President of Restaurant and Lounge Is Found Personally Liable For Unlicensed Public Music Performance

By Evelyn Li

The United States Court of Appeals for the Ninth Circuit affirmed a California district court’s granting of a summary judgment in favor of plaintiff-appellees for a total of $203,728.22. The judgment included a statutory infringement damage of $4,500 for each of the 8 infringements ($36,000), and attorneys’ fees and costs in the amount of $167,728.22. Plaintiff-appellees, Range Road Music, Inc. together with Sony/ATV harmony, Williamson Music Company and several other music companies (“Music Companies”) sued East Coast Foods, Inc.(“East Coast”) and its president Herbert Hudson for copyright infringement after collecting evidence through an independent investigator, Scott Greene, on unlicensed public performances of music owned by the Music Companies. Scott Greene was retained by American Society of Composers, Authors, and Publishers (ASCAP) to visit the restaurant “Long Beach Roscoe’s” owned by East Coast to investigate whether copyright infringement was likely occurring at the venue. Greene’s report identified eight songs, which were later confirmed by ASCAP as owned by the Music Companies, which were publicly performed in the restaurant during his visit. In addition to the report, the Music Companies also showed that ASCAP had repeatedly requested the East Coast to pay licensing fees between 2001 and 2007.

The defendants appealed to the Ninth Circuit after the district court granted summary judgment for the Music Companies and awarded damages as well as attorneys’ fees and costs against East Coast and Hudson. The Ninth circuit then reviewed the district court’s grant of summary judgment de novo both on the issue of the district court’s evidentiary ruling and the award of attorneys’ fees, and it found both judgments to be proper.

The main issues discussed by the Ninth circuit was (1) whether the district court erred in granting summary judgment for the Music Companies on its complaint of vicarious liability for copyright infringement; (2) whether East Coast and Hudson can be held liable for vicarious infringement; and (3) whether the district court’s award of attorney’s fees and costs to the Music Companies was an abuse of discretion.

The court found the Music Companies’ complaint sufficient because, first, they adequately provided specific evidence to raise a plausible inference that East Coast and Hudson exercised control over and financially benefitted from the infringing performance at the Long Beach Roscoe’s; and, second, the Music Companies provided sufficient evidence to establish a prima facie case of copyright infringement with no genuine issue of material facts. To reach the conclusion on whether the Music Company’s complaint was sufficient, the court explored the case law in Metro-Goldwyn-Mayer Studio Inc. v. Grokster, Ltd., 545 U.S. 913 (2005) and Twentieth Century Music Corp v. Aiken, 422 U.S. 151 (1975) to find that a vicarious infringer “profits from direct infringement while declining to exercise a right to stop or limit it” and, “The entrepreneur who sponsors such a public performance for profit is also an infringer—direct or contributory.”  Then, the court went on to discuss whether Scott Greene’s uncontested declaration was sufficient to establish that no genuine issue of material fact existed as to the Music Companies’ claim. East Coast and Hudson argued that Greene’s declaration was inadmissible because it was “expert testimony by a lay witness.” However, the court disagreed by stating that “identifying popular songs does not require ‘science, technical, or other specialized knowledge’ (Fed. R. Evid. 702).” Furthermore, the court mentioned “many of Greene’s identifications did not even require him to tax his memory: the live band announced the titles of several of the compositions they covered, and Greene transcribed other titles directly from a CD jewel case.”

In addition, the court found the argument raised by East Coast and Hudson that the Music Companies’ evidence of copyright infringement was inadequate due to a lack of showing on “substantial similarity” between the compositions performed at Roscoe’s and the copyrighted works to be a red herring. Under Funky Films, 462 F.3d 1072 (9th Cir. 2006), a demonstration of substantial similarity is only necessary to prove infringement “absent evidence of direct copying.” Accordingly, the court found no genuine issue of material fact existed because there were substantial proof of direct copying in this case.

Thus, the court concluded that the district court was correct in granting summary judgment for the Music Companies on the complaint of vicarious liability for copyright infringement.

Turning to the second issue on East Coast and Hudson’s liability for the infringement, the court looked to Perfect 10. Inc. v. Amazon.com, Inc., 487 F. 3d 701 which states that a defendant “exercises control over a infringer when he has both a legal right to stop or limit the directly infringing conduct, as well as the practical ability to do so.” Applying the facts in this case, the court found that East Coast and Hudson not only “exercised control over both the Long Beach Roscoe’s and the Sea Bird Jazz lounge,” but they also have “derived a financial benefit from the musical performances in the lounge.” Therefore, the court concluded that the district court properly held that Hudson and East Coast were jointly and severally liable for copyright infringement. Although Hudson and East Coast demonstrated that they are not proper defendants because Hudson has never owned the Long Beach Roscoe’s, the court found such argument to be “unsubstantiated and self-serving.”

