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EZ-TIXZ, INC. v. HIT-TIX

March 29, 1996

EZ-TIXZ, INC., Plaintiff, against HIT-TIX, INC., ERIC KREBS THEATRICAL MANAGEMENT, INC., PAUL MORER PRODUCTIONS, INC., ERIC KREBS and PAUL MORER, Defendants.


The opinion of the court was delivered by: KOELTL

 John G. Koeltl, U.S.D.J.:

 Defendants Eric Krebs Theatrical Management, Inc. ("EKTM"), Paul Morer Productions, Inc. ("PMPI"), Eric Krebs, and Paul Morer (the "co-defendants") have moved for summary judgment pursuant to Fed. R. Civ. P. 56 dismissing all causes of action against them contained in the Complaint. In addition, all of the defendants in this action have moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the plaintiff's claims for statutory damages and attorney's fees as well as its claims for misappropriation of trade secrets and for unfair competition. For the reasons that follow, the motions are granted in part and denied in part.

  I.

 The plaintiff Ez-Tixz creates and operates computer programs for theater ticket sales. Ez-Tixz developed a program called the Ez-Tixz Ticket Agency Management product ("the Program"). In May 1988, the defendant Hit-Tix agreed to pay for the development costs of the Program and to serve as a test installation for the Program. The plaintiff alleges this agreement required Hit-Tix to pay licensing fees if it wished to continue using the program once it was fully developed, but that Hit-Tix refused to do so. Ez-Tixz subsequently brought this suit seeking revenues and profits for Hit-Tix's allegedly unauthorized use of the Program. The plaintiff alleges that Hit-Tix's continued use of the Program constitutes copyright infringement and breach of contract. The plaintiff also claims that the co-defendants are liable for Hit-Tix's alleged infringement under the theories of vicarious liability, contributory infringement, and alter ego liability.

 Hit-Tix was formed in 1987 by three corporations, EKTM, PMPI, and Whitbell Productions, Inc. ("Whitbell"). EKTM owns 50 percent of Hit-Tix, and PMPI and WPI each own 25 percent of Hit-Tix. EKTM is wholly owned by Krebs and his wife; PMPI is wholly owned by Morer; and WPI is wholly owned by Joyce A. Whitcomb and Gail Bell, who are not parties in the current action. (Gail Bell Aff. P 3.)

 The plaintiff alleges that the individual defendants Krebs and Morer personally controlled Hit-Tix through their respective corporations, EKTM and PMPI. According to the plaintiff, many of the corporation's decisions, including new equipment purchases and personnel decisions, were made by a committee consisting of Bell, Morer, and Krebs. (Bell Aff. P 10.) As the majority stockholder, Krebs through EKTM controlled the committee and had ultimate control over Hit-Tix's entire operation. (Bell Aff. PP 3, 10-13; Edwin J. Jaufmann, Jr. Aff. P 6.) The plaintiff alleges that Bell ran the day-to-day operations of Hit-Tix, but that when she was not available, Morer assumed control of the day-to-day operations. (Bell Aff. P 10.) When Bell left Hit-Tix to work for Ez-Tixz, Krebs and Morer, through their respective corporations, allegedly ran Hit-Tix on their own. (Bell Aff. P 16.) Morer also signed contracts on behalf of Hit-Tix, including the one at issue in this case, and until 1990 held himself out as chief executive officer of Hit-Tix. (Bell Aff. at 19, 20; Pl's Exh. 1.) In addition, Morer allegedly also had a Hit-Tix credit card which was used to make purchases on behalf of Morer, PMPI, and EKTM, as well as Hit-Tix. (Bell Aff. P 19; Pl's Exh. 8-14.)

 The plaintiff also claims that the co-defendants were personally involved with the alleged copyright infringement that is the center of this lawsuit. The plaintiff claims that Morer participated in discussions between Hit-Tix and Ez-Tixz concerning the Program, (Def.'s Exh. G, Jaufmann Dep. at 75), and that Morer and Bell discussed the proposal with Krebs. In addition, the plaintiff alleges that Morer personally represented that Hit-Tix would pay Ez-Tixz licensing fees. (Studnicka Dep. at 48, 57.) Although the plaintiff concedes that Krebs was a "computer illiterate," the plaintiff alleges that there was a copy of the Program on EKTM's computer. (Bell Aff. P 16; Studnicka Aff. P 21.) When Ez-Tixz's predecessor told Hit-Tixz that the Program was fully operational and thus Hit-Tix would have to begin paying royalties for its continued use, Krebs, Morer, and Bell allegedly decided to take the position that the Program was not yet completed and that therefore Hit-Tix did not need to pay royalty fees. (Bell Aff. P 7, 13.) Jedwin Jaufmann, Jr., the chairman and CEO of Ez-Tixz, contends that Krebs was aware that Hit-Tix was infringing Ez-Tixz copyright. Jaufmann states in his affidavit that he specifically recalls that in March 1993 he told Krebs that he was infringing Ex-Tixz's copyright. (Jaufmann Aff. P 8.)

 II.

 The plaintiff contends that the moving defendants are liable for the infringing acts of Hit-Tix under the theories of vicarious liability, contributory infringement, and alter ego liability. The co-defendants claim that the plaintiff has failed to proffer sufficient evidence to support the imposition of third-party liability and that they are therefore entitled to summary judgment dismissing all claims made against them in the Complaint.

 Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Gallo v. Prudential Residential Servs. Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 37 (2d Cir. 1994).

