trademark infringements, standing alone, “run afoul of Plaintiff's obligation to adumbrate a claim
with some supporting facts.”). Thus, plaintiff has failed to state a claim against any of the

individual defendants in Count IT.

The aforementioned principles also defeat plaintiff's claim for vicarious infringement
against the individual defendants. Indeed, plaintiff has failed to articulate any specific facts
regarding either, (1) the individual defendants’ rights and abilitics to supervise infringing
conduct, or (2) their obvious and direct financial interests in the exploitation of copyrighted

materials. Accordingly, Count III is dismissed with prejudice.

CONCLUSION
For the reasons stated hercin, Compendia’s motion to dismiss Count I is denied, and the

individual defendants’ motion to dismiss Counts II and IJ is granted with prejudice.

ENTER: February 27, 2003

Robert W. Gettleman
United States District Judge



Based on information allegedly provided by officials at Platinum, plaintiff believes that
DYNA has produced and sold more than 30,000 copies of plaintiff's works. Plaintiff alleges that
Intersound/Platinum received, and Compendia continues to reccive, payments from DYNA in
connection with these sales. According to plaintiff:

Platinum violated plaintiff's copyrights, contributed to the infringement by DYNA and

now Compendia continues to infringe and contribute to the infringement of plaintiff's

exclusive rights by providing copics of the master works and authorizing the use of those
copyrighted works through the reproduction, distribution, performance, display and
digital audio transmission of those works without permission or authorization from
plaintiff.

Accordingly, plaintiff’s third amended complaint seeks relief pursuant to the Copyright
Act of 1976, 17 U.S.C. § 101, etseq. In Count I, which is directed at Compendia, plaintiff
asserts claims of direct and contributory copyright infringement. Count II, against the individual
defendants, seeks injunctive relief, damages and attorneys’ fees for contributory copyright
infringement. Last, in Count III, plaintiff asserts a claim of vicarious infringement agains the
individual defendants “for the infringing activities of Platinum, Compendia and DYNA.”

Before addressing the defendants’ motions to dismiss, the court pauses to provide some
relevant procedural history regarding the instant dispute. Plaintiff filed his original complaint on
February 7, 2002, approximately four months after Platinum’s plan of reorganization became
effective. On June 13, 2002, the bankruptcy court presiding over Platinum’s rcorganization
entered the following agreed order (“bankruptcy order”),’ which states in pertinent part:

(B) Seals shall receive $5,000.00 as and for Seals” sole distribution under [Platinum's]

Second Amended Joint Plan of Reorganization, Such payment shall be without prejudice
to any claim or cause of action which Seals may have against the reorganized [Platinum|

?Although not appended to the complaint, the court takes judicial notice of the bankruptcy

order.



unauthorized manufacture of copyrighted material in the United States is an exception to

extraterritoriality rule).

Defendants maintain that the bankruptcy order, discussed carlier, discharged all claims
for infringement that occurred before October 10, 2001, including the alleged unauthorized
copying in 1995, Specifically, defendants direct the court’s attention to Section (B) of the

bankruptcy order, which provides:

Seals shall reccive $5,000.00 as and for Seals’ sole distribution under [Platinum's]
Second Amended Joint Plan of Reorganization. Such payment shall be without prejudice
to any claim or cause of action which Seals may have against the reorganized [Platinum]
for claims which arise post-confirmation or against [Platinum’s] former officers and

directors and shall not constitute a release of any party, nor shall it adversely affect the
rights of any party, including but not limited to, rights of contribution, subrogation and
indemnification, if any. (Emphasis added.)

