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A. BROD, INC. v. SK&I CO.

March 13, 1998

A. BROD, INC., Plaintiff/Counterclaim Defendant, against SK&I COMPANY, LLC, Defendant/Counterclaim Plaintiff, and O.S.P. PUBLISHING, INC., and HARRY KRONENBERG, an individual, ALAN M. HARRIS, an individual, and TOP BANANA CORPORATION, Defendants. A. BROD, INC., Plaintiff/Counterclaim Plaintiff/Defendant, - against - MASUDAYA CORPORATION, Third-Party Defendant. SK&I COMPANY, L.L.C., Counterclaim Plaintiff, - against - MASUDAYA CORPORATION, Counterclaim Defendant.


The opinion of the court was delivered by: SOTOMAYOR

 Sonia Sotomayor, U.S.D.J.

 Before the Court are cross-motions for summary judgment of third-party/counterclaim defendant Masudaya Corporation ("Masudaya") and defendant/counterclaim plaintiff SK&I Company, L.L.C. ("SK&I"). At issue in this litigation is the copyright ownership of a product known as Aqua World. Masudaya seeks summary dismissal of (1) Count I of SK&I's amended counterclaims against plaintiff/counterclaim defendant A. Brod, Inc. ("Brod"), which alleges copyright infringement and with respect to which Brod has impleaded Masudaya as a third-party defendant, and (2) SK&I's amended counterclaims against Masudaya, which also allege copyright infringement. SK&I seeks summary adjudication (1) that SK&I is the rightful owner of the copyright at issue, and (2) that Masudaya and Brod are infringing its copyright. For the reasons discussed below, the Court denies both motions.

 BACKGROUND

 I. Facts

 In 1992, Masudaya, a Japanese corporation, created the product known as Aqua World, a toy aquarium with moving magnetic toy fish. Masudaya obtained Copyright Registration No. VA543-994 (effective December 7, 1992) for the element of Aqua World referred to as "Sculpture of Fish Toy and Coral." *fn1"

 In 1992, Top Banana, a division of O.S.P. Publishing, Inc. ("OSP"), began purchasing and distributing Masudaya's Aqua World aquariums. By early 1993, Top Banana was Masudaya's exclusive United States distributor of Aqua World. Defendant Harry Kronenberg served as Top Banana's president from approximately January 1992 through January 1995, when OSP closed its Top Banana division and terminated Kronenberg.

 In early January 1993, Kronenberg and Masudaya became aware that Great American Fun Corporation ("GAF") was selling an unauthorized copy of Aqua World. In order to protect Top Banana's interest as exclusive distributor, Kronenberg urged Masudaya to retain counsel and bring a lawsuit against GAF to stop sales of the unauthorized products. To this end, Kronenberg recommended and introduced Masudaya to a New York attorney, James Badie.

 Masudaya, however, was uncomfortable with litigating in the United States. Eventually, Masudaya and Top Banana agreed that in order to distance Masudaya from the litigation and still enforce the Aqua World copyright, Masudaya would assign its copyright to Top Banana. Top Banana would then bring an infringement action against GAF.

 The substance of this arrangement was developed, if not finalized, at a February 1993 dinner meeting in New York. In attendance at the meeting were Kronenberg, Badie, Joseph Angard (OSP's president and chief executive officer), and Hank Saito (Masudaya's executive director of merchandising). What actually transpired at that meeting is the subject of much dispute. Masudaya maintains, and both Angard and Badie testified in their depositions, that at this dinner the contemplated lawsuit against GAF and the proposed assignment of the copyright to Top Banana were discussed. Specifically, Masudaya contends that Kronenberg was a proponent of commencing an action against GAF in order to stop the sale of unauthorized products and protect OSP/Top Banana's interest in the sale of Aqua World; that Angard expressed concern about who was going to pay for the proposed lawsuit; that OSP and Masudaya agreed that Masudaya would pay the legal fees and costs of the lawsuit to be brought by Top Banana; and that OSP and Masudaya agreed, after Kronenberg explained the proposal to Saito, that the copyright would be reassigned to Masudaya at the conclusion of the GAF litigation. Kronenberg admits that he attended the February 1993 dinner meeting, but he testified at his deposition that he cannot recall any details of the discussion.

 
In consideration of the sum of one dollar ($ 1.00) to us in hand paid, and for other good and valuable consideration, receipt and sufficiency of which we hereby acknowledge, we, MASUDAYA CORPORATION, . . . being the owner of all right, title and interest in Copyright Registration VA543-994 . . . do hereby sell, assign, transfer and set over unto TOP BANANA CORPORATION . . . the entire right, title and interest in and to said copyright registration . . . . *fn2"

 In early April 1993, Top Banana commenced the infringement action against GAF. Badie served as plaintiff's counsel, and Masudaya paid the legal fees for the lawsuit, which was settled in early June 1993. Top Banana deducted its expenses from the proceeds of the settlement and forwarded the balance to Masudaya.

 Kronenberg's employment at OSP ended in January 1995, when OSP closed its Top Banana division. OSP ceased buying Aqua World aquariums from Masudaya, continuing to sell them only until its inventory had been depleted. Around the middle of 1995, Kronenberg formed SK&I and became its president. Before SK&I was officially formed, however, Kronenberg contacted Masudaya to convey that he (presumably through SK&I) would be willing to assist Masudaya in distributing Aqua World throughout the United States. Shortly thereafter, SK&I began buying Aqua World aquariums from Masudaya and selling them in the United States. At least during 1995, the boxes of Aqua World aquariums that SK&I sold bore the following copyright notice: "(c) Masudaya Corp. 1994."

