Cobbler Nevada, LLC v. Thomas Gonzales ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
COBBLER NEVADA, LLC, No. 17-35041
Plaintiff-Appellant,
D.C. No.
v. 3:15-cv-00866-
SB
THOMAS GONZALES,
Defendant-Appellee. OPINION
Appeal from the United States District Court
for the District of Oregon
Michael H. Simon, District Judge, Presiding
Argued and Submitted May 18, 2018
Portland, Oregon
Filed August 27, 2018
Before: M. Margaret McKeown and Richard A. Paez,
Circuit Judges, and Robert S. Lasnik, * District Judge.
Opinion by Judge McKeown
*
The Honorable Robert S. Lasnik, United States District Judge for
the Western District of Washington, sitting by designation.
2 COBBLER NEVADA V. GONZALES
SUMMARY **
Copyright
The panel affirmed the district court’s dismissal of an
action under the Copyright Act, alleging direct and
contributory infringement of plaintiff’s copyrights in a film.
Plaintiff alleged unauthorized downloading and
distribution of the film through peer-to-peer BitTorrent
networks. The panel held that the bare allegation that the
defendant was the registered subscriber of an Internet
Protocol address associated with infringing activity was
insufficient to state a claim for direct or contributory
infringement. The panel also held that the district court did
not abuse its discretion in awarding attorney’s fees to the
defendant under 17 U.S.C. § 505.
COUNSEL
John Mansfield (argued), Harris Bricken, Portland, Oregon;
Carl D. Crowell, Crowell Law, Salem, Oregon; for Plaintiff-
Appellant.
David Hamlin Madden (argued), Mersenne Law, Tigard,
Oregon, for Defendant-Appellee.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
COBBLER NEVADA V. GONZALES 3
OPINION
McKEOWN, Circuit Judge:
In this copyright action, we consider whether a bare
allegation that a defendant is the registered subscriber of an
Internet Protocol (“IP”) address associated with infringing
activity is sufficient to state a claim for direct or contributory
infringement. We conclude that it is not.
After tracing infringement of its copyrights to a
particular IP address, Cobbler Nevada, LLC filed suit against
the John Doe IP address for direct and contributory
copyright infringement. Cobbler Nevada soon discovered
that the IP address was registered to Thomas Gonzales, who
operated an adult foster care home. Cobbler Nevada then
amended its complaint to name Gonzales as the sole
defendant, alleging that he directly infringed by copying and
distributing copyrighted works himself or, in the alternative,
contributed to another’s infringement by failing to secure his
internet connection.
The district court properly dismissed Cobbler Nevada’s
claims. The direct infringement claim fails because
Gonzales’s status as the registered subscriber of an
infringing IP address, standing alone, does not create a
reasonable inference that he is also the infringer. Because
multiple devices and individuals may be able to connect via
an IP address, simply identifying the IP subscriber solves
only part of the puzzle. A plaintiff must allege something
more to create a reasonable inference that a subscriber is also
an infringer. Nor can Cobbler Nevada succeed on a
contributory infringement theory because, without
allegations of intentional encouragement or inducement of
infringement, an individual’s failure to take affirmative steps
4 COBBLER NEVADA V. GONZALES
to police his internet connection is insufficient to state a
claim.
BACKGROUND
Cobbler Nevada holds copyrights in the film The
Cobbler, a magic realism film that features “[a] cobbler,
bored of his everyday life, [who] stumbles upon a magical
heirloom that allows him to become other people . . . .” The
Cobbler, IMDB, https://www.imdb.com/title/tt3203616/
(last visited July 26, 2018). Like a number of major motion
pictures scheduled for theatrical release, The Cobbler has
been the subject of unauthorized downloading and
distribution (i.e., pirating) through BitTorrent networks. See
generally Glacier Films (USA), Inc. v. Turchin, 896 F.3d
1033, 1035–36 (9th Cir. 2018) (providing background on
piracy via peer-to-peer BitTorrent networks). According to
Cobbler Nevada, there have been over 10,000 instances of
infringing activity of The Cobbler traced to Oregon alone.