On discussing the third issue on whether the district court’s award of attorney’s fees and costs to the Music Companies was an abuse of discretion, the Ninth Circuit relied on Entm’s Research Grp., Inc. v. Genesis Creative Grp., Inc., 122 F.3d 1211 (9th Cir. 1997) and 17 U.S.C. § 505 to find that the district court “properly applied factors set forth in Entertainment Research Group and articulated a reasoned explanation for its fee award.” Besides, the court also mentioned that such liability could have been avoided if East Coast and Hudson had purchased a license during the seven years in which ASCAP “importuned them to do so.” Also, the court found that the obfuscation of the corporate structure of Roscoe’s caused much of the fees and costs for East Coast and Hudson as well.

In conclusion, the Ninth Circuit affirmed the district court’s decision as to all the above mentioned three issues. East Coast and Hudson will be most likely paying the Music Companies a total of $203,728.22 for the unlicensed music performance in the public.

eBay Reseller of OEM Software Denied First Sale Defense

By Zi Wang

In Adobe Sys. v. Hoops Enter. LLC (N.D. Cal. 2012), the court rejected the first sale defense asserted by an eBay reseller of original equipment manufacturer (OEM) copies of software, drawing a distinction between licenses and sales of copyrighted works.

Adobe sued the defendants for copyright infringement, alleging that the defendants sold OEM copies of Adobe software through the use of eBay and other websites.  The defendants countersued Adobe for a declaratory judgment of copyright misuse.  In particular, the defendants contended that Adobe’s assertion of copyright protection contravened the first sale doctrine, as codified in 17 U.S.C. § 109.  The defendants also asserted the first sale doctrine as an affirmative defense.

The defendants obtained OEM copies of Adobe software that had been unbundled from the hardware with which they were originally packaged, such as Dell and Hewlett-Packard computers.  The defendants then re-bundled the software with items such as a piece of photo paper, a blank DVD, or a media card reader without Adobe’s authorization, and resold it online.

Adobe stated that it distributes its copyrighted software pursuant to licensing agreements that restrict the use, location of distribution, transfer and sometimes who is qualified to obtain the product, and does not transfer title to the software at any time.  Under Adobe’s licensing agreements applicable to OEM copies, these copies may not be unbundled and sold separately or re-bundled with products not approved by Adobe.

The defendants proffered evidence of Adobe’s licensing agreements with Dell and Hewlett-Packard.  The court included details of the Dell agreement in its opinion as an example.  The agreement contains following provisions and restrictions:

Dell is granted a license.

Dell is required to obtain a similar agreement with any third-parties prior to authorizing or sublicensing the software to them.

Adobe retains ownership of intellectual property rights in the software and places substantial restrictions on Dell’s use of the software.

Dell is prohibited from promulgating the software through specified means and requires that the software be bundled with specified Dell hardware.

Dell is obliged to take steps to prevent resellers from selling the software separately from this hardware.

Dell is required to include Adobe’s end-user license agreement with the hardware in such a way that the user can read it before accessing the software media and must include Adobe’s “copyright and proprietary notices.”

The court followed the Ninth Circuit’s holding in Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010) that the first sale affirmative defense is unavailable to those who are only licensed to use their copies of copyrighted works.  The court also adopted a three-prong test set out in Vernor:  A software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.

Accordingly, the court found that the first sale doctrine does not apply to the Adobe OEM software at issue because Adobe licenses, rather than sells, its OEM software.

Take-Away Points:  Copyright owners are well advised to utilize carefully drafted licensing agreements and maintain sufficient control over the copyrighted works in order to maximize their rights under copyright law.  End-users of software products that come with computer hardware should be put on notice that they cannot assume that they “own” their copies of such software and their rights vis-à-vis these copies may be curtailed by licensing agreements between software vendors and hardware manufacturers.

Ninth Circuit Finds Creation of Custom Programs under Contract which is Silent as to Intellectual Property Grants an Unlimited License to Use and Modify the Custom Programs

In Asset Marketing Systems, Inc. v. Kevin Gagnon, d/b/a Mister Computer, D.C. 542 F3d 748; 88 USPQ2d 1343 (9thCir. 2008), Kevin Gagnon, doing business as Mister Computer (“Gagnon”) appeals from the District Court’s grant of summary judgment in favor of Asset Marketing Systems, Inc. (“AMS”). The Court of Appeals for the Ninth Circuit affirmed.

Background

From May 1999 to September 2003, AMS, a field marketing organization offering sales and marketing support to insurance marketing entities, hired Gagnon at-will as an independent contractor to assist with its information technology needs. Gagnon was asked to develop six custom software programs for AMS.  Over the course of the companies’ four year relationship, AMS paid Gagnon over $2 million for this development.  However, no agreement was agreed to governing rights in the intellectual property for the developed software programs. Continue reading