Diamond Foods, Inc. v. Hottrix, LLC

          ORDER DENYING PLAINTIFF’S MOTION TO DISMISS DEFENDANT’S AMENDED COUNTERCLAIMS AND MOTION FOR JUDGMENT ON THE PLEADINGS [RE: ECF 47]

          BETH LAB SON FREEMAN United States District Judge

         This is a case about two software applications for mobile devices (“apps”) that depict popcorn. Plaintiff and Counter-Defendant Diamond Foods, Inc. (“Plaintiff”) offers an app in the “Food & Drink” category of app stores that depicts popcorn popping, which Plaintiff describes as a tool to assist in microwaving popcorn to perfection. Defendant and Counter-Claimant Hottrix, LLC (“Defendant”) offers an app in the “Game” category that enables users to do tricks with snack foods, including popcorn. Plaintiff filed this suit as a declaratory action, claiming that it does not infringe Defendant’s trade dress or copyrights, and Defendant counterclaimed. Plaintiff now asks the Court to dismiss Defendant’s counterclaims and grant judgment in its favor on its declaratory relief action. As stated below, although the Court agrees with many of Plaintiff’s arguments, it DENIES the motion because none of the asserted claims can be dismissed in their entirety.

         I. BACKGROUND

         A. Plaintiff’s Allegations, Admitted by Defendant

         Plaintiff alleges and Defendant admits the following facts, which provide background and are relevant to the Motion for Judgment on the Pleadings. Plaintiff released “Perfect Popcorn” as a free app in the “Food & Drink” category on app stores. Compl. ¶¶ 4, 12, ECF 1.^[1] The app displays a visual simulation of popcorn kernels popping inside a user’s mobile device. Id. ¶¶ 4, 15.

         Defendant Hottrix, LLC, sells apps that constitute “[h]ilarious gags and mystifying tricks, ” including “iMunchies, ” which it lists in the “Games” category of Apple’s app store. Id. ¶¶ 3, 17. iMunchies works as follows. First, the user can select a snack or object from a list that includes popcorn, M&Ms, “Healthy Nutmix, ” “GummiBears, ” cough drops, chewing gum, money, and other objects. Id. ¶ 19. When a user selects popcorn, fully popped kernels appears on the user’s mobile device screen. Id. ¶ 20. No unpopped kernels are depicted. Id. ¶ 20.

         The user can then do several visual gags with the popcorn images. For example, the user can make a customizable finger and thumb appear at the top of the device and appear to pull a piece of popcorn upward, allowing the user to convince viewers that the on-screen fingers are his or her real fingers. Id. ¶¶ 21, 22. The trick is even more believable if the user has an actual piece of popcorn. Id. ¶ 21. In addition, the user can tilt the device to make the popcorn appear to pour from the screen into his/her mouth, and can choose sound effects. Id. ¶ 22. The app also offers “[e]xpert video instructions for magicians and hipsters.” Id. ¶ 22. Defendant claims copyrights in iMunchies software (U.S. Copyright Registration No. TX 7-058-469). Id. ¶ 23; see also Am. Countercl. ¶ 25.

         Perfect Popcorn and iMunchies are both available on Apple’s iTunes store. Id. ¶ 24. As noted above, the two apps are listed in different categories. Id. ¶¶ 3-4. In addition, the lists of apps that users “also bought” with each app contain no overlapping apps; the list for iMunchies consists entirely of games, while Perfect Popcorn’s list is exclusively food and drink apps. Id. ¶ 24.

         On June 23, 2014, Defendant sent Plaintiff a letter asserting that Perfect Popcorn was a derivative or copy of iMunchies and that it infringes iMunchies’ trade dress. Id. ¶¶ 26-27, 29; see also Id. Exh. A. In the letter, Defendant bragged about its reputation for being litigious and threatened to sue if Plaintiff did not pay more than $2 million and halt dissemination of Perfect Popcorn or agree to a licensing fee of $40, 000 per month plus $0.15 per download for a minimum of two years. Id. ¶¶ 25, 33.