Cobbler Nevada identified an IP address located in
Portland, Oregon, that had downloaded and distributed The
Cobbler multiple times without authorization. Cobbler
Nevada filed suit against the unknown holder of the IP
address—named in the complaint as Doe-24.21.136.125—
for direct and contributory copyright infringement. Records
subpoenaed from Comcast identified Thomas Gonzales as
the subscriber of the internet service associated with the IP
address.
After several attempts to reach Gonzales, Cobbler
Nevada’s counsel finally connected with Gonzales via
telephone. Once counsel learned that the internet service
was accessible to both residents and visitors at an adult care
home, he concluded that “it does not appear that [Gonzales]
is a regular occupant of the residence or the likely infringer.”
COBBLER NEVADA V. GONZALES 5
Due to confidentiality concerns, Gonzales refused to share
the names or work schedules of the individuals living and
working in the home without a court order. Although the
district court granted leave to depose Gonzales, the
deposition revealed no new information regarding the
identity of the actual infringer. 1
Nevertheless, Cobbler Nevada filed a First Amended
Complaint and named Gonzales as the sole defendant.
Cobbler Nevada alleged that Gonzales “copied and
distributed” The Cobbler or, in the alternative, “facilitated
and promoted the use of the internet for the infringing of
[Cobbler Nevada’s] exclusive rights under the Copyright
Act” by failing to “reasonably secure, police and protect” the
use of his internet service. Cobbler Nevada also claimed that
Gonzales “ha[d] been sent over 400 notices of infringing
activity,” yet “failed and refused to take any action
whatsoever and either continued to infringe by using
BitTorrent to download and distribute copyrighted content
or continued to allow infringing activity after such notices.”
The only facts in support of Cobbler Nevada’s direct
infringement claim were that Gonzales was “the subscriber
of the IP address used to download or distribute the movie,
and that he was sent notices of infringing activity to which
he did not respond.” Relying on the magistrate judge’s
reasoning that these allegations were “not enough” to state a
claim because there were no facts connecting Gonzales to
1
During his deposition, Gonzales testified that, once he became
aware of the infringing activity, he attempted to find out who the
infringer was and instructed everyone to stop infringing. He also
testified that the staff took the same steps, but no one was able to identify
the infringer.
6 COBBLER NEVADA V. GONZALES
the infringing activity, the district court dismissed the direct
infringement claim without prejudice.
The district court also dismissed the contributory
infringement claim, which rested on the theory that Gonzales
failed to stop infringement by others after being notified of
such infringement. The court wrote that liability arises by
“actively encouraging . . . infringement through specific
acts,” and not by mere failure to take affirmative steps to
prevent infringement. Cobbler Nevada’s failure to allege
that Gonzales “promoted, encouraged, enticed, persuaded,
or induced another to infringe any copyright, let alone
[Cobbler Nevada’s] copyright,” sunk the claim.
The district court gave Cobbler Nevada three weeks to
file an amended complaint. Instead of amending its claims
against Gonzales, Cobbler Nevada filed a Second Amended
Complaint in which, once again, it named the Doe IP address
as the sole defendant. No new factual allegations were
added. The magistrate judge ordered Cobbler Nevada to
show cause why the Second Amended Complaint should not
be dismissed for failure to cure the deficiencies identified in
the court’s dismissal of the First Amended Complaint, or for
failure to identify the unknown party in a timely manner
pursuant to Federal Rule of Civil Procedure 4(m). Less than
a week later, Cobbler Nevada filed a notice of voluntary
dismissal.
Gonzales then filed a motion requesting entry of
judgment dismissing the case and for attorney’s fees for the
contributory infringement claim. The district court granted
the motion and awarded Gonzales attorney’s fees of
$17,222.40 and costs of $252.20.
