Chicago IP Attorney & Lawyer : R. David Donoghue : Chicago IP Litigation Blog

Flava Works, Inc. v. Gunter d/b/a myVidster.com, No. 10 C 6517, Slip Op. (N.D. Ill. May 10, 2011) (Grady, J.).

Judge Grady granted in part defendants' Fed. R. Civ. P. 12(b)(6) motion to dismiss plaintiff Flava Works' complaint in this copyright case involving adult entertainment on the internet. 

Direct Infringement

Defendant Gunter operates myVidster.com where users could post content, including the allegedly infringing videos. But, as an internet service provider ("ISP") Gunter was not liable for his user's copying. And Flava Works did not allege that Gunter copied. The claim was, therefore, dismissed. 

Contributory Infringement

Flava Works could not rely solely upon its DMCA take down notices to defendants - even multiple notices - to prove either actual or constructive knowledge of the infringement. Flava Works, however, showed knowledge based upon seven notices it sent to defendants over seven months, in addition to the DMCA takedown notices. The contributory infringement count was, therefore sufficiently pled. 

Vicarious Liability

Flava Works did not sufficiently plead defendants' direct financial interest in the alleged infringement. Flava Works did allege that defendants' inexpensive storage space and video sharing attracts customers. But Flava Works did not allege that the presence of the allegedly infringing material drew customers. 

Inducement

The Court dismissed Flava Works' inducement claim. It was a "formulaic recitation" of the standard void of facts showing an infringing purpose of active steps fostering infringement. 

False Designation & Trademark Infringement

Defendants' alleged posting on their website of Flava Works' videos containing Flava Works marks did not constitute a use in commerce. 

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Flava Works, Inc. v. Gunter d/b/a myVidster.com, No. 10 C 6517, Slip Op. (N.D. Ill. Jul. 27, 2011) (Grady, J.).

Judge Grady granted plaintiff Flava Works' motion for a preliminary injunction in this copyright case involving adult movies, and ordered the parties to confer on language for the preliminary injunction. Defendants' myVidster website is a "social video bookmarking" site which allows users to post or link to video content. When a user posts or links to the content, myVidster crawls the website hosting the video to gather data about the video, creates a thumbnail image of the video and embeds the video on the myVidster site.

Likelihood of Success

The Court held that there was a likelihood of success on at least Flava Works' contributory copyright infringement claim. It could not be "seriously disputed" that third parties have directly infringed Flava Work's works by posting video content on myVidster. And defendants knew or should have known about the infringement based upon Flava Works' seven DMCA take down notices outlining instances of the infringement to defendants. In fact, the email exchanges surrounding the notices show that defendants were not cooperative in addressing the notices. And myVidster's repeat infringer policy was the "epitome" of willful blindness. Furthermore, there was significant evidence that defendants encouraged the infringement. For example, myVidster encouraged sharing of video content without warning of potential copyright infringement issues.

Defendants were not protected by the DMCA's safe harbor provision. A threshold requirement for safe harbor is that a party adopt and reasonably implement a policy providing for termination of users that are repeat infringers. Defendants policy did not require or directly provide for termination of repeat infringers. And defendants did not consider copyright infringement to be part of the defintion of "infringer."

Irreparable Harm

Defendants failed to rebut the presumption of irreparable harm in copyright cases. Flava Works' did not delay in bringing the suit and then the injunction motion. Prior to filing suit, Flava Works attempted to resolve the issue with several DMCA take down notices and the Court would not penalize Flava Works for attempting to avoid litigation.

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TechnoLines, LP v. GST Autoleather, Inc., No. 11 C 965, Slip Op. (N.D. Ill. Jun. 30, 2011) (Grady, J.).

Judge Grady granted defendant GST's motion to dismiss plaintiffs' patent claims for improper revenue and lack of production and dismissed the remaining state law claims without prejudice to be refiled pursuant to diversity jurisdiction, if possible.

The Court's key rulings were:

• GST's failed license negotiations with plaintiff Echelon in Illinois alone could not create personal jurisdiction.
   
• Echelon residing in Illinois and, therefore, having been allegedly harmed in Illinois does not create personal jurisdiction. GST's conduct must have been specifically directed at Illinois. And there was no evidence that GST sold product into Illinois.
   
• GST's phone calls and emails to Echelon in Illinois did not create personal jurisdiction.
   
• The Court refused supplemental jurisdiction over the remaining state law claims, and gave plaintiff a deadline for repleading based upon diversity jurisdiction, if it could.