         Plaintiff then initiated this declaratory relief lawsuit on July 11, 2014, seeking declaratory judgments of (1) non-infringement of copyrights, (2) non-infringement of trademarks/trade dress, (3) no unfair business practices, and (4) no interference with contractual relations. See ECF 1.

         On September 18, 2014, Defendant answered and asserted five counterclaims: (1) copyright infringement under 17 U.S.C. § 101, et seq., (2) trade dress infringement under 25 U.S.C. § 1125(a)(1), (3) common law trade dress infringement, (4) intentional interference with prospective economic advantage, and (5) unfair competition under California Business & Professions Code § 17200. Answer and Counterclaims, ECF 14.

         Plaintiff answered on November 13, 2014, ECF 18, and filed an amended answer on January 22, 2015, ECF 27. Plaintiff then moved for judgment on the pleadings, ECF 30, which the Court granted with leave to amend. ECF 41. Defendant filed its First Amended Answer and Counterclaims (“FACC”) on September 16, 2015. ECF 46.

         B. Defendant’s Allegations in First Amended Counterclaims

         Defendant alleges the following in its FACC. Defendant published the iMunchies App on August 14, 2008. Id. ¶ 22. Plaintiff did not offer Perfect Popcorn until 2014. Id. ¶ 32. By September 8, 2014, when a user searched for “popcorn” in iTunes, Perfect Popcorn appeared first in the search results for iPhone Apps and iMunchies was visible only in the expanded search results. Id. ¶ 36.

         Defendant describes iMunchies as follows: When a user chooses the popcorn option in the iMunchies App, it displays a moving image of “popcorn popping” and filling the screen as if the device were the container. Id. ¶ 22. Defendant alleges that the “depiction of popcorn popping” is more than a “realistic depiction.” Id. ¶ 26. It is “stylized, idealized, and particular.” Id. ¶ 26. Nine features distinguish this depiction from a “mere video recording of popcorn popping”: (1) the popped kernels are all “approximately white” and fully popped; (2) the app appears to randomly repeat a limited repertoire of fully popped kernels; (3) the kernels pop sequentially; (4) every popped kernel is visible when it pops; (5) the virtual container is shallow; (6) the container is vertically-oriented; (7) all kernels are identical in size, regardless of how near or far they are in the container; (8) each popped kernel appears to be brightly illuminated from one direction and continues to be illuminated from the same direction even when the kernel moves; and (9) the viewer sees directly into the side of the virtual container. Id. ¶ 26. The overall visual impression created by the combination and arrangement of these elements constitutes Defendant’s trade dress. Id. ¶ 27.

         Defendant alleges that Perfect Popcorn includes each of these features and that Perfect Popcorn’s visual display is substantially similar to the iMunchies App’s popcorn option. Id. ¶ 34.^[2]On this basis, Defendant asserts four counterclaims in the FACC: (1) copyright infringement under 17 U.S.C. § 101, et seq., (2) trade dress infringement under 25 U.S.C. § 1125(a)(1), (3) common law trade dress infringement, and (4) unfair competition under California Business & Professions Code § 17200. Defendant did not re-assert a claim of intentional interference with prospective economic advantage.

         Plaintiff now asks the Court to dismiss Defendant’s counterclaims under Rule 12(b)(6) and for judgment on the pleadings on its declaratory relief claims under Rule 12(c). Mot., ECF 47.

         II. REQUEST FOR JUDICIAL NOTICE

         As a general rule, a district court may not consider any material beyond the pleadings when ruling on a Rule 12(b)(6) motion. Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1016 n.9 (9th Cir. 2012). There are, however, two exceptions: documents incorporated by reference into the complaint and matters which may be judicially noticed, both of which a court must consider. See, e.g., Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).

         Under the incorporation by reference doctrine, the Court may consider materials whose contents are alleged in the complaint if the complaint “necessarily relies” on them and neither their authenticity nor their relevance is contested. Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010). The purpose of this rule is to “prevent plaintiffs from surviving a Rule 12(b)(6) motion by deliberately omitting documents upon which their claims are based.” Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007) (internal quotation marks omitted).

