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RELIGIOUS TECH. CTR. v. NETCOM ON-LINE COMMUN. SER

September 22, 1995

RELIGIOUS TECHNOLOGY CENTER, a California non-profit corporation; and BRIDGE PUBLICATIONS, INC., a California non-profit corporation, Plaintiffs,
v.
NETCOM ON-LINE COMMUNICATION SERVICES, INC., a Delaware corporation; DENNIS ERLICH, an individual; and TOM KLEMESRUD, an individual, dba CLEARWOOD DATA SERVICES, Defendants.



The opinion of the court was delivered by: WHYTE

 This case involves the scope of intellectual property rights on the Internet. *fn1" Plaintiffs, two Scientology-affiliated organizations claiming copyright and trade secret protection for the writings of the Church's founder, L. Ron Hubbard, brought this suit against defendant Dennis Erlich ("Erlich"), a former Scientology minister turned vocal critic of the Church, who allegedly put plaintiffs' protected works onto the Internet. *fn2"

 On June 23, 1995, this court heard the parties' arguments on eight motions, five of which relate to Erlich and are discussed herein: (1) plaintiffs' motion for a preliminary injunction against Erlich and Erlich's related motion to dissolve or amend the Amended TRO; (2) plaintiffs' application to expand the TRO; (3) plaintiffs' motion for contempt against Erlich; (4) Erlich's motion to vacate the writ of seizure; and (5) and plaintiffs' request for sanctions against Erlich's counsel. *fn3" For the reasons set forth below, the court grants in part and denies in part plaintiffs' motion for a preliminary injunction against Erlich and Erlich's motion to dissolve the TRO, denies plaintiffs' application to expand the TRO, denies plaintiffs' motion for contempt against Erlich, grants Erlich's motion to vacate the writ of seizure, and denies plaintiffs' request for sanctions against Erlich's counsel.

 I. BACKGROUND

 Since leaving the Church, Erlich has been a vocal critic of Scientology and he now considers it part of his calling to foster critical debate about Scientology through humorous and critical writings. Erlich has expressed his views about the Church by contributing to the Internet "Usenet newsgroup" *fn5" called "alt.religion.scientology" ("the newsgroup"), which is an on-line forum for the discussion of issues related to Scientology. *fn6"

 Plaintiffs allege that in the six months prior to their filing suit, Erlich unlawfully posted to the newsgroup works from two separate categories of writings by Hubbard which are contained in Exhibits A and B of the FAC. Following Hubbard's death in 1986, ownership of Hubbard's copyrights passed to Author's Family Trust-B. In 1993, the copyrights were distributed to the Church of Spiritual Technology ("CST"), a California nonprofit religious corporation. Plaintiff Bridge Publications, Inc. ("BPI"), a nonprofit branch of the Church, claims to be the exclusive licensee of CST's copyrighted literary works listed in Exhibit A to the Complaint ("Exhibit A works"), which consist mainly of policy letters and bulletins from the Church.

 Plaintiff Religious Technology Center ("RTC"), a nonprofit religious corporation, "was formed by Scientologists, with the approval of [Hubbard], to act as the protector of the religion of Scientology and to own, protect, and control the utilization of the Advanced Technology *fn7" in the United States." FAC, Ex. C, at 2. RTC claims to be the exclusive licensee of the copyrights and the owner of the other rights in the unpublished Advanced Technology works listed in Exhibit B to the Complaint (the "Advanced Technology" works or the "Exhibit B works").

 BPI and RTC allege that Erlich infringed the copyrights in the Exhibit A and B works. RTC also alleges that Erlich misappropriated its trade secrets in the Exhibit B works, the confidentiality of which it alleges has been the subject of elaborate security measures. RTC further claims that those works are extremely valuable to the Church. Erlich admits to having posted excerpts from some of the works, but argues that the quotations were used to provide context for debate and as a basis for his criticism. Erlich further argues that he has neither claimed authorship of any of the works nor personally profited from his critique, satire, and commentary. Erlich contends that all of the Exhibit B documents he posted had been previously posted anonymously over the Internet, except for item 1, which he claims he received anonymously through the mail.

 From August to December 1994, plaintiffs exchanged a series of letters with Erlich, warning him to stop posting their protected writings onto the newsgroup. Plaintiffs also demanded that defendants Netcom and Klemesrud take actions to prevent Erlich's continued postings of protected materials. Erlich indicated that he would not stop, claiming he had a right to continue with his criticism and satire. On February 8, 1995, plaintiffs filed this action against Erlich, Klemesrud, and Netcom for copyright infringement and, against Erlich alone, for misappropriation of trade secrets, seeking actual, statutory, and punitive damages, injunctive relief, impoundment of the infringing materials and equipment, and attorneys' fees and costs.

