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July 8, 1997


The opinion of the court was delivered by: CASTILLO

 This case concerns an individual, Mr. Theotokatos, who sued Sara Lee Personal Products for infringing his copyright in two designs related to the 1996 Summer Olympics in Atlanta. Sara Lee in turn sued its sublicensee Andazia, seeking contractual indemnity for expenses flowing from Mr. Theotokatos' claim. Presently pending before the court are (1) Andazia's motion to dismiss both the underlying claim by Mr. Theotokatos against Sara Lee and Sara Lee's claim against Andazia, and (2) Sara Lee's motion for summary judgment in its favor on the indemnity claim against Andazia.

 Sara Lee Personal Products ("Sara Lee"), which has its principal place of business in North Carolina, makes and sells active-wear clothing. Included in this business is a line of plain and imprinted T-shirts. Sara Lee also sells plain T-shirts to others who may imprint their own designs on the T-shirts to use or sell for their own benefit. On December 18, 1992, Sara Lee entered into a Merchandise Agreement with Atlanta Centennial Olympic Properties, the United States Olympic Committee, and the Atlanta Committee for the Olympic Games to become a major sponsor and licensee of the 1996 Summer Olympics. Under the Merchandise Agreement, Sara Lee was granted a limited right to sublicense to others the use of certain Olympic trademarks for certain products in limited markets.

 Sara Lee entered into sublicense agreements with twenty-eight different sublicensees, including Andazia, a T-shirt company located in California. Under their Sublicense Agreement of February 1, 1994, Sara Lee granted Andazia limited rights to use the Olympic marks for certain products, such as T-shirts, in certain limited markets. In addition, the Agreement contained an indemnification provision, under which:

Sublicensor and Sublicensee shall promptly notify each other of any claim that is asserted, and of any action or proceeding that is threatened or commenced, in which a third party alleges that any of the Products manufactured by Sublicensee or the packaging, selling, or display materials used by Sublicensee in connection therewith infringe the property rights of such third party. . . .
Sublicensee agrees to indemnify and hold Licensor and Sublicensor, including Sublicensor's subsidiaries, affiliated companies, divisions, officers, directors, employees, and agents, harmless from and against any and all costs, expenses, losses, and damages, including attorneys' fees, arising from (i) claims of injury or damage suffered by third parties as a result of the manufacture, sale, distribution, or consumption of the Products and (ii) claims for injuries or damages suffered by Sublicensor and/or Licensor as a result of the breach of this Agreement by Sublicensee.
With respect to third-party claims falling within the scope of the foregoing indemnifications, Sublicensee agrees to notify promptly Licensor and Sublicensor in writing of, and to keep Licensor and Sublicensor fully advised with respect to, such claims, and the progress of any legal actions relating thereto in which neither Licensor nor Sublicensor is a participant. Either Licensor or Sublicensor shall have the right to assume the defense of a claim instituted against it for which Sublicensee is obligated to indemnify Licensor and Sublicensor. . . .

 During this time period, from March 1993 through October 1994, Angela Townsend was Sara Lee's Olympic Licensing Coordinator. According to Ms. Townsend's declaration, her duties included contract administration for the Olympic trademark licensing program. She stated that she would communicate to the sublicensees usage guidelines for proper use of the Olympic trademarks in graphic designs and in text. Sublicensees would submit to her their prepared designs for an initial review for trademark approval and quality control. Ms. Townsend would then advise the sublicensees if there were any non-conformities to the USOC's trademark usage requirements. After making the requisite corrections, sublicensees would send the modified proposed design back to her. She would then forward the proposed design to the USOC for its review and receive comments back from the USOC. Once she transmitted these comments back to the appropriate sublicensee, Ms. Townsend would work with the sublicensee to correct usage of Olympic trademarks.

 Ms. Townsend asserts that each sublicensee created its own designs, while Sara Lee's role was limited to reviewing designs for proper Olympic trademark usage. She claims that Sara Lee provided a limited role in the design making process and could not possibly review each submission for copyright problems as they received enough submissions to fill fourteen linear feet of notebooks. Andazia, however, disputes this claim. A June 9, 1994 Sara Lee memo to Ms. Townsend indicates that Sara Lee independently investigated whether another one of Andazia's proposed designs infringed upon rights of third parties, conducting a search and drafting a short legal opinion on the basis of the investigation. Andazia claims that Sara Lee played an active role in the design making process and also made its own copyright reviews.

 On July 5, 1994, Angelo Theotokatos registered two of his designs with the United States Copyright Office for copyright protection. The designs were registered as derivative works and described as arrangements of the flags of various nations and the Olympic rings motif. One design is a circular arrangement of flags of past Olympic host countries with the Olympic torch and rings in the center ("Circular Design"). The other design is a horizontal arrangement of flags of past Olympic host countries with the Olympic torch and ring between the rows ("Horizontal Design"). The registration described Mr. Theotokatos' copyrightable contribution as "selection and arrangement of preexisting elements with new artwork."

