Yue, et al. v. Chordiant Software, Inc., et al.

In copyright infringement suit against hardware and software distributor, its CEO, and General Counsel, the district court denies plaintiffs’ motion for summary judgment on issue of infringement, and grants defendants’ motion for summary judgment on issues of statutory damages, attorney’s fees, and vicarious liability.

Plaintiffs own several registered software copyrights, including the two Netbula software copyrights at issue. The Netbula copyrights were first published on November 15, 1999. In 2000, plaintiff Yue granted Prime Response, Ltd., predecessor of Chordiant Software International, Ltd., licenses to the relevant software. As early as October 18, 2005, Yue allegedly commenced registration of the disputed copyrights.

Defendants are Chordiant Software, Inc., Steven Springsteel (CEO of Chordiant), and Derek Witte (Vice President and General Counsel of Chordiant). From 2001 to 2007, defendants distributed the copyrighted software alleged to have been infringed as part of their Chordiant Marketing Director product (CDM). Plaintiffs alleged that defendants reproduced and continued to reproduce their copyrighted material into unauthorized derivative works by causing the unauthorized distribution of that material in Chordiant’s computer hardware and software and by licensing software to third parties, which contains plaintiffs’ copyright material. Plaintiffs filed suit against defendants alleging copyright infringement and vicarious copyright infringement. The parties sought summary judgment on numerous grounds, and sought to exclude the testimony of several expert witnesses.

The court initially considered plaintiffs’ motion for summary judgment of copyright infringement as to two pieces of Netbula software. Copyright infringement, the court instructed, requires that the party asserting infringement show (1) ownership of a valid copyright, and (2) copying of elements of work that are original. In this case, plaintiffs submitted copies of the certificates of registration for the two software programs. Both registration certificates, however, stated a first publication date of more than five years prior to either registration date. Accordingly, the court found that the copyrights at issue were not entitled to a statutory presumption of validity. In light of the absence of a statutory presumption of validity, the court explained, plaintiffs had not met their burden to prove that the copyrights at issue were valid—i.e., that the software at issue was sufficiently original to warrant copyright protection.

The court then turned to defendants’ motion for summary judgment that plaintiffs are not entitled to statutory damages and attorney’s fees as a matter of law. In support of their motion, defendants argued that the alleged infringement commenced before plaintiffs registered their copyrights. To recover statutory damages or attorney’s fees in an action for copyright infringement, the court noted, the copyrighted work must have been registered prior to the commencement of the infringement, unless the registration was made within three months after first publication of the work. The court found that plaintiffs registered the copyrights several years after the date of first publication; therefore, statutory damages and attorney’s fees would be available to plaintiffs “only if the copyrighted works were registered prior to the commencement of the infringement.”

Plaintiffs countered that two new and distinct types of infringement began after the date of registration. The court nonetheless agreed with defendants’ contention that these acts were “not materially different from the alleged infringement that had occurred prior to registration.” Accordingly, the court granted defendants’ motion to strike plaintiffs’ request for statutory damages and attorney’s fees.

Next, the court considered Chordiant’s motion for summary judgment that Chordiant International, Ltd. acquired, in various licenses and invoices, the right to distribute certain of plaintiffs’ software to Chordiant for resale. Based the undisputed facts, the court found that plaintiffs granted to Chordiant International the right to distribute plaintiffs’ software. Furthermore, the court found that nothing in the language of the licenses as to distribution would prevent Chordiant from acting as a reseller of the listed files. The court thus granted defendants’ motion.

Defendant Witte also moved for summary judgment on the grounds that plaintiffs cannot prove their claim of vicarious copyright infringement against him because he lacked a direct and obvious financial benefit from the allegedly infringing activity. Plaintiffs urged the court to provisionally deny Witte’s motion under Federal Rule of Civil Procedure 56(f)(2) so that plaintiffs could conduct further discovery. To prevail under Rule 56(f), the court explained, the party opposing a motion for summary judgment must make (a) a timely application which (b) specifically identifies (c) relevant information, (d) where there is some basis for believing that the information sought actually exists, and that it would prevent summary judgment. Upon review of the record, the court found that plaintiffs had not established that they lacked adequate opportunities to request relevant documents and information, or take a deposition of Witte. The court further found that plaintiffs had not proffered sufficient facts to show that any additional evidence actually existed. Accordingly, the court denied plaintiffs’ request for further discovery.

Having determined that plaintiffs were not entitled to further discovery, the court then analyzed the merits of Witte’s motion. To prove a claim for vicarious copyright infringement, the court stated, “a plaintiff must establish that the defendant exercised the requisite control over the direct infringer and that the defendant derived a direct financial benefit from the direct infringement.” Plaintiffs alleged that Witte received a direct financial benefit from the infringing activity “through Chordiant’s Executive Bonus Plan,” and through contracts to pay Witte bonuses based on the contract value of sales booked for the allegedly infringed software. Upon review of the parties’ submissions of evidence as to a direct financial benefit, the court found that the bonus plan, which was based on a comparison of the company’s fiscal goals versus the company’s actual performance, was not directly and obviously connected to the alleged infringing activity. The court also emphasized that Witte was never paid any profits or commissions for bookings or sales in connection with the software at issue and never held a majority of Chordiant’s outstanding stock. Therefore, the court granted Witte’s motion.

Finally, the court evaluated defendants’ motion to exclude any testimony or other evidence from plaintiffs’ technical expert on the ground that plaintiffs failed to provide an opening or rebuttal report from their expert. Federal Rule of Civil Procedure 26(a)(2), the court instructed, requires that disclosure of an expert witness includes an expert report containing “a complete statement of all opinions the witness will express and the basis and reasons for them.” Upon review of the record, the court found “good cause” to exclude any testimony or evidence offered by plaintiffs’ expert where at the close of discovery plaintiffs’ expert provided no substantive report in the case.

The court nevertheless denied the parties’ motions to exclude plaintiffs’ accounting expert and defendants’ licensing expert on the ground that certain of their opinions were not based on sufficient knowledge, expertise, or analysis. In light of the relatively low threshold of Federal Rule of Evidence 702, the court concluded that the parties’ contentions as to the weakness of each others’ experts were more appropriately the subject of cross-examination at trial.