 On February 10, 1995, the court granted plaintiffs' ex parte application for a temporary restraining order ("TRO") prohibiting Erlich from making unauthorized use of works identified in the exhibits to the complaint and an order directing the clerk to issue a writ of seizure under 17 U.S.C. § 503(a). On February 13, 1995, in execution of the writ of seizure, local police officers entered Erlich's home to conduct the seizure. The officers were accompanied by several RTC representatives, who aided in the search and seizure of documents related to Erlich's alleged copyright infringement and misappropriation of trade secrets. Erlich alleges that RTC officials in fact directed the seizure, which took approximately seven hours. Erlich alleges that plaintiffs seized books, working papers, and personal papers. After locating Erlich's computers, plaintiffs allegedly seized computer disks and copied portions of Erlich's hard disk drive onto floppy disks and then erased the originals from the hard drive. Although plaintiffs returned to Erlich's counsel some of the articles seized, Erlich contends that plaintiffs have not returned all of the seized articles, including ones that are unrelated to the litigation.

 On February 23, 1995, the court issued an "Amended TRO," which sought to clarify what types of use were prohibited and to emphasize that Erlich could make "fair use" of the Exhibit A works.

 II. PRELIMINARY INJUNCTION/DISSOLUTION OF TEMPORARY RESTRAINING ORDER *fn8"

 A. Legal Standards

 A party seeking a preliminary injunction may establish its entitlement to equitable relief by showing either (1) a combination of probable success on the merits and the possibility of irreparable injury, or (2) serious questions as to these matters and that the balance of hardships tips sharply in its favor. First Brands Corp. v. Fred Meyer, Inc., 809 F.2d 1378, 1381 (9th Cir. 1987). These two tests are not separate, but represent a continuum of equitable discretion whereby the greater the relative hardship to the moving party, the less probability of success need be shown. Regents of University of California v. American Broadcasting Cos., 747 F.2d 511, 515 (9th Cir. 1984). The primary purpose of a preliminary injunction is to preserve the status quo pending a trial on the merits. Los Angeles Memorial Coliseum Commission v. National Football League, 634 F.2d 1197, 1200 (9th Cir. 1980).

 B. Likelihood of Success on Copyright Infringement Claims

 To establish copyright infringement, plaintiffs must demonstrate (1) they own a valid copyright and (2) Erlich violated any of their exclusive rights, including, inter alia, the rights to reproduce or prepare derivative works from the original, or to distribute or display copies publicly. 17 U.S.C. §§ 106(1)-(3) & (5), 501(a); Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 111 S. Ct. 1282, 1296, 113 L. Ed. 2d 358 (1991). Erlich, for the most part, admits to having "copied" the Exhibit A and B works, but contends that plaintiffs are not able to establish ownership of a valid copyright interest in those works. Erlich also argues that his activities do not constitute infringement because his use was a "fair use."

 1. Ownership of a Valid Copyright

 Proof of ownership of an existing, valid, and registered copyright interest is a statutory prerequisite to filing an infringement action. 17 U.S.C. § 411. Registration, when "made before or within five years after first publication of the work[,] shall constitute prima facie evidence of the validity of the copyright," including originality, compliance with statutory formalities, and copyrightability. Id., § 410(c); 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright (1995) ("Nimmer") § 12.11[B]. When registration is made more than five years after first publication, the evidentiary weight of the certificate of registration is within the court's discretion. Id. § 12.11[A], [B]. Where the plaintiff is not the author of a work, he must provide evidence of a chain of title from the registrant to him. Nimmer § 12.11[C].

 Plaintiffs provide evidence of registration for all of the Exhibit A and B works. See FAC, Ex. H. Plaintiffs further provide copies of assignment and licensing agreements purportedly showing the necessary chain of title from Hubbard, the author of the works, to plaintiffs RTC and BPI. Attached to the FAC are assignments of all rights in the Advanced Technology works from Hubbard and his estate to RTC. Id., Exs. C, D, F & G. Under the "Literary Agreement" attached to the FAC, BPI is the exclusive licensee of various published, non-fiction Hubbard works, including those works in Exhibit A to the FAC. Id., Ex. E.

