Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-05597/USCOURTS-cand-4_06-cv-05597-3/pdf.json

Nature of Suit Code: 820
Nature of Suit: Copyright
Cause of Action: 28:1338 Copyright Infringement

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RIVERDEEP INTERACTIVE LEARNING, LTD.,

an Irish Company; RIVERDEEP, INC., a

Delaware Limited Liability Company,

Plaintiffs,

v.

MPS MULTIMEDIA, INC., a California

Corporation; EDGAR CHEN; and

SELECTSOFT PUBLISHING,

Defendants.

 /

No. C 06-5597 CW

ORDER DENYING

DEFENDANTS'

MOTION TO DISMISS

Defendants MPS Multimedia, Inc., d/b/a Selectsoft Publishing

(MPS), and Edward Chen (collectively, Defendants) move to dismiss

this action, arguing that the Court lacks subject matter

jurisdiction and that Plaintiffs Riverdeep Interactive Learning,

Ltd. (RIL) and its United States affiliate Riverdeep, Inc.

(collectively, Plaintiffs) fail to state a claim against Defendant

Chen. Alternatively, Defendants move for a more definite

statement, contending that Plaintiffs' trademark infringement claim

is vague and ambiguous. Plaintiffs oppose the motion. The matter

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United States District Court

For the Northern District of California

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was heard on November 17, 2006. Having considered the parties'

papers and oral argument, the Court denies Defendants' motion to

dismiss and its motion for a more definite statement.

BACKGROUND

According to Plaintiffs' complaint, this action arises out of

Defendant MPS' infringement of Plaintiffs' copyrights and

trademarks and breach of a licensing agreement between Riverdeep

and MPS.

Riverdeep is an educational software publisher. It owns

trademarks for most of the software titles covered by the above

mentioned licensing agreement. RIL, which owns the registered

copyrights for the software licensed by Riverdeep to MPS under the

agreement, granted Riverdeep license and sub-license rights in its

software.

The licensing agreement permitted MPS to distribute software

to the "Non-mainstream Retail Channel," which included independent

retailers, but excluded "big box" stores and schools. A subsequent

amendment to the agreement prohibited MPS from selling software to

any third party that would sell, market or distribute the software

via the internet, unless that third party also operated a "brick

and mortar" store. 

Plaintiffs learned that, in spite of the amendment, MPS was

selling to internet retailers, which did not operate brick and

mortar locations and sold software exclusively on the internet. 

Plaintiffs contend that these retailers are outside the scope of

MPS' allowed distribution channel and, therefore, sales to them are

unlicensed and infringe upon Plaintiffs' copyrights and trademarks.

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Riverdeep sought an audit of MPS' manufacturing and sales. 

MPS refused access to its sale records. Because MPS refused to

permit Riverdeep's accountants to conduct a full audit, Plaintiffs

assert that it is impossible to know the full extent of MPS'

infringement and breaches of contract.

When the dispute arose, Riverdeep terminated the licensing

agreement, which immediately terminated MPS' rights; MPS did not

have the right to sell any remaining inventory. Nonetheless, MPS

continued to market, sell and distribute Riverdeep products over

the internet. 

Plaintiffs filed this action. 

Ten days later, they filed an application for a temporary

restraining order, seeking to enjoin Defendants' alleged ongoing

infringement of Plaintiffs' copyrights and trademarks through MPS'

marketing and sale of Plaintiffs' software without a license. In

their opposition, Defendants argued that the Court lacked

jurisdiction because this is a contract dispute, governed by state

law, not a copyright dispute over which federal courts have

exclusive jurisdiction. The Court denied Plaintiffs' application

for a temporary restraining order. The Court found, in part, that

Plaintiffs had not shown a likelihood of success on the merits of

their argument that the Court had jurisdiction under the Copyright

Act and Lanham Act; Plaintiffs had only established that a serious

question regarding jurisdiction exists. The Court noted that it

would again consider whether it has jurisdiction over this action

when it ruled on Defendants' motion to dismiss.

