Pacific Stock, Inc. v. Pearson Education, Inc.

Filing 35

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS COMPLAINT 11 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 1/11/12. (emt, )CERTIFICATE OF SERVICEParticipants registered to receive elect ronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
PACIFIC STOCK, INC.,

)
)
Plaintiff,
)
)
vs.
)
)
PEARSON EDUCATION, INC.,
)
)
)
Defendant.
_____________________________ )

CIVIL NO. 11-00423 SOM/BMK
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT’S
MOTION TO DISMISS COMPLAINT

ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT’S MOTION TO DISMISS COMPLAINT
I.

INTRODUCTION.
Plaintiff Pacific Stock, Inc. (“Pacific Stock”),

alleges that Defendant Pearson Education, Inc. (“Pearson”), has
infringed on Pacific Stock’s copyrights in photographs.

Pacific

Stock licensed the use of those photographs in educational
materials that Pearson said it planned to publish, but, according
to Pacific Stock, Pearson exceeded the terms of the licenses.
Indeed, Pacific Stock claims that Pearson intended to exceed
those terms even at the time Pearson sought the licenses.
Pacific Stock asserts claims for copyright infringement, fraud,
and fraudulent concealment.

The court GRANTS IN PART and DENIES

IN PART Pearson’s motion to dismiss.
II.

BACKGROUND.
Pacific Stock is a photo stock agency incorporated in

Hawaii.

It manages photographs and copyright registrations for a

number of photographers.

Compl. ¶¶ 1, 5, ECF No. 1.

Pacific

Stock represents the photographers whose pictures are at issue in
this case and says it has written assignments of the copyrights
of the subject photographs.

Id. ¶ 6.

According to Pacific

Stock, the assignments include assignments of the photographers’
rights to pursue all claims relating to the photographs and their
copyrights.

Id.

As a part of its business, Pacific Stock

licenses the photographs to other users, including Pearson.

Id.

¶¶ 5, 11.
Pearson, a Delaware corporation, publishes educational
materials.

Id. ¶¶ 2, 8.

Its publications are sold under a

variety of brand names and are distributed to retail bookstores,
online bookstores, wholesalers, government entities, schools, and
other consumers.

Id. ¶¶ 9-10.

Pacific Stock alleges that it has permitted the limited
use of certain photographs by Pearson in its educational
materials.

Id. ¶ 11.

It says it has given Pearson and its

various parents, subsidiaries, and predecessors over 150 licenses
that restrict matters such as the type of media in which a
photograph may be used, the length of time that the photograph
may be used, and the number of times the photograph may be used.
Id. ¶¶ 11-12.

Pacific Stock allegedly based the restrictions and

information in the license agreements, as well as the license
fees, on representations made by Pearson as to how it intended to
use the photographs.

Id. ¶¶ 13-14.

2

Pacific Stock alleges that Pearson deliberately
understated the duration of its intended use, the print run
volume, the format or size in which the photographs would be
used, and the geographic scope of the intended use.

Id. ¶ 16.

Pacific Stock says that, as a result, Pacific Stock charged
Pearson less than it otherwise would have charged in licensing
fees.

Id. ¶ 17.

Pacific Stock further alleges that Pearson

induced it to believe that Pearson would seek new licenses if its
use of the photographs changed, and that Pearson concealed its
intent to exceed the license limitations.

Id. ¶¶ 18-19.

Pacific Stock attaches as Exhibit “A” to its Complaint
a spreadsheet with information about 151 photographs it allegedly
licensed to Pearson.

The spreadsheet includes image

identification numbers; copyright registration numbers; intended
project, media, or text names; intended print runs; image sizes;
and the names of Pearson representatives who provided such
information.

See Exhibit “A” to Compl., ECF Nos. 1-2, 1-3.

Pearson now moves to dismiss the Complaint for failure
to state a claim upon which relief can be granted under Rule
12(b)(6) of the Federal Rules of Civil Procedure and for failure
to plead the fraud claims with particularity as required by Rule
9(b).

The court GRANTS the motion only with respect to licenses

for periods that had not expired at the time the Complaint was
filed, and only with respect to claims that Pearson is liable for

3

the copyright infringement and fraud claims asserted in the First
and Second Causes of Action based on use of the photographs
beyond the periods allowed by those licenses.

The court DENIES

the motion as to all other claims, including the fraudulent
concealment claim asserted in the Third Cause of Action and the
claims in the First and Second Causes of Action relating to
unexpired licenses to the extent those claims are not based on
the duration of Pearson’s alleged use of the licensed
photographs.
III.