Notwithstanding defendants’ arguments to the contrary, the court is not prepared at this
stage of the case to conclude that Section (B) extinguished plaintiff's claim of copyright
infringement stemming from the unauthorized copying in 1995. To begin, Section (3) explicitly
provides that it docs not constitute a release of any party, and shall not adversely affect the rights
of any party. Moreover, other than generally referencing “Claim Number 391," the order does
not specify the nature of Seals’ claim in the bankruptcy proceedings. For all this court knows,
the claim discharged in bankruptcy could have been a standard contract claim, devoid of any
allegations of copyright infringement. This possibility is further bolstered by Section (D),

conspicuously ignored by defendants, which states:

Entry of this Agreed Order and the payment of $5,000.00 to Seals is without prejudice
to... any legal rights or claims that the parties may have or may assett in the litigation in
the United States District Court for the Northern District of Mlinois in Case No. 02 C
0920.


allege ownership of the copyrights at issue in the instant dispute. The court addresses each of
these arguments below.

Section 501(a) of the Copyright Act provides that “[aJnyone who violates any of the
exclusive rights of the copyright owner as provided by sections 106 through 121... is an infringer
of the copyright...” 17 U.S.C, § 501(a). According to Section 106, a copyright owner has the
“exclusive rights to do and to authorize” six activities in particular, including reproducing the
copyrighted work in copies or phonorecords, and distributing copies or phonorecords of the
copyrighted work to the public by sale or other transfer of ownership, or by rental, leasc, or
lending. 17 U.S.C. § 106 (1), (3).

A party who, with knowledge of infringing activity, induces, causes, or materially
contributes to the infringing conduct of another, may be held liable as a ‘contributory infringer.’

Gershwin Publishing Corp. y. Columbia Artists Management, Inc,, 443 F.2d 1159, 1162 (2d Cir.

1971). The parties do not dispute that, in order to establish contributory infringement, plaintiff
must establish a predicate act of direct infringement. See 3 DAVID NIMMER & MHLVi.LE B.
NIMMER, NIMMER ON COPYRIGHT, § 12.04[A][3][al, at 12-91 (2002) (“[TJhe rule should
gencrally prevail that (hird party liability, as its name implies, may exist only when direct

liability, i.e., infringement, is present.’”).

It is well-established that infringing acts that take place wholly outside the United States

are not actionable under the Copyright Act. Subafilms, Ltd. v. MGM-Pathe Communications

Co., 24 F.3d 1088, 1096 (9" Cir. 1994). This rule of extraterritoriality notwithstanding, the
parties agree that if plaintiff can establish a predicate act of copyright infringement that occurred

within the United States, he may be able to state a claim against Compendia under the Copyright

6



for claims which arise post-confirmation or against [Platinum’s] former officers and
directors and shall not constitute a release of any party, nor shall it adversely affect the
rights of any party, including but not limited to, rights of contribution, subrogation and
indemnification, if any.

[-]
(D) Entry of this Agreed Order and the payment of $5,000.00 to Seals is without

prejudice to... any legal rights or claims that the parties may have or may assert in the
litigation in the United States District Court for the Northern District of Minois in Case
No. 02 C 0920.
With this background in mind, the court addresses the instant motions to dismiss below.
DISCUSSION
The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to rule
on its merits, See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). When
considering a motion to dismiss under Fed. R, Civ. P. 12(b)(6), the court accepts the allegations
of the complaint as true and views the facts in the light most favorable to the plaintiff. Travel All

Over the World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1428 (7th Cir. 1996).

1. Compendia’s Motion to Dismiss

In Count I, plaintiff asserts claims of direct and contributory copyright infringement
against Compendia. Specifically, plaintiff alleges that “Platinum directly and contributorily
infringed, and now Compendia continues to contributorily infringe on plaintiff's copyrighted
works.” In its motion to dismiss, Compendia asser(s three separate grounds for dismissing Count
1: (1) plaintiff cannot state a claim for contributory infringement because the infringing acts that
Intersound/Platinum and Compendia allegedly authorized took place in the Philippines and were
thus beyond the scope of the Copyright Act; (2) the bankruptcy order discharged all claims

arising prior to October 10, 2001, and plaintiff has failed to allege a single act of copyright

infringement that has occurred since October 10, 2001; and (3) plaintiff has failed to adequately



concludes that Platinum’s and/or Compendia’s domestic authorization of infringement in the
Philippines does not, in and of itself, state a claim for either direct or contributory infringement

under the Copyright Act?

