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UMG Recordings, Inc. v. Grande Communications Networks, LLC

United States District Court, W.D. Texas, Austin Division

February 28, 2018

UMG RECORDINGS, INC., et al.,
v.
GRANDE COMMUNICATIONS NETWORKS, LLC, and PATRIOT MEDIA CONSULTING, LLC

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          ANDREW W. AUSTIN UNITED STATES MAGISTRATE JUDGE.

         TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

         Before the Court are Defendant Grande Communications Networks LLC's Motion to Dismiss for Failure to State a Claim (Dkt. No. 28); Plaintiffs' Response (Dkt. No. 33); and Grande's Reply (Dkt. No. 37), as well as Patriot Media Consulting, LLC's Motion to Dismiss for Failure to State a Claim (Dkt. No. 29); Plaintiff's Response (Dkt. No. 34); and Patriot's Reply (Dkt. No. 38). The District Court referred the motions to the undersigned Magistrate Judge for a report and recommendation pursuant to 28 U.S.C. §636(b) and Rule 1(c) of Appendix C of the Local Rules.

         I. BACKGROUND

         Because the case is before the Court on a motion to dismiss for failure to state a claim, the facts set forth here, taken from Plaintiff's Original Complaint (Dkt. No. 1), are presumed true. Plaintiffs-who the Court will refer to collectively as “UMG”-are a collection of record companies that produce and distribute commercial sound recordings in the United States. Dkt. No. 1 at ¶ 2. They seek damages and injunctive relief regarding alleged infringements of various copyrights they claim to own or have exclusive rights to. They attach a “a non-exhaustive, illustrative list” of these recordings to the Complaint. Id. at ¶¶ 6, 34, 37 & Exhibit A. Grande is an internet service provider that provides internet access to subscribers in portions of Texas. Id. at ¶ 3. UMG alleges that Grande has received, through UMG's agent Rightscorp, millions of notices of direct copyright infringement allegedly committed by Grande subscribers. Id. at ¶¶ 4, 47-49. UMG complains that these Grande subscribers use peer-to-peer file sharing applications like BitTorrent[1] to share copyrighted material without authorization. Id. at ¶¶ 4, 38, 39, 43, 45, 48. UMG alleges that Grande is secondarily liable for these activities because it continued to provide the subscribers with internet access after receiving these notices. Id. at ¶ 56; see also Dkt. No. 28 at § I.B.

         Patriot is a management consulting firm which provides certain management services to Grande. Id. at ¶¶ 4, 52. In addition to seeking to hold Grande secondarily liable for infringement, UMG also sues Patriot, contending that “Patriot's infringing conduct includes, among other things, formulating and implementing the business policies, procedures, and practices that provide repeat infringers with continued internet service through Grande.” Id. at ¶ 55.

         Both Grande and Patriot move to dismiss UMG's Complaint for failure to state a claim. The Court addresses each motion separately.

         II. LEGAL STANDARD

         Rule 8 of the Federal Rules of Civil Procedure “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do . . . Factual allegations must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim, “[t]he court accepts all well-pleaded facts as true, viewing them in the light most favorable to the [nonmovant].” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks omitted), cert. denied, 552 U.S. 1182 (2008).

         While a complaint attacked by a Rule 12(b)(6) motion does not need detailed factual allegations in order to avoid dismissal, the plaintiff's factual allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. A plaintiff's obligation “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. The Supreme Court has explained that a court need not accept as true conclusory allegations or allegations stating a legal conclusion. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“mere conclusions[ ] are not entitled to the assumption of truth”). A complaint must contain sufficient factual matter “to state a claim to relief that is plausible on its face.” Id. (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the [nonmovant] pleads factual content that allows the court to draw the reasonable inference that the [movant] is liable for the misconduct alleged.” Id. “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.