STANDARD.
Under Rule 12(b)(6), a court is generally limited to

reviewing the contents of the complaint.

Sprewell v. Golden

State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Campanelli v.
Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996).

If matters

outside the pleadings are considered, the Rule 12(b)(6) motion is
treated as one for summary judgment.

See Keams v. Tempe Tech.

Inst., Inc., 110 F.3d 44, 46 (9th Cir. 1997); Anderson v.
Angelone, 86 F.3d 932, 934 (9th Cir. 1996).

However, courts may

“consider certain materials--documents attached to the complaint,
documents incorporated by reference in the complaint, or matters
of judicial notice--without converting the motion to dismiss into
a motion for summary judgment.”
F.3d 903, 908 (9th Cir. 2003).

United States v. Ritchie, 342
Documents whose contents are

alleged in a complaint and whose authenticity is not questioned

4

by any party may also be considered in ruling on a Rule 12(b)(6)
motion.

See Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006);

Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).
On a Rule 12(b)(6) motion to dismiss, all allegations
of material fact are taken as true and construed in the light
most favorable to the nonmoving party.

Fed’n of African Am.

Contractors v. City of Oakland, 96 F.3d 1204, 1207 (9th Cir.
1996).

However, conclusory allegations of law, unwarranted

deductions of fact, and unreasonable inferences are insufficient
to defeat a motion to dismiss.

Sprewell, 266 F.3d at 988.

Additionally, the court need not accept as true allegations that
contradict matters properly subject to judicial notice or
allegations contradicting the exhibits attached to the complaint.
Id.

Dismissal under Rule 12(b)(6) may be based on either:

(1) lack of a cognizable legal theory, or (2) insufficient facts
under a cognizable legal theory.

Balistreri v. Pacifica Police

Dept., 901 F.2d 696, 699 (9th Cir. 1988) (citing Robertson v.
Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir.
1984)).
To survive a Rule 12(b)(6) motion to dismiss, factual
allegations must be enough to raise a right to relief above the
speculative level, on the assumption that all the allegations in
the complaint are true even if doubtful in fact.
v. Twombly, 550 U.S. 544, 555 (2007)).

5

Bell Atl. Corp.

Accord Ashcroft v. Iqbal,

129 S. Ct. 1937, 1949 (2009) (Rule 8 “does not require ‘detailed
factual allegations,’ but it demands more than an unadorned,
the-defendant-unlawfully-harmed-me accusation”).

“While a

complaint attacked by a Rule 12(b)(6) motion to dismiss does not
need detailed factual allegations, a plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires
more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.”
U.S. at 555 (internal citations omitted).

Twombly, 550

The complaint must

“state a claim to relief that is plausible on its face.”
570.

Id. at

“A claim has facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.”

Iqbal, 129 S. Ct. at 1949.
Usually, a party’s pleading need only contain “a short

and plain statement of the claim showing that the pleader is
entitled to relief.”

1

Fed. R. Civ. P. 8(a)(2).1

However, Rule

The Ninth Circuit has recently stated,
First, to be entitled to the presumption of
truth, allegations in a complaint or
counterclaim may not simply recite the
elements of a cause of action, but must
contain sufficient allegations of underlying
facts to give fair notice and to enable the
opposing party to defend itself effectively.
Second, the factual allegations that are
taken as true must plausibly suggest an
entitlement to relief, such that it is not
unfair to require the opposing party to be
6

9(b) requires that, when fraud or mistake is alleged, “a party
must state with particularity the circumstances constituting
fraud or mistake.

Malice, intent, knowledge, and other

conditions of a person's mind may be alleged generally.”
Civ. P. 9(b).

Fed. R.

A court treats a motion to dismiss under Rule 9(b)

like a motion to dismiss under Rule 12(b)(6):
A motion to dismiss a complaint or claim
“grounded in fraud” under Rule 9(b) for
failure to plead with particularity is the
functional equivalent of a motion to dismiss
under Rule 12(b)(6) for failure to state a
claim. If insufficiently pled averments of
fraud are disregarded, as they must be, in a
complaint or claim grounded in fraud, there
is effectively nothing left of the complaint.
In that event, a motion to dismiss under Rule
12(b)(6) would obviously be granted. Because
a dismissal of a complaint or claim grounded
in fraud for failure to comply with Rule 9(b)
has the same consequence as a dismissal under
Rule 12(b)(6), dismissals under the two rules
are treated in the same manner.
Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir.
2003).
IV.

