 510 U.S. at 584. The record clearly presents genuine issues of material fact as to the Source Parties' motives, particularly in light of the deposition testimony of the principals. (See, e.g., Mays Dep. 157 ("I felt that was pretty clear that, you know, as a news organization this was obviously very newsworthy information and material and that we had the right to put it out there to the public.").)

Thus the Court is precluded from weighing the first factor, "character and purpose of the use," in favor of either party as a matter of summary judgment, and must, therefore, leave any ultimate determination as to the merits of a fair use defense to the factfinder. Shady's motion for summary judgment as to liability is denied, and the case must proceed to trial on the sole issue of whether the Source Parties have established a fair use defense as to any or all of the alleged acts of copyright infringement. All other affirmative defenses to liability are dismissed.

II. Shady's Motion for Summary Judgment on Unjust Enrichment Counterclaim

In addition to moving for summary judgment on its copyright infringement claims, Shady moves for summary judgment as to the counterclaims asserted by Source. Source presses four counterclaims, three of which (declaration of Source's ownership of the Works; fraud on the Copyright Office; misuse and/or abuse of copyright) overlapped the Source Parties' affirmative defenses and have already been dismissed above. In the remaining counterclaim, Source alleges that Shady has been unjustly enriched, in that Shady has retained an improperly obtained benefit, without adequately compensating Source. (Countercl. ¶¶ 75-80.) As the Court stated in dismissing this claim as against Mathers

[u]njust enrichment, however, is not a catch-all claim for anyone who believes that another has acted unjustly. Rather, it is a specific equitable cause of action that can be asserted when one party, in the absence of contract, receives a benefit at the expense of another without providing adequate compensation, and equity and good conscience require restitution. What arises is a quasi-contractual obligation to make restitution for such benefits.

Shady Records, 2004 WL 1325795, at *4 (citing Dolmetta v. Uintah Nat. Corp., 712 F.2d 15, 20 (2d Cir. 1983); Bradkin v. Leverton, 26 N.Y.2d 192, 196 (1970)). But the only benefit the Source Parties allege is that of enhanced goodwill resulting from preventing the release of the Works, and thereby avoiding such release's assumed, detrimental effect on the reputation of Mathers as a Shady principal. (Source Parties Opp. Mem. 22.) This benefit accrued, if at all, due to Shady's exercise of its protected rights as copyright holder, not to any action on the part of the Source Parties for which they are entitled to be compensated. In the absence of a quasi-contractual relationship, there is no basis for Source Parties' unjust enrichment claim and summary judgment dismissing the claim is granted.

III. Source Parties' Motion for Summary Judgment on Damages and Liability of Mays and Scott

The Source Parties move separately for summary judgment, but most of the relief requested overlaps with the defenses they assert to defeat Shady's summary judgment motion, which have already been dealt with above. The Source Parties' remaining motions seek to limit Shady's recovery of damages should it prove successful on the merits and to dismiss the claims against David Mays and Raymond Scott.

A. Damages

Under the Copyright Act, a copyright owner who succeeds on the merits of an infringement claim may elect to recover either (1) actual damages and the infringer's profits, 17 U.S.C. § 504(b), or (2) statutory damages, id. § 504(c). In addition, the copyright owner may recover attorney's fees and costs, id. § 505. Shady seeks to recover under both § 504(b) and § 504(c), as well as under § 505. (Am. Compl. ¶¶ 59, 70-71.) The Source Parties have moved on summary judgment to bar recovery as to all damages and attorney's fees and costs, consistent with the Sixth, Twelfth, and Thirteenth Affirmative Defenses asserted in their Answer.

