Kwan Software Engineering, Inc. v. Foray Technologies, LLC

Filing 186

ORDER DENYING DEFENDANT'S MOTION FOR ATTORNEY'S FEES 156 (Illston, Susan) (Filed on 4/17/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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KWAN SOFTWARE ENGINEERING, INC., a
California corporation, d/b/a Veripic, Inc.,

United States District Court
For the Northern District of California

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ORDER DENYING DEFENDANT’S
MOTION FOR ATTORNEY’S FEES

Plaintiff,

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No. C 12-03762 SI

v.
FORAY TECHNOLOGIES, LLC, a Delaware
limited liability company,
Defendant.

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A motion by defendant Foray Technologies, LLC (“Foray”) for attorney’s fees is scheduled to

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be heard on April 18, 2014. Pursuant to Civil Local Rule 7-1(b), the Court determines that this matter

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is appropriate for resolution without oral argument and VACATES the hearing. For the reasons set forth

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below, the Court DENIES Foray’s motion.

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BACKGROUND

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Plaintiff Kwan Sotfware Engineering, Inc., d/b/a Veripic, Inc. (“Veripic”) is a California

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corporation that provides digital evidence-related software to police and fire departments, as well as to

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other entities that need to store and retrieve photos, video, and audio files. First Amended Complaint

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(“FAC”) ¶ 1, 7, 9. Veripic and Foray are direct competitors in the digital asset management software

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market, which mainly consists of law enforcement agencies. Id. ¶ 9.

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Veripic produces and sells the “Digital Photo Lab” (“DPL”) software, which is “a centerpiece

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of its digital evidence management suite designed for law enforcement agencies.” FAC ¶ 8. One of the

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“most popular” features of Veripic’s DPL software is the “Calibration Module,” which permits users

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to measure the real life length of objects (in inches or metric units) or distances between objects in a

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photo using a “simple point and click.” Id. ¶ 10. As a result, users can know the precise distances

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within photos and accurately print life-size or scaled images. Id. ¶ 11.

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Foray produces and sells the “Authenticated Digital Asset Management System” (“ADAMS”)

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software to the same customer base as Veripic targets with its DPL software.1 Id. ¶ 9. Foray’s ADAMS

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software has an “Image Calibration Utility” that performs substantially the same function as Veripic’s

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“Calibration Module” – to allow users to accurately abstract real-life distance from a photo. Id. ¶ 15-16.

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Veripic contends that, until July 2009, Foray’s Utility did so in a more “cumbersome” way than

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Veripic’s “simple point and click” method. Id.

United States District Court
For the Northern District of California

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In addition, the ADAMS software employs a “hash function,” which allows the user to validate

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whether a piece of digital evidence has been manipulated or altered between the time it is entered into

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the ADAMS software system and a later time when a user wishes to make use of that piece of digital

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evidence. Id. ¶ 32. Veripic’s DPL software has technology that allows the user to validate not only

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whether digital evidence has been altered since it was entered, but also whether the digital evidence has

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been altered from the moment the picture was originally taken.

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On July 18, 2012, Veripic filed the instant action against Foray.2 On July 30, 2012, Veripic filed

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a first amended complaint, alleging causes of action for: (1) copyright infringement; (2) inducement of

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breach of contract; (3) contributory and induced copyright infringement; (4) violation of the Digital

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Millennium Copyright Act, 17 U.S.C. § 1201 et seq.; (5) false advertising and unfair competition under

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the Lanham Act, 15 U.S.C. § 1125(a); (6) violation of California’s False Advertising Law (“FAL”),

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California Business and Professions Code § 17500 et seq.; and (7) violation of California’s Unfair

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Competition Law (“UCL”), California Business and Professions Code § 17200 et seq. Docket No. 4,

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FAC.

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Although “ADAMS” originally referred to the software at issue in this case, Foray now uses
“ADAMS” to cross-brand a suite of related products, including ADAMS Property & Evidence, ADAMS
Crime Scene Photo/Video, ADAMS Bag & Tag, ADAMS Latent/ACE-V, and ADAMS Video
Interview.
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On August 14, 2009, Veripic had sued Foray in Santa Clara County Superior Court, making
related claims. See Kwan Sotfware Engineering, Inc. v. Foray Technologies, LLC, No. 1-09-CV149780.
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On October 1, 2012, Veripic filed a motion for a preliminary injunction based on its false

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advertising claims. Docket No. 22. On January 22, 2013, this Court denied Veripic’s motion. Docket

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No. 62. Veripic appealed, and, on December 27, 2013, the Ninth Circuit affirmed the denial of the

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motion for preliminary injunction. Docket Nos. 63, 116. On February 11, 2014, this Court granted

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Foray’s motion for summary judgment of all of Veripic’s claims and entered judgment in the action in

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favor of Foray and against Veripic. Docket Nos. 153. 154.