Plaintiff’s remaining allegation of domestic infringement - unauthorized copying that
occurred in 1995 - is sufficient to stale a claim against Compendia, however.’ In Subafilms, the
Ninth Circuit considered only whether acts of authorization consisting “solely of entering into
licensing agreements,” constituted copyright infringement. Subafilms, 24 F.3d at 1090, n. 2.
‘The court did not consider allegations regarding domestic reproduction of copyrighted works that
were then shipped abroad for distribution. Id, Such reproduction within the United States, when
it leads to exploitation abroad of a copyright owner’s works, is indeed actionable under the

Copyright Act. See. e.g., Los Angeles News Service, 149 I'.3d at 992 (holding that plaintiff was

entitled to recover damages flowing from exploitation abroad of domestic act of infringement
consisting of the reproduction of a copyrighted work, and that the Subafilms court’s concerns

were “inapplicable”); Update Art, Inc. v. Modiin Publishing, Ltd., 843 F.2d at 73 (noting that

*Plaintiff directs the court to two district court cases that have rejected Subafilms and held
that domestic authorization of wholly extraterritorial infringement constitutes infringement. Scc
Curb v. MCA Records, Inc., 898 F. Supp. 586 (M.D.Tenn. 1995); Expediters Int'l v. Direct Line
Cargo Management Services, Inc., 995 F. Supp. 468 (D.N.J. 1998). As Compendia points out,
however, Curb and Expediters, which declined to follow Subafilms, are in the distinct minority.
See Armstrong v. Virgin Records, Ltd., 91 F. Supp. 2d 628, 634 (S.D.N.Y. 2000) (noting that the
line of cases holding that authorization of foreign infringement constitutes infringement has been
repudiated and “it is now generally accepted that there can be no liability under the Copyright
Act for authorizing an act that itself could not constitute infringement of rights secured by United
States law”).

‘Because the court finds that reproduction within the United States is sufficient to state a
claim under the Copyright Act, the court need not address plaintif{"s allegations of infringement
related to “[unauthorized] distribution within the United States.”

8



-

'
Mlaute Order Fo1m (0697)

United States District Court, Northern District of Mlinois

Name af Assigned Judge
‘or Magistrate Judge

Robert W. Gettleman

Sitting Judge if Other
than Assigned Judge

CASE NUMBER 02 ¢ 932 120 DATE Feb. 27, 2003
CASE Dan Seals vy Compendia Media Group
TITLE

LIn the following hox (a) indicate the purty filing the motion, e.g. plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

ion bei d
MOTION: of the motion being presented.)

DOCKET ENTRY:

Q) oO Filed motion of [ use listing in “Motion” box above.]

(2) a} Brief in support of motion due

(3) QO Answer brief to motion due . Reply to answer brief duc. -

(4) Oo Hearing

(5) oO Status hearing

(6) Oo Pretrial conference{held/continued to) [set for/re-set for] on | ___ set for at

(7) oO Trial[set for/re-set for] on ate

(8) Oo [Bench/Jury trial} [Hearing] held/continued to at

(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
CUFRCP4(m) OGeneral Rule21 OOFRCP4I(a)1) [ FRCP41(a)(2).

qo =o [Other docket entry]

Memorandum opinion and order entered. Defendant Compendia’s motion
to dismiss count I is denied and the individual defendants’ motion to
dismiss counts II and Ill is granted with prejudice.

(|

No notices required, advised in open court,

[For further detail see order attached to the original minute order.]

Document
Number

A

No notices required. umber of notices

FEB = 3 2003

X | Notices mailed by judge's staff.

Notitied counsel by telephone.

Docketing to mail notices,

Mail AO 450 form.

Copy to judge/magistrate judge.

