May 2012 – 6th Circuit Copyright Litigation Update

The 6th Circuit Court of Appeals and its subordinate district courts decided a total of six cases involving a substantive discussion of copyright-related claims in the month of May 2012:

 

Mass Infringement Suits; Joinder

Third Degree Films v. Does 1-36, No. 11-cv-15200 (E.D. Mich. May 29, 2012)

This is the third written opinion in as many months from a different judge on the same bench addressing the same question: whether the owner of a copyrighted film may join together all individuals who allegedly downloaded the film via BitTorrent, or whether those defendants must be severed.  In March 2012, Judge Steeh decided that the defendants should be severed.  In April, Magistrate Judge Randon reached the opposite conclusion, reasoning that the nature of BitTorrent technology ties the actions of each individual defendant together in ways that form a common question of fact and a basis for joinder.  (I’m informed that Judge Cohn from the same bench has sided with Magistrate Judge Randon’s view in a ruling from the bench.)

Here, Magistrate Judge Michelson sided with the latter view.  Based on a digital forensic investigation, plaintiff sued only the 36 parties who participated in the same “swarm”–i.e., the same group of computers that transferred individual pieces of the same file.  Although “the Court agree[d] with Defendant that it is unlikely that any defendant in this case directly shared a piece of the work with another defendant … it is important to consider that while a peer directly uploads to only a small number of peers, those peers in turn upload pieces to other peers that later join the swarm. Thus, a defendant’s ‘generation’ of peers – peers that a defendant likely directly uploaded to – helped pass on pieces of the Work to the next ‘generation’ of active peers. … In other words, each defendant allegedly participated in the same swarm for the same digital encoding of the Work and thereby jointly contributed to the illegal distribution of the Work to others.”

 

Default and Default Judgment

McGinnis v. Rentech Solutions, Inc., No. 2:11-cv-00670 (S.D. Ohio May 1, 2012)

Plaintiff is a professional photographer who accused defendant of using his copyrighted photograph without permission.  While the parties were in settlement discussions, defendant missed its deadline to file its answer. A motion for leave to file one was denied without prejudice because defendant did not seek consent before filing the motion.  Plaintiff moved for default judgment, and plaintiff renewed its motion for leave to file.

The court denied default judgment and allowed defendant to file an answer.  Although acknowledging the general rule that mere denials of liability do not demonstrate a credible defense to default judgment, the court relied on more recent 6th Circuit precedent suggesting that general denials can suffice.  “Certainly, if it is not true that [plaintiff] has a copyright for the photograph, or [defendant] did not use it, the outcome of the case could favor [defendant].”  There was also “a concern about venue.”  Finally, the delay of a few weeks during settlement talks did not indicate culpable disregard of the court’s deadline.

 

Preemption; Copyrightability

BudsGunShop.com, LLC v. Security Safe Outlet, Inc., NO.: 5:10-cv-00390-KSF (E.D. Kent. May 23, 2012)

The defendant company in this trade secret misappropriation case proposed a third party claim and counterclaim against its former shareholder and his new online retail venture for conversion, alleging that these parties converted three websites and their related customer data, including customer contact lists.  The proposed counterdefendants  opposed the proposed claims as futile, arguing that they were preempted by copyright law.

The court found itself unable to resolve the futility argument at the pleading stage.  As to the websites, the court found that, although websites may contain copyrightable content, they are not per se copyrightable, and it was unclear whether these websites contained copyrightable content.  Likewise, it noted that customer information databases could potentially qualify for copyright protection as a compilation, but that the record did not allow it to determine whether this compilation was protectable.  The court deferred decision to the summary judgment stage.

 

Copyrightability

Libertas Technologies LLC v. Cherryhill Management, Inc., No. 1:10-cv-935 (S.D. Ohio May 15, 2012)

Defendants admitted copying plaintiff’s registered “management interface” software, but argued that the software was functional and thus not copyrightable.  But the plaintiff’s registrations certificate afforded its software a presumption of copyrightability, and defendants did not create a sufficient record from which the court could decide if the software was functional or creative.   It therefore declined to dismiss the claim, deferring instead to a more fact-intensive inquiry at the summary judgment stage.

 

Statute of Limitations

Design Basics, LLC v. Roersma & Wurn Builders, Inc., NO. 1:10-CV-696 (W.D. Mich. May 18, 2012)

The Court granted plaintiff summary judgment on defendant’s statut of limitations defense, holding that the 6th Circuit would follow the “discovery rule” rather than the “injury rule” in determining when the Copyright Act’s statute of limitations accrues.  “[T]he Sixth Circuit has, if not adopted the discovery rule outright, certainly endorsed the idea. See Roger Miller Music, Inc. v. Sony/ATV Publishing, LLC, 477 F.3d 383, 390 (6th Cir. 2007).”  Likewise, the court laundry-listed citations from other circuits “overwhelmingly” following the discovery rule.  The court went on to hold:

“Application of the discovery rule to copyright infringement actions not only comports with Sixth Circuit precedent and the decisions of the other Circuits to consider the issue, but is also sensible from a policy perspective. Inevitably, some infringements will be easier to discover than others. The discovery rule protects copyright holders from losing the benefit of their intellectual property as long as they act with reasonable dispatch upon actual discovery of infringement. It also ensures that unwitting infringers are not surprised by stale claims, by requiring a copyright holder to exercise due diligence in policing its rights, or lose its claims three years after it should have discovered the infringement. A rule of accrual that did not key off actual or constructive discovery, in contrast, would have the perverse effect of rewarding infringers who were cunning enough to conceal their infringement as long as possible.”

 

Personal Jurisdiction

 Leapers, Inc., Plaintiff, v. First Quality Distributors, Inc., No.: 11-15058 (E.D. Mich. May 15, 2012)

Michigan-based Plaintiff sued New York-based First Quality and its sole shareholder, director and officer for copyright and trademark infringement.  The individual defendant moved to dismiss for lack of personal jurisdiction, arguing that he had no sufficient minimum contacts with Michigan, and that any contacts he had were in an official capacity inbehalf of his company rather than in a personal capacity.

The latter argument, known as the “fiduciary shield doctrine,” has been explicitly rejected by the Sixth Circuit, the Michigan Supreme Court, and even a prior decision from this same district judge, so the court had no hesitance in rejecting it here.  The capacity in which the individual was operating when forming his contacts with the jurisdiction is irrelevant.

The individual’s long business relationship with plaintiff was sufficient to form minimum contacts with Michigan.  He negotiated the agreement under which the parties did business for 8 years.  He made regular contact with plaintiff via phone and email.  He even visited plaintiff in Michigan at least once to discuss what would become the subject matter of the complaint.  Moreover, his acts of online infringement were knowingly targeted at plaintiff and caused injury in Michigan, satisfying the Calder effects test.