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LEGAL STANDARD

I. Motion to Dismiss

Dismissal is appropriate under Rule 12(b)(1) when the district

court lacks subject matter jurisdiction over the claim. Fed. R.

Civ. P. 12(b)(1). Federal subject matter jurisdiction must exist

at the time the action is commenced. Morongo Band of Mission

Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1380 (9th

Cir. 1988). A federal court is presumed to lack subject matter

jurisdiction until the contrary affirmatively appears. Stock West,

Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989).

A Rule 12(b)(1) motion may either attack the sufficiency of

the pleadings to establish federal jurisdiction, or allege an

actual lack of jurisdiction which exists despite the formal

sufficiency of the complaint. Thornhill Publ’g Co. v. Gen. Tel. &

Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979); Roberts v.

Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987). In deciding a

Rule 12(b)(1) motion, the court assumes the truth of the

allegations in the complaint, unless controverted by undisputed

facts in the record. Roberts, 812 F.2d at 1177. 

Dismissal is appropriate under Rule 12(b)(6) when the

plaintiff fails to state a claim upon which relief can be granted. 

Fed. R. Civ. P. 12(b)(6). A motion to dismiss for failure to state

a claim will be denied unless it is “clear that no relief could be

granted under any set of facts that could be proved consistent with

the allegations.” Falkowski v. Imation Corp., 309 F.3d 1123, 1132

(9th Cir. 2002), citing Swierkiewicz v. Sorema N.A., 534 U.S. 506

(2002). All material allegations in the complaint will be taken as

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true and construed in the light most favorable to the plaintiff. 

NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

A complaint must contain a “short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R.

Civ. P. 8(a). “Each averment of a pleading shall be simple,

concise, and direct. No technical forms of pleading or motions are

required.” Fed. R. Civ. P. 8(e). These rules “do not require a

claimant to set out in detail the facts upon which he bases his

claim. To the contrary, all the Rules require is ‘a short and

plain statement of the claim’ that will give the defendant fair

notice of what the plaintiff’s claim is and the grounds on which it

rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957).

II. Motion for More Definite Statement

In evaluating a motion under Rule 12(e), the proper test "is

whether the complaint provides the defendant with a sufficient

basis to frame his responsive pleadings." Federal Sav. and Loan

Ins. Corp. v. Musacchio, 695 F. Supp. 1053, 1060 (N.D. Cal. 1988)

(citing Famolare Inc. v. Edison Bros. Stores, Inc., 525 F. Supp.

940, 949 (E.D. Cal. 1981)). 

"Motions for a more definite statement are viewed with

disfavor and are rarely granted because of the minimal pleading

requirements of the Federal Rules." Sagan v. Apple Computer, Inc.,

874 F. Supp. 1072, 1077 (C.D. Cal. 1994). "Rule 12(e) is designed

to correct only unintelligibility in a pleading not merely a

claimed lack of detail." FRA S. p. A. v. Surg-O-Flex of America,

Inc., 415 F. Supp. 421, 427 (S.D.N.Y. 1976). The proper tool for

eliciting additional detail is discovery, not a Rule 12(e) motion. 

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Musacchio, 695 F. Supp at 1060 (citing Kuenzell v. United States,

20 F.R.D. 96, 98 (N.D. Cal. 1957)).

A Rule 12(e) motion may be granted, however, "where the

complaint is so general that ambiguity arises in determining the

nature of the claim or the parties against whom it is being made." 

Sagan, 874 F. Supp. at 1077. 

DISCUSSION

Defendants argue that this a mere contract dispute between two

parties concerning the scope of a license and, therefore, this

Court lacks jurisdiction. Defendants contend that, if the Court

finds that it has jurisdiction, the Court should dismiss

Plaintiffs' claims against Defendant Chen for failure to state a

claim and order Plaintiffs to provide a more definite statement of

their trademark infringement cause of action.

I. Subject Matter Jurisdiction

In their complaint, Plaintiffs allege that this Court has

jurisdiction because this case arises under the Copyright Act and

the Lanham Act. As noted above, Defendants argue that Plaintiffs'

trademark and copyrights claims are breach of contract claims in

disguise and, therefore, the Court lacks subject matter

jurisdiction over this contract dispute, which is governed by state

law. 