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Zojo Sol'ns., Inc. v. Leviton Mfg. Co., No. 10 C 881, Slip Op. (N.D. Ill. Oct. 20, 2010) (Grady, Sen. J.).

Judge Grady granted defendant Leviton's 28 U.S.C. § 1404(a) motion to transfer this false patent marking case to the Eastern District of New York. Plaintiff Zojo's choice of forum was given little deference because Zojo was a qui tam plaintiff. The location of Leviton's witnesses and documents in New York combined with the fact that Leviton's New York headquarters was the situs for the alleged false marking, favored transfer. That was true even though the Eastern District of New York was a slightly faster court. The most interesting aspect of the decision, however, was a statement that the Local Patent Rules did not apply to false patent marking cases because patent infringement was not alleged. Presumably, the analysis is different if the alleged false marking involves a marked product that allegedly does not fall within the claims of the marked patent.

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Simonian v. Edgecraft Corp., No. 10 C 1263, Slip Op. (N.D. Ill. Sep. 20, 2010) (Grady, Sen. J.).

Judge Grady granted defendant Edgecraft's Fed. R. Civ. P. 12(b)(6) motion to dismiss plaintiff Simonian's false patent marking claims. The Federal Circuit's recent decisions rejected two of Edgecraft's three arguments. In Stauffer, the Federal Circuit held that any individual had standing to sue for false marking without regard to injury in fact. And in Solo Cup, the Federal Circuit held that marking with an expired patent could constitute false patent marking.

The Court, however, held that Fed. R. Civ. P. 9(b) heightened pleading standards applied to the intent to deceive requirement. Simonian's "bare allegations" - and otherwise only "mere labels and conclusions" - at best suggested a "possibility of misconduct," not intent. While Rule 9(b) does allow intent to be pled generally, the allegations must create a reasonable inference that defendant acted with the necessary intent.
 

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Zimnicki v. General Foam Plastics Corp., No. 09 C 2132, Slip Op. (N.D. Ill. Mar. 24, 2010) (Grady, J.).

Judge Grady denied defendants' motion to dismiss or, in the alternative, to join a necessary party pursuant to Fed. R. Civ. P. 19 in this copyright case involving holiday decorations including  "decorative deer" designs. In an earlier-filed, ongoing litigation defendant Neo-Neon claimed that it owned the copyrights-in-suit and argued in the alternative, that the designs are generic. As an initial matter, the Court held that dismissal was not appropriate, even if Neo-Neon was a required party, because defendants did not attempt to show that Neo-Neon could not be joined.

Defendants did argue that their failure to join Neo-Neon would subject defendants to multiple or inconsistent obligations. While a theoretical interest in a litigation would not require joinder, Neo-Neon's actual claimed interest in the copyright was more than theoretical.  The Court had discretion to require joinder based upon that claim.

But the Court did not require joinder. Neo-Neon was determining its interests in a parallel proceeding in the Northern District – click here for more on that case. And while the ownership dispute generally put defendants in risk of multiple obligations, circumstances mitigated that concern. In addition to claiming ownership, Neo-Neon claimed the copyrights were generic. And there was no indication that Neo-Neon intended to use any interest it acquired to enforce the copyrights-in-suit.

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Lyons Partnership, L.P. v. Welle, No. 08 C 2909, Slip Op. (N.D. Ill. Feb. 22, 2010) (Grady, Sen. J.).

Jude Grady denied defendants' motion to set aside the Court's Fed. R. Civ. P. 55(c) default judgment in this case alleging that defendants violated plaintiff's intellectual property rights in children's characters Hello Kitty, Bob the Builder and Thomas the Tank Engine, among others. While the defendants acted diligently after default was entered, they did not act diligently prior to the default. Defendants' "cash flow" problems were not an excuse for failing to appear pro se. Additionally, the defendants did not identify a meritorious defense. Bare denials from defendants' answer were not sufficient.

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Foboha GMBH v. Gram Tech., Inc., No. 08 C 969, 2008 WL 4619795 (N.D. Ill. Oct. 15, 2008) (Grady, J.).

