Penske Media Corporation v. Shutterstock, Inc.

Background

Penske Media Corporation owns an archive of photographs used in publications including Women’s Wear Daily, Variety, Deadline Hollywood, and Rolling Stone. In June 2015, Penske and Shutterstock, Inc. entered an Archive & Event Image Hosting and Licensing Agreement. The agreement gave Shutterstock an exclusive worldwide right and license to use and license photographs, videos, and audio in Penske’s archive for six years unless either party terminated the agreement. Shutterstock paid Penske royalties and yearly advances.

The agreement also required Shutterstock to provide photographic coverage for events hosted by Penske and gave Shutterstock the right to be the sole third party using Penske’s credentials to capture content at certain events hosted by others. Penske generally retained copyright ownership of photographs produced under the agreement. Penske alleged that the agreement worked for several years, but Shutterstock later obtained its own credentials for some events and became less dependent on Penske.

Shutterstock terminated the agreement in May 2020. Penske alleged that the termination was improper and that Shutterstock thereafter refused to pay royalties and advances. Shutterstock argued that the termination was valid because the COVID-19 pandemic had caused most in-person events to be canceled and had frustrated the agreement’s purpose. Penske also alleged that Shutterstock used its own credentials at third-party events instead of using Penske’s credentials, continued displaying about 2,300 Penske-owned photographs after the license ended, and represented through watermarks and other information that Shutterstock owned the copyrights.

Motion and legal standard

Shutterstock moved under Rule 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. The motion targeted Penske’s claim for breach of the implied duty of good faith and fair dealing, its copyright-infringement claim, and its claim under the Digital Millennium Copyright Act for falsifying copyright-management information. The underlying breach-of-contract claim was not part of this motion.

At this stage, the court accepted the complaint’s factual allegations as true and drew reasonable inferences in Penske’s favor, but it did not accept bare legal conclusions. The court applied New York law to the contract and implied-duty claim because the agreement contained a New York choice-of-law provision.

Implied duty of good faith and fair dealing

Under New York law, every contract includes a duty of good faith and fair dealing. That duty prevents a party from acting in a way that destroys or injures the other party’s right to receive the benefits of the contract. The implied duty cannot contradict the written agreement or add duties that cannot fairly be inferred from it, but it may require conduct that a reasonable party would understand to be part of the bargain.

Penske alleged that Shutterstock had an exclusive right to use Penske’s credentials at third-party events and therefore had to use those credentials, rather than its own, when it chose to attend those events. The court held that Penske plausibly stated a claim. Relying on precedent involving exclusive licenses, the court concluded that an exclusive licensee may have an implied obligation to use the rights granted by the license with due diligence. The court rejected Shutterstock’s arguments that royalty advances, Penske’s ability to send its own photographers, competition concerns, and the agreement’s merger clause defeated the claim. The court emphasized that the alleged obligation was closely connected to the agreement’s express terms and that the parties’ intentions could be examined further after discovery.

Copyright infringement

To state a copyright-infringement claim, Penske had to allege ownership of valid copyrights and unauthorized copying. In a licensor-licensee relationship, use outside the scope of the license can be unauthorized. Penske attached the photographs to its amended complaint and identified copyright-registration numbers and titles for groups of photographs. The court held that these allegations adequately supported ownership at the pleading stage.

Penske also alleged that Shutterstock continued displaying the photographs on its website after terminating the agreement and ending its license. The court held that a licensee may be liable for infringement when it continues using copyrighted material after the license expires. It rejected Shutterstock’s argument that the claim failed because Shutterstock did not engage in the required voluntary conduct, explaining that the cases supporting that argument generally involved website owners whose users placed copies on the websites. The court also declined to consider Shutterstock’s fair-use argument because it was raised only briefly in the opening brief and developed in the reply.

Falsification of copyright-management information

The Digital Millennium Copyright Act makes it unlawful to knowingly provide or distribute false copyright-management information with the intent to induce, enable, facilitate, or conceal infringement. Penske had to plausibly allege that Shutterstock provided or distributed copyright-management information, that the information was false, that Shutterstock knew it was false, and that Shutterstock acted with the required intent.

Penske alleged that Shutterstock knew Penske owned the copyrights, that Shutterstock’s license had ended, and that Shutterstock nevertheless represented itself as the copyright owner through websites, metadata, and watermarks bearing Shutterstock’s name. Penske further alleged that this false information concealed Shutterstock’s lack of authority to display, distribute, or license the photographs. The court held that these allegations were sufficient to plead knowledge and intent at the motion-to-dismiss stage.

Disposition

The court denied Shutterstock’s motion to dismiss Penske’s amended complaint. The court also denied Shutterstock’s request for oral argument as moot. The ruling allowed the challenged claims to proceed; it did not determine whether Shutterstock ultimately breached the agreement, infringed Penske’s copyrights, or violated the Digital Millennium Copyright Act.