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United States District Court, N.D. New York

January 5, 2004.

MAPINFO CORPORATION, Plaintiff/Counter-Defendant,
SPATIAL RE-ENGINEERING CONSULTANTS, Defendant/Counter-Claimant/Third-Party Plaintiff/Counter-Defendant, v. USADATA, INC., Third-Party Defendant/Counter-Defendant

The opinion of the court was delivered by: DAVID HOMER, Magistrate Judge


Plaintiff MapInfo Corp. ("MapInfo") commenced this action against its former partner, Spatial Re-Engineering Consultants ("SRC") alleging breach of contract and related claims. Presently pending are the motion of SRC to dismiss or for partial summary judgment as to five of the six causes of action asserted by MapInfo in its amended complaint and the cross-motion of MapInfo for partial summary judgment as to three of its causes of action. Docket Nos. 73, 77. For the reasons which follow, SRC's motion is denied and MapInfo's cross-motion is granted in part and denied in part.

  I. Background

  MapInfo is a Delaware corporation with a principal place of business in Troy, New York. SRC is a California company with a principal place of business in Orange, California. Both companies create, manufacture, and market computer software. On October 1, 1998, MapInfo and SRC entered into a partnership agreement which authorized SRC to distribute MapInfo products to end users. Am. Compl. (Docket No. 59) at ¶ 5 & Ex. B; Stoecker Aff. I (Docket No. 75) at Ex. A ("Partnership Agreement"). The partnership deteriorated, both MapInfo and SRC desired its termination, and on February 15, 2002, the two parties entered into an agreement to terminate the partnership. Am. Compl. at ¶ 6 & Ex. A; Page 3 Stoecker Aff. I at Ex. B ("Termination Agreement"). The Termination Agreement established July 1, 2002 as the date for termination of the Partnership Agreement, which required in paragraph 6.5 that "[i]n the event of expiration or termination of this Agreement . . . [SRC] shall cease sales and support activity of all [MapInfo] Product(s). . . ."

  Maplnfo commenced this action on August 8, 2002 alleging in a single cause of action that SRC breached the Termination Agreement by failing to make payments to MapInfo required by the Agreement. Docket No. 1. SRC answered, asserting certain counter-claims, and commenced a third-party action against USADATA, Inc. which is unrelated to the pending motions. Docket Nos. 3, 4. On June 4, 2003, MapInfo filed an amended complaint adding five causes of action against SRC for conduct allegedly occurring after July 1, 2002. Docket No. 59. MapInfo alleges that after July 1, 2002, SRC continued to distribute MapInfo products and to advertise itself as a MapInfo partner. In response, SRC brought its pending motion to which MapInfo filed its cross-motion.

  II. Discussion

  The amended complaint asserts the following causes of action: Cause of Action No. Description

 1 Breach of contract for failure to make payments required under the Termination Agreement

 2 Breach of contract for the distribution of MapInfo products after July 1, 2002

 3 Declaratory judgment mandating an audit of SRC under the Partnership and Termination Agreements

 4 Unfair trade practices — false designation of origin Page 4

 5 Unfair trade practices — false advertising

 6 Copyright infringement

 SRC seeks dismissal or summary judgment as to causes of action 2-6. MapInfo seeks summary judgment on causes of action 2, 3, and 6.

  A. Legal Standard

  When considering a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6), a court must assume the truth of all factual allegations in the complaint and draw all reasonable inferences from those facts in favor of the plaintiff. Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996). The complaint may be dismissed only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Staron v. McDonald's Corp., 51 F.3d 353, 355 (2d Cir. 1995) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). "The issue is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims. Indeed, it may appear on the face of the pleading that a recovery is very remote and unlikely, but that is not the test." Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995) (citations omitted).

  Under Fed.R.Civ.P. 56(c), if the record taken as a whole reveals "no genuine issue as to any material fact . . . the moving party is entitled to judgment as a matter of law." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86 (1986); Distasio v. Perkin Elmer Corp., 157 F.3d 55, 61 (1998). The burden to demonstrate that no genuine issue of material fact exists falls solely on the moving party. FDIC v. Giammettei, 34 F.3d 51, 54 (2d Cir. 1994): see also Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, Page 5 1320 (2d Cir. 1975). Once the moving party has provided sufficient evidence to support a motion for summary judgment, the opposing party must "set forth specific facts showing that there is a genuine issue for trial" and cannot rest on "mere allegations or denials" of the facts asserted by the movant. Fed.R.Civ.P. 56(e); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525-26 (2d Cir. 1994). The trial court must resolve all ambiguities and draw all reasonable inferences in favor of the non-movant. American Cas. Co. of Reading, Pa. v. Nordic Leasing, Inc., 42 F.3d 725, 728 (2d Cir. 1994): see also Eastway Constr. Corp. v. City of New York. 762 F.2d 243, 249 (2d Cir. 1985). However, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

  Where, as here, summary judgment is sought before discovery has been conducted, a court enjoys wide discretion in determining whether to determine the motion on the existing record, reserve decision while discovery is completed, or deny the motion to permit completion of discovery. See Anderson, 477 U.S. at 250 n.6; Elvis Presley Enterprises, Inc. v. Elvisly Yours. Inc., 936 F.2d 889, 893 (6th Cir. 1991); Higgins v. Monsanto Co., 862 F. Supp. 751, 762-63 (N.D.N.Y. 1994) (McAvoy, C.J.). A critical factor informing the exercise of this discretion is whether additional discovery is reasonably likely to lead to evidence relevant to the material issues raised by the moving party. See Building & Constr. Dep't v. Rockwell Int'l Corp., 7 F.3d 1487, 1496 (10th Cir. 1993); Higgins, 862 F. Supp. at 762-63.

