Opinion
No. 01-10195-PBS
April 6, 2001
I. INTRODUCTION
This matter is before this court on defendant's motion for judgment on the pleadings (Docket #9) by which the defendant is seeking the dismissal of plaintiff s claim of copyright infringement under 17 U.S.C. § 101,et seq., and on defendant's motion to dismiss (Docket #8), pursuant to which the defendant contends that all disputes among the parties, except copyright claims, are subject to arbitration and asks that all claims be dismissed or that the case be stayed pending arbitration. Since the motions are interrelated, they will be treated together.
For the reasons detailed herein, this court recommends to the district judge to whom this case is assigned that: (1) the motion for judgment on the pleadings be DENIED, and (2) the motion to dismiss be ALLOWED IN PART and DENIED IN PART so that an order enter compelling arbitration of all claims and counterclaims, except the claims relating to copyrights, and ordering that the copyright claims be stayed. II. STATEMENT OF FACTS
The claims relating to copyrights include Count I, copyright infringement, and part of Count II, the breach of contract claim. Plaintiff alleges that the defendant breached its contract both by failing to pay and by misusing plaintiff's copyrighted material. If the copyright claims are not stayed, a Rule 16(b) conference should be scheduled. Plaintiff filed an "Emergency Motion for Limited Expedited Discovery" (Docket #2). While there is no reason for expedited discovery, so the motion is DENIED, discovery has been in limbo in light of the pending motions since the scope of discovery could not be determined.
In connection with ruling on a motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c), the court applies the same standard as in connection with a motion to dismiss for failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6). See Collier v. City of Chicopee, 158 F.3d 601, 602 (1st Cir. 1998), cert. denied, 526 U.S. 1023, 119 S.Ct. 1262, 143 L.Ed.2d 358 (1999). Thus, all allegations in the plaintiff's pleadings will be taken as true, and the court will draw all reasonable inferences in favor of the plaintiffWatterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993); see also Rivera-Gomez v. de Castro, 843 F.2d 631, 635 (1st Cir. 1988).
NetNumina Solutions, Inc. ("NetNumina") and DietRehab.com, Inc. ("DietRehab") entered into a Master Services Agreement ("Agreement") on or about January 6, 2000. (See Compl. ¶ 6; Ex. A). Pursuant to the Agreement NetNumina agreed to perform certain services in connection with the design, development, programing, and launching of a Web site for DietRehab. (See Compl. ¶ 7). DietRehab agreed to pay NetNumina "[i]n exchange for the performance of Services to be rendered." (See id.; Ex. A at § 2). The initial rough estimate for the cost of "development of the entire web site (minus web page design as contemplated in the mockup stage)" was $320,000.00. (Compl. ¶ 12). NetNumina contends, and DietRehab denies, that DietRehab agreed to an increased cost to $988,230 at a meeting held on March 15, 2000, and to a further increase to $1,180,964 by May 8, 2000. (Id. at ¶¶ 15-18). DietRehab has paid NetNumina $456,959 to date, and has refused to pay outstanding invoices for work performed through May 2000 in the amount of $314,710.50. (Id. at ¶¶ 19, 23-24).
According to NetNumina, among the services it provided was the design and development of a "DietRehab.com Tour" which consisted of source code, screen displays, and design documents for a web site tour of services provided by DietRehab. (See Compl. ¶ 26). NetNumina also alleges that it created other source code, screen displays, and design documents for other functions and parts of the DietRehab website, including detailed documentation showing the design and intended development of the DietRehab website. (See Compl ¶ 27). On January 18, 2001, NetNumina registered its alleged copyright in all of these materials with the United States Copyright Office in compliance with the Copyright Act of 1976 as amended, 17 U.S.C. et seq., and Copyright Office regulations. (See Compl. ¶ 28; Ex. B).
The plaintiff alleges that despite not having made full payment under the Agreement, DietRehab has copied, publically displayed and made derivative works of NetNumina's copyrighted source code, screen displays and design documents without NetNumina's permission or consent. (See Compl. ¶ 32).
NetNumina commenced this action on February 2, 2001. The complaint consists of claims alleging copyright infringement under 17 U.S.C. § 101 (Count I), breach of contract (Count II), quantum meruit (Count III), and unfair and deceptive trade practices in violation of Mass. Gen. Laws ch. 93A arising out of defendant's alleged wrongful failure to pay for work performed (Count IV). DietRehab has filed counterclaims alleging breach of contract, breach of implied covenant of good faith and fair dealing, fraudulent inducement, and violation of Mass. Gen. Laws ch. 93A.