Federal courts have exclusive jurisdiction over actions that

arise under the federal copyright laws and original jurisdiction

over actions that arise under the federal trademark law. 28 U.S.C.

§ 1338. Nonetheless, the Ninth Circuit instructs that a case does

not arise under the federal copyright and trademark laws merely

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because the subject matter of the action involves or affects a

copyright or trademark. Topolos v. Caldewey, 698 F.2d 991, 993

(9th Cir. 1983) ("the word 'copyright' is not so compelling as to

invoke federal jurisdiction upon its mere mention") (citation

omitted); Postal Instant Press v. Clark, 741 F.2d 256, 258 (9th

Cir. 1984). Thus, district courts have "dismissed complaints in

copyright cases that present only questions of contract law," as

well as complaints in trademark cases that present only questions

of contract law. Dolch v. United California Bank, 702 F.2d 178,

180 (9th Cir. 1983); Postal Instant Press, 741 F.2d at 258.

However, it is not always evident "whether a case involving

interdependent copyright and contract claims 'arises under' the

federal copyright laws for the purposes of 28 U.S.C. § 1338(a)";

indeed, this is one of the “'knottiest problems in copyright

jurisprudence,'” Scholastic Entm't, Inc. v. Fox Entm't Group,

Inc., 336 F.3d 982, 983 (9th Cir. 2003) (quoting 3 Melville B.

Nimmer & David Nimmer, Nimmer on Copyrights § 12.01[A], at 12-14

(2003)); see also id. at 986 ("federal courts walk a fine line

between usurping the power of state courts and providing redress

for copyright infringement"). As explained in Scholastic, the

Ninth Circuit follows the majority rule, outlined in T.B. Harms Co.

v. Eliscu, 339 F.2d 823 (2d Cir. 1964), to determine whether

copyright subject matter jurisdiction exists. In T.B. Harms, Judge

Friendly stated that: 

an action “arises under” the Copyright Act if and only if the

complaint is for a remedy expressly granted by the Act, e.g., a suit for infringement or for the statutory royalties for

record reproductions, or asserts a claim requiring

construction of the Act . . . or, at the very least and

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perhaps more doubtfully, presents a case where a distinctive

policy of the Act requires that federal principles control the

disposition of the claim.

T.B. Harms, 339 F.2d at 828. 

The Ninth Circuit has also instructed that, to determine

whether a case arises under the copyright laws, the court should

focus on the nature of the principal claim asserted by the

plaintiff. Topolos, 698 F.2d at 994 ("Courts have directed inquiry

to what they have variously described as the 'primary and

controlling purpose' of the suit, the 'principal issue,' the

'fundamental controversy,' and the 'gist' or 'essence of the

plaintiff's claim") (citations omitted). See Fantasy v. Amerco,

Inc., 1999 WL 155696 (N.D. Cal. 1999) (noting both the T.B. Harms

and "primary issue" analyses). 

Plaintiffs focus on the T.B. Harms analysis. They cite

Vestron Inc. v. Home Box Office, Inc., 839 F.2d 1380 (9th Cir.

1988), where, relying on T.B. Harms, the Ninth Circuit determined

that the district court had jurisdiction because the plaintiff's

complaint made out an infringement claim and sought remedies

expressly created by federal copyright law. 839 F.3d at 1381-82. 

Here, the complaint also makes an infringement claim by Plaintiff

RIL against Defendants MPS and Chen. RIL seeks damages "in an

amount to be determined at trial, including statutory damages

against MPS and Chen for their knowing and willful infringement of

RIL's copyrights." Complaint, ¶ 29. Because, on the face of their

complaint, Plaintiffs assert infringement and request remedies

provided by the Copyright Act, Plaintiffs contend that the Court

has jurisdiction. Id. at 1382 ("Where there is a fatal flaw on the

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face of a complaint that purports to assert an infringement action,

the suit should be dismissed for lack of subject matter

jurisdiction. If no such flaw appears, the federal courts have

jurisdiction."). 