 Erlich sets forth in his "Appendix re: Copyright Issues" a host of purported irregularities and defects with the registrations, maintaining that plaintiffs have failed to prove a likelihood of success on ownership of many, if not all, of the works. The court finds that, except as to item 4 of Exhibit A, Erlich has failed to rebut the presumption of validity.

 Erlich's contention that item 4 of Exhibit A ("20 Nov 1961, Routine 3D Commands") has fallen into the public domain appears to be correct. The registration for item 4 gives a first publication date of 1961. Under the Copyright Act of 1909 ("the 1909 Act"), which still applies to works that were first published prior to January 1, 1964, an author is entitled to an initial 28-year copyright term, which expires unless the copyright is renewed by the author or his statutory successors during the final year of the initial term. 2 Nimmer § 9.05[B][1]. The copyright notice date on item 4 is evidence that the Work was first published in 1961. See New Era Publications International, ApS v. Carol Publishing Group, 729 F. Supp. 992, 995 (S.D.N.Y.), aff'd in part, rev'd in part, 904 F.2d 152 (2d Cir.), cert. denied, 498 U.S. 921 (1990). Because there is no evidence that the copyright for item 4 was renewed in 1989, 28 years after its initial publication, the court finds that it fell into the public domain and cannot be the subject of an action for infringement. See id. Plaintiffs argue, however, that item 4 was part of a collection that was registered in 1976, the year that it was first published. As such, plaintiffs contend that the collective work is not yet subject to renewal. While those parts of the 1976 collection that were first published in 1976 were not subject to renewal in 1989, those previously published portions of the collection, such as item 4, must still be timely renewed notwithstanding the registration as a collection in 1976. See 1 Nimmer §§ 3.07[C], 3.04[A], at 3-19.

 Erlich's next claim is that plaintiffs have not registered the works that were infringed, but only the compilations in which they were included. Where, as here, the author of a collection or derivative work is also the author of the preexisting work, registration of the collection is sufficient. Abend v. MCA, Inc., 863 F.2d 1465, 1471-72 (9th Cir. 1988), aff'd, 495 U.S. 207, 109 L. Ed. 2d 184, 110 S. Ct. 1750 (1990); 2 Nimmer § 7.16[B][2], at 7-168 to -170 (distinguishing this situation from that where copyright owner of collective work is not also the owner of the preexisting work). Here, Hubbard was the author of the underlying work and was also the author of the collection of his own works. Accordingly, registration of the collections that include the Exhibit A works constitutes registration of the underlying works.

 Erlich's next argument, that plaintiffs have not shown that Hubbard's statutory successors assigned the renewal terms of the copyrights to plaintiffs, is clearly rebutted by the evidence. See Hawkins Decl., Exs. A-I. The Exhibit B works do not require renewal because they were unpublished as of January 1, 1978, the effective date of the Copyright Act of 1976 ("the 1976 Act"), and were thus protected only by common law copyright. See 2 Nimmer § 9.01[B][2], at 9-17 to -18. As of January 1, 1978, these works became protected by statutory copyright under the new scheme of the 1976 Act, which does not require renewal. Id.

 Finally, Erlich contends that the automatic statutory presumption of validity does not apply because many of the works were published more than five years before registration. The dates specified in a copyright notice are evidence of the date of publication. New Era, 729 F. Supp. at 995. As to the unpublished *fn9" Exhibit B works, registrations were made before first publication in accordance with section 410(c) and thus the presumption is still valid. However, it appears Erlich is correct that the statutory presumption does not apply as to items 1, 2, 4, 5, 6, 7, and 8 of Exhibit A. It is within the court's discretion what weight to give the copyright registrations in determining the validity of the copyright interests of those works for which plaintiffs are not entitled to an automatic presumption of validity. In light of plaintiffs' evidence of validity, see Hawkins Decl., and the lack of a persuasive challenge to the validity of the copyrights by Erlich, the court finds that plaintiffs' registrations are strong evidence of the validity of their claimed copyrights. *fn10"

 2. Direct Infringement

 Except as to item 9 of Exhibit A and item 9 of Exhibit B, see Oakley May 12, 1995 Decl., Ex. B, Erlich does not dispute that he engaged in "copying," which would constitute direct infringement under section 106. As to the item 9 works, there is no evidence that Erlich ever made any postings of or otherwise copied those items. The court will therefore consider plaintiffs' infringement claims as to the remaining works. *fn11"

 3. Fair Use Defense

 "Infringement" consists of violating the author's exclusive rights. 17 U.S.C. § 501. Although the author has the exclusive rights to reproduce, distribute, and display a copyrighted work under section 106, these rights are limited by the defense *fn12" of "fair use":

 17 U.S.C. § 107 (emphasis added). The defense "permits and requires courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster." Campbell v. Acuff-Rose Music, Inc., 127 L. Ed. 2d 500, 114 S. Ct. 1164, 1170 (1994) (citation omitted). Congress has set out four nonexclusive factors to be considered in determining the availability of the fair use defense:

 
(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
 
(2) the nature of the copyrighted work;
 
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
 
(4) the effect of the use upon the potential market for or value of the copyrighted work.