As detailed more fully below, the parties' Agreement contains an arbitration clause which requires the arbitration of "any dispute, controversy, or claim arising out of, in connection with, or in relation to this Agreement or the breach of any of the provisions hereof, or concerning any or all relations between the parties hereto. . . ." (Compl at Ex. A, ¶ 11(f)). Expressly excluded from this seemingly broad clause, however, are "all disputes involving. . . copyrights, trade secrets, confidential information or other intellectual property" which are to be heard in a court sitting in the Commonwealth of Massachusetts. (Id.) Due to these clauses, the status of the copyright claims are of utmost importance, since they are critical in defining where this case is heard.
As detailed, infra, plaintiff claims that the language of the Agreement requires that once copyright claims are to be heard in court, all claims between the parties are to be decided by the court.
Additional facts will be discussed in connection with each motion.
III. DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS
DietRehab has moved for judgment on the pleadings on the grounds that the Complaint fails to state a viable claim for copyright infringement as a matter of law. Moreover, DietRehab contends that once the copyright infringement claim is dismissed, this court lacks jurisdiction over the remaining claims, which should, therefore, be dismissed by the court and decided in arbitration. The basis of the defendant's claim is that the materials at issue are "works made for hire" and are owned by DietRehab, and not NetNumina. In the alternative, DietRehab contends that it owns all the material pursuant to the parties' Agreement. Since, the argument goes, NetNumina does not own the copyrighted material, it cannot maintain a claim for copyright infringement.
For the reasons detailed herein, I recommend that this motion be DENIED. At the present stage of the litigation there are disputed facts which preclude the court from determining who owns the materials at issue. Pleadings should not be dismissed for failure to state a claim "unless it appears beyond doubt that the [non-moving party] can prove no set of facts in support of its claim which would entitle it to relief."Rivera-Gomez v. de Castro, 843 F.2d 631, 635 (1st Cir. 1988) (quotingConley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)).
A. Facts Relating To Ownership
It is undisputed that the Master Services Agreement defines the terms of the parties' relationship. The Agreement provides in relevant part that "NetNumina's relationship to the Client [DietRehab] will be that of an independent contractor," and that neither the Agreement nor the Services to be rendered thereunder shall "in any way or manner create an employer-employee relationship." (Compl. at Ex. A, § 5). With respect to ownership of the materials to be generated in connection with the "Services" to be provided, the Agreement provides that the materials created by NetNumina outside of the Agreement shall be owned by NetNumina, and that other materials created by NetNumina in connection with the Agreement shall be the "sole and exclusive property" of DietRehab. Specifically, the Agreement provides, in a section entitledOwnership of Developments, that:
All software programs, software and systems documentation, records, data, documents and other written materials ("Developments") created by NetNumina or coming into its possession during the term of this Agreement that relate to Services, whether or not covered by any other section of this Agreement, shall be the sole and exclusive property of the Client and shall be delivered promptly to the Client upon termination of this Agreement or the Services, or upon request of the Client. Likewise, all Developments created by NetNumina prior to this Agreement or developed by NetNumina outside of this Agreement, and used/or modified by NetNumina to fulfill its obligations under this Agreement, whether or not the same are covered by any other section of this Agreement, shall be the sole and exclusive property of NetNumina and shall be delivered promptly to NetNumina (together with all copies thereof) upon termination of this Agreement or the Services, or upon the request of NetNumina.
(Id. at § 7).
The copyright registration certificate obtained by NetNumina is for materials entitled "DietRehab Source Code, Screen Shot and Design Documents." (Compl. at Ex. B, ¶ 1). The "author" is listed as "NetNumina Solutions, Inc." and the materials are described as a "work made for hire." (Id. at ¶ 2a). As the printed instructions explain:
For any part of this work that was "made for hire" check "Yes" in the space provided, give the employer (or other person for whom the work was prepared) as "Author" of that part, and leave the space for dates of birth and death blank.
(Id., emphasis added). Finally, the material created by the author (NetNumina) is described as the "[e]ntire text of computer program, screen photos and related materials." (Id.)
