Synopsys, Inc. v. Ubiquiti Networks, Inc. et al
Filing
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ORDER ON PENDING MOTIONS by Judge William H. Orrick granting in part and denying in part 34 Motion to Dismiss; denying 35 Motion to Dismiss for Lack of Jurisdiction; denying 54 Motion to Strike. If Synopsys wishes to file a further Amended Complaint, it must do so within twenty (20) days of the date of this Order. (jmdS, COURT STAFF) (Filed on 8/15/2017)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SYNOPSYS, INC.,
Plaintiff,
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United States District Court
Northern District of California
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Case No. 17-cv-00561-WHO
ORDER ON PENDING MOTIONS
v.
Re: Dkt. Nos. 34, 35, 54
UBIQUITI NETWORKS, INC., et al.,
Defendants.
This case stems from the purported interest of defendants Ubiquiti Network Inc., UNIL,
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and Ching-Han Tsai to review and evaluate for licensing plaintiff Snyopsys, Inc.’s high-value
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semiconductor electronic design and automation software. Snyopsys alleges that defendants
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fraudulently gained access to their copyrighted software and related support materials and used the
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evaluation license keys and counterfeit keys to repeatedly and illegally access and copy those
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programs and materials over the course of three years. When defendants’ alleged conduct was
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discovered, Synopsys sued. Ubiquiti and Tsai seek to dismiss six of seven causes of action in the
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Amended Complaint (AC), and to strike Synopsys’ affirmative defenses to Ubiquiti’s
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counterclaims for declaratory judgment and breach of contract. Separately UNIL moves to
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dismiss for lack of personal jurisdiction.
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For the reasons discussed below, Ubiquiti’s motion to dismiss is granted only with respect
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to the Anti-Counterfeiting Act claim (18 U.S.C. § 2318) and some of the predicate acts alleged
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under the Racketeer Influenced and Corrupt Organizations Act (RICO, 18 U.S.C. § 1964). I deny
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Ubiquiti’s motion to strike the affirmative defenses in large part because Synopsys has alleged
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sufficient facts in its AC and Answer to support its defenses and allow Ubiquiti to contest them. I
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deny UNIL’s motion to dismiss for lack of jurisdiction because there are sufficient uncontested
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facts showing that its conduct has a substantial connection with California.
BACKGROUND
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I.
THE PARTIES
Synopsys is a corporation with a principal place of business in Mountain View, California.
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AC ¶ 1. It is a leading provider of electronic design automation (EDA) solutions for the
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semiconductor industry. Id. ¶ 22.1 It has a developed a “comprehensive, integrated portfolio of
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prototyping, IP, implementation, verification, manufacturing, optical, field-programmable gate
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array, and software quality and security solutions.” Id. ¶ 23. Its software applications – including
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Debussy, Design Compiler, Formality, HSPICE, IC Compiler, Laker, Nlint, nWave, PrimeTime,
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Synplify Pro AV, Synplify Premier AV, TetraMAX, VCS, and Verdi– are works subject to
copyright protection. Id. ¶ 24. It licenses its software programs to users, using a “License Key”
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United States District Court
Northern District of California
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system to provide customers access to the applications Id. ¶¶ 25-26.
Ubiquiti Networks Inc. is a corporation headquartered in San Jose, California. AC ¶ 2. It
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and its subsidiaries “develop high performance networking technology for service providers and
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enterprises.” AC ¶ 3. A significant part of Ubiquiti’s research and development operations are
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based outside the United States. Id. ¶ 5. Defendant Ubiquiti Networks International, Ltd. (UNIL)
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is alleged to be a subsidiary of Ubiquiti that is involved in the development and distribution of
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networking technology for Ubiquiti. Id. ¶ 6. UNIL incorporated under the laws of Hong Kong,
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and has a branch in Taipei, Taiwan. Id. Synopsys alleges that Ubiquiti and UNIL share at least
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one corporate officer, Robert J. Pera. Id. ¶ 7. UNIL’s Taipei branch employs persons in the field
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of semi-conductor design and it regularly conducts semiconductor design activities and designs
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products to be imported and sold in the United States. Id. ¶¶ 8-9. Defendant Ching-Han Tsai is
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employed by Ubiquiti as a project lead and is a semiconductor professional who regularly works
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in California. Id. ¶¶ 10-13.
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II.
Synopsys alleges that in 2013 Tsai, Ubiquiti, and UNIL fraudulently induced Synopsys to
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THE INCEPTION OF THE PARTIES’ RELATIONSHIP
grant them access to a subset of Synopsys’ software for a finite time for purposes of evaluation.
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EDA generally refers to using computers to design, verify, and simulate the performance of
electronic circuits.
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AC ¶ 27. Since 2014, Tsai, Ubiquiti, and UNIL have been “secretly using counterfeit keys”
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obtained or created through hacker websites to circumvent the License Key system and use
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Synopsys’ EDA software including its Debussy, Design Compiler, Formality, HSPICE, IC
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Compiler, Laker, Nlint, nWave, PrimeTime, Synplify Pro AV, Synplify Premier AV, TetraMAX,
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VCS, and Verdi applications without a “valid license.” Id. ¶ 28. Synopsys alleges that Tsai and
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others at Ubiquiti and UNIL “conspired to, and did, form an associated in fact enterprise (‘Piracy
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Enterprise’) with the purpose of pirating Synopsys’ software and that the defendants took
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wrongful acts in furtherance of their Enterprise,” including (i) gaining unauthorized access to, (ii)
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making and distributing copies of, and (iii) using counterfeit keys to make unauthorized use of
Synopsys’ software and documentation. Id. ¶ 29. It asserts that Ubiquiti and UNIL share
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United States District Court
Northern District of California
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information technology structures (communication networks, file repositories, email servers, IP
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addresses, and website domains hosted in the United States) that were used by both Ubiquiti and
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UNIL to conduct the Piracy Enterprise. FAC ¶ 30. All three defendants also used interstate
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internet communications to conduct the Enterprise, including extensive use of the counterfeit
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License Keys. Id. ¶¶ 31-32.
