United States District Court, N.D. California
July 13, 2004.
UMG RECORDINGS, INC. et al., Plaintiffs,
BERTELSMANN AG et al., Defendants. LIEBER et al., Plaintiffs, v. BERTELSMANN AG et al., Defendants. CAPITOL RECORDS, INC. et al., Plaintiffs, v. BERTELSMANN AG et al., Defendants. UMG RECORDINGS, INC. et al., Plaintiffs, v. HUMMER WINBLAD VENTURE PARTNERS et al., Defendants. BRIDGEPORT MUSIC, INC. et al., Plaintiff Applicants in Intervention.
The opinion of the court was delivered by: MARILYN PATEL, Chief Judge, District
MEMORANDUM & ORDER RE: Defendants' Motion to Dismiss
These actions arise from the litigation involving alleged
copyright infringement by Napster, Inc. ("Napster") before this
court and the Ninth Circuit in 2000 and 2001. Plaintiffs UMG
Recordings, Inc. et al. ("UMG"), Capitol Records, Inc. et al.
("Capitol"), and Jerry Lieber et al. ("Lieber") have brought suit
against Bertelsmann AG et al. ("Bertelsmann") and Hummer Winblad
Venture Partners et al. ("Hummer"),*fn1 alleging that
Bertelsmann and Hummer engaged in vicarious and contributory
copyright infringement in the course of their involvement with
Napster. Now before the court are defendants' motions to dismiss
for failure to state a claim upon which relief may be granted,
and applicant Bridgeport Music, Inc.'s ("Bridgeport's") motion to
intervene. Having considered the parties' arguments and
submissions, and for the reasons set forth below, the court now
enters the following memorandum and order.
The facts and events surrounding the operation of Napster and
giving rise to this action have already been ably summarized both
by this court and the Ninth Circuit. See A & M Records, Inc.
v. Napster, Inc., 114 F. Supp.2d 896 (N.D.C.A. 2000) (Patel,
C.J.) (aff'd in part, rev'd in part, and remanded,
239 F.3d 1004 (9th Cir. 2001) (hereinafter "Napster II"). In its April
2001 opinion evaluating plaintiffs' motion for a preliminary
injunction, the Ninth Circuit held that plaintiffs in that case had demonstrated a substantial likelihood of success on the
merits of their claim that Napster through its file-sharing
system that facilitated the exchange of copyrighted works among
online users had engaged in contributory and vicarious
infringement. See Napster II, 239 F.3d at 1022 & 1024.
Napster, Inc. has since entered bankruptcy protection, and
plaintiffs in this case have now filed suit against Bertelsmann
and Hummer Winblad in an effort to hold those parties responsible
for Napster's actions (indeed, for the very existence of Napster)
and to recoup some of their damages allegedly occasioned by the
formidable amount of file-sharing that took place under Napster's
The above-captioned lawsuits naming Bertelsmann as a defendant
were originally filed in the Southern District of New York, and
UMG brought its lawsuit against Hummer Winblad in the Central
District of California in the first instance. These cases were
then transferred to this court by the Judicial Panel on
Multidistrict Litigation by reason of this court's involvement in
the underlying Napster litigation. Defendants have filed motions
to dismiss under Fed.R.Civ.P. 12(b)(6) against all plaintiffs'
claims, and briefing on these motions has been somewhat
consolidated due to the inter-relatedness of the issues
presented. The court further consolidates these separate motions
and decides them here.
In 2003, Bridgeport filed a motion to intervene in UMG's action
against Bertelsmann while that case was still pending in the
Southern District of New York. Plaintiff UMG opposed Bridgeport's
motion on the ground that intervention would prejudice UMG's
rights in that action, as Bridgeport and UMG were themselves at
loggerheads over a number of issues, not least of which was the
question of whether Bridgeport owned partial rights to numerous
UMG works whose copyrights Bertelsmann had allegedly infringed.
On December 1, 2003, the Southern District of New York denied
Bridgeport's motion to intervene, see UMG Recordings, Inc. v.