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By the present motion, Foray moves for $457,297.99 in attorney’s fees and costs. Docket No.

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156, Def.’s Mot. Specifically, Foray moves for an award of attorney’s fees of $28,151.25 and

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nontaxable costs of $14,500 under 17 U.S.C. § 505 and attorney’s fees of $388,291.25 and nontaxable

United States District Court
For the Northern District of California

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costs of $26,355.49 under 15 U.S.C. § 1117. Id. at 1.

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DISCUSSION
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Attorney’s Fees Under 17 U.S.C. § 505
Foray argues that it is entitled to attorney’s fees under 17 U.S.C. § 505 for successfully

defending itself against Veripic’s copyright infringement claims. Def.’s Mot. at 3-7.

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Attorney’s fees are not awarded in copyright cases as a matter of course. Fogerty v. Fantasy,

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Inc., 510 U.S. 517, 533-34 (1994). “[A]ttorney’s fees are to be awarded to prevailing parties only as

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a matter of the court’s discretion.” Id. at 534. Specifically, “[s]ection 505 of the Copyright Act gives

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discretion to district courts to grant to the prevailing party a ‘reasonable attorney’s fee.’” SOFA Entm’t,

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Inc. v. Dodger Prods., Inc., 709 F.3d 1273, 1280 (9th Cir. 2013) (quoting 17 U.S.C. § 505). The most

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important factor for the Court to consider in deciding whether a fee award is appropriate “is whether an

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award will further the purposes of the [Copyright] Act.” SOFA Entm’t, Inc. v. Dodger Prods., Inc., 709

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F.3d 1273, 1280 (9th Cir. 2013). The primary purpose of the Copyright Act is to “encourage the

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production of original literary, artistic, and musical expression for the good of the public.” Id. (quoting

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Fogerty, 510 U.S. at 524); see also Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 349-50

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(1991) (“The primary objective of copyright is not to reward the labor of authors, but ‘[t]o promote the

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Progress of Science and useful Arts.’” (alteration in original)); Twentieth Century Music Corp. v. Aiken,

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422 U.S. 151, 156 (1975) (“But the ultimate aim is, by this incentive, to stimulate artistic creativity for
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the general public good.”). The Court’s discretion in this matter can be guided by “five non-exclusive

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factors: (1) the degree of success obtained; (2) frivolousness; (3) motivation; (4) the objective

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unreasonableness of the losing party’s factual and legal arguments; and (5) the need, in particular

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circumstances, to advance considerations of compensation and deterrence.” Seltzer v. Green Day, Inc.,

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725 F.3d 1170, 1180-81 (9th Cir. 2013).
The Court cannot say that awarding attorney’s fees and costs in this case furthers the purposes

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of the Copyright Act. Although the Court granted summary judgment on the claims, “the mere fact that

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[the plaintiff] lost cannot establish [its] objective unreasonability.” Seltzer, 725 F.3d at 1181. There

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was evidence in the record showing that a Foray salesperson attempted to obtain a copy of Veripic’s

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United States District Court
For the Northern District of California

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software and intended to send the software back to Foray’s office. Docket No. 124-47, Siegel Decl. Ex.

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DS32 (October 24, 2005 email from a Foray salesperson to a Foray engineer); see also Docket No. 168-

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11, Siegel Decl. Ex. 5 at 1. Ultimately, Veripic was unable to prove that Foray did in fact obtain access

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to the software, and Foray succeeded on its affirmative defense of independent creation. However, in

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light of this evidence, “[t]here is simply no reason to believe that [plaintiff] ‘should have known from

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the outset that [its] chances of success in this case were slim to none.’”3 Seltzer, 725 F.3d at 1181.