 At some point after this, in 1994, Mr. Theotokatos submitted his designs to Sara Lee for possible use on T-shirts. Sara Lee rejected Mr. Theotokatos' designs, but Ms. Townsend advised him that he could contact Sara Lee's sublicensees for the use of his designs, and gave him a list of the sublicensees. No one at Sara Lee gave Andazia or any other sublicensee any of Mr. Theotokatos' submissions.

 Andazia created one of the designs in dispute in 1994 ("Andazia Design"). Like the Circular Design copyrighted by Mr. Theotokatos, the Andazia Design includes a roughly circular arrangement of the flags of past Olympic host countries with the Olympic torch, flames and rings in the center, as well as a number of other design elements. Andazia formally submitted the design to Sara Lee for approval in January 1995. The design was approved and released as early as February 1995. Andazia then imprinted its design on T-shirts and sold them.

 Mr. Theotokatos and representatives from Andazia attended the Chicago NSGA show in July 1995. Mr. Theotokatos has claimed that Andazia obtained access to his work at this show, although no one from Andazia remembers seeing Mr. Theotokatos at that time and Andazia's design had been created and approved for sale several months earlier.

 According to a letter dated January 31, 1997, from Mr. Theotokatos' attorney to Andazia, Mr. Theotokatos first contacted Sara Lee about a possible copyright infringement ten months before the lawsuit was initiated. This would be September 1995, as the complaint was filed in July 1996. Sara Lee never notified Andazia that Mr. Theotokatos made contact at this point.

 On January 25, 1996, Mr. Theotokatos' attorney wrote a letter to Andazia, expressing concern over a possible copyright infringement by one of its T-shirt designs that was substantially similar to Mr. Theotokatos' design. He requested any further information that could resolve this issue. On January 30, 1996, Andazia replied, stating that it did not find substantial similarity between the designs, and that there was no copyright infringement because the designs contained nonprotectible common elements, the expressions of which are different.

 On February 28, 1996, Mr. Theotokatos' new counsel wrote a letter to Andazia claiming substantial similarity between the designs and sufficient access. He also requested any information that would prove that Andazia's design pre-dated Mr. Theotokatos' design. In a letter dated February 29, 1996, Andazia responded, stating that its T-shirt design was created in 1994, formally submitted for approval to ACOG in January 1995, and released as early as February 1995. Andazia therefore could not have gotten the idea for its design at the Chicago NSGA show in July 1995. Andazia then concluded that, in the absence of any access or substantial similarity, Mr. Theotokatos had no copyright infringement claim against Andazia.

 Andazia's counsel then forwarded copies of all of his correspondence with Mr. Theotokatos' attorneys to Sara Lee, explaining that Mr. Theotokatos' claim lacked merit because the alleged date of access was six months after Andazia had created its design. In addition, the two designs lacked substantial similarity. On March 9, 1996, Sara Lee replied to Andazia, stating that it considered the matter closed unless they heard further from Mr. Theotokatos' attorney.

 On May 20, 1996, Mr. Theotokatos' third attorney sent a letter to Sara Lee requesting a copy of the release form that Mr. Theotokatos had signed in 1994 when he submitted his designs to Sara Lee. Sara Lee replied on June 13, 1996, stating that Mr. Theotokatos' release was located in off-site storage and it would involve considerable time, effort, and expense to locate it. Sara Lee was unwilling to locate the release without a compelling reason. In the same letter, Sara Lee enclosed copies of all of the correspondence between Andazia and Mr. Theotokatos' previous attorneys and stated that the matter had been thoroughly investigated and was closed. Sara Lee did not inform Andazia of Mr. Theotokatos' request for the 1994 release form, although Sara Lee acknowledged that the request likely involved the same design at issue in the Andazia correspondence.

 On July 8, 1996, Mr. Theotokatos filed a complaint against Sara Lee for copyright infringement, replacing it with an amended complaint a few days later. The amended complaint alleges that the Circular Design was infringed by the Andazia Design, and that Mr. Theotokatos' Horizontal Design was also infringed by another Sara Lee T-shirt design (the "Pillar Design"). *fn1" On August 1, 1996, Sara Lee wrote to Andazia, informing the company of Mr. Theotokatos' lawsuit and providing a copy of the summons, complaint, amended complaint, and Sara Lee's motion for an extension of time to answer. In the same letter, Sara Lee also made a formal demand for indemnification under the Sublicense Agreement. Sara Lee advised Andazia that it would assume defense of the case and would remit bills to Andazia for payment under the Agreement.

 Andazia responded to Sara Lee's letter on August 15, 1996, in a letter that detailed Andazia's history with Mr. Theotokatos. Andazia's counsel also requested Sara Lee's permission to send a letter to Mr. Theotokatos' counsel explaining why the complaint should be immediately dismissed and expressed a desire to try to resolve the matter ...

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