18N09 13141510 SN

aaa

1G:Z Hd LZ gas eu
cmnbuleiak oi U4

date muaied notice
courtroom

deputy’s
initials

GDS

mailing dena init



participation by the individual defendants; and (3) with respect to Count III, plaintiff failed to
make specific allegations of the individual defendants’ right and ability to control the infringing
activity. For the reasons stated below, the court is persuaded that plaintiff's allegations are
insufficient under Fed. R. Civ, P. 12(b)(6) and thus concludes that Counts II and IIT should be

dismissed with prejudice.

As the court noted in its discussion of Compendia’s motion to dismiss, plaintiff has
adequately alleged a predicate act of direct infringement in the United States. Nonetheless, the
court concludes that plaintiff has not adequately alleged the other clements of his claims against
the individual defendants. Plaintiff's failure to allege the individual defendants’ knowledge of,
as well as ability to control, the infringing conduct in the instant dispute, after four attempts,
compels the court to dismiss his claims for contributory and vicarious infringement with

prejudice,

As noted above, a defendant is liable for contributory infringement when, with knowledge
of the infringing activity, he induces, causes, or materially contributes to the infringing conduct
of another. Gershwin Publishing Corp, v. Columbia Artists Management, Inc., 443 I'.2d 1159,
1162 (2d Cir, 1971). On the other hand, a defendant is vicariously liable for copyright
infringement when, (].) a defendant has the right and ability to supervise infringing conduct, and
(2) that defendant has “an obvious and direct financial interest in the exploitation of copyrighted

materials.” Shapiro, Bernstein & Co. v. H.L,

Freen Co., 316 F.2d 304, 307 (2d Cir. 1963). With
these elements in mind, the court turns to plaintiff's claims of contributory infringement and

vicarious infringement.

11



On its face, Section (D) appears to allow plaintiff to assert the very rights at issuc in the
instant dispute. Compelled to draw all reasonable inferences in plaintiff's favor, and staying
within the four corners of the complaint, the court concludes that the bankruptcy order did not

unequivocally discharge all claims of infringement predating October 10, 2001.

Compendia’s third ground for dismissal! of Count 1 also fails. Compendia directs the
court’s attention to the copyright registrations attached to plaintiff's complaint, and notes that
ownership of these registrations was assigned to Pink Pig Music (and, in some instances, to Jack
and Bill Music Company & Ranger Bob Music, as well), and disputes whether Tour Data Corp.
and Pink Pig Music are properly characterized as Seals’ alter egos. For example, according to
Compendia, if Dan Seals is really “doing business as” Pink Pig Music, then he would not have
assigned the ownership of the registrations 1o that entity, since he and Pink Pig Music would
have been one and the same. Notwithstanding the potential merits of Compendia’s arguments,
on a motion to dismiss, the court is compelled to draw all reasonable inferences in plaintiff's
favor and thus accepts plaintiff’s allegations of ownership for the purposes of the instant

motions.
Accordingly, Compendia’s motion to dismiss Count | is denied.

Il. Individual Defendants’ Motion to Dismiss

Counts Il and III of plaintiff's third amended complaint assert claims of contributory and
vicarious infringement against the individual defendants. ‘The individual defendants have moved
to dismiss these claims on three grounds: (1) no direct act of infringement occurred in the United

States; (2) with respect to Count II, plaintiff failed to make specific allegations of knowledge and

10



Act. See, e.g., Los Angeles News Service v. Reuters ‘Iclevision International. Ltd., 149 F.3d

987, 992 (9 Cir, 1998) (adopting rule that a party becomes liable for extraterritorial damages
only when an act of infringement occurs within the United States, subjecting it to habilily as an
infringer (or contributory infringer) under the Copyright Act); Update Art, Inc. v. Modiin
Publishing, Ltd., 843 F.2d 67, 73 (2d Cir. 1988) (“As the applicability of American copyright
laws over the Israeli newspapers depends on the occurrence of a predicate act in the United

States, the geographic location of the illegal reproduction is crucial.”).

