Merola Sales Co. v. Tabarka Studio, Inc.

Merola Sales Company, Inc., Plaintiff, v. Tabarka Studio, Inc., Defendant.

No. CV-18-00248-PHX-SPL

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

January 10, 2019

ORDER

Plaintiff Merola Sales Company, Inc. ("Merola") filed suit against Tabarka Studio, Inc. ("Tabarka") seeking a declaratory judgment against any copyright infringement claims and other relief. (Doc. 1) Tabarka filed counterclaims against Merola for copyright infringement and injunctive relief. (Doc. 29) Before the Court is Merola's motion to dismiss (the "Motion") seeking dismissal of Tabarka's infringement counterclaims against it. The Court's ruling is as follows.

I. Background

Meir Zenati ("Zenati") is a designer that creates hand-painted tiles, pottery, furniture, and other housewares. (Doc. 29 at 14) Zenati has created many collections of hand-painted tiles, which he manufactures and sells to several of the largest tile distributors throughout the United States. (Doc. 29 at 15) At issue in this case are four of Zenati's designs, Paris Metro 1 ("PM 1") created in 2008, Casablanca 2 ("C2") created in 2007, Paris Metro 11 ("PM 11") created in 2008, and Touareg 6 created in 2011.

In 2009, Zenati formed Tabarka, of which he remains president and CEO. Upon the formation of Tabarka, Zenati transferred the ownership rights to PM 1, PM 11, and C2 to the corporation through an oral agreement. (Doc. 29 at 15) Zenati and Tabarka memorialized this oral agreement in a writing on May 1, 2018. (Doc. 29 at 15) In 2017, Tabarka began the process of obtaining registered copyrights for PM 1, PM 11, C2, and Touareg 6 with the U.S. Copyright Office. (Doc. 29 at 16) In each of the copyright applications, Darna, Inc. ("Darna"), an inactive California corporation owned by Zenati, was listed as the author of the works. (Doc. 36 at 7) On August 15, 2017, PM 1, PM 11 and Touareg 6 were issued copyright registrations for the artwork on the tiles. (Doc. 29 at 16) However, the registration application for C2 was denied on March 22, 2018.¹ (Doc. 29 at 17)

In 2015, prior to the filing of the copyright registration applications, Tabarka became aware that several of its designs, including PM 1, PM 11, and C2, were being copied and sold in nearly-identical tiles throughout the United Kingdom. (Doc. 29 at 17) In 2017, Tabarka became aware that Merola, along with third-party defendants Home Depot Product Authority, LLC and Home Depot U.S.A., Inc. (together, "Home Depot"), was selling unlicensed tiles that were identical copies of Tabarka's tiles. (Doc. 29 at 22, 25)

On January 23, 2018, Merola initiated this lawsuit seeking a declaratory judgment that it did not infringe on Tabarka's copyright interests. (Doc. 1 at 12-13) On May 1, 2018, Tabarka filed its answer and asserted counterclaims against Merola and Home Depot for copyright infringement and injunctive relief. (Doc. 29 at 12-34) Merola filed the Motion on May 15, 2018, seeking dismissal of Tabarka's infringement counterclaims pertaining to PM 1, PM 11, and C2. (Doc. 36 at 13)

II. Dismissal for Lack of Subject Matter Jurisdiction Pursuant to Rule 12(b)(1)

A. Legal Standard

A motion to dismiss for lack of subject matter jurisdiction brought pursuant to Rule 12(b)(1) may facially attack the existence of subject matter jurisdiction or may challenge the truth of the alleged facts that would confer subject matter jurisdiction on the court. Renteria v. United States, 452 F. Supp. 2d 910, 919 (D. Ariz. 2006) (citing Thornhill Publ'g Co. v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979)). Courts are permitted to consider evidence to decide a factual attack on subject matter jurisdiction. Thornhill, 594 F.2d at 733. The party asserting jurisdiction has the burden of proof to show that the court has subject matter jurisdiction. Indus. Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990). Where a claimant lacks standing, the court must dismiss the action for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). Ervine v. Desert View Reg. Med. Ctr. Holdings, LLC, 753 F.3d 862, 868 (9th Cir. 2014).

B. Analysis

In federal courts, federal question jurisdiction exists for any claim that sounds in copyright law, because copyright is a right granted exclusively by federal law. Humphreys & Partners Architects LP v. Atl. Dev. & Investments Inc., 2016 WL 1535175, at 4 (D. Ariz. Apr. 15, 2016) (citing Bean v. McDougal Littell, 538 F. Supp. 2d 1196, 1199 (D. Ariz. 2008). A claimant must still have the core component of standing under Article III of the Constitution for a federal court to have jurisdiction. Humphreys, 2016 WL 1535175 at 4 (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). To satisfy Article III's standing requirement, a claimant must show that he suffered a "concrete and particularized" injury that is "fairly traceable to the challenged action of the defendant," and that a favorable decision would likely redress the injury. Humphreys, 2016 WL 1535175 at 4 (citing Friends of the Earth, Inc. v. Laidlaw Env. Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000)). The complaint must allege sufficient specific facts to establish standing for that claimant, and a court must dismiss a complaint if the claimant fails to provide facts sufficient to establish standing. Humphreys, 2016 WL 1535175 at 4 (citingSchmier v. U.S. Court of Appeals for Ninth Circuit, 279 F.3d 817, 821 (9th Cir. 2002); Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1123 (9th Cir. 2010)).