 17 U.S.C. § 107. The fair use doctrine calls for a case-by-case analysis. Campbell, 114 S. Ct. at 1170. All of the factors "are to be explored, and the results weighed together, in light of the purposes of copyright." Id. at 1170-71.

 
a. First Factor: Purpose and Character of the Use

 The first statutory factor looks to the purpose and character of the defendant's use. Erlich argues that his use was criticism, which is one of those uses listed in the preamble to section 107. Similarly, Erlich maintains that his use was meant to "evoke discussion regarding various Scientology philosophies." Mot. To Dissolve at 22. Use for the purpose of criticism weighs in favor of fair use. See New Era, 904 F.2d at 156-57 (using Hubbard's works in critical biography meets first factor for fair use). Plaintiffs contest Erlich's characterizations of his use, claiming that most of Erlich's postings were verbatim copies, with little or no added comment or criticism. *fn13" Plaintiffs further contend that Erlich's purpose was spite or some other destructive reason. However, plaintiffs give no explanation as to why Erlich's purpose was other than to criticize or to evoke discussion regarding Scientology. Because there is insufficient evidence to support plaintiffs' claim that Erlich's copying was made out of spite or for other destructive reasons, the court will assume Erlich's intended purpose was criticism or comment.

 Transformative Use

 Plaintiffs' argument that the amount of added criticism belies Erlich's critical purpose can also be construed as an attack on the "transformative" nature of Erlich's use. In Campbell, the Supreme Court held that the central purpose of the first inquiry is to determine whether the new work is transformative (also described as "productive"), that is, whether it "adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message." 114 S. Ct. at 1171. Erlich's use is only minimally transformative since, unlike the typical critic, Erlich adds little new expression to the Church's works. Accordingly, despite Erlich's purported critical purpose, the actual character of his use does not weigh heavily in his favor because it has only a slight transformative nature. In any case, the Supreme Court held in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 455 n.40, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984) that the fair use defense is not "rigidly circumscribed" by the productive use requirement. The Court found that a home viewer's verbatim copying of copyrighted television shows for the purposes of time shifting was fair use even though there was only a minimal showing of increased convenience to the home user.

 Where the use is not highly transformative, as here, the court will focus on whether the use is of a commercial nature. The Campbell Court emphasized that a commercial use does not dictate against a finding of fair use, as most of the uses listed in the statute are "generally conducted for profit in this country." 114 S. Ct. at 1174. Nonetheless, the Court recognized that a commercial use weighs against a finding of fair use. Id. The fact that there is no evidence that Erlich gains financially from his criticism of the Church weighs in his favor.

 Plaintiffs argue, however, that Erlich personally gains through increased status and recognition among his peers and the public. In Weissmann v. Freeman, 868 F.2d 1313 (2d Cir.), cert. denied, 493 U.S. 883, 107 L. Ed. 2d 172, 110 S. Ct. 219 (1989), the Second Circuit recognized that, in the unusual setting of academia, a defendant can profit personally from copying despite the lack of a monetary gain. The defendant in Weissman was a professor who copied a former assistant's scholarly work, used it for the same purpose as the author, and claimed credit for himself, thereby aiding his professional advancement. Id. at 1324. Here, there is neither evidence that Erlich took credit for any of plaintiffs' works nor that he is personally profiting, professionally or otherwise, as a result of his postings. If mere recognition by one's peers constituted "personal profit" to defeat a finding of a noncommercial use, courts would seldom find any criticism fair use and much valuable criticism would be discouraged. Thus, the court finds that Weissman is inapplicable here, and that its holding should not be stretched to swallow all nonprofit criticism motivated by concern for status. Accordingly, based on the clearly noncommercial nature of the use and the protected purpose of criticism, the court finds that the first fair use factor weighs slightly in Erlich's favor despite the minimally transformative nature of Erlich's use.