1. Statutory Damages and Attorney's Fees and Costs

Statutory damages and attorney's fees and costs are not authorized under the Copyright Act where "any infringement of copyright in an unpublished work commenced before the effective date of its registration." 17 U.S.C. § 412. (Source Parties Mem. 11-15.) Where a series of acts constituting continuing infringement is alleged, the infringement "commences" for purposes of determining eligibility for statutory damages and attorney's fees and costs "when the first act of infringement in a series of on-going discrete infringements occurs." EZ-Tixz, Inc. v. Hit-Tix, Inc., 919 F.Supp. 728, 736 (S.D.N.Y. 1996). Shady concedes that the "first act of infringement" as to both Works occurred prior to the effective date of its copyright registrations, and that therefore statutory damages and attorney's fees and costs are not appropriate as to the events it claims constitute the "initial" infringement, i.e., all events prior to the issuance of the TRO in December 2003. (P. Opp. Mem. 16.) But Shady contends that a second, separate infringement "commenced" when the Source Parties re-posted the lyrics to the website sometime between December 16 and January 6, and distributed excerpts of the Works with the February 2004 issue of The Source magazine. (Id. 16-17.) As these events occurred after the copyright registrations were effective (November 25, 2003 and December 11, 2003), Shady claims they can give rise to liability for statutory damages.

The issue turns then on whether Shady can support its characterization of these events as two separate infringements, rather than merely a "series of ongoing discrete infringements." The Source Parties have cited extensively to Mason v. Montgomery Data, 967 F.2d 135 (5th Cir. 1992), in which the Fifth Circuit looked to the legislative history of § 412(2), finding there an explanation that it was intended to bar "an award of [statutory damages and attorney's fees] where infringement takes place before registration." Id. at 143 (quoting H.R. Rep. No. 94-1476, at 158 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5774). The court considered the unitary language of "infringement" to "reveal Congress' intent that the statutory damages be denied not only for the particular infringement that a defendant commenced before registration, but for all of the defendant's infringements of a work if one of those infringements commenced prior to registration." Id. The court found further support for this view in § 504(c), which provides for a bundled award based on the number of infringed works and infringers, rather than the number of infringements, and the purpose of § 412, which was intended to encourage early registration, a result undermined if statutory damages are available for infringements taking place after a belated registration. Id. at 143-45. Applying this analysis to the facts at issue in Mason, the court found that § 412 barred recovery of statutory damages where the alleged infringement consisted of the reorganization of copyrighted maps into a geographical indexing system, which was then replicated and updated using the original copyrighted materials repeatedly, both before and after the plaintiff registered his copyrights to the maps. Id. at 138.

Shady does not challenge the caselaw cited by the Source Parties, nor offer contrary authority. Instead, it seeks only to distinguish the present facts as representing not "merely . . . a series of infringing activities separated by a period of time," but rather the "ending of the series of infringing activities [when the TRO was entered], and the commencement of a new series of infringements." (P. Opp. Mem. 17.) Failing to recognize a distinction would be a critical mistake, asserts Shady, because it gives infringers a "free pass" to restart infringement post copyright registration, without fear of statutory damages. (Id.)

The Court is unpersuaded that the facts here differ from those in Mason. The re-posting of the lyrics in late December or early January, as well as the release of the CD accompanying the February issue, are nothing more than the continuation of the series of acts which commenced with the November 18, 2003 press conference. It was, after all, shortly after this conference that the Source Parties first made the lyrics and audio files available on Source's website and at which they announced their intention to include the recordings on a CD with their February issue. (11/18/03 Press Conference Tr.)

Shady's appeal to policy does not convince the Court that some critical distinction exists here. First, any such distinction would introduce a whole new set of line-drawing issues into the law, requiring courts to determine when a series has stopped sufficiently such that the restart constitutes a new series of infringements. The clear rule announced in Mason, which is easily applied to preclude recovery of statutory damages and attorney's fees and costs where any infringement occurs before the effective date of the work's copyright registration, is preferable. Second, Shady's argument that this permits a "free pass" is without merit: It is no worse to allow an infringer to "restart" infringing without incurring statutory damages than it is to allow the infringer to continue infringing as is the case under the standard application of § 412. To the extent that the infringer has stopped, as here, because of a court order, subsequent acts of infringement are particularly repugnant. But for that, a contempt remedy is available, and, indeed, Shady has successfully utilized that remedy here. See Shady Records, 2004 WL 1277993 (finding Source and Mays in contempt of the TRO and awarding Shady the costs of enforcement).

