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UMG RECORDINGS, INC. v. BERTELSMANN AG

July 13, 2004.

UMG RECORDINGS, INC. et al., Plaintiffs,
v.
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.

BACKGROUND*fn2

  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 auspices.

  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.

  LEGAL STANDARD

  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 ...


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