The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.
Plaintiffs are thirteen major record companies that collectively produce, manufacture, distribute, sell, and license "the vast majority of copyrighted sound recordings sold in the United States." (First Am. Compl. ¶ 1.) Plaintiffs raise various federal and state law claims of secondary copyright infringement against Lime Wire LLC (LW); Mark Gorton, the Chairman and sole Director of LW; Lime Group LLC ("Lime Group"); and the M.J.G. Lime Wire Family Limited Partnership ("Lime Wire FLP") (collectively, "Defendants") for their role in distribution of the LimeWire software program ("LimeWire"). LimeWire permits users of the program to share digital files over the Internet. Plaintiffs allege that LimeWire users employ LimeWire to obtain and share unauthorized copies of Plaintiffs' sound recordings, and that Defendants facilitate this infringement by distributing and maintaining LimeWire.*fn1
Plaintiffs raise the following claims against LW, Lime Group, and Gorton: (1) inducement of copyright infringement; (2) contributory copyright infringement; (3) vicarious copyright infringement; and (4) state common law copyright infringement and unfair competition.*fn2 Plaintiffs also raise a state law fraudulent conveyance claim against Gorton and Lime Wire FLP, and a claim for unjust enrichment against Lime Wire FLP.
The parties now move for summary judgment. Plaintiffs move for partial summary judgment on their claims of (1) inducement of infringement; (2) contributory infringement; and (3) common law infringement and unfair competition. LW, Gorton, and Lime Group move for summary judgment on each of these claims, and on Plaintiffs' claim of vicarious copyright infringement.*fn3 Gorton and Lime Wire FLP move for summary judgment on Plaintiffs' fraudulent conveyance and unjust enrichment claims. Defendants also have submitted a number of motions to exclude evidence submitted by Plaintiffs in support of their motion for summary judgment.
For the reasons stated below, the Court: (1) DENIES Defendants' motions to exclude evidence;*fn4 (2) GRANTS Plaintiffs' motion for summary judgment on the claim against LW of inducement of copyright infringement, and DENIES LW's motion for summary judgment on the claim; (3) DENIES the parties' cross-motions for summary judgment on the claim against LW of contributory copyright infringement; (4) DENIES LW's motion for summary judgment on the claim of vicarious copyright infringement; (5) GRANTS Plaintiffs' motion for summary judgment on their claims against LW for common law copyright infringement and unfair competition, and DENIES Defendants' motion for summary judgment on these claims; (6) GRANTS Plaintiffs' motions for summary judgment on the claims against Gorton and Lime Group for inducement of copyright infringement, common law infringement, and unfair competition, and DENIES Defendants' motions for summary judgment on these claims; (7) DENIES the parties' motions for summary judgment on the claims against Gorton and Lime Group for contributory copyright infringement and vicarious copyright infringement; and (8) DENIES Gorton's and Lime Wire FLP's motion for summary judgment on the fraudulent conveyance and unjust enrichment claims.
Unless otherwise noted, the following facts are undisputed by the parties:
Over the last several years, technologies have developed that make it inexpensive and easy to record, distribute, and share music via the Internet. Many artists now digitally record songs to sell through online music retailers. Individuals who purchase digital recordings often share them with others by using free or low-cost software or Internet programs, known as "file-sharing programs." File-sharing programs allow users to exchange digital files, including digital recordings, with each other through the Internet. Most digital recordings released in the United States, however, are copyright protected, and the copyright owners do not authorize sharing through file-sharing programs. A number of companies that have distributed file-sharing programs, including the distributors of the programs Napster, Kazaa, Morpheus, and Grokster, have faced liability for copyright infringement, on the ground that they facilitated infringement committed by users of their programs. See e.g., A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001).*fn5
B. Creation and Design of LimeWire
LW was founded in June 2000. The company released LimeWire in August 2000.
