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Pearson Education, Inc v. Norbert Wu

September 30, 2011

PEARSON EDUCATION, INC.,
PLAINTIFF,
v.
NORBERT WU, DEFENDANT.



MEMORANDUM ORDER AND OPINION

Norbert Wu ("Wu") brings two purported class action suits under the Copyright Act, 17 U.S.C. § 501, on behalf of photographers who have had their copyrights infringed by Pearson Education, Inc. ("Pearson"), a textbook publisher. In the first action, 09 Civ. 6557 (hereinafter "Wu I"), Wu alleges that Pearson engaged in a widespread practice of specifying a particular print-run for its books when obtaining a licensing agreement for photographs, a term that was incorporated into the licensing agreement, then exceeding the print-run, often by large numbers. In the second action, 10 Civ. 6537 (hereinafter "Wu II"), Wu alleges that Pearson printed his photographs in its books and then obtained licensing agreements only afterwards. Wu seeks certification of both actions for class treatment. In addition, Pearson seeks reconsideration of the Court's September 30, 2010 opinion regarding Pearson's motion to stay pending or, in the alternative, to dismiss.

BACKGROUND

Wu is a professional photographer who often licenses his photographs to appear in publications. Pearson is a textbook publisher that uses photographs in its publications, including many photographs of Wu's, for which Pearson did not own the copyright. In order to obtain the right to publish these photographs, Pearson would enter into licensing agreements with the copyright holders. In some instances, Pearson would obtain the rights from a photo bureau, which would enter into licensing agreements on the photographers' behalf. Other times, Pearson would obtain a license directly from the photographer. When Pearson obtained a license through a photo bureau, the resulting licensing agreements would frequently contain a list of photographs that Pearson was licensing from the same photo bureau on a single invoice. In addition to a list of photographs, the front of the invoice would typically list certain details regarding the publication, such as its name and author, and then specify a print run, the number of copies of the book that Pearson was licensed to print. On the back of the invoice would typically be listed pre-printed standard terms. When Pearson entered into licensing agreements with individual photographers, the agreements would be of varying degrees of formality.

According to Wu, Pearson has not adhered faithfully to the terms of these licensing agreements. He has brought two separate actions alleging that Pearson engaged in widespread copyright infringement. In Wu I, Wu alleges that Pearson routinely exceeded the print run specified in the licensing agreements without alerting photographers or the photo bureaus to this fact. Wu states that of the 144 total Pearson publications that featured his photographs, Pearson exceeded the print run for "almost 40" of the publications. (Pl.'s Mem. 7.) In Wu II, Wu alleges that Pearson often printed photographs in its textbooks without first obtaining a license for them. After it had begun printing, Pearson would obtain licenses for the photographs, but according to Wu without notifying the photo bureaus or copyright holders that it had already been using the photographs. In doing so, Pearson sought to avoid paying the penalty provisions that copyright holders frequently employ for retroactive licenses. Wu alleges that Pearson engaged in this practice in a widespread manner and that potentially thousands of photographers were affected by Pearson's practices.

PROCEDURAL HISTORY

Wu initially brought suit in Wu I under federal copyright law as well as a variety of state law causes of action. Pearson filed a motion to stay pending arbitration or, in the alternative, to dismiss. On September 30, 2010, the Court granted defendant's motion to stay Wu's state law claims with respect to two of the three photo bureaus through which Wu licensed his photographs: Minden Pictures, Inc. ("Minden Pictures") and Peter Arnold, Inc. ("Peter Arnold"). It denied Pearson's motion to stay Wu's copyright claims pending the outcome of arbitration. At the time Pearson filed its motion to dismiss, it had not located the invoice pertaining to the one photograph licensed through the third photo bureau, identified as Animals Animals in the complaint. The Court denied Pearson's motion to dismiss with respect to these claims, but noted that these claims might eventually be dismissed or stayed if Pearson were able to locate the invoice and its terms so provided. In addition, the Court dismissed Wu's claims pertaining to pictures licensed through Peter Arnold because the licensing agreement contained a condition precedent that required Pearson to receive and refuse to pay an invoice billing for unauthorized use before a copyright suit could be brought.

On January 5, 2011, Pearson moved for reconsideration of the Court's opinion regarding its motion to dismiss. On January 10, 2011, after receiving leave from the Court, Wu filed a Second Amended Complaint alleging that performance of the condition precedent in the Peter Arnold agreement was excused because Pearson frustrated Wu's performance. Wu alleged that he requested information from Pearson pertaining to the excess use of his photographs, and Pearson refused to provide the information.

With regards to his class certification motion, Wu seeks certification of the following class for both sets of allegations:

[All] persons or entities entitled to bring copyright claims in their own name or on behalf of photographers or other copyright holders (referred to herein as "content owners" or "copyright claimaints") whose photographic works either (1) were used by Defendant in publications that exceeded the authorized print run; or (2) were published by Defendant prior to Defendant's obtaining a license to use the image. (Pl.'s Mem. 5.) The class would exclude author-supplied images, any images for which Pearson owns the exclusive copyright, and images licensed to Pearson royalty-free.