 During the spring of 1996, Kronenberg telephoned the chief financial officer of OSP, Christopher Lucas, and requested that OSP assign the Aqua World copyright to SK&I because OSP/Top Banana was no longer selling the aquarium. On March 28, 1996, Kronenberg sent Lucas a one-page assignment (the "March 1996 Assignment"); this document did not mention Masudaya. Lucas brought the March 1996 Assignment to Angard, OSP's chief executive officer, who signed it. Angard testified that in signing the March 1996 Assignment, he was under the false impression that the document related generally to a severance settlement with Kronenberg, rather than specifically to the assignment of the Aqua World copyright to SK&I. Angard and Lucas testified that they paid little attention to the document before Angard signed it because the matter seemed of little consequence, especially given that they were in the middle of preparing OSP's registration statement for a public offering.

 About a month later, Kronenberg sent Lucas a new version of the assignment (the "April 1996 Assignment") intended to replace the March 1996 Assignment. Kronenberg explained to Lucas that the document had been changed to clarify that Top Banana was a division of OSP. The April 1996 Assignment itself stated that the March 1996 Assignment "erroneously identifies Top Banana as 'Top Banana Corporation,'" when in fact it was a division of OSP. Nowhere, however, did the original March 1996 Assignment refer to Top Banana as "Top Banana Corporation." Rather, it identified Top Banana as "Top Banana[,] a Division of O.S.P. Publishing, Inc." The April 1996 Assignment, which was a two-page document, did add two paragraphs stating that Masudaya had been the original owner of the copyright and that Masudaya had assigned "its entire right, title, and interest in and to the copyright." The references to Masudaya appeared only on the first page of the April 1996 Assignment.

 Lucas again brought the assignment to Angard, telling him that it was a document "to sign to complete the Harry Kronenberg business." (Angard Dep., dated June 13, 1997, at 96, attached as Exh. W to Linker Aff.) Angard asked Lucas if he had not already signed a similar document; Lucas explained that there was an error in the original assignment and it had to be resigned. Angard asked whether signing the replacement document would complete the Kronenberg matter. When Lucas told him it would, Angard signed the April 1996 Assignment in exchange for $ 10 and "other good and valuable consideration." (April 1996 Assignment, attached as Exh. N to Linker Aff.)

 As noted above, the March 1996 Assignment was a one-page document that did not mention Masudaya; the April 1996 Assignment was a two-page document that mentioned Masudaya, but only on the first page. At his deposition, Angard testified that he signed the second page of the April 1996 Assignment, but does not recall seeing the first page with the references to Masudaya. He claimed that if he had seen the first page and the Masudaya references, "it would have rung about 11 bells in my head . . . because I did not have the right to transfer the Masudaya copyright to anybody." (Angard Dep. at 198-99.) Angard subsequently acknowledged that he should not have signed the April 1996 Assignment: "My execution of [the April 1996 Assignment] was not correct. That is, I was not supposed to have assigned the copyright to any party other than Masudaya. I regret the inadvertent mistake." (Angard Decl., dated Oct. 17, 1996.)

 Within one week of the execution of the April 1996 Assignment, SK&I recorded the document with the United States Copyright Office.

 II. Procedural History

 Plaintiff Brod commenced this action on October 15, 1996, by filing a complaint against defendants SK&I, OSP, Top Banana, Harry Kronenberg, and Alan Harris. Brod's dispute with the defendants arose after it entered into an agreement with Masudaya making Brod the exclusive domestic distributor of Aqua World aquariums. (See Compl. P 18; Ans. & Am. Countercl. P 28.) SK&I alleges that this agreement and Brod's subsequent conduct violated the prior joint venture agreement allegedly reached between SK&I and Brod. (See id. PP 22-35.) Subsequently, SK&I advised Brod that it owned the Aqua World copyright, and threatened to send letters to Brod's customers stating that Brod's aquariums infringed SK&I's copyright. (See Compl. PP 20-23.)

 Brod's complaint seeks a declaratory judgment (1) that Masudaya is the rightful owner of the copyright at issue in the litigation; (2) that defendants' asserted ownership in the copyright is invalid and unenforceable; (3) that Brod's product does not infringe any copyrights or other rights allegedly owned by certain defendants; and (4) that defendants, by virtue of their intent to represent to actual and potential customers of Brod that Brod is infringing their copyright, are unlawfully and tortiously interfering with Brod's business contracts with its customers.

 Defendants answered the complaint on November 14, 1996. The answer included counterclaims by SK&I alleging copyright infringement, breach of contract, unjust enrichment, and tortious interference with contractual relations. On December 20, 1996, Brod served a reply to the SK&I counterclaims.

 On January 30, 1997, Brod, as a defendant in SK&I's counterclaims, served a third-party complaint impleading Masudaya as indemnitor. Masudaya answered Brod's third-party complaint on February 19, 1997.

 On March 18, 1997, SK&I amended its counterclaims to include copyright infringement claims against Masudaya. On April 28, 1997, Masudaya served a reply to SK&I's counterclaims, which was amended on May 14, 1997.

 Finally, on September 25 and September 26, 1997, respectively, SK&I and Masudaya each ...


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