The Court declines to accept Shady's characterization of the facts here as showing a separate series of infringements postdating the copyright registrations, and thus exempted from § 412's bar on statutory damages and attorney's costs and fees. Accordingly, the Source Parties' Thirteenth Affirmative Defense will be sustained, and as to all of the acts of infringement alleged, recovery of statutory damages and attorney's fees and costs will not be permitted.¹⁶

16 The Source Parties have asserted "innocent intent" as a Sixth Affirmative Defense, referring to the downward adjustment in the amount of statutory damages available where "the infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright." 17 U.S.C. § 504(c)(2). Since Shady is not entitled to statutory damages as a matter of law, this defense is moot.

2. Actual Damages

Under § 504(b) "a copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages." As to actual damages, Shady appears to concede that it has suffered no losses and it will not be entitled to any recovery on that basis. But the Source Parties also attack the evidence adduced by Shady as to the profits gained by the Source Parties as insufficient to survive the Second Circuit's holding in On Davis v. The Gap, Inc., 246 F.3d 152, 160 (2d Cir. 2001), requiring a link between revenues and the alleged infringement. (Source Parties Mem. 17.)

Under § 504(b), the copyright owner must "present proof . . . of the infringer's gross revenue," before the burden shifts to the infringer to "prove his or her deductible expenses and elements of profit attributable to factors other than the copyrighted work." In On Davis, the Second Circuit held that "gross revenue" in this context meant "revenue reasonably related to the infringement, not unrelated revenues." Id. at 160. Contrary to the Source Parties' assertion, Shady has indeed produced at least some evidence of the required link between revenues alleged and the infringing acts.

Shady has argued that the infringing acts, including posting the lyrics and sound recordings to the Internet and holding a press conference where the Works were played, were part of a scheme directed at least, in part, toward increasing sales of the February 2004 issue of The Source. (P. Opp. Mem. 13-14.) In support of this theory, Shady has submitted an October 29, 2003 projection by Source's chief operating officer predicting at least some financial benefit from a cover story about the recordings (and a slightly greater benefit from a cover story accompanied by a CD of the recordings), as compared to the planned "year-in-review" content. (David Opp. Aff. Ex. 4.) And indeed, the version of the February 2004 issue which included the CD was sold for $4.99, one dollar more than the usual issue price of $3.99, and generated $618,860 in revenue as compared to the $490,172 generated by the average $3.99 issue in 2003. (David Opp. Aff. Ex. 5.) Whatever offset the Source Parties may be due under § 504(b) for the cost of producing the CD (see id. (net revenue for February 2004 issue declined by 4.4% from the average issue revenue)), Shady has still demonstrated a triable issue of fact as to revenues the Source Parties may have obtained directly from their alleged infringing activities.

The Source Parties dispute Shady's further contention that documents obtained through discovery will permit it to establish conclusively that profits directly related to infringing activities were generated (P. Opp. Mem. 15), because Source's financial statements from the first quarter of 2004 (encompassing the publication of the February 2004 issue) indicate a decline in profitability over the same quarter in 2003. (Source Parties Reply Mem. 5-6; Schrader Decl. Exs. 1, 2.) But an overall decline in business profits does not demonstrate the absence of revenues related to the infringing activities, and only further underscores the factual nature of the inquiry here. Shady has produced sufficient evidence of a genuine issue of material fact as to whether certain portions of the Source Parties' revenues are attributable to the alleged infringing activities, and, accordingly, summary judgment is denied as to the Source Parties' motion to bar Shady's claims for profits under § 504(b) and their Twelfth Affirmative Defense (seeking to deny recovery of money damages on the theory that the relief sought is equitable in nature) is stricken.

B. Liability of Mays and Scott

Finally, the Source Parties move for summary judgment as to the liability of David Mays and Raymond Scott, arguing that it was Source that engaged in the alleged infringing uses of the registered recordings and that Mays and Scott cannot be held personally liable simply because of their position as officers and directors of Source. (Source Parties Mem. 18-19.) The Source Parties are correct that directors and officers may not be held liable based solely on a theory of control of the corporate entity, but "[a]ny individual, including a corporate officer, who has the ability to supervise infringing activity and has a financial interest in that activity, or who personally participates in that activity, is personally liable for that infringement." Lauratex Textile Corp. v. Allton Knitting Mills Inc., 517 F. Supp. 900, 904 (S.D.N.Y. 1981). Shady has produced evidence, not simply of Mays and Scott's control over Source, but of their direct participation in the alleged infringing activities.