Bertelsmann AG, 2003 WL 22852745 (S.D.N.Y. 2003), stating that
Bridgeport would be entitled to file a separate action against
Bertelsmann if it so chose. That separate action has since been
filed and is now consolidated before this court. See
Bridgeport Music, Inc. v. Bertelsmann AG, C-04-2149
MHP.*fn3 Meanwhile, on September 18, 2003, Bridgeport filed
a motion to intervene in UMG's separate action against Hummer Winblad which at that point still resided in the
Central District of California alleging, in similar fashion to
UMG, that Hummer is liable for the vicarious and contributory
acts of infringement perpetrated by Napster. Bridgeport pursues
that motion here, and is opposed in its efforts to intervene not
only by UMG, but also by Hummer Winblad, the defendant.
I. Motion to Dismiss
A motion to dismiss under Federal Rule of Civil Procedure
12(b)(6) "tests the legal sufficiency of a claim." Navarro v.
Block, 250 F.3d 729, 732 (9th Cir. 2001). Because Rule 12(b)(6)
focuses on the "sufficiency" of a claim and not the claim's
substantive merits "a court may [typically] look only at the
face of the complaint to decide a motion to dismiss." Van
Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir.
2002). If "a district court considers evidence outside the
pleadings" when deciding a Rule 12(b)(6) motion, the court "must
normally convert the 12(b)(6) motion into a [Federal Rule of
Civil Procedure] 56 motion for summary judgment, and it must give
the nonmoving party an opportunity to respond." United States v.
Ritchie, 342 F.3d 903, 907 (9th Cir. 2003).
Under Rule 12(b)(6), "unless it appears beyond doubt that
plaintiff can prove no set of facts in support of her claim which
would entitle her to relief," a motion to dismiss must be denied.
Lewis v. Telephone Employees Credit Union, 87 F.3d 1537, 1545
(9th Cir. 1996) (citation omitted); see also Conley v.
Gibson, 355 U.S. 41, 45-46 (1957) (permitting dismissal for
failure to state a claim only where "it appears beyond doubt that
the plaintiff can prove no set of facts in support of his claim
which would entitle him to relief"). When assessing a
Rule 12(b)(6) motion, the court must accept as true "all material
allegations of the complaint," and all reasonable inferences must
be drawn in favor of the non-moving party. See, e.g., Cahill
v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996)
(citation omitted). Dismissal is proper under Rule 12(b)(6) "only
where there is no cognizable legal theory or an absence of
sufficient facts alleged to support a cognizable legal theory."
Navarro, 250 F.3d at 732 (citing Balistreri v. Pacifica Police
Dept., 901 F.2d 696, 699 (9th Cir. 1988)). The court need not,
however, accept as true conclusory allegations, unwarranted deductions of fact, or unreasonable inferences. Sprewell v.
Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
II. Vicarious and Contributory Infringement
Although the Copyright Act, 17 U.S.C. § 101 et seq., does
not expressly impose liability on anyone other than direct
infringers, courts have long recognized that in certain
circumstances, vicarious or contributory liability will be
imposed. See, e.g., Fonovisa, Inc. v. Cherry Auction, Inc.,
76 F.3d 259, 261 (9th Cir. 1996). Contributory infringement
imposes liability where one person knowingly contributes to the
infringing conduct of another. Id. at 264. Liability under this
theory requires substantial participation in a specific act of
direct infringement. See Gershwin Publ'g Corp. v. Columbia
Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971). Thus, a
prima facie case of contributory infringement is presented where
plaintiffs allege (1) direct infringement by a third party; (2)
knowledge by the defendant that third parties were directly
infringing; and (3) substantial participation by the defendant in
the infringing activities. See Napster II, 239 F.3d at 1013
n. 2, 1019. Courts do not require actual knowledge; rather, a
defendant incurs contributory copyright liability if he has
reason to know of the third party's direct infringement. See
Cable/Home Communication Corp. v. Network Productions, Inc.,
902 F.2d 829, 846 (11th Cir. 1990); Sega Enter. Ltd. v. MAPHIA,
948 F. Supp. 923, 933 (N.D.C.A. 1996) (Wilken, J.).
Even in the absence of an employment relationship, a defendant
incurs liability for vicarious copyright infringement if he "has
the right and ability to supervise the infringing activity and
also has a direct financial interest in such activities."