ANALYSIS.
A.

Pacific Stock Sufficiently Articulates A Claim Of
Copyright Infringement Except As To Infringement
Based On Duration Of Licenses That Had Not Expired
As Of June 30, 2011.

Pacific Stock alleges that Pearson infringed Pacific

subjected to the expense of discovery and
continued litigation.
Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
7

Stock’s copyrights by using copyrighted photographs in a manner
exceeding the terms of the licenses granted by Pacific Stock.
There are two elements to a claim for copyright
infringement: a plaintiff must allege (1) ownership of a valid
copyright and (2) copying of constituent elements of the work
that are original.

Funky Films, Inc. v. Time Warner Entm’t Co.,

L.P., 462 F.3d 1072, 1076 (9th Cir. 2006).

A claim for breach of

a license agreement requires allegations that the defendant
exceeded the scope of its licensed use.

See S.O.S., Inc. v.

Payday, Inc., 886 F.2d 1081, 1087-88 (9th Cir. 1989).
1.

Pacific Stock Sufficiently Alleges Ownership
Of A Valid Copyright.

Pacific Stock alleges that it holds valid copyrights to
all of the photographs listed in Exhibit “A.”

Pearson challenges

the validity of the copyrights for photographs registered as
included in compilations.

Pearson argues that such registrations

do not always give rise to copyrights in individual works
included in the compilations.

Pearson does not appear to

challenge the validity of the copyrights for individually
registered photographs.
A registered copyright is generally a precondition to a
copyright infringement claim.

See 17 U.S.C. § 411.

To be

afforded the protection of federal copyright laws, the holder of
a valid copyright may register the copyright with the United
States Copyright Office.

See 17 U.S.C. § 408.
8

Such a

registration creates a rebuttable presumption of validity:
In any judicial proceedings 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 evidentiary
weight to be accorded the certificate of a
registration made thereafter shall be within
the discretion of the court.
17 U.S.C. § 410(c).

“A certificate of copyright registration,

therefore, ‘shifts to the defendant the burden to prove the
invalidity of the plaintiff’s copyrights.’”

Entm’t Research

Grp., Inc. v. Genesis Creative Grp., Inc., 122 F.3d 1211, 1217
(9th Cir. 1997) (quoting Masquerade Novelty, Inc. v. Unique
Indus., Inc., 912 F.2d 663, 668 (3d Cir. 1990)).

“An accused

infringer can rebut this presumption of validity, however.

To

rebut the presumption, an infringement defendant must simply
offer some evidence or proof to dispute or deny the plaintiff’s
prima facie case of infringement.”

Id. at 1217-18 (internal

citations omitted).
Pearson challenges the validity of the compilation
copyrights because they do “not necessarily extend to the
individual components of that compilation.”

Def. Pearson

Education, Inc.’s Mot. to Dismiss Compl. 7, ECF No. 11-1
(“Motion”).

Pearson cites three district court decisions for the

proposition that claimants do not have valid copyrights for
individual works registered only as parts of compilations of

9

various artists.

Pearson notes that one of Pacific Stock’s

allegedly infringed works was registered as a part of a
compilation of the works of 33 artists.
“A” to Mot., ECF. No. 11-3.

See id. at 8; Exhibit

Pearson argues that the copyright

registration does not contain identifiable information for the
individual works in the compilation and therefore does not
satisfy a “precondition to suit.”

Motion at 8-9, ECF No. 11-1.

As Pacific Stock does not challenge the authenticity of
the compilation registration Pearson refers to, and as it is the
type of publicly filed document that a court may take judicial
notice of, the court considers the document without deeming the
present motion to be one for summary judgment.

It is, however,

not clear that the document goes toward rebutting the presumption
of validity of the copyright in that particular photograph.

The

relevance of the compilation registration depends on what the law
requires, and Pearson does not meet its burden as the moving
party of establishing what the law requires.

Indeed, the very

issue of what the law requires in this context is currently
pending before the Ninth Circuit in Alaska Stock, LLC v. Houghton
Mifflin Harcourt Publ’g Co., No. 10-36010 (9th Cir., filed Mar.
26, 2009).

The decision in that case may lend clarity to this

issue, but, in the meantime, this court has no controlling law
requiring it to dismiss as inadequately pled infringement claims
involving the kind of compilation registrations Pearson

10

challenges.
The Copyright Act provides that an “application for
copyright registration shall be made on a form prescribed by the
Register of Copyrights and shall include” such information as the
name of the author and the title of the work.