In his response to the instant motions to dismiss, plaintiff maintains that
Intersound/Platinum’s alleged unauthorized reproduction of his works within the United States
serves as a predicate act of direct infringement on which he may also hang a claim of
contributory infringement. Plaintiff further alleges that Intersound/Platinum’s alleged domestic
authorization of DYNA’s infringement in the Philippines, presumably through a licensing
agreement, also constitutes infringement.

Contrary to plaintiffs assertion, domestic authorization of wholly extraterritorial
infringement does not constitute an act of infringement that circumvents the extraterritoriality
rule. See Subafilms, 24 F.3d at 1094 (“[W]e do not think Congress intended to hold a party

liable for merely ‘authorizing’ conduct that, had the authorizing party chosen to engage in itself,

would have resulted in no liability under the Act.”) (Emphasis in original); National Football

League v, Primetime 24 Joint Venture, No. 98C3778, 1999 WL 163181, at *4 (S.D.N.Y.
March 24, 1999) (“Subafilms is correct insofur as it holds that 17 U.S.C. § 106 does not create an
infringeable right of authorization independent of infringement of one of the specific enumerated

rights set forth in that section.”). Following the rule of Subafilms and its progeny, the court

7



amended plan of reorganization became effective on October 10, 2001. Thereafter, Platinum
changed its name to Compendia Media Group (“Compendia”).

The individual defendants include former and current officers of Intersound, Platinum
and Compendia. Only two of the individual defendants have worked directly for Intersound:
Donald Johnson was President of Intersound from 1993 through 1997, and Michael Olsen was
Intersound’s Vice President and General Counsel from 1995 until 1996.

Olsen also held a multitude of positions with Platinum after his tenure with Intersound,
and currently serves as the Chief Operating Officer of Compendia. Steven Devick was President
and Chief Executive Officer (“CEO”) of Platinum from 1995 until June 2000. Thomas Leavens
was Platinum’s General Counsel from 1995 through June 2000, as well as its Chief Operating
Officer from 1995 until 1999.

Robert Morgado and Andrew Filipowski both served as members of Platinum’s Board of
Directors: Morgado served from January 1998 until September 2000, and Filipowski served from
December 1991 until March 2000. In addition, Filipowski served as CEO and Chairman of
Platinum from 1997 through 1999,

Plaintiff alleges that, in 1995, Intersound, at the direction of or with the knowledge
and/or acquiescence of Devick, Olsen, Johnson and Leavens, made unauthorized duplications of
plaintiff's original master works and graphic files for those works in the United States, for the
purpose of providing those copies to DYNA Products, Inc. (“DYNA”) in the Philippines.
According to the third amended complaint, Intersound made the allegedly unauthorized copics

for DYNA with full knowledge and intent that DYNA would further reproduce, distribute, and

sell those reproductions for profit in the Philippines.



reasons stated herein, the court denies Compendia’s motion to dismiss Count I, and grants the

individual defendants’ motion to dismiss Counts II and UI, with prejudice.

BACKGROUN.

Plaintiff Dan Scals, also known as Danny W. Scals, is the author of numerous musical
works, including the album In a Quict Room and several songs contained therein, such as “Big
Wheels in the Moonlight,” “Everything that Glitters (Is Not Gold),” “You Still Move Me,” “One
Friend,” “They Rage On,” and “Don’t Believe I’ll Fall in Love Again.” In his third amended
complaint, plaintiff alleges that he is doing business as, (1) Pink Pig Music, an unincorporated
organizational entity and publisher of certain works owned by him, which facilitates music
industry publication and licensing functions for those works, and (2) Tour Data Corporation, a
Tennessee corporation of which plaintiff is the sole shareholder.’

In 1995, Dan Seals d/b/a Tour Data Corp, entered into an exclusive license agreement
(license agreement”) with Intersound, Inc. The license agreement, which was attached to the
complaint, granted Intersound the exclusive right, within the territory of the United States and
Canada, to manufacture, distribute, license and sell in every way the works included on the
album In a Quict Room.

