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Med-Systems, Inc v. Counter-Masterson Marketing

November 23, 2011

MED-SYSTEMS, INC.,
PLAINTIFF,
v.
COUNTER-MASTERSON MARKETING, INC.,
DEFENDANT.



The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge

ORDER (1) GRANTING IN PART AND DENYING IN PART COUNTER-DEFENDANT GALLO'S MOTION TO DISMISS; AND (2) DENYING DEFENDANT RITE AID'S MOTION TO DISMISS PLAINTIFF MED-SYSTEMS AND (ECF Nos. 13, 16) AND RELATED COUNTERCLAIMS

Presently before the Court are Plaintiff Med-Systems, Inc. ("Med-Systems") and Counter-Defendant David Gallo's ("Gallo") motion to dismiss Defendant Masterson Marketing, Inc.'s ("Masterson") counterclaim for copyright infringement (Mot. to Dismiss, ECF No. 13); and Counter-Defendant Rite Aid Corporation's ("Rite Aid") motion to dismiss Masterson's counterclaim for copyright infringement (Mot. to Dismiss, ECF No. 16). Also before the Court are the associated oppositions and replies. For the reasons stated below, the Court GRANTS IN PART AND DENIES IN PART Med-Systems and Gallo's motion to dismiss, and DENIES Rite Aid's motion to dismiss.

BACKGROUND

1. Factual Background

Med-Systems distributes and sells "a nasal wash system that is intended to help relieve symptoms associated with sinus problems."(Countercl. ¶ 13, ECF No. 7) Gallo is the CEO of Med-Systems, responsible for its day-to-day operations. (Id. ¶ 14) In 2007, Med-Systems hired Masterson "to serve as the advertising and marketing agency" for Med-Systems. (Id. ¶ 15) As such, Med-Systems and Masterson entered into an Agency Agreement with the following provision:

The photographic license to all images produced including the rights licensed as stock photography on behalf of [Med-Systems] by [Masterson] are granted for the usage and time period stated on each contract. It is understood and agreed upon by both parties that all additional usages of these licensed images outside of the usage stated on the contract must be negotiated prior to any usage granted and that no implied license will exist. (Id. ¶ 16 (quoting Ex. 1)) Under this agreement and others identical to it, Masterson "created the design layout" and "provided the stock photographs" for several of Med-Systems' products. (Id. ¶ 19) Thereafter, Masterson obtained certificates of registration from the U.S. Copyright Office for the work it created. (Id.)

In 2010, Masterson discovered that Med-Systems "had or was continuing to use images covered by Masterson's Copyright Registrations beyond the scope or duration of any license or authorization." (Id. ¶ 41) Given the parties' apparent disagreement as to whether Masterson has a "copyrightable interest in the photographs of Med-Systems' Sin[u]Cleanse products, or in the packaging or advertising of these products," and whether "Med-Systems has the right to use these photographs and product packaging free of any claims of defendant," Med-Systems filed a complaint seeking declaratory relief and other claims against Masterson, (Id. ¶ 32), and Masterson filed a counterclaim for copyright infringement against Med-Systems, Gallo, and Rite Aid, (Countercl., ECF No. 7).

2. Procedural Background

On April 6, 2011, Med-Systems filed a complaint for declaratory relief and alleging fraud, breach of contract, trademark infringement, trade dress infringement, and breach of fiduciary duty against Masterson. (Compl., ECF No. 1). Masterson answered the complaint on May 6, 2011, (Answer, ECF No. 6), and contemporaneously filed a counterclaim*fn1 against Plaintiff Med-Systems and Counter-Defendants Gallo and Rite Aid (Countercl., ECF No. 7).

Thereafter, Plaintiff Med-Systems and Counter-Defendant Gallo filed a motion to dismiss Masterson's counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6) on May 27, 2011. (Mot. to Dismiss, ECF No. 13)*fn2 On June 9, 2011, Rite Aid also filed a motion to dismiss pursuant to Rule 12(b)(6) and 12(b)(1). (Mot. to Dismiss, ECF No. 16) Masterson filed its opposition to these motions on July 7, 2011. (Resp. in Opp'n, ECF No. 20); (Resp. in Opp'n, ECF No. 21) Med-Systems and Gallo's reply and Rite Aid's reply were filed on July 15, 2011. (Reply in Supp., ECF No. 23); (Reply in Supp., ECF No. 24).

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the defense that the complaint "fail[s] to state a claim upon which relief can be granted," generally referred to as a motion to dismiss. The Court evaluates whether a complaint states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil Procedure 8(a), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Although Rule 8 "does not require 'detailed factual allegations,' . . . it [does] demand[] more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, - US - , 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 557).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible when the facts pled "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). That is not to say that the claim must be probable, but there must be "more than a sheer possibility that a defendant has acted unlawfully." Id. Facts "'merely consistent with' a defendant's liability" fall short of a plausible entitlement to relief. Id. (quoting Twombly, 550 U.S. at 557). Further, the Court need not accept as true "legal conclusions" contained in the complaint. Id. This review requires context-specific analysis involving the Court's "judicial experience and common sense." Id. at 1950 (citation omitted). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not 'show[n]'-'that the pleader is entitled to relief.'" Id. Moreover, "for a complaint to be dismissed because the allegations give rise to an affirmative defense[,] the defense clearly must appear on the face of the pleading." McCalden v. Ca. Library Ass'n, 955 F.2d 1214, 1219 (9th Cir. 1990).

Where a motion to dismiss is granted, "leave to amend should be granted 'unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.'" DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). In other words, where leave to amend ...


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