Based on these facts alone, DietRehab contends that this court must find that NetNumina does not own the copyrighted materials it claims DietRehab infringed and/or that, by the terms of the Agreement, NetNumina transferred all exclusive copyright ownership rights in the materials to DietRehab. While discovery may prove this to be true, this conclusion is not without question at this stage.
B. Legal Standards
In order to establish a claim of copyright infringement, NetNumina must prove "(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original." Lotus Dev. Corp. v. Borland Int'l. Inc., 49 F.3d 807, 813 (1st Cir. 1995) (quotations and citations omitted). To establish ownership, "a plaintiff must prove that the work as a whole is original and that the plaintiff complied with applicable statutory formalities." Id. and cases cited. A certificate of copyright registration is prima facie evidence of copyrightability, after which the burden shifts to the defendant "to demonstrate why the copyright is not valid." Id. (quoting Bibbero Sys., Inc. v. Colwell Sys., Inc., 893 F.2d 1104, 1106 (9th Cir. 1990)).
There is no question that DietRehab itself did not actually write or create the material for which NetNumina claims ownership. Rather, DietRehab relies on the doctrine of "work made for hire" as the basis for its ownership claim. As the Supreme Court explained in Cmty. For Creative Non-Violence v. Reid:
The Copyright Act of 1976 provides that copyright ownership "vests initially in the author or authors of the work." 17 U.S.C. § 201(a). As a general rule, the author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression entitled to copyright protection. § 102. The Act carves out an important exception, however, for "works made for hire." If the work is for hire, "the employer or other person for whom the work was prepared is considered the author" and owns the copyright, unless there is a written agreement to the contrary. § 201(b).490 U.S. 730, 737, 109 S.Ct. 2166, 2171, 104 L.Ed.2d 811 (1989).
A "work made for hire" is defined at 17 U.S.C. § 101 as:
(1) a work prepared by an employee within the scope of his or her employment; or
(2) a work specifically ordered or commissioned for use as a contribution to a collective work, as part of a motion picture or other audio-visual work as a sound recording, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. . . .17 U.S.C. § 101.
Although the determination of whether a work qualifies as a work made for hire is a question of law, that determination must be based on settled facts. See Langman Fabrics v. Graff Californiawear, Inc., 160 F.3d 106, 113 (2d Cir. 1998) (summary judgment not appropriate in copyright infringement claim where material issues of fact existed as to whether artist who developed fabric design was an employee of textile converter or independent contractor who owned the rights in design).
C. Defendant Has Not Proved Ownership of A Work Made For Hire
The Agreement between the parties clearly states that NetNumina was an independent contractor and that there was no employee/employer relationship between the parties. (Compl. at Ex. A, § 5). As a result, the first alternative for a work made for hire has not been met.
There are insufficient facts at this stage to determine whether the materials at issue satisfy the elements of § 101(2). See Cmty. for Creative Non-Violence, 490 U.S. at 738, 109 S.Ct. at 2172 (since "sculpture" was not one of specific categories of "specially ordered or commissioned" works and there was no written agreement expressly establishing the sculpture as a work made for hire, § 101(2) did not apply in copyright dispute relating to a sculpture). . See also 1 Melville B. Nimmer and David Nimmer, Nimmer on Copyright, § 5.03[B][2][a] (2000) ("If a work does not fall within one of the above categories, then even if it has been prepared by one person upon the special order or commission of another, it will not qualify as a 'work made for hire' with the special legal consequences that flow from this designation"). For example, but without limitation, NetNumina contends that its "design documents containing detailed information about the layout, logic and organization of the Web site NetNumina was creating" for which it has obtained a copyright does not constitute the type of material for which work made for hire ownership can be claimed. (See Pl's Opp'n Mem. at 9). DietRehab does not dispute this assertion and there are simply insufficient facts to make the determination whether the material in dispute falls within § 101(2).
Similarly, it is unclear at this time whether there is a "written instrument signed by [the parties] that the work shall be considered work made for hire. . ." as required by § 101(2). See also 17 U.S.C. § 201(b) ("In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright"). "[T]he writing requirement was created, in part, to make the ownership of intellectual property rights clear and definite." Playboy Enters., Inc. v. Dumas, 53 F.3d 549, 559 (2d Cir.), cert. denied, 516 U.S. 1010, 116 S.Ct. 567, 133 L.Ed.2d 491 (1995); see also Schiller Schmit, Inc. v. Nordisco Corp., 969 F.2d 410, 412-13 (7th Cir. 1992).