LimeWire is a file-sharing program that utilizes "peer-to-peer" ("P2P") technology. By employing P2P technology, LimeWire permits its users to share digital files via an Internet-based network known as the "Gnutella network." LimeWire users can share almost all files stored on their computers with other LimeWire users.*fn6 When a LimeWire user wishes to locate digital files available through the network, she enters search criteria into the search function on LimeWire's user interface. LimeWire then scans the computers of other LimeWire users, to locate files that match the search criteria. The LimeWire user can download any files that LimeWire locates. When the user downloads a file, LimeWire transfers a digital copy of the file from the computer on which it is located to the LimeWire user's computer.
C. Plaintiffs' Copyrighted Recordings
Plaintiffs sell and distribute the vast majority of all recorded music in the United States.
They allege that they own the copyrights or exclusive rights to more than 3000 sound recordings, which are listed in exhibits to the First Amended Complaint. (First Am. Compl., Exs. A & B (as revised, Jan. 31, 2008).) In this litigation, Plaintiffs have provided documentation establishing that they own the copyrights to thirty popular recordings (the "Recordings").*fn7 Plaintiffs allege that LimeWire users share and download unauthorized digital copies of the Recordings via LimeWire, and that Defendants are secondarily liable for this infringement because they distribute and maintain LimeWire.
Defendants have filed a number of motions challenging the admissibility of evidence submitted by Plaintiffs (the "Evidentiary Motions"). The Court considers each of the Evidentiary Motions in turn. The Court determines the admissibility of the challenged evidence based on the same principles as would apply at trial. See Raskin v. Wyatt Co., 125 F.3d 55, 66 (2d Cir. 1997). The Court finds that, except with respect to certain limited issues discussed below, Defendants' evidentiary objections are without merit.
A. Motions to Exclude Reports and Testimony of Plaintiffs' Experts
Defendants move to exclude the reports and testimony of two expert witnesses retained by Plaintiffs, Dr. Richard P. Waterman and Dr. Ellis Horowitz. The Court denies Defendants' motion.
A court may admit expert testimony once it has determined that such testimony is reliable. Daubert v. Merrell Dow Pharms., Inc, 509 U.S. 579, 589 (1993); Nimely v. City of New York, 414 F.3d 381, 396-97 (2d Cir. 2005). Reliability is analyzed under Rule 702 of the Federal Rules of Evidence, which provides that a witness who is qualified as an expert by knowledge, skill, experience, training, or education may provide testimony that is (1) based upon sufficient facts or data; (2) the product of reliable principles and methods; and (3) based on reliable application of the principles and methods to the facts of the case. Fed. R. Evid. 702. There must be "'a sufficiently rigorous analytical connection between [the expert's] methodology and the expert's conclusions . . . and . . . the scientific principles and methods [must] have been reliably applied by the expert to the facts of the case.'" In re Zyprexa Prods. Liab. Litig., 489 F. Supp. 2d 230, 284 (E.D.N.Y. 2007) (quoting Nimely, 414 F.3d at 397). The party seeking to rely on expert testimony bears the burden of establishing, by a preponderance of the evidence, that all requirements have been met. See Daubert., 509 U.S. at 593 n.10 (1993); United States v. Williams, 506 F.3d 151, 160 (2d Cir. 2007).
a. Dr. Richard P. Waterman
Dr. Waterman is an Adjunct Associate Professor of Statistics at The Wharton School at the University of Pennsylvania, and the President and Co-Founder of Analytic Business Services, Inc., a consulting company that provides expert advice and opinions in the field of statistical analysis.
Plaintiffs hired Dr. Waterman to conduct a study of LimeWire that estimates the percentage of digital files (1) available through LimeWire that are authorized for free distribution; and (2) requested for download by LimeWire users that are authorized for free distribution.*fn8 For the study, Dr. Waterman analyzed a random sample of 1800 files available through LimeWire. He determined that 93% of files in the sample (1644 files) were protected or highly likely to be protected by copyright, and thus not authorized for free distribution through LimeWire. (Waterman Report, 2-3.) He found that 43.6% of the files were digital recordings with copyrights owned by Plaintiffs. (Id.) Dr. Waterman next logged the number of times LimeWire users sought to download each of the files in the sample. Based on these results, Dr. Waterman estimated that 98.8% of the files requested for download through LimeWire are copyright protected or highly likely copyright protected, and thus not authorized for free distribution. (Id. at 7-8.)
