1 eepetingat

(Adobe Mot. Ans. 10). Although, ITC attempts to its contradictory positions in a
footnote in its answer to Adobe’s motion, its explanation is insufficient. Although
collateral estoppel by its nature is addressed issue by issue, ITC’s position is still in

some respects inconsistent.

ITC also apparently seeks to explain its contradictory position in regards to
collateral estoppel by arguing that, on one hand, the arbitration ruling “is binding
upon Adobe under the doctrine of issué preclusion,” (Adobe Mot. Ans. 10, 14 n.21),
and then arguing later in the same brief that, in regards to the arbitration ruling’s
effect on ITC, “collateral estoppel does not apply.” (Adobe Mot. Mem. 12).
However, the Seventh Circuit has made amply clear, “collateral estoppel” and “issue
preclusion” are synonymous terms and refer to the same doctrine, See Stephan v.
Rocky Mountain Chocolate Factory, Inc, 136 F.3d 1134, 1136 (7 Cir.
1998)(explaining that “the doctrine of issue preclusion” was “formerly known as
collateral estoppel”); See also In re Bridgestone /Firestone, Inc., Tires Products
Liability Litigation, 333 F.3d 763, 767 (Cir, 2003)(stating that “[a]lthough claim
preclusion (res judicata) depends on a final judgment, issue preclusion (collateral
estoppel) does not.”); Garcia v. Village of Mount Prospect, 360 F.3d 630, 634 (*
Cir. 2004); Jn re Catt, 368 F.3d 789, 791 (7 Cir. 2004); In re Hovis, 356 F.3d 820,
822 (7" Cir. 2004); U.S. Gypsum Co. v. Indiana Gas Co., Inc, 350 F.3d 623, 628 (7
Cir. 2003); Brokaw v. Weaver, 305 F.3d 660, 669 (7* Cir. 2002); J & W Fence

Supply Company, Inc, v. U.S., 230 F.3d 896, 898 (7 Cir. 2000); Adair v. Sherman,

13



ee eee

LEGAL STANDARD

Summary judgment is appropriate when the record reveals that there is no
genuine issue as to any material fact and the moving party is entitled to judgment as
a matter of law. Fed. R. Civ. P. 56(c)). In seeking a grant of summary judgment the
moving party must identify "those portions of 'the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any,’ which it
believes demonstrate the absence of a génuine issue of material fact."Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)). This initial
burden may be satisfied by presenting specific evidence on a particular issue or by
pointing out "an absence of evidence to support the non-moving party's case."/d. at
325. Once the movant has met this burden, the non-moving party cannot simply rest
onthe allegations or denials in the pleadings, but, "by affidavits or as otherwise
provided for in [Rule 56], must set forth specific facts showing that there is a
genuine issue for trial." Fed. R. Civ. P. 56(e) A "genuine issue" in the context of a
motion for summary judgment is not simply a "metaphysical doubt as to the material
facts.” Matsushita Elec, Indus. Co., Lid. v. Zenith Radio Corp,475 U.S. 574, 586
(1986). Rather, a genuine issue of material fact exists when "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); Jnsolia v. Phillip Morris, Inc., 216
F.3d 596, 599 (7" Cir. 2000). The court must consider the record as a whole, in a

light most favorable to the non-moving party, and draw all reasonable inferences that



eRe se oe r

that somewhere, some End Users actually improperly used an ITC font for
‘embedding purposes. We note that the agreement at issue in the arbitration is not the
same as in the present action and that the arbitration was not guided by New York
law. We conclude that the issues presented in regards to Count III are not governed
by collateral estoppel. We also conclude that there are genuinely disputed issues in
regards to Count III and therefore deny both parties’ motions for summary judgment
on Count III. Also, as noted above, we would deny ITC’s motion for summary

judgment regardless, due to its failure to comply with the court’s page limitations.

CONCLUSION
Based on the foregoing analysis, we deny both parties’ motions for summary

judgment in their entirety.

