Castro et al v. Calicraft Distributors, LLC et al

Filing 53

ORDER GRANTING MOTION TO DISMISS, WITH LEAVE TO AMEND. Case Management Conference previously set for 8/27/2015 Continued to 10/1/2015 at 10:00 AM in Courtroom 3, 17th Floor, San Francisco. Signed by Judge Richard Seeborg on 8/25/15. (cl, COURT STAFF) (Filed on 8/25/2015)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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HEATHER CASTRO, et al.,

Case No. 14-cv-05226-RS

Plaintiffs,
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United States District Court
Northern District of California

v.

ORDER GRANTING MOTION TO
DISMISS, WITH LEAVE TO AMEND

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CALICRAFT DISTRIBUTORS, LLC, et al.,
Defendants.

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This action arises in the context of the dissolution of a business relationship between

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former plaintiff Heather Castro and defendant Amy Barr, who jointly formed and operated

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defendant Calicraft Distributors, LLC, a distributor of so-called “craft” beers. In 2014, Ms. Castro

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elected to withdraw from the business and the LLC, to spend more time with her infant child. A

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controversy then arose regarding Calicraft’s rights to continued use of a software program known

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as CELR, that had been developed by Heather Castro’s husband and co-plaintiff, JP Castro. In

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this action, JP Castro asserts copyright, trademark, and unfair competition claims arising from

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Calicraft’s ongoing use of CELR and/or a “derivative” referred to as “Virtual CELR.”

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Heather Castro has dismissed all of her claims in this action, in light of a pending case in

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state court addressing those matters. Defendants’ motion to dismiss the remaining claims

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advanced by JP Castro has been submitted without oral argument, pursuant to Civil Local Rule 7-

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1(b). The motion will be granted, with leave to amend.

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1. Copyright

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Rule 8 of the Federal Rules of Civil Procedure provides that to state a claim, a pleading

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must contain, among other things, “a short and plain statement of the claim showing that the

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pleader is entitled to relief.” The first part of this requirement—“a short and plain statement of the

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claim” —cannot be read without reference to the second part —“showing that the pleader is

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entitled to relief.” The Supreme Court has made clear that while “showing” an entitlement to

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United States District Court
Northern District of California

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relief does not require “detailed factual allegations,” it does “demand[] more than an unadorned,
the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (citing
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Thus, “[a] pleading that offers ‘labels
and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’
[citation.] Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual
enhancement.’” Id.
The Iqbal court explained that the Twombly decision rested on two separate “working
principles.”

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First, the tenet that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal conclusions.
Threadbare recitals of the elements of a cause of action, supported
by mere conclusory statements, do not suffice. Id., at 555, 127 S.Ct.
1955 (Although for the purposes of a motion to dismiss we must
take all of the factual allegations in the complaint as true, we “are
not bound to accept as true a legal conclusion couched as a factual
allegation” (internal quotation marks omitted)). Rule 8 marks a
notable and generous departure from the hyper-technical, codepleading regime of a prior era, but it does not unlock the doors of
discovery for a plaintiff armed with nothing more than conclusions.
Iqbal, 129 S. Ct. at 1949-50.
The second principle of Twombly is that even where a complaint pleads more than legal
conclusions, it still may not be sufficient.
Second, only a complaint that states a plausible claim for relief
survives a motion to dismiss. Id., at 556, 127 S.Ct. 1955.
Determining whether a complaint states a plausible claim for relief
will, as the Court of Appeals observed, be a context-specific task
that requires the reviewing court to draw on its judicial experience
and common sense. 490 F.3d, at 157-158. But where the wellpleaded facts do not permit the court to infer more than the mere
ORDER GRANTING MOTION TO DISMISS
CASE NO. 14-cv-05226-RS

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possibility of misconduct, the complaint has alleged—but it has not
“show[n]” — “that the pleader is entitled to relief.” Fed. Rule Civ.
Proc. 8(a)(2).

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Id. at 1950.
Here, JP Castro has pleaded that (1) he is the owner of the registered copyright in CELR,

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an original work of authorship, and (2) defendants are continuing to use an “unauthorized copy” of

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CELR, including a derivative version created by defendants, “Virtual CELR.” Standing alone,

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such allegations might suffice to state a claim for copyright infringement. See generally, Ellison

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v. Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004) (“a plaintiff who claims copyright infringement

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must show: (1) ownership of a valid copyright; and (2) that the defendant violated the copyright
owner's exclusive rights under the Copyright Act.”). Read in the context of the presently-pleaded

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United States District Court
Northern District of California

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allegations of the complaint, however, it is apparent that JP Castro granted defendants a royalty-

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free license to use CELR, and that his theory of infringement depends on the existence of

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conditions attached to that license that cause it to be no longer in force.