Defendants attack the reliability of Dr. Waterman's study and expert opinion, arguing that Dr. Waterman's methodology was deficient because (1) Dr. Waterman collaborated with Plaintiffs in designing and implementing the study; (2) the categories that Dr. Waterman used to classify the sample files were improper; and (3) the study improperly excluded certain files from the statistical analysis.*fn9 The Court finds that Defendants' objections are without merit. Dr. Waterman's expert report and testimony are admissible.
First, there is no support for the contention that Dr. Waterman's study is flawed because of his collaboration with Plaintiffs. Plaintiffs assisted Dr. Waterman in a variety of ways, including obtaining the sample of files, categorizing the files in the sample, and implementing the statistical protocol that Dr. Waterman developed. Plaintiffs' assistance in developing and implementing the study was entirely appropriate. See Fed. R. Civ. P. 26(a)(2)(B) advisory committee's note (1993) (stating that counsel may provide "assistance to experts in preparing [expert] reports, and indeed . . . this assistance may be needed"); Inline Connection Corp. v. AOL Time Warner Inc., 470 F. Supp. 2d 435, 442-43 (D. Del. 2007) (noting that experts may rely upon information provided by the client, other experts, or counsel). The Court finds that Dr. Waterman applied his expert knowledge to develop a reliable methodology. Dr. Waterman's methodology obtained a suitably random and representative sample of files available through LimeWire. Moreover, the limitations of Dr. Waterman's study are well defined. Defendants can -- and do -- challenge the study's probative value, and the Court has sufficient information to properly weigh Dr. Waterman's findings and conclusions.
Second, the Court finds that the categories of downloaded files used in Dr. Waterman's analysis are appropriate.*fn10 Similar studies using nearly identical file classifications have been considered and approved by other courts. See, e.g., Metro-Goldwyn-Mayer Studios Inc. v. Grokster, 545 U.S. 913, 952 (2005) (Breyer, J., concurring) (considering findings of statistical study as to proportion of files available on file-sharing network that were "infringing" and "likely infringing"); A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896, 903 n.6 (N.D. Cal. 2000) (considering expert report that applied digital file categories (1) confirmed as infringing, (2) likely to be infringing, and (3) confirmed as not infringing); Arista Records LLC v. Usenet.com, Inc., 633 F. Supp. 2d 124, 145 (S.D.N.Y. 2009) (denying motion to exclude similar study by Dr. Waterman that utilized the same classifications of copyright status).
Third, the Court rejects Defendants' contention that the exclusion of twenty-six files identified as "spam, spoofs, and pornography" from Dr. Waterman's sample renders his findings unreliable. Dr. Waterman has provided sufficient reasoning for these files' exclusion from his analysis. (See Waterman Depo. at 230-78.) In any event, given the small number of files classified as "spam, spoofs, and pornography," their exclusion from the sample size of 1800 files had an inconsequential effect on Dr. Waterman's statistical findings and conclusions.
The Court finds that Dr. Waterman's expert report and testimony are based on reliable methodology and are therefore admissible.
Dr. Horowitz is a professor of Computer Science and Electrical Engineering at the University of Southern California. He possesses substantial knowledge and experience in software engineering and development. Dr. Horowitz has provided an expert report and testimony on how LimeWire functions and what infringement-reducing technologies are available to prevent or mitigate the distribution of unauthorized files through LimeWire.
Defendants seek to exclude Dr. Horowitz's report and testimony on the grounds that he improperly opines on (1) the intent or state of mind of Defendants and LimeWire users; and (2) the relative efficacy of various infringement-reducing technologies.*fn11 The Court rejects both arguments and finds that Dr. Horowitz's expert opinion is admissible.
