David A. Sergenian’s Article on the Status of the Ninth Circuit’s Copyright “Server Test” Featured in New Matter Winter Edition

December 15, 2021

The 2021 Winter Edition of New Matter features an article authored by David A. Sergenian: “The Nascent Showdown Between the Ninth Circuit’s Server Test and Its Detractors.” In 2007, the Ninth Circuit addressed a novel issue: whether a defendant website violates a copyright holder’s exclusive right to display a copyrighted work by “in-line linking” to an image that resides on another entity’s website. The Ninth Circuit answered in the negative, holding that although in-line linking may give the copyright holder a claim for contributory infringement, the text of the Copyright Act does not support a claim for direct infringement under such a set of facts because the infringing image is not found on the computers of the website that in-line links to the image on another entity’s website. The Ninth Circuit referred to its analysis as the “server test,” and it went largely unchallenged for a decade.

However, beginning in 2017, a district court in the Northern District of Texas, and subsequently several courts in the Southern District of New York, have explicitly rejected the Ninth Circuit’s server test, finding that it is inconsistent with the text of the Copyright Act and the intent of Congress as evidenced by legislative history. Currently, the Ninth Circuit is the only circuit court that has ruled on the issue. However, the approach adopted by the Ninth Circuit is diametrically opposed to the approach adopted by district courts that have rejected the server test, and the conflict appears to be setting up, however slowly, a circuit split that may ultimately be decided by the Supreme Court.

A copy of the article is available here (reprinted with permission). In addition, the article is available as an online self-study test for MCLE credit here.

Sergenian Law Defeats Motion to Dismiss in Copyright Case

July 27, 2021

On July 16, 2021, Sergenian Law’s client, artist Michael Moebius, defeated a motion to dismiss in a federal copyright action. In the motion to dismiss, the defendant asked the Court to find that the defendant’s work was not substantially similar to Moebius’ work, and even if the works are substantially similar that any use of Moebius’ painting is protected by the fair use doctrine.

Michael Moebius is an internationally acclaimed artist who is well known for paintings of celebrity icons, including portraits of Audrey Hepburn, The Beatles, Queen Elizabeth II, Clint Eastwood, David Bowie, Steve Jobs, and Marilyn Monroe. His works have been featured in major exhibitions throughout the United States, as well as featured on the covers of GQ, Vogue, Vanity Fair, Robb Report, and Playboy, among other publications.

Moebius is the registered owner of the copyrights to a painting of Audrey Hepburn peeking behind Tiffany-blue colored window blinds.

Defendant HB USA Holdings, Inc. (“Huda”) is a cosmetics company launched in 2013 by businesswoman and makeup artist Huda Kattan. On August 18, 2019, Huda began “teasing,” through Instagram, the launch of a new eyeliner product called “Life Liner.” The Instagram “teaser” for the product line, a subsequent posting on Instagram the following day, and an advertisement on Huda’s website beginning on August 23, 2019, all feature the same, near-identical photographic recreation of Moebius’ painting, substituting Kattan for Audrey Hepburn, with Kattan peeking behind Tiffany-blue colored window blinds instead of Hepburn.

Moebius’ complaint for copyright infringement was filed in March 2021.

In the order on Huda’s motion to dismiss, the Court conducted a side-by-side comparison of the two works and concluded “that there is substantial similarity between the expressive elements in Plaintiff’s and Defendant’s images.” The Court examined the elements of the expressive works and found that certain elements of the works suggested an intentionality and expression which are substantially similar between the two works. “Indeed,” the Court wrote in its opinion, “the only meaningful difference between the two images is the substitution of Kattan for Hepburn.”

With respect to fair use, the Court found that application of the four factors enumerated in 17 U.S.C. § 107 used to assess fair use “weigh against a finding of fair use.” First, the complaint alleges that Huda’s use of the image was purely commercial, which weighs against fair use. Second, the Court found that Plaintiff’s image is “a work of creative expression, as opposed to an informational work, which is precisely the sort of expression that the copyright law aims to protect.” Third, the amount and substantiality of the portion used in relation to the copyrighted work weighed against fair use because the complaint alleges that Huda used nearly all of the same elements as in Moebius’ work. Finally, with respect to effect of the use on the potential market for the value of the copyrighted work, because the Court already found that Huda’s use was intended for commercial gain, “the likelihood of market harm ‘may be presumed.’” Further, “the importance of [the market effect] factor [varies], not only with the amount of harm, but also with the relative strength of the showing on the other factors.”