Wu also proposes two subclasses, a subclass consisting of all class members whose works appear in the same publications as Wu and a subclass consisting of members whose content was licensed on the same invoices as Wu's.

DISCUSSION

I.Pearson's Motion for Reconsideration

Pearson moves for reconsideration of the Court's September 30, 2010 opinion denying Pearson's motion to dismiss. Pearson moves for reconsideration on two grounds. First, it argues that Wu's copyright claims stemming from the Minden Pictures agreement should be stayed pending the outcome of arbitration because Wu's copyright claims are inextricably intertwined with his state law claims, which the court has stayed pending arbitration. Second, it asks the Court for reconsideration with regards to the picture licensed through Animals Animals because it has located the invoice covering this claim.

Under Local Civil Rule 6.3, reconsideration is appropriate if the Court overlooked controlling decisions or factual matters which, had they been considered, might reasonably have altered the result of the underlying decision. E.g., Levine v. AtriCure, Inc., 594 F. Supp. 2d 471, 474 (S.D.N.Y. 2009). To that end, "[a]ny controlling decisions or factual matters presented by a litigant for reconsideration must have been put before the Court in the underlying motion." Padilla v. Maersk Line, Ltd., 636 F. Supp. 2d 256, 258 (S.D.N.Y. 2009). Further, "a motion for reconsideration is not a motion to reargue those issues already considered when a party does not like the way the original motion was resolved." Finkelstein v. Mardkha, 518 F. Supp. 2d 609, 611 (S.D.N.Y. 2007).

The Court has already considered and rejected Pearson's argument that the copyright claims should be stayed pending the outcome of arbitration. The Minden Pictures agreement specifically carves out copyright claims from those that are subject to arbitration and states that they may be litigated in federal court. To stay the claims pending arbitration would do violence to the intent of the parties. Furthermore, the contractual issues at stake here appear to be minimal. Pearson has made no argument that would cause the Court to reconsider its decision.*fn1

Pearson next argues that the Court should stay Wu's claims pertaining to a picture Wu identified as being licensed through Animals Animals in his complaint. Pearson states that the picture in question was in fact licensed through Getty Images, Inc. ("Getty") and that the Getty license terms contain an arbitration provision. Wu argues that it is procedurally improper for Pearson to make such an argument on reconsideration and argues that the Court should instead convert this portion of Pearson's motion as one for summary judgment under Rule 56. The motion is so converted, and the Court will consider the language of the Getty licensing agreement. (Church Decl. Ex. J.) Paragraph 10.5 of this agreement provides:

Any disputes arising from this Agreement or its enforceability shall be settled by binding arbitration to be held in one of the following jurisdictions . . . . Notwithstanding the foregoing, Getty Images shall have the right to commence and prosecute any legal or equitable action or proceeding before any court of competent jurisdiction to obtain injunctive or other relief against Licensee in the event that, in the opinion of Getty Images, such action is necessary or desirable.

(Id. at 5.)

Wu does not contest that this clause requires him to arbitrate his state law claims. But he argues that the licensing agreement contains a carve-out for copyright claims. Paragraph 10.1 provides, "Any use of Licensed Material in a manner not expressly authorized by this Agreement or in breach of a term of this Agreement constitutes copyright infringement, entitling Getty Images to exercise all rights and remedies available to it under copyright laws around the world." Wu argues that the right to bring a suit for infringement is a right or remedy available under the copyright law. The Court does not agree with Wu's interpretation of the contract. It may be that Wu will have the right to seek damages from Pearson or enjoin Pearson from further violations of his copyright, meaning he can exercise all rights and remedies against Pearson, but the clause does not say anything about the forum where Wu has the right to enforce those rights and remedies. Read in conjunction with the broad arbitration agreement, this clause does not create the sort of carve-out that Wu claims. See Robert Bosch Corp. v. ASC, Inc., 195 F. App'x 503, 507 (6th Cir. 2006) (holding in a battle of the forms inquiry that a term reserving all rights and remedies for one party did not conflict with an arbitration provision).

II.Class Certification-Wu I

Pursuant to Rule 23(a), plaintiffs must demonstrate that four conditions have been met before a court will certify a class: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a); Teamsters Local 445 Freight Div. Pension Fund v. Bombardier, Inc., 546 F.3d 196, 201-02 (2d Cir. 2008). In addition, the courts have read a fifth "implied requirement of ascertainability" with respect to the class definition. In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 30 (2d Cir. 2006).