First, Dr. Horowitz has not opined on the parties' state of mind, but rather has provided information on the design and functionality of the LimeWire program. See, e.g., Horowitz Report ¶ 56 ("Although Lime Wire LLC professes to be agnostic about what files are transferred using LimeWire, LimeWire's feature set is optimized for downloading popular audio files."); id.
¶ 57 (noting that the design of LW's "user interface" supports the download of music files); id. ¶ 66 (opining that the use of a "Classic Rock" genre category has the effect of generating search results containing unauthorized works); id. ¶ 70 (discussing that some of LimeWire's features are "potentially confusing" to users). Such expert opinion is proper and aids the finder-of-fact in understanding LimeWire's features. Dr. Horowitz does not make any impermissible legal conclusions, such as stating that LW actually intended to facilitate copyright infringement. He also does not cross the line into unreliable speculation about the intended purpose of various LimeWire design features.*fn12 See Nimely v. City of New York, 414 F.3d at 396 n.11 (noting that an expert witness is permitted substantially more leeway than a lay witness in testifying as to opinions that go beyond on his or her immediate perception) (citing United States v. Garcia, 291 F.3d 127, 139 & n.8 (2d Cir. 2002)); In re Zyprexa Prods. Liab. Litig., 489 F. Supp. 2d at 283-84 (noting that an expert is "permitted wide latitude to offer opinions," so long as they rely upon expert knowledge and experience).
Second, the Court finds that Dr. Horowitz's expert opinions on the effectiveness of various infringement-reducing technologies are reliable and satisfy the requirements of Rule 702 and Daubert. Dr. Horowitz has substantial expertise in computer software design and engineering. His expert report makes clear that his opinions are based upon his observation and collection of relevant information about existing infringement-reducing technologies.
The Court has found that Dr. Waterman's and Dr. Horowitz's expert reports and testimony are reliable and admissible. The Court thus DENIES Defendants' motion to exclude the evidence.
Defendants move (1) to strike the declaration of Greg Bildson ("Bildson"), submitted by Plaintiffs on September 26, 2008 (the "Bildson Declaration"); and (2) for a protective order enjoining Bildson from speaking further with Plaintiffs' attorneys.*fn13 The Court denies Defendants' motion, except that the Court strikes three statements from the Bildson Declaration and places certain limited conditions on Plaintiffs' future contacts with Bildson.
When Plaintiffs filed this action in 2006, they named Bildson, LW's Chief Technology Officer ("CTO") and Chief Operating Officer ("COO"), as a defendant. On July 22, 2008, Bildson's attorney, Michael Page ("Page"), contacted Plaintiffs to make a settlement proposal, whereby Plaintiffs would drop the claims against Bildson in exchange for Bildson providing Plaintiffs with factual information about LW and LimeWire and paying a nominal settlement amount. On July 28, 2008, Page contacted Charles Baker ("Baker"), LW's attorney, and asked whether he consented to Bildson meeting with Plaintiffs' attorneys to "speak substantively with [Bildson] . . . as a [LW] employee." Baker consented.
On September 4, 2008, Bildson and Page met with Plaintiffs' attorney, Katherine Forrest ("Forrest"), to discuss settlement. Forrest proposed a settlement agreement that included a cooperation clause, under which Bildson would cooperate with Plaintiffs' investigation of Defendants and provide information and, if necessary, testimony on LW's infringing activities. Following the meeting, Bildson set forth his knowledge of LimeWire and of LW's infringing activities in the Bildson Declaration. On September 9, 2008, Bildson voluntarily resigned from LW. On September 10, 2008, he executed the Bildson Declaration and the settlement agreement.
Defendants move to strike the Bildson Declaration, on the grounds that it arose from improper ex parte communications between Bildson and Plaintiffs' attorneys and that it contains information subject to the attorney-client privilege. Defendants seek a protective order purportedly to prevent Bildson from disclosing privileged information to Plaintiffs.
