Free Brief (Non Appeal) - District Court of Arizona - Arizona

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FENNEMORE CRAIG , P.C.
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FENNEMORE CRAIG, P.C. Ray K. Harris (No. 007408) 3003 North Central Avenue Suite 2600 Phoenix, AZ 85012-2913 Telephone: (602) 916-5000 Email: [email protected] Attorneys for the Nelcela Defendants

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Merchant Transaction Systems, Inc., Plaintiff, v. Nelcela, Inc., an Arizona corporation; Len Campagna, an Arizona resident; Alec Dollarhide, an Arizona resident; Ebocom, Inc., a Delaware corporation; POST Integrations, Inc., an Illinois Corp., Defendants. And Related Counterclaims, CrossClaims and Third-Party Claims. Background In its First Amended Complaint, Lexcel alleged that infringement of the Lexcel copyrights was discovered in May 1999 and confirmed in June of 2001. First Amended Complaint ¶¶ 34-35. Lexcel admits it made a conscious and deliberate decision not to assert a cause of action for copyright infringement at that time. Id. At trial on the issue of copyright ownership, Carl Kubitz testified that he met with both Post Integrations, Inc. ("Post") and Merchant Transaction Systems, Inc. ("MTSI") prior to or on June 4, 2001. Mr. Kubitz testified Lexcel learned of Nelcela's copyrighted
1984263.2/22246.001

No. CV-02-1954-PHX-MHM POST TRIAL MEMORANDUM ON STATUTE OF LIMITATIONS

Case 2:02-cv-01954-MHM

Document 575

Filed 10/12/2007

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software in May or June of 1999. See, Trial Transcript April 12, 2007 at 560-561; Id. April 13 at 616-17. On June 4, 2001 he definitively concluded that Lexcel code was used by MTSI and that Lexcel "needed protection". Id. April 13, 2007 at pp. 614-618. Then Mrs. Kubitz confirmed that Lexcel "firmly knew" that Nelcela was "claiming ownership" of the Lexcel code in June 2001. Id. April 18, 2007 at pp. 1252-54. Nelcela has not distributed any credit card processing software since early 2001, and the final payment Nelcela ever received for any software was on August 13, 2001. See, Affidavit of Leonard Campagna attached as Exhibit 29 to Nelcela's "Omnibus Statement of Facts in Support of All Motions for Summary Judgment" on file with this Court, at ¶¶7-8.1 Nelcela has not performed any business whatsoever since 2001. Id. Although the Joint Parties have tried to argue that Nelcela licensed some software to Electronic Payment Exchange, Phoenix Payment Systems, Inc. or the Bancor Bank, no such transactions occurred. Lexcel did not intervene to assert its claims in this action until June 2005. I. Lexcel's Copyright Claim is Barred by the Statute of Limitations. A. The 3-year Statute Bars Lexcel's Claims.

The statute of limitations for a copyright infringement claim is three years. 17 U.S.C. § 507(b). A cause of action for copyright infringement accrues at the time one has knowledge or is chargeable with knowledge of an alleged infringement. Roley v. New World Pictures, Ltd., 19 F.3d 479 (9th Cir. 1994). Lexcel is barred from obtaining any relief for copyright infringement by the three year statute of limitations. A claim for declaratory relief for ownership of a copyrighted work is also subject to the three year statute of limitations. Zuill v. Shanahan, 80 F.3d 1366, 1369-70 (9th Cir.
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Nelcela closed its doors for business in July 2001. As of August 13, 2001, Nelcela accepted the very last payment that it ever received for use or license of any software. This payment was related to the Nelcela Terminal Driver, not the disputed software. Nelcela has not performed any business nor received money from any "old" business after this August 13, 2001 date.
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1996), cert. denied, 519 U.S. 1090 (1997).2 "No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accred." 17 U.S.C. §507(b). Lexcel cannot "lie in the weeds" knowing that Nelcela claimed ownership of the source code and then assert ownership after the statute of limitations has expired. Zuill, 80 F.3d at 1371. B. Infringement by Third Parties Does Not Support a Claim Against Nelcela. There is no evidence of infringement by third parties within the three-year period prior to June 2005. Although not codified in the Copyright Act, case law recognizes potential liability for contributory or vicarious copyright infringement. This potential liability is, however, limited. Even if there is direct infringement within three years of filing suit, a claim of contributory infringement will be barred if the acts of the contributory infringer are outside the 3-year period. Bridgeport Music, Inc. v. Diamond Time, Ltd., 371 F.3d 883, 891 (6th Cir. 2004). Liability for contributory infringement requires both proof of direct infringement, Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088, 1092 (9th Cir. 1994), cert. denied, 513 U.S. 1001 (1994), and proof of conduct by the contributory infringer within the three year period. Even if there was evidence of direct infringement within the period, however, plaintiffs may not "piggy back" [defendant's] conduct from outside the period onto the alleged direct infringement of another within the period. Just as claims against a direct infringer who commits no acts within the three year limitation period are time barred, claims against a contributory infringer who commits no acts within the limitation period are also time barred.
2

Here Lexcel's claim of ownership is simply one element of copyright infringement, it is not a separate and distinct claim. Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1476 (9th Cir.), cert denied, 506 U.S. 869 (1992) (ownership of copyright is one element of an infringement claim, not its own cause of action.); see also, 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright §13.01[A] (1991) (ownership is just an element of a copyright infringement claim).
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Bridgeport Music, 371 F.3d at 890. Finally, to be liable for vicarious infringement Nelcela must derive a financial benefit. Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774 (1984); Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 125 S.Ct. 2764, 2776 (2005); Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2nd Cir. 1971). Nelcela has not received any financial benefit from any software (much less the disputed software) since August 13, 2001, more than three years before this action was commenced. Conclusion All of Lexcel's copyright-related claims are time barred by 17 U.S.C. § 507(b). Lexcel delayed commencing an action until June 2005, much longer than 3 years after accrual of its claims. DATED this 12th day of October, 2007. FENNEMORE CRAIG, P.C. By s/Ray K. Harris Ray K. Harris Attorneys for Nelcela Defendants CERTIFICATE OF SERVICE I hereby certify that on October 12, 2007, I electronically transmitted the attached document to the Clerk Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/EMF registrants: Nicholas J. DiCarlo [email protected] Local Counsel for Merchant Transaction Systems William McKinnon [email protected] Attorney for Merchant Transaction Systems Peter D. Baird [email protected]
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Robert H. McKirgan [email protected] Richard A. Halloran [email protected] Kimberly Demarchi [email protected] Attorneys for POST and Ebocom George C. Chen [email protected] or [email protected] Attorneys for Lexcel, Inc.

s/Melody Tolliver

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