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Geophysical Services, Inc. v. TGS-Nopec Geophysical Services

United States District Court, S.D. Texas, Houston Division

November 21, 2017



          Lee H. Rosenthal Chief United States District Judge

         I. Background

         Geophysical Services Incorporated is a Canadian company that collects seismic data by bouncing sound waves off the ocean floor, recording the information and processing, transcribing, and storing the information as seismic lines. Geophysical licenses the seismic data to oil and gas companies for use in oil, gas, and other hydrocarbon exploration. Geophysical asserts a copyright interest in the seismic data under United States law.

         Canadian laws regulating offshore petroleum exploration and extraction require seismic services companies like Geophysical to get a permit before conducting seismic surveys in Canadian waters. One condition for getting a permit is that the company submit copies of the seismic data it obtains from the surveying to the Canadian government. The data is kept confidential for a defined period, then released on specific request. Geophysical followed this regulatory regime in 1983, when it submitted copies of the seismic data generated from its 1982 surveys in Canadian waters to the Canada-Newfoundland and Labrador Offshore Petroleum Board.[1]

         In 1999, TGS-NOPEC Geophysical Services (“TGS”), a Houston company, requested copies of the seismic data that Geophysical had filed with the Board in 1983. Because the confidentiality period had expired, the Board made copies and sent them to TGS at its Houston address. TGS performed seismic surveys at several of the same locations Geophysical had surveyed in 1982. TGS licensed the seismic data it collected to oil and gas companies.

         Geophysical discovered TGS's actions in 2013 and sued in May 2014. The complaint alleges that TGS directly and contributorily infringed Geophysical's copyrights in the 1982 seismic data by requesting copies from the Board; making the copies it received from the Board available to third parties; creating derivative works by surveying the locations disclosed in the Geophysical seismic lines to collect its own seismic data, which it licensed to third parties; and licensing and distributing copies of these derivative works without including Geophysical's copyright-management information. (Docket Entry No. 1).

         TGS moved to dismiss, arguing that Geophysical's complaint failed to state a claim and was barred by the act-of-state doctrine and by international comity. (Docket Entry No. 10). After briefing and argument, the court granted TGS's motion to dismiss. (Docket Entry No. 28). Geophysical filed an interlocutory appeal challenging the dismissals of the unauthorized-importation basis of its direct infringement claim and the dismissal of the contributory infringement claim. Geophysical Serv., Inc. v. TGS-NOPEC Geophysical Co., 850 F.3d 785, 792 (5th Cir. 2017). The Fifth Circuit affirmed the dismissal of Geophysical's contributory infringement claim on extraterritoriality grounds, but reversed the dismissal of the unauthorized-importation component of Geophysical's direct infringement claim. Id. at 799-800. The Fifth Circuit's direction on remand stated as follows:

[T]he district court must first decide whose law governs the determination whether the copies imported by TGS were “lawfully made” under § 109. It must then apply the legal principles that it determines to govern. For example, if the district court finds that Canadian law controls the inquiry, then it may be helpful to await the input of the Canadian courts on Geophysical's challenge to the [Board's] practice of making and releasing copies of seismic lines. Alternatively, if the district court finds that United States law controls, then it may revisit its initial inclination that Geophysical granted the [Board] an implied license-though the creation of an implied license, which turns on the copyright holder's intent, is a fact question.


         Following the Fifth Circuit's remand, TGS filed a renewed motion to dismiss, Geophysical responded, and TGS replied. (Docket Entry Nos. 62, 72, 74). After the court heard oral argument, (Docket Entry No. 79), TGS filed a supplemental reply, Geophysical filed a supplemental response, and TGS filed a second supplemental reply. (Docket Entry Nos. 81, 84, 85).

         Based on the complaint, (Docket Entry No. 1), the motion to dismiss, the parties' briefing and supplemental briefing, the oral argument, and the applicable law, the court denies TGS's renewed motion to dismiss and sets a scheduling and status hearing for December 1, 2017 at 1:30 p.m. The reasons for the ruling are explained below.