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On September 11, 2013, Tsai, acting on behalf of Ubiquiti and UNIL, exchanged emails
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with Synopsys employees in Mountain View, California, stating that Ubiquiti was interested in
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licensing Synopsys’ VCS and Verdi EDA software applications, as well as licensing a “separate
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suite” of semiconductor design materials. AC ¶ 35. On September 12, 2013, Tsai met with
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Synopsys employees in San Jose and indicated Ubiquiti was also interested in Synopsys’ Design
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Compiler application. Id. Tsai represented that Ubiquiti planned to build a semiconductor design
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team at Ubiquiti’s U.S. headquarters and that Synopsys was its main choice for EDA software. Id.
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These statements, according to Synopsys, were designed to create the impression that Ubiquiti
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wanted to create a significant business relationship with Synopsys, but were false when they were
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made. Id.
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On September 30, 2013, acting on behalf of the Enterprise, Tsai emailed Synopsys and
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said that Ubiquiti was interested in taking 21 licenses for various EDA applications during various
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points from November 2013 through June 2014. Id. ¶ 36. On October 1, 2013, Tsai indicated the
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Ubiquiti wanted to take a local area network (LAN) form of license to be used by a small U.S.
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team. Id. ¶ 37. On October 14, 2013, Tsai indicated that Ubiquiti intended to make its first EDA
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software purchase before October 31, 2013, and that it would prefer to pay Synopsys from an
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“offshore account” in Hong Kong. Id. ¶ 38. That same day, Tsai also asked by email for an
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“evaluation license” for Synopsys’ VCS application, stating that he would be the “one doing the
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eval” on his personal laptop. Id. ¶ 39. Synopsys alleges that all of these representations were false
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when made.
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On October 15, 2013, in reliance on Tsai’s false representations, Synopsys entered into a
Master Non-Disclosure Agreement (MNDA), the purpose of which was to facilitate the parties’
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discussions and potential business relationship. Ubiquiti signed the MNDA on October 15, 2013
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United States District Court
Northern District of California
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and Synopsys executed it on November 25, 2013. Id. ¶ 40. From October 14, 2013 through
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November 25, 2013, Tsai continued to represent that Ubiquiti was interested in licensing
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Synopsys’ EDA tools. Eventually, Tsai negotiated an agreement under which Ubiquiti would
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evaluate Synopsys’ VCS application at a specific location in San Jose for 90 days. Id. ¶ 41.
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In reliance on Tsai’s representations, on November 26, 2013, Synopsys executed a 90-day
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evaluation license (License) that permitted Ubiquiti to evaluate Synopsys’ VCS application. Id. ¶
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43. That non-transferable license allowed Ubiquiti to test VCS on two computers in San Jose. Id.
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The License strictly circumscribed use and prohibited Ubiquiti from using the software to design
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products and from “making unauthorized copies of Synopsys’ software, decompiling or reverse
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engineering Synopsys’ software, tampering with or attempting to circumvent Synopsys’ license
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key system, or distributing Synopsys’ software to third parties, among other restrictions.” Id. The
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License contained a confidentiality provision and a clause expressly superseding all prior
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agreements between the parties “with respect to the subject matter” of the license. Id. In order to
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facilitate use of the License, Synopsys also provided Tsai with temporary log in credentials
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permitting access to Synopsys’ file download and customer service websites that were all located
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and hosted in the Northern District (except for one server located in Ireland that was accessed by
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the Enterprise through a remote host located in Mountain View, California). Id. ¶ 44.
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Synopsys alleges that Tsai failed to disclose that the Piracy Enterprise intended to use
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pirated copies of the VCS application at unauthorized locations on unauthorized computers. Id.
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Shortly after inducing Synopsys to provide the evaluation License, persons acting on behalf of the
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Enterprise began using counterfeit license keys to access unauthorized copies of VCS from
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unauthorized locations. Id. ¶ 42. As soon as Tsai had access to it, Tsai accessed Synopsys’ file
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download and customer support website and the Enterprise began making and distributing
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unauthorized copies of Synopsys software and documentation using both illicit license keys and
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counterfeit facsimiles of Synopsys’ license keys. Id. ¶¶ 44, 45. The Enterprise participants – Tsai,
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Ubiquiti, and UNIL – passed to one another software and other technology components designed
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to circumvent Synopsys’ measures to control access to its copyrighted works. Id. ¶ 42.
On December 2, 2013, Tsai on behalf of the Enterprise emailed Synopsys that he was
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United States District Court
Northern District of California
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having trouble running the software using the temporary license key, purportedly on a “virtual
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machine” located at Ubiquiti’s San Jose headquarters. Id. ¶ 46. Synopsys responded and provided
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information on how to configure the license key file. Id. On the same day, Tsai emailed a
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Synopsys employee asking that the Host ID listed in the temporary key file be switched to a new
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computer because the prior Host ID was incorrect. Id. These representations were false and Tsai
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intended to gain new information and access so that the Enterprise could continue its purpose to
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run Synopsys software on unauthorized computers in unauthorized locations. Id. ¶ 47.
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III.
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UNIL’S PARTICIPATION
Synopsys alleges that Ubiquiti and UNIL share information technology structures
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(communication networks, file repositories, email servers, IP addresses, and website domains
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hosted in the United States) that were used by both Ubiquiti and UNIL to conduct the Piracy
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Enterprise. FAC ¶ 30. All three defendants also used interstate internet communications to
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conduct the Enterprise, including extensive use of the counterfeit license keys. Id. ¶¶ 31-32. In
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late 2013 and early 2014, Tsai and others transferred some or all of the files downloaded from
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Synopsys to one or more computers controlled by UNIL via Ubiquiti’s and UNIL’s shared IT
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infrastructure. Id. ¶ 48. In early March 2014, while physically located in the Northern District of
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California, Tsai communicated by email to Synopsys about UNIL’s desire to evaluate Synopsys
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software and get temporary evaluation licenses for UNIL, falsely indicating UNIL was close to
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obtaining software from a Synopsys competitor and wanted to evaluate Synopsys’ software first.