         Plaintiff asks the Court to take judicial notice of copies of Perfect Popcorn and iMunchies that were downloaded to an iPhone and lodged with the Court. Mot. at 8. Defendant does not object.^[3] Because the apps are referenced in-and in fact form the basis of-the pleadings and Defendant contests neither their authenticity nor their relevance, the Court GRANTS Plaintiff’s RJN of the two apps as downloaded to the iPhone lodged with the Court. See Knievel v. ESPN, 393 F.3d 1068, 1077 (9th Cir. 2005) (judicially noticing web pages that surrounded web pages included in complaint); see also City of Inglewood v. Teixeira, No. CV1501815MWFMRWX, 2015 WL 5025839, at *2 (C.D. Cal. Aug. 20, 2015) (judicially noticing YouTube videos because a defendant cannot “seek to delay potential resolution . . . by asserting that this Court may not review the material it claims is infringing and has specifically identified in its Complaint.”).

         III. MOTION TO DISMISS

         The Court begins with Plaintiff’s Motion to Dismiss, which seeks dismissal of Defendant’s amended counterclaims in their entirety. To survive a Rule 12(b)(6) 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.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When considering a motion to dismiss, the Court “accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). The Court “need not, however, accept as true allegations that contradict matters properly subject to judicial notice or by exhibit.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

         A. Copyright

         To state a copyright infringement claim, a plaintiff must allege “(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original.” Feist Publ'ns, Inc. v. Rural Tele. Serv. Co., 499 U.S. 340, 361 (1991). Plaintiff does not challenge the sufficiency of the allegations regarding the first element. The second element requires allegations “that the works in question are substantially similar in their protected elements and that the infringing party had access to the copyrighted work.” Rice v. Fox Broad. Co., 330 F.3d 1170, 1174 (9th Cir. 2003) (internal citation omitted). The parties’ dispute centers on the sufficiency of Defendant’s allegations of substantial similarity of protected elements.

         To determine whether two works are substantially similar, the Ninth Circuit applies a two-part analysis: “an objective extrinsic test and a subjective intrinsic test.” Swirksy v. Carey, 376 F.3d 841, 845 (9th Cir. 2004); see also Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1442 (9th Cir. 1994). “The extrinsic test considers whether two works share a similarity of ideas and expression as measured by external, objective criteria.” Swirsky, 376 F.3d at 845. The intrinsic test then considers whether “subjectively[, ] the ‘ordinary, reasonable person would find the total concept and feel of the [two works] to be substantially similar’” or virtually identical. Swirsky, 376 F.3d at 847 (quoting Three Boys Music Corp. v. Bolton, 212 F.3d 477, 485 (9th Cir. 2000)); see also Mattel, 616 F.3d at 914. The subjective inquiry “must be left to the jury, ” Swirksy, 376 F.3d at 845, or is “most often [asked] of juries, ” Mattel, Inc. v. MGA Entm't, Inc., 616 F.3d 904, 914 (9th Cir. 2010). The Court therefore applies the extrinsic test.

         1. Protectable Elements

         The Court begins by considering which of Defendant’s alleged expressive elements are protectable. “Because the requirement is one of substantial similarity to protected elements of the copyrighted work, it is essential to distinguish between the protected and unprotected material in a plaintiff's work.” Swirsky, 376 F.3d at 845 (emphasis in original). “[A] court must filter out and disregard the non-protectible elements . . .” Cavalier v. Random House, Inc., 297 F.3d 815, 823 (9th Cir. 2002). The Court engages in this “dissection to determine the scope of copyright protection before . . . consider[ing the work] ‘as a whole.’” Apple, 35 F.3d at 1443.

         Plaintiff argues that Defendant seeks to protect an idea: realistically depicting popcorn popping on and filling the screen of a mobile device as if the device were a container. Mot. at 11 (citing FACC ¶ 22). Plaintiff contends that each of Defendant’s allegedly expressive elements necessarily follows from that idea and therefore cannot be protected under the closely-related doctrines of merger and scènes à faire.