  B. Breach of Contract and Copyright Infringement

  In its second cause of action, MapInfo alleges that SRC violated paragraph 6.5 of the Page 6 Partnership Agreement when, after July 1, 2002, it continued to "sell licenses for MapInfo Products and to make sales to end users . . . by purchasing MapInfo end-user-only licenses from authorized MapInfo resellers and then `re-reselling' to an end-user." Am. Compl. at ¶¶ 11, 21-23. In its sixth cause of action, MapInfo alleges that SRC infringed MapInfo's copyright by purchasing end-user licenses for MapInfo products from authorized resellers and then "re-reselling" those licenses to others. Id. at ¶¶ 11, 45-51. MapInfo alleges that such conduct violated the Copyright Act, 17 U.S.C. § 106.

  1. SRC as Conduit

  SRC first contends that its conduct did not breach its agreements with MapInfo or the Copyright Act because it acted simply as a conduit or, in the words of its counsel, an "errand boy for its customers. According to SRC, after July 1, 2002, there have been instances where a customer for whom SRC was building or integrating a software system desired inclusion of a particular MapInfo product. In such instances, SRC purchased the MapInfo product from an authorized MapInfo reseller at the normal retail price. The MapInfo products were shipped to SRC sealed in shrinkwrap and included by SRC in the software packages delivered to its customers without opening the shrinkwrap. SRC collected payment for the MapInfo products from its customers and forwarded payments to the MapInfo reseller. Stoecker Aff. I at ¶¶ 12-19.

  The allegations in the amended complaint suffice to establish cognizable claims in the second and sixth causes of action, and SRC offers no argument to the contrary. SRC's motion to dismiss those claims is denied. The respective contentions of SRC and MapInfo for summary judgment on these causes of action here rests on facts asserted in affidavits Page 7 and documents beyond the four corners of the amended complaint, which may be considered only on a motion for summary judgment. Those facts rest on transactions occurring between MapInfo's resellers and SRC, and between SRC and its customers. The issues presented depend for resolution on the facts and circumstances surrounding these transactions.*fn1 The parties have had no opportunity to conduct discovery concerning these transactions. Therefore, the motions of both parties for summary judgment on this ground are denied without prejudice to renewal at the close of discovery.

  2. "First Sale" Doctrine

  SRC further contends that the conduct alleged in the second and sixth causes of action falls outside the scope of potential liability because of the applicability of the "first sale" doctrine. That doctrine, which is codified at 17 U.S.C. § 109(a), holds that where the owner of a copyrighted work transfers ownership of a copy of that work, "`the person to whom the copy . . . is transferred is entitled to dispose of it by sale . . . or any other means.'" Microsoft Corp. v. Harmony Computers & Electronics, Inc. 846 F. Supp. 208, 212 (E.D.N.Y. Page 8 1994) (quoting Historical Note to 17 U.S.C. § 109): see also Quality King Distrib. v. L'anza Research Int'l, Inc., 523 U.S. 135, 142-44 (1998). The party asserting the protection of the doctrine bears the burden of proving its applicability. Microsoft Corp., 846 F. Supp. at 212. SRC contends that both the transfer of MapInfo products from MapInfo to its resellers and the transfer by the resellers to SRC suffice as "first sales" to invoke the doctrine.

  In its amended complaint, MapInfo alleges that its products were licensed, not sold. Am. Compl. at ¶¶ 22, 23, 46-51. As the owner of the copyrights to its products, MapInfo contends that it was entitled to control to whom its products were licensed, not only as to the initial purchaser of a license but also as to any customer to whom a license was resold. Thus, MapInfo alleges that its transfer of copies of its products to resellers was a license, not a sale, and that the retransfer of those products by resellers to other parties was limited by the terms of the partnership agreements between MapInfo and the resellers to transfers by the resellers to end-users. If true, the purchase of MapInfo products by SRC for its customers breached the Partnership and Termination Agreements between MapInfo and SRC as well as the Copyright Act. See Microsoft Corp., 846 F. Supp. at 213 ("Entering a license agreement is not a `sale' for purposes of the first sale doctrine."). Thus, MapInfo has sufficiently alleged claims in the second and sixth causes of action, and SRC's motion to dismiss those causes of action on this ground is denied.