Samuel Der-Yeghiayan g A d

United States District Court Judge

Dated: December 16, 2004

17



D. Partial Ownership Position

ITC’s partial ownership argument is that Adobe owns the PostScript font
format and ITC owns the “data that fixes or depict the particular licensed Typefaces”
that it provided to Adobe. (ITC Mot. Mem. 1 2). ITC contends that in 1992 the
Copyright office issued a regulation which permitted the registration of an entire
outline font and that the date provided to. Adobe falls within the scope of the
regulation. Adobe vehemently objects to. the partial ownership argument because it
has never been raised by ITC until this point and Adobe was unable to conduct

discovery regarding the feasibility of a partial ownership.

E. Genuinely Disputed Issues Regarding Ownership

There are genuinely disputed issues tegarding ownership that precludes
summary judgment in favor of either party on the ownership issue. We shall offer a
few examples. The parties dispute the degree that the ITC digitized data was
utilized to develop the Adobe product. ITC argues in its reply for its summary
judgment motion that it disagrees with Adobe’s assertion that “there is no evidence
of ITC’s contribution to the Font Software.” (ITC Mot. Reply 2). While we agree
that Adobe is not correct in its assertion that there is a complete absence of evidence
regarding the subject, such evidence is far from conclusive in ITC’s favor. In order
to prevail on its motion, ITC is required to point to sufficient evidence that a

reasonable trier of fact would be unable.to find in favor of Adobe. ITC resorts to

“9



Adobe complains that it has been prejudiced because ITC has taken a variety
of inconsistent positions. Adobe claims that ITC’s lack of consistency in its
positions has denied Adobe the opportunity to properly respond to ITC’s positions
and to conduct pertinent discovery to address all of ITC’s arguments. The whole

idea behind a summary judgment motion is to distill the material issues and material

facts in order to allow the court to determ e if judgment may be awarded as a matter
of law. ITC’s movement between inconsistent positions simply causes more
confusion and prevents a clear resolution of the issues. Court proceedings should,
from their beginning, be focused on resolving the pertinent issues. ITC, by changing
its legal position throughout these proceedings, has inhibited an orderly and efficient
progression of these proceedings. Only by piecing together ITC’s various arguments
in its briefs was the court able to re-construct what are ITC’s apparent legal
positions. The shift in positions by ITC has also made it difficult for Adobe to brief
the pertinent issues for the court in a coherent fashion. Also, we granted the parties
a page extension allowing briefs to exceed the fifteen page limitation, but not to
exceed twenty-five pages in length for the summary judgment motions. However,

ITC has not obeyed the court’s explicit order. For example in ITC’s reply brief on

page seventeen ITC indicates that it will not state its argument in full in its reply

brief and refers the court to another bi 1 additional arguments despite the fact
that the reply brief utilizes the full twenty-five pages authorized by the court. Thus,

ITC failed to comply with the court’s order by attempting to circumvent the page



favor the non-moving party. Anderson, 477 U.S. at 255; Bay v. Cassens Transport

Co., 212 F.3d 969, 972 (7 Cir. 2000).

DISCUSSION

[. Ownership of the Intellectual Property

Both ITC and Adobe move for stititiary judgment on the issue of ownership
over the Typefaces and font in question. ITC has presented this court with a variety
of inconsistent positions in regards to Count I. In the complaint ITC first contends
that it “is the exclusive owner of all rights in the Font Software for ITC Typefaces. .
..” (Compl. Par. 15). However, in IrC’s answer to Adobe’s original motion for
summary judgment ITC argued that ITC and Adobe were joint owners of the
intellectual property and that it was a “joint work.” (1 Adobe Mot. Ans. 7). In
ITC’s subsequently filed motion for summary judgment, which is before us, ITC
argues that it only partially owns the property and that ITC owns the digitized data
within the Font Software and Adobe owns the copyrights in its PostScript font
format. (ITC Mot. Mem. 12). In a subsequently filed answer to Adobe’s current
motion for summary judgment, ITC switches back to its joint ownership position,
which is not consistent with the complaint, and argues in the alternative that the

intellectual property at issue is a derivative work. (Adobe Mot. Ans. 4-6).



