Copyright - Removal, Remand, Preemption and Second-Filed Actions (Ch 4,5, 7, 9)

In bringing a litigation related to copyright ownership, the question arises: what court do I belong in? Many practitioners comfortable with litigating in a local state court will likely seek to avoid federal questions and assert a state-law based claim in state court. Defendants, quickly spotting the copyright issue and seeking the benefits of federal law, both substantive and procedural, will want to get the case into federal court.

How does one get a case bounced from state court to federal court? The procedure is called removal. Read sections 1441 through 1453 of 28 U.S.C. and come right back to this post and you'll understand the basic process. Removal involves a defendant filing simultaneously very simple notices with the federal and state courts notifying the courts that you have moved the case. No court permission necessary, no motion, no application. I have described the circumstances under which removal is appropriate and provided forms in Chapter 9 of the Copyright Litigation Handbook (West 2006) titled "Removal from State Court and Preemption". Once you've made the filings, the state court judge has no power over the case, but any preliminary injunctive relief entered by the state court judge prior to removal will remain in place.

Let's say you are the plaintiff who filed the state court action. You believe that removal was improper. Your remedy is to make a motion to the federal judge who is now assigned to the case (the Clerk of the Court makes the assignment of a federal judge upon recieving the Notice of Removal). Your motion seeks a remand (that is, send it back to state court).

In most cases (not involving copyright), you can only remove a case to federal court if a federal question appears on the face of the complaint filed in state court. A defendant who has federal defenses is generally stuck in state court. Copyright is different. Most Circuit courts have explicitly adopted the "complete preemption test" based on 17 U.S.C. 301(a) (which provides that federal copyright law preempts state law). Essentially, even if the state court complaint doesn't have a copyright claim, the federal court, on the remand motion, will analyze in a two part test (1) whether the work is within the subject matter of copyright and (2) whether the rights granted under state law are equivalent to exclusive rights granted to a copyright owner.

Professor Patry's blog (No Pound of Copyright 12/27/2006) brought to my attention a Fifth Circuit case Pritchett v. Pound, --- F.3d ---, 2006 WL 3704859 (C.A. 5 (Tex.)) 12/18/2006. Professor Patry discusses the difficulties involved in determining accrual of statutes of limitations and takes issue with the 5th Circuit's analysis. When does a copyright ownership claim accrue? When does an infringement claim accrue? I discuss these issues at Chapter 4 of the Copyright Litigation Handbook.

But what I found interesting, mystifying and inspirational about the Pritchett case is that a plaintiff first went to state court seeking an accounting and royalties from sales of a book which plaintiff's deceased husband allegedly co-authored. Defendant sought and successfully obtained a remand based on the representation that "there was no ownership dispute and therefore no federal question". So the defendant was apparently stuck in state court. Apparently, the defendant simply ignored the remand and filed a second federal action seeking a declaratory judgment that defendant owned the copyrights. The original plaintiff (now the defendant) counterclaimed for an accounting. The "second-filed action plaintiff" won summary judgment on the declaratory judgment, which the 5th Circuit affirmed. Wow!

Practice Insight. The Pritchett case provides support for the proposition that one can simply ignore a remand and file a second declaratory judgment action in federal court. I discuss Cease and Desist Letters and Declaratory Judgment Actions in Chapter 5 of the Copyright Litigation Handbook. Second-filed actions usually arise where a would-be plaintiff is hit with a declaratory judgment action after an ill-advised cease and desist letter was sent to an inconvenient jurisdiction. Filing a second action under the Pritchett circumstances is a very bold move that paid off, perhaps because the record below (which I have not examined) was very sparse and the "second-action defendant" acquiesced by asserting counterclaims rather than moving for sanctions under Rule 11 of the Federal Rules of Civil Procedure.

Copyright Infringement Complaint: Selecting Defendants (Ch 6)

In a recent discussion of a major copyright infringement case with an attorney colleague, he expressed surprise that a corporate officer had been held personally liable for a copyright infringement that had been committed by a corporation.

Most of us in law school learn that the corporate shield will protect corporate officers from liability for most actions of officers, with possible exceptions such as liability for unpaid payroll, gross negligence or criminal activity. In the Copyright Litigation Handbook (West 2006), Chapter 6 deals with drafting a copyright infringement complaint. Section II covers drafting the caption and personal liability of corporate officers.

