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Adobe Systems Inc. v. NA Tech Direct, Inc.

United States District Court, N.D. California

October 29, 2019

Adobe Systems Incorporated, Plaintiff,
NA Tech Direct Inc., Et Al., Defendants.



         Plaintiff Adobe Systems Incorporation (“Adobe”) brings this action for copyright and trademark infringement against defendants NA Tech Direct Inc., formerly known as TigerDirect, Inc., and Tiger Direct, Inc. (“Tiger Direct”); Avenue Industrial Supply Company Limited, formerly known as NA Tech Canada.CA Inc., formerly known as TigerDirect.CA, Inc. (“Tiger Direct CA”); SYX Distribution Inc., and SYX Services Inc. (collectively, “Defendants”). Defendants are former licensees of Adobe's software that Adobe alleges exceeded the scope of their licenses. Adobe brings six causes of action: (i) copyright infringement, (ii) trademark infringement, (iii) Lanham Act violations, (iv) trademark dilution, (v) contributory copyright infringement, and (vi) contributory trademark infringement.[1]

         Now before the Court are the parties' cross-motions for summary judgment.[2] Adobe seeks summary judgment for its direct copyright infringement, contributory copyright infringement, and contributory trademark infringement claims. Defendants oppose Adobe's motion and cross-move for summary judgment on the knowledge element of contributory infringement. Defendants also seek summary judgment on their statute of limitations, latches, and collateral estoppel defenses.

         Finally, Defendants seek summary judgment for trademark dilution and unfair competition, arguing that Adobe has “failed to state a claim” for those causes of action. Having considered the papers, as well as arguments by counsel on October 8, 2019, the Court Grants in Part and Denies in Part Adobe's motion for summary judgment and Denies Defendants' motions for the same.

         I. Background

         Except where evidence is noted, the following facts are taken from the statements of undisputed facts.[3] Adobe sells software programs protected by registered copyrights and trademarks. Starting in 2009, Adobe entered into agreements with the Defendants that authorized them to serve as resellers of Adobe's software subject to a restricted license. Each defendant is an affiliated subsidiary of the others under the parent company Systemax Inc. The agreements were renewed with substantially the same licensing restrictions every year until the “TigerDirect” brand was sold to PCM, Inc. in 2015.[4]

         As relevant to this motion, Adobe's agreements included four licensing restrictions. First, the agreements restricted sales to end-users only. The agreements expressly prohibited sales to “resellers.” Second, the license agreements restricted purchases of Adobe's software to authorized distributors. Third, the license agreements imposed restrictions on resale of Academic, Educational, or Student-Teacher (“EDU”) versions of Adobe Software.[5] Defendants could only sell one copy per year of EDU software to qualified educational end users or entities after obtaining verification of educational status (e.g., a student ID). Further sales of EDU software to resellers were expressly prohibited.[6]

         Fourth, Adobe imposed special restrictions on volume licensed software. Under the Transactional Licensing Program, an organization (such as a company) could purchase Adobe software and activate it on multiple computers, paying a smaller additional fee for each license. Volume licensed software could only be distributed within a single organization and sales outside of that organization were prohibited. Adobe used serial keys to track and control distribution of volume licensed software.[7]

         In August 2013, Adobe began investigating a set of companies operated by Canadian resident Pierre Francis (collectively, “Software Tech”) for violations of the resale license restrictions. Adobe's chief investigator, Michael Draper, purchased serial keys from Software Tech, which he determined to be sold in violation of Adobe's volume license. Adobe's database showed that the serial keys had been originally assigned to the Defendants.[8] However, the database showed that the Defendants sold the keys to apparently legitimate customers and did not show sales to Software Tech. (Dkt. No. 89-15 (“Draper Decl.”) ¶ 18; Dkt. No. 89-1 (“Pham Decl.”) ¶ 9 & Ex. 19 (“Draper Depo.”) at 29:20-31:7.) Adobe sued Software Tech in the Northern District of California on May 9, 2014.[9]

         Around the same time, in August 2014 Tiger Direct CA's “Adobe Product Champion, ” Jacqui Stilson, began an internal investigation into the company's sales to resellers. Ms. Stilson ran a report and noticed a number of sales to known resellers, including Software Tech, as well as improper sales of EDU and volume licensed software. Ms. Stilson reached out to her manager, Stuart McCowan, as well as the General Manager at Tiger Direct CA, Anthony Clark, about the unauthorized sales. In so doing, Ms. Stilson identified Kan.An Qin, Software Tech's sales person at Tiger Direct CA, as responsible for unauthorized volume license sales. In the following months, Ms. Stilson emailed Mr. Clark, Mr. McCowan, and Mr. Qin informing them that Software Tech was a reseller not authorized to receive Adobe software. Ms. Stilson's email was forwarded to Adam Shaffer, the Executive Vice President of Merchandise and Marketing for all Defendants.[10] (See Dkt. No. 94-2 (“Sarney Decl.”) ¶ 11 & Ex. 10 (“Shaffer Email”).)