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Moreover, awarding attorney’s fees in this action would not “encourage the production of

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original literary, artistic, and musical expression for the good of the public.” See SOFA Entm’t, 709

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F.3d at 1280. Foray argues that its defense of Veripic’s claims furthers the purposes of the Copyright

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Act by keeping Veripic’s software in the public domain and for use by the public, not just by licensees

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of the software. Def.’s Mot. at 7. This argument is not supported by the record. In granting summary

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Foray argues that prior to filing the present action, Veripic should have conducted further
investigations to learn that Foray independently created its Image Calibration Utility. The Court does
not find this argument credible. To prevail on its motion for summary judgment of its affirmative
defense of independent creation, Foray provided the Court with evidence from a source code expert who
analyzed the source code for Foray’s Image Calibration software as it was archived in 2005 and as it
exists in its current version. Docket No. 97, Lerche Decl. Foray fails to explain how Veripic could have
conducted a similar source code analysis prior to filing the present action.
Foray also argues that prior to filing the present action, Veripic should have asked its customers
whether Foray had requested or obtained Veripic’s software. Def.’s Mot. at 5. The Court agrees with
Veripic that based on the evidence in the record, Veripic would not have known which customers to
contact, and further that Veripic had good reasons not to ask its customers whether they provided Foray
copies of its software in violation of federal copyright laws and in breach of their licensing agreements.
Pl.’s Opp. at 5.
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judgment, this Court never made a ruling with respect to whether the software at issue is entitled to

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copyright protection. Therefore, in obtaining summary judgment, Foray did not ensure that the software

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is placed in the public domain. Accordingly, after a review of the relevant factors, the Court declines

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to exercise its discretion and award defendant attorney’s fees under 17 U.S.C. § 505.

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II.

Attorney’s Fees Under 15 U.S.C. § 1117
Foray argues that it is entitled to attorney’s fees under 15 U.S.C. § 1117 for successfully

defending itself against Veripic’s false advertising claims. Def.’s Mot. at 7-11.
Section 35(a) of the Lanham Act provides that “[t]he court in exceptional cases may award

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United States District Court
For the Northern District of California

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reasonable attorney fees to the prevailing party.” 15 U.S.C. § 1117(a). The Ninth Circuit has held that

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“this requirement is met when the case is either ‘groundless, unreasonable, vexatious, or pursued in bad

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faith.’” Cairns v. Franklin Mint Co., 292 F.3d 1139, 1156 (9th Cir. 2002) (emphasis in original); accord

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Secalt S.A. v. Wuxi Shenxi Constr. Mach. Co., 668 F.3d 677, 687 (9th Cir. 2012). The Ninth Circuit has

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explained that the “exceptional circumstances” requirement is to be construed narrowly. Classic Media,

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Inc. v. Mewborn, 532 F.3d 978, 990 (9th Cir. 2008). Where a plaintiff is “able to provide some

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legitimate evidence” in support of his claims, the case will “likely fall on the unexceptional side of the

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dividing line.” Secalt, 668 F.3d at 688.

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Veripic’s false advertising claims were not groundless, unreasonable, or vexatious. Although

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the Court granted summary judgment on Veripic’s claims, resolution of the claims involved complex

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interpretations of the relevant industry standards to determine whether the statements at issue were

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literally false. The Court ultimately rejected Veripic’s interpretation of those industry standards, but

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Veripic’s interpretation of the standards was not groundless and unreasonable.

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Foray argues that Veripic’s claims were groundless and unreasonable because it failed to present

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any evidence showing that the statements at issue were material or caused it injury. Def.’s Mot. at 8-9.

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Even assuming this true, in opposing summary judgment, Veripic provided a reasonable argument

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supported by case law that it was entitled to a presumption of materiality because the statements at issue

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were literally false and because some of the statements related to an inherent quality or characteristic

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of Foray’s software. Docket No. 124-27 at 19-22 (citing Healthport Corp. v. Tanita Corp. of Am., 563
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F. Supp. 2d 1169, 1179 (D. Or. 2008); Chavez v. Blue Sky Natural Bev., No. C 06-06609, 2011 U.S.