Fonovisa, 76 F.3d at 262 (quoting Gershwin, 443 F.2d at
Federal Rule of Civil Procedure Rule 24 has long been
"liberal[ly] constru[ed] in favor of applicants for
intervention." Arakaki v. Cayetano, 324 F.3d 1078, 1082-83 (9th
Cir. 2003) (citing Donnelly v. Glickman, 159 F.3d 405, 409 (9th
Cir. 1998)); see also Haworth, Inc. v. Steelcase, Inc., 12 F.3d 1090, 1094 (Fed. Cir. 1993). Under Rule 24(a), a party
retains the right to intervene if: (1) the applicant has made a
timely motion to intervene; (2) the applicant has a significant
protectable interest relating to the property or transaction that
is the subject of the action; (3) the applicant is situated such
that the disposition of the action may impair or impede the
applicant's ability to protect that interest; and (4) the
applicant's interest is not adequately represented by existing
parties. See Fed.R.Civ.P. 24(a)(2); Arakaki, 324 F.3d at
1082-83; see also Haworth, Inc. v. Steelcase, Inc.,
12 F.3d 1090, 1094 (Fed. Cir. 1993) (noting, generally, that procedural
matters like intervention are governed by the law of the circuit
of residence). Rule 24(a)'s test is conjunctive; to merit
intervention as of right, a prospective intervenor must satisfy
each Rule 24(a) requirement. See League of United Latin Am.
Citizens v. Wilson, 131 F.3d 1297, 1302 (9th Cir. 1997).
Unlike Rule 24(a), Rule 24(b) does not require the potential
intervenor to demonstrate a "significant protectable interest."
See Kootenai Tribe of Idaho v. Veneman, 313 F.3d 1094,
1107-08 (9th Cir. 2002). There is no requirement under Rule 24(b)
that "the intervenor  have a direct personal or pecuniary
interest in the subject of the litigation," SEC v. U.S. Realty &
Improvement Co., 310 U.S. 434, 459 (1940), nor does the rule
mandate that the potential intervenor "be a person [or entity]
who would have been a proper party at the beginning of the suit."
Kootenai, 313 F.3d at 1107 (citing Wright, Miller & Kane,
Federal Practice and Procedure § 1911, 357-63 (2d ed. 1986)).
Instead, permissive intervention requires only that (1) an
independent ground for jurisdiction exist, (2) that the motion to
intervene be timely, and (3) that there exist a claim or defense
shared between the main and the intervenor's suit. See, e.g.,
id. ("[A]ll that is necessary for permissive intervention
[under Rule 24(b)] is that intervenor's `claim or defense and the
main action have a question of law or fact in common.'") (quoting
Fed.R.Civ.P. 24(b)); United States v. Washington,
86 F.3d 1499, 1506-07 (9th Cir. 1996) (following a tripartite test). Even
if these three requirements are met, the court still retains
"broad discretion" to deny a motion for permissive intervention.
Donnelly v. Glickman, 159 F.3d 405, 412 (9th Cir. 1998). In
particular, "[i]n exercising its discretion the court shall consider whether the intervention will unduly delay or
prejudice the adjudication of the rights of the original
parties." Fed.R.Civ.P. 24(b).
I. Defendants' Motions to Dismiss
Defendants' motions to dismiss are premised on the theory that
plaintiffs have accused them only of what might be considered
"aiding and abetting" Napster's copyright violations, viz.,
providing Napster with additional funding that allowed it to
continue operating. See, e.g., Def. Bertelsmann Mot., at 1.
According to defendants, plaintiffs thus state claims for what
this court has termed "tertiary infringement" vicarious or
contributory assistance to a vicarious or contributory infringer,
here Napster and towards which this court has previously
expressed disfavor. See Katz v. Napster, C 00-4725 MHP, Mem.