Although the Master Services Agreement contains a very broad ownership provision providing DietRehab with ownership over "Developments" created by NetNumina in relation to its "Services," there is no express reference in the contract that the work is "made for hire" or is a transfer of "copyrights." The question whether this Agreement is sufficient, therefore, to create a work made for hire remains open on the bare record before me at this time. See Playboy, 53 F.3d at 560 (agreement that only mentions assignment and not "work made for hire" did not satisfy writing requirement of § 101(2)); Baltimore Orioles, Inc. v. Major League Baseball Players Ass'n, 805 F.2d 663, 671-72 (7th Cir. 1986), cert. denied, 480 U.S. 941, 107 S.Ct. 1593, 94 L.Ed.2d 782 (1987) (work made for hire agreement must be both written and express under 17 U.S.C. § 201(b)); Accusoft Corp. v. Palo, 923 F. Supp. 290, 295-96 (D. Mass. 1996) (computer software designer working as independent contractor for corporation retained exclusive right to reproduce codes and derivative works due to the absence of express written agreement that work would be for hire). But see Zyware, Inc. v. Middlegate, Inc., No. 96-2348, 1997 WL 685336, at *2-3 (S.D.N.Y. Nov. 4, 1997) (granting motion for judgment on the pleadings after holding that the writing did not have to use the words "copyright" or "assignment" to actually transfer copyright rights).
DietRehab is relying on NetNumina's copyright registration to establish its ownership on the grounds of work made for hire. As detailed above, NetNumina checked off the "made for hire" provision in the registration. However, as NetNumina persuasively argues, consistent with the form's instructions that merely establishes that the work was performed by NetNumina employees for NetNumina. In fact, it would be unlikely that NetNumina was claiming copyright ownership of material in its copyright registration with the understanding that its work was made for hire for DietRehab. For these reasons, defendant's motion for judgment on the pleadings should be denied as it is premature to rule that the defendant has overcome the prima facie evidence established by the Copyright Act that NetNumina is the owner of the materials at issue.
D. It Is Disputed Whether The Agreement Grants DietRehab Title To The Materials At Issue
I also reject the defendant's contention that the plaintiff committed a fraud on the United States Copyright Office by identifying itself as the employer/author in the work made for hire provision of the Copyright registration. At this stage, the facts relevant to this assertion are in dispute.
DietRehab's next argument is that if NetNumina ever owned the material in question, it conveyed its ownership (and related copyright) rights to DietRehab pursuant to the broad ownership clause in § 7 of the Agreement. Again, however, the record is too sparse to make that determination.
As an initial matter, NetNumina argues that it retains ownership rights in materials it developed outside the Agreement but which were to be used in developing the product for DietRehab. Thus, among the materials subject to NetNumina's copyright may be materials which NetNumina owns even under § 7 of the Agreement. While this information is clearly within the control of NetNumina, and may give rise to a prompt summary judgment motion, there was no obligation on the part of NetNumina to plead sufficient details to make this assessment. Therefore, the motion for judgment on the pleadings should be denied.
NetNumina argues further that "ownership" of the finished product is not the equivalent of ownership of the copyright. See Playboy, 53 F.3d at 564 (language of assignment ambiguous as to whether parties intended only a one-time transfer of reproduction rights or a transfer that included copyright); Saenger Org. v. Nationwide Ins. Licensing Assocs., Inc., 864 F. Supp. 246, 250 (D. Mass. 1994) (express written agreement needed to convey copyright). For its part, DietRehab relies on S.O.S. Inc. v. PAYPAY, Inc., 886 F.2d 1081 (9th Cir. 1989), in support of its position that the language in § 7 transferred all copyrights to DietRehab. InS.O.S., a software developer licensed its software to PAYDAY, which proceeded to copy and modify it for its own use. The contract between the parties expressly provided that "[t]his series of programs is the property of S.O.S., and PAYDAY is acquiring the right of use, S.O.S. retains all rights of ownership." Id. at 1088. Although the contract did not explicitly reference the term "copyright," the court found that the language was unambiguous and allowed S.O.S. to retain copyright ownership. Id. The court further found that PAYDAY exceeded the scope of its license when it copied S.O.S.'s programs. Id. at 1088-89.
