United States District Court, N.D. California, San Francisco Division
ORDER GRANTING MOTION TO DISMISS
RICHARD SEEBORG, District Judge.
In 2007, the predecessor of Actuate Corporation ("Actuate") entered into a software licensing agreement with an affiliate of Fidelity National Information Service, Inc. ("FNIS"). Actuate brought this case against FNIS after uncovering alleged discrepancies in the resulting royalty payments. The complaint sets forth a claim for injunctive relief on the basis of direct and indirect copyright infringement. FNIS moves to dismiss, arguing that a licensee is not liable for infringement solely on the basis of unpaid royalties. In the alternative, FNIS asks the Court to stay the proceeding pending completion of mandatory arbitration pursuant to the licensing agreement. Pursuant to Civil Local Rule 7-1(b), the motion is suitable for disposition without oral argument and the hearing set for August 28, 2014, is vacated. For the reasons set forth below, defendant's motion to dismiss must be granted.
Actuate develops and licenses customer communication management and enterprise software. It is the successor-in-interest to Xenos Group, Inc. ("Xenos"), the original licensor and copyright holder of the software in dispute, which is known and marketed as d2e Platform ("Software"). Prior to the acquisition of Xenos by Actuate, the former entered into a licensing agreement with Treev LLC ("Treev") to distribute specific components of the Software as one component of a bundle of products distributed by Treev to end-users. Pursuant to that agreement, Treev was obligated to pay Xenos for each copy of the Software licensed to end-users at a rate specified in an attachment to the agreement and to provide reports to Actuate on distribution and royalty payments.
In June 2013, Actuate informed Fidelity Information Services ("FIS"), which it describes as Treev's "successor-in-interest, " of discrepancies in the royalty reports submitted by FIS. There appears to be some dispute not relevant to the instant motion as to the corporate structure linking Treev, FIS, and named defendant FNIS. Actuate requested additional information, which led FIS to admit to "over-deployment of the Software by multiple end-users." Complaint, ¶ 16. In other words, it appears that FIS has distributed more copies of Actuate's software than it paid for. On that basis, Actuate alleges that FIS is currently using and distributing the Software outside the scope of its license and thereby willfully infringing Actuate's copyrights.
III. LEGAL STANDARD
To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim, the complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). "Pleadings must be so construed so as to do justice." Fed.R.Civ.P. 8(e). While "detailed factual allegations are not required, " a complaint must have sufficient factual allegations to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible "when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. This determination is context-specific and requires the court "to draw on its judicial experience and common sense." Id. at 679.
In dismissing a complaint, leave to amend must be granted unless it is clear that the complaint's deficiencies cannot be cured by amendment. Lucas v. Dep't of Corporations, 66 F.3d 245, 248 (9th Cir. 1995). When amendment would be futile, however, dismissal may be ordered with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir. 1996).
A. Direct Infringement
Defendant first moves to dismiss the direct infringement claim on the basis that the complaint does not allege facts amounting to copyright infringement but, rather, a breach of the parties' contractual arrangement. Although a case for copyright infringement may lie between two parties to a licensing agreement, the Ninth Circuit has explained that "the potential for infringement exists only where the licensee's action (1) exceeds the license's scope (2) in a manner that implicates one of the licensor's exclusive statutory rights." MDY Indus., LLC v. Blizzard Entm't, Inc., 629 F.3d 928, 940 (9th Cir. 2010) opinion amended and superseded on denial of reh'g, 09-15932, 2011 WL 538748 (9th Cir. Feb. 17, 2011). In other words, "there must be a nexus between the condition and the licensor's exclusive rights of copyright." Id., at 941. Without such a nexus, the proper remedy lies in contract not copyright infringement. Id.
17 U.S.C. § 106 grants copyright owners the exclusive right to reproduce, distribute, perform, and display a copyrighted work, and to prepare derivative works based thereon. Contractual terms in a license that limit the scope of a licensee's right to exercise any of these statutory rights "are referred to as conditions, ' the breach of which constitutes copyright infringement. All other license terms are referred to as covenants, ' the breach of which is actionable only under contract law." Alaska Stock, LLC v. Pearson Educ., Inc., 975 F.Supp.2d 1027, 1043 (D. Alaska 2013).
The parties disagree as to whether a numeric limitation in a licensing agreement may implicate statutory rights. The Ninth Circuit has offered the following example concerning numeric limitations to illustrate ...