United States District Court, E.D. Wisconsin
DECISION AND ORDER
William C. Griesbach, Chief Judge United States District
19, 2016, Design Basics, LLC and Plan Pros, Inc.
(collectively Plaintiffs), filed a third amended complaint
against Best Built, Inc., Craig A. Kassner, and VHC, Inc.
(ECF No. 135.) The third amended complaint alleges copyright
infringement against the defendants. On August 1, 2016, VHC
moved to dismiss the claims against it for failure to state a
claim upon which relief can be granted. (ECF No. 140.) VHC
argued Plaintiffs' allegations failed to state a claim of
joint, contributory, or vicarious copyright infringement.
Basics' complaint contains one factual allegation against
Upon information and belief, the Defendant VHC owns all the
shares in the Defendant Corporation, Best Built, and is the
parent company to Best Built. Upon information and belief,
VHC had the right and ability to supervise Best Built's
infringing activities and/or directly benefitted therefrom by
providing development, management, appraisal, advertising,
marketing, sales and/or other services in furtherance of Best
Built's marketing, construction, and/or sales of said
infringing houses. Accordingly, VHC is liable to Plaintiffs
as a joint and/or contributory infringer, or is otherwise
(Compl. ¶ 26.) This paragraph is not sufficient to state
a claim for joint, contributory, or vicarious infringement.
Accordingly, VHC's motion to dismiss is granted.
motion to dismiss under Rule 12(b)(6) challenges the
sufficiency of the complaint to state a claim upon which
relief may be granted. Fed.R.Civ.P. 12(b)(6). Rule 8(a)(2)
mandates that a complaint need only include “a short
and plain statement of the claim showing that the pleader is
entitled relief.” Fed.R.Civ.P. 8(a)(2). The
plaintiff's short and plain statement must “give
the defendant fair notice of what the claim is and the
grounds upon which it rests.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). While a plaintiff is
not required to plead detailed factual allegations, it must
plead “more than labels and conclusions.”
Id. A simple, “formulaic recitation of the
elements of a cause of action will not do.”
Id. A claim is plausible on its face when “the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 663 (2009). In evaluating a motion
to dismiss, the court must view the plaintiff's factual
allegations and any inferences reasonably drawn from them in
a light most favorable to the plaintiff. Yasak v.
Retirement Bd. of the Policemen's Annuity & Benefit Fund
of Chi., 357 F.3d 677, 678 (7th Cir. 2004).
state a claim for vicarious infringement, the complaint must
allege that the defendant “has the right and ability to
supervise the infringing activity and also has a direct
financial interest in such activities.” Hard Rock
Café Licensing v. Concession Servs., 955 F.2d
1143, 1150 (7th Cir. 1992) (quoting Gershwin Publ'g
Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159,
1162 (2d Cir. 1971)). As the sole shareholder of Best Built,
VHC likely benefits financially from Best Built's
profits. The issue in this case appears to be whether
VHC's total ownership of Best Built, in and of itself,
establishes that VHC had “the right and ability to
supervise the infringing activity.” Neither the Seventh
Circuit nor a court in this district has specifically
confronted this issue. See Burdick v. Koerner, 988
F.Supp. 1206, 1210 (E.D. Wis. 1998) (concluding that in order
to establish vicarious copyright infringement, “a
plaintiff must introduce evidence beyond a defendant's
membership on a board of directors” to establish that
he or she had the right and ability to control the actions of
Plaintiffs rely on Broadcast Music, Inc. v. Hartmarx
Corp., an unpublished decision from the Northern
District of Illinois, for the proposition that a parent
corporation has the right and ability to supervise its
subsidiaries, “based on the legal relationship between
the entities.” No. 88-C-2856, 1988 WL 128691, *3
(N.D.Ill. Oct. 23, 1988). As VHC points out, however, courts
have declined to adopt Broadcast Music's
holding. See, e.g., UMG Recordings, Inc. v. Veoh
Networks Inc., No. CV 07-5744 AHM, 2009 WL 334022, *5
(C.D. Cal. Feb. 2, 2009) (noting that Broadcast
Music is unpersuasive when deciding a motion to dismiss
because the court treated the motion as a motion for summary
judgment and accordingly took facts reflected in affidavits
into account); Goes Lithography Co. v. Banta Corp.,
26 F.Supp.2d 1042, 1045 (N.D.Ill. 1998) (holding that the
plaintiff must allege “facts which show a continuing
connection between the parent and the subsidiary to the
infringing activities to make out a case for vicarious
liability”); Banff Ltd. v. Limited, Inc., 869
F.Supp. 1103, 1110 (S.D.N.Y. 1994) (finding that the
plaintiff must present evidence that the parent corporation
“has done more in relation to the infringing activity
than simply be the parent”). Moreover, the Northern
District of Illinois has since held that the plaintiff must
allege more than “the mere ownership and
operation” but less than “‘pervasive
participation' in the infringing activity” to
sufficiently plead the element of right and ability to
supervise. Flava Works, Inc. v. Gunter, No.
10-C-6517, 2011 WL 1791557, *5 (N.D.Ill. May 10, 2011).
the reasoning of these cases persuasive. Adopting
Broadcast Music's holding would result in every
parent corporation being liable for the acts of the
subsidiary solely because of the parent-subsidiary
relationship. See Banff Ltd., 869 F.Supp. at 1108.
This contravenes the settled principles of corporate law.
United States v. Bestfoods, 524 U.S. 51, 61 (1998)
(“It is a general principle of corporate law deeply
‘ingrained in our economic and legal systems' that
a parent corporation (so-called because of control through
ownership of another corporation's stock) is not liable
for the acts of its subsidiaries.”). The plaintiff must
plead facts beyond the mere legal relationship showing that
the parent corporation is directly responsible for the
subsidiaries infringing activity. I therefore conclude that
Plaintiffs did not adequately plead a vicarious infringement
infringement is “personal conduct that encourages or
assists the infringement” with knowledge of the
infringing activity. Flava Works, Inc. v. Gunter,
689 F.3d 754, 757 (7th Cir. 2012) (citing Matthew Bender
& Co. v. West Publ'g Co., 158 F.3d 693, 706 (2d Cir.
1998)). To state a claim for contributory infringement, the
plaintiff must plead (1) a third party directly infringed on
a copyrighted work; (2) the defendant knew of the
infringement; and (3) the defendant materially contributed to
the infringement. Monotype Imaging, Inc. v. Bitstream,
Inc., 376 F.Supp.2d 877, 884 (N.D.Ill. 2005); see
also Liberty Media Holdings, LLC v. Swarm of Nov. 27, 2010 to
Jan. 31, 2011, No. 11-C-394, 2011 WL 1740181, *2 (E.D.
Wis. May 3, 2011). Knowledge encompasses both actual and
constructive knowledge. In re Aimster Copyright
Litig., 334 F.3d 643, 650 (7th Cir. 2003).
pleadings must be construed in the light most favorable to
Plaintiffs, the nonmoving party. Plaintiffs' allegations,
however, are insufficient to assert a claim of contributory
infringement. If it cannot be assumed that a parent
corporation has day-to-day control over its subsidiary, then
it follows that the parent's knowledge of its
subsidiary's direct infringement cannot be implied.
Plaintiffs did not plead that VHC had actual or constructive
knowledge of Best Built's infringing conduct.
Accordingly, Plaintiffs failed to state a claim for
VHC, Inc.'s motion to dismiss is
GRANTED. Plaintiffs' claims against VHC,
Inc. are hereby dismissed. The remainder of the case will
proceed subject to the scheduling order previously entered in