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Dist. LEXIS 109738, at *16-17 (N.D. Cal. Sept. 27, 2011)); see also Pom Wonderful LLC v. Purely

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Juice, Inc., 2008 U.S. Dist. LEXIS 55426, at *29 (C.D. Cal. Jul. 17, 2008) (holding that upon proof of

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literal falsity, a presumption arises that the false statements actually misled consumers (citing U-Haul

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Intl, Inc. v. Jartran, Inc., 793 F. 2d 1034, 1041 (9thCir.1986)); Harper House, Inc. v. Thomas Nelson,

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Inc., 889 F. 2d 197, 209 (9th Cir. 1989); Am. Specialty Health Group, Inc. v. Healthways, Inc., 2012

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U.S. Dist. LEXIS 147522, at *12-14 (S.D. Cal. Oct. 12, 2012). Moreover, proof of injury is not required

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to obtain injunctive relief under the Lanham Act.4 Southland Sod Farms v. Stover Seed Co., 108 F.3d

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1134, 1145-46 (9th Cir. 1997) (“‘[A] competitor need not prove injury when suing to enjoin conduct

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United States District Court
For the Northern District of California

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that violates section 43(a).’ Thus, even if Plaintiffs had failed to raise a triable issue as to causation and

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injury, their Lanham Act claim would still be viable to the extent it sought an injunction.” (citation

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omitted)).

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Foray also argues that Veripic’s claims were groundless and unreasonable because they were

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barred by laches. Def.’s Mot. at 9-10. In granting Foray’s motion for summary judgment, the Court

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did not make a finding with respect to Foray’s laches defense. More importantly, in opposing the

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motion, Veripic reasonably argued that Foray was not entitled to summary judgment of its laches

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defense because Foray did not put forth any evidence showing when Veripic knew or should have

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known of the statements at issue. Docket No. 124-27 at 23-24 (citing Jarrow Formulas, Inc. v. Nutrition

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Now, Inc., 304 F.3d 829, 838 (9th Cir. 2002)).

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In addition, Foray argues that Veripic brought its false advertising claims in bad faith because

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had Veripic believed its claim were valid, it should have brought these claims in the parallel state court

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action. Def.’s Mot. at 11. The present action involved both false advertising claims and copyright

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claims. Federal courts have exclusive jurisdiction over copyright claims. 28 U.S.C. § 1338(a);

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Scholastic Entm’t, Inc. v. Fox Entm’t Group, Inc., 336 F.3d 982, 985 (9th Cir. 2003). Therefore, Veripic

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was required to bring its copyright infringement claims in this forum. In denying Foray’s motion to

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In moving for summary judgment, Foray did not challenge Veripic’s ability to prove injury.
See Docket No. 107. Therefore, Veripic was not required to provide evidence of injury at that stage of
the litigation.
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dismiss, the Court held that Foray had failed to show that the claims in this action were substantially

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similar to the claims in the state court action. Docket No. 38 at 6. In addition, Veripic provided a

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reasonable basis for why it chose to bring the false advertising claims at issue in this forum along with

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its copyright claims rather than attempting to bring the claims in state court. Docket No. 15 at 17.

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Accordingly, Veripic’s choice of forum for its false advertising claims does not constitute bad faith

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conduct.5

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In sum, the Court concludes that the present action is not an “exceptional” case. Accordingly,
the Court denies Foray’s motion for attorney’s fees pursuant to 15 U.S.C. § 1117.

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United States District Court
For the Northern District of California

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CONCLUSION

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For the foregoing reasons, the Court DENIES Foray’s motion for attorney’s fees. Docket No.
156.

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IT IS SO ORDERED.

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Dated: April 17, 2014
SUSAN ILLSTON
United States District Judge

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In its reply brief, Foray argues for the first time that the claims were brought in bad faith in
light of Veripic’s conduct in the parallel state court action. Def.’s Reply at 1-4. It is improper to raise
new issues in a reply brief, and, therefore, the Court declines to address this issue. See Cedano-Viera
v. Ashcroft, 324 F.3d 1062, 1066 n.5 (9th Cir. 2003) (“[W]e decline to consider new issues raised for
the first time in a reply brief.”). In the reply brief, Foray states that its appreciation and assessment of
the scope and focus of Veripic’s alleged bad faith grew substantially in preparing for the March 21, 2014
hearing before the state court. Def.’s Reply at 2 n.2. This may be true, but Foray has failed to identify
any reason why these new arguments could not have been made earlier when it filed its motion for
attorney’s fees. Moreover, to the extent Foray contends that Veripic engaged in improper conduct in
the state court action, those contentions should be brought before the state court. The claims in this
action were not groundless or unreasonable, and Foray has not identified any bad faith conduct that
occurred in this action.
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