& Order (N.D.C.A. 2001) (Patel, C.J.).
Defendants have not properly characterized plaintiffs'
complaints. Rather than alleging that defendants merely supplied
Napster with necessary funding (serving as a "but for" cause of
Napster's subsequent activities) or accusing defendants of
contributory and vicarious infringement in purely conclusory
fashion plaintiffs have specifically accused defendants of
assuming control over Napster's operations and directing the
infringing activities that gave rise to the original Napster
litigation. Plaintiff Lieber's complaint is exemplary:
41. As Napster's only available source of funding,
Bertelsmann held significant power and control over
Napster's operations. But Bertelsmann chose not to
exercise its position to stop the rampant
infringement by requiring that Napster immediately
discontinue its infringing service until such time as
it could operate lawfully. Rather, pursuing its
strategy to build a digital media empire around the
Napster brand, Bertelsmann convened a secret "task
force" of company executives to consider how best to
protect Bertelsmann's investment in the Napster
service. After deliberating whether to shut the
Napster service until it could be operated in a
non-infringing manner, Bertelsmann's "task force"
determined that, in order to realize Bertelsmann's
objective to make Napster its internet distribution
network, it was necessary to keep the infringing
Napster service in operation to preserve the Napster
42. Senior Bertelsmann management endorsed the
decision of its "task force" to keep the infringing
Napster service operating, and directed Napster to
proceed accordingly. Lieber Compl. ¶¶ 41-42 (emphasis in original). UMG's complaint
contains similar statements:
25. . . . By at least October 2000, the Napster
system was firmly under the control of Bertelsmann.
Bertelsmann continued to operate the Napster system
and to allow its users to copy millions of protected
recordings, despite the District Court's finding that
this activity was unlawful.
26. In February 2001, the Ninth Circuit affirmed the
District Court's ruling that plaintiffs were entitled
to a preliminary injunction and remanded the case for
certain modifications to the injunction's terms. A &
M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th
Cir. 2001). Bertelsmann nevertheless chose to keep
its Napster system open for business.
27. On March 5, 2001, the District Court in the
Napster Litigation modified the preliminary
injunction in accordance with the Ninth Circuit's
instructions. Bertelsmann still kept Napster online,
and the users of the Napster system continued to copy
Plaintiff's protected works unlawfully.
UMG Compl ¶ 25-27. Capitol Records's complaint alleges
essentially identical facts:
At least as early as September 2000, Bertelsmann
began preparing to operate the Napster system, and by
at least as early as October 2000, the Napster system
was firmly under the control of Bertelsmann.
Bertelsmann continued to operate the Napster system
and to allow its users to copy millions of protected
recordings, despite the District Court's finding that
this activity was unlawful. Bertelsmann could have
stopped the ongoing infringement, including by
shutting Napster down, withholding money from the
unlawful business activities, and/or requiring
Napster to exercise its power to block the accounts
of users engaged in piracy, but Bertelsmann
intentionally did none of these things.
Capitol Records Compl. ¶ 37.
UMG's complaint against Hummer Winblad, while not a replica of
the complaints against Bertelsmann, rests upon functionally
34. On July 26, 2000, the District Court in the
Napster Litigation granted the plaintiffs' motion for
a preliminary injunction. A & M Records, Inc. v.
Napster, Inc., 114 F. Supp.2d 896 (N.D.C.A. 2000).
The United States Court of Appeals for the Ninth
Circuit stayed the preliminary injunction pending
appeal. Napster, by now firmly under the control of
the Defendants, continued to operate and to allow
its users to copy millions of protected recordings
despite the District Court's finding that this
activity was unlawful.
. . .
38. By the time it was shut down, the Napster system
had aided, facillitated, and enabled billions of
separate acts of infringement. The overwhelming
majority of sound recordings that were available on
Napster during the almost two years it was operative
(including the period of time that Hummer Winblad
controlled the Napster system) were copied and
distributed in violation of the Copyright Act and
other laws. Napster had full knowledge of this fact
when it launched its service. Hummer Winblad had full
knowledge of this fact, and all of the facts averred herein, when it made its
decision to acquire and control Napster, and during
its operation of Napster.