In a recent copyright infringement action, Riverdeep Interactive Learning, Ltd. v. MPS Multimedia, Inc., 2006 WL 3797962 (N.D. Cal.)(Slip Copy) 12/22/2006, a corporate officer was named personally as a defendant for copyright infringements seeking "damages against MPS and Chen for their knowing and willful infringement of RIL's copyrights." The allegations against the officer were contained in a single paragraph:

"Chen, as MPS' President and CEO, directs, controls and ratifies the actions of MPS including the unlicensed and unauthorized replication and distribution of Riverdeep software."

Mr. Chen brought a motion to dismiss pursuant to Rule 12(b)(6). He lost. The court accepted Plaintiffs argument that corporate officers "are personally liable for the corporation's copyright and trademark infringements when they are a 'moving, active conscious force' behind the corporation's infringement." (citing Novell, Inc. v. Unicom Sales, Inc., 2004 WL 1839117, *17 (N.D. Cal. 2004).

Practice Tip for Lawyers: Where an investigation reveals that there is sufficient evidence of copyright infringement to file a complaint, a plaintiff may include a very conclusory allegation such as the bolded text above to hold a corporation's top officer personally liable. Defendants who reflexively make 12(b)(6) motions should really think twice - not only may you lose, but your client may be tagged with your adversary's legal fees on the motion.

Postscript. The defendants brought a motion challenging federal subject matter jurisdiction pursuant to Rule 12(b)(1), raising a plausible argument that the case was a contract case that belonged in state court because it was a dispute between parties over a license agreement, rather than a copyright infringement case. The court engaged in the T.B. Harms analysis and rejected that argument. The defendant also brought a motion for a more definite statement under Rule 12(e) of the Federal Rules of Civil Procedure. He lost that, too. The court noted that the two instances in which a Rule 12(e) motion are proper are 1. when the claim is unintelligible or 2. where the complaint is so general that an ambiguity arises in determining the nature of the claim or the parties against whom it is being made." (citing Sagan v. Apple Computer, 874 F. Supp. 1072, 1077 (C.D. Cal. 1994).

Copyright Licensing Litigation - Motion in Limine and Summary Judgment (Ch 7,8, 14)

In Command Cinema Corp. v. VCA Labs, --- F. Supp.2d ----, 2006 WL 3357257 (S.D.N.Y.) 11/17/2006, a producer of adult films sued a film laboratory over loss of masters. Defendant VCA's motion to dismiss claims for conversion, breach of express contract and breach of implied contract was met with a cross-motion by Command Cinema for summary judgment on conversion. Simultaneously, VCA moved in limine to exclude evidence of Command's lost profits as a measure of damages and to preclude Command's claim for punitive damages. In a conference call, the court advised the parties that it was considering summary judgment on more claims than Command had requested and invited the parties to make additional submissions.

The court granted summary judgment on the breach of contract claims and dismissed claims that were duplicative or inconsistent with successful breach of contract claims (conversion, breach of implied contract). Simultaneously, the court granted in part and denied in part the Defendant's motion in limine. For one film, the court excluded evidence of lost asset value as a measure of damages, for another the court reserved the issue for trial but noted that the type of calculation - a comparison with comparable films - was "capable of determining damages with reasonable certainty." For both films, the court granted the motion in limine to the extent of precluding a request for punitive damages.

The action involves no claims under or citations to the Copyright Act. Command is a New York corporation and VCA is California-based, so the presumed subject matter jurisdiction would be diversity jurisdiction, but the opinion, which is supplemented by 105 endnotes, is silent on the jurisdictional question. Generally speaking, contracts involving copyrighted works do not belong in federal court unless they raise issues "arising under" the Copyright Act, or unless there is an independent ground for subject matter jurisdiction, such another federal question (28 U.S.C. Sec. 1331) or diversity jurisdiction (28 U.S.C. Sec. 1332).

Plaintiff copyright owner entrusted, pursuant to written contracts, Defendant laboratory with masters which were to be upgraded, duplicated as sub-masters and the original masters were to be returned to Plaintiff. Defendant returned the masters, which Plaintiff then destroyed. Following that, Defendant lost or misdelivered the sub-masters.

Applicable Rules of Procedure. Defendant's motion to dismiss was brought under Rule 12(b) of the Federal Rules of Civil Procedure. The cross-motion for summary judgment was brought under Rule 56. Motions in limine may be brought any time including during trial, usually under procedures governed by local rules or a judge's individual rules.

Practice Tip for Lawyers. Both parties wisely focused on the relevant issues: breach of contract and the scope of damages. Apparently after being warned by the judge of a possible grant of summary judgment, Defendant's lawyer made a motion in limine that reduced Defendants' potential liability and increased the chances for settlement. A motion in limine is a powerful tool to preclude or get evidence admitted prior to trial that should be seriously considered at the early stages of litigation.