Plaintiffs must also demonstrate that a class action is maintainable under one of several different theories. Here, plaintiff argues primarily that the class action is maintainable pursuant to Rule 23(b)(3), which requires a court to find (1) that questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and (2) that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Fed. R. Civ. P. 23(b)(3); Myers v. Hertz Corp., 624 F.3d 537, 547 (2d Cir. 2010). The plaintiff bears the burden of showing each of these elements by a preponderance of the evidence. Teamsters Local, 546 F.3d at 202. Plaintiff also contends that both classes are certifiable under Rule 23(b)(1)(B) and (2). Certification pursuant to Rule 23(b)(1)(B) is appropriate where "adjudications with respect to individual members of the class would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests." Certification under Rule 23(b)(2) is appropriate where "the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole."

With certain exceptions that will be discussed in greater detail below, Pearson does not dispute that Wu has met the requirements of Rule 23(a). Rather, it focuses it focuses on the predominance requirement of Rule 23(b)(3). The Court will follow suit and begin its analysis with Rule 23(b)(3) before returning to the Rule 23(a) requirements. It will consider each action in turn.

A.Predominance

Wu argues that class treatment is appropriate under Rule 23(b)(3), which requires that "questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and . . . [that] a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3). "[T]o find predominance, a Court must consider the elements of each cause of action, and determine whether those elements can be satisfied by common, class-wide proof." In re Currency Conversion Fee Antitrust Litig., 230 F.R.D. 303, 309-10 (S.D.N.Y. 2004). Common questions predominate only if plaintiffs can show that "those issues in the proposed action that are subject to generalized proof outweigh those issues that are subject to individualized proof." Heerwagen v. Clear Channel Commc'ns, 435 F.3d 219, 226 (2d Cir. 2006).

Wu argues that the number of common issues is substantial, and that these common issues predominate over individual claims. All of the claims in this case revolve around the same issue of law, namely whether Pearson violated the copyright holder's rights by exceeding the print-runs specified in the licensing agreements. Wu predicts that at a later stage in the litigation, Pearson will argue that the accepted understanding in the trade was that print-runs were merely estimates, rather than definite limitations. (Wu Mem. 20-21.) This question certainly represents a common question of law typical to the class. In addition, copyright holders are entitled to a greater recovery where the infringement was committed willfully. 17 U.S.C. § 504(c)(2). "To prove 'willfulness' under the Copyright Act, the plaintiff must show (1) that the defendant was actually aware of the infringing activity, or (2) that the defendant's actions were the result of 'reckless disregard' for, or 'willful blindness' to, the copyright holder's rights." Island Software and Computer Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 263 (2d Cir. 2005).

Wu states that he intends to demonstrate willfulness by pointing to the fact that Pearson has failed to put in place a system for tracking when it has exceeded the print-run specified in a licensing agreement, has consistently underestimated the print-runs it would need, and has resisted the attempts of copyright holders to uncover whether it has exceeded the print-runs specified in the licensing agreements. (Wu Mem. 22.) Wu argues that none of this evidence of Pearson's practices is tied to a particular photograph, but rather applies equally to all photographs in the class.

Pearson counters that individual issues predominate because licensing agreements between Pearson and the copyright holders varied significantly in their terms. Pearson's argument begins with a premise that is legally correct, specifically that although federal law creates Wu's cause of action for copyright infringement, 17 U.S.C. § 501(b), where, as here, a court must determine whether infringement has occurred by determining the scope of a licensing agreement, it construes the terms of the licensing agreement in accordance with state contract law, Graham v. James, 144 F.3d 229, 237 (2d Cir. 1998). Pearson argues that the process of construing the licensing agreements in accordance with each state's law will prove unduly onerous. It seems that Pearson's general practice was to send a billing request to a photo bureau or an individual photographer and indicate that it wished to publish a particular photograph in a particular textbook. The billing request would contain specifics regarding the print-run. The photo bureau or individual party would then send back an invoice. When the photo bureaus sent invoices, the invoices would usually contain a list of individual terms on the back that governed such issues as choice of law, forum, and arbitration. Pearson makes two arguments related to these terms. First, it argues that the requirement that the Court scrutinize many different contracts itself defeats predominance. Second, it argues that the fact that the Court will be required to conduct an individualized analysis to determine whether these additional terms are binding means that individual issues will swamp common issues.

The case law reveals that courts have adopted two rules of thumb with regards to class certification in breach of contract cases. On the one hand, where adjudicating breach of contract claims require "numerous individual inquiries . . . to determine whether a breach of contract could be found," class treatment will generally not be appropriate. Jim Ball Pontaic-Buick-GMC, Inc. v. DHL Exp. (USA), Inc., 08 Civ. 761C, 2011 WL 815209, at *6 (W.D.N.Y. Mar. 2, 2011) (collecting cases). On the other, "claims arising from interpretations of a form contract appear to present the classic case for treatment as a class action, and breach of contract cases are routinely certified as such." Steinberg v. Nationwide Mut. Ins. Co., 224 F.R.D. 67, 74 (E.D.N.Y. 2004) (quoting Klay v. Humana, Inc., 382 F.3d 1241 (11th Cir. 2004)). This case falls somewhere in between these two extremes. It is not in dispute that if it certifies a class, the Court will be called upon to consider contracts that take a ...


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