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Id. ¶ 49. Included on those emails were UNIL employees who work in semiconductor design. Id.
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In early April 2014, Tsai travelled to Taiwan to help coordinate meetings between UNIL
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and Synopsys to discuss UNIL’s purported desire to evaluate and license Synopsys’ software. Id.
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¶ 50. At an April 8, 2014 meeting in Taiwan, Tsai and others represented that UNIL needed quick
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access to temporary license keys so that it could evaluate the EDA software before making a
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decision. Id. Time was of the essence due to UNIL’s negotiations with the Synopsys competitor
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and the deadlines for a UNIL project. Id.
All of these representations were false, and made for the purpose of furthering the Piracy
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Enterprise. Id. ¶ 51. Based on the false representations, on April 14, April 15, and May 9, 2014,
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United States District Court
Northern District of California
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Synopsys provided UNIL temporary license keys for Synopsys’ Formality, DC Ultra, HDL
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Compiler Verilog, and DesignWare Library applications, as well as its Power Compiler
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application. Id. ¶ 52. All of the temporary keys allowed for only one or two concurrently running
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executions, and all keys were designated to be hosted by licensed servers running only on specific
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computers with Host IDs, and would expire in two to four weeks. Id. UNIL downloaded
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Ubiquiti’s software and related documentation and installer files on April 16, 2014 and May 19,
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2014. Id. ¶ 53. These files were downloaded from servers in Mountain View or through a remote
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host located in Mountain View. Id. On April 16 and 17, 2014, despite having access to temporary
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license keys, UNIL employees began using counterfeit license keys to access Design Compiler
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software downloaded by UNIL. Id. ¶ 54. On May 19, 2014, a UNIL employee contacted
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Synopsys’ customer support via email seeking assistance for the use of tools that (not known at
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the time to Synopsys) were secretly being copied and used without authorization by the Enterprise,
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explaining that access was of the essence because of UNIL’s deadline to make a software decision.
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Id. ¶ 55. Based upon these false representations, and in conjunction with communications with
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both Ubiquiti and UNIL personnel, Synopsys provided “work around” solutions, allowing further
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access to Synopsys software and documentation. Id.
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Synopsys alleges that there is personal jurisdiction over UNIL in this court because UNIL
“expressly assented” to jurisdiction here by “assenting to Synopsys’ websites’ terms of use in
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order to gain access to copyright-protected software and documentation hosted on Synopsys’ file
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download website.” AC ¶ 17. Synopsys also states that UNIL committed a substantial part of the
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wrongful acts giving rise to this suit within the Northern District, including:
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UNIL knowingly and with the intent to make and distribute
unauthorized copies downloaded software and documentation from
Synopsys servers located in California and the Northern District,
carried out business negotiations regarding the software at issue with
Synopsys employees located in California, and Tsai, while
physically present in California and acting on behalf of UNIL,
misrepresented and omitted material facts to Synopsys in order to
induce Synopsys to provide UNIL with access to Synopsys’
copyright-protected software and documentation.
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AC ¶ 18. UNIL is also alleged to have conducted “regular business” within and directed toward
California and UNIL’s semiconductor design activities are “directed and funded” from Ubiquiti’s
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United States District Court
Northern District of California
headquarters in Northern California, by Pera and Tsai among others. Id. ¶ 19.
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In support of its motion contesting personal jurisdiction, UNIL relies on a declaration from
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defendant Ching-Han Tsai, a Ubiquiti employee. Dkt. No. 35-1. Tsai declares that he has never
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been a UNIL employee. Tsai Decl. ¶ 1.2 Tsai confirms that when he was negotiating with
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Synopsys to be able to use additional evaluation software in early March 2014, UNIL employees
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were included on his emails with Synopsys and the “evaluation was to take place in Taiwan.” Id.
¶ 7. To the best of Tsai’s knowledge, no UNIL employees communicated with California-based
Synopsys employees but only with “Synopsys Taiwan” employees located in Taiwan. Id.
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Tsai also asserts that at the April 8, 2014 meeting he attended in Taiwan with UNIL
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employees, the only Synopsys employees who attended were “Synopsys Taiwan” employees
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In his declaration, Tsai includes facts that are not relevant to the motion to dismiss for lack of
jurisdiction, including his downloading of Synopsys software from Synopsys’ sites and that he
does not recall ever agreeing to any terms of use on those sites. Tsai Decl. ¶¶ 4, 11. Those facts
cannot be relied on to support the 12(b)(6) motion to dismiss. Synopsys makes a number of
evidentiary objections to Tsai’s declaration, primarily based on the fact that Tsai admits he is not a
UNIL employee and, therefore, cannot have personal knowledge of what UNIL did. Oppo. 13.
The other objections are that the statements are speculative, lack foundation, lack relevance, and
are hearsay. Id. 13-14. The objections based on speculation, lack of foundation, and lack of
relevance are OVERRULED. The objections based on hearsay to emails which have not be
produced are SUSTAINED. While some of the challenged statements could fall within FRE
801(d) or 803(3), that cannot be determined based simply on Tsai’s assertion of what the
unproduced emails say.
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based in Taiwan. Id. ¶ 9. Further meetings were held between Tsai, UNIL employees, and the
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two “Synopsys Taiwan” employees Tony Huang and Victor Chen in early May 2014. Id. ¶ 10.
Tsai confirms that while a UNIL employee exchanged emails with a Synopsys Taiwan
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employee and a Synopsys California-based employee on May 19, 2014, the California-based
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employee was at the time in Taiwan. Id. ¶ 12. To Tsai’s knowledge, no UNIL employee
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“knowingly interacted” with any Synopsys customer service support personnel located in
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California. Id.
In support of its Reply, UNIL submits a second declaration from Tsai and a declaration
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from Ubiquiti employee Sheng-Feng Wang. Dkt. Nos. 50-1, 56.3 According to those
declarations, Wang and Tsai are the only two California-based Ubiquiti employees that worked on
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United States District Court
Northern District of California
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semiconductor chip design activities with employees of UNIL during the relevant time frame.
