Netbula, LLC v. Chordiant Software, Inc., 2009 WL 750201 (N.D. Cal. 2009)

Netbula brought suit against Chordiant Software alleging copyright infringement, and claims for vicarious copyright infringement against the company’s CEO and General Counsel.  The CEO and GC moved to dismiss.

To state a claim for vicarious copyright infringement a plaintiff must allege that a defendant had:

(1) the right and ability to supervise the infringing conduct and (2) a direct financial interest in the infringing activity. Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788, 802 (9th Cir.2007).

Direct Financial Interest in the Infringing Activity

Netbula alleged that the CEO and GC had compensation packages from which they personally profited in some way from their company’s net income.  In addition, the CEO owned shares of Choridant, but neither officer was a majority holder.  Judge James Ware of the federal district court in San Jose dismissed the claims with leave to amend.  Judge Ware, citing Veoh, found that the direct financial interest alleged was too attenuated:

Plaintiffs simply allege that [the CEO] and [the GC] have compensation packages under which they personally profit “in some way” from Chordiant’s profits. Such allegations only show that [the CEO] and [GC's] compensation is a function of Chordiant’s performance. Plaintiffs do not allege a direct relationship between their compensation and Chordiant’s acts of primary infringement.

Right and Ability to Supervise

Netbula alleged that, as acting CEO and GC of Chordiant, the officers had  “the right and ability to supervise Chordiant’s infringing act.”  Judge Ware found that Netbula failed to satisfy the prong because its claims were conclusory and didn’t allege sufficient facts.  According to the Court, Netbula didn’t allege more than general superviosry power within the corporation and didn’t speak to oversight regarding the alleged infringing conduct.