CAUSE NO. AMERICAN AIRLINES, INC. IN THE DISTRICT COURT V. OF TARRANT COUNTY, TEXAS DEFENDANT. TH JUDICIAL DISTRICT

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1 CAUSE NO. FILED TARRANT COUNTY 7/1/2014 3:48:06 PM THOMAS A. WILDER DISTRICT CLERK AMERICAN AIRLINES, INC. IN THE DISTRICT COURT PLAINTIFF, V. OF TARRANT COUNTY, TEXAS INFLIGHT PRODUCTIONS USA INC. DEFENDANT. TH JUDICIAL DISTRICT ORIGINAL PETITION AND REQUEST FOR DECLARATORY RELIEF Plaintiff, American Airlines, Inc., ( American ) files its Original Petition and Request for Declaratory Relief against InFlight Productions USA Inc., formerly known as InFlight Productions, Inc. ( IFP ). More particularly, American petitions the Court under the Declaratory Judgments Act (Chapter 37 of the Civil Practice and Remedies Code) for construction of a Purchase Agreement between American and IFP and for a declaration of the rights, duties, and responsibilities under that Purchase Agreement. In support, American would respectfully show as follows: I. Nature of the Action 1. American is one of the oldest, largest, and best-known airlines in the world. For the enjoyment of the passengers on its flights, American exhibits entertainment in the form of movies, television programs, audio content, and games, among other things. IFP provides inflight entertainment content to airlines for exhibition to airline passengers. IFP offers movies, television programs, audio content, and games, among other things. 2. American contracted with IFP to provide entertainment content for exhibition to American s passengers. IFP expressly agreed that all content purchased by American under the ORIGINAL PETITION AND REQUEST FOR DECLARATORY RELIEF Page 1

2 parties agreement may be exhibited on all flights operated by American or its affiliates. IFP also expressly warranted that the content it provided to American under the agreement would not infringe or misappropriate any intellectual property rights. 3. Sony Music Entertainment ( Sony ), a distributor of content provided by IFP to American for in-flight exhibition, has recently asserted that American is exhibiting certain content without the requisite performance rights. Essentially, Sony contends that American s use of content supplied by IFP is infringing on its intellectual property rights. American seeks a declaration that IFP is contractually obligated to indemnify American for all such claims, as expressly set forth in the parties agreement. II. Discovery Control Plan 4. American requests entry of a level three discovery control plan. III. Parties 5. American is a Delaware corporation with its principal place of business in Tarrant County, Texas. 6. IFP is a California corporation with its principal place of business at 4553 Glencoe Avenue, Ste. 200, Marina Del Rey, CA It may be served through its registered agent, Kevin Lim, at that same address. IV. Jurisdiction and Venue 7. This Court has subject-matter jurisdiction over this case because the amounts in controversy are within its jurisdictional limits. 8. This Court also has personal jurisdiction because IFP agreed to personal jurisdiction in Texas. In addition, IFP breached a contract entered into and governed by the laws of this State. And IFP systematically conducts business in this State. ORIGINAL PETITION AND REQUEST FOR DECLARATORY RELIEF Page 2

3 9. Venue in this matter is proper in this County because IFP agreed to venue here in the parties agreement. Venue is also proper under of the Texas Civil Practice and Remedies Code. A substantial part of the activities, events, and damages giving rise to this lawsuit occurred in this County. In addition, IFP directs its commercial operations to residents in Tarrant County, Texas. V. Facts The Purchase Agreement 10. The parties entered into a Purchase Agreement effective September 14, 2012 (the PA ). Under the Purchase Agreement, IFP agreed to supply Content for in-flight exhibition to American s passengers. Specifically, Content is defined to include any programming exhibited on American s airplanes and any ancillary materials or documentation necessary for the Exhibition of such Content. PA, page 1, paragraph 1(a). Exhibition is defined as distribution of Content to passengers by means of American s applicable Inflight Entertainment Platforms. Id. 11. Enabling American to exhibit content to its passengers was the fundamental purpose of the Purchase Agreement. Paragraph 3 of the Purchase Agreement states that [a]ll Content purchased by American under this Agreement may be Exhibited on all flights operated by American or any of its affiliates. PA, page 4, paragraph 3(c). The Purchase Agreement also obligates IFP to ensure that all proprietary information is protected while under [IFP s] or American s possession or control. Id. at paragraph 3(d). 12. As part of the Purchase Agreement, IFP agreed to provide to American the Products and Services described [in the Purchase Agreement and the exhibits thereto], as well as any other services that are customary to insure full completion and strict compliance with the ORIGINAL PETITION AND REQUEST FOR DECLARATORY RELIEF Page 3