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Wang Decl. ¶ 2; Tsai Reply Decl. ¶ 2. “While present in California,” neither Wang nor Tsai ever
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received from a UNIL employee a “transmission” containing any unauthorized license keys or
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unauthorized copies of Synopsys software. Wang Decl. ¶ 3; Tsai Reply Decl. ¶ 3. To the best of
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their knowledge, “no UNIL employee transmitted to any Ubiquiti employee in California
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unauthorized license keys or unauthorized copies of Synopsys’ software” in the early March
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timeframe. Wang Decl. ¶ 3; Tsai Reply Decl. ¶ 3.
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IV.
PIRACY ENTERPRISE CONDUCT AND SYNOPSYS’ DISCOVERY OF IT
Synopsys alleges that the volume and nature of the counterfeit keys used by the Enterprise
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indicates that counterfeit key generation software was used and shared across Ubiquiti’s and
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UNIL’s shared IT infrastructure. AC ¶¶ 57, 59. Nature and use patterns of the keys also indicate
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that members of the Enterprise distributed amongst themselves the counterfeit license keys and/or
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Synopsys objects to the Reply Declarations on the grounds that they address matters that should
have been raised in the opening motion, and objects to discrete portions of those declarations as
lacking in foundation, speculative, impermissible legal conclusion, impermissible lay opinion, and
hearsay. Dkt. No. 53. I will not strike the declarations (although I agree they address subject
matters that were called for in support of the motion, if at all) and OVERRULE the objections
based on impermissible legal and lay opinion, speculation, lack of foundation, and lack of
relevance. As to the hearsay objection, that is SUSTAINED. However, I will assume for
purposes of ruling on this motion that Tony Huang and Victor Chen are based in Taiwan (as Tsai
asserts). Those facts, however, are not determinative for UNIL’s motion.
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the software to make them in order to permit employees of Ubiquiti and UNIL to access
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Synopsys’ software and resources without authorization. Id. ¶ 58. The Enterprise configured its
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computers to operate in various modes to allow counterfeit keys to be run off of and/or on multiple
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remote systems, virtual computers, and across various file paths. Id. ¶¶ 60-63. The Enterprise’s
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counterfeit license key use is “associated” with at least 15 names, some of which correspond to the
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names of Ubiquiti and UNIL employees. Id. ¶ 64.
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Synopsys discovered the use of counterfeit keys – at least 39,000 times by Ubiquiti,
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UNIL, and others, and 66 times by Tsai personally, AC ¶ 32 – in March 2016. Id. ¶ 65. Synopsys
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investigated and in May 2016, issued a cease and desist notice to Ubiquiti, although the Enterprise
continued to access Synopsys’ software even after the cease and desist was served. Id. ¶ 28.
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United States District Court
Northern District of California
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V.
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THIS CASE
Based on these allegations, Synopsys alleged seven causes of action: (1) violation of the
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Digital Millennium Copyright Act (DMCA), 17 U.S.C. § 1201(a)(1); (2) violation of the DMCA,
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17 U.S.C. § 1201(a)(2); (3) violation of the DMCA, 17 U.S.C. § 1201(b); (4) violation of 18
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U.S.C. 2318; (5) fraud; (6) violation of Civil RICO, 18 U.S.C. § 1964; and (7) negligent
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misrepresentation. Ubiquiti moves to dismiss causes of action 2 through 7 for failure to state a
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claim. UNIL separately moves to dismiss all of the claims asserted against it for lack of personal
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jurisdiction.
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Ubiquiti and Tsai also filed counterclaims against Synopsys for declaratory judgment and
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breach of contract. Ubiquiti Answer and Counterclaims [Dkt. No. 19]. The declaratory relief
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counterclaim seeks a “declaration that the mere use or access of Plaintiff’s software applications,
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without, separate from, or subsequent to the alleged use of ‘counterfeit’ license keys, does not
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constitute an act of circumvention under 17 U.S.C. § 1201.” Id. 9-10. The breach of contract
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counterclaim is based on allegations that Synopsys violated the terms of the companies’ Master
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Non-Disclosure Agreement (MNDA) when two “software monitoring companies” obtained and
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transmitted confidential Ubiquiti information to Synopsys as a result of monitoring software that
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was concealed in the software Synopsys provided to Ubiquiti. Answer and Counterclaim ¶¶ 7-11,
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18-20. The confidential information obtained and transmitted included “the IP (Internet protocol)
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address associated with users’ computers, user names, and other workstation information of
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Ubiquiti employees, the particular programs and features accessed by each user, and other
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proprietary and sensitive information belonging to Ubiquiti.” Id. ¶ 20.
In its Amended Answer, Synopsys asserts the following affirmative defenses to the
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counterclaims: (1) fraud; (2) unclean hands; (3) waiver; (4) laches; (5) estoppel; (6) failure to
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mitigate damages; (7) unjust enrichment; (8) novation; and (9) mistake. Synopsys Amended
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Answer [Dkt. No. 37]. Ubiquiti moves to strike those affirmative defenses, arguing that they are
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not adequately alleged or cannot constitute affirmative defenses. Dkt. No. 54.
LEGAL STANDARD
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I.
Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss if a claim
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United States District Court
Northern District of California
MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM
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fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to
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dismiss, the claimant must allege “enough facts to state a claim to relief that is plausible on its
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face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when
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the plaintiff pleads facts that “allow the court to draw the reasonable inference that the defendant
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is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation
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omitted). There must be “more than a sheer possibility that a defendant has acted unlawfully.” Id.
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While courts do not require “heightened fact pleading of specifics,” a claim must be supported by
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facts sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555,
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570.
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Under Federal Rule of Civil Procedure 9(b), a party must “state with particularity the
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circumstances constituting fraud or mistake,” including “the who, what, when, where, and how of
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the misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)
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(internal quotation marks omitted). However, “Rule 9(b) requires only that the circumstances of
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fraud be stated with particularity; other facts may be pleaded generally, or in accordance with Rule
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8.” United States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir. 2011). In deciding a
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motion to dismiss for failure to state a claim, the court accepts all of the factual allegations as true
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and draws all reasonable inferences in favor of the plaintiff. Usher v. City of Los Angeles, 828
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F.2d 556, 561 (9th Cir. 1987). But the court is not required to accept as true “allegations that are
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merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis.