According to the third amended complaint, in 1997, Platinum acquired Intersound,
including the rights and obligations of the license agreement with Seals. On July 26, 2000,

Platinum filed a voluntary petition for relicf under Chapter 11 of the Bankruptcy Code, and an

‘In his third amended complaint, plaintiff asserts ownership of the copyright registrations
for the aforementioned works, which were attached as Exhibit A to the complaint.

2



a

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS : .
EASTERN DIVISION . woe 20e

DAN SEALS, a/k/a Danny W. Seals, individually,
and d/b/a Pink Pig Music and Tour Data Corp.,

Plaintiff,

No. 02 C0920

v.

Judge Robert W. Gettleman
Entertainment, Inc., successor in interest to

Intersound, Inc., STEVEN DEVICK; DONALD R.

JOHNSON; THOMAS R. LEAVENS;

MICTIAEL W. OLSEN; ANDREW FILIPOWSKI,;
and ROBERT MORGADO,

)

)

)

)

)

)

)

COMPENDIA MEDIA GROUP, f/k/a Platinum )
)

)

)

)

)

)

Defendants. )
MEMORANDUM OPINION AND ORDER

In his third amended complaint, plaintiff seeks damages, injunctive relief and statutory
attorneys’ fees under the Copyright Act of 1976, 17 U.S.C. § 101, et seq., arising from defendants’
alleged infringement of plaintiff's copyrighted musical works in connection with the sale and
distribution of those works in the Philippines. Specifically, plaintiff asserts three claims: (1) direct
and contributory copyright infringement against Compendia Media Group (Count 1); (2) contributory
copyright infringement against Steven Devick, Donald Johnson, Thomas Leavens, Michael Olsen,
Andrew Filipowski, and Robert Morgado (together, the “individual defendants”) (Count IT); and (3)
vicarious copyright infringement against the individual defendants (Count III). Compendia Media

Group has moved to dismiss Count I under Fed. R. Civ. P. 8(a)(2) and 12(b)(6). The individual

defendants have moved to dismiss Counts [J and II for lack of subject matter jurisdiction pursuant

to Fed. R. Civ. P. 12(b6)(1) and for failure to state a claim under Fed. R. Civ. P, 12(b)(6). For the



In his third amended complaint, plaintiff alleges that the unlawful copying was done “at
the direction of or with the knowledge and/or acquiescence of [Intersound’s] officers, Devick,
Olsen, Johnson and Leavens.” As the individual defendants point oul, however, the allegedly
unlawful copying occurred in 1995. At that time, only two of the individual defendants worked
directly for Intersound: Donald Johnson was President of Intersound from 1993 through 1997,
and Michael Olsen was Intersound’s Vice President and General Counsel from 1995 until 1996.
These facts, included in plaintiffs third amended complaint, belie plaintiff's allegation that
Devick, Leavens, lilipowski, and Morgado had knowledge of, and contributed to, the allegedly
unauthorized copying by Intersound in 1995, and thus defeat plaintiff's claim of contributory

infringement against those individuals.’

As for Olsen and Johnson, both of whom were employed by Intersound during the
relevant time period, plaintiff has not adequately alleged any facts to support his conclusion that
they knew of, and induced, caused, or materially contributed to, the infringing conduct of

Intersound, See DEV Industries, Inc. v. Rockwell Graphic Sys., Inc., No. 91C7197, 1992 WL

100908, at *3 (N.D.IL1. May 4, 1992) (noting that “personal liability for the wrongdoing of a
corporation cannot be imposed upon an individual mercly because that individual is an officer of
the corporation,” and dismissing complaint for unfair trade practices because plaintiff's

allegations failed to implicate the defendant officers individually). Cf. The Drink Group, Inc. v

Gulfstream Communications, Inc., 7 F, Supp. 2d 1009 (N.D.II. 1998) (plaintiff's conclusory

statements regarding individual officers’ roles as “principal” and “driving force” behind

‘It is worth noting that plaintiff did not address this aspect of the individual defendants’
motion to dismiss in its response brief,

12