First, as to David Mays, his deposition testimony indicates that he personally participated in almost every key event at issue in this litigation. Mays met with Bolos when the tape containing the recordings was first brought to Source's offices in October 2003, and on the following day, he made a deal with Bolos to acquire possession of the tape (Mays Dep. 36, 78). He then met with Bolos and Nieman a few weeks later to add Nieman to the original contract between Source and Bolos, a contract purporting to convey all copyright interests in the recordings. (Id. at 144.) Mays was present and had a prominent speaking role at the November 18, 2003, press conference where the Works were first played for the public and the Source Parties' intention to include the recordings on a CD accompanying the February 2004 issue of their magazine was announced. (11/18/03 Press Conference Tr.) By his own admission Mays was one of the people responsible for making the decision to post portions of the recordings and the lyrics to the website (Mays Dep. 130-32), and he had intimate knowledge of the decisionmaking process that lead ultimately to inclusion of a CD containing portions of the recordings with some copies of the February 2004 issue, including making the decision to charge an additional $1.00 for those copies containing the CD. (Mays Dep. 180-81.) The Source Parties inexplicably assert that "it does not matter that [Mays] participated in the decision to post the recordings and lyrics of the compositions on the Source's website" (Source Parties Reply Mem. 8), but these decisions could clearly be found to evidence Mays's direct participation in the alleged infringing activities.

Second, the record also demonstrates a triable issue of fact regarding Scott's involvement in at least some of the infringing activities. Mays consulted Scott by telephone about Bolos's initial meeting with Source, and Scott advised Mays on negotiating a price for the tape. (R. Scott Dep. 58.) Scott personally met with Bolos and Nieman during their November 2003 visit to New York. (Id. at 87.) Although Scott characterizes his role in acquiring the tape in the first place as supportive, rather than active (id. at 108), his deposition testimony shows that he was subsequently intimately involved in and consulted about various decisions made after the recordings had been acquired: He encouraged the development of what would become the cover story of the February 2004 issue (id. at 67-69), participated in decisionmaking about including the recordings on a CD to accompany the February 2004 issue (id. at 70-72; 117-20, 148-49), and told Mays he thought the recordings should be posted to the website (id. at 95). And like Mays, he had a prominent role at the press conference where the recordings were first made public. (11/18/03 Press Conference Tr.)

Given the extensive record as to the involvement of Mays and Scott, the Court cannot say that no genuine issue of material fact exists as to their direct participation in the alleged infringing activities. Therefore, the Source Parties' motion for summary judgment is denied, and it remains an issue for the factfinder to determine at trial whether Mays and Scott had the requisite direct or supervisory participation to raise personal liability.¹⁷

17 The Source Parties also move to dismiss Shady's unjust enrichment claim and requests for a declaratory judgment and an accounting as against Mays and Scott. (Source Parties Mem. 19-21.) Shady, having not responded to these arguments, is deemed to have abandoned these claims. Accordingly, and given the Court's holding below granting summary judgment in favor of BE/GS, Counts III (Declaratory Judgment), V (Accounting to Recover Royalties), and VI (Unjust Enrichment) of the Amended Complaint survive only as against Source itself.

III. BE/GS Motions for Summary Judgment as to its Liability and Sanctions

BE/GS, the manager of a private equity fund that is a minority investor in Source, moves for summary judgment dismissing the Amended Complaint in its entirety as against it, alleging that Shady has failed to produce any facts supporting a theory of its liability for the alleged infringing actions. BE/GS also moves for sanctions under Fed.R.Civ.P. 11 against Shady for naming BE/GS as a defendant in this action.

A. BE/GS Liability

In response to BE/GS's motion, Shady presses only a theory of vicarious liability against BE/GS. (P. Opp. Mem. to BE/GS Mot. 1 n. 2.) Vicarious liability for copyright infringement is established where the alleged infringer "`has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.'" Faulkner v. Nat'l Geographic Soc'y, 211 F. Supp. 2d 450, 472 (2002) (quoting Demetriades v. Kaufmann, 690 F. Supp. 289, 293 (S.D.N.Y. 1988)). BE/GS contends that it did not stand to benefit from the infringing activities, nor did it have the "right and ability" to supervise those activities such that it may be held vicariously liable. (BE/GS Mem. 7-13.)