         On October 16, 2014, Ms. Stilson informed Justin Ward, a senior account manager at Adobe, about the unauthorized sales. Mr. Ward responded by forwarding a highlighted Adobe license agreement and stating that the unauthorized sales must stop. Mr. McCowan also emailed Mr. Shaffer indicating that he talked to Mr. Ward and that if he could not “assure him that these grey-market sales in Canada will stop (completely), then he's going to simply hand this over to Adobe's legal team.” Mr. Ward's supervisor, Ryan Dyck, then talked to Mr. Shaffer, but did not raise the unauthorized sales with Adobe's legal department. Adobe did not add the Defendants to the Software Tech litigation. Mr. Clark nevertheless emailed several sales persons, including Mr. Qin, telling them to stop unauthorized sales.[11]

         During discovery in early 2015, Adobe learned that Software Tech purchased most of its Adobe software from the Defendants using fake customer information. (Draper Decl. ¶ 19.) Software Tech would create fake customer names and contact information, as well as fake schools, to purchase EDU and volume licensed software from the Defendants.[12] In 2017, Software Tech's former sales manager, Haik Moushaghayan, began cooperating with Adobe and told them that Defendants knew about Software Tech's resale scheme. (Draper Decl. ¶ 21.) Shortly after, Adobe filed the instant lawsuit. (Id.) Software Tech defaulted in its case, and a default judgment was entered in September 2016.[13]

         II. Legal Standard

         Summary judgment is appropriate if “there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). Factual disputes are only “genuine” if the evidence could cause a reasonable jury to reach a verdict for the other party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The movant can meet its burden by “showing . . . there is an absence of evidence to support the nonmoving party's case.” Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 531 (9th Cir. 2000) (citation and quotation omitted). Once the movant meets its burden of showing the absence of genuine issues of material fact that burden shifts to the nonmoving party, who must demonstrate the existence of a material issue of fact. Mahdavi v. C.I.A., 898 F.2d 156 (9th Cir. 1990) (citations omitted).

         A party opposing summary judgment must “go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial.” Turner v. Brown, 961 F.2d 217 (9th Cir. 1992) (citations omitted). The opposition party “cannot rest on the allegations in his pleadings to overcome a motion for summary judgment.” Id. Defendants “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Inudus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

         III. Analysis

         A. Direct Copyright Infringement

         Adobe moves for summary judgment for direct copyright infringement based on Defendants' alleged violations of their license agreements with Adobe. Defendants argue that their affirmative defenses of waiver, estoppel, and acquiescence, as well as statute of limitations, preclude summary judgment. The Court will first analyze Adobe's evidence of direct copyright infringement and then consider Defendants' affirmative defenses of waiver, estoppel, or acquiescence. The Court will consider the defense of statute of limitations in the next section.

         1. Adobe's Evidence of Direct Copyright Infringement

         A claim for copyright infringement requires the plaintiff to show that “(1) it owns valid copyrights in the works at issue, and (2) defendant encroached upon plaintiff's exclusive rights under the Copyright Act.” Microsoft Corp. v. EEE Business Inc., 555 F.Supp.2d 1051, 1055 (N.D. Cal. 2008). Although transfer of a copy ordinarily terminates the copyright holder's rights, a licensing agreement has no such effect. S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087 (9th Cir. 1989). Accordingly, a licensor may sue a licensee for copyright infringement if the licensee exceeds the scope of the license with respect to a right protected by the Copyright Act, such as the right to distribution. MDY Indus., LLC v. Blizzard Ent't, Inc., 629 F.3d 928, 940 (9th Cir. 2010).

         Adobe indisputably owns the registered copyrights for the software programs at issue. Adobe has produced certificates of copyright registrations to establish a presumption that the copyrights are valid. (RJN Ex. 1.)[14] Adobe indisputably licensed the copyrighted works to the Defendants subject to multiple restrictions. Adobe also produced admissible evidence to show violations of these restrictions.[15] However, in order to be entitled to summary judgment, Adobe was obligated to attribute specific conduct to each Defendant. See Adobe Sys. Inc. v. Blue Source Group, Inc., 125 F.Supp.3d 945, 964 (N.D. Cal. 2015); Sun Microsystems Inc. v. Hynix Semiconductor Inc., 608 F.Supp.2d 1166, 1194 (N.D. Cal. 2009). Nevertheless, Adobe moved for summary judgment for all Defendants based on conduct linked to only two of the Defendants, namely unauthorized sales to Tiger Direct and unauthorized purchases by SYX Distribution Inc.[16]Further, each unauthorized sale constitutes a separate act of copyright infringement. See Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663, 671 (2014). The Court therefore cannot conclude that Defendants are liable for all unauthorized sales where Adobe failed to provide sufficiently definite evidence.[17]

         Accordingly, the Court finds that Adobe has met its initial burden to show direct copyright infringement only for those sales for which it produced concrete evidence linked to a specific Defendant, namely those set forth in footnote 7, subject to the analysis regarding the statute of limitations defense in Section II.D.1 below. Adobe has not met its burden as to its remaining direct copyright infringement claims.