         II. The Rule 12(b)(6) Legal Standard

         Rule 12(b)(6) allows dismissal if a plaintiff fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a) (2). A complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007). Rule 8 “does not require ‘detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). “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.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556).

         To withstand a Rule 12(b)(6) motion, a “complaint must allege ‘more than labels and conclusions, '” and “‘a formulaic recitation of the elements of a cause of action will not do.'” Norris v. Hearst Trust, 500 F.3d 454, 464 (5th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “Nor does a complaint suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Iqbal , 556 U.S. at 678 (alteration in original) (quoting Twombly, 550 U.S. at 557). “[A] complaint does not need detailed factual allegations, but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.'” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “Conversely, when the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should be exposed at the point of minimum expenditure of time and money by the parties and the court.” Id. (quoting Twombly, 550 U.S. at 558) (internal quotation marks and alteration omitted).

         When a plaintiff's complaint fails to state a claim, the court should generally give the plaintiff a chance to amend the complaint under Rule 15(a) before dismissing the action with prejudice, unless it is clear that to do so would be futile. See Carroll v. Fort James Corp., 470 F.3d 1171, 1175 (5th Cir. 2006) (Rule 15(a) “evinces a bias in favor of granting leave to amend”); Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002) (“[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal.”). A court in its discretion may deny a motion to amend for futility if the amended complaint would fail to state a claim upon which relief could be granted. Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763, 766 (5th Cir. 2016) (citing Stripling v. Jordan Productions Co., LLC, 234 F.3d 863, 873 (5th Cir. 2000)). The decision to grant or deny leave to amend “is entrusted to the sound discretion of the district court.” Pervasive Software Inc. v. Lexware GmbH & Co., 688 F.3d 214, 232 (5th Cir. 2012).

         In considering a Rule 12(b)(6) motion to dismiss, a court limits itself to the contents of the pleadings, with an exception. In Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000), the Fifth Circuit approved the district court's consideration of documents the defendant attached to a motion to dismiss. The Fifth Circuit made it clear that “such consideration is limited to documents that are referred to in the plaintiff's complaint and are central to the plaintiff's claim.” Scanlan v. Tex. A & M Univ., 343 F.3d 533, 536 (5th Cir. 2003) (citing Collins, 224 F.3d at 498-99). Other courts approve the same practice. See Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993) (“Documents that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to her claim.” (citations omitted)); see also Field v. Trump, 850 F.2d 938, 949 (2d Cir. 1988) (citation omitted); Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).

         When “matters outside the pleadings” are submitted in support of or in opposition to a Rule 12(b)(6) motion to dismiss, Rule 12(b) grants courts discretion to accept and consider those materials, but does not require them to do so. See Prager v. LaFaver, 180 F.3d 1185, 1188-89 (10th Cir. 1999); Isquith v. Middle S. Utils., Inc., 847 F.2d 186, 193 n.3 (5th Cir. 1988) (quoting 5C Wright &Miller, Federal Practice and Procedure § 1366). A court exercises this discretion by determining whether the proffered material, and the resulting conversion from the Rule 12(b)(6) to the Rule 56 procedure, is likely to facilitate disposing of the action. Isquith, 847 F.2d at 193 n.3. If the court decides to consider such extraneous material, then the court must treat the Rule 12(b)(6) motion as a motion for summary judgment under Rule 56. Fed.R.Civ.P. 12(d). If the court refuses to consider those materials outside the pleadings, then the Rule 12(b)(6) motion remains intact and may be decided on its merits under the appropriate standard of review.

         III. Interpreting “Lawfully Made Under This Title”

         A. The Interpretation Issues

         Under United States copyright law, a copyright owner has the exclusive right “to do and to authorize” certain actions involving a copyrighted work. 17 U.S.C. § 106. Those actions include “distribut[ing] copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” Id. at § 106(3). The copyright owner's exclusive right to distribute encompasses the right to prohibit distribution of the copyrighted work, including importation into the United States, by others without the owner's permission. Id. at § 602(a)(1) (“Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106.”).