4 Product and Service Requirements, standard industry practices and/or other legal requirements applicable thereto. PA, page 3, paragraph Exhibit B to the Purchase Agreement, titled Audio and Video Specifications, requires IFP to oversee American s entire audio programming account and expressly makes IFP responsible for obtaining all licenses in accordance with all applicable laws. PA, Exhibit B, page B-1, paragraph A.1 (emphasis added). This, of course, includes performance rights, without which the purpose of exhibiting content before, during, and after flights would be frustrated. Exhibit B is expressly incorporated into the definition of Content on page 1 of the Purchase Agreement. 14. The Purchase Agreement requires IFP to provide all Content to American in strict accordance with the Program Specifications and Content Requirements. PA, page 4, paragraph 3(a). Delivery of late Content is a material breach of the Purchase Agreement, requiring IFP to pay liquidated damages to American of $15,000 per day for each late delivery. Id. at page 4, paragraph 4(b). If IFP fails in its delivery obligations more than three times in any one year, the liquidated damages amount for all subsequent late deliveries increases to $30,000 per day for each late delivery. Id. 15. On-time delivery by IFP of non-conforming Content such as unlicensed Content is not deemed on-time delivery. Id. at page 5, paragraph 4(d). On-time delivery of nonconforming Content is treated the same as late delivery. Id. 16. The Purchase Agreement defines Product or Service Failure to mean [IFP s] failure to ensure that the Products, Services or Content are in full compliance with the Product and Service Requirements. PA, page 2, paragraph 1(a). In the event of a Product or Service Failure, IFP is obligated to cover all expenses incurred by American as a result of such Product or Service Failure Id., page 5, paragraph 5(a)(iii). ORIGINAL PETITION AND REQUEST FOR DECLARATORY RELIEF Page 4

5 17. American is also entitled to liquidated damages in the event of a Product or Service Failure. Id., page 5, paragraph 5(a)(i). Those liquidated damages are in the amount of the greater of $15,000 per incident and any regulatory fines resulting from the Product or Service Failure. Id., page 5, paragraph 5(a)(iii). Liquidated damages increase to $30,000 per day in the event of more than three Product or Service Failures in any one year. Id. 18. In the Purchase Agreement, IFP expressly warrants that all of the Products, Content and Services furnished by Supplier shall: (iii) not infringe or misappropriate any United States or foreign patent, copyright, trade secret or other proprietary right. PA, page 7, paragraph 8(a). 19. Paragraph 15 of the Purchase Agreement specifies Events of Default. An Event of Default occurs [i]f any representation or warranty made by either Party herein or in any statement or certificate required or otherwise furnished hereunder or in connection herewith proves to have been untrue in any material respect as of the date of the making thereof. PA, page 11, paragraph 15(d). 20. Under the Purchase Agreement, IFP agreed to a broad indemnification provision in which it must indemnify American for any claims that any of the Products, Content or Services infringes any copyright, trade secret or other proprietary right. Specifically, the Purchase Agreement provides: Supplier agrees to indemnify, defend and hold harmless American from and against any and all liabilities, damages, losses, expenses, claims, demands, suits, fines, penalties (whether civil or criminal) and/or judgments, including all reasonable attorney fees, costs and expenses incidental thereto, that may be suffered or incurred by, accrued against, charged to or recoverable from the Indemnified Parties arising out of any claim that any Products, Content or Services purchased hereunder infringes or misappropriates any United States or foreign patent, copyright, trade secret, or other proprietary right. ORIGINAL PETITION AND REQUEST FOR DECLARATORY RELIEF Page 5

6 PA, page 11, Para. 16(b). Sony s Claim 21. Sony, a distributor of content provided by IFP to American for in-flight exhibition, has recently asserted that American is exhibiting certain content without the requisite copyright rights. Essentially, Sony contends that content supplied by IFP is infringing on its performance and proprietary rights. Requirement of Indemnification 22. Sony has asserted a claim that fits squarely within the Purchase Agreement s broad indemnification provision. But IFP has denied that it is fully and unqualifiedly obligated to indemnify American for Sony s claims of copyright infringement relating to content supplied by IFP. 23. IFP claims that it is not responsible for obtaining performance rights in the sound recordings that it supplies to American even though IFP does obtain performance rights in the musical compositions that it supplies to American. This claim is untenable. VI. Request for Declaration 24. American requests this Court to construe and determine the parties rights, liabilities, duties, responsibilities, obligations, and legal relations under the Purchase Agreement, including without limitation paragraphs 1-5, 8, 15, 16 and Exhibit B to the Purchase Agreement. VII. Attorneys Fees 25. American has been required to retain the undersigned legal counsel to institute and prosecute this action. In accordance with Section of the Civil Practice and Remedies Code, American also seeks recovery of reasonable and necessary attorneys fees as are equitable and just and to be rendered in bringing and prosecuting this action, for any and all appeals and for enforcing the Judgment. ORIGINAL PETITION AND REQUEST FOR DECLARATORY RELIEF Page 6

7 VIII. Conditions Precedent 26. All conditions precedent have been performed or have occurred as required. REQUEST FOR RELIEF For these reasons, Plaintiff American Airlines, Inc. respectfully requests that the Court, upon trial of this matter, issue a final judgment in favor of American: a. Declaring the parties rights, liabilities, duties, responsibilities, obligations, and legal relations under the Purchase Agreement, including without limitation paragraphs 1-5, 8, 15, 16 and Exhibit B to the Purchase Agreement; b. Awarding American reasonable and necessary attorneys fees and costs of suit; and c. Granting all other relief to which American may be entitled. Respectfully submitted, _/s/ Dee J. Kelly, Jr. Dee J. Kelly, Jr. dee.kelly.2@kellyhart.com State Bar No Toby M. Galloway toby.galloway@kellyhart.com State Bar No KELLY, HART & HALLMAN LLP 201 Main Street, Suite 2500 Fort Worth, Texas Phone: Facsimile: COUNSEL FOR AMERICAN AIRLINES, INC. ORIGINAL PETITION AND REQUEST FOR DECLARATORY RELIEF Page 7