Consumer Health Information Corp. v. Amylin Pharmaceuticals, Inc. ( 2016 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-3231
CONSUMER HEALTH INFORMATION
CORPORATION,
Plaintiff-Appellant,
v.
AMYLIN PHARMACEUTICALS, INC., et al.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:13-cv-01061-TWP-DML — Tanya Walton Pratt, Judge.
____________________
ARGUED MAY 28, 2015 — DECIDED APRIL 15, 2016
____________________
Before FLAUM, KANNE, and SYKES, Circuit Judges.
SYKES, Circuit Judge. Consumer Health Information Cor-
poration sued Amylin Pharmaceuticals, Inc., alleging copy-
right infringement. 17 U.S.C. §§ 101 et seq. The dispute
centers on copyright ownership: Who owns the copyright in
certain patient-education materials Consumer Health devel-
oped for Amylin’s use in marketing its diabetes drug Byetta?
The parties’ contract, executed in March 2006, unambiguous-
2 No. 14-3231
ly assigns the copyright to Amylin. This suit is an attempt to
reclaim ownership of the copyright and recover damages for
infringement. To that end, Consumer Health alleges that the
contract was induced by fraud or economic distress and
seeks rescission. The district court dismissed the suit as
untimely.
We affirm. Consumer Health assigned the copyright to
Amylin in 2006 but did not file this suit until July 2013,
several years too late under either of two applicable statutes
of limitations. A four-year limitations period applies to
claims for contract rescission under California law, which
governs the parties’ contract. CAL. CIV. PROC. CODE § 337.
Claims under the Copyright Act are subject to a three-year
statute of limitations. 17 U.S.C. § 507(b). Consumer Health’s
cause of action accrued in March 2006, when the contract
was executed; at that point Consumer Health knew that
Amylin owned the copyright, and the limitations clock on a
suit to reclaim ownership started ticking. Under either
statute of limitations, the suit is untimely.
I. Background
Consumer Health is headquartered in Virginia and pro-
motes itself as having “expertise in patient engagement and
patient adherence strategies, health literacy, and patient
education program development for prescription drugs,
over-the-counter products, and medical devices.” Amylin, a
large pharmaceutical company, is based in California. Jointly
with Eli Lilly & Co., a pharmaceutical giant based in Indiana,
Amylin developed and owns the rights to Byetta, an injecta-
ble diabetes drug.
No. 14-3231 3
When Byetta launched in 2005, its initial sales were dis-
appointing. Amylin attributed the slow start to patients not
understanding how to properly use the drug and thus
declining to refill their prescriptions. An additional problem
was that doctors were not adequately trained to demonstrate
the use of Byetta to their patients and so were reluctant to
prescribe it as often as Amylin had projected. So Amylin
approached Consumer Health to develop materials that
would increase patient education and compliance.
Consumer Health commenced work on the project in De-
cember 2005 on the verbal assurance that it would be paid
for its services. In March 2006 the parties formalized their
arrangement by executing a Master Services Agreement. The
contract explicitly assigned to Amylin the copyright in any
materials Consumer Health created:
[Consumer Health] hereby assigns to AMYLIN
all right, title, and interest in and to said copy-
rights in the United States and elsewhere, in-
cluding registration and publication rights,
rights to create derivative works and all other
rights which are incident to copyright owner-
ship.
Amylin stopped paying for work after September 30, 2006,
but continued to use the materials Consumer Health had
developed, or at least certain “constituent elements” of them.
Almost seven years later, in July 2013, Consumer Health
sued Amylin and Eli Lilly alleging copyright infringement. 1
1For the rest of this opinion, we’ll refer to the defendants collectively as
“Amylin.”
4 No. 14-3231
The complaint, filed in the Southern District of Indiana,
seeks actual damages and disgorgement of profits attributa-
ble to the infringement. The premise of the suit is that Con-
sumer Health owns the copyright in the educational materi-
als because the contract was induced by fraud or economic
duress, either of which is a basis for rescission. More specifi-
cally, the complaint alleges that Amylin never intended to
fulfill its end of the bargain and that Consumer Health
signed the contract under economic duress. The factual
premise of the latter contention is that Consumer Health had
not yet been paid for its work from December 2005 to March
2006, when it signed the contract, and therefore agreed to the
contract only under economic duress. 2
Amylin moved to dismiss the suit as untimely. The dis-
trict court granted the motion, concluding that the complaint
was filed several years too late under either of two applica-
ble statutes of limitations. Under the contract’s choice-of-law
provision, the rescission claim is governed by California law,
and the California limitations period for rescission claims
based on fraud or economic duress is four years. CAL. CIV.
PROC. CODE § 337. The judge held that Consumer Health’s
rescission claim accrued in March 2006, when the contract
was signed, or at the very latest in October 2006, when
Amylin stopped paying for its services. On this accrual
analysis, the four-year limitations period expired in either
2 This suit was preceded by an earlier one making essentially the same
claims. In December 2008 Consumer Health sued Amylin and Eli Lilly in
the United States District Court for the District of Columbia alleging
(among other things) copyright infringement, fraud, and breach of
contract. For reasons not revealed in the record, Consumer Health
voluntarily dismissed that case.