ITC argues that Adobe’s product was a derivative work that was based upon
ITC’s digitized artwork. Adobe argues that ITC merely provided Adobe with raw
data that was utilized to begin the development process, Adobe argues that the final
product is not merely a further refinement of the data provided by ITC and thus the
Adobe product, created by its employees is solely owned by Adobe. Adobe also
argues that the data provided by ITC has been altered and thus it technically is no
longer present in the ultimate product and that ITC’s claim that Adobe is using ITC
data are false. ITC responds with its derivative work position arguing that it is not
necessary that the identical data be present in Adobe’s product for the Adobe

product to be deemed a derivative work.

C. Joint Ownership Position

ITC’s joint ownership argument is that ITC provided Adobe with the raw
digitized data and that Adobe used the data to create the ultimate product. ITC
therefore concludes that it was a partner with Adobe in the creation of the final
product. Adobe argues that its copyright cannot be transferred to ITC except in
writing and that there is no evidence of such a writing. ITC responds with its joint
ownership argument and states that, since ITC and Adobe were joint owners, ITC
co-owned the copyright from the beginning and thus there was no need for a transfer

from Adobe to ITC.


‘Minute Order Form (06/97)

Lk see

United States District Court, Northern District of Illinois

Name of Assigned Judge Samuel Der-Yeghiayan Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 02 C 8256 DATE 12/16/2004
Baars eee
CASE International Typeface vs. Adobe Systems
TITLE ;
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented}
DOCKET ENTRY:
qd) a Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) Oo Answer brief to motion due. - Reply to answer brief due.
(4) oO Ruling/Hearing on set for at
(5) oO Status hearing{held/continued to] (set for/re-set for] on set for at
(6) a Pretrial conference[held/continued to] [set for/re-set for] on set for at
(7) Qa Trial[set for/re-set for] on at
(8) im [Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed [with/without] prejudice. and without costs[by/agreement/pursuant to]
COFRCP4(m) OLocal Rule 41.1 CFRCP41(a\(1) CO) FRCP41(a)(2).

ao ff {Other docket entry] For the reasons stated in the attached memorandum opinion, the plaintiff's

and defendant’s cross motions for summary judgment are denied in their entirety, Enter Memorandum

Opinion.
(ii) @ [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

ices required,
No notices required, number of notices

DEC 1% 2004

date docketed

dale mailed notice

Notices mailed by judge’s staff.

Notified counsel by telephone

Y | Docketing to mail notices. Memorandum
Opinion distributed by Judge's staff.

Mail AO 450 fonn,

Copy to judge/magistrate judge.

courtroom
deputy's
initials

MW6

Date/time received in’
central Clerk's Office

mailing deputy initials



not ITC owns the pertinent digitized data, 2) the extent that the digitized data was
used in the Font Software, or 3) if ITC even delivered the digitized data to Adobe.
Adobe goes to great length in its motion for stimmary judgment to argue that there
could not have been a transfer of its copyright to ITC, but Adobe fails to consider all
of the disputed issues and facts raised by Adobe itself that relate to determining
whether or not ITC was a full or partial owner of the product from the beginning.
Despite Adobe’s insistence that there are disputed facts regarding the ownership
issue, and even its contention that further discovery may be necessary in order to
proceed, Adobe argues on the other hand that it is entitled to judgment as a matter of
law on the ownership issue because the facts are in its favor. We conclude that there
are genuinely disputed issues in regards to ownership and therefore, we deny both

parties’ motions for summary judgment on Count I.

IL Limitation on Scope of Distribution (Count I)

In Count Il, ITC contends that Adobe breached the Agreement by distributing
Font Software pursuant to an End User license agreement (“EULA”) “which
permitted End Users to embed Font Software into electronic documents for uses not
allowed by the Agreement.” (ITC Mot. 13). Adobe argues that ITC is collaterally
estopped from arguing that Adobe violated the Agreement in this regard. Under the
doctrine of collateral estoppel, the party seeking to invoke the doctrine must

establish the following elements: “1) the‘issue sought to be precluded must be the

11



speculation arguing that David Lemon (“Lemon”) “who presumably worked with the
Ikarus data would have been an excellent witness” and ITC argues that Lemon’s
“silence creates a presumption that ITC’s claim that the Font Software was a joint

work. ...” (ITC Mot. Mem. 4).

