Adobe Systems Incorporated v. Kornrumpf

Filing 160

ORDER by Judge Claudia Wilken GRANTING PLAINTIFFS 135 MOTION FOR PARTIAL SUMMARY JUDGMENT. (ndr, COURT STAFF) (Filed on 2/1/2012)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 ADOBE SYSTEMS INCORPORATED, 5 6 7 8 Plaintiff, v. HOOPS ENTERPRISE LLC; and ANTHONY KORNRUMPF, United States District Court For the Northern District of California 11 ORDER GRANTING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT (Docket No. 135) Defendants. 9 10 No. C 10-2769 CW ________________________________/ AND ALL RELATED CLAIMS ________________________________/ 12 13 Plaintiff Adobe Systems LLC moves for partial summary 14 judgment, finding the first sale defense inapplicable and granting 15 judgment in its favor on the counterclaim against it brought by 16 Defendants Anthony Kornrumpf and Hoops Enterprise, LLC.1 17 Defendants oppose Adobe’s motion. Having considered the papers 18 19 20 submitted by the parties and their oral arguments at the hearing, the Court GRANTS Adobe’s motion. 21 22 23 24 25 26 27 28 1 In the title of its motion, Adobe states that it seeks summary judgment “finding no contractual release of OEM sales,” among other things. Mot. at i. However, Adobe did not move on this basis in its papers or address this topic in any way. Accordingly, the Court assumes that Adobe titled its motion in error. 1 BACKGROUND2 2 Adobe initiated this copyright and trademark infringement 3 lawsuit on June 24, 2010, alleging that Defendants sell Adobe 4 software through the use of the Internet auction site eBay and the 5 website www.lookoutdeals.com, among other services, and that Adobe 6 has not licensed Defendants to make or distribute copies of its 7 8 9 software. Adobe also alleges that Defendants use, without a license, images similar or identical to Adobe trademarks as part United States District Court For the Northern District of California 10 of their online business. 11 Copyright Act, 17 U.S.C. §§ 101, et seq., and the Lanham Act, 15 12 U.S.C. §§ 1501, et seq. 13 14 Adobe seeks relief pursuant to the Defendants filed counterclaims against Adobe for a declaratory judgment of copyright misuse and violation of 15 California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code 16 17 §§ 17200, et seq. In particular, Defendants contend that Adobe 18 misuses its copyrights by asserting them in contravention of the 19 first sale doctrine, as codified in 17 U.S.C. § 109. 20 also assert copyright misuse and the first sale doctrine as 21 affirmative defenses. 22 Defendants Answer ¶¶ 10, 23. On January 19, 2011, the Court dismissed Defendants’ original 23 counterclaims. Docket No. 47. Defendants then filed their First 24 25 26 27 28 Amended Counterclaims, re-alleging both of their counter-claims. 2 Adobe Defendants. not material overruled as has objected to some of the evidence submitted by Because the evidence to which Adobe has objected was to the Court’s decision, Adobe’s objections are moot. 2 1 Docket No. 50. 2 prejudice Defendants’ counterclaim for declaratory judgment of 3 copyright misuse but denied Adobe’s motion to dismiss Defendants’ 4 UCL counterclaim. 5 6 On July 25, 2011, the Court dismissed with Docket No. 94. Adobe states that it distributes software for which it holds the copyright pursuant to restricted licensing agreements and does 7 not transfer title to the software at any time. Coombs Decl. ¶ 2, 8 9 Ex. A (Stickle Decl.) ¶ 5. The licensing agreements restrict the United States District Court For the Northern District of California 10 use, location of distribution, transfer and sometimes who is 11 qualified to obtain the product. 12 software that Adobe distributes is Original Equipment Manufacturer 13 (OEM) products that are distributed in a bundle with approved 14 hardware components. Id. Id. at ¶ 7. One type of restricted The bundles are 15 product-specific and Adobe’s product may not be unbundled and sold 16 separately or re-bundled with products not previously approved by 17 18 19 Adobe. Id. Defendants acknowledge that they have sold OEM copies of 20 Adobe’s software and that the software they have sold comes from 21 several companies, including Dell and Hewlett-Packard. 