         2. Defendants' Waiver, Acquiescence, and Estoppel Defenses

         Defendants do not dispute Adobe's evidence, but argue that their affirmative defenses of waiver, acquiescence, and estoppel preclude summary judgment.[18] Waiver occurs “if there is an intent by the copyright proprietor to surrender rights in his work, ” as “manifested by an overt act indicative of a right-holder's intent to completely abandon those rights.” Taylor Holland LLC v. MVMT Watches, Inc., 2:15-cv-03578-CVW-JC, 2016 U.S. Dist. LEXIS 187379, at **16-17 (C.D. Cal. Aug. 11, 2016) (citations omitted). Acquiescence “limits a party's right to bring suit following an affirmative act by word or deed by the party that conveys implied consent to another.” Seller Agency Council, Inc. v. Kennedy Ctr. For Real Estate Educ., Inc., 621 F.3d 981, 988 (9th Cir. 2010) (emphasis in original). Acquiescence requires that “the senior user actively represented that it would not assert a right or a claim.” Id. at 989. Estoppel occurs if: “(1) the plaintiff knew of the defendant's allegedly infringing conduct; (2) the plaintiff intended that the defendant rely upon his conduct or act so that the defendant has a right to believe it is so intended; (3) the defendant is ignorant of the true facts; and (4) the defendant detrimentally relied upon the plaintiff's conduct.” Bangkok Broad. & T.V. Co. v. IPTV Corp., 742 F.Supp.2d 1101, 1115 (C. D. Cal. 2010) (citation omitted). Equitable estoppel “is disfavored and should only be applied as needed to avoid injustice.” Id. (citation omitted).

         Defendants argue that Adobe waived, acquiesced, or became estopped from asserting its claims because it failed to sue Defendants upon discovering the unauthorized sales thus: Ms. Stilson informed Mr. Ward at Adobe of Defendants' unauthorized sales in October 2014, and Mr. Ward instructed her to stop those violations of the licensing agreement. Mr. Dyck at Adobe then threatened to refer the matter to Adobe's legal team, but never did so, and Adobe did not join the Defendants to the ongoing Software Tech litigation. Mr. Craig, the Executive Vice President for Business to Business at Tiger Direct, nonetheless emailed several Tiger Direct sales persons telling them to stop unauthorized sales.

         On this record, Adobe's failure to act does not create a genuine dispute regarding Defendants' affirmative defenses. Absence of lawsuit does not constitute an “affirmative” or “overt” act as necessary for waiver or acquiescence. See Taylor Holland, 2016 U.S. Dist. LEXIS 187379, at *17. On the contrary, Adobe's admonishments over the unauthorized sales shows lack of intent to acquiesce or abandon its rights. See id. at *15. Similarly, estoppel is not appropriate because Defendants were not ignorant of their infringement and did not rely on Adobe's apparent inaction. Indeed, Mr. Clark's email directing sales persons to stop unauthorized sales shows that Defendants knew of the sales and acted in anticipation of Adobe's enforcement of its rights.[19]

         Defendants cited authorities do not persuade otherwise. For instance, Watermark Publishers v. High Tech System, No. 95-3839-IEG (CGA), 1997 WL 717677 (S.D. Cal. June 18, 1997) illustrates an estoppel case far different from this one. In Watermark, a plaintiff sent a cease-and-desist letter to a defendant regarding a map displayed at a visitor center. Id. at *2. The defendant, believing that the plaintiff was referring to a different map, responded that they had taken down the display. Id. Three years later, the plaintiff saw the first map again and sued the defendant. Id. The court found that the plaintiff was estopped from asserting its claims because “[defendant] had a right to believe that [plaintiff] intended him to rely on its failure to pursue its claim after he replace[d] the Le Sage Riviera display” and “was ignorant of the fact that [plaintiff] believed that the Lakeport display infringed its copyright.” Id. at *8. Here, Defendants were not ignorant that the unauthorized sales infringed Adobe's copyright and did not rely on Adobe's inaction to continue those sales.[20] Defendants thus failed to demonstrate a genuine dispute that waiver, estoppel, or acquiescence precludes summary judgment for direct copyright infringement.

         Accordingly, the Court Grants in Part Adobe's motion for summary judgment for direct copyright infringement for one sale to SunPumps, Inc. and five sales to J&B Medical Supply Co. as these are not subject to the statute of limitations analysis. Adobe's motion is Denied for all other claims of direct copyright infringement.

         B. Contributory ...

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