In S.O.S., unlike the present case, the creator of the materials was claiming it retained its rights as the author, including the right to seek copyright protection. Here, DietRehab is asking the court to imply a conveyance of the author's right where the agreement is silent on that point. In addition, it is unclear whether NetNumina's copyright covers only materials developed for DietRehab or if it includes materials developed outside the Agreement to which NetNumina retains its ownership interest. For these reasons as well, the motion for judgment on the pleadings should be denied.
Finally, DietRehab argues that it remains the exclusive owner of the copyrights in the "Developments" since it never made a transfer of copyright ownership as required by 17 U.S.C. § 201(d). Again, this argument presupposes that the defendant was the initial owner of the copyright materials. Since that question cannot be answered on the record as it now stands, it is irrelevant at this time whether DietRehab ever attempted to transfer its ownership rights.
17 U.S.C. § 201(d) provides in part: "The ownership of a copyright may be transferred in whole or in part by any means of conveyance or by operation of law. . . ." See also 17 U.S.C. § 204(a) ("A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent").
Although neither party raises the issue, it is possible that the parties may be "joint authors" of the subject materials which were prepared "'with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.'" Cmty. for Creative Non-Violence, 490 U.S. at 753, 1095 S.Ct. at 2180 (quoting 17 U.S.C. § 101).
In sum, while, as DietRehab contends, DietRehab's alleged failure to pay amounts due under the Agreement may have been NetNumina's motivation in bringing suit, NetNumina has stated a claim for copyright infringement. Therefore, I recommend that the motion for judgment on the pleadings be DENIED.
IV. THE MOTION TO DISMISS AND/OR COMPEL ARBITRATION
By its Motion to Dismiss, or Alternatively, to Stay Pending Arbitration, DietRehab is seeking to have all the issues in dispute resolved through arbitration. NetNumina opposes the motion and contends that all issues should be decided by the court. For the reasons detailed herein, this court recommends that defendant's motion be ALLOWED IN PART and DENIED IN PART so that all claims except the copyright claims be resolved through arbitration, and that while the copyright claims should remain in litigation, they should be stayed. A. Facts Regarding Arbitration
To the extent that the motion seeks sanctions against NetNumina, I further recommend that it be denied. The record does not support a finding at this stage of sanctionable conduct. Moreover, I note that the defendant has apparently not initiated arbitration despite its long-standing dispute with NetNumina over its bills.
The Agreement between the parties contains a "General" provision which controls the method of dispute resolution. As that provision provides:
Any dispute, controversy, or claim arising out of, in connection with, or in relation to this Agreement or the breach of any of the provisions hereof, or concerning any or all relations between the parties hereto, shall be settled by arbitration in Massachusetts pursuant to the rules then obtaining of the American Arbitration Association. Any award shall be final, binding, and conclusive upon the parties, and a judgment rendered thereon may be entered in any court having competent jurisdiction thereof. The parties expressly agree that the arbitrators will be empowered to, at the Client's request, grant injunctive relief. The arbitral award will be the exclusive remedy of the parties for all claims, counterclaims, issues or accounting presented or plead to the arbitrators. Notwithstanding the above, multiple and/or punitive damages may not be awarded in any arbitration held pursuant to this provision.
Notwithstanding the foregoing, all disputes involving patents, trademarks, copyrights, trade secrets, confidential information or other intellectual property shall be heard in any state or federal court sitting in the Commonwealth of Massachusetts, and the Client and NetNumina submit to the jurisdiction of any such court in any such action or proceeding, agree that all claims in respect of the action or proceeding may be heard and determined in any such court, and agree not to bring any such action or proceeding in any other court. The Client and NetNumina waive any defense of forum non convenient [sic] to the maintenance of any action or proceeding so brought and waive any bond, surety, or other security that might be required of any other party with respect thereto.
(Compl. at Ex. A, § 11(f)) (emphasis added).
The complaint filed by NetNumina contains a claim for copyright infringement (Count I). The breach of contract claim (Count II) is based on the alleged failure to pay as well as "the use of NetNumina's copyrighted material without permission or payment." (Compl. ¶ 43). The remaining counts of quantum meruit (Count III) and violation of ch. 93A (Count IV) all relate to DietRehab's conduct in allegedly inducing NetNumina to work and failing to pay for the work, and are distinct from any copyright issues. Similarly, the counterclaims relate solely to the cost and scope of work of the project, and do not address copyright issues.
