Source: http://tx.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20190510_0001439.NTX.htm/qx
Timestamp: 2020-08-10 22:36:33
Document Index: 217951977

Matched Legal Cases: ['§ 411', '§ 17', '§410', '§ 410', '§ 410', '§ 102', '§ 410', '§ 202']

Before the court are Plaintiff's Motion for Summary Judgment Against Defendant Nerium International, LLC's Counter[c]laims (Doc. 115), filed January 18, 2019; Defendant Nerium International, LLC's Brief in Support of its Response to Plaintiff's Motion for Summary Judgment Against Nerium's Counterclaims (Doc. 127), filed February 8, 2019; Plaintiff's Reply to Defendant Nerium International, LLC's Response to Plaintiff's Motion [for] Summary Judgment on Nerium's Counterclaims (Doc. 136), filed February 22, 2019; Defendants' Motion for Partial Summary Judgment (Doc. 110), filed January 18, 2019; Plaintiff's Memorandum in Support of its Response to Defendants' Motion for Partial Summary Judgment (Doc. 130), filed February 8, 2019; and Defendants' Reply in Support of Motion for Partial Summary Judgment (Doc. 135), filed February 22, 2019.
After carefully considering the motions, briefs, record, and applicable law, the court grants Defendants' Motion for Partial Summary Judgment (Doc. 130) and grants in part and denies in part Plaintiff's Motion for Summary Judgment Against Defendant Nerium International, LLC's Counter[c]laims (Doc. 115). Specifically, the court grants Defendants' motion for partial summary judgment as to Plaintiff's federal and state law claims. The court denies Plaintiff's motion for summary judgment with respect to Nerium's counterclaims under the Defend Trades Secret Act (“DTSA”) and Texas Uniform Trade Secrets Act (“TUTSA”); its state common law claims for breaches of fiduciary duty and duty of loyalty, and conversion; and declaratory judgment of no copyright infringement and invalidity. The court grants Plaintiff's motion for summary judgment with respect to Nerium's counterclaim for declaratory judgment that it has copyright ownership in the alleged works and denies it with respect to Nerium's counterclaim for declaratory judgment of no copyright infringement, copyright invalidity, and implied license.
Plaintiff Dennis Windsor (“Windsor” or “Plaintiff”) filed this action against Defendants Nerium International, LLC (“Nerium”) and its sole manager and CEO, Jeff Olson (“Olson”) (collectively, “Defendants”) on April 5, 2016, alleging state law claims and a federal copyright claim that arise from Windsor's participation in the development of Nerium, a multi-level marketing company that sells anti-aging and wellness products. Plaintiff's Third Amended Complaint (“Third Amended Complaint”) specifically asserts claims against Defendants for copyright infringement, breach of contract, fraudulent inducement, promissory estoppel, unjust enrichment, and it also seeks declaratory and injunctive relief related to those claims.
The operative, undisputed facts are as follows: Sometime in 2009, Olson recruited Windsor to join him in developing a network marketing company that would later become Nerium. Nerium launched commercial operations and began selling products on August 29, 2011. During the development phase, Windsor worked as an independent contractor and, after Nerium launched, he became an employee and held the position of Nerium's first president. He was terminated on March 30, 2016.
According to Windsor, Olson recruited him to develop the company by offering three terms related to Windsor's future compensation upon Nerium's official launch: (1) a commission rate that would correspond with a “top” position, later referred to within Nerium as “The Marketing Group Three Star National Marketing Director - ID 10006”; (2) a 15% royalty on all back-office subscription fees generated; (3) and a five percent equity ownership in Nerium with distributions. Pl.'s Third Am. Compl., Doc. 19, ¶ 22; Pl.'s Resp., Doc. 130 at 37. In exchange, Windsor would assist Olson in designing, running, and promoting the company. Windsor and Olson never memorialized these alleged terms into a written agreement. Windsor contends that Defendants have failed to pay him the compensation pursuant to these alleged terms and, therefore, breached their alleged oral agreement. Pl.'s Third Am. Compl, Doc. 19, ¶ 23.