 Defendant's Conduct

 Plaintiffs contend that, regardless of the results of weighing the four fair use factors, a finding of fair use is nonetheless precluded because Erlich's copies were made not from legitimate copies of the works but from unauthorized copies. Although plaintiffs discuss this purported "good faith" prerequisite *fn14" to fair use apart from the four factors, it is properly a factor to be considered with the first statutory factor regarding the character of the use. 3 Nimmer § 13.05[A][1][d], at 13-171 to -174 (discussing "defendant's conduct" as one aspect of the first statutory factor).

 The court finds that plaintiffs' showing on bad faith is mixed at best. There is no evidence here that Erlich obtained his copies of plaintiffs' works through deceit. Cf. Atari, 975 F.2d at 836, 843 (finding no fair use where defendant obtained plaintiff's source code by lying to copyright office). Unlike Sega, there is no admission by the defendant that he does not possess any legal copies. As to several of the Exhibit A works, it appears that Erlich possessed legitimate, published books containing some of the works; plaintiffs offer no evidence that Erlich obtained these books in some unlawful or illegitimate manner. *fn15" However, as to those works where Erlich claims he obtained his copies over the Internet or anonymously through the mail, this does not negate an inference that he received those copies in an improper manner. Erlich's copies of Exhibit B works were more likely unauthorized than not; plaintiffs have provided substantial evidence that the Advanced Technology works are kept confidential, see infra part II.C.2, and that Erlich would not have been given permission to keep a copy of those works. For most of the disputed works, the fact that Erlich may have obtained his copies in an unauthorized manner tends to weigh in plaintiffs' favor. This finding, however, will not bar Erlich's fair use defense, but will merely be considered with the other factors.

 
b. Second Factor: Nature of the Copyrighted Work

 The second factor focuses on two different aspects of the copyrighted work: whether it is published or unpublished and whether it is informational or creative.

 Published vs. Unpublished

 The unpublished status of a work is "a critical element of its 'nature.'" Harper & Row, 471 U.S. at 564 (finding no fair use where The Nation magazine used unpublished manuscript to scoop Time magazine). The Nation case held that "the scope of fair use is narrower with respect to unpublished works." Id. In a case involving copying of allegedly unpublished works by Hubbard, the Second Circuit recognized that where the works were unpublished no court had yet found in favor of the infringer on the second factor. New Era, 904 F.2d at 155. Nevertheless, the Second Circuit affirmed a finding of fair use where a biographer quoted portions of unpublished letters. Wright v. Warner Books, Inc., 953 F.2d 731 (2d Cir. 1991); see also Norse v. Henry Holt & Co., 847 F. Supp. 142, 147 (N.D. Cal. 1994) (finding fair use where 50 words copied from unpublished letters and all but the second factor weighed in favor of defendant). In 1992, Congress amended section 107 of the 1976 Act to clarify that the unpublished nature of a work should not itself bar a finding of fair use. See H.R. Rep. No. 102-286, 102d Cong., 2d Sess. 8 (1992) (House Report) (citing Wright with approval and criticizing earlier Second Circuit decisions that created a per se rule against fair use of unpublished works); see also 3 Nimmer § 13.05[A][2], at 13-184 to -186. Congress construed the Nation's statement that the scope of fair use is narrower for unpublished works to mean that the amount of permissible copying will be less in the case of an unpublished work. Id.

 Even though a work is read by a large group of people, it is still unpublished where it is held confidential and the authors do not relinquish control over their copies of the work. See College Entrance Examination Board v. Cuomo, 788 F. Supp. 134, 139-41 (N.D.N.Y. 1992) (finding that administered secure tests were necessarily unpublished because author did not relinquish control and finding for author on second fair use factor). Plaintiffs have adequately demonstrated that the Exhibit B Advanced Technology works are kept confidential using tight security measures. See infra part II.C.3. Although there is evidence that individuals may have made unauthorized public disclosures of some of these works, see id., the works are still "unpublished" for the purposes of the fair use defense. See discussion supra note 9. However, the Exhibit A works, with one exception, are published. Accordingly, this portion of the second factor weighs in Erlich's favor as to the published Exhibit A works and strongly in plaintiffs' favor as to the Exhibit B works.

 Informational vs. Creative

 The second aspect of this factor looks to broaden the protection of those works that are creative, fictional, or highly original and lessen the protection for those works that are factual, informational, or functional. See Campbell, 114 S. Ct. at 1175. The Second Circuit noted the obvious difficulty ...


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