B. Legal Standards
Private arbitration agreements are to be enforced according to their terms. Sentinel Products Corp. v. Scriptoria, N.V., 124 F. Supp.2d 115, 117 (D. Mass. 2000). and cases cited. It is for the court to determine whether the parties intended that a specific dispute be subject to arbitration. Coady v. Ashcraft Gerel, 223 F.3d 1, 9 (1st Cir. 2000), and cases cited. See also ATT Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986), and cases cited. In making that determination, there are several guiding principles. For example, arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit. Id. at 648, 106 S.Ct. at 1418 (quotingSteelworkers v. Warrior Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960)). There is, however, "a presumption of arbitrability in the sense that '[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.'" Id. at 650, 106 S.Ct. at 1419 (quotingWarrior Gulf, 363 U.S. at 582-83, 80 S.Ct. at 1352-53)). See also Goldsmith v. Pinez, 84 F. Supp.2d 228, 231 (D. Mass. 2000), and cases cited. "Thus, as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability." Mitsubishi Motor Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 244 (1985).
In any given case, certain claims may be sent to arbitration as being subject to arbitration, while others may remain to be decided by the court. See id., 473 U.S. at 621 n. 7, 105 S.Ct. at 3351 n. 7. The fact that this results in the "inefficient maintenance of separate proceedings in different forums" is irrelevant since the parties' agreement to arbitrate must be enforced. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217, 105 S.Ct. 1238, 1241, 84 L.Ed.2d 158 (1985); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 20, 103 S.Ct. 927, 939, 74 L.Ed.2d 765 (1983) ("relevant federal law requires piecemeal resolution when necessary to give effect to an arbitration agreement") (emphasis in the original).
Applying these principles to the instant case leads to the conclusion that all the claims except the copyright claim shall be subject to arbitration.
C. The Meaning of The Agreement
As quoted above, there is no question that the Agreement contains a broad arbitration clause covering any dispute or claim relating to the Agreement or the relations between the parties. Absent the exclusions of the next paragraph, copyright infringement claims would, undoubtedly, be subject to arbitration. See LDS, Inc. v. Metro Can. Logistics, Inc., 28 F. Supp.2d 1297, 1300-01 (D. Kan. 1998) (license agreement which provides for arbitration of "any controversy or claim arising out of or relating to this Agreement" includes copyright infringement disputes even though they are not expressly referenced). However, the Agreement goes on to expressly provide that "all disputes involving. . , copyrights" are to be decided by the courts. Since the parties' contractual agreements are to be enforced, it is clear that the copyright infringement claim raised by the plaintiff is to be decided by the court.
NetNumina contends that the terms of the Agreement require that all disputes be heard by this court once it retains jurisdiction over a copyright claim. For convenience, I repeat here the relevant language which is:
All disputes involving. . . copyrights. . . shall be heard in any state or federal court sitting in the Commonwealth of Massachusetts, and the Client and NetNumina submit to the jurisdiction of any such court in any such action or proceeding, agree that all claims in respect of the action or proceeding may be heard and determined in any such court, and agree not to bring any such action or proceeding in any other court. The Client and NetNumina waive any defense of forum non convenient [sic] to the maintenance of any action or proceeding. . . .
(Compl. at Ex. A, § 11(f)).
NetNumina interprets this language to mean that once a copyright claim is alleged, all disputes are to be resolved in court. This interpretation negates the broad arbitration provision and defeats the parties' intentions that arbitration is a preferred option for dispute resolution. An arbitration clause should not "be swallowed up by the exception" and where, as here, "the exclusion clause is vague and the arbitration clause quite broad," the agreement should be interpreted so as to favor arbitration. See Warrior Gulf, 363 U.S. at 584-85, 80 S.Ct. at 1354. Interpreting this Agreement so that once a copyright claim is asserted the arbitrator cannot decide separate claims such as breach of contract for failure to pay invoices would defeat the clear language and intent of the Agreement.
The fact that arbitration is a preferred option is evidenced by both the broad language of the arbitration provision and the fact that the arbitration paragraph comes first in the Agreement, among other reasons.