Windsor further contends that, during the approximate two-year development of Nerium, he “worked essentially by himself” designing, building, and launching Nerium, during which time he created marketing material, a business model, and a compensation structure for its salesforce. Pl.'s Third Am. Compl., Doc. 19, ¶ 8; Pl.'s Resp., Doc. 130 at 12. Windsor contends that he has a copyright in the documents he created during this period and that Nerium is currently infringing by using exact copies and derivatives of those works without his permission. Pl.'s Third Am. Compl., Doc. 19, ¶ 27.
Windsor's Third Amended Complaint, filed July 27, 2016, lists ten specific works as the basis for his copyright infringement claim. On January 11, 2019, Windsor filed a motion for leave to file a fourth amended complaint that removed eight[1] of these works from his copyright infringement claim on the basis that he had not received formal registration for them from the United States Copyright Office. The court denied Windsor's motion because he failed to move under the applicable procedural rule and, moreover, good cause did not exist for the court to grant his request at this stage of the now three-year-old litigation.
Defendants now moves for judgment as a matter of law with respect to all of Windsor's state common law claims on the basis that they are barred by the statute of limitations and also should be dismissed on the merits; moves for judgment as a matter of law on the merits of Windsor's copyright infringement claim; and moves for judgment as a matter of law on Windsor's claim for declaratory relief on the basis that it is duplicative of his copyright and contract claims in that it seeks resolution of matters that will be resolved as part of the determination of those claims.
Windsor moves for a judgment as a matter of law on Nerium's counterclaims, which assert counterclaims under the Defend Trade Secrets Act (“DTSA”); Texas Uniform Trade Secrets Act (“TUTSA”); declaratory judgments of copyright ownership, no copyright infringement, copyright invalidity, and implied license; and state law common law claims for breaches of fiduciary duty and duty of loyalty, and conversion.
A. Windsor's Copyright Infringement Claim
Defendants contend that that they are entitled to summary judgment on Windsor's copyright infringement claim on several grounds. First, with respect to the “Compensation Plan” and “Roadmap to Success, ” Defendants challenge the validity of the copyright registrations that Windsor obtained for these works. They further contend that Windsor has failed to set forth evidence that these works are sufficiently original and thus protectable under copyright law on the basis that the works contain functional elements or ideas. Defendants further contend that Windsor, even if he could identify copyrightable elements of his works, has failed to set forth evidence of infringing works that are substantially similar to those allegedly copyrightable elements. Defendants also raise an estoppel defense as it relates to the “Compensation Plan.” With respect to the remaining eight works alleged in Windsor's complaint, Defendants contend that they are entitled to judgment as a matter of law because Windsor admitted that he did not obtain copyright registrations for these works.
To bring an infringement action, a party must first register his or her work with the Copyright Office. 17 U.S.C. § 411(a). “A certificate of registration, if timely obtained [before or within five years after first publication of the work], is prima facie evidence both that a copyright is valid and that the registrant owns the copyright.” General Universal Sys. v. Lee, 379 F.3d 131, 141 (5th Cir. 2004); see § 17 U.S.C. §410(c). “However, certificates create only a rebuttable presumption that the copyrights are valid.” Norma Ribbon & Trimming, Inc. v. Little, 51 F.3d 45, 47 (5th Cir. 1995).
To establish a claim for copyright infringement, a plaintiff must prove that: (1) he or she owns a valid copyright and (2) the defendant copied constituent elements of the plaintiff's work that are original. Positive Black Talk Inc. v. Cash Money Records Inc., 394 F.3d 357, 367 (5th Cir. 2004) (citing General Universal Sys., 379 F.3d at 141). With respect to the first element, “[c]opyright ownership is shown by proof of originality and copyrightability in the work as a whole and by compliance with applicable statutory formalities.” Eng'g Dynamics v. Structural Software, Inc., 26 F.3d 1335, 1340 (5th Cir. 1994).