17 U.S.C. § 409.

Section 411 relaxes the requirements of § 409 in some respects.
It provides:
A certificate of registration satisfies the
requirements of this section and section 412,
regardless of whether the certificate
contains any inaccurate information, unless-(A) the inaccurate information was
included on the application for
copyright registration with knowledge
that it was inaccurate; and
(B) the inaccuracy of the information,
if known, would have caused the Register
of Copyrights to refuse registration.
17 U.S.C. § 411(b).
The Copyright Act does not specifically address the
registration of a work included in a compilation, but the
Copyright Office has provided guidance on this subject.

The

Compendium of Copyright Office Practices II advises potential
applicants that “the application should name the author of the
collective work,” but that “[t]he names of the individual authors
of separate contributions being registered as part of the claim
need not be given on the application.”

Compendium II: Copyright

Offices Practices § 615.06, available at

11

http://ipmall.info/hosted_resources/CopyrightCompendium/chapter_0
600.asp (last visited Jan. 10, 2012).2

“If the work being

registered was created by a large number of authors, the
application will be considered acceptable if it names at least
three of those authors, followed by a statement such as ‘and
[number] others.’”

Id. § 615.07(b)(3).

Pacific Stock says that, with the guidance of the
Copyright Office, it filed continuation sheets in all of its
registrations of compilation works to reflect each component
work’s title and author.

See Pl.’s Mem. in Opp’n to Def.’s Mot.

to Dismiss Compl. 14, ECF No. 27 (“Opposition”); Declaration of
Barbara Brundage ¶ 13, ECF No. 27-1.

While the continuation

sheets appear to be materials the court can take judicial notice
of on this motion to dismiss, the declaration that Pacific Stock
submits as evidence of its reliance on advice by the Copyright
Office is not.

Even without relying on material that would have

the effect of converting the present motion to dismiss to a
motion for summary judgment, this court concludes that Pearson
does not establish that the court should dismiss claims involving
photographs included in compilations on the ground that Pacific
Stock lacks valid copyrights for those photographs.

2

Again,

The official version of Compendium II: Copyright Office
Practices is normally available at the United States Copyright
Office’s website at http://www.copyright.gov/compendium/.
However, according to the website, the publication has been taken
down as of October 2011 while it is being revised.
12

Pearson simply does not show what the law requires for such
works.3
2.

Pacific Stock Sufficiently Alleges That
Pearson Exceeded The Scope Of Licenses Except
To The Extent The Allegations Concern The
Duration Of Use For Photographs Covered By
Licenses That Had Not Expired As Of June 30,
2011.

The court turns now to the sufficiency of Pacific
Stock’s allegations that Pearson copied photographs in a manner
exceeding the licenses.

“A licensee infringes the owner’s

copyright if its use exceeds the scope of its license.”

S.O.S.,

Inc., 886 F.2d at 1087 (citing Gilliam v. Am. Broadcasting Cos.
Inc., 538 F.2d 14, 20 (2d Cir. 1976)).

“The license must be

construed in accordance with the purposes underlying federal
copyright law.

Chief among these purposes is the protection of

the author’s rights.

We rely on state law to provide the canons

of contractual construction, but only to the extent such rules do
not interfere with federal copyright law or policy.”

Id. at 1088

(internal citations omitted).
Pacific Stock alleges that “Pearson has misappropriated

3

Pacific Stock further argues that, even if it erred in
omitting the names of the authors and other identifying
information and its registrations are deficient, § 411(b), which,
as noted above, relaxes the registration requirement in certain
respects, protects its registrations as valid. But see Muench
Photography, Inc. v. Houghton Mifflin Harcourt Publ’g Co., 712 F.
Supp. 2d 84, 95 (S.D.N.Y. 2010) (the innocent error rule does not
confer copyright registration on component works registered as a
compilation).
13

and infringed the copyrights of Pacific Stock . . . by using the
photographs in a manner in excess of and/or not permitted by the
license agreements with Pacific Stock.”

Compl. ¶ 27, ECF No. 1.

Pacific Stock alleges upon information and belief that
Pearson has engaged in a practice of paying
license fees to photographers and/or
photographers’ agents to obtain licenses to
use specific photographs for a specific
duration and for a specific number of print
runs of a specific textbook that Pearson
publish[es]. Pearson then used the
photographs beyond the scope of the licenses
it purchased without providing any notice or
obtaining any authorization to exceed the
licensed use. Pearson has engaged in a
practice of violating the licenses by, inter
alia, using the licensed photographs in books
that were printed significantly in excess of
the print run authorized by the license
and/or by using the licensed photographs in
books published after the dates of
publication permitted by the license and/or
by using the licensed photographs in various
media not included in the licenses granted to
Pearson, and beyond the geographic scope of
the licenses granted to Pearson.
Id. ¶ 16.
Pearson argues that Pacific Stock is required to allege
the precise manner in which it exceeded each license.