No. 14-3231 5
March or October 2010, roughly three years before the suit
was filed.
To avoid the time bar, Consumer Health invoked the
principle that the statute of limitations does not bar contract
defenses and insisted that it was asserting fraud and duress
defensively, to block enforcement of the contract. The judge
rejected this argument, holding that Consumer Health was
using rescission offensively in a suit to recover damages for
copyright infringement.
Alternatively, the judge held that the suit was untimely
under the Copyright Act’s three-year statute of limitations.
17 U.S.C. § 507(b). Because the copyright claim was essential-
ly a dispute over copyright ownership, the judge determined
that the claim accrued in March 2006 when the parties
signed the contract clearly giving Amylin “all right, title, and
interest in and to” the copyright to the educational materials
Consumer Health had and would develop. On this accrual
analysis, any suit seeking to reclaim copyright ownership
had to be filed by March 2009.
To avoid this time bar, Consumer Health urged the court
to apply the separate-accrual rule, which holds that each
infringing use of copyrighted material triggers a new three-
year limitations period. See Petrella v. Metro-Goldwyn-Mayer,
Inc., 134 S. Ct. 1962, 1969 (2014). The judge rejected this
argument, distinguishing between ordinary infringement
cases and cases disputing copyright ownership. Following the
Ninth Circuit’s decision in Seven Arts Filmed Entertainment,
Ltd. v. Content Media Corp. PLC, 733 F.3d 1251 (9th Cir. 2013),
the judge held that in the latter category, the cause of action
accrues when the ownership dispute becomes explicit.
Because this ownership dispute was obvious in March 2006
6 No. 14-3231
when the parties executed the Master Services Agreement,
the suit was more than four years too late.
II. Discussion
The judge dismissed Consumer Health’s complaint under
Rule 12(b)(6) of the Federal Rules of Civil Procedure, so our
review is de novo. Thulin v. Shopko Stores Operating Co.,
771 F.3d 994, 997 (7th Cir. 2014). Consumer Health attacks
the judge’s rulings under both the four-year statute of limita-
tions for contract rescission and the Copyright Act’s three-
year limitations period. Both rulings were sound, and either
one independently justifies dismissal, but we’ll begin with
the rescission statute of limitations. If Consumer Health
cannot successfully avoid the contractual assignment by
rescinding the Master Services Agreement, its claim under
the Copyright Act is doomed.
A. California’s Statute of Limitations for Rescission
As we’ve noted, unless the claim for rescission can go
forward, Consumer Health cannot hope to satisfy the first
and necessary element of a claim for copyright infringement:
ownership of a valid copyright. See Feist Publ’ns., Inc. v. Rural
Tel. Serv. Co., Inc., 499 U.S. 340, 361 (1991). Consumer Health
alleges that it was induced to enter into the Master Services
Agreement by fraud or economic duress, giving it the option
to rescind.
The merits of this rescission argument are not before us;
we have only the question of timeliness. The parties’ contract
specifies that California law controls. California has enacted
a four-year statute of limitations for claims of contract
rescission based on allegations that the contract was induced
by fraud or economic duress. CAL. CIV. PROC. CODE § 337.
No. 14-3231 7
The judge held that Consumer Health’s rescission claim
accrued in March 2006, when the contract was signed, or at
the latest in October 2006, when Consumer Health would
have known the factual basis for rescission.
Consumer Health doesn’t quarrel with this part of the
judge’s analysis. Instead, it seeks refuge in the general
principle that statutes of limitations do not apply to contract
defenses. See Styne v. Stevens, 26 P.3d 343, 350 (Cal. 2001)
(“Under well-established authority, a defense may be raised
at any time, even if the matter alleged would be barred by a
statute of limitations if asserted as the basis for affirmative
relief.”). Consumer Health characterizes its fraud and eco-
nomic-duress allegations as defensive claims, asserted as a
means to avoid enforcement of the Master Services Agree-
ment.
This argument both misunderstands the legal rule and
mischaracterizes Consumer Health’s own litigating position.
The Supreme Court of California describes the legal rule this
way: “One [who is] sued on a contract may urge defenses
that render the contract unenforceable, even if the same
matters, alleged as grounds for restitution after rescission,
would be untimely.” Id. More generally, “whether affirma-
tive defenses are exempt from statutes of limitations largely
hinges on a realistic assessment of the parties’ litigation
posture.” City of St. Paul v. Evans, 344 F.3d 1029, 1035 (9th
Cir. 2003) (applying an identical rule from another state).
To state the obvious here, Amylin didn’t sue Consumer
Health to enforce the contract. Consumer Health sued
Amylin asking for rescission as a necessary predicate to a
claim of copyright ownership and recovery of damages for
infringement. In short, Consumer Health is asserting fraud
8 No. 14-3231
and economic duress offensively, not defensively, and as such
cannot avoid the statute of limitations. The suit is untimely
under California’s four-year statute of limitations for rescis-
sion claims.