         III. GRANDE'S MOTION TO DISMISS

         Grande asserts that UMG's claims for secondary copyright infringement should be dismissed because: (1) the Complaint fails to plead any instances of direct copyright infringement, which is a prerequisite to a claim of secondary infringement; and (2) providing a “staple article of commerce” such as internet service cannot give rise to a claim of secondary copyright infringement. Additionally, Grande more generally asserts that UMG's claims for contributory and vicarious liability are insufficiently pled and fail to state a claim.

         A. Secondary Infringement Claims

         There are two types of liability for copyright infringement: direct and secondary. Direct copyright infringement requires proof that the plaintiff “(1) owns a valid copyright and (2) the defendant copied constituent elements of the plaintiff's work that are original.” Baisden v. I'm Ready Prods., Inc., 693 F.3d 491, 499 (5th Cir. 2012). “Copying” includes infringing on any of the five exclusive rights set forth in 17 U.S.C. § 106: the right to reproduce, distribute, publicly display, perform, or create derivative works of the copyrighted work. Secondary liability applies when a defendant is held responsible for a third party's acts of infringement, even though the defendant herself did not engage in the infringing activity. See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 435 (1984). There are two types of secondary infringement: contributory and vicarious. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005). Contributory copyright infringement occurs where a defendant “intentionally induc[ed] or encourag[ed] direct infringement.” Id. Vicarious infringement occurs when a defendant “profits directly from the infringement and has a right and ability to supervise the direct infringer, even if the defendant initially lacks knowledge of the infringement.” Id. at 931 n.9.

         1. Pleading of Direct Infringement

         As stated above, direct copyright infringement requires a plaintiff to allege that “(1) [it] owns a valid copyright and (2) the defendant copied constituent elements of the plaintiff's work that are original.” Baisden, 693 F.3d at 499. Grande argues that UMG cannot plead a claim for secondary copyright infringement because they have failed to identify instances of actual direct infringement-the actual copying of copyrighted materials by Grande subscribers. There cannot be secondary infringement without direct infringement. Phoenix Entm't Partners LLC v. Boyte, 247 F.Supp.3d 791, 799 (S.D. Tex. 2017).

         In the Complaint, UMG states:

The notifications Grande received were based upon a software system Rightscorp developed and employed. The system identifies specific actual infringements of various copyrighted works and the users of BitTorrent networks who infringe these copyrighted works.
Through this process, Grande has been put on notice and informed of more than one million infringements, and that thousands of subscriber accounts have engaged in repeated acts of copyright infringement. Prior to the filing of this complaint, Grande received notice that 1, 840 of its customers had each engaged in infringement at least one hundred times. At least 456 of Grande's customers had generated 500 notices of infringement. More than 208 customers each generated at least 1, 000 notices of infringement. And some of Grande's customers generated more than 2, 000 notices of infringement each. Because Rightscorp can only observe a small percentage of the overall activity of Grande subscribers, upon information and belief, the infringement Rightscorp reported to Grande likely is merely a small fraction of the infringing activity occurring over Grande's network.

Compl., ¶ 48-49. The Complaint furthers states:

As detailed herein, users of the Grande service are engaged in repeat and pervasive infringement of Plaintiffs' exclusive rights to reproduce, distribute, and publicly perform their Copyrighted Sound Recordings.

Compl., ¶ 61.

         Grande maintains that despite UMG's assertion that Rightscorp notified Grande of more than a million acts of direct infringement, the Rightscorp system is incapable of tracking or recording instances of actual copyright infringement. Instead, the Rightscorp system is only capable of detecting when the copyrighted material is “available for distribution, ” which Grande asserts is insufficient to establish that direct infringement has taken place because it does not show the copyrighted material was ever requested or downloaded-and therefore copied-by a third party.

         Grande further argues that UMG has failed to identify a particular instance of direct infringement of a particular copyrighted work, and instead has vaguely alleged Rightscorp identified millions of instances of infringement. Grande asserts that this amounts to a general assertion “that infringement happens on the internet, ” and is insufficient to withstand dismissal in the absence of a concrete allegation of direct infringement of one of its copyrights by a third party. In support of these arguments, Grande relies upon ...


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