To establish the second element, a plaintiff must prove: (1) factual copying and (2) substantial similarity. Bridgmon v. Array Sys. Corp., 325 F.3d 572, 576 (5th Cir. 2003). To assess substantial similarity, “a side-by-side comparison must be made between the original and the copy to determine whether a layman would view the two works as substantially similar.” Nola Spice Designs, L.L.C. v. Haydel Enterprises, Inc., 783 F.3d 527, 550 (5th Cir. 2015) (internal quotation marks and citation omitted). “However, where the copyrighted work contains unprotectable elements, the first step is to distinguish between protectable and unprotectable elements of the copyrighted work.” Id. (citations omitted). “The next inquiry is whether the allegedly infringing works bears a substantial similarity to the protectable aspects of the original work.” Id. (citations omitted).
2. “Compensation Plan”
Defendants contend that they should be granted summary judgment on Windsor's copyright claim as to the “Compensation Plan” for three reasons: (1) Windsor cannot meet his burden of proving he owns a valid and enforceable copyright, (2) Windsor cannot meet his burden of proving “substantial similarity” between his alleged copyrighted work and any infringing work, and (3) Windsor is estopped from pursuing his claim. The court determines that Windsor has not established, or raised a genuine dispute of material fact, that he has a valid and enforceable copyright in the “Compensation Plan” and limits its discussion to this issue.
Defendants first argue that Windsor bears the burden of establishing he has a valid and enforceable copyright in the “Compensation Plan” because his copyright registration in this work was not made “before or within five years after first publication of the work” and is, therefore, not entitled to the benefit of a prima facie finding of validity afforded under the statute. See 17 U.S.C. § 410(c). (“In any judicial proceeding the certificate of a registration made before or within five years after first publication of the work shall constitute prima facie evidence of the validity of the copyright and of the facts stated in the certificate.”). The certificate of registration for the “Compensation Plan” shows that the work was published on March 11, 2011, and the application was filed more than five years later on April 2, 2016. Defs.' App., Doc. 112 at 379. Defendants contend that Windsor, on the final day of discovery, produced an application for supplementary registration of the “Compensation Plan” seeking to convert the application to “unpublished, ” but Windsor has not subsequently produced evidence that the application was granted. In Windsor's Response, he states that he has “since amended [the registration for the “Compensation Plan”] with a Supplemental Registration converting it to a registration for an unpublished Work and filed a new application to register the published version, ” and cites to a span of fifty pages in his Appendix as proof of his contention. Pl.'s Resp., Doc. 130 at 50 n.120 (citing Pl.'s App., Doc. 131 at 160-210). After reviewing these fifty pages-several of which do not pertain to the “Compensation Plan”-the court finds no evidence that Windsor received a Supplementary Registration that would rebut Defendants' argument that his original registration, containing the March 11, 2011 publication date and April 2, 2016 registration date, effectively deprives him of the benefit of the rebuttable presumption of prima facie validity under 17 U.S.C. § 410(c). In the absence of any competent rebuttal evidence, the court accepts Defendants' argument that Windsor is not entitled to the presumption of prima facie validity for the “Compensation Plan” because he did not obtain a timely certification of registration for it.
Windsor, therefore, bears the burden of establishing that he has a valid copyright in the “Compensation Plan, ” which is shown “by proof of originality and copyrightability in the work as a whole and by compliance with applicable statutory formalities.” Eng'g Dynamics, 26 F.3d at 1340. Originality requires “that the work was independently created by the author (as opposed to copied from other works), and that it possesses at least some minimal degree of creativity.” Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 345 (1991) (citation omitted). By the plain terms of the statute, “[i]n no case” does copyright protection extend to any “idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied[.]” 17 U.S.C. § 102(b).