A more supportable interpretation of the clause that "all claims in respect of the action or proceeding may be heard and determined in any such court" is that the parties are required to bring all patent, trademark, copyright, etc., claims in one court, and that the court must be in the Commonwealth of Massachusetts as opposed to another locale. The clause should not be interpreted to broaden the types of claims to be brought in court as opposed to arbitration. This conclusion is based on the fact that the paragraph, in general, emphasizes the location of the dispute resolution forum by reference to "forum non convenient" and the agreement to submit to the jurisdiction of "such court." Perhaps most persuasive is the language that the parties agree "not to bring any such action or proceeding in any other court." There is no agreement not to bring other matters in the arbitration forum, and "any such action or proceeding" refers throughout the paragraph to the copyright, trademark, etc., claims which have been carved out of the broad arbitration clause.
For these reasons, I recommend that an order enter compelling arbitration of all claims except those relating to copyright (i.e., the copyright infringement count and part of the breach of contract claim). All the counterclaims should be decided by arbitration as well. Since this court retains jurisdiction over the non-arbitrable claim of copyright infringement, at a minimum, the case should not be dismissed.
V. WHETHER A STAY IS WARRANTED
The final issue is whether a stay of the copyright infringement claim is appropriate pending arbitration. Where, as here, a case involves both arbitrable and non-arbitrable claims, the issuance of a stay is generally discretionary with the court. See Cannavo v. Enterprise Messaging Servs., Inc., 982 F. Supp. 54, 59-60 (D. Mass. 1997), and cases cited. For the reasons detailed herein, I recommend that the litigation of the copyright issues be stayed.
The question whether the defendant owes any money to the plaintiff (or vice versa) pervades the parties' dispute and is central to NetNumina's claims. Even DietRehab's alleged wrongful use of copyrighted material is premised, at least in part, on DietRehab "not having made full payment under the Agreement." (See, e.g., Compl. at ¶¶ 32, 43). According to the plaintiff payment may affect who owns the material under the Agreement (although that assertion is not free from doubt). In any event, since the arbitrator's decision may, at the very least, have an "evidentiary or issue-narrowing effect," the arbitration should be allowed to proceed without interference or complications caused by the litigation. See Cannavo, 982 F. Supp. at 60 (citing Sevinor v. Merrill Lynch, Pierce, Fenner Smith, Inc., 807 F.2d 16, 20 (1st Cir. 1986)).
I am cognizant of the fact that the plaintiff has alleged that the defendant is continuing to use its copyrighted material. However, I also note that the plaintiff did not take any action to restrict use of its materials from May 2000, when NetNumina was informed that DietRehab could not pay the invoice (Compl. ¶ 22), until suit was filed in February 2001. Even after filing suit, no injunction was sought. Plaintiff did not even seek copyright registration until nine months after it stopped working on the website (May 2000-January 2001). Balancing all these factors, it does not appear that the plaintiff will be seriously harmed by a relatively short stay pending arbitration.
VI. CONCLUSION
For all the reasons detailed herein, I recommend that the Motion for Judgment on the Pleadings be DENIED.
With respect to the Motion to Dismiss, or Alternatively. To Stay Pending Arbitration and For Sanctions, I recommend that it be ALLOWED IN PART and DENIED IN PART. An order should be entered compelling arbitration of all claims and counterclaims, except the copyright claims which should remain before the court. Litigation of the copyright claims should be stayed pending further order of this court. The request for sanctions should be DENIED.
The parties are hereby advised that under the provisions of Rule 3(b) of the Rules for United States Magistrates in the United States District Court for the District of Massachusetts, any party who objects to these proposed findings and recommendations must file a written objection thereto with the Clerk of this Court within 10 days of the party's receipt of this Report and Recommendation. The written objections must specifically identify the portion of the proposed findings, recommendations or report to which objection is made and the basis for such objections. The parties are further advised that the United States Court of Appeals for this Circuit has repeatedly indicated that failure to comply with this rule shall preclude further appellate review. See Keating v. Sec'y of Health Human Servs., 848 F.2d 271, 275 (1st Cir. 1988); United States v. Valencia-Copete, 792 F.2d 4 (1st Cir. 1986); Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603, 604-605 (1st Cir. 1980); United States v. Vega, 678 F.2d 376, 378-379 (1st Cir. 1982); Scott v. Schweiker, 702 F.2d 13, 14 (1st Cir. 1983); see also Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466 (1985). Accord Phinney v. Wentworth Douglas Hosp., 199 F.3d 1, 3-4 (1st Cir. 1999); Henley Drilling Co. v. McGee, 36 F.3d 143, 150-151 (1st Cir. 1994); Santiago v. Canon U.S.A., Inc., 138 F.3d 1, 4-5 (1st Cir. 1998).