We also note that the Agreement is not entirely clear in regards to ownership
and the parties dispute what the understanding was between the parties regarding
future ownership issues. For instance, Adobe argues that “[t]he testimony of ITC’s
President confirms that ITC understood” the distinction involved in giving Adobe
ownership of the Font Software and that ITC’s President understood “that Adobe,
and not ITC, owned the copyrights in the Font Software.” (Adobe Mot. Mem. 5),
Adobe also points to a letter from ITC counsel to Adobe dated November 12, 2001,
in which in one sentence ITC counsel makes reference to Adobe’s ownership rights.
However, neither the letter nor other evidence presented is dispositive for
determining ITC’s ownership interests. Adobe has not pointed to sufficient evidence

that would allow the court to find in its favor as a matter of law on this issue.

Adobe has also taken inconsistent positions in regards to the ownership issue.
Adobe has moved for summary judgment on the ownership issue and in certain
instances contradicted its own position in its opposition to ITC’s summary judgment
motion. For instance, Adobe goes to great length in its answer to ITC’s motion for
summary judgment to point out all the unknown facts and disputed facts regarding

ownership. Some examples are Adobe’s assertion that it is not clear: 1) whether or

10



limitation ordered by the court. The fact that ITC has failed to present a clear
position in regards to ownership and the fact that ITC failed to comply with this
court’s order regarding page limitations are sufficient in and of themselves for the

court to deny ITC’s motion for summary judgment.

A. Exclusive Ownership Position

ITC’s exclusive ownership position appears to be based on the language in the
Agreement stating that “[a]ll ITC Typefaces will remain at all times the sole and
exclusive property of ITC. ...” (1991 Agr: Par. 4.1(D)). ITC claims that the
understanding in the Agreement was that irc would supply Adobe with digitized
artwork, Adobe would generate Font Software from the digitized artwork, Adobe
would distribute the Font Software to End Users, and Adobe would pay royalties to
ITC for each distribution. Adobe points to language in the Agreement that grants
Adobe the right to create Font Software. ITC responds that it was understood that
the Agreement provided such right only to allow Adobe to create a product without
ITC data and to allow Adobe to obtain ownership in certain limited instances. ITC
argues that in the Agreement it reserved ownership in all products ultimately created

from its digitized artwork.

B. Derivative Work Position



royalty shall accrue, and no license shall be required, for creation or distribution of,
or grant of a license to create and distribute, whole or partial copies of Font Software
which are saved in the file with the document for print and display purposes only.”
Adobe and ITC agreed to this amendment in the 1993 Letter Agreement.

In 1998 Agfa acquired Monotype, and subsequently Afga and Monotype
merged to form Agfa Monotype Corporation (“AMT”). In early 2000, AMT
acquired ITC, which by that time had no employees of its own, but, was instead
entirely operated by AMT employees out of AMT offices. When AMT began
informing Adobe End Users that they did not have the right to embed fonts of AMT
typefaces in Adobe Acrobat documents that were intended to be distributed beyond
the organization in which they were created, or for a fee, Adobe explicitly granted
those rights to its End Users. In May of 2001, AMT notified Adobe that it was
purportedly in breach of its agreement with Monotype and ITC.

On November 13, 2002, ITC filed a complaint against Adobe. Count I of the
complaint seeks a declaration regarding ITC’s ownership of the pertinent typefaces
and font. Count II of the complaint alleges that Adobe breached the Agreement by
licensing End Users to distribute electronic documents with embedded fonts of ITC
typefaces in a manner inconsistent with the Agreement. In Count III, ITC alleges
that Adobe breached the Agreement by distribution of Adobe Acrobat 5.0 with

editable embedding technology.