  SRC bears the burden of establishing the applicability of the first sale doctrine. See Microsoft Corp., 846 F. Supp. at 212. Thus, matters outside the amended complaint must be considered. Again, the evidence offered by SRC to support its motion on this ground concerns transactions occurring between MapInfo and its resellers, between the resellers and SRC, and between SRC and its customers. Depending on the facts and circumstances Page 9 of those transactions, the first sale doctrine may be inapplicable because the transactions involved the transfers of licenses, not sales, see, e.g., Microsoft Corp., 846 F. Supp. at 213, or the sale of copies of MapInfo products within the scope of the doctrine, see, e.g., Softman Prods. Co., LLC v. Adobe Sys., Inc., 171 F. Supp.2d 1075, 1085-86 (C.D. Cal. 2001) ("The transfer of a product for consideration with a transfer of title and risk of loss generally constitutes a sale."). The record is insufficient on SRC's motion to determine the applicability of the first sale doctrine. Moreover, it would be unfair to MapInfo to determine this fact-intensive issue without permitting an opportunity for discovery. Accordingly, SRC's motion for summary judgment on this ground is denied.

  C. Lanham Act Claims

  MapInfo alleges that after July 1, 2002, SRC continued to represent to end-users that it was authorized to sell licenses for MapInfo products. Am. Compl. at ¶ 33. MapInfo alleges that this misrepresentation constituted a false designation of origin (fourth cause of action) and unfair advertising (fifth cause of action) in violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). SRC seeks dismissal or summary judgment as to both causes of action.

  SRC contends first that as to the false designation of origin claim, the amended complaint fails to state a cause of action because SRC cannot be held liable under the Lanham Act for distributing authentic MapInfo products. However, the fact that SRC sold only genuine MapInfo products "does not preclude an action for unauthorized use of . . . trademarks, or an action for unfair competition based on false statements to the public as to [defendant's] status as an authorized dealer." Rolls-Royce Motor Cars, Inc. v. Schudroff. Page 10 929 F. Supp. 117, 127 (S.D.N.Y. 1996) (citing American Honda Motor Co. v. Two Wheel Corp., 918 F.2d 1060, 1062-64 (2d Cir. 1990)). Therefore, the fourth cause of action sufficiently states a claim under the Lanham Act and SRC's motion to dismiss that cause of action is denied.

  SRC's further contentions regarding the Lanham Act claims rest on affidavits and documents beyond the four corners of the amended complaint. Those contentions will thus be considered as a motion for summary judgment. The first of those contentions is that "SRC has not represented to consumers that it was a reseller/partner of MapInfo after July 1, 2002." SRC Mem. of Law (Docket No. 76) at 15; Stoecker Aff. I at ¶¶ 8-10. However, MapInfo has submitted evidence that in February 2003, SRC's internet website represented that SRC remained a MapInfo "`Partner.'" Fredlund Decl. (Docket No. 80) at ¶ 4. This suffices to raise an issue of material fact as to whether SRC misrepresented to end-users that it was an authorized seller of MapInfo product licenses as alleged by MapInfo. SRC's motion on this ground is denied.

  Finally, SRC contends that MapInfo cannot prove that any misrepresentation caused customer confusion as required for recovery under the Lanham Act. See John Paul Mitchell Sys. v. Pete-N-Larry's Inc., 862 F. Supp. 1020, 1023 (W.D.N.Y. 1994). However, the fact that SRC represented itself as an authorized "partner" of MapInfo in February 2003 combined with evidence of actual confusion by at least one end-user, Correoso Decl. (Docket No. 89) at Ex. A, suffices at this pre-discovery stage to present an issue of fact as to consumer confusion. SRC's motion on this ground as well must be denied. Page 11

  D. Audit

  In its third cause of action, MapInfo seeks judgment enforcing its right to audit the records of SRC pursuant to paragraph 4.1.5 of the Partnership Agreement and the Termination Agreement, which extended the right to audit for one year. SRC was previously granted summary judgment on its counterclaim for judgment on its reciprocal right to audit under the Agreements. Docket No. 49. MapInfo now seeks summary judgment on this cause of action. SRC opposes MapInfo's motion solely on the ground that it has previously agreed to such an audit and, therefore, the issue is moot.

  This issue of MapInfo's audit is not moot because the audit has not yet occurred and the parties have not agreed on its implementation. Accordingly, MapInfo's motion as to this cause of action is granted to the same extent as was SRC's prior motion for the same relief.

  III. Conclusion

  For the reasons stated above, it is hereby

  ORDERED that:

1. SRC's motion to dismiss or for summary judgment as to the second, third, fourth, fifth, and sixth causes of action in the amended complaint (Docket No. 73) is DENIED in all respects;
2. MapInfo's cross-motion for summary judgment as to the second, third, and sixth causes of action in the amended complaint (Docket No. 77) is:
A. DENIED as to the second and sixth causes of action; and
  B. GRANTED as to the third cause of action, and MapInfo shall be Page 12 permitted to inspect and audit the records of SRC on the following conditions:


i. The audit shall be conducted by an independent auditor to be selected by MapInfo and acceptable to SRC;
ii. the audit shall be conducted during normal business hours at the location where the records necessary to the audit are maintained;
iii. The audit is limited to the records necessary to verify the Royalty Reports; and
iv. MapInfo shall pay for the audit.

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