Defendants argue that the “Compensation Plan” does not meet the originality requirement because it is a “draft spreadsheet containing formulas for compensating participants in a multilevel marketing system and a chart listing products, prices, and printed materials for a number of other multi-level marketing companies (apparently copied from other sources).” Defs.' Mot. for Partial Summ. J., Doc. 113 at 48. Defendants further argue that the “Compensation Plan” is unoriginal based on evidence that it was copied from a compensation plan by another networking company Visalus, which Windsor consulted when creating the plan for Nerium. Defs.' Mot. for Partial Summ. J., Doc. 113 at 44-45 (citing Defs.' App., Doc. 112 at 51-52, 117, and 243).
Defendants argue that the only evidence Windsor has set forth regarding the protectable elements of the “Compensation Plan” is his response to Interrogatory No. 7(c), wherein he identified the protectable elements of the work:
With respect to DennisWindsorMLMPayPlan03112011-Registration Number: TX0008172978, the protected elements Plaintiff claims include, but are not limited to, the following: (1) the name “Brand Partner Compensation Plan”; (2) the slogan “Rewarding, Easy, Advantageous and Lucrative”; (3) “Relationship Marketing” (you, your team, your preferred customers); (4) “Fast Start Qualified”; (5) “Personal Customer's Commissions”; (6) “3UR Free”; (7) “Success Pack Bonus”; (8) “Weekly Promoter's Pool”; (9) “Senior Director Bonus”; (10) “Coaching Commissions”; (11) “Success Pack Differential Bonus”; (12) “Marketing Director Pool”; (13) “Team Commissions”; (14) Leadership Development Bonus”; (15) “Special Promotions”; (16) “Executive Director Trip”; (17) “Brand Partner Ranking”; (18) “Team Structure”; (19) “Sponsor Tree”; (20) “Placement Tree”; (21) “First Order Bonus”; and (22) “Unilevel Commissions”. In addition to the above, Plaintiff also claims protection for the fonts, colors, arrangement of text and graphics within this registered work.
Defs.' App., Doc. 112 at 267. Defendants contend that, of these twenty-two textual phrases asserted by Windsor as the copyrightable elements of the “Compensation Plan, ” only five appear in the work: (1) “Personal Customer Commissions, ” (2) “Leadership Development Bonus”; (3) “Sponsor Tree”; (4) “First Order Bonus”; and (5) “Unilevel Commissions.” Defs.' Mot. for Partial Summ. J., Doc. 113 at 44 (comparing Certified Copy of Deposit for Compensation Plan, Defs.' App., Doc. 112 at 378, 400-01, with Am. Interrog. Resp. No. 7(c), Defs.' App., Doc. 112 at 267). Defendants argue that these five textual phrases appearing in the work are ineligible for copyright protection because they are expressions that are “dictated solely at functional considerations.” Defs.' Mot. for Partial Summ. J., Doc. 113 at 45 (quoting CMM Cable Rep, Inc. v. Ocean Coast Props., Inc., 97 F.3d 1504, 1519 (1st Cir. 1996)). Defendants cite CMM Cable Rep for its holding that “copyright law denies protection to fragmentary words and phrases and to forms of expression dictated solely at functional considerations on the grounds that these materials do not exhibit the minimal level of creativity necessary to warrant copyright protection.” 97 F.3d at 1519 (internal quotation marks and citations omitted). Defendants contend that phrases in the “Compensation Plan” such as “First Order Bonus” are functional in that they define a compensation system and information contained therein and, therefore, are unoriginal and ineligible for copyright protection.