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While the complaint asserts the term of the license was limited to the time in which

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Heather Castro continued to be employed by Calicraft, there are no allegations that such a

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limitation was communicated to defendants, nor are there other allegations of fact sufficient to

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explain how such a term was incorporated in the license, either expressly or by implication. Cf.

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Asset Mktg. Sys., Inc. v. Gagnon, 542 F.3d 748, 757 (9th Cir. 2008)(finding post hoc statement of

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intent to limit license term insufficient in light of “all other objective manifestations of intent to

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grant [defendant] an unlimited license.”) Additionally, in correspondence attached as an exhibit to

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the complaint, counsel for Heather Castro (now representing JP Castro) expressly characterized

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the license as a “perpetual royalty-free license.” See Dkt. No. 21-3, ECF p. 68 (emphasis added).

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Ordinarily, a license is a defense to copyright infringement, such that the burden of

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pleading and proving its existence and scope falls to the defendant. Because the existence of the

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defense appears on the face of the complaint, however, plaintiff must plead facts showing his

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claim is nonetheless plausible. Whether plaintiff will be able to do so, remains to be seen. While

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neither the Gagnon decision nor counsel’s apparent concession that the license was “perpetual” is
ORDER GRANTING MOTION TO DISMISS
CASE NO. 14-cv-05226-RS

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dispositive, both represent substantial hurdles. Plaintiff must plead, in good faith, facts showing

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either that a limitation of the term of the license was expressly communicated to defendants or that

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there are sufficient “objective manifestations of intent” to infer such a limitation. Defendants

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should bear in mind, however, that plaintiff need not prove his case at the pleading stage. As

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such, a final resolution of this highly fact-dependent issue may not be possible through further

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challenges to the pleading, in the event plaintiff is able to provide at least some meaningful

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allegations of fact supporting his claim that license term was intended to be co-extensive with

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Heather Castro’s employment. The claim for copyright infringement is dismissed, with leave to

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amend.

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United States District Court
Northern District of California

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2. Trademark

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JP Castro contends that defendants have used the CELR trademark, and the allegedly

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confusingly-similar mark “Virtual CELR” in derogation of his rights under common law and the

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Lanham Act. The complaint includes conclusory assertions that defendants are using the marks

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“in interstate commerce” and in a manner “confusing to the public.” As defendants point out,

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however, CELR is alleged in the complaint to be a software product for use in the management of

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the business. While plaintiff’s opposition brief asserts that defendants’ “use of CELR was

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communicated to [Calicraft’s] customers,” such facts are not alleged, nor reasonably inferable,

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from the present averments of the complaint. Accordingly, the trademark claim is dismissed, with

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leave to amend.1

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Relying on Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, (2003) and
Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1144 (9th Cir. 2008) defendants further
argue that plaintiff cannot allege both copyright and Lanham Act claims. At least at this juncture,
however, defendants have failed to show how there is a conflict between the scope of plaintiff’s
trademark claims and copyright law. See Luxul Tech. Inc. v. Nectarlux, LLC, 78 F. Supp. 3d 1156
(N.D. Cal. 2015) (explaining that while Dastar and Sybersound each rejected Lanham Act claims
that would circumvent copyright law, “the Court is not persuaded that Plaintiff’s Lanham Act
claims are precluded merely because Plaintiff also alleges copyright infringement.”)
ORDER GRANTING MOTION TO DISMISS
CASE NO. 14-cv-05226-RS

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3. Unfair Competition

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Plaintiff has presently failed to show a basis for pursuing a claim under an unfair

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competition theory that would not either be preempted by, or duplicative of, his copyright and

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Lanham Act claims. The claim is therefore dismissed. While plaintiff may amend the claim if he

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has a good faith basis to do so, he should carefully consider whether a separate count is viable.

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4. Attorney fees and punitive damages

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In light of the dismissal of the claims for relief, defendants’ separate challenge to the

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prayer for attorney fees and punitive damages is moot. In any amended complaint, however,

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plaintiff should reassert such claims only in the event there is a factual basis to do so.

United States District Court
Northern District of California

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The motion to dismiss is granted. Any amended complaint shall be filed within 20 days of
the date of this order. The Case Management Conference is continued to October 1, 2015.

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IT IS SO ORDERED.

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Dated: August 25, 2015
______________________________________
RICHARD SEEBORG
United States District Judge

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ORDER GRANTING MOTION TO DISMISS
CASE NO. 14-cv-05226-RS

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