COBBLER NEVADA V. GONZALES 7
ANALYSIS
I. The District Court Properly Dismissed Cobbler
Nevada’s Direct Infringement Claim Without
Prejudice
Although copyright owners can often trace infringement
of copyrighted material to an IP address, it is not always easy
to pinpoint the particular individual or device engaged in the
infringement. Internet providers, such as Comcast or
AT&T, can go so far as to identify the individual who is
registered to a particular IP address (i.e., an account holder)
and the physical address associated with the account, but that
connection does not mean that the internet subscriber is also
the infringer. The reasons are obvious—simply establishing
an account does not mean the subscriber is even accessing
the internet, and multiple devices can access the internet
under the same IP address. Identifying an infringer becomes
even more difficult in instances like this one, where
numerous people live in and visit a facility that uses the same
internet service. While we recognize this obstacle to naming
the correct defendant, this complication does not change the
plaintiff’s burden to plead factual allegations that create a
reasonable inference that the defendant is the infringer.
The only connection between Gonzales and the
infringement was that he was the registered internet
subscriber and that he was sent infringement notices. To
establish a claim of copyright infringement, Cobbler Nevada
“must show that [it] owns the copyright and that the
defendant himself violated one or more of the plaintiff’s
exclusive rights under the Copyright Act.” Ellison v.
Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004). Cobbler
Nevada has not done so.
8 COBBLER NEVADA V. GONZALES
This is a situation “[w]here a complaint pleads facts that
are merely consistent with a defendant’s liability, . . .
stop[ping] short of the line between possibility and
plausibility of entitlement to relief.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (internal quotation marks
omitted). The allegations are not “enough to raise a right to
relief above a speculative level.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007). This result should come as no
surprise to Cobbler Nevada, which acknowledged that its
independent investigation did not permit identification of “a
specific party that is likely to be the infringer.”
Nor did the district court err in entering judgment in
favor of Gonzales after Cobbler Nevada voluntarily
dismissed its Second Amended Complaint. Once the claims
against Gonzales were dismissed, Cobbler Nevada failed to
cure the deficiencies and instead amended its complaint to
name the Doe IP address as the sole defendant. This put
things right back where they started, naming an IP address
without identifying an actual infringer. Recognizing that the
claims against Gonzales were not resolved, the district court
entered judgment reflecting its earlier dismissal of Cobbler
Nevada’s direct infringement claim without prejudice and
the contributory infringement claim with prejudice. Cobbler
Nevada argues that the district court should have granted it
further leave to amend before entering judgment, which had
the effect of foreclosing any further amendment. See Weeks
v. Bayer, 246 F.3d 1231, 1236–37 (9th Cir. 2001). In light
of Cobbler Nevada’s prior amendments to the complaint and
the futility of any further amendment, however, the district
court acted within its discretion in not granting further leave
to amend. See Salameh v. Tarsadia Hotel, 726 F.3d 1124,
1133 (9th Cir. 2013); Lipton v. Pathogenesis Corp., 284 F.3d
1027, 1039 (9th Cir. 2002).
COBBLER NEVADA V. GONZALES 9
II. The District Court Properly Dismissed Cobbler
Nevada’s Contributory Infringement Claim With
Prejudice
We have adopted the well-settled rule that “[o]ne
infringes contributorily by intentionally inducing or
encouraging direct infringement.” Perfect 10, Inc. v.
Amazon.com, Inc., 508 F.3d 1146, 1170 (9th Cir. 2007)
(alteration in original) (quoting Metro-Goldwyn-Mayer
Studios, Inc. v. Grokster, Ltd., 545 U.S. 914, 930 (2005)).
Stated differently, “liability exists if the defendant engages
in personal conduct that encourages or assists the
infringement.” A&M Records, Inc. v. Napster, Inc.,
239 F.3d 1004, 1019 (9th Cir. 2001) (internal quotation
marks omitted). A claim for contributory infringement
requires allegations that the defendant is “one who, with
knowledge of the infringing activity, induces, causes or
materially contributes to the infringing conduct of another.”
Fonovisa v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir.
1996) (brackets omitted) (quoting Gershwin Publishing
Corp. v. Columbia Artists Management, 443 F.2d 1159,
1162 (2d Cir. 1971)). Cobbler Nevada’s contributory
infringement claim is premised on a bare allegation that
Gonzales failed to police his internet service. This
perfunctory allegation, without more, does not sufficiently
link Gonzales to the alleged infringement.