         The distribution right is exclusive, but it is not absolute. One limit is the first sale doctrine, which dates back to English common law. Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013) (citing 1 E. Coke, Institutes of the Laws of England § 360 (1628)). The doctrine was first recognized in the United States in a 1908 Supreme Court opinion holding that the copyright statutes did not grant a copyright owner the right to control all sales for the indefinite future. The Court stated:

In our view the copyright statutes, while protecting the owner of the copyright in his right to multiply and sell his production, do not create the right to impose, by notice, such as is disclosed in this case, a limitation at which the [work] shall be sold at retail by future purchasers, with whom there is no privity of contract. This conclusion is reached in view of the language of the statute, read in the light of its main purpose to secure the right of multiplying copies of the work, -a right which is the special creation of the statute. . . . To add to the right of exclusive sale the authority to control all future retail sales, by a notice that such sales must be made at a fixed sum, would give a right not included in the terms of the statute, and, in our view, extend its operation, by construction, beyond its meaning, when interpreted with a view to ascertaining the legislative intent in its enactment.

Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350-51 (1908).

         The statute currently codifying the first sale doctrine provides: “Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 U.S.C. § 109(a) (emphasis added). The doctrine “reflects the fundamental principle of copyright that ownership of the copyright in a work is distinct from ownership of the material object that embodies the work.” Geophysical, 850 F.3d at 793. A copyright owner's distribution right ends when a “lawfully made” copy has been transferred to a third party.

         The Fifth Circuit remanded this case “for determination of the proper standard by which to assess whether imported copies made abroad were lawfully made under § 109 and application of that standard.” Id. at 796. That “proper standard” has long been elusive, [3] and the parties dispute what the phrase “lawfully made under this title” means. The approaches to interpreting the phrase are analyzed below.

         B. The Current Law

         The Supreme Court has twice reviewed the interplay between § 602(a)'s importation restriction and § 109(a)'s first sale doctrine. In 1998, the Court addressed “whether the ‘first sale' doctrine endorsed in § 109(a) is applicable to imported copies.” Quality King Distributors, Inc. v. L'anza Research Intern., Inc., 523 U.S. 135, 138 (1998). L'anza, a California corporation, sold hair products to domestic distributors who agreed to distribute the products to authorized vendors in limited locations. Id. L'anza also sold its products to foreign distributors at prices much cheaper than it charged the domestic distributors. Id. at 139. Products sold to foreign distributors made their way back into the United States and were sold to vendors without L'anza's authorization. Id. These vendors sold the products at cheaper prices than the authorized domestic distributors charged. Id. L'anza sued.

         The Court held that § 602(a) “does not categorically prohibit the unauthorized importation of copyrighted materials, ” explaining that:

[a]fter the first sale of a copyrighted item “lawfully made under this title, ” any subsequent purchaser, whether from a domestic or from a foreign reseller, is obviously an “owner” of that item. Read literally, § 109(a) unambiguously states that such an owner “is entitled, without the authority of the copyright owner, to sell” that item. Moreover, since § 602(a) merely provides that unauthorized importation is an infringement of an exclusive right “under section 106, ” and since that limited right does not encompass resales by lawful owners, the literal text of § 602(a) is simply inapplicable to both domestic and foreign owners of L'anza's products who decide to import them and resell them in the United States.

Id. at 144-45. Because the first sale doctrine limits § 106, and because importation under § 602(a) is a violation of § 106(3), the first sale doctrine also limits § 602(a). The defendants in Quality King were shielded from copyright infringement liability because they were the valid owners of “lawfully made” products. But the facts of Quality King made the holding narrow. The products at issue were manufactured in the United States, exported to foreign distributors, and imported back into the United States. The Court did not address ...

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