22 8-9, 11; Kornrumpf Decl. ¶¶ 3, 5; Coombs Decl. ¶ 3, Ex. B 23 (Kornrumpf Depo.) Tr. 20:5-6. Opp. at 2, Defendants admit that “[o]ne 24 specific title of software that originated through Dell that 25 26 27 Defendants have sold is Photoshop Elements 8.” Opp. at 8-9. Defendants further concede that “[o]ne specific tile of software 28 3 1 that originated through Hewlett Packard Company that Defendants 2 have sold is Premiere Pro CS4.” 3 Id. at 11. Defendants obtain Adobe OEM versions of software that have 4 been unbundled from the hardware with which they were originally 5 packaged. 6 Kornrumpf Depo. Tr. 148:18-149:10. sell the software. Defendants then See, e.g., id. at 14:2-6, 43:5-45:6. When 7 they sell Adobe OEM software, Defendants generally package it with 8 9 items such as a piece of photo paper, a blank DVD, or a media card United States District Court For the Northern District of California 10 reader, which Adobe had not authorized for bundling. Stickle 11 Decl. ¶¶ 9, 10; Kornrumpf Depo. Tr. 43:12-45:16. 12 not bundled OEM software that originally came with OEM hardware 13 with these types of products when Defendants have sold that OEM 14 software. Defendants have Kornrumpf Depo. Tr. 143:2-8. 15 Adobe, through an investigator, made several test purchases 16 of Adobe OEM software from Defendants through their eBay monikers. 17 18 Coombs Decl. in Supp. of Mot. for Prelim. Inj. ¶ 3, Ex. B 19 (Fernandez Decl.) ¶¶ 5-11; Stickle Decl. ¶¶ 9, 10. 20 products it purchased were meant for an overseas market, “were 21 manufactured abroad and were not meant to be imported into the 22 United States.” 23 Some of the Stickle Decl. ¶ 9. In conjunction with Defendants’ prior motion for a 24 preliminary injunction, Defendants proffered evidence of a form 25 26 contract Adobe uses with hardware manufacturers for the 27 distribution of its software. See Boyce Decl. in Supp. of Defs.’ 28 Mot. for Prelim. Inj., Docket No. 69, ¶ 15. 4 The contract states 1 that Adobe provides only licenses to the manufacturer and that the 2 manufacturer “shall not at any stage have title to the physical 3 property or the Intellectual Property in the Software Products.” 4 Boyce Decl. in Supp. of Defs.’ Mot. for Prelim. Inj., Ex. E, 5 Docket No. 87, ¶ 12.3. 6 With their opposition to the instant motion, Defendants have 7 submitted copies of Adobe’s contract with Hewlett-Packard 8 9 governing the distribution of software, including Photoshop United States District Court For the Northern District of California 10 Elements 8, and Adobe’s contract with Dell governing distribution 11 of software, including Premiere Pro CS4. See Boyce Decl. 12 ¶¶ 10-13, 15-16, Exs. F, G, H, I, K, L.3 These contracts resemble 13 the form contract that Defendants previously submitted. 14 Adobe’s agreement with Dell is titled as a licensing 15 agreement. Boyce Decl. ¶ 10, Ex. F at 1. In the agreement, Adobe 16 17 specifies that Dell is granted a license and requires Dell to 18 obtain a similar agreement with any third-parties prior to 19 authorizing or sublicensing the software to them. 20 Adobe retains ownership of intellectual property rights in the 21 software and places substantial restrictions on Dell’s use of the 22 software. Id. at ¶¶ 2.1, 2.4, 2.5. Id. at ¶ 2.1. Adobe also prohibits Dell 23 from promulgating the software through specified means and 24 25 26 27 28 requires that the software be bundled with specified Dell hardware. Id. at ¶¶ 2.1, 2.5; Boyce Decl. ¶ 11, Ex. G at ¶ 2.0. 3 Because these exhibits were filed under seal, the Court describes their content in general terms in this Order. 5 1 Dell is obliged to take steps to prevent resellers from selling 2 the software separately from this hardware. 3 F at ¶ 2.1. 4 agreement with the hardware in such a way that the user can read 5 it before accessing the software media and must include Adobe’s 6 Boyce Decl. ¶ 10, Ex. Dell is required to include Adobe’s end-user license “copyright and proprietary notices.” Id. 7 Adobe’s agreement with Hewlett Packard is also titled as a 8 9 licensing agreement and contains terms similar to Adobe’s United States District Court For the Northern District of California 10 agreement with Dell. Boyce Decl. ¶¶ 15-16, Exs. K, L. 11 example, it requires that the software be bundled with specified 12 HP hardware. 13 contains similar use restrictions to those in the agreement with 14 Dell. Boyce Decl. ¶ 15, Ex. K, at ¶¶ 1.5, 3.1. For It also Id. at ¶ 3.7. 