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.
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 ...