Section 501(b) of the Copyright Act of 1976 establishes who has standing to sue for infringement: "The legal or beneficial owner of an exclusive right under a copyright is entitled, subject to the [registration] requirements of section 411, to institute an action for any infringement of that particular right committed while he or she is the owner of it." 17 U.S.C. § 501(b). "Any of the exclusive rights comprised in a copyright, including any subdivision of any of the rights specified by section 106, may be transferred ... and owned separately." 17 U.S.C. § 201(d)(2). "[E]ither an assignment (which transfers legal title to the transferee) or an exclusive license (which transfers an exclusive permission to use to the transferee) qualifies as a 'transfer' of a right in a copyright for the purposes of the Act." Minden Pictures, Inc. v. John Wiley & Sons, Inc., 795 F.3d 997, 1003 (9th Cir. 2015) (stating that under the 1976 Copyright Act, any party to whom such a right has been transferred—whether via an assignment or an exclusive license—has standing to bring an infringement action based on that right); 17 U.S.C. § 101; DRK Photo v. McGraw-Hill Glob. Educ. Holdings, LLC, 870 F.3d 978, 983 (9th Cir. 2017).

Merola argues that Tabarka lacks standing to bring copyright infringement claims for PM 1 and PM 11 because Tabarka has not demonstrated that it is the owner of valid copyright interests for these works. (Doc. 36 at 6) Specifically, Merola argues that the registered copyright applications for PM 1 and PM 11 state that the works are owned by Darna, a non-existent corporate entity for at least one year prior to the creation of the works.² (Doc. 36 at 7) Furthermore, Merola argues that because Darna was not a viable corporation at the time the works were created Darna could not have obtained valid copyrights for the works, and Darna could not have validly transferred its copyright interests in PM 1 or PM 11 to Tabarka. (Doc. 36 at 7-8) Merola argues that thisdiscrepancy prevents Tabarka from having standing to bring its counterclaims for PM 1 or PM 11.

In response, Tabarka argues that it owns valid copyrights for PM 1, PM 11 and C2 because the author of the works, Zenati, transferred his ownership rights in the works, as the initial author, to Tabarka via an oral agreement and, later, by written memorandum. (Doc. 45 at 9) Tabarka acknowledges that Darna was listed as the owner of PM 1 and PM 11 on their respective copyright applications, but asserts that this was a mistake. (Doc. 45 at 9) Tabarka argues that it has filed supplementary registrations for PM 1 and PM 11 to identify Zenati as the proper author of the works and to correct the mistake of the works being classified as "work made for hire." (Doc. 45 at 9-10) Tabarka further argues that the mistake of adding Darna to the copyright applications does not invalidate the transfer from Zenati to Tabarka or Tabarka's ownership of these rights. (Doc. 45 at 9-10)

First, the Court must focus its analysis on whether Tabarka has simply alleged "sufficient specific facts to establish standing" to bring its counterclaim. Humphreys, 2016 WL 1535175 at 4 (citing Schmier, 279 F.3d at 821; Chandler, 598 F.3d at 1123). Merola argues that Darna could not have owned the copyrights at issue, and Tabarka retorts that listing Darna on the copyright applications was a mistake. Tabarka also identifies the proper author of the work, Zenati, and alleges that measures are being taken to correct the mistake through submitting supplementary registrations for the works at issue.

The Court finds that Tabarka alleged facts sufficient to show that it owns valid copyright interests in PM 1 and PM 11. First, it is undisputed that Zenati is the creator of the works at issue. (Doc. 45 at 7; Doc. 36 at 7) It is well settled that ownership rights to a piece of artwork vest in the creator of such work. 17 U.S.C. § 201. Therefore, the Court finds that the ownership rights to PM 1 and PM 11 were vested in Zenati as the creator of those works. See 17 U.S.C. § 201(a).

The Court also finds that Tabarka pleaded facts sufficient to demonstrate that it possessed the copyright interests in PM 1 and PM 11 at the time of the alleged infringement. A claim for copyright infringement may only be brought by a party whilehe or she is the owner of valid copyright interests. 17 U.S.C. § 501(b); Parfums Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477, 479 (9th Cir. 1994). Here, Tabarka asserts that Zenati transferred...