The case is Moebius v. HB USA Holdings, Inc., 2:21–CV–02109 (C.D. Cal.).

Court Denies Motion for Class Certification in Action Filed Against Sergenian Law Client

July 20, 2021

On July 12, 2021, David Sergenian, with co-counsel KJC Law Group, A.P.C., were successful in obtaining an order denying class certification in hard-fought litigation of class action claims filed in the United States District Court for the Southern District of California.

The putative class action, which asserted claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961–1968 (“RICO”), was filed in August 2018. Sergenian’s client was added as a class action defendant in August 2019.

In April 2020, the class action plaintiffs filed a motion for class certification. One of the issues a court addresses on a class certification motion is whether the named plaintiffs and their counsel are adequate under Federal Rule of Civil Procedure 23(a)(4). Adequacy analysis requires a court to resolve two questions: “(1) do the named plaintiffs and their counsel have any conflicts of interest with other class members and (2) will the named plaintiffs and their counsel prosecute the action vigorously on behalf of the class?’” Ellis v. Costco Wholesale Corp., 657 F.3d 970, 985 (9th Cir. 2011) (citation omitted).

While the motion for class certification was pending, putative class counsel reached a settlement with three of the four co-defendants. Sergenian asked the settling parties to produce a copy of the settlement agreement, but they refused. Sergenian then asked the Court to order production of the settlement agreement, citing the probability that the settlement was a product of collusion between putative class counsel and the settling defendants, based in part on statements and conduct of putative class counsel and the settling defendants. Sergenian argued that it could “reliably be presumed that [putative class counsel] will never pursue claims against [the main settling defendant] on behalf of the absent class members, and may have already agreed to drop the claims of the absent class members.” Sergenian also objected to the settling defendants’ agreement to a permanent injunction, which is not an available remedy under the RICO statute.

In July 2020, the Court suspended the proceedings on the motion to certify the class and ordered further briefing on various issues. Eventually, the Court agreed that the settlement agreement must be produced. The Court also rejected the settling parties’ proposed stipulated judgment on the grounds that injunctive relief is not an available remedy under the RICO statute.

When the settlement agreement was finally produced, it confirmed what Sergenian had argued must be the case: the settlement agreement contained an agreement not to practice law, in which putative class counsel was prohibited from advertising or soliciting any new clients for the purpose of bringing claims against the settling defendants. It also prohibited putative class counsel from cooperating or assisting in any manner any non-parties to the settlement agreement in asserting any claims against the settling defendants. The former provision was removed from an amended version of the settlement agreement after Sergenian argued that this ethical violation was grounds for finding putative class counsel inadequate, but the latter provision remained in the amended settlement agreement.

In its July 12, 2021, order denying class certification, the Court found that the settlement agreement raised “significant doubts” as to whether the lead plaintiff and its counsel could fairly and adequately protect the interests of the class. The Court found that the settlement agreement hindered putative class counsel’s ability to introduce evidence that implicates both the settling defendants and the remaining defendant and hindered putative class counsel’s ability to prosecute the case while somehow walling off the settling defendants from liability. Accordingly, the Court found that both the lead plaintiff and putative class counsel were inadequate to serve as class representative and class counsel and denied the motion to certify the class.

The case is In re Outlaw Laboratory, LP Litigation, 18–CV–840–GPC–BGS (S.D. Cal.).

Sergenian Law Client Settles Lawsuit on Eve of Trial in Case Alleging Fraud and Breach of Fiduciary Duty

March 15, 2021

Sergenian Law was successful in reaching an amicable resolution of a lawsuit filed against its client in Los Angeles County Superior Court. The lawsuit, by one of the two co-founders of a Los Angeles-based spirits company, German Clavijo, against the other co-founder, Keith Fox, alleged nine causes of action, including breach of fiduciary duty, fraud, and removal of a limited liability company member. Sergenian Law took on the case in late 2019, and proceeded to file a motion to strike, which was granted, and a demurrer, which was granted in part. Sergenian Law also filed a cross-complaint on behalf of Fox and began engaging in vigorous discovery. Shortly after the plaintiff’s deposition was concluded, and only weeks before the case was set to go to trial, the parties reached a settlement under confidential terms, which was followed by a dismissal with prejudice of all claims against Sergenian Law’s client.

The case is Clavijo v. Fox, Los Angeles Superior County Court Case No. 19STCV26180.