230 F.3d 890, 893 (7" Cir, 2000); Perry v. Sheahan, 222 F.3d 309, 318 (7* Cir.
2000); Freeman v. Page, 208 F.3d 572, 575 (7* Cir. 2000); Leavell v. Kieffer, 189
F.3d 492, 496 (7" Cir. 1999); Benson y. SI Handling Systems, Inc, 188 F.3d 780,
783 (7" Cir. 1999),

ITC also argues that the portions of the arbitrators’ findings that Adobe
focuses on were not necessary for their ultimate determination. ITC thus argues that
the determination referenced by Adobe was not essential to the final judgment. We
agree that the findings were not essential to the judgment. We also note that the
arbitration was not conducted according to New York law. We also find that the
record before us is not conclusive in regards to Adobe’s contention that AMT
withdrew the scope of distribution claim because it was going to fail in the
arbitration. We cannot agree, based on the record before us, with Adobe’s
contentions that “AMT’s abandonment of the scope of distribution claim was
essential to the Arbitration Award” and that “there is no doubt that AMT withdrew
its scope of distribution claim because it was likely to fail.” (Adobe Mot. Mem. 10-
11). Therefore, we find that ITC is not collaterally estopped from proceeding on

Count II.

The parties dispute their understanding of how the scope of distribution was to
be handled under the Agreement and the parties argue over the true meaning of
testimony pertaining to the Agreement such as that of Ian Feinberg and Allan Haley.

The parties argue as to the extent that Adobe was authorized under the Agreement to

14



example of ITC’s continual shift in its positions. Although ITC now contends that
the EULA granted greater rights to End Users, in the complaint ITC contended that
the EULA was “confusing and contradictory” and that it could “not adequately bind
users” because it failed to clearly address the pertinent rights in regards to the Font

Software. (Compl. Par. 43-46).

Adobe again raises the issue of collateral estoppel in regards to the Acrobat
5.0 issue because the arbitration addressed a similar agreement between AMT and
Adobe. Adobe argues that ITC is bound by the arbitration ruling that “no term can
be implied in the absence of an express obligation requiring that Adobe’s direct
distribution of fonts be under a EULA.” (ITC Mot. Ans. 19). Adobe also disputes
as to whether any ITC Typeface licensed by Adobe has been embedded in a form
filed or annotation. Adobe also ties into the Acrobat 5.0 issue its position that it
owned all of the product that it presented to End Users and thus it argues that it did

not violate the Agreement with ITC.

Adobe argues that it should be granted summary judgment on Count III
because the Agreement does not require Adobe to address the rights of End Users.
Adobe argues that has no obligation to police End Users to ensure that they are not
exceeding the authority provided by ITC. Adobe also argues that ITC is unable to
prove that it suffered any damages as a result of the wrongdoing alleged in Count III.
Adobe claims that for damages it is not enough to show that millions of copies of

Acrobat 5.0 were provided to End Users. Adobe claims that ITC is required to show

“16



agreement effective February 26, 1991, Adobe was licensed by ITC to the rights to
convert ITC typeface designs into font software using Adobe’s PostScript computer
language, and the non-exclusive right to feproduce and distribute such font software.
The font software was to be distributed by Adobe through its website and other
marketing outlets and by others under license from ITC. The agreement between the
parties is mainly memorialized in three documents: 1) the “Restated and Amended
Typeface License Agreement,” effective February 26, 1991 (“1991 Agreement”), 2)
the letter agreement dated April 22, 1993 (“1993 Letter Agreement”), and 3) the
“Amendment Agreement” effective January 1, 1994 (“Amendment
Agreement”)(collectively referred to as the “Agreement”).

In 1991 Adobe was working on a product, originally called “Carousel” but
renamed “Acrobat,” which solved the problem of creating electronic documents that
would look the same to a recipient as to their creator. One way it solved the problem
was by allowing fonts to be embedded, or included, in electronic documents. With
embedded fonts, the recipient would see, and could print, an electronic document
exactly as it had been written.