UMG Compl. against Hummer Winblad ¶¶ 34 & 38 (emphasis added).
Plaintiffs' allegations that defendants exercised essentially
full operational control over Napster during periods in which
Napster remained a conduit for infringing activity may be wholly
unfounded; indeed, they may be mutually exclusive, as plaintiffs
variously claim that both Hummer Winblad and Bertelsmann were
managing the same corporate enterprise at approximately the same
time. Regardless, such questions must be left for resolution upon
motions for summary judgment or at trial, as this court is
obligated in the context of a Rule 12(b)(6) motion to dismiss
to accept the facts and allegations plead in plaintiffs'
complaints as true. Cahill, 80 F.3d at 337-38.
For the purposes of this motion, plaintiffs have thus stated a
claim that Bertelsmann and Hummer Winblad as entities
exercising full control over Napster's operations were directly
responsible for the infringing activity perpetrated by Napster's
online users; more than merely knowing of and contributing to
the infringing activity, they are alleged to have specifically
ordered that such activity take place. Cf. Napster II,
239 F.3d 1004. Under well-established Ninth Circuit law, such
allegations state a viable claim for relief under theories of
both contributory and vicarious liability. See Gershwin, 443
F.2d at 1162 (liability for contributory infringement requires
substantial participation in an act of direct infringement);
Fonovisa, 76 F.3d at 262 (holding that a vicarious infringer is
one who "has the right and ability to supervise the infringing
activity and also has a direct financial interest in such
activities"). By consequence, at this stage the court need not
pass upon the question of whether mere financial support of a
contributing and vicarious infringer such as Napster without
more direct involvement would give rise to a claim for
contributory or vicarious infringement against the party
providing the funding. Plaintiffs' far more extensive allegations
suffice to defeat defendants' motions to dismiss. II. Bridgeport's Motion to Intervene
Applicant Bridgeport (hereinafter "applicant") has asserted no
claim to a right of intervention under Rule 24(a), relying
instead upon Rule 24(b) and the argument that its own claims
against Hummer will involve many of the same issues of law and
fact implicated in UMG's lawsuit. For their part, plaintiff UMG
and defendant Hummer, both of whom oppose applicant's attempt to
intervene, do not dispute that applicant fulfills the Ninth
Circuit's three requirements for intervention: an independent
ground for jurisdiction, timely filing of the motion to
intervene, and a claim or defense shared between the main and the
intervenor's suit. See Kootenai, 313 F.3d at 1107. Rather,
plaintiff and defendant assert that applicant's inclusion in this
litigation will introduce numerous additional issues of law and
fact some of which would pit putative co-plaintiffs UMG and
Bridgeport against one another and thus prejudice the interests
of the original parties to this action.
Allowing Bridgeport to intervene in UMG's suit against Hummer
Winblad would undoubtedly further the interests of judicial
economy in at least some respects. Bridgeport's complaint in
intervention for contributory and vicarious infringement against
Hummer incorporates many of the same allegations of Hummer's
effective control over Napster and its operations that undergird
UMG's complaint. See, e.g., Bridgeport Compl. ¶ 28 ("Hummer
Winblad assumed control of Napster subsequent to the commencement
of the Napster Litigation, and with full knowledge that it was
alleged that Napster was liable for unprecedented, massive
contributory and vicarious copyright infringement.").
Bridgeport's suit against Hummer will thus necessarily involve
many of the same questions of law and fact raised by UMG's own
claims, and wholesale consideration of these questions in one
single lawsuit would save time and judicial resources. This
promotion of judicial economy is "a relevant consideration in
deciding a motion for permissive intervention." Venegas v.
Skaggs, 867 F.2d 527, 531 (9th Cir. 1988).