This court

is not persuaded that all of Pacific Stock’s allegations of
copyright infringement are insufficient.

The Complaint alleges

specific ways in which the licenses were exceeded.

Numerous

details for each license are set forth in the spreadsheet
attached to the Complaint.

While the allegations use “and/or,”

the alleged violations are related and refer to identified
14

licenses in Pearson’s possession.

Pearson may, in an abundance

of caution, assume that it is being accused of violating each
license in every way identified.
Pacific Stock’s reliance on “information and belief”
does not on its own bar any claim.

In at least one case cited by

both Pearson and Pacific Stock, the district court allowed
copyright infringement claims to proceed, even when asserted “on
information and belief.”

See, e.g., Bean v. Pearson Educ., Inc.,

No. CV 11-8030-PCT-PGR, 2011 WL 1882367, *12-13 (D. Ariz. May 17,
2011) (holding that allegations “upon information and belief” are
sufficient so long as the alleged facts make the complaint
plausible on its face).

Pacific Stock has done more than just

recite as a formula the mere elements of a claim.

It has

identified works allegedly infringed, the manners in which the
licenses were allegedly breached, and the plausible ways in which
it was damaged.

Going forward, Pacific Stock will have to flesh

out its copyright infringement claim and more particularly
describe each actual act of infringement.

However, at this

point, Pacific Stock has sufficiently stated a copyright
infringement claim, with a limited exception.
The limited exception concerns licenses with a duration
that had not expired when the Complaint was filed on June 30,
2011.

Pearson argues that it could not have exceeded the

licensed duration for use of those photographs.

15

The court agrees

with Pearson that, given the lack of factual allegations in the
copyright infringement claim that explain how the duration could
have been exceeded, the allegations that the duration of those
licenses was exceeded do not state a claim.

The court therefore

grants the motion as to Pacific Stock’s claims for copyright
infringement based on the alleged exceeding of the duration of
licenses that had not expired as of June 30, 2011.

In all other

respects, the motion to dismiss the copyright infringement claim
is denied.
B.

Pacific Stock Sufficiently Articulates A Claim Of
Fraud, Except As To Fraud Based On The Duration Of
Licenses That Had Not Expired As Of June 30, 2011.

Pacific Stock asserts that Pearson engaged in
fraudulent conduct by misrepresenting how it intended to use the
photographs licensed by Pacific Stock.

Pearson moves to dismiss

the fraud claim on the ground that it was not pled with the
particularity required by Rule 9(b).
To survive a motion to dismiss, a plaintiff must allege
that (1) false representations were made by the defendant, (2)
with knowledge of their falsity (or without knowledge of their
truth or falsity), (3) in contemplation of plaintiff's reliance
upon them, and that (4) plaintiff detrimentally relied on them.
Hawaii’s Thousand Friends v. Anderson, 70 Haw. 276, 286, 768 P.2d
1293, 1301 (1989).

The circumstances constituting the alleged

fraud must be pled with particularity.

16

Fed. R. Civ. P. 9(b).

Rule 9(b)’s purposes are to provide defendants with adequate
notice to allow them to defend against a charge, to protect those
whose reputation would be harmed by an accusation of fraud, and
to prohibit plaintiffs from unilaterally imposing upon the court,
the parties, and society social and economic costs without some
factual basis.

Kearns v. Ford Motor Co., 567 F.3d 1120, 1125

(9th Cir. 2009).
An allegation of fraud is sufficient if it “identifies
the circumstances constituting fraud so that the defendant can
prepare an adequate answer from the allegations.”

Neubronner v.

Milken, 6 F.3d 666, 672 (9th Cir. 1993) (internal citations and
quotations omitted).

To sufficiently identify the circumstances

that constitute fraud, a plaintiff must identify such facts as
the times, dates, places, or other details of the alleged
fraudulent activity.

Id.