With respect to that portion of Windsor's interrogatory response claiming protection for “the fonts, colors, arrangement of text and graphics within this registered work, ” on March 12, 2019, United States Magistrate Judge David L. Horan (“Judge Horan”) ruled on Defendants' Motion to Exclude Evidence based on Plaintiff's Late-Supplemented Response to Nerium's Interrogatory 7(c) and determined that Windsor:
is prohibited from introducing evidence relating to his untimely contentions regarding the protectable elements of his “Copyrighted Work Product” - specifically, the claims of “protection for the fonts, colors, arrangement of text and graphics within [each] registered work” listed in his January 14, 2019 supplemental answer to Interrogatory No. 7(c) - in support of any motion or at any hearing or the trial of this case.
ECF Doc. 139 (Electronic Order). Judge Horan determined that this portion of Windsor's answer was supplemented to his answer on the discovery cutoff date, and, therefore, he failed to timely supplement as required by Federal Rule of Civil Procedure Rule 26(e). Windsor did not appeal this order to the district court within the 14-day period permitted under Federal Rule of Civil Procedure 72(a). Windsor has accordingly waived his right to appeal the order, and Judge Horan's ruling is the law of the case with respect to this issue. Accordingly, in determining the protectable elements of the “Compensation Plan” asserted by Plaintiff, the court may not consider “the fonts, colors, [and] arrangement of text and graphics” within the work.
In his Response, Windsor's sole argument as to the copyrightability of the “Compensation Plan” is that it is an original arrangement of data, which the court is foreclosed from considering in light of Judge Horan's order. See ECF Doc. 139 (“Windsor is prohibited from introducing evidence relating to his untimely contentions regarding the protectable elements of his “Copyrighted Work Product” - specifically, the claims of ‘protection for the . . . arrangement of text and graphics within [each] registered work.'”) (emphasis added). Windsor contends that the “Compensation Plan” is original pursuant to Feist, in which the Supreme Court held that a factual compilation may possess the requisite originality to receive copyright protection if the “choices as to selection and arrangement” of the collected data entails a “minimal degree of creativity.” Feist, 499 U.S., at 348. Windsor argues that the “Compensation Plan” contains “copyrightable expression embodied in Windsor's selection, coordination and arrangement” of the data contained therein. Pl.'s Resp., Doc. 130 at 54. He argues that Defendants copied the “textual instructions and checklists, ” “graphics and the selection and arrangement of the materials presented.” Pl.'s Resp., Doc. 130 at 54. Windsor does not respond to Defendants' argument that the textual elements in the “Compensation Plan” are not copyrightable because they are fragmentary, functional phrases considered unoriginal under copyright law.
The court determines that Windsor has failed to meet his burden of establishing that he has a valid and enforceable copyright in the “Compensation Plan, ” as required under the first element for asserting a copyright infringement claim. As the court previously discussed, Windsor bears the burden of establishing that the work is copyrightable because the copyright registration for this work shows that it was not timely procured pursuant to 17 U.S.C. § 410(c) and, therefore, is not entitled to a prima facie finding of validity. Windsor has not set forth any evidence that the “Compensation Plan” bears the minimal degree of creativity required for copyright protection. Windsor makes a conclusory argument that the “Compensation Plan” is an original factual compilation. Notwithstanding Judge Horan's order precluding Windsor from arguing that he has a copyright in the “Compensation Plan” based on its arrangement of text and graphics, Windsor fails to explain the basis for his assertion that the selection, placement, and arrangement of the information in the “Compensation Plan” is sufficiently original. The court's review of the “Compensation Plan” leads it to conclude that it contains an unoriginal spreadsheet of rows and columns with textual description and numerical percentages, lacking any graphics and featuring information relating to commissions and bonuses that correspond to various Nerium “brand partner” rankings. Defs.' App., Doc. 112 at 400-402.[2]
The only other summary judgment evidence regarding the copyrightable elements of the “Compensation Plan” is Windsor's answer to Interrogatory No. 7(c), wherein he lists five short, textual phrases that appear in the “Compensation Plan”: (1) “Personal Customer Commissions, ” (2) “Leadership Development Bonus”; (3) “Sponsor Tree”; (4) “First Order Bonus”; and (5) “Unilevel Commissions.” “The Copyright Act, [however], does not protect fragmentary words or short phrases.” Taylor v. IBM, 54 Fed.Appx. 794 (5th Cir. 2002) (citing 37 C.F.R.§ 202.1(a) and CMM Cable Rep, Inc., 97 F.3d at 1519-20) (dismissing a copyright infringement claim in part because the short phrase “pre paid cash card” featured in the copyright registration deposit was not subject to copyright protection). Windsor is not entitled as a matter of law to a valid and enforceable copyright in the fragmentary phrases that are listed in his response to Interrogatory No. 7(c) and that appear in the “Compensation Plan” spreadsheet.