In order to remove any doubt that Adobe’s rights concerning its typeface
rights permitted Adobe to allow end users to embed the licensed fonts in electronic
documents, Adobe obtained written agreement from several companies that supplied
typefaces or fonts of their typefaces, among them Afga Corporation (“Afga”),

Monotype Typography, Inc. (“Monotype”), ITC, and Linotype, which stated that “no



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
INTERNATIONAL TYPEFACE )
CORPORATION, a New York )
corporation, )
segs )
Plaintiff, )
)
v. ) No. 02 C8256
)
ADOBE SYSTEMS, INC., A Delaware) DOCKE7,
corporation, ) DEG y ED
) ? 2004
Defendant, y
MEMORANDUM OPINION

SAMUEL DER-YEGHIAYAN, District Judge

This matter is before the court on Plaintiff International Typeface
Corporation’s (“ITC”) motion for summary judgment and on Defendant Adobe
Systems Incorporated’s (“Adobe”) motion for summary judgment. For the reasons

stated below, we deny both motions in their entirety.

BACKGROUND
ITC is engaged in the licensing of typeface designs and trademarks for use in
connection with computer programs that, when used with appropriate hardware and
software, produce human readable versions of typeface designs (“fonts”). In an

1

a]


same as that involved in the prior action, 2) the issue must have been actually
litigated, 3) the determination of the issue must have been essential to the final
judgment, and 4) the party against whom estoppel is invoked must be fully
represented in the prior action.” La Preferida, Inc. v. Cerveceria Modelo, S.A. de

C.V., 914 F.2d 900, 905-06 (7" Cir. 1990).

AMT and Adobe took part in an arbitration in London and in the arbitration
the EULA that is at issue in Count II of this action was brought up by the parties.
Adobe claims that AMT withdrew its scope of distribution claim on the third day of
the arbitration hearings because of “the total failure of proof regarding its scope of
distribution claim. ...” (ITC Mot. Ans. 15). Adobe claims that AMT withdrew the
issue because it was likely to fail. (ITC Mot. Ans. 16). Adobe also claims that ITC
is the wholly owned subsidiary of AMC and ITC’s interests were represented at the

arbitration.

ITC responds by claiming that in the arbitration “Adobe lost on its claim that
it did not have to distribute under a EULA and on its claim that the 2001 EULA ¢e.
the same EULA at issue here) fulfilled its obligation.” (ITC Mot. Reply 16). Also,
in yet another contradictory position, despite ITC’s argument against the application
of collateral estoppel in one instance, ITC points to the arbitration and the findings
of the arbitrators in other instances, (ITC Mot. Mem. 18), and even attempts in its
answer to Adobe’s motion for summary judgment to argue that certain findings by

the arbitrators are “binding upon Adobe under the doctrine of issue preclusion.”

12



distribute to End Users. The parties also dispute the issue of whether or not Adobe
was required to distribute with a EULA. We cannot find in favor of either party on
any of the distribution issues at this juncture and find that there are legitimately
disputed issues that need to be resolved by the trier of fact. Therefore, we deny both
parties’ motions for summary judgment on Count II. Also, as noted above, we
would deny ITC’s motion for summary judgment regardless, due to its failure to

comply with the court’s page limitations.

IIL Inclusion of Editable Embedding Technology in Acrobat 5.0

In Count III, ITC alleges that Adobe breached the Agreement by including in

Acrobat 5.0 editable embedding features. ITC claims that in 1993 the Agreement
was amended to allow Adobe to authorize End Users to embed copies of Font
Software into electronic documents, However, ITC claims that it agreed to such an
amendment only with the understanding that the embedding of the Font Software
would be for print and display purposes, ITC contends that the embedding could not
be used for the purpose of accessing the Font Software for the Typeface or editing
the document. ITC claims that Adobe breached the limitations included in the 1993
amendment when it released Acrobat 5.0 which enabled End Users to embed Font
Software for the purpose of viewing, printing and editing an electronic document.
ITC also contends that the EULA utilized by Adobe in 2001 granted the End Users

greater rights than Adobe was authorized to grant. We note that this is yet another

1s