Amaretto Ranch Breedables, LLC v. Ozimals, Inc.

Filing 146

ORDER by Judge Charles R. Breyer granting in part and denying in part 124 Motion for Summary Judgment. (crblc2, COURT STAFF) (Filed on 11/5/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court
For the Northern District of California

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No. C 10-5696 CRB

AMARETTO RANCH BREEDABLES,

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ORDER GRANTING IN PART AND
DENYING IN PART MOTION FOR
SUMMARY JUDGMENT

Plaintiff,

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v.

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OZIMALS INC. ET AL.,

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Defendants.

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This is a copyright case between business competitors who sell virtual animals in an

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online simulated world known as Second Life. Presently before the Court is

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Plaintiff/Counterclaim Defendant Amaretto Ranch Breedables’ (“Amaretto”) Motion for

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Summary Judgment on (1) Defendant/Counterclaim Plaintiff Ozimals, Inc.’s (“Ozimals”)

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copyright infringement counterclaim; (2) Amaretto’s declaratory judgment claim, and (3)

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Amaretto’s copyright misuse claim. Dkt. 124.

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I.

BACKGROUND

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A.

Threshold Evidentiary Objections

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Both parties lodge voluminous generic objections to huge portions of the record. E.g.,

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Opp’n at 2-3 (over fifty objections in two pages), Reply at 12-14. Many of the so-called

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objections are in fact arguments about the significance of the evidence, not their

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admissibility. The Court’s review revealed that the objections are meritless or, at best,
grossly overbroad and irrelevant as to material portions of the record. This Court need not

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address boilerplate evidentiary objections that the parties themselves deem unworthy of

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development, Californians for Disability Rights, Inc. v. Cal. Dep’t of Transp., 249 F.R.D.

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334, 349-50 (N.D. Cal. 2008); Dukes v. Wal-Mart, Inc., 222 F.R.D. 189, 199 (N.D. Cal.

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2004); Cmtys. Actively Living Indep. & Free v. City of L.A., No. CV09-0287CBM (RZX),

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2011 WL 4595993, at *8 (C.D. Cal. Feb. 10, 2011), and the Court accordingly summarily

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overrules the objections.1

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B.

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Second Life is an online virtual world created by the company Linden Research.

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Factual Background

Represented in the virtual world by an avatar, users of Second Life participate in activities

United States District Court
For the Northern District of California

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like socializing with other users, traveling the virtual world, and engaging in commerce using

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the Second Life currency, the Linden dollar, which users can get by paying Linden real

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money. Stibbards Decl. (Ex. A to dkt. 124-1) ¶¶ 6-9.

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Third-party software developers, using a programming language unique to Second

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Life, can create and market their own 3-D objects that will operate in Second Life’s virtual

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world. Id. ¶¶ 10-13. The parties here are two such companies that developed competing

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“breedable animals” for purchase and use in Second Life; Ozimals developed a virtual

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bunny, and Amaretto a virtual horse. Sargent Decl. (dkt. 129-1) ¶¶ 2. The “breedable” label

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reflects that the virtual animals were programmed to function in certain ways like real

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animals in that, for example, they reproduced and passed on genetic traits. Jadzewski Decl.

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(Ex. B to dkt. 124-1) ¶ 11.

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Ozimals’ bunny product appeared first, Sargent Decl. (dkt 129-1) ¶ 6, and after some

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informal communications between representatives of Ozimals and Amaretto in the ensuing

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months about the possibility that the horse product Amaretto was developing infringed

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Ozimals’ copyright, id., Amaretto released its virtual horse. Id. ¶ 9. Ozimals sent Amaretto a

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cease-and-desist letter in November 2010, see Second Amended Compl. Ex. 1, and a few

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weeks later Ozimals received a registration certificate from the U.S. Copyright Office for its

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Ozimals’ separately filed Objections and Motion to Strike (dkt. 132) concerns declarations
submitted with Amaretto’s reply brief. The Court does not rely on any of that material in resolving this
motion, and DENIES Ozimals’ motion as moot.
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“Ozimals Animal Scripts” computer program (the “‘661 Copyright”), Kearns Decl.

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(dkt. 124-1) Ex. I.
The following month Ozimals sent a Digital Millennium Copyright Act (DMCA)

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takedown notice to Linden, asserting that Amaretto’s horses infringed Ozimals’ copyright,

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and requesting that Linden remove the horse products. See Second Amended Compl. Ex. 3.