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Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008).
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II.
MOTION TO STRIKE
Federal Rule of Civil Procedure 12(f) authorizes a court to “strike from a pleading an
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insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ.
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P. 12(f). The function of a motion to strike “is to avoid the expenditure of time and money that
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must arise from litigating spurious issues by dispensing with those issues prior to trial.” Sidney–
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Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir.1983). Motions to strike are generally
disfavored and “should not be granted unless the matter to be stricken clearly could have no
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United States District Court
Northern District of California
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possible bearing on the subject of the litigation.” Platte Anchor Bolt, Inc. v. IHI, Inc., 352 F.
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Supp. 2d 1048, 1057 (N.D. Cal. 2004). In addition, courts often require some showing of prejudice
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by the moving party before granting a motion to strike. Hernandez v. Dutch Goose, Inc., No. C
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13- 03537 LB, 2013 WL 5781476, at *5 (N.D. Cal. Oct. 25, 2013).
“If the court is in doubt as to whether the challenged matter may raise an issue of fact or
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law, the motion to strike should be denied, leaving an assessment of the sufficiency of the
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allegations for adjudication on the merits.” Carolina Cas. Ins. Co. v. Oahu Air Conditioning Serv.,
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Inc., 994 F. Supp. 2d 1082, 1090-91 (E.D. Cal. 2014). In resolving a motion to strike, the
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pleadings must be viewed in the light most favorable to the nonmoving party. Platte Anchor Bolt,
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352 F. Supp. 2d at 1057.
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III.
MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION
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Where a defendant seeks dismissal for lack of personal jurisdiction, the plaintiff has the
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burden to demonstrate that personal jurisdiction exists. In re W. States Wholesale Natural Gas
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Antitrust Litig., 715 F.3d 716, 741 (9th Cir. 2013). “However, the plaintiff must make only a
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prima facie showing of jurisdictional facts to withstand the motion to dismiss.” Id. (internal
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quotation marks omitted). “[U]ncontroverted allegations in the complaint must be taken as
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true,” and “[c]onflicts between parties over statements contained in affidavits must be resolved in
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the plaintiff’s favor.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir.
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2004) (internal quotation marks omitted). But the court “may not assume the truth of allegations
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in a pleading which are contradicted by affidavit.” Data Disc, Inc. v. Sys. Tech. Associates, Inc.,
3
557 F.2d 1280, 1284 (9th Cir. 1977).
DISCUSSION
4
5
I.
UBIQUITI MOTION TO DISMISS
6
A.
7
Synopsys alleges that defendants violated three provisions of the Digital Millennium
Digital Millennium Copyright Act Claims
8
Copyright Act. Ubiquiti and Tsai (collectively, Ubiquiti) move to dismiss the claims asserted
9
under 17 U.S.C. § 1201(a)(2) and § 1201(b).4
10
1.
As explained by the Ninth Circuit, section 1201(a)(2) “prohibits trafficking in technology
11
United States District Court
Northern District of California
Sufficiency of Trafficked Allegations
12
that circumvents a technological measure that ‘effectively controls access’ to a copyrighted work”
13
and (b) “prohibits trafficking in technology that circumvents a technological measure that
14
‘effectively protects’ a copyright owner’s right.” MDY Indus., LLC v. Blizzard Entm't, Inc., 629
15
F.3d 928, 942 (9th Cir. 2010), as amended. Together, 17 U.S.C. section 1201(a)(2) and section
16
1201(b) prohibit the “manufacture, import, offer to the public, provide, or otherwise traffic” in any
17
technology that “is primarily designed or produced for the purpose of circumventing” technology
18
or other protections of copyrighted works. Ubiquiti argues that Synopsys fails to specify what acts
19
it allegedly took (manufacture, import, provide, or traffic) and fails to allege sufficient facts
20
showing how those acts occurred, e.g., what specific actions each defendant took to either
21
manufacture, import, provide, or traffic in unauthorized license keys. Ubiquiti also argues that
22
mere use of keys made by third-parties cannot constitute “manufacture, trafficking, or providing
23
keys” because “mere use” does not violate Sections 1201(a)(2) or (b). And as to “provide,”
24
Ubiquiti contends there must be allegations that defendants provided the circumvention
25
technology to third-parties. Ubiquiti MTD at 5.
26
27
28
4
Ubiquiti does not move to dismiss the circumvention claim prohibiting use of counterfeit and
illicit license keys to circumvent restricted access to copyrighted materials under 17 U.S.C. §
1201(a)(1).
12
In Opposition, Synopsys points to allegations that all three defendants:
1
2
51, 57, 58;
3
4
9
“provided” circumvention technology to one another over shared networks for commercial
purposes, AC ¶¶ 60-63;
7
8
“imported” circumvention technology by transmitting circumvention technology from
Taiwan to the United States, AC ¶¶ 42, 56, 58, 59, 66, 80;
5
6
“manufactured” circumvention technology creating counterfeit license keys, AC ¶¶ 28, 33,
and “otherwise trafficked” in circumvention technology by distributing the technology
from Ubiquiti to UNIL and back in furtherance of their commercial objectives, AC ¶¶ 8, 9,
12.
11
United States District Court
Northern District of California
10
As to mere use, Synopsys notes that it alleges that defendants have been “secretly using
12
counterfeit keys obtained and/or created with tools obtained through hacker websites to
13
circumvent Synopsys’ License Key system” and access and use Synopsys’ EDA. AC ¶ 28
14
(emphasis added). The and/or clause gets Synopsys beyond mere use. See also id. ¶ 57 (“The
15
volume and nature of counterfeit keys used by the Piracy Enterprise, . . . indicate that one or more
16
persons acting on behalf of the Piracy Enterprise used counterfeit key generation software to
17
create counterfeit Synopsys license keys for use by Ubiquiti and UNIL.”).