In New York, attorneys are prohibited from soliciting information about an opposing party that is protected by attorney-client privilege. See Muriel Siebert & Co. v. Intuit Inc., 868 N.E.2d 208, 210-11 (N.Y. 2007); Merrill v. City of New York, 2005 WL 2923520, at *1 (S.D.N.Y. Nov. 4, 2005); Wright v. Stern, 2003 WL 23095571, at *1 (S.D.N.Y. Dec. 30, 2003). The party invoking the attorney-client privilege bears the burden of establishing that the information at issue is privileged. To do this, the party must show that there was "(1) a communication between client and counsel, which (2) was intended to be and was in fact kept confidential, and (3) made for the purpose of obtaining or providing legal advice." United States v. Constr. Prods. Research, Inc., 73 F.3d 464, 473 (2d Cir. 1996). The attorney-client privilege "only protects disclosure of communications; it does not protect disclosure of the underlying facts." Upjohn Co. v. United States, 449 U.S. 383, 395-96 (1981). The Second Circuit "construe[s] the privilege narrowly because it renders relevant information undiscoverable; [it applies] only where necessary to achieve its purpose." In re County of Erie, 473 F.3d 413, 418 (2d Cir. 2007) (internal citation omitted).
The New York Rules of Professional Conduct provide that a lawyer representing a client may not have ex parte communications with an opposing party who the lawyer knows is represented by counsel, unless the lawyer has the consent of that party's counsel. N.Y. Rules Prof. Conduct 4.2 (2009). The New York Court of Appeals has defined a "party" in this context to include "corporate employees whose acts or omissions in the matter under inquiry are binding on the corporation (in effect, the corporation's 'alter egos')." Niesig v. Team I, 558 N.E.2d 1030, 1035 (N.Y. 1990); Estes v. City of New York, 2006 WL 2299350, at *1 (E.D.N.Y. Apr. 11, 2006). A lawyer may have ex parte contact with the opposing party's former employees.
See Polycast Tech. Corp. v. Uniroyal, Inc., 129 F.R.D. 621, 628 (S.D.N.Y. 1990). If the former employee had access to privileged information while employed with the opposing party, however, a court may enter a protective order placing conditions on such contact, in order to prevent sharing of any privileged information. See Lyondell-Citgo Refining, LP v. Petroleos de Venezuela, S.A., No. 02 Civ. 0795, 2003 WL 22990099, at *2-3 (S.D.N.Y. Dec. 19, 2003).
The Court will not strike the entire Bildson Declaration. The Declaration does not arise out of improper ex parte communication between Bildson and Plaintiffs' counsel, Forrest. Prior to meeting with Bildson, Forrest received consent from Defendants' counsel for Forrest to "speak substantively with [Bildson] . . . as a [LW] employee."*fn14
Although Defendants claim that the content of the entire Bildson Declaration is protected by attorney-client privilege, they have presented no evidence to support their claim. Defendants have provided declarations from Gorton, LW's CEO, and Baker, Defendants' counsel, which establish only that two sentences and one phrase in the Bildson Declaration disclose privileged communications. Baker states that sentences in paragraphs 11 and 12 of the declaration reflect confidential legal advice that Baker gave LW, through Bildson, regarding how to avoid secondary liability. Gorton states that another attorney, Federick Von Lohman, gave LW, including Bildson, confidential legal advice regarding the need to establish a document retention program to purge incriminating information about LimeWire users' activities. This advice is reflected in a phrase in paragraph 21 of the declaration. Based on Gorton's and Baker's declaration, the Court strikes the identified sentences and phrase.*fn15 The Court admits and considers the rest of the Bildson Declaration.*fn16
Defendants argue that, because Bildson received privileged information while working at LW, the Court should conclude that the Bildson Declaration reflects confidential information and strike the entire document. Defendants, however, cite to no decision in which a court has struck an entire factual declaration, without any evidence that the entire declaration was privileged.*fn17
Rather, when presented with a declaration from a party with access to privileged information, courts strike only those portions of the declaration that actually contain privileged information. See Major League Baseball Properties, Inc. v. Opening Day Productions, 1997 WL 525482, at *6 (S.D.N.Y. Aug. 22, 1997) (striking only one phrase from party's testimony, because only that phrase reflected privileged information). This approach is consistent with the Second Circuit's mandate that the attorney-client privilege be applied narrowly, so as not to exclude discoverable information. See In re County of Erie, 473 F.3d at 418.