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Amaretto responded with a counter-DMCA notice to Linden, id. Ex. 4, and filed the instant

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action in this Court, where it secured a temporary restraining order and preliminary

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injunction preventing Linden from removing the virtual horses. See dkts. 29, 49.
Among other claims, Amaretto alleged that Ozimals’ DMCA notice was copyright

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United States District Court
For the Northern District of California

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misuse under 17 U.S.C. § 512(f), and also sought a declaration from this Court that its horses

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did not infringe. See Complaint (dkt. 1) ¶ 35, Application for TRO (dkt. 3). Ozimals

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counterclaimed for copyright infringement. See Answer (dkt. 106).
Following discovery and motion practice that narrowed the scope of the case, see dkts.

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81, 104, Amaretto now moves for summary judgment on three remaining claims: (1)

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Amaretto’s declaratory judgment claim, (2) Amaretto’s copyright misuse claim, and (3)

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Ozimals’ infringement counterclaim. Dkt. 124.

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II.

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LEGAL STANDARD
Summary judgment is proper when “the movant shows that there is no genuine

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dispute as to any material fact and the movant is entitled to a judgment as a matter of law.”

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Fed. R. Civ. P. 56(a). An issue is “genuine” only if there is a sufficient evidentiary basis on

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which a reasonable fact finder could find for the nonmoving party, and a dispute is

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“material” only if it could affect the outcome of the suit under governing law. See Anderson

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v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A principal purpose of the summary

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judgment procedure “is to isolate and dispose of factually unsupported claims.” Celotex

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Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). “Where the record taken as a whole could not

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lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for

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trial.’” Matsushita Elec. Ind. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).

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III.

DISCUSSION

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A.

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The parties do not dispute the basic facts regarding the creation of the code for

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Ozimals’ bunny program. Three individuals–Candace Sargent, Cameron Holt, and Edward

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Distelhurst–were involved. Holt and Distelhurst wrote portions of the code, Sargent Depo.

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(Ex. L to dkt. 129-1) at 76-78, while Sargent described herself as contributing “the structure

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in the menus and the text that the user sees, [and] the design” of the program–though no

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actual code. Id. at 77-78; see also Holt Depo. (Ex. M to dkt. 129-1) at 41. All three were

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listed on the ‘661 Copyright application and registration certificate as co-authors. See Exs. I,

United States District Court
For the Northern District of California

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Ozimals’ Infringement Counterclaim

J to Kearns Decl.
Sargent and Holt executed documents purporting to transfer to Ozimals each of the

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authors’ “entire right, title, interest, and privilege, in and to the Ozimals Animals Scripts, . . .

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including, without, limitation, all rights of . . . copyright” in exchange for unspecified

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consideration. See Assignment, Exs. 16, 17 to Sargent Depo. Distelhurst, however, never

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attempted to transfer his rights to Ozimals.

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On the contrary; he sued Ozimals (and Sargent) in Texas state court, arguing that they

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breached a contract with him to help write the bunny code, and that they owed him money.

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See Second Amended Petition, Ex. N to Kearns Decl. That case settled. A settlement

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agreement, signed by Distelhurst, Sargent, and an agent of Ozimals, included the following

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provision:

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[Distelhurst] acknowledges that he is a joint author under copyright registration
number TX007251661 along with Candace Sargent and Cameron Holt.
[Distelhurst] further acknowledges that he will not assign his interest in the
copyright under registration number TX0007251661.

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Rule 11 Settlement Agreement, Ex. P to Kearns Decl. (“Settlement Agreement”). Thus, of
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the three original authors of the code, only two arguably transferred their interests in the ‘661
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Copyright to Ozimals.2

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Amaretto does not concede that Sargent and Holt’s contributions to the coding process made
them co-owners of the copyright, but argues (correctly) that it does not matter for purposes of this issue
since Distelhurst was certainly an owner and he never assigned his rights.
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That settlement agreement may or may not have any force at all. A later agreement in

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the same case expressly stated that it “supersede[d] and replace[d] any previous” agreement

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in the case, and the new agreement made no mention whatsoever of the ‘661 copyright or

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joint ownership. See Ex. B to Kearns Reply Decl. (dkt. 131). The Court need not rely on

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either agreement or treat one as operative over the other, because the outcome would be the

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same under either (or if no agreement had been made at all).

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In Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008), the Ninth

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Circuit confronted a factually analogous situation. Sybersound and UAV were competitors

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in the business of producing karaoke records. Id. at 1141. Sybersound sued UAV for

United States District Court
For the Northern District of California

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copyright infringement, alleging that UAV produced karaoke records with songs for which

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Sybersound owned copyrights. Id. at 1142. Sybersound argued that it acquired copyright

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over the relevant songs through a written assignment-of-rights agreement with one of the

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original co-owners of the copyrights, TVT Music Publishing. Id.