18
Synopsys argues and I agree that with respect to manufacture and import, there is no need
19
to show that the circumvention technology was made available to any third-parties; the unilateral
20
actions of Ubiquiti in manufacturing the keys using software secured from hacker websites (not, as
21
Ubiquiti alleges, merely using keys secured from those sites, AC ¶¶ 28, 57) and importing those
22
keys from Taiwan into the United States is sufficient. AC ¶ 58.
23
As to importation, in its Reply Ubiquiti argues that “importation” is not sufficiently alleged
24
and that allegations that the keys were “distributed” between the defendants is insufficient. In
25
absence of apposite case law, I disagree. The plausible inference – given the locations of these
26
separate corporate entities – is that importation from Taiwan to California occurred. Ubiquiti also
27
challenges whether “remote access” to keys can satisfy the importation prong, but given that
28
Synopsys has alleged that counterfeit keys were run on computers (or servers) based in California,
13
1
the access is not always “remote.” The allegations are sufficient.
As to manufacture, in Reply Ubiquiti argues that “human readable alphanumeric text
2
elements” like the keys at issue are not items that are “manufactured.” Ubiquiti cites no case law
4
in support of this novel argument, an argument that would seem to cut a wide swath away from the
5
protections ensured by the Digital Millennium Copyright Act. Ubiquiti also relies on Ass'n for
6
Info. Media & Equip. v. Regents of the Univ. of California, No. CV 10-9378 CBM MANX, 2011
7
WL 7447148 (C.D. Cal. Oct. 3, 2011) to argue that Synopsys’ manufacture allegations are
8
insufficient. Ubiquiti MTD 5. But in that case, the complaint alleged only that defendants
9
“worked with” another entity to “make circumvention applications available for higher education”
10
but did not disclose “how the Defendants worked with Video Furnace, or what actions Defendants
11
United States District Court
Northern District of California
3
took that constitute the ‘manufacture, import, offer to the public, prov[ision], or otherwise
12
traffic[king]’ of the DVDs.” Id. *7. Here, the AC explains the relationship between the parties
13
and that given the “volume and nature” of the keys, one or more persons “used counterfeit key
14
generation software” to create the keys, distributed amongst themselves the keys and/or software.
15
AC ¶¶ 57-58. That is sufficient.
With respect to “provide,” the allegations that defendant UNIL provided the circumvention
16
17
technology to the separate corporate entity Ubiquiti is sufficient. In support, Ubiquiti relies on a
18
different decision in the Ass’n for Info. Media & Equip. v. Regents of the Univ. of California case.
19
There the defendants – the University and named administrators and employees – allegedly
20
provided the at-issue software to its professors, but the Court concluded that because under the
21
DCMA “these professors are not members of the public,” plaintiffs failed to state a claim. Ass'n
22
for Info. Media & Equip.,, 2012 WL 7683452, at *9 (C.D. Cal. Nov. 20, 2012). That case is
23
starkly different in that these separate corporate entities who – as addressed below – defendants
24
argue must be treated differently for purposes of establishing jurisdiction, have provided the keys
25
and/or key-creating-software to each other.5
26
5
27
28
Relatedly, Ubiquiti argues that there must be allegations that the circumvention technology is
being “offered” to third-parties. However, that language seems to have arisen in more typical
DMCA cases where the defendant is an entity offering the circumvention technology to thirdparties. Ubiquiti MTD at 5-6. Each of Ubiquiti’s cases simply quote Chamberlain Grp., Inc. v.
14
1
2
Finally, “trafficking” will be addressed below under 18 U.S.C. § 2318, as both sides agree
the definition of trafficking there should be synonymous with trafficking under the DMCA.
3
4
2.
Allegations that License Keys Prevent Infringement
Ubiquiti argues that because Section 1201(b) prevents circumvention of technological
5
measures that are in place to protect a copyright owner, to state a claim under this section
6
Synopsys must allege that its anti-circumvention technology prevents infringement – meaning
7
prevents copying. Ubiquiti contends that Synopsys’ AC fails to allege prevention of infringement
8
because the allegations are that Synopsys’ license keys merely control access to Synopsys’ EDA
9
software and ensure that only a limited number of licensed users access it. Ubiquiti MTD at 5. In
Opposition, Synopsys notes that when software is run on a machine a “copy” is made in the
11
United States District Court
Northern District of California
10
computer’s random access memory (RAM), and that copying (if without permission of the owner)
12
constitutes copyright infringement. See, e.g., MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d
13
511, 518 (9th Cir. 1993). By preventing its EDA software from executing on a machine without a
14
valid key, Synopsys contends the key system prevents that sort of RAM copying and, therefore,
15
prevents infringement. Id. These allegations are sufficient.
16
17
Synopsys has adequately alleged that defendants manufactured, imported, and provided
circumvention devices in violation of Sections 1201(a)(2) and (b).
18
B.
19
18 U.S.C. § 2318, the Anti-Counterfeiting Act, prohibits the trafficking of counterfeit and
18 U.S.C. § 2318
20
illicit “labels,” including “labelling components” used by copyright owners to identify copies or
21
computer programs and to verify that copies are not counterfeit or infringing. Under the statute, a
22
“counterfeit label” is an identifying label that appears to be genuine, but is not. 18 U.S.C. §
23
24
25
26
27
28
Skylink Techs., Inc., 381 F.3d 1178, 1203 (Fed. Cir. 2004) (claims under (a)(2) require showing
“(1) ownership of a valid copyright on a work, (2) effectively controlled by a technological
measure, which has been circumvented, (3) that third parties can now access (4) without
authorization, in a manner that (5) infringes or facilitates infringing a right protected by the
Copyright Act, because of a product that (6) the defendant either (i) designed or produced
primarily for circumvention; (ii) made available despite only limited commercial significance
other than circumvention; or (iii) marketed for use in circumvention of the controlling
technological measure.”) (emphasis added). At this juncture, I will let this claim go forward.
However, as the discovery develops, Ubiquiti and UNIL may argue this issue again on summary
judgment.