Defendants respond that it is not enough that the complaint

seeks a remedy expressly granted by the Copyright Act or alleges a

copyright infringement claim. They argue that the copyright remedy

must also be a principal issue in the case and here it is not; the

principal issue of this case is one of contract. Topolos supports

this argument, but Vestron does not. See Topolos, 698 F.2d at 993

(describing both the T.B. Harms analysis and the "primary issue"

analysis). In Vestron, the Ninth Circuit explained that the T.B.

Harms "test sets forth three independent grounds for sustaining

federal jurisdiction in copyright cases. If any of these three

grounds is satisfied, the federal courts have jurisdiction." 839

F.2d at 1381. 

Defendants do not deny that the first ground set forth in T.B.

Harms is satisfied. Rather, they argue that Vestron is out-ofdate. But that argument is unpersuasive, especially in that they

rely on Topolos, which was decided five years before Vestron. 

Because there is no "fatal flaw" on the face of the complaint,

which asserts a claim for infringement, the Court has jurisdiction

and, therefore, Defendants' motion to dismiss for lack of subject

matter jurisdiction is denied. See Vestron, 839 F.2d at 1382. 

Acknowledging that "the results are similar," the Ninth Circuit

instructs, "If an action survives this scrutiny and affidavits or

other materials reveal the infringement claim to be spurious, then

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the proper avenue is dismissal for failure to state a claim under

federal copyright law." Id.

II. Claims Against Defendant Chen

As noted above, Defendants argue that the Court should dismiss

Plaintiffs' claims against Defendant Chen, contending that

Plaintiffs have failed to state a claim against him. Defendants

note that Plaintiffs' allegations concerning Defendant Chen's

misconduct are confined to a single paragraph: "Chen, as MPS'

President and CEO, directs, controls and ratifies the actions of

MPS including the unlicensed and unauthorized replication and

distribution of Riverdeep software." Complaint, ¶ 27. Defendants

argue that a corporate officer cannot be held liable for actions of

the corporation in which the officer did not personally

participate, of which the officer has no knowledge or to which the

officer has not consented and, therefore, the Court should dismiss

the copyright infringement claim against Defendant Chen. 

Plaintiffs respond that corporate officers "are personally

liable for the corporation's copyright and trademark infringements

when they are a 'moving, active conscious force' behind the

corporation's infringement." Novell, Inc. v. Unicom Sales, Inc.,

2004 WL 1839117, *17 (N.D. Cal. 2004). Defendants do not address

Novell in their reply. The Court finds that Plaintiffs have

alleged sufficient facts to state a claim against Defendant Chen. 

Therefore, the Court denies Defendants' motion to dismiss the claim

against Defendant Chen.

III. More Definite Statement

Defendants contend that, if the Court does not dismiss

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Plaintiffs' complaint, the Court should require Plaintiffs to

identify the specific trademarks that they believe have been

infringed and the specific section of the Lanham Act that they

believe Defendants have violated. Plaintiffs respond that their

trademark claim meets notice pleading standards. As Defendants

note, the complaints at issue in the cases Plaintiffs cite

identified the allegedly infringed trademarks and the specific

sections of the Lanham Act at issue. See, e.g., Perfect 10, Inc.

v. Cybernet Ventures, Inc., 167 F. Supp. 2d 1114, 1122 (C.D. Cal.

2001). Nonetheless, Plaintiffs' complaint is not so vague as to

fail to provide Defendants with a sufficient basis to frame their

responsive pleadings. Federal Sav. and Loan Ins. Corp., 695 F.

Supp. at 1060. Plaintiffs' trademark infringement claim, while

lacking in detail, is not unintelligible. And the specific

trademarks and sections of the Lanham Act issue can easily be

ascertained through discovery. 

Therefore, Defendants' motion for a more definite statement is

denied. 

CONCLUSION

For the foregoing reasons, Defendants' motion to dismiss and,

in the alternative, for more definite statement (Docket No. 34) is

DENIED. 

IT IS SO ORDERED.

Dated: 12/22/06 

CLAUDIA WILKEN

United States District Judge

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