B. The Copyright Act Statute of Limitations
Consumer Health also argues that its infringement claim
is timely under the Copyright Act’s three-year limitations
period if the separate-accrual rule is applied. Under that rule
each alleged act of infringement “gives rise to a discrete
‘claim’ that ‘accrue[s]’ at the time the wrong occurs.” Petrella,
134 S. Ct. at 1969. Because “each infringing act starts a new
limitations period,” any infringing act within the three-year
look-back period from the date of the complaint can form
the basis of an infringement claim. Id. at 1969, 1975.
Consumer Health cannot benefit from the separate-
accrual rule, which applies to ordinary infringement suits,
not suits in which the central dispute is copyright ownership.
As the Ninth Circuit has explained, copyright claims prem-
ised on disputes about ownership accrue “‘when plain and
express repudiation of co-ownership is communicated to the
claimant, and are barred three years from the time of repu-
diation.’” Seven Arts, 733 F.3d at 1254 (quoting Zuill v. Sha-
nahan, 80 F.3d 1366, 1369 (9th Cir. 1996)).
Other circuits recognize the same distinction between or-
dinary infringement suits and suits in which the core dispute
is about copyright ownership. The Second, Sixth, and Tenth
Circuits have held that when the gravamen of a copyright
suit is a contest over copyright ownership, the claim accrues
when the claimant has express notice of a competing claim
of ownership. See Stan Lee Media, Inc. v. Walt Disney Co.,
No. 14-3231 9
774 F.3d 1292, 1300 n.4 (10th Cir. 2014); Kwan v. Schlein,
634 F.3d 224, 229 (2d Cir. 2011); Ritchie v. Williams, 395 F.3d
283, 288 n.5 (6th Cir. 2005).
This distinction makes sense for purposes of claim-
accrual analysis. “In the ordinary infringement case, owner-
ship is not in dispute … .” Seven Arts, 733 F.3d at 1254.
Instead, the focus is on the infringing acts—the nature and
scope of the unauthorized work—and any defenses to
liability (i.e., “fair use”). Id. But disputes about copyright
ownership are different. Unlike an ordinary infringement
case in which each infringing act is a discrete wrong trigger-
ing a new limitations period, ownership claims “accrue only
once,” when the claimant receives notice that his ownership
has been expressly repudiated or contested. Id.; see also
Kwan, 634 F.3d at 228 (“An ownership action accrues only
once, when ‘a reasonably diligent plaintiff would have been
put on inquiry as to the existence of a right.’” (quoting Stone
v. Williams, 970 F.2d 1043, 1048 (2d Cir. 1992))).
Consumer Health acknowledges this line of cases but ar-
gues that the Supreme Court’s decision in Petrella has unset-
tled the distinction between ordinary infringement claims
and disputes about copyright ownership. We disagree.
Petrella did not involve an issue of copyright ownership.
134 S. Ct. at 1971 (“Petrella is now sole owner of the copy-
right in that work.”). The Court had no reason to—and did
not—address whether the separate-accrual rule applies to
disputes about copyright ownership. Indeed, the Court
made no mention at all of the Second, Sixth, or Ninth Circuit
cases we’ve cited. And the Tenth Circuit’s decision in Stan
Lee Media—adopting the approach of the Second, Sixth, and
Ninth Circuits—was issued after the Supreme Court’s deci-
10 No. 14-3231
sion in Petrella. 774 F.3d at 1300 n.4 (relying on Seven Arts,
Kwan, and Ritchie). Accordingly, Petrella has not displaced
the consensus view of our sister circuits that disputes about
copyright ownership accrue only once.
Finally, Consumer Health seeks support from Chicago
Building Design, P.C. v. Mongolian House, Inc., 770 F.3d 610
(7th Cir. 2014); Kling v. Hallmark Cards Inc., 225 F.3d 1030 (9th
Cir. 2000); and Taylor v. Meirick, 712 F.2d 1112 (7th Cir. 1983).
Reliance on these decisions is misplaced. Taylor involved a
garden-variety infringement action; copyright ownership
was not in dispute. 712 F.2d at 1117 (“The validity of [the
plaintiff’s] copyrights is conceded … .”). Similarly, Chicago
Building Design did not address the distinction between
ordinary infringement cases and disputes about copyright
ownership; the decision straightforwardly applied the
separate-accrual rule in an infringement-focused case.
770 F.3d at 616. The question in Kling was whether a copy-
right owner must sue for a declaration of ownership prior to
any infringing conduct. 225 F.3d at 1037. And Kling cannot
unsettle the Ninth Circuit’s decision in Seven Arts, which
came later and specifically addressed the accrual rule for
disputes over copyright ownership.
We’re persuaded by the unanimous line of cases from our
sister circuits and now hold that when the gravamen of a
copyright suit is a question of copyright ownership, the
claim accrues when the ownership dispute becomes explic-
it—that is, when the claimant has notice that his claim of
ownership is repudiated or contested. Applying this accrual
rule here, Consumer Health knew when it signed the Master
Services Agreement in March 2006 that Amylin owned the
copyright via express assignment. Consumer Health’s suit to
No. 14-3231 11
reclaim copyright ownership—filed in July 2013—was more
than four years too late.
AFFIRMED.