15 LEGAL STANDARD 16 Summary judgment is properly granted when no genuine and 17 18 disputed issues of material fact remain, and when, viewing the 19 evidence most favorably to the non-moving party, the movant is 20 clearly entitled to prevail as a matter of law. 21 P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); 22 Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 23 Fed. R. Civ. 1987). 24 The moving party bears the burden of showing that there is no 25 26 material factual dispute. Therefore, the court must regard as 27 true the opposing party’s evidence, if supported by affidavits or 28 other evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 6 1 815 F.2d at 1289. 2 in favor of the party against whom summary judgment is sought. 3 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 4 587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952 5 F.2d 1551, 1558 (9th Cir. 1991). 6 The court must draw all reasonable inferences Material facts which would preclude entry of summary judgment 7 are those which, under applicable substantive law, may affect the 8 outcome of the case. The substantive law will identify which 10 facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 11 242, 248 (1986). United States District Court For the Northern District of California 9 12 Where the moving party does not bear the burden of proof on 13 an issue at trial, the moving party may discharge its burden of 14 production by either of two methods: 15 16 17 18 The moving party may produce evidence negating an essential element of the nonmoving party’s case, or, after suitable discovery, the moving party may show that the nonmoving party does not have enough evidence of an essential element of its claim or defense to carry its ultimate burden of persuasion at trial. 19 Nissan Fire & Marine Ins. Co., Ltd., v. Fritz Cos., Inc., 210 F.3d 20 1099, 1106 (9th Cir. 2000). 21 22 If the moving party discharges its burden by showing an 23 absence of evidence to support an essential element of a claim or 24 defense, it is not required to produce evidence showing the 25 absence of a material fact on such issues, or to support its 26 motion with evidence negating the non-moving party’s claim. 27 Id.; see also Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 885 (1990); 28 7 1 Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991). 2 the moving party shows an absence of evidence to support the 3 non-moving party’s case, the burden then shifts to the non-moving 4 party to produce “specific evidence, through affidavits or 5 admissible discovery material, to show that the dispute exists.” 6 If Bhan, 929 F.2d at 1409. 7 If the moving party discharges its burden by negating an 8 9 essential element of the non-moving party’s claim or defense, it Nissan, 210 United States District Court For the Northern District of California 10 must produce affirmative evidence of such negation. 11 F.3d at 1105. 12 burden then shifts to the non-moving party to produce specific 13 evidence to show that a dispute of material fact exists. 14 If the moving party produces such evidence, the Id. If the moving party does not meet its initial burden of 15 production by either method, the non-moving party is under no 16 obligation to offer any evidence in support of its opposition. 17 18 Id. This is true even though the non-moving party bears the 19 ultimate burden of persuasion at trial. Id. at 1107. 20 DISCUSSION 21 Defendants do not dispute that their counterclaim against 22 Adobe is valid only if the first sale doctrine applies to this 23 case and the Court finds that “Plaintiff has been selling, not 24 licensing, copies of its software products to certain OEM 25 26 27 28 companies.” Opp. at 16. “Copyright is a federal law protection provided to the authors of ‘original works of authorship,’ including software 8 1 programs.” 2 Cir. 2010) (citing 17 U.S.C. §§ 101-103). 3 confers several exclusive rights on copyright owners, including 4 the exclusive rights . . . to distribute their works by sale or 5 rental.” 6 Vernor v. Autodesk, Inc., 621 F.3d 1102, 1106 (9th “The Copyright Act Id. at 1106-07 (citing 17 U.S.C. § 106(3)). Copyright infringement occurs whenever someone “violates any of the 7 exclusive rights of the copyright owner,” including the exclusive 8 9 distribution right. 