A plaintiff must plead these

evidentiary facts and must explain why the alleged conduct or
statements are fraudulent:
Averments of fraud must be accompanied by
“the who, what, when, where, and how” of the
misconduct charged. Cooper v. Pickett, 137
F.3d 616, 627 (9th Cir. 1997) (internal
quotation marks omitted). “[A] plaintiff
must set forth more than the neutral facts
necessary to identify the transaction. The
plaintiff must set forth what is false or
misleading about the statement, and why it is
false.” Decker v. GlenFed, Inc. (In re
GlenFed, Inc. Sec. Litig.), 42 F.3d 1541,
1548 (9th Cir. 1994).
Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.
17

2003).

Allegations of fraud based on information and belief do

not satisfy Rule 9(b) if the factual bases for the belief are not
included.

Neubronner, 6 F.3d at 672.
Pacific Stock pleads fraud with particularity, except

as to Pearson’s alleged misrepresentations as to the duration of
its use of photographs covered by licenses that had not expired
as of the filing of this lawsuit.
1.

Pacific Stock Alleges That Pearson Made False
Representations.

Pacific Stock adequately pleads the first element of a
fraud claim, i.e., that Pearson made false representations.

As

for the “who” and “when,” Pacific Stock alleges, “The individuals
making such representations are those identified in the column
entitled ‘Pearson Contact’ on Exhibit[] A attached hereto.

Such

representations were made immediately prior to the invoice dates
set forth in the ‘Invoice Date’ column on Exhibit A attached
hereto.”

Compl. ¶ 37, ECF No. 1.

These allegations, read in

conjunction with the information provided in Pacific Stock’s
Exhibit “A,” identify which Pearson representatives made the
allegedly fraudulent statements memorialized in the various
license agreements and when such statements were made.
With respect to the “what,” Pacific Stock alleges:
Pearson knowingly and intentionally falsely
represented to Pacific Stock the intended
print-runs for the licensed photographs it
obtained from Pacific Stock, the duration of
the time during which it would use Pacific
18

Stock’s licensed photographs, the intended
geographic distribution, and the intended
limitations on the media in which the
photographs would be used.
Compl. ¶ 38, ECF No. 1.

Pacific Stock alleges that the

misrepresentations were made “for the purpose of paying lower
license fees to Pacific Stock than would have been required if
full disclosure of the intended uses had been made.”

Id. ¶ 37.

The allegations of fraud are pled in the conjunctive.
That is, as written, the fraud claim alleges misrepresentation by
Pearson in four respects.

The court notes that Rule 9(b)’s

particularized pleading requirement may be relaxed when “facts
constituting the circumstances of the alleged fraud are
peculiarly within the defendant’s knowledge or are readily
obtainable by him.”

Neubronner, 6 F.3d at 672. That is, “with

respect to matters within the opposing party’s knowledge,” a
plaintiff “can not be expected to have personal knowledge of the
relevant facts.”

Id. (citations omitted).

Pacific Stock alleges

misrepresentations in the form of statements allegedly made by
Pearson representatives and memorialized in the license
agreements issued by Pacific Stock to Pearson.

Pearson has

records indicating whether it exceeded the licenses and, if so,
how.
The fraud allegations, which assert that Pearson
intended a greater use of copyrighted material than the use it
described to Pacific Stock, identify the photographs Pearson
19

planned to use; the names of the Pearson contact persons who
described Pearson’s intended use; the dates those persons
provided those descriptions; the form, print run, dates, and
image sizes Pearson said it had in mind; and the licensing fees
Pacific Stock charged based on those descriptions.

These

allegations are sufficient to allege that misrepresentations were
made.
2.

Pacific Stock Alleges That Pearson Knew The
Statements Were False.

With respect to the second element (knowledge of the
falsity of the statements), Pacific Stock alleges that Pearson
was motivated by a desire to minimize the licensing fees it had
to pay Pacific Stock and knew that the more restricted the use of
a licensed work, the lower the fee.

Pacific Stock alleges:

37. Pearson made false representations
to Pacific Stock concerning its intended use
of the photographs that it sought to license
from Pacific Stock. Such representations
were done knowingly and intentionally and for
the purpose of paying lower license fees to
Pacific Stock . . . .
38. Among other things, Pearson
knowingly and intentionally falsely
represented to Pacific Stock the intended
print-runs for the licensed photographs it
obtained from Pacific Stock, the duration of
time during which it would use Pacific
Stock’s licensed photographs, the intended
geographic distribution, and the intended
limitations on the media in which the
photographs would be used.
Compl. ¶¶ 37-38, ECF No. 1.

20

Rule 9(b) provides that “[m]alice, intent, knowledge,
and other conditions of a person’s mind may be alleged
generally.”

Fed. R. Civ. P. 9(b).