Judge Grady denied defendants' (collectively “Gram”) Fed. R. Civ. P. 12(b)(6) motion to dismiss plaintiffs' (collectively “Foboha”) Lanham Act unfair competition and related state law claims. Foboha alleged that Gram made false and misleading statements about Gram's patent and about Foboha's alleged infringement of the patent. In particular, Gram allegedly claimed that its technology was patented while its application was still being processed and that Gram made false statements about the status of the reexamination filed by Foboha. The Court held that Foboha's claims were governed by Fed. R. Civ. P. 9(b)'s heightened pleading requirements because they were based upon Gram's allegedly false and misleading statements. And at least for the statements allegedly made about the patent during reexam, Foboha met the heightened standard by explaining what statements were made, when and where they were made, who made them and how they were made.

The Court did, however, hold that Gram's direct communications, in person or in letters to individuals, did not constitute commercial advertising and, therefore, did not constitute Lanham Act unfair competition. But Gram's statements on its website and press releases could constitute commercial advertising.

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Genender Int'l, Inc. v. Skagen Designs, Ltd., No. 07 C 5993, Slip Op. (N.D. Ill. Apr. 14, 2008) (Grady, J.).

Judge Grady denied defendant Skagen's Fed. R. Civ. P. 12(b)(3) motion to dismiss plaintiff Genender's declaratory judgment ("DJ") case. The Court also granted in part Skagen's Fed. R. Civ. P. 12(b)(6) motion to dismiss, dismissing Genender's tortious interference claim. Skagen argued that Genender's DJ suit should be dismissed in favor of Skagen's later-filed suit for design patent and trade dress infringement filed in the District of Nevada. Skagen argued that dismissal was required by the Seventh Circuit's standard as set forth in Tempco Elec. Heater Corp. v. Omega Eng., Inc., 819 F.2d 746 (7th Cir. 1987). The Court, however, held that Federal Circuit law controlled because of the design patent claims. And the Federal Circuit explicitly rejected Tempco in Genentech, Inc. v. Eli Lilly & Co., 998 F.2d 931 (Fed. Cir. 1993) (abrogated on other grounds). Instead, the Federal Circuit required that Skagen provide a "sound reason" that proceeding with the DJ would be unjust or inefficient. Skagen provided no such reason and, in fact, Skagen's counsel agreed at argument that it did not matter whether the case was tried in the Northern District or in the District of Nevada.

The Court dismissed without prejudice Genender's tortious interference claim. Genender alleged that Skagen interfered with Genender's business relationship with customer Sears by copying Sears personnel on cease and desist letters. But the claim was deficient because Genender did not allege that it lost any Sears business because of Skagen's actions.

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RTC Indus., Inc. v. Haddon, No. 06 C 5734, 2007 WL 2743583 (N.D. Ill. Sep. 10, 2007) (Grady, J.).

Judge Grady denied defendant’s Fed. R. Civ. P. 12(c) motion for judgment on the pleadings. The Court held that plaintiff’s breach of fiduciary duty claim was not preempted by the Illinois Trade Secret Act. Plaintiff alleged that defendant (plaintiff’s employee) violated his fiduciary duty to plaintiff (his employer at the time) by disclosing to third party DCI Marketing (“DCI”) that a DCI employee had accepted an offer to work for plaintiff. The Court held that the alleged acts would breach defendant’s fiduciary duty regardless of whether the hiring decision was confidential. The breach of fiduciary duty claim, therefore, was not preempted.

The Court also held that the non-complete clause defendant signed as a condition of employment was enforceable even though it lacked a geographic restriction. There was a two year time restriction and an “activity” restriction - defendant was only prevented from taking a job with a competitor that would either result in actual or threatened use of plaintiff’s confidential information.

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Johnson v. Wright, No. 05 C 3943, 2007 WL 1079063 (N.D. Ill. Apr. 5, 2007) (Grady, J.).

Judge Grady denied defendants' Fed. R. Civ. P. 12(b)(1) motion to dismiss plaintiff's amended complaint for lack of subject matter jurisdiction.  Defendants, record companies and related individuals, were accused of infringing plaintiff Syl Johnson's copyright in his song "Is It Because I'm Black," as well as related state law claims.  Defendants argued that there was not federal jurisdiction because the co-owners of Johnson's copyright had transferred their rights to one of the defendants.  The transfer, defendants argued, destroyed Johnson's federal copyright claim, leaving only state claims over which the Court lacked independent jurisdiction.  But defendants conceded that Johnson stated a claim for federal copyright infringement.  The Court held that Johnson's and defendants' alleged co-ownership of the copyright was an affirmative defense, not a jurisdictional matter.  Because Johnson had a well-pled claim of federal copyright infringement, the Court denied defendants' Rule 12(b)(1) motion to dismiss.  The Court also noted that defendants' motion was "essentially" a copyright infringement summary judgment motion, but because it was styled as a Rule 12(b)(1) motion on the pleadings, Johnson was not given adequate opportunity to present his response.  Additionally, the Court identified several questions of fact that would have prevented a grant of summary judgment based upon the exhibits attached to the parties' briefs.

