Opinion
Civil No. 02-406-KI.
September 17, 2002
Stephen S. Ford, Marger Johnson McCollom, P.C., Portland, Oregon Lawrence K. Rockwell, Eric W. Doney, William R. Hill, Julie E. Hofer Donahue, Gallagher, Woods Wood, LLP, Oakland, California, Attorneys for Plaintiffs SYMANTEC CORPORATION and QUARTERDECK CORPORATION.
John T. Carr, Carr Law Offices, Lake Oswego, Oregon, Don B. Finkelstein, Torrance, California, Attorneys for Defendants, Counter Claimants and Cross Complainants C.D. MICRO and VICENT L. WEBB, Robert A. Graham, Jr., Grants Pass, Oregon, Attorney for Defendant Chris Fain, Gordon Dillard, Grants Pass, Oregon, Pro Se Defendant.
OPINION
Plaintiffs Symantec Corporation and Quarterdeck Corporation allege that C.D. Micro, Inc., and its President, defendant Vincent Webb (together, "CD Micro"), are unlawfully procuring, copying, and selling Symantec/Quarterdeck software products. Symantec/Quarterdeck allege claims for copyright infringement, trademark infringement, and unfair competition and trademark counterfeiting under the Lanham Act.
C.D. Micro alleges that it has the right to sell the software. It alleges counterclaims for a declaratory judgment that these sales infringe nobody's rights and that Symantec/Quarterdeck's copyrights and trademarks are void or unenforceable, and for damages under the Lanham Act, common law trade libel and conspiracy. C.D. Micro names a group of third parties ("Intermediate Parties") that it alleges Symantec/Quarterdeck licensed to manufacture and distribute its software products. C.D. Micro purchased the software from the Intermediate Parties for further sale on the Internet. C.D. Micro alleges cross claims for a declaratory judgment that the software products it sold were not counterfeit and were authorized by Symantec/Quarterdeck for such sale. C.D. Micro also alleges cross claims for indemnity against the Intermediate Parties and cross claims for defamation, tortious interference with business relations, and RICO violations against individual defendants Fain, Dillard, and Golden.
Before the court are a Motion to Dismiss Cross Claims (#23) by Fain, joined by Dillard, and Symantec/Quarterdeck's Motion to Dismiss Counterclaims and Cross Claim One or alternatively, for a More Definite Statement (#20).
LEGAL STANDARDS
A motion to dismiss under Rule 12(b)(6) will only be granted if it "appears beyond doubt that the plaintiff can prove no set of facts in support of his complaint which would entitle him to relief." Gilligan v. Jamco Development Corp., 108 F.3d 246, 248 (9th Cir. 1997). Normally, the review is limited to the complaint, and all allegations of material fact are taken as true and viewed in the light most favorable to the non-moving party. Id. The court, however, may consider whether conclusory allegations follow from the description of facts alleged.Holden v. Hagopian, 978 F.2d 1115, 1121 (9th Cir. 1992).
A court may deny leave to amend when any proposed amendment would be futile. Reddy v. Litton Industries, Inc., 912 F.2d 291, 296 (9th Cir. 1990), cert. denied, 502 U.S. 921 (1991).
DISCUSSION
C.D. Micro's counterclaims appear to be based on the factual allegations in ¶ 83:
Counter Claim Plaintiffs [CD Micro] have purchased on the open market said Computer Software Products from said Intermediate Parties for the further sale, distribution and dissemination thereof on the Internet. On information and belief, all of the Computer Software Products purchased by Counter Claim Plaintiffs [CD Micro] from said Intermediate Parties were copied, reproduced, manufactured, duplicated and/or replicated by one or more of said third parties. On information and belief Counter Claim Defendants [Symantec/Quarterdeck] have made statements to various entities, including some if not all of said Intermediate Parties an/or [sic] said third parties that Counter Claim Plaintiffs [CD Micro] are dealing in counterfeit products, have committed acts of unfile [sic] competition, copyright infringement and/or trademark infringement. On information and belief, Counter Claim Defendants [Symantec/Quarterdeck] know or should have known that such statements were false, untrue and would interfere with the business and prospective business of Counter Claim Plaintiffs [CD Micro].
I. RICO Cross Claims
In Cross Claims Five and Six, C.D. Micro alleges that Fain, Dillard, and Golden (collectively, "Fain Group") violate the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1964(c) and (d). Fain and Golden move to dismiss the counts, contending that C.D. Micro has inadequately alleged a continuing pattern of racketeering activity, an enterprise, a conspiracy agreement, and causation between the alleged conduct and damages.The Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 prohibits the following:
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.18 U.S.C. § 1962.
A violation under § 1962(c) requires proof of: (1) conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering activity. Howard v. America Online, Inc., 208 F.3d 741, 746 (9th Cir.), cert. denied, 531 U.S. 828 (2000).
