Friday, April 18, 2008

No absolute privilege to accuse another of copyright infringement

Carmichael Lodge No. 2103, Benevolent and Protective Order of Elks v. Leonard, 2008 WL 1346641 (E.D. Cal.)

Carmichael Elks is a fraternal organization; two of its members started a series of travel guides to Elks lodges in several states. In 1988, Carmichael Elks registered the first two volumes, claiming assignment by the members. In 1998, Leonard allegedly updated and reformatted the guides and granted a royalty-free license to Carmichael Elks to publish and sell them. (Hmm—given these facts, it doesn’t seem that Leonard’s the one who can grant the license.)

A dispute arose, as they do, and Leonard told Carmichael Elks that he was terminating their license. He also applied for and received registrations for his guides. Soon thereafter, Carmichael Elks registered the third volume of the original guides.

Carmichael Elks sent a letter to other Elks members accusing Leonard of stealing the guides, stating its intent to enforce its rights “with the full force of law,” touting its nonprofit purposes in comparison to Leonard’s pursuit of personal profit, and asking them not to buy Leonard’s guides.

Leonard counterclaimed for, among other things, false advertising, unfair competition, and libel per se. The court rejected Carmichael Elks’ defense of privilege related to a legal proceeding. (The court was skeptical of the breadth of privilege under California law, since it “far extends beyond the purposes which it is said to serve,” but stated that it was “of course” bound by California law.) In California, privilege covers statements made before filing a lawsuit, including demand letters and other prelitigation communications by lawyers, as long as there’s a reasonable belief that litigation is likely to be commenced. But the statement must have a functional connection to a contemplated lawsuit. So one case found that a statement to the press about an employee’s dismissal was not covered by the privilege, even though the dismissal was the subject of NLRB proceedings. “Public mudslinging” is something courts can stop.

The letter here reflected a good faith belief that litigation would ensue, and its subject matter was the same as the lawsuit. But by sending the letter not just to Leonard, but other Elks Lodges, it went beyond a functional connection to the litigation. Carmichael Elks argued that it was attempting to achieve the same results as litigation—stop Leonard’s sales of infringing works. But the court rejected that—Carmichael Elks’ entitlement to an injunction is up to the court.

In addition, the policies behind the law (“promoting truthful testimony, encouraging zealous advocacy, streamlining litigation”) wouldn’t be furthered by granting the privilege. Demand letters can avoid the need for litigation, but this wasn’t a demand letter or other attempt to resolve the dispute. Prelitigation investigation is tied to judicial proceedings, but the letter wasn’t investigative. As a result, the court denied Carmichael Elks’ motion to dismiss the non-copyright counterclaims.

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