 Under 17 U.S.C. § 501(a), "anyone who violates any of the exclusive rights of the copyright owner . . . is an infringer of the copyright . . . ." Although the Copyright Act expressly creates liability only for direct copyright infringers, it is well-established that third parties can be held liable for the infringing activities of another. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 434-35, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984); see also Sygma Photo News, Inc. v. High Soc'y Magazine, Inc., 778 F.2d 89, 92 (2d Cir. 1985) ("All persons and corporations who participate in, exercise control over, or benefit from the infringement are jointly and severally liable as copyright infringers."). There are two doctrines that establish third-party liability in copyright law: contributory infringement and vicarious liability. See Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971); Peer Int'l Corp. v. Luna Records, Inc., 887 F. Supp. 560, 564-65 (S.D.N.Y. 1995) (Sotomayor, J.); Demetriades v. Kaufmann, 690 F. Supp. 289, 292-94 (S.D.N.Y. 1988) (Goettel, J.) (distinguishing the two doctrines).

 Contributory infringement liability is based upon the defendant's relationship to the direct infringement: if the defendant was implicated in the acts constituting the direct infringement, it may be held liable for contributory infringement. "One who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a 'contributory' infringer." Gershwin, 443 F.2d at 1162. A party without actual knowledge of the particular instances of infringement may still be found liable as a contributory infringer; constructive knowledge is sufficient to establish liability. See R & R Recreation Products, Inc. v. Joan Cook Inc., No. 91 Civ. 2589, 1992 U.S. Dist. LEXIS 5176, *7, 1992 WL 88171, at *3 (S.D.N.Y. Apr. 14, 1992) (Martin, J.); Screen Gems-Columbia Music, Inc. v. Mark-Fi Records, Inc., 256 F. Supp. 399, 403-04 (S.D.N.Y. 1966). Corporate officers can be held liable for the infringing acts of their corporations if they personally participated in the acts constituting infringement. See Luft v. Crown Publishers, Inc., 772 F. Supp. 1378 (S.D.N.Y. 1991) (Duffy, J.) (holding individual who served as president and owned 65 percent of infringing company's stock vicariously liable for copyright infringement); Lauratex Textile Corp. v. Allton Knitting Mills Inc., 517 F. Supp. 900, 904 (S.D.N.Y. 1981); Wales Indus. Inc. v. Hasbro Bradley, Inc., 612 F. Supp. 510, 518 (S.D.N.Y. 1985) (Weinfeld, J.) ("An individual who causes a corporation defendant to infringe copyright and personally participates in the infringing activity is jointly and severally liable with the corporation for the infringement."); H.M. Kolbe Co. v. Shaff, 240 F. Supp. 588 (S.D.N.Y.), aff'd, 352 F.2d 285 (2d Cir. 1965).

 In contrast, vicarious liability rests not on the defendant's relationship to the direct infringement but rather on the defendant's relationship to the direct infringer. Vicarious liability may exist "when the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials. . . even in the absence of actual knowledge that the copyright monopoly is being impaired. . . ." Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963); see also Peer Int'l Corp., 887 F. Supp. at 565 (quoting Shapiro); Banff Ltd. v. Limited, Inc., 869 F. Supp. 1103, 1107-10 (S.D.N.Y. 1994) (Haight, J.) (discussing vicarious liability); Artists Music, Inc. v. Reed Publishing (USA), Inc., Nos. 93 Civ. 3428, 73163, 1994 U.S. Dist. LEXIS 6395, *11, 1994 WL 191643, *4-6 (S.D.N.Y. May 17, 1994) (Keenan, J.) (same). Unlike contributory liability, vicarious liability may exist even if the third party was in no way directly involved in the actual copying. See Shapiro, 316 F.2d at 307; Peer Int'l Corp., 887 F. Supp. at 565. Thus, there are only two elements of vicarious liability: (1) the ability to control the infringer and (2) a financial interest in the infringing activities.

 In addition to the doctrines of contributory infringement and vicarious liability, the plaintiff alleges that the co-defendants are liable for Hit-Tix's allegedly infringing activities under the doctrine of alter ego liability. One entity is considered the "alter ego" of a corporation when the entity uses the corporation to achieve fraud, or when the entity so dominates the corporation and completely disregards the corporation's separate identity that the entity primarily transacts its own business rather than that of the corporation. See Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 777 (2d Cir. 1995); Gartner v. Snyder, 607 F.2d 582, 586 (2d Cir. 1979). Determining whether an alter ego relationship exists is a fact-specific inquiry that varies depending upon the totality of circumstances. Thomson-CSF, 64 F.3d at 777-78; American Protein Corp. v. AB Volvo, 844 F.2d 56, 60 (2d Cir.), cert. denied, 488 U.S. 852, 102 L. Ed. 2d 109, 109 S. Ct. 136 (1988). Relevant factors to consider include whether the entities share a common office and staff, are run by common officers, intermingle funds, fail to deal at arms length with each other, and are not treated as separate profit centers. See Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 139 (2d Cir. 1991) (listing factors); American Protein, 844 F.2d at 60 (noting that factors to consider include lack of normal corporate formality, under-capitalization, and personal use of subsidiary's funds by the parent or owner) Walter E. Heller & Co. v. Video Innovations, Inc., 730 F.2d 50, 53 (2d Cir. 1984) (listing factors to consider).

 EKTM, PMPI, Krebs, and Morer argue that they cannot be held liable as third-party infringers under any of the theories the plaintiff espouses and that as a matter of law they therefore cannot be held liable for Hit-Tix's allegedly infringing activities. Although the co-defendants' papers do not clearly distinguish among these various theories of liability, it appears that the co-defendants believe that they are not vicariously liable because they had neither control over Hit-Tix nor a financial interest in its alleged infringing activities; that they are not contributorily liable because they did not ...


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