As discussed above, Shady has produced sufficient evidence to create a genuine issue of material fact as to whether the alleged infringing activities generated revenue for Source. And if Source benefited from the infringing activities, so too would BE/GS as a shareholder. BE/GS Managing Director (and Source director) Jeffrey Scott warned Mays not to go forward with publicizing the Works because of what he predicted would be negative financial consequences for Source (Jeffrey Scott Dep., Li-Hochberg Affirm. Ex. 2, at 189-190). But regardless of these ex ante projections, or of how the venture in fact turned out in light of the litigation expenses incurred, BE/GS stood to gain if the infringing activities turned out to be profitable. This is sufficient to demonstrate a genuine issue of material fact as to BE/GS's "direct financial interest" in the infringing activities.

But Shady has failed to present any genuine issue of material fact as to the "right and ability" of BE/GS to "supervise" the infringing activities, as is further required. BE/GS is a minority investor, which owns only 19% of the shares of Source. While BE/GS has two seats on Source's board, Mays and Raymond Scott hold the other two filled seats, and Mays also has the power to appoint a fifth member, giving him effective control of the board. (Id. at 58-59.) Indeed, Mays and Jeffrey Scott both testified to the extreme control exercised by Mays over Source, to the exclusion of BE/GS. Mays stated that he and Raymond Scott have the "final say" as to the content of The Source, and that in the case of disputes "[his] word is the last word." (Mays Dep. 30-31.) And Jeffrey Scott testified that Mays repeatedly conveyed to Source's board of directors that "at the end of the day [Mays] still control[led] this company. [Mays] owns 80 percent of the stock, and [Mays has] the majority of the board, so [the board] can discuss what [it wants], but [Mays] ultimately determine[s] what is going to happen." (Jeffrey Scott Dep. 191). Shady has admitted that BE/GS's day-to-day control over the operations of Source is nonexistent. (P.R. 56.1 Counterstmt. No. 14.)

Against the weight of this record, Shady attempts to create a genuine issue of material fact by alleging that BE/GS could have prevented the infringing acts by threatening to withdraw its investment under the terms of investment documents governing the relationship between BE/GS and Source.¹⁸ (P. Opp. Mem. to BE/GS Mot. 8-16.) But as BE/GS describes in its reply brief, these courses of action would have required herculean efforts on its part, including the retention of counsel to determine whether the Source Parties' plans constituted illegal actions such that the Source would have had "cause" to proceed with terminating or suspending Mays or Raymond Scott, a precondition for BE/GS's withdrawal of its investment under Source's Certificate of Incorporation (David Opp. Aff. to BE/GS Mot. Ex. 8 § 3(a)(iv)), and the likely risk of subsequent litigation over the existence of such "cause." (BE/GS Reply Mem. 2-3.) At a minimum, there would have been insufficient time for BE/GS to pursue these courses of action prior to the commencement of the alleged infringing activities, given that BE/GS only learned of the planned November 18, 2003, press conference late the night before (P.R. 56.1 Counterstmt. No. 23). In light of a possible fair use defense, it would not have been immediately clear that the planned course of conduct was illegal.

18 Shady has alleged that BE/GS had various other powers at its disposal to prevent the infringing activities, including calling a special board meeting to discuss the issue and to possibly remove Mays and/or Scott as employees and/or officers of Source. (P. Opp. Mem. to BE/GS Mot. 9-13.) But these are powers of the board, and this argument overlooks the underlying reality that BE/GS did not control the board for the reasons explored above.