Yet inclusion of Bridgeport in UMG's litigation will also
necessitate the consideration of extraneous legal and factual
issues that UMG's lawsuit would not otherwise invoke. As Hummer
itself notes, applicant was not a party to the original Napster
litigation, and consequently that litigation cannot serve as the means by which Bridgeport provided
Napster with notice that Bridgeport's copyrighted works were
being shared by users of the Napster system. See Napster II,
239 F.3d at 1027. In order to prove its case, Bridgeport will be
forced to establish this separate notice element (giving rise to
Napster's "duty to disable access to the offending content") as
an aside to the general thrust of UMG's case. Id. Bridgeport's
complaint will also introduce a multitude of new recordings into
the action, forcing the parties to litigate the liability and
damages (if the case reaches that stage) stemming from the
putative sharing of many files that bore no relation to UMG's
original lawsuit. These elements mitigate the advantages in
judicial economy that might otherwise be realized and threaten to
delay the resolution of plaintiff's case, issues this court is
duty-bound to take into account when evaluating Bridgeport's
application for intervention. See Donnelly, 159 F.3d at 412
("[A] district court must consider whether intervention will
unduly delay the main action. . . .").
Moreover, Bridgeport's intervention in UMG's action threatens
to prejudice plaintiff by forcing it to defend against collateral
actions relating to ownership of the songs whose copyrights UMG
claims were infringed. Bridgeport's complaint in intervention
lists a plethora of UMG-owned recordings that it claims "sample"
portions of compositions owned by Bridgeport. See Bridgeport
Compl. ¶ 2 & Exh. A. Needless to say, UMG disputes Bridgeport's
ownership claims. See Pl. Opp. to Mot., at 6. It is reasonable
to expect that litigation regarding Hummer Winblad's liability
for vicarious or contributory infringement of these recordings
would thus be accompanied by parallel claims brought by
Bridgeport against UMG, seeking to establish rights to the
putative damages UMG might obtain from Hummer for infringing
When deciding a motion to intervene, a district court must take
into consideration the prejudice to the original parties that
will result if the applicant in intervention is permitted to join
the action. See Donnelly, 159 F.3d at 412. Indeed, according
to one commentator, the possibility of prejudice to the original
parties is in fact the "principal consideration" when deciding a
motion to intervene. 7C Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1913 (2nd ed. 2003). UMG is very
likely to suffer prejudice to its efforts to collect from Hummer
Winblad if it is forced within the same action to defend
itself against charges that it must in turn pay royalties or damages to Bridgeport for the "sampling" of Bridgeport's music
in its songs. Such allegations would divert time and resources
from the principal thrust of UMG's lawsuit and entangle the legal
and factual issues involved therein within a web that is not of
the original parties' making. Moreover, it is far from clear that
UMG and Bridgeport's interests will always align co-plaintiffs
who find themselves in roles of adversity regarding several
crucial (and potentially very financially significant) issues are
unlikely to be able to propel this litigation forward in an
effective matter. The court finds that UMG will incur significant
prejudice if Bridgeport is allowed to intervene in its action
against Hummer Winblad.
Finally, it is worth noting that Bridgeport retains the option
of bringing a separate action against Hummer Winblad (just as it
has brought a separate case against Bertelsmann), or even of
litigating against UMG. While hardly dispositive, Bridgeport's
ability to pursue its claims through an alternative mechanism
without any prejudice to its own rights is significant in the
context of a motion to intervene brought by that party. See 7C
Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 1913 (2nd ed. 2003) (existence of another adequate
remedy to protect applicant's rights is relevant to court's
determination regarding whether to grant leave to intervene).
Moreover, if Bridgeport were to bring a separate action against
Hummer Winblad, that case would likely be consolidated in this
court alongside the other Napster-related litigation, just as
Bridgeport's litigation against Bertelsmann has already been
consolidated here. The parties and the court will thus likely
realize the same gains in efficiency and judicial economy that
might have been obtained through Bridgeport's intervention
without placing UMG in the uncomfortable position of litigating
alongside a party whose interests might oppose its own in
substantial respect. The uncommon circumstances of this case thus
favor denial of Bridgeport's motion to intervene. CONCLUSION
For the foregoing reasons, defendants' motions to dismiss are
DENIED. Applicant's motion to intervene is DENIED.
IT IS SO ORDERED.