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Scholz Design Inc. v. Jaffe, No. 06 C 0075, 2007 WL 896536 (N.D. Ill. Mar. 21, 2007) (Grady, J.).

Judge Grady, after a bench trial, entered judgment on behalf of defendants because they had neither directly or contributorily infringed plaintiff's copyrighted home design.  The Court held that, while plaintiffs approved the design, any actual copying of the copyrighted design was done by defendants' architects.  Additionally, the Court held that plaintiff introduced no evidence at trial to prove that defendants knew that plaintiff's copyright was being infringed by defendants' architect.  The Court held that, at most, defendants knew plaintiff's design was being used, but had no reason to believe the architect was infringing the design.

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Avery Dennison Corp. v. Naimo, No. 06 C 3390, 2006 WL 3343762 (N.D. Ill. Nov. 16, 2006) (Grady, J.).

In this trade secret dispute, Judge Grady dismissed plaintiff's breach of contract claim alleging defendant's breach of the parties' Employment Agreement because the Separation Agreement the parties subsequently signed included an integration clause.  When defendant began his employment with plaintiff he signed an Employment Agreement which required that, among other things, defendant not compete with plaintiff for twelve months after his employment ended and that defendant never use plaintiff's proprietary information for the benefit of anyone besides plaintiff.  When defendant later stopped working for plaintiff, the parties signed a Separation Agreement with a similar proprietary information clause and a strong integration clause, but apparently without a similar non-compete clause. 

The Separation Agreement's integration clause read as follows:

This Agreement is the only and complete agreement between [defendant] and [plaintiff] on or in any way relating to the subject matter hereof, and supersedes all previous agreements, including without limitation, the Employment Agreement, except to the extent such Employment Agreement . . . is specifically referenced in Section 2 of this Agreement.

The Separation Agreement also stated that it was a "full and final settlement of all matters relating to or arising out of [defendant's] employment and separation of employment with [plaintiff]."  Based on the language of the Separation Agreement, the Court held that the Separation Agreement replaced the Employment Agreement "without limitation" except for plaintiff's payment obligations to defendant as set forth in Section 2 of the Employment Agreement.

Practice tip:  When preparing separation agreements, make sure to include all of the provisions from the employment agreement that you might need post-employment, otherwise you stand a good chance of losing those provisions left out of the separation agreement. 

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Kennelsource, Inc. v. Barking Hound Village, LLC, No. 05 C 1788, 2006 WL 2578975 (N.D. Ill. Sept. 5, 2006) (Grady, J.)

Judge Grady dismissed plaintiff's complaint with prejudice for lack of personal jurisdiction.  Plaintiff alleged that defendants, several Georgia and Texas entities and individuals, worked together or at each other's direction to steal plaintiff's pet-care business management software and to infringe plaintiff's copyrights for the software.

Plaintiff claimed that individual defendant McCall received a trial version of plaintiff's software at the direction of the other defendants.  The other defendants then allegedly worked together to copy the software and to sell it.  Defendants countered with affidavits showing that McCall stopped working for defendants the day before McCall received plaintiff's trial software.  Defendants further argued that 1) they never offered the allegedly copied software for sale, and 2) no defendant had any contacts with Illinois except for McCall, who allegedly requested and received plaintiff's trial software. 

The Court held that it lacked personal jurisdiction and dismissed all defendants except McCall. Because plaintiff had not located McCall, and because she neither appeared before the Court nor joined in the motion to dismiss, McCall had not joined in the motion to dismiss or presented any evidence that she lacked sufficient minimum contacts with the state of Illinois.

The Court denied Plaintiff’s subsequent request for leave to amend the Complaint pursuant to Rule 15(a), and dismissed the case with prejudice as to all defendants except McCall.  The Court ruled that plaintiff failed to show how it would amend the complaint if granted leave, and failed to explain why, if such facts existed, plaintiff did not present them in response to defendants' motion to dismiss.

Practice tip: when seeking leave to amend pursuant to Rule 15 explain the basis for your request, attach a proposed amended complaint that includes the new facts, and justify any failure to include that information in the initial papers. And when faced with a credible jurisdictional challenge, consider including an amended complaint with your responsive papers.

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