At the outset, we recognize that Gonzales’s position—a
subscriber to internet service—does not fit cleanly within
our typical contributory liability framework, which often
involves consumer-facing internet platforms. See, e.g.,
Grokster, 545 U.S. at 919–20 (computer software provider);
Amazon, 508 F.3d at 1171 (search engine). Nevertheless, it
is no leap to apply the framework of similar technology-
based cases to our analysis of Gonzales’s liability.
10 COBBLER NEVADA V. GONZALES
In Sony Corp. of America v. Universal City Studios, Inc.,
the Supreme Court held that liability for another’s
infringement cannot arise from the mere distribution of a
product that is “widely used for legitimate, [non-infringing]
purposes.” 464 U.S. 417, 442 (1984). The Court later
refined the standard for liability, holding that “one who
distributes a device with the object of promoting its use to
infringe copyright, as shown by clear expression or other
affirmative steps taken to foster infringement, is liable for
the resulting acts of infringement by third parties.”
Grokster, 545 U.S. at 919. In essence, the limitation of
liability in Sony—premised on a refusal to impute intent to a
defendant based solely on knowledge that a product might
be used for infringement—does not apply “where evidence
. . . shows statements or actions directed to promoting
infringement.” Id. at 935. The Court was clear, however,
that “in the absence of other evidence of intent, a court would
be unable to find contributory infringement liability merely
based on a failure to take affirmative steps to prevent
infringement, if the device otherwise was capable of
substantial noninfringing uses.” Id. at 939 n.12; see also id.
at 937 (“[M]ere knowledge of infringing potential or of
actual infringing uses would not be enough here to subject a
distributor to liability.”).
Although circuit courts approach contributory liability
through varying lenses, our circuit has identified two strands
of liability following Sony and Grokster: “actively
encouraging (or inducing) infringement through specific
acts” or “distributing a product distributees use to infringe
copyrights, if the product is not capable of ‘substantial’ or
‘commercially significant’ noninfringing uses.” Amazon,
508 F.3d at 1170 (quoting Grokster, 545 U.S. at 942
(Ginsburg, J., concurring)). We analyze contributory
liability “in light of ‘rules of fault-based liability derived
COBBLER NEVADA V. GONZALES 11
from the common law,’ and common law principles
establish that intent may be imputed.” Id. at 1170–71
(quoting Grokster, 545 U.S. 934–35).
Turning to the first strand, Cobbler Nevada’s complaint
lacks any allegations that Gonzales “actively encourage[ed]
(or induc[ed]) infringement through specific acts.” Id. at
1170. Nothing in Cobbler Nevada’s complaint alleges, or
even suggests, that Gonzales actively induced or materially
contributed to the infringement through “purposeful,
culpable expression and conduct.” Grokster, 545 U.S. at
937. No allegations suggest that Gonzales made any “clear
expression” or took “affirmative steps” to foster the
infringement—Gonzales’s only action was his failure to
“secure, police and protect” the connection. Id. at 919; see
also 3 Nimmer on Copyright § 12.04 (“Inducement liability
. . . rests [] on the defendant’s ‘active steps to encourage
infringement’ leading to actual infringement taking place.”)
(quoting Grokster, 545 U.S. at 936). Because a “failure to
take affirmative steps to prevent infringement” alone cannot
trigger liability, Grokster, 545 U.S. at 939 n.12, Cobbler
Nevada failed to “state a claim to relief that is plausible on
its face,” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S.
at 570).
Nor does the second strand implicate Gonzales.
Providing internet access can hardly be said to be
distributing a product or service that is not “capable of
substantial” or “commercially significant noninfringing
uses.” Sony, 464 U.S. at 442.
We note that Cobbler Nevada’s theory both strays from
precedent and effectively creates an affirmative duty for
private internet subscribers to actively monitor their internet
service for infringement. Imposing such a duty would put at
risk any purchaser of internet service who shares access with
12 COBBLER NEVADA V. GONZALES
a family member or roommate, or who is not technologically
savvy enough to secure the connection to block access by a
frugal neighbor. This situation hardly seems to be one of
“the circumstances in which it is just to hold one individual
accountable for the actions of another.” Id. at 435.