15
1
2318(b)(1). An “illicit label” is a genuine article “misused” in violation of the statute. See, e.g.,
2
Microsoft Corp. v. Pronet Cyber Techs., Inc., 593 F. Supp. 2d 876, 878 (E.D. Va. 2009).
3
Synopsys argues that defendants are liable for trafficking in both counterfeit labels (counterfeit
4
license keys) and illicit labels (valid but misused temporary license keys).
5
1.
Trafficked
Trafficked, as defined by the statute means: “to transport, transfer, or otherwise dispose of,
6
7
to another, for purposes of commercial advantage or private financial gain, or to make, import,
8
export, obtain control of, or possess, with intent to so transport, transfer, or otherwise dispose of.”
9
18 U.S.C. § 2320(f)(5) (emphasis added). The term “financial gain” includes the receipt, or
10
expected receipt, of anything of value. Id. § 2320(f)(2).
United States District Court
Northern District of California
11
Ubiquiti argues that under the plain meaning of trafficked, Synopsys fails to state a claim
12
because the only allegation is that defendants distributed or shared keys between themselves and
13
there are no allegations that the license keys were offered to others or for purposes of commercial
14
gain. In Opposition, Synopsys responds that its allegations that defendants “transferred” the keys
15
to each other for their commercial gain – use of the software without paying license fees – is
16
sufficient.6 Synopsys argues that there is no need to allege the keys were “offered to others” as
17
cases have recognized that producing infringing items or shipping illicit labels violate the act even
18
where sales to others did not occur. See, e.g., United States v. Beydoun, 469 F.3d 102, 105 (5th
19
Cir. 2006) (“even if Beydoun never sold a single infringing booklet, he remains accountable for
20
the full amount, as he admits he caused infringing items to be produced with the intent to sell
21
them”); Microsoft Corp. v. Ion Techs. Corp., 484 F. Supp. 2d 955, 961 (D. Minn. 2007) (simply
22
shipping illicit labels was sufficient to constitute a violation of the Act).
However, the cases relied on by Synopsys contemplate or expressly recognize that the
23
24
defendants found liable under § 2318 at least had the intent to sell or transfer the illicit goods to
25
6
26
27
28
In Reply, Ubiquiti argues that there are no allegations that defendants exchanged the keys for
“commercial advantage,” i.e., in commerce or trade, but simply for mere use. However, there is
an obvious commercial advantage to using counterfeit keys in lieu of purchasing licenses and the
use of those keys, as transferred from UNIL to Ubiquiti without purchase of a license by UNIL,
and from Ubiquiti to UNIL without purchase of a license by Ubiquiti, was to their commercial
advantage.
16
1
others, even if those sales or distributions were not actualized. See, e.g., Beydoun, 469 F.3d at
2
105. Nonetheless, Synopsys argues that it has stated this claim because it has alleged that
3
defendants intended to transfer the illicit keys to each other for their commercial gain. Synopsys
4
contends that the Ninth Circuit has affirmed a conviction based on similar sales between co-
5
conspirators. Oppo. at 8 (relying on United States v. Bao, 189 F.3d 860, 863 (9th Cir. 1999)).
6
But in Bao, the co-conspirators were convicted of conspiracy to violate Section 2138 where each
7
printed part of illicit Microsoft products, all of which were obviously intended for sale to others
8
outside of the conspiracy.
This is a close call. The cases cited by both sides simply demonstrate that the statute’s
9
focus (or at least past application) is on conduct where a defendant or defendants produce or
11
United States District Court
Northern District of California
10
secure counterfeit or illicit labels that are logically intended for other non-defendant end users
12
(DVDs, software COAs, etc.). Synopsys cites no cases showing that the statute’s definition of
13
trafficking extends to a conspiracy where the labels were exchanged only to aid another
14
defendant’s use of a copyrighted product. However, Ubiquiti cites no cases excluding from the
15
reach of trafficking cases where the only intended recipient of the illegal labels was a co-
16
conspirator/related defendant.7 As such, I will not – as this juncture and based on briefing to date
17
– dismiss this claim for failure to plead trafficking.
18
2.
Counterfeit Labels
Ubiquiti argues that the fake keys allegedly created or used by defendants cannot be
19
20
“counterfeit labels” because they are not “identifying labels” for Synopsys’ computer programs.
21
Instead, because the fake keys were distributed apart from Synopsys software programs and the
22
keys – standing on their own – do not identify anything about Synopsys’ EDA programs, they
23
cannot be labels as they do not serve the “identifying” purpose of the statute. Ubiquiti MTD at 7-
24
8. Synopsys responds by noting that the statute allows the labels to “accompany” the software,
25
which is what occurred here albeit by separate email. It also cites a number of cases that have
26
7
27
28
As added support, Ubiquiti cites legislative history noting that “trafficking” excludes those who
knowingly acquire counterfeit articles solely for “personal use.” Ubiquiti MTD at 7, n.2. The
allegations here, however, are that the defendants who are separate entities exchanged the labels
for each of their commercial gain.
17
1
recognized that computer software access “keys” qualify as “identifying labels” under Section
2
2318. Ubiquiti distinguishes those cases by noting that all of them address “keys” that were
3
physically provided to customers when they purchased physical versions of software (e.g., DVDs)
4
or were otherwise attached to certificate of authenticity (COA) labels for the software products.
5
Ubiquiti contends that no case has concluded that mere “electronic keys” without more are
6
identifying labels under Section 2318. Ubiquiti MTD 8; Reply 4-5.8
At oral argument, Synopsys argued that evidence will show that when the keys were
7
8
transmitted, they were accompanied by Synopsys logos and/or other information and indicia that
9
served the “identifying” aspect of the statute. Those allegations, however, are not in the AC.
