Rearden v. TWDC Enterprises 18 Corp.

In long-running dispute between visual effects companies and Disney and its affiliates, district court denies motion to dismiss vicarious copyright infringement claim, finding plaintiffs sufficiently pleaded that defendants had legal right to stop graphics subcontractor’s infringing use of software and had financial interest in such activity, but grants motion to dismiss contributory copyright infringement claim with prejudice.

In this long-running dispute, plaintiffs, visual effects companies Rearden LLC and Rearden MOVA LLC, the copyright owners of the MOVA Contour Reality Capture software, sued The Walt Disney Co. and several affiliates for contributory and vicarious copyright infringement. Rearden alleges Disney subcontracted with Digital Domain 3.0 Inc. (DD3) for facial performance capture services for several films, including Avengers: Infinity War and Avengers: Endgame and characters Thanos, Ebony Maw and the Hulk, and that DD3 performed these services using MOVA in violation of a preliminary injunction in a related case.

A prior court order found that Rearden owns the MOVA technology and that DD3 was prohibited from using it. In 2013, DD3 transferred MOVA assets to MO2 LLC and then sold them to a DD3 affiliate without authorization. Subsequent litigation led to a June 2016 injunction barring DD3 and its affiliate from using MOVA and, in August 2017, a district court order declaring the sale to the affiliate ineffective, confirming Rearden’s ownership and ordering return of the assets. Despite the ongoing ownership dispute, DD3 allegedly continued to use MOVA on various Disney studio projects, including the Avengers movies and the live-action film Beauty and the Beast.

In Rearden LLC v. Walt Disney Pictures, a prior district court action regarding alleged infringing use of MOVA in Disney’s live-action Beauty and the Beast, a California jury found Disney liable for vicarious copyright infringement, awarded Rearden $250,658 in actual damages and issued an advisory verdict finding that profits attributable to the infringement amounted to $345,098. The district court granted Disney’s motion for judgment as a matter of law, holding Rearden failed to present legally sufficient evidence that Disney had the practical ability to supervise DD3’s infringing conduct. (Read our summary of that decision here.) The Ninth Circuit later reversed the district court’s judgment as a matter of law in Disney’s favor.

In the litigation concerning MOVA’s use in the Avengers movies, the district court again addressed Rearden’s contributory and vicarious copyright infringement claims. After previously dismissing those claims, finding that plaintiffs’ fourth amended complaint failed to plausibly allege secondary infringement, the court granted them one final opportunity to amend and they filed a fifth amended complaint reasserting contributory and vicarious infringement claims.

On the threshold issue of DD3’s direct infringement, the court found that the fifth amended complaint sufficiently alleged that DD3 directly infringed by using MOVA to create certain files during the Avengers productions.

As to contributory infringement, the court concluded Rearden did not plead facts plausibly showing that Disney knew, had reason to know or was willfully blind to DD3’s alleged direct infringement in creating the files at issue or that Disney materially contributed to or induced that infringement. Because the court had previously granted Rearden only one additional chance to amend after four unsuccessful attempts, it dismissed the contributory infringement claim without leave to amend.

The court also found that Rearden did not sufficiently plead that Disney had knowledge of DD3’s alleged infringement. It characterized Rearden’s theory as requiring “several jumps in logic” and relying on conclusory assertions. Rearden alleged Disney directed DD3 to use MOVA on Beauty and the Beast, but that was contradicted by the record in the prior case, where the court found the movie did not contain MOVA-captured shots. Rearden also alleged studio representatives would routinely review files reflecting use of the technology but offered no factual support for that assertion.

Rearden’s alternative willful-blindness theory also failed. Rearden did not plead facts plausibly showing Disney subjectively believed infringement was likely and took deliberate steps to avoid confirming it. Allegations that Disney directed DD3 to use MOVA on Beauty and the Beast and continued to do so on the Avengers movies were deemed conclusory and unsupported.

By contrast, the court held Rearden plausibly alleged vicarious infringement. Rearden sufficiently pleaded that Disney had the right and ability to supervise DD3’s allegedly infringing conduct and a direct financial interest in the activity. Disney argued its contracts with DD3 for the Avengers movies did not confer a legal right to stop DD3’s infringement, but the court found Rearden plausibly alleged Disney was “in a position to police all infringing acts” because the contracts gave Disney an unrestricted right to cancel any portion of DD3’s services and required DD3 to submit elements and work-in-progress reports to the producer at least weekly. Rearden also plausibly alleged a direct financial interest by pleading that Disney believed MOVA-based facial performance capture would make the Thanos, Ebony Maw, Hulk and Smart Hulk computer graphic-generated characters more compelling and draw a wider audience to the films.

The district court’s vicarious infringement ruling aligns with the Ninth Circuit’s decision in the earlier case concerning the alleged use of MOVA in connection with Beauty and the Beast. There, Disney argued it was impractical to require studios to conduct due diligence on all vendor software, that it had no reason to question DD3’s authorization to use MOVA and that due diligence would not have revealed potential infringement. The Ninth Circuit disagreed, finding Disney had the practical ability to supervise DD3 based on factors including Disney’s control over the premises where the alleged infringement occurred, DD3’s status as one of Disney’s largest vendors, Disney’s awareness (or constructive awareness) of the ongoing Rearden-DD3 ownership dispute, an on-screen click-through copyright notice during MOVA capture sessions, and contractual rights granting Disney authority to supervise and control DD3’s use of MOVA.

Summary prepared by Frank D’Angelo and Jeff Prystowsky