Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-00695/USCOURTS-casd-3_11-cv-00695-2/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 28:1338 Trademark Infringement

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

MED-SYSTEMS, INC.,

Plaintiff,

CASE NO. 11CV695 JLS (BLM)

ORDER DENYING COUNTERDEFENDANT GALLO’S MOTION

TO DISMISS

(ECF No. 34)

vs.

MASTERSON MARKETING, INC.,

Defendant.

Presently before the Court is Counter-Defendant David Gallo’s (“Gallo”) motion to

dismiss Defendant Masterson Marketing, Inc.’s (“Masterson”) counterclaim. (Mot. to Dismiss,

ECF No. 34) Also before the Court are Masterson’s opposition, (Resp. in Opp’n, ECF No. 43),

and Gallo’s reply, (Reply in Supp., ECF No. 45). The hearing set for the motion on February 23,

2012, was vacated, and the matter taken under submission on the papers. Having considered the

parties’ arguments and the law, the Court DENIES Gallo’s motion.

This Order incorporates by reference the relevant factual and procedural background, as

well as the legal standard on a motion to dismiss, as set forth in the Court’s prior Order granting in

part and denying in part Med-Systems, Inc. (“Med-Systems”) and Gallo’s motion to dismiss. 

(Order, Nov. 23, 2011, at 2–4, ECF No. 28) Relevant here, in that Order the Court granted Gallo’s

motion to dismiss Masterson’s contributory copyright infringement claim. Specifically, the Court

found that although Masterson had “alleged sufficient facts to demonstrate that Gallo had

knowledge that Med-Systems’ display and use of the copyrighted images was an infringing

activity,” (id. at 10), it had not “alleged sufficient facts to show that Gallo induced or materially

contributed to the infringing conduct,” (id. at 11). Thus, the Court held that Masterson had not

stated a claim against Gallo for contributory copyright infringement.

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Following the Court’s Order, Masterson filed a First Amended Counterclaim (“FACC”). 

(FACC, ECF No. 30) Med-Systems and Rite Aid Corporation (“Rite Aid”) filed answers on

December 27, 2011, (Med-Systems Answer, ECF No. 32); (Rite Aid Answer, ECF No. 33), and

Gallo filed the instant motion to dismiss on the same day, (Mot. to Dismiss, ECF No. 34). 

Gallo moves to dismiss Masterson’s counterclaim, arguing that “Masterson does not allege

facts to support a claim of direct, contributory or vicarious copyright infringement as to CounterDefendant David Gallo.” (Mot. to Dismiss 1, ECF No. 34) Gallo not only moves to dismiss

claims that Masterson has not alleged against Gallo—namely, the direct and vicarious copyright

infringement claims1—but he also submits to the Court an almost verbatim copy of his prior

motion to dismiss, despite the fact that the Court has already ruled on several of the issues

presented. Compare (Id.), with (Mot. to Dismiss, ECF No. 13). The Court will address only those

arguments pertinent to the FACC, and will adopt the relevant holdings of the prior Order here. See

Milgard Tempering v. Selar Corp. of Am., 902 F.2d 703, 715 (9th Cir. 1990) (law of the case

doctrine).

The only claim asserted in the FACC against Gallo alleges that he is liable for contributory

copyright infringement due to his knowledge and authorization of the infringing use of

Masterson’s copyrighted works. (FACC ¶¶ 58–77, ECF No. 30) A party may be liable for

contributory copyright infringement if it “(1) has knowledge of a third party’s infringing activity,

and (2) ‘induces, causes, or materially contributes to the infringing conduct.’” Perfect 10, Inc. v.

1

 Masterson affirms that the FACC asserts only a claim for contributory copyright infringement

against Gallo. (Resp. in Opp’n 4 n.2, ECF No. 43) Gallo acknowledges this fact in his reply brief. 

(Reply in Supp. 7, ECF No. 45) 

Gallo also moves to dismiss on the basis that the FACC “presents no basis for holding Gallo

personally liable for the conduct allegedly perpetrated by his company, Med-Systems,” because there

is no basis for alter ego liability. (Mot. to Dismiss 7, ECF No. 34) The FACC does not allege alter

ego liability, however, and Gallo “acknowledges a corporate officer or director may be found

personally liable for infringement, but only for infringing acts which he authorizes or directs, or in

which he participates as an individual.” (id. at 8) The Court agrees that Masterson need not establish

alter ego liability in order to hold Gallo personally liable for contributory infringement, and declines

to address Gallo’s alter ego argument here. Orthokinetics, Inc. v. Safety Travel Chairs, Inc., 806 F.2d

1565, 1578–79 (Fed. Cir. 1986) (stating, in the patent context, that “it is well settled that corporate

officers who actively aid and abet their corporation’s infringement may be personally liable for

inducing infringement . . . regardless of whether the corporation is the alter ego of the corporate

officer”); see also Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 439 (1984)

(indicating that it is “appropriate to refer [to patent law cases] because of the historic kinship between

patent law and copyright law”). 

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Visa Int’l Serv. Ass’n, 494 F.3d 788, 795 (9th Cir. 2007) (quoting Ellison v. Robertson, 357 F.3d

1072, 1076 (9th Cir. 2004)). Because the Court already determined that Masterson alleged

sufficient facts as to the knowledge element, (Order, Nov. 23, 2011, at 10, ECF No. 28), the Court

discusses only the inducement element here.

To satisfy the inducement element, Masterson must allege facts showing that Gallo took

“affirmative steps . . . to foster infringement.” Perfect 10, 494 F.3d at 800 (quoting MGM Studios

Inc. v. Grokster, Ltd., 545 U.S. 913, 936–37 (2005)). In order to “materially contribute,” Gallo

must have a “direct connection to that infringement.” Id. at 796.

Here, the FACC supplements the bare assertions of Masterson’s original counterclaim with

numerous allegations regarding Gallo’s involvement in directing the infringing use of the

copyrighted photos. (See FACC ¶¶ 64–73, ECF No. 30) Specifically, Masterson alleges that

Gallo personally ordered or instructed employees to order the production and distribution of

packaging, instruction sheets, and coupons covered by Masterson’s copyrighted images after the

expiration of the licensed use of those images. (Id. ¶¶ 64–65) Gallo also allegedly approved the

unauthorized display of Masterson’s copyrighted images on various websites, and distributed the

copyrighted images to third-party retailers to display on their websites. (Id. ¶¶ 66–68, 72–73) The

Court finds that these allegations are sufficient to satisfy the inducement element.2

Accordingly, for the reasons stated above, the Court finds that Masterson has stated a claim

for contributory infringement against Gallo. Gallo’s motion to dismiss is therefore DENIED, and

Gallo SHALL FILE an answer to the FACC within twenty-one days of the date this Order is

electronically docketed.

IT IS SO ORDERED.

DATED: April 10, 2012

Honorable Janis L. Sammartino

United States District Judge

2

 Gallo contends that Masterson has “fabricated these allegations with no supporting facts in

an attempt to meet its pleading requirement.” (Mot. to Dismiss 9, ECF No. 34) Gallo is well aware

of the legal standard on a motion to dismiss, requiring the Court to accept as true the allegations of

the counterclaims. Iqbal, 129 S. Ct. at 1949. Masterson’s allegations are more than mere legal

conclusions and, taken as true, “allow[] the court to draw the reasonable inference that [Gallo] is liable

for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556).

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