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The agreement between Sybersound and TVT designated Sybersound as the

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“exclusive assignee and licensee of [TVT]’s copyrighted interests for purposes of karaoke

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use, and also exclusive assignee of the right to sue to enforce the assigned copyright interests,

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for both present and past infringements in karaoke exploitation.” Id. at 1145.

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Notwithstanding that broad language, the Ninth Circuit held that because TVT was not the

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exclusive owner of the karaoke-use interest in the copyrights, it could grant Sybersound

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“only a non-exclusive license . . . because TVT may not limit the other co-owners’

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independent rights to exploit the copyright.” Id. at 1146. And, the court concluded, since

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Sybersound was neither an exclusive licensee nor co-owner of the copyrights, it had no

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standing to sue for copyright infringement. Id.

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Leading commentators have criticized Sybersound, see III Goldstein on Copyright

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§ 15.5 (3d ed. 2011); 4 Nimmer on Copyright § 6.10[A][2][d] (rev. ed. 2012); 2 Patry on

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Copyright § 5:103 (2012), and its reasoning has been rejected by at least one court not bound

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by its holding. See Brownmark Films, LLC v. Comedy Partners, 800 F. Supp. 2d 991, 996-

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97 (E.D. Wis. 2011). Nevertheless, this Court must follow Sybersound, and Ozimals’

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attempts to distinguish it fall short.

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Ozimals first contends that the transfer here was of exclusive rights because

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Distelhurst “expressly relinquished his ownership” interest in the ‘661 Copyright in the state

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court settlement agreement, Opp’n at 10, and so the assignments from Sargent and Holt

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amounted to assignments from all owners. Assuming without deciding that agreement has

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any force, the actual language in that agreement contradicts Ozimals’ claim: “Plaintiff

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[Distelhurst] acknowledges that [the ‘661 Copyright] is jointly owned by Plaintiff

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[Distelhurst], Candace Sargent, and Cameron Holt.” (emphasis added). Distelhurst retained

United States District Court
For the Northern District of California

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an ownership interest in the ‘661 Copyright–an interest he agreed not to assign. Ozimals’

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suggestion in a footnote that Distelhurst “effectively assigned [his interest] to Sargent and

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Holt,” Opp’n at 12 n.22, has no basis in the language of the agreement.

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Next, Ozimals misreads Sybersound, arguing that “the issue [in Sybersound] was

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whether the other joint authors granted an exclusive license to Sybersound, not whether any

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one of the joint authors had standing to sue for infringement. . . . Ozimals is not a licensee, it

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is an owner. ” Opp’n at 11. In declaring that it is a co-owner of the ‘661 Copyright, Ozimals

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begs the question; Sybersound stands for the proposition that, notwithstanding the language

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of the assignment agreements and Sargent and Holt’s apparent intent to completely transfer

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their ownership interests to Ozimals, they had the power to grant Ozimals only a non-

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exclusive license. Ozimals therefore is not a co-owner, but a non-exclusive licensee without

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standing to sue for copyright infringement.

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Accordingly, the Court GRANTS IN PART Amaretto’s Motion for Summary
Judgment as to Ozimals’ copyright infringement counterclaim.

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B.

Amaretto’s Declaratory Judgment Claim

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To have standing to pursue a declaratory relief action regarding copyright

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infringement, a plaintiff must show that “under all the circumstances of the case, there is a

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substantial controversy between parties having adverse legal interests, and the controversy is

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of sufficient immediacy and reality to warrant declaratory relief.” Hal Roach Studios, Inc. v.
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Richard Feiner & Co., 896 F.2d 1542, 1555-56 (9th Cir. 1989). In particular, the plaintiff

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must have “a real and reasonable apprehension that he will be subject to liability if he

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continues” the allegedly infringing conduct. Id. at 1556.

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Moreover, the Declaratory Judgment Act vests district courts with discretion over

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whether to grant declaratory relief. See 28 U.S.C. § 2201 (“[A]ny court of the United States

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. . . may declare the rights and other legal relations . . .” (emphasis added)). As the Supreme

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Court explained in MedImmune, Inc. v. Genentech, Inc., the text of the Declaratory

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Judgment Act “has long been understood to confer on federal courts unique and substantial

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discretion in deciding whether to declare the rights of litigants.” 549 U.S. 118, 136 (2007)

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For the Northern District of California

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(internal quotation marks omitted).
Here, Amaretto faces no serious prospect of copyright infringement liability regarding

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the ‘661 Copyright, and so it lacks standing to seek a declaratory judgment that its virtual

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horses do not infringe that copyright. As explained above, Ozimals cannot sue for

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infringement. Neither–as demonstrated by their failure to do so in this suit–can the

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individual defendants Sargent and Holt sue for infringement, since they voluntarily

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relinquished their rights to do so in exchange for consideration through assignment

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agreements. Accordingly, Amaretto has failed to demonstrate that it has standing to bring its

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declaratory relief claim.