The Ninth Circuit has stated,

“While the factual circumstances of the fraud itself must be
alleged with particularity, the state of mind--or scienter--of
the defendants may be alleged generally.”

Odom v. Microsoft

Corp., 486 F.3d 541, 554 (9th Cir. 2007) (citing In re GlenFed,
Inc., Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994)).
As the subjects of the alleged misrepresentation
(number of units printed, time periods of print run, geographic
distribution, and type of media used) are not the stuff of
accident, the court finds the allegations of Pearson’s knowledge
sufficient to satisfy Rule 9(b).
3.

Pacific Stock Alleges That Pearson
Contemplated Pacific Stock’s Reliance On The
Alleged Misrepresentations.

With respect to the third element (contemplation of
Pacific Stock’s reliance on misrepresentations), Pacific Stock
alleges that Pearson knew that Pacific Stock would tie its
licensing fees to the use Pearson described.

The Complaint

alleges,
39.
Pearson knowingly and intentionally
made false representations to Pacific Stock
concerning the scope and duration of its
intended use of Pacific Stock’s licensed
photographs in contemplation that Pacific
Stock would rely upon its representations and
sell licenses for the uses of the photographs
for lower prices than if Pearson had
21

truthfully stated to Pacific Stock the scope
and duration of Pearson’s intended uses of []
Pacific Stock’s licensed photographs.
Compl. ¶ 39, ECF No. 1.
As with knowledge, intent may be alleged generally.
See Odom, 486 F.3d at 554; In re GlenFed, Inc., Sec. Litig., 42
F.3d at 1547.

Pacific Stock’s general allegation that Pearson

knowingly made false representations to secure artificially low
licensing fees is adequate to assert an intent to defraud.
4.

For The Most Part, Pacific Stock Adequately
Alleges That It Detrimentally Relied On
Pearson’s Statements.

Finally, with respect to the fourth element (Pacific
Stock’s detrimental reliance on Pearson’s statements), the court
rejects Pearson’s suggestion that fraud damages may not duplicate
infringement damages.

See Motion at 17 n.4, ECF No. 11-1.

Pearson cites no controlling law on this point and offers no
reason the court should adopt the holding in Semerdjian v.
McDougal Littell, No. 07 Civ. 7496 (LMM), 2008 WL 110942
(S.D.N.Y. Jan 2, 2008).

Conversely, Pacific Stock alleges that

it was deprived of the additional income it would have received
had Pearson paid for licenses reflecting the true use of the
photographs.

See Compl. ¶¶ 21-23, 40-41, ECF No. 1.

Except with

respect to alleged misrepresentations as to the duration of
Pearson’s use of photographs covered by licenses that had not
expired as of June 30, 2011, Pacific Stock has adequately alleged

22

detrimental reliance as to its fraud claim.
The court denies Pearson’s motion to dismiss with
respect to Pacific Stock’s fraud claim, except to the extent the
alleged fraud involves the duration of use of photographs covered
by licenses that had not expired as of June 30, 2011.
C.

Pacific Stock Sufficiently Articulates A Claim Of
Fraudulent Concealment.

Pacific Stock’s final cause of action is for Pearson’s
alleged fraudulent concealment of its use of Pacific Stock’s
copyrighted photographs even before obtaining licenses.

Pearson

moves to dismiss the claim on the ground that the fraudulent
concealment claim does not meet the heightened pleading standard
of Rule 9(b).
Fraudulent concealment is just a form of fraud.

See

Tachibana v. Colo. Mountain Dev., Inc., No. 07-CV-00364, 2011 WL
1327113, *3 n.7 (D. Haw. Apr. 5, 2011) (“We interpret the
reference to ‘fraudulent concealment’ as simply a means of
clarifying for Defendants that the type of fraud alleged includes
fraud by omission and concealment, and not just affirmative
conduct.”); Sung v. Hamilton, 710 F. Supp. 2d 1036, 1047 (D. Haw.
2010) (treating a fraudulent concealment claim as fraud based on
alleged failures to disclose information); Associated Eng’rs &
Contractors, Inc. v. State, 58 Haw. 187, 219-20, 567 P.2d 397,
418 (1977) (“Fraud in its generic sense, especially as the word
is used in courts of equity, comprises all acts, omissions and
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concealments involving a breach of legal or equitable duty and
resulting in damage to another.”).

A claim for fraudulent

concealment is therefore evaluated under the same four elements
of fraud discussed above.