As Windsor has failed to set forth evidence to raise a genuine dispute of material fact that the “Compensation Plan” is copyrightable, the court need not reach the second element regarding the substantial similarity between the “Compensation Plan” and Nerium's allegedly infringing work, an analysis which focuses on the protectable elements of the infringed work. As there is no evidence establishing that protectable elements exist in the “Compensation Plan, ” Defendants are entitled to judgment as a matter of law on Windsor's copyright infringement claim with respect to this work.
3. “Roadmap to Success”
Defendants argue that the court should grant them judgment as a matter of law on Windsor's copyright infringement claim based on the “Roadmap to Success” work for the following reasons: (1) he did not plead a work “Roadmap to Success” in his complaint and instead pleaded the work “MLM Roadmap to Lexus” for which he did not produce evidence of a copyright registration; (2) the copyright registration for the work was obtained fraudulently and is, therefore, invalid; and (3) Windsor has failed to show substantial similarity between the alleged copyrighted and infringing works.
Defendants first contend that Windsor failed to plead the “Roadmap to Success” work because “Roadmap to Success” does not appear as one of the ten listed works under his copyright claim in the Third Amended Complaint. The Third Amended Complaint, rather, lists a work titled “MLM Roadmap to Lexus.” Pl.'s Third Am. Compl., Doc. 19, ¶ 26. Defendants contend that Windsor, through “slight of hand” in his proposed Fourth Amended Complaint (which the court denied him leave to file), attempted to substitute a different registered work for what was originally pleaded by pleading a work titled “RoadMap to Success (a/k/a Roadmap to Lexus).” See Doc. 101-1 ¶ 27. Defendants contend that the copyright registration Windsor associates with the “Roadmap to Success” bears a dissimilar title, “Dennis WindsorRoadMaptoSuccess/Lexus, ” which further fails to correspond with the originally pleaded “MLM Roadmap to Lexus.”
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A complaint pleading a copyright infringement claim must satisfy only the minimal notice-pleading requirements of Federal Rule of Civil Procedure 8 (&ldquo;Rule 8&rdquo;). Arista Records LLC v. Greubel, 453 F.Supp.2d 961, 965 (N.D. Tex. 2006) (citations omitted). Under Rule 8, a plaintiff must provide a short and plain statement of the claim that gives the defendant fair notice of the plaintiff&#39;s claim and the grounds upon which it rests. Id. (citing Fed.R.Civ.P. 8(a)(2) and Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002)). &ldquo;The simplified notice-pleading standard relies on liberal discovery rules and summary-judgment motions to define the disputed facts and issues and dispose of meritless claims.&rdquo; Id. (citing Swierkiewicz, 534 U.S. at 512). In this case, the court determines that Windsor's Third Amended Complaint complied with Rule 8 by asserting “MLM Roadmap to Lexus.” Defendants were sufficiently put on notice that Windsor intended to assert that he had a copyright in a work he later referred to as “Roadmap to Success, ” which he registered with the Copyright Office under the title “Dennis WindsorRoadMaptoSuccess/Lexus, ” as evidenced by Defendants' summary judgment briefing acknowledging the association of the two titles ...