Shady argues that whether such options, as burdensome and as risky as they may have been, constitute the "right and ability to supervise" the infringing activities sufficient to raise vicarious liability is a fact issue for the factfinder to decide. (P. Opp. Mem. to BE/GE Mot. 14.) But what constitutes supervisory power has been held to be a matter of law. In Banff Ltd. v. Limited, Inc., 869 F. Supp. 1103 (S.D.N.Y. 1994), the court dismissed vicarious liability claims on summary judgment where the plaintiff had alleged nothing more than the parent company's ownership of its subsidiary. "Simply [being] the parent is not enough," wrote the court; rather "the plaintiff must show that the parent . . . has the right and ability to supervise the subsidiary, which is evidenced by some continuing connection between the two in regard to the infringing activity." Id. at 1110. If a parent company with one hundred percent ownership and control must do more than simply own the subsidiary to be vicariously liable, it is difficult to see how BE/GS can be vicariously liable when it has only nineteen percent of the shares and its alleged "right and ability to supervise" is confined to exercising negative corporate controls wholly unrelated to the infringing activities, controls it rightly likens to "go[ing] to war" with Mays. (BE/GS Reply Mem. 3.) An investment company will not be required to go to war to avoid vicarious liability, whenever a company in which it invests plans to do something that might ultimately turn out to be a copyright infringement. Accordingly, Shady has failed to demonstrate that a genuine issue of material fact exists as to BE/GS's "right and ability" to supervise the infringing activities, and therefore, BE/GS may not be held vicariously liable as a matter of law. Summary judgment dismissing the claims as against BE/GS is granted.

B. Sanctions

BE/GS has also moved for sanctions against Shady under Fed.R.Civ.P. 11 on the grounds that Shady named BE/GS as a defendant for purposes of harassment, and without a good faith basis for believing that evidentiary support existed such that BE/GS could be subject to liability for the alleged infringing activities. (Plevan Reply Aff. ¶ 3.) In a letter of December 31, 2003, counsel for BE/GS notified Shady that no evidentiary support existed for asserting claims against its client and requested that Shady withdraw the complaint. (Li-Hochberg Sanctions Affirm. Ex. C.) In response, Shady made informal discovery requests for documentation in order to evaluate whether a basis for proceeding against BE/GS existed. (David Sanctions Opp. Aff. Ex. 5.) As Shady made no factual assertions in its letter, BE/GS concluded that Shady had no good faith basis for pursuing these claims and refused to respond to these requests, characterizing them as a "fishing expedition." (Li-Hochberg Sanctions Affirm. Ex. D.) BE/GS now references this exchange, as well as the facts explored above in connection with its motion for summary judgment to dismiss the claims, in support of its contention that Shady continued to press its claims in full awareness that no amount of discovery would produce evidentiary support for holding BE/GS liable. (Id. ¶ 8.)

As explained above, there is indeed no factual basis for holding BE/GS vicariously liable for the actions of the Source Parties. Certainly, counsel's insistence on including BE/GS as a defendant in this action has done little to vindicate their client's interests, and has served to even further muddy the waters of what was already an overburdened set of motions for summary judgment. It is not so clear, however, that Shady had reason to know that its claims would ultimately prove to be factually unsupported, particularly given the relatively broad standard for vicarious liability for copyright infringement. BE/GS's status as a shareholder of Source was sufficient to raise a genuine issue of material fact as to the first prong of vicarious liability, a "direct financial interest," and Shady knew that BE/GS controlled two seats on the board of Source, later learning through discovery that Mays and its Managing Director Jeffrey Scott had discussed the Source Parties' plans to publicize the Works. Although ultimately the relationship between Jeffrey Scott and Mays, and between BE/GS and Source's board, was not one such that effective control could be exercised over the infringing activities, this does not convince the Court of any patent unreasonableness on Shady's part in pressing these claims. Sanctions may not be predicated on the foolish advancement of unsupported claims, unless the "allegations and other factual contentions" have no "evidentiary support or . . . [are not] likely to have evidentiary support after a reasonable opportunity for further investigation and support." (Fed.R.Civ.P. 11(b)(3).) The Court cannot say that the claims presented here were so lacking in factual support as to be sanctionable. Accordingly, BE/GS's motion for sanctions is denied.

CONCLUSION

Shady's motion for summary judgment as to liability of the Source Parties for copyright infringement is denied, except to the extent that summary judgment dismissing all affirmative defenses other than fair use is granted. Shady's motion for summary judgment dismissing the counterclaims of Source is granted. The Source Parties' motion for summary judgment is denied, except to the extent that summary judgment dismissing Shady's claims for statutory damages and attorney's fees and costs, and denying certain claims and remedies as against Mays and Scott, is granted. BE/GS's motion for summary judgment is granted, and its motion for sanctions is denied.

SO ORDERED.