Sung, 710 F. Supp. 2d at 1047.4

4

The United States District Court for the District of
Hawaii has stated, in the context of a fraudulent concealment
claim,
Under Hawaii law, liability for fraudulent
non-disclosure is governed by the Restatement
(Second) of Torts § 551. See Elliot Megdal &
Assocs. v. Hawaii Planing Mill, Ltd., 814 F.
Supp. 898, 904 (D. Haw. 1993); see also
Matsuda [v. Wada], 101 F. Supp. 2d [1315,]
1324 [D. Haw. 1999] (citing Restatement
(Second) of Torts § 551); Molokoa Village
Development Co., Ltd. v. Kauai Elec. Co.,
Ltd., 60 Haw. 582, 593 P.2d 375, 381 (1979)
(citing the Restatement (Second) of Torts
§ 551). The Restatement (Second) of Torts
§ 551(1) provides:
One who fails to disclose to another a
fact that he knows may justifiably
induce the other to act or refrain from
acting in a business transaction is
subject to the same liability to the
other as though he had represented the
nonexistence of the matter that he has
failed to disclose, if, but only if, he
is under a duty to the other to exercise
reasonable care to disclose the matter
in question.
Id. Also, although it has not been cited by
any Hawaii court for the proposition,
Restatement (Second) of Torts § 550 provides:
One party to a transaction who by
concealment or other action
intentionally prevents the other from
acquiring material information is
subject to the same liability to the
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Pacific Stock alleges in its Complaint that Pearson
concealed or misrepresented the nature of its use of the subject
photographs:
48. Pearson has intentionally concealed
and continues to conceal its unauthorized
uses of Pacific Stock’s photographs to
prevent Pacific Stock from discovering its
unauthorized uses of Pacific Stock’s
photographs.
49. Upon information and belief, in
some instances, after Pearson already had
printed a given publication, Pearson sought
to obtain rights to cover its unauthorized
and infringing use of Plaintiff[’]s
photographs, by seeking “reuse” licenses.
50. Upon information and belief,
Pearson characterized these requests for
licenses as requests for future rights
despite the fact that the publications
already had been printed and distributed, and
did not disclose to Plaintiff that it was
seeking “retroactive” licenses.
51. Upon information and belief, in
these instances, Pearson intentionally
concealed or misrepresented the critical
information about the period of the license
when communicating with Plaintiff in order to
hide the fact that Pearson was already
infringing Plaintiff’s copyrights, and to
create the false impression that Pearson’s
request for additional licensing rights was
for prospective rights rather than for
retroactive rights.

other, for pecuniary loss as though he
had stated the nonexistence of the
matter that the other was thus prevented
from discovering.
Sung, 710 F. Supp. 2d at 1047.
25

52. Upon information and belief,
Pearson’s attempt to surreptitiously obtain
retroactive licenses demonstrates that it was
and is aware that it had infringed
Plaintiff[’]s copyrights and was intending to
cover up its infringements through
fraudulently concealing the infringing past
use.
Compl. ¶¶ 48-52, ECF No. 1.
For the reasons discussed in this order with respect to
the fraud claim, the court rules that Pacific Stock has
sufficiently alleged fraudulent concealment by articulating facts
supporting the four elements of fraud.

See Hawaii’s Thousand

Friends, 70 Haw. at 286, 768 P.2d at 1301.
Unlike the copyright infringement allegations in the
First Cause of Action and the fraud allegations in the Second
Cause of Action, the fraudulent concealment allegations in the
Third Cause of Action articulate how even licenses that had not
expired as of June 30, 2011, could have issued based on
misrepresentations as to Pearson’s intended duration of use.
That is, the fraudulent concealment claim asserts that Pearson
sought licenses for photographs it was already using without
licenses.

For this reason, the court denies the motion to

dismiss the fraudulent concealment claim without excepting the
licenses that had not expired as of June 30, 2011.
V.

CONCLUSION.
The motion to dismiss the First Cause of Action

(copyright infringement) and the Second Cause of Action (fraud)
26

is GRANTED only with respect to infringement or fraud relating to
the exceeding of the licensed duration of use of photographs
covered by licenses that had not expired as of the filing of the
Complaint.

In all other respects, the motion to dismiss the

First and Second Causes of Action is DENIED.

The motion is

DENIED with respect to the Third Cause of Action (fraudulent
concealment).
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, January 11, 2012.

/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge

Pacific Stock, Inc. v. Pearson Education, Inc., Civ. No. 11-00423 SOM/BMK; ORDER
GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION TO DISMISS COMPLAINT

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