The Court will not issue a protective order prohibiting Plaintiffs from speaking with Bildson. Plaintiffs have made a good faith effort to avoid learning privileged information from Bildson. Forrest and Page, Bildson's attorney, have submitted affidavits stating that Forrest met with Bildson only once, and that she never sought privileged information from him. Forrest and Page both state that they repeatedly warned Bildson not to provide them with such information. Defendants have presented no evidence that Bildson disclosed privileged communications to Plaintiffs, other than the three brief statements that the Court struck above.
Because Bildson had access to privileged information while at LW, however, the Court believes that it is sensible and fair to order additional precautions to ensure that Bildson does not reveal privileged information to Plaintiffs in the future. Accordingly, the Court orders Plaintiffs:
(1) not to request privileged information from Bildson; (2) to stop Bildson from revealing privileged information, if Plaintiffs are aware that he is doing so; (3) to promptly provide Bildson and his attorney with a copy of this order, and to ensure that Bildson's attorney discusses with Bildson his obligation not to disclose privileged information; and (4) to provide Defendants with at least 10 days notice of any meetings or conversations between Plaintiffs and Bildson, including a general description of the topics that will be discussed.
Accordingly, the Court DENIES Defendants' motion to exclude the Bildson Declaration and for a protective order, except with respect to the Declaration passages discussed above and to the extent that the Court places conditions on any future contacts between Plaintiffs and Bildson.
C. Declarations of Sehested, Kempe, and Coggon
Defendants move to strike the declarations of Thomas Sehested, Andrew Kempe, and Katheryn Coggon, on the ground that Plaintiffs failed to identify the three individuals as potential witnesses. The Court denies Defendants' motion.
Rule 26 requires parties to disclose the identity of individuals "likely to have discoverable information that the disclosing party may use to support its claims or defense." Fed. R. Civ. Pro. 26(a). Parties must update and supplement their disclosures and other discovery responses in "a timely manner." Fed. R. Civ. P. 26(e). If a party fails to disclose a witness as required by Rule 26, a court may exclude evidence obtained from that witness, unless the failure to disclose was substantially justified or harmless. Fed. R. Civ. P. 37(c). A court has discretion to exclude evidence because of a party's failure to disclose. See Semi-Tech Litig. LLC v. Bankers Trust Co., 219 F.R.D. 324, 325 (S.D.N.Y. 2004). Because "'refusing to admit evidence that was not disclosed during discovery is a drastic remedy,' courts will resort to preclusion only 'in those rare cases where a party's conduct represents flagrant bad faith and callous disregard of the Federal Rules of Civil Procedure.'" Ward v. The Nat'l Geographic Soc'y, No. 99 Civ. 12385, 2002 WL 27777 (S.D.N.Y. Jan. 11, 2002) (quoting Grdinich v. Bradlees, 187 F.R.D. 77, 79 (S.D.N.Y. 1999)).
Here, there is no evidence that Plaintiffs' alleged failure to disclose Kempe, Coggon, and Sehested prejudiced Defendants.
The information provided by Kempe is no different from that possessed by a witness whose identity was timely disclosed, Thomas Carpenter. Plaintiffs were not required to update their disclosure to state that they would speak with Kempe instead of Carpenter. See Haritatos v. Hasbro, Inc., No. 6:05-CV-930, 2007 WL 3124626, at *3 (N.D.N.Y. Oct. 23, 2007).*fn18
Defendants claim that they have been prejudiced because they have not had an opportunity to cross-examine Coggon and Sehested. After Plaintiffs submitted the declarations, however, Defendants could have moved to depose the two witnesses, which would have remedied any prejudice Defendants claim to have suffered. ...