17 U.S.C. §§ 106(3), 501. “The exclusive United States District Court For the Northern District of California 10 distribution right is limited by the first sale doctrine, an 11 affirmative defense to copyright infringement that allows owners 12 of copies of copyrighted works to resell those copies.” 13 621 F.3d at 1107. 14 provisions of section 106(3), the owner of a particular copy or Vernor, See 17 U.S.C. § 109(a) (“Notwithstanding the 15 phonorecord lawfully made under this title, or any person 16 authorized by such owner, is entitled, without the authority of 17 18 the copyright owner, to sell or otherwise dispose of the 19 possession of that copy or phonorecord.”). 20 Adobe argues, and Defendants do not dispute, that the first 21 sale doctrine does not apply to Adobe products that were 22 manufactured abroad. 23 See Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982, 985 (9th Cir. 2008) (limiting the first-sale 24 doctrine to domestically-made copies of copyrighted works). 25 26 The Ninth Circuit has also held that the first sale 27 affirmative defense is unavailable to “those who are only licensed 28 to use their copies of copyrighted works.” 9 Vernor, 621 F.3d at 1 1107. 2 copy where the copyright owner (1) specifies that the user is 3 granted a license; (2) significantly restricts the user’s ability 4 to transfer the software; 5 restrictions.” 6 “[A] software user is a licensee rather than an owner of a and (3) imposes notable use Id. at 1111. Defendants argue that the license agreements between Adobe 7 and the OEM manufacturers do not create significant restrictions 8 9 on the transfer of the OEM copies or impose notable use United States District Court For the Northern District of California 10 restrictions on these copies. However, the undisputed evidence in 11 the record clearly establishes that Adobe transferred a license 12 rather than title to these products. 13 specify that they grant a license. 14 in Supp. of Defs.’ Mot. for Prelim. Inj., Ex. E ¶ 12.3; Boyce Adobe’s license agreements Stickle Decl. ¶ 5; Boyce Decl. 15 Decl. ¶ 10, Ex. F at ¶ 2.1; Boyce Decl. ¶ 15, Ex. K at 1. The 16 licensing agreements impose significant transfer restrictions, 17 18 including those at Stickle Decl. ¶ 5; Boyce Decl. ¶ 10, Ex. F at ¶ 19 2.1; ¶ 11, Ex. G at ¶ 2.0; ¶ 15, Ex. K, at ¶¶ 1.5, 3.1. 20 agreements also impose significant use restrictions, such as those 21 at Stickle Decl. ¶ 5; Boyce Decl. ¶ 10, Ex. F at ¶ 2.5; ¶ 15, Ex. 22 K, at ¶ 3.7. 23 The Defendants further argue that Adobe does not maintain 24 sufficient control over the OEM copies to support a finding that 25 26 it remained the owner of them. Defendants base their argument on 27 UMG Recordings, Inc. v. Augusto, 628 F.3d 1178 (9th Cir. 2011). 28 In UMG Recordings, the Ninth Circuit held that a music company 10 1 transferred ownership of copies of a promotional CD, despite its 2 attempts to create a license, when it shipped the CDs to 3 recipients, with no prior agreement or request by the recipients 4 to receive the CDs. 5 UMG Recordings specifically distinguished the Vernor test that 6 628 F.3d at 1182-83. However, the court in “applies in terms to software users,” who “are in a very different 7 position from that held by the recipients of UMG’s promotional 8 9 CDs.” Id. at 1183. Further, Adobe maintains far more control United States District Court For the Northern District of California 10 over the distribution of its software than the music company did 11 in UMG Recordings, as evidenced by the significant distribution 12 restrictions in its licensing agreements. 13 14 Because Adobe licenses, rather than sells, its OEM software, the Court finds that the first sale doctrine does not apply to the 15 Adobe OEM software at issue in this case. The Court also finds 16 that the first sale doctrine does not apply to the Adobe OEM 17 18 software that is manufactured abroad. 19 counterclaim against Adobe and their copyright misuse and first 20 sale affirmative defenses are all based on the applicability of 21 the first sale doctrine to this case, the Court GRANTS Adobe’s 22 motion for partial summary judgment. 23 24 25 26 27 28 11 Because Defendants’ UCL 1 CONCLUSION 2 For the reasons set forth above, the Court GRANTS Adobe’s 3 4 motion for partial summary judgment (Docket No. 135). IT IS SO ORDERED. 5 6 7 Dated: 2/1/2012 CLAUDIA WILKEN United States District Judge 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12

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