Absent allegations showing how the keys, and the information transmitted with them, could fulfill
11
United States District Court
Northern District of California
10
the “identification” purpose of the statute, there is no basis to stretch Section 2318 to cover the
12
distribution of the keys without any context associating them as Synopsys labels.9
13
8
14
15
16
17
18
19
20
21
22
23
24
25
26
See, e.g., United States v. Harrison, 534 F.3d 1371, 1372 (11th Cir. 2008) (defendant convicted
under 18 U.S.C. § 2318 of selling “stand-alone” COAs containing keys that could be used to
activate a Microsoft program); Microsoft Corp. v. Buy More, Inc., 136 F. Supp. 3d 1148, 1153
(C.D. Cal. 2015) (granting summary judgment to plaintiff where “Product Keys obtained by one
Defendant through the RRP website were wrongfully added to illicit and adulterated RRP COAs
distributed by other Defendants”); Microsoft Corp. v. Pronet Cyber Techs., Inc., 593 F. Supp. 2d
876, 879 (E.D. Va. 2009) (“Defendants aver that they did not know any Product Keys printed on
labels affixed to the products they sent were counterfeit or unauthorized.”); Microsoft Corp. v.
EEE Bus. Inc., 555 F. Supp. 2d 1051, 1059 (N.D. Cal. 2008) (“By distributing a VLK without
authorization, Wang effectively circumvented Microsoft’s technological measure to control access
to a copyrighted work in violation of the DCMA. . . . Additionally, the VLK’s placement on a
counterfeit label which accompanied the Volume License versions of the Windows XP and Office
2003 software that Wang sold to Microsoft's investigators constitutes trafficking in counterfeit
labels.”); Microsoft Corp. v. Silver Star Micro, Inc., No. 1:06-cv-1350-WSD, 2008 U.S. Dist.
LEXIS 1526, at *5 (N.D. Ga. Jan. 9, 2008) (“counterfeit product key label and product key”
sold); Microsoft Corp. v. Ion Techs. Corp., 484 F. Supp. 2d 955, 961 (D. Minn. 2007) (stand-alone
COAs shipped); Microsoft Corp. v. A Plus Open LLC, No. 05-cv-00700-RPM, 2007 U.S. Dist.
LEXIS 8435, at *1 (D. Colo. Feb. 6, 2007) (distribution of “Microsoft Certificates of Authenticity
without the corresponding Microsoft software program”); Microsoft Corp. v. Sellers, 411 F. Supp.
2d 913, 917 (E.D. Tenn. 2006) (noting that “[a]n illicit COA is a genuine COA that is distributed
or intended for distribution without the copy of software that Microsoft meant for it to accompany,
including stand-alone COAs at issue here.”); Microsoft Corp. v. # 9 Software, Inc., No. 4:05cv106,
2005 U.S. Dist. LEXIS 36710, at *2-3 (E.D. Va. Dec. 15, 2005) (“Defendants distributed
Certificates of Authenticity without the Windows 2000 Pro and Windows XP software packages
that Plaintiff intended the Certificates of Authenticity to accompany.”).
9
27
28
To be clear, I agree with Synopsys that the keys do not have to physically accompany the
software product to be considered labels, but they have to be delivered along with something
suggesting the keys are being delivered in connection with a specific software product to be an
“identifying label.”
18
Even if the keys could be counterfeit labels, Ubiquiti alleges that Synopsys fails to satisfy
1
2
the gist of the statute (that the keys “appeared to be genuine” when the employees of the
3
defendants who shared them allegedly knew they were not). Synopsys argues that this element is
4
unnecessary; pointing to many cases where defendants were liable for trafficking even though
5
their role was only a sale to another buyer who knew the products were not genuine. Oppo. 9.
6
Synopsys misses Ubiquiti’s point; the aim of the statute is to prevent “false representations” and
7
passing off of counterfeit material as real, of which there is no evidence here.
Recognizing the problems with the existing allegations, Synopsys offers to amend to allege
8
9
the following:
10
that (1) Synopsys sent to Tsai a single delivery email containing
links to download VCS and a license key for VCS; (2) Synopsys’
license keys are comprised of human readable alphanumeric text
elements that identify which version and features of Synopsys
products have been licensed for use in connection with a particular
user’s copy of software; and (3) that the counterfeit keys used by
Defendants mimicked the human readable text and format of
Synopsys’ genuine keys, including text indicating that Synopsys is
the “issuer” of the keys, and would thus appear to an innocent reader
of the key file to be a genuine Synopsys license key.”
United States District Court
Northern District of California
11
12
13
14
15
Oppo. 9-10 n.8. This amendment would bring the license keys closer to “identifying labels.” It
16
would not, however, address the lack of facts supporting an allegation that Ubiquiti and UNIL
17
18
19
intended to sell or trade or otherwise “pass off” the keys to an unsuspecting user. At this juncture
and as with the Ubiquiti’s argument on “trafficking,” I am not convinced of its “gist of the statute”
argument.10
20
Therefore, Synopsys is given leave to amend to add facts regarding how the keys served
21
the identifying purpose of the statute. If Synopsys is able to plead those additional facts, Ubiquiti
22
may re-raise its “gist of the statute” argument on a subsequent motion to dismiss providing more
23
24
25
26
27
28
10
Synopsys points out that under a related section of the statute, 18 U.S.C. § 2320 (“Trafficking in
counterfeit goods or services”), sellers “of imitation items ha[ve] violated trademark law if
disinterested members of the general public would be confused were they to encounter the goods
after sale. A seller can be convicted even though the direct buyer knows the goods are knockoffs.” Wang v. Rodriguez, 830 F.3d 958, 962 (9th Cir. 2016) (collecting cases). Those trademark
cases, however, still expressly consider whether a theoretical “innocent” third-party buyer would
be misled.
19
1
2
case law or legislative history support.
3.
Illicit Labels
3
Under Section 2318, “illicit labels” are defined as “a genuine certificate, licensing
4
document, registration card, or similar labeling component” that is used by an owner to “verify”
5
that a copy of a computer program is not counterfeit or infringing, that is used without the
6
authorization of the copyright owner, as follows:
7
(i)
8
9
10
United States District Court
Northern District of California
11
12
13
14
(ii)
distributed or intended for distribution not in connection with
the copy [] to which such labeling component was intended
to be affixed by the respective copyright owner; or
in connection with a genuine certificate or licensing
document, knowingly falsified in order to designate a higher
number of licensed users or copies than authorized