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IP/Entertainment Case Law Updates

Amy Axelrod, Inc. v. Simon & Schuster, Inc., S.D. New York

A children’s book author sued her publisher, claiming breach of contract, copyright infringement, fraud, and mischaracterization of sales. The district court denied the defendant’s motion to dismiss the copyright infringement and breach of contract claims, while granting the defendant’s motion to dismiss the fraud claim. The court also denied the plaintiff’s motion to amend her complaint.

The plaintiff entered into six publishing agreements with the defendant to publish eight of her books that teach math to children using animal characters. The publishing agreements allowed the publisher to sell copies of books at “remainder” prices in specified circumstances with reduced royalty payments to the plaintiff (or no royalties if sold at or below manufacturing cost).

The plaintiff claimed that the defendant stopped printing her books and secretly sold paperback editions at remainder or other deeply discounted prices to third parties who allegedly rebound them and sold them as hardcover editions at full price. The plaintiff also claimed that the defendant failed to notify her that the books had gone out of print, provided fraudulent and incorrect information about the sales of remaindered titles, failed to disclose the disposition of thousands of copies of the books, fabricated sales data, and issued fraudulent royalties based on the incorrect data.

The defendant moved to dismiss for failure to state a claim for copyright infringement, contributory and vicarious liability, and fraud, and the defendant moved to dismiss plaintiff’s remaining state law claims for lack of subject mater jurisdiction.

In its motion to dismiss the copyright infringement claims, the defendant argued that when a copyright owner grants a license to use the copyrighted material, she waives any right to sue the licensee for copyright infringement. The court rejected this argument, citing Tasini v. New York Times Co., Inc., 206 F.3d 161 (2d Cir. 2000), aff’d, 533 U.S. 483 (2001), which “explicitly recogniz[ed] claims for copyright infringement even where plaintiff has licensed certain rights.” The court also held that the complaint sufficiently stated a claim for contributory or vicarious infringement by alleging that the defendant sold remaindered or deeply discounted copies of her books to “rogue rebinders” with knowledge that they would create and distribute infringing derivative works.

The court granted the defendant’s motion to dismiss the fraud claim because the actions giving rise to the fraud claim were the same as those for the breach of contract claim. “The plaintiffs' allegations that the defendant allegedly failed to disclose its sales of deeply discounted and remaindered titles and reported false information to plaintiffs' auditor are premised on their failure to adhere to contractual duties to disclose that arise from the publishing agreements. In short, the plaintiffs' fraud claim rests entirely on the duties contained in the agreements.” The court also denied the plaintiff’s motion to amend her complaint by adding a claim for breach of fiduciary duty, finding that there was no fiduciary relationship between the author and her publisher and that adding such a claim would be futile.