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Pacific Stock, Inc v. Pearson Education

January 11, 2012

PACIFIC STOCK, INC.,
PLAINTIFF,
v.
PEARSON EDUCATION, INC., DEFENDANT.



The opinion of the court was delivered by: Susan Oki Mollway Chief United States District Judge

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS COMPLAINT

I. INTRODUCTION.

Plaintiff Pacific Stock, Inc. ("Pacific Stock"),

alleges that Defendant Pearson Education, Inc. ("Pearson"), has infringed on Pacific Stock's copyrights in photographs. Pacific Stock licensed the use of those photographs in educational materials that Pearson said it planned to publish, but, according to Pacific Stock, Pearson exceeded the terms of the licenses. Indeed, Pacific Stock claims that Pearson intended to exceed those terms even at the time Pearson sought the licenses. Pacific Stock asserts claims for copyright infringement, fraud, and fraudulent concealment. The court GRANTS IN PART and DENIES IN PART Pearson's motion to dismiss.

II. BACKGROUND.

Pacific Stock is a photo stock agency incorporated in

Hawaii. It manages photographs and copyright registrations for a number of photographers. Compl. ¶¶ 1, 5, ECF No. 1. Pacific Stock represents the photographers whose pictures are at issue in this case and says it has written assignments of the copyrights of the subject photographs. Id. ¶ 6. According to Pacific Stock, the assignments include assignments of the photographers' rights to pursue all claims relating to the photographs and their copyrights. Id. As a part of its business, Pacific Stock licenses the photographs to other users, including Pearson. Id. ¶¶ 5, 11.

Pearson, a Delaware corporation, publishes educational materials. Id. ¶¶ 2, 8. Its publications are sold under a variety of brand names and are distributed to retail bookstores, online bookstores, wholesalers, government entities, schools, and other consumers. Id. ¶¶ 9-10.

Pacific Stock alleges that it has permitted the limited use of certain photographs by Pearson in its educational materials. Id. ¶ 11. It says it has given Pearson and its various parents, subsidiaries, and predecessors over 150 licenses that restrict matters such as the type of media in which a photograph may be used, the length of time that the photograph may be used, and the number of times the photograph may be used. Id. ¶¶ 11-12. Pacific Stock allegedly based the restrictions and information in the license agreements, as well as the license fees, on representations made by Pearson as to how it intended to use the photographs. Id. ¶¶ 13-14.

Pacific Stock alleges that Pearson deliberately understated the duration of its intended use, the print run volume, the format or size in which the photographs would be used, and the geographic scope of the intended use. Id. ¶ 16. Pacific Stock says that, as a result, Pacific Stock charged Pearson less than it otherwise would have charged in licensing fees. Id. ¶ 17. Pacific Stock further alleges that Pearson induced it to believe that Pearson would seek new licenses if its use of the photographs changed, and that Pearson concealed its intent to exceed the license limitations. Id. ¶¶ 18-19.

Pacific Stock attaches as Exhibit "A" to its Complaint a spreadsheet with information about 151 photographs it allegedly licensed to Pearson. The spreadsheet includes image identification numbers; copyright registration numbers; intended project, media, or text names; intended print runs; image sizes; and the names of Pearson representatives who provided such information. See Exhibit "A" to Compl., ECF Nos. 1-2, 1-3.

Pearson now moves to dismiss the Complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure and for failure to plead the fraud claims with particularity as required by Rule 9(b). The court GRANTS the motion only with respect to licenses for periods that had not expired at the time the Complaint was filed, and only with respect to claims that Pearson is liable for the copyright infringement and fraud claims asserted in the First and Second Causes of Action based on use of the photographs beyond the periods allowed by those licenses. The court DENIES the motion as to all other claims, including the fraudulent concealment claim asserted in the Third Cause of Action and the claims in the First and Second Causes of Action relating to unexpired licenses to the extent those claims are not based on the duration of Pearson's alleged use of the licensed photographs.

III. STANDARD.

Under Rule 12(b)(6), a court is generally limited to

reviewing the contents of the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996). If matters outside the pleadings are considered, the Rule 12(b)(6) motion is treated as one for summary judgment. See Keams v. Tempe Tech. Inst., Inc., 110 F.3d 44, 46 (9th Cir. 1997); Anderson v. Angelone, 86 F.3d 932, 934 (9th Cir. 1996). However, courts may "consider certain materials--documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice--without converting the motion to dismiss into a motion for summary judgment." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Documents whose contents are alleged in a complaint and whose authenticity is not questioned by any party may also be considered in ruling on a Rule 12(b)(6) motion. See Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006); Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).

On a Rule 12(b)(6) motion to dismiss, all allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Fed'n of African Am. Contractors v. City of Oakland, 96 F.3d 1204, 1207 (9th Cir. 1996). However, conclusory allegations of law, unwarranted deductions of fact, and unreasonable inferences are insufficient to defeat a motion to dismiss. Sprewell, 266 F.3d at 988. Additionally, the court need not accept as true allegations that contradict matters properly subject to judicial notice or allegations contradicting the exhibits attached to the complaint. Id. Dismissal under Rule 12(b)(6) may be based on either:

(1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988) (citing Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984)).

To survive a Rule 12(b)(6) motion to dismiss, factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true even if doubtful in fact. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Accord Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (Rule 8 "does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation"). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, 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 (internal citations omitted). The complaint must "state a claim to relief that is plausible on its face." Id. at 570. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949.

Usually, a party's pleading need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2).*fn1 However, Rule 9(b) requires that, when fraud or mistake is alleged, "a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). A court treats a motion to dismiss under Rule 9(b) like a motion to dismiss under Rule 12(b)(6):

A motion to dismiss a complaint or claim "grounded in fraud" under Rule 9(b) for failure to plead with particularity is the functional equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim. If insufficiently pled averments of fraud are disregarded, as they must be, in a complaint or claim grounded in fraud, there is effectively nothing left of the complaint. In that event, a motion to dismiss under Rule 12(b)(6) would obviously be granted. Because a dismissal of a complaint or claim grounded in fraud for failure to comply with Rule 9(b) has the same consequence as a dismissal under Rule 12(b)(6), dismissals under the two rules are treated in the same manner.

Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).

IV. ANALYSIS.

A. Pacific Stock Sufficiently Articulates A Claim Of Copyright Infringement Except As To Infringement Based On Duration Of Licenses That Had Not Expired As Of June 30, 2011.

Pacific Stock alleges that Pearson infringed Pacific Stock's copyrights by using copyrighted photographs in a manner exceeding the terms of the licenses granted by Pacific Stock.

There are two elements to a claim for copyright infringement: a plaintiff must allege (1) ownership of a valid copyright and (2) copying of constituent elements of the work that are original. Funky Films, Inc. v. Time Warner Entm't Co.,

L.P., 462 F.3d 1072, 1076 (9th Cir. 2006). A claim for breach of a license agreement requires allegations that the defendant exceeded the scope of its licensed use. See S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087-88 (9th Cir. 1989).

1. Pacific Stock Sufficiently Alleges Ownership Of A Valid Copyright.

Pacific Stock alleges that it holds valid copyrights to all of the photographs listed in Exhibit "A." Pearson challenges the validity of the copyrights for photographs registered as included in compilations. Pearson argues that such registrations do not always give rise to copyrights in individual works included in the compilations. Pearson does not ...


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