III. The District Court Did Not Abuse its Discretion By
Awarding Attorney’s Fees
The Copyright Act states that the district court “may . . .
award a reasonable attorney’s fee to the prevailing party as
part of the costs . . . .” 17 U.S.C. § 505. Gonzales is the
“prevailing party” because Cobbler Nevada’s contributory
infringement claim was dismissed with prejudice. See
Cadkin v. Loose, 569 F.3d 1142, 1150 (9th Cir. 2009) (“[A]
defendant is a prevailing party following dismissal of a claim
if the plaintiff is judicially precluded from refiling the claim
against the defendant in federal court.”). 2 In awarding fees
to Gonzales, the district court acted within its discretion. See
Entm’t Research 10 Grp. v. Genesis Creative Grp., 122 F.3d
1211, 1216–17, 1228–29 (9th Cir. 1997).
The court “enjoys ‘wide latitude to award attorney’s fees
based on the totality of circumstances in a case,’” though “its
discretion must remain tethered to judicial guideposts.”
Glacier Films, 2018 WL 3542839, at *3 (quoting Kirtsaeng
v. John Wiley & Sons, Inc., 136 S.Ct. 1979, 1985 (2016)).
To guide the district court’s discretion, the Supreme Court
and our court have provided a “nonexclusive” list of factors
for courts to consider in making a fee determination. Id.; see
also Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994);
2
Gonzales sought fees only for the contributory infringement claim.
COBBLER NEVADA V. GONZALES 13
Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657, 675 (9th
Cir. 2017).
The district court properly applied the Supreme Court’s
“Fogerty factors” to the particulars of this case. To begin,
the court focused on the objective unreasonableness of the
losing party’s litigating position, a factor that carries
“substantial weight.” Kirtsaeng, 136 S. Ct. at 1983; Shame
On You Prods., Inc. v. Banks, 893 F.3d 661, 666 (9th Cir.
2018). Specifically, the court flagged as unreasonable
Cobbler Nevada’s decision to name Gonzales as the
defendant, even after concluding that Gonzales was not “a
regular occupant of the residence or a likely infringer.” The
court also considered deterrence: it reasoned that awarding
fees would deter Cobbler Nevada from an “overaggressive
pursuit of alleged infringers without a reasonable factual
basis” while encouraging defendants with valid defenses to
defend their rights. See Fogerty, 510 U.S. at 534 n.19. The
court’s rationale is in keeping with the purposes of the
Copyright Act. See Kirtsaeng, 136 S. Ct. at 1988–89 (a
district court “may order fee-shifting . . . to deter . . .
overaggressive assertions of copyright claims”).
On the whole, the district court “consider[ed] the facts of
[this] case, weigh[ed] the appropriate factors, and ma[de] a
fee determination based on the conduct of both parties.”
14 COBBLER NEVADA V. GONZALES
Glacier Films, 2018 WL 3542839, at *9. 3 We thus uphold
the fee determination. 4
AFFIRMED.
3
In Glacier Films, we reversed and remanded a fees ruling because
the district court had based its decision “on a one-size-fits-all disapproval
of other BitTorrent suits,” not on the facts of the case at hand. 2018 WL
3542839, at *1, *9. By contrast, the district court trained its focus here
on the unreasonable conduct of Cobbler Nevada in this particular case.
4
To the extent Cobbler Nevada claims that the district court had no
jurisdiction to award attorney’s fees after the voluntary dismissal, we
reject that argument for the simple reason that Gonzales was not a party
to the voluntary dismissal. Wilson v. City of San Jose, 111 F.3d 688, 692
(9th Cir. 1997) (“The filing of a notice of voluntary dismissal with the
court automatically terminates the action as to the defendants who are
the subjects of the notice.” (emphasis added)). At the time of the
voluntary dismissal, the only defendant named in the Second Amended
Complaint was the Doe IP address, not Gonzales.