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And for the same reasons, the Court would decline to exercise its discretion to reach

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Amaretto’s declaratory relief claims even if Amaretto could satisfy the bare minimum “case

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or controversy” requirement. The possibility Amaretto will face any liability on the ‘661

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copyright is too speculative to warrant the requested declaration.

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Amaretto suggested during oral argument that the merits of the case may remain

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justiciable on account of Amaretto’s potential entitlement to attorneys’ fees. That argument

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more commonly arises in the context of mootness, where it consistently fails when, as here,

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the controversy ends before a decision is reached on the merits. E.g., Lewis v. Cont’l Bank

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Corp., 494 U.S. 472, 480-81 (1990); 13C Wright et al., Federal Practice & Procedure

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§ 3533.3 at n.68 (3d ed. 2008) (collecting cases). The Court sees no reason to treat the issue
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differently where the problem is standing instead of mootness, see Steel Co. v. Citizens for a

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Better Environment, 523 U.S. 83, 107 (1998) (“The litigation must give the plaintiff some

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other benefit besides reimbursement of costs that are a byproduct of the litigation itself.”);

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Jacobsen v. Katzer, 609 F. Supp. 2d 925, 931 (N.D. Cal. 2009), and anyway any entitlement

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to fees would be an ancillary issue that would not preserve the copyright-related claims.

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Cammermeyer v. Perry, 97 F.3d 1235, 1238 (9th Cir. 1996).

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C.

Amaretto’s Copyright Misuse Claim

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This Court previously permitted Amaretto’s copyright misuse claim to go forward as
an independent cause of action notwithstanding a split of authority on whether copyright

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United States District Court
For the Northern District of California

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misuse can only be asserted as a defense. See dkt. 80 at 11-12. However, as noted in that

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Order and the cases cited permitting copyright misuse as a freestanding cause of action, such

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claims are nothing more than actions for declaratory relief. E.g., Elec. Data Sys. Corp. v.

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Computer Assoc. Int’l, Inc., 802 F. Supp. at 1465-66 (“To the extent [Plaintiff] seeks a

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declaration that it has not infringed [Defendant’s] copyrights because of [Defendant’s]

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alleged misuse of such copyrights, the court will permit the claim to be asserted.”). As a

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result, Amaretto’s misuse claim fails for the same reasons just discussed.

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During oral argument on this motion, Amaretto cited a district court case suggesting

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that the doctrine of copyright misuse permits plaintiffs to assert claims “to clarify the risks it

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confronts by marketing the products at issue” and to assert claims on behalf of (unnamed)

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third parties who might conceivably be injured by the defendant’s conduct, thus providing

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standing even where the plaintiff itself might not face harm. See Apple Inc. v. Psystar Corp.,

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No. 08-03251 WHA, 2009 WL 303046, at *2 (N.D. Cal. Feb. 6, 2009) (unpublished).

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Putting aside the absence of any explanation as to why basic principles of standing

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should be compromised in service of plaintiffs asserting copyright misuse, here Defendants

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lack the ability to sue anyone for infringing the ‘661 Copyright, and so third parties face the

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same non-risk of liability as Amaretto faces in marketing its horse product. Moreover, the

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Psystar court rested its holding on the premise that “subject-matter jurisdiction [otherwise]

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exist[ed] over the declaratory judgment action,” id. at *3, which is not the case here.
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IV.

CONCLUSION
Ozimals lacks standing to pursue its counterclaim, and so the Court GRANTS IN

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PART Amaretto’s Motion for Summary Judgment as to the counterclaim. Because Amaretto

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has not established a reasonable likelihood of facing copyright infringement liability, the

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Court finds that Amaretto lacks standing to pursue its remaining claims; it also finds that the

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possibility of harm is so speculative that the Court would not exercise its discretion to rule on

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the declaratory relief claims even if the threshold standing requirements were met.

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Accordingly, the Court DENIES IN PART Amaretto’s motion for summary judgment as to

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the declaratory judgment and copyright misuse claims, and DISMISSES those claims for lack

United States District Court
For the Northern District of California

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of subject matter jurisdiction.
IT IS SO ORDERED.

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Dated: November 5, 2012

CHARLES R. BREYER
UNITED STATES DISTRICT JUDGE

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