         Under the merger doctrine, “courts will not protect a copyrighted work from infringement if the idea underlying the copyrighted work can be expressed in only one way, lest there be a monopoly on the underlying idea.” Satava v. Lowry, 323 F.3d 805, 812 n.5 (9th Cir. 2003). Plaintiff relies on Satava to argue that the merger doctrine applies here. In Satava, the Ninth Circuit considered a glass-in-glass sculptor’s claim for protection of a “vertically oriented, colorful, fanciful jellyfish with tendril-like tentacles . . . encased in . . . clear glass . . . [in] a bullet shape.” Satava, 323 F.3d at 807. The Ninth Circuit held that “no copyright protection may be afforded to the idea of producing a glass-in-glass jellyfish sculpture or to elements of expression that naturally follow from the idea of such a sculpture.” Id. at 809-10. In other words, the Ninth Circuit determined that the artist “may not prevent others from copying aspects of his sculptures resulting from either jellyfish physiology or from their depiction in the glass-in-glass medium.” Id. at 810. This included “jellyfish with tendril-like tentacles or rounded bells, because many jellyfish possess those body parts, ” “jellyfish in bright colors, because many jellyfish are brightly colored, ” “jellyfish swimming vertically, because jellyfish swim vertically in nature and often are depicted swimming vertically, ” “jellyfish within a clear outer layer of glass, because clear glass is the most appropriate setting for an aquatic animal, ” “jellyfish ‘almost filling the entire volume’ of the outer glass shroud, because such proportion is standard in glass-in-glass sculpture, ” and “tapering the shape of their shrouds, because that shape is standard in glass-in-glass sculpture.” Id. at 811.

         Plaintiff also argues that Defendant’s depiction is not protectable under the scènes à faire doctrine, which stands for the proposition that expressions that are “indispensable and naturally associated with the treatment of a given idea are treated like ideas and are therefore not protected by copyright.” Rice, 330 F.3d at 1175 (internal quotation marks omitted). To argue that the scènes à faire doctrine applies here, Plaintiff offers Kim Seng Co. v. J & A Importers, Inc., 810 F.Supp.2d 1046 (C.D. Cal. 2011), which considered whether a photograph depicting a bowl filled with rice sticks, topped by egg rolls, grilled meat, and assorted garnishes on Chinese-Vietnamese food packaging was protectable. Relying in part on the scènes à faire doctrine, the court determined that “[a]ny protectable elements . . . flow[ ] necessarily from the subject matter of the photograph, ” which provides a defense to infringement. Id. at 1057-58 (internal citations omitted).

         Plaintiff contends that, as in Satava and Kim Seng, Defendant’s alleged expression naturally results from depicting the chosen subject (popcorn) on the chosen medium (mobile device screen). Mot. at 12-13.

         Defendant responds that, unlike the parties claiming infringement in Satava and Kim Seng, Defendant specifically seeks to protect a depiction that is not realistic-including, for example, no burnt, unpopped or half-popped kernels and depicting sequential rather than simultaneous popping-and therefore neither the merger nor scènes à faire doctrine applies. Opp. at 10-12. Defendant also points to Satava’s finding that, notwithstanding the unprotectablity of the sculpture as a whole, specific expressive elements like “the distinctive curls of particular tendrils; the arrangement of certain hues; [and] the unique shape of jellyfishes' bells” were protectable. 323 F.3d at 812. Therefore, Defendant argues that, even if the Court were to determine that not all nine features are protectable, it should deny this motion because at least some elements are protectable.

         The Court finds that, just as “no copyright protection may be afforded to the idea of producing a glass-in-glass jellyfish sculpture or to elements of expression that naturally follow from the idea of such a sculpture, ” id. at 809-810, no copyright protection may be afforded to the idea of producing an app with popcorn popping on a mobile device screen or to elements of expression that “naturally follow” from such an idea. Thus, Defendant’s allegation that both apps “display[ ] moving images of popcorn popping on the screen and filling the screen as if the device were the container” does not suffice to state a copyright infringement claim.^[4] On the other hand, ...