An enterprise under RICO includes groups with a formal legal structure and groups whose members merely associate in fact. Simon v. Value Behavioral Health, Inc., 208 F.3d 1073, 1083 (9th Cir.), amended on other grounds, 234 F.3d 428 (2000), cert. denied, 121 S.Ct. 843 (2001). A group cannot be an enterprise, however, unless it exists independently from the racketeering activity in which it engages. It must have some sort of structure for making decisions and mechanisms for controlling and directing the affairs of the group on an on-going basis rather than an ad hoc basis. A conspiracy is not a RICO enterprise. Id.
A pattern is at least two acts of racketeering activity within ten years of each other. Howard v. America Online, Inc., 208 F.3d 741, 746 (9th Cir.), cert. denied, 531 U.S. 828 (2000); 18 U.S.C. § 1961(5). Although two acts are necessary, they are not sufficient to find a violation. A pattern requires a showing of a relationship between the predicates and of the threat of continuing activity. Id. at 746.
"Related conduct embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events. Howard v. America Online, Inc., 208 F.3d 741, 749 (9th Cir.) (quoting H.J., Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 240, 109 S.Ct. 2893 (1989)) (internal quotation marks omitted), cert. denied, 531 U.S. 828 (2000). Having the same participants, by itself, is insufficient to establish relatedness. Id.
The continuity requirement requires a plaintiff to prove either "a series of related predicates extending over a substantial period of time [, i.e., closed-ended continuity], or "past conduct that by its nature projects into the future with a threat of repetition [i.e., open-ended continuity]" Howard v. America Online, Inc., 208 F.3d 741, 750 (9th Cir.), cert. denied, 531 U.S. 828 (2000) (internal citations omitted). Predicate acts extending over a few months are not sufficiently continuous to meet the requirement for close-ended continuity. Id. Open-ended continuity is shown by predicate acts that specifically threaten repetition or become a "regular way of doing business." Id.
C.D. Micro's RICO allegations are extremely cursory. It alleges that the Fain Group is associated with an enterprise but fails to allege any facts about the enterprise's structure or decision-making process. The claim lists several instances of extortion with no details on when or how the demands were made and no explanation of how the instances were related. This is inadequate to allege a pattern as explained by the case law cited above.
Cross Claim Five, alleging a violation of RICO § 1964(c), fails to state a claim and is dismissed.
"To establish a violation of section 1962(d) [conspiracy], Plaintiffs must allege either an agreement that is a substantive violation of RICO or that the defendants agreed to commit, or participated in, a violation of two predicate offenses." A § 1962(d) conspiracy claim cannot survive if the substantive claim does not state an action upon which relief could ever be granted. Howard v. America Online, Inc., 208 F.3d 741, 751 (9th Cir.), cert. denied, 531 U.S. 828 (2000).
Because there is no properly alleged substantive RICO claim, the RICO conspiracy claim, Cross Claim Six, fails to state a claim and is dismissed.
II. Common Law Cross Claims
C.D. Micro alleges cross claims for defamation and tortious interference with business relations against the Fain Group. Fain and Golden ask me to dismiss these cross claims for lack of supplemental jurisdiction, assuming that the RICO claims are dismissed. They also note that the same claims are alleged in two other pending litigations.
The statute provides for supplemental jurisdiction "over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy." 28 U.S.C. § 1367(a). Cross claims are not excepted. The state tort cross claims appear to be related to the claims alleged by Symantec/Quarterdeck. I will exercise supplemental jurisdiction over them. If there are ways to reduce the parties' costs by an agreement to litigate particular claims in particular courts, I encourage the parties to explore and, if possible, agree on a method to do so.
III. Privilege
Based on ¶ 83 of C.D. Micro's Amended Answer, Symantec/Quarterdeck contend that C.D. Micro's Counterclaims One through Five and Cross Claim One against them are based on statements Symantec/Quarterdeck made while preparing and initiating this litigation and are thus absolutely privileged under the law in both California and Oregon.
Although the allegations are adequate to satisfy the federal notice pleading requirement, they are not specific enough concerning when they were made for me to rule on this argument. Symantec/Quarterdeck may raise it again after discovery is complete and we have more information on the statements.
IV. Declaratory Relief
In Counterclaim One, C.D. Micro seeks a declaratory judgment that its sale of the software is not infringing the rights of Symantec/Quarterdeck. Symantec/Quarterdeck contends that this claim for a declaratory judgment is improper because Symantec/Quarterdeck already filed a complaint for damages that had accrued. Symantec/Quarterdeck contends that declaratory relief should have been sought by C.D. Micro before Symantec/Quarterdeck filed the Complaint.
C.D. Micro contends that it is also concerned about its future sales and thus is entitled to seek declaratory relief. I also construe the claim in this fashion and agree that declaratory relief is a legitimate remedy to seek.
In Cross Claim One, C.D. Micro seeks a declaration that the software products it sold were genuine products and were authorized by Symantec/Quarterdeck. Symantec/Quarterdeck make the same argument and I again do not grant their motion on this ground.
In Counterclaim Two, C.D. Micro seeks a declaratory judgment that any trademarks or copyrights held by Symantec/Quarterdeck concerning the software at issue are void and unenforceable because of egregious acts by Symantec/Quarterdeck.
Symantec/Quarterdeck contend that the lack of specificity of the egregious acts is insufficient to satisfy even liberal notice pleading rules. I conclude that the allegations are adequate enough to survive a motion to dismiss. Specifics can be determined during discovery.
Symantec/Quarterdeck also contend that C.D. Micro does not have standing to seek to cancel their trademarks and copyrights because C.D. Micro does not allege that it is entitled to any competing rights or interests.
I do not read Hal Roach Studios v. Richard Feiner and Co., 896 F.2d 1542 (9th Cir. 1990), as broadly as Symantec/Quarterdeck. Hal Roach Studios allowed counterclaims to proceed which sought a declaration that the opposing parties' copyrights were not valid. The counterclaims addressed copyrights which covered films that were the subject of a disputed licensing agreement between the parties. The court also noted in dicta that it would not allow the defendant to rummage through all of the studio's copyrights to determine whether any of them might affect its work because that would have been "simply asking for a naked declaration of copyright ownership." Id. at 1555.
C.D. Micro has an actual and ongoing dispute with Symantec/Quarterdeck which is based on the copyrights and trademarks and led to this action. That is sufficient to raise the counterclaim above a request for a naked declaration of copyright ownership. Symantec/Quarterdeck's motion to dismiss Counterclaim Two on this ground is denied.
V. Lanham Act
In Counterclaim Three, C.D. Micro alleges that Symantec/Quarterdeck have unfairly competed with C.D. Micro in violation of the Lanham Act, 15 U.S.C. § 1125(a)(1). Specifically, C.D. Micro alleges that Symantec/Quarterdeck made false statements about C.D. Micro and the software products it sold.
Symantec/Quarterdeck assume this counterclaim is based on the allegation that they stated that the software products were counterfeit copies. They contend that C.D. Micro does not have standing to sue under the Lanham Act, that C.D. Micro has not alleged that it is a competitor with Symantec/Quarterdeck, and that C.D. Micro has not alleged that injury resulted from the misrepresentations deceiving a significant portion of the consuming public.
Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), prohibits the use of false designations of origin, false descriptions, and false representations in the advertising and sale of goods and services. Waits v. Frito-Lay, Inc., 978 F.2d 1093, 1106 (9th Cir. 1992). To prevail on a claim, plaintiff must show: (1) defendant made false or deceptive advertisements and representations to customers; (2) those advertisements and representations actually deceived a significant portion of the consuming public; and (3) plaintiff was injured by defendant's conduct.William H. Morris v. Group W., Inc., 66 F.3d 255, 257 (9th Cir. 1995). The statute encompasses both false association/endorsement claims and false advertising claims. Waits, 978 F.2d at 1108. To have standing in a false advertising claim, plaintiff must allege a discernibly competitive injury. Id. at 1109. Plaintiffs with false association claims, however, do not need to be competitors but must have a commercial injury. This includes parties with a commercial interest in the product wrongfully identified with another's mark or with a commercial interest in the misused mark. Id.
C.D. Micro alleges a false advertising claim. Thus, it must allege a competitive injury. Although both C.D. Micro and Symantec/Quarterdeck sell the software, there are no allegations that they compete in the same market. For example, if one sold the software strictly wholesale and the other sold the software strictly retail, they would not be competitors. The Lanham Act claim's allegations are inadequate on this point. Although C.D. Micro will have to eventually prove that customer deception actually caused its injury, I believe that the allegations do not have to be more specific on those points than are pleaded.
The Lanham Act claim is dismissed for failure to state a claim because of insufficient standing allegations.
VI. Common Law Trade Libel and Conspiracy
Counterclaim Four alleges that Symantec/Quarterdeck's false statements concerning C.D. Micro's software sales constitute trade libel.
Symantec/Quarterdeck move to dismiss this counterclaim, contending that C.D. Micro has not alleged the actual statements made, the time and place when they were made, and to whom they were published. They also contend that they are unable to discern whether C.D. Micro alleges disparagement to its product or to its name.
Counterclaim Five alleges that Symantec and Quarterdeck conspired to commit the acts of unfair competition and trade libel.
Symantec/Quarterdeck move to dismiss this counterclaim because it does not plead the overt acts with sufficient particularity.
The claims are adequately alleged for notice pleading. Details can be ascertained during discovery.
CONCLUSION
Motion to Dismiss Cross Claims (#23) by Fain and joined by Dillard is granted in part. Symantec/Quarterdeck's Motion to Dismiss Counterclaims and Cross Claim One or alternatively, for a More Definite Statement (#20) is granted in part. C.D. Micro may replead its claims and file a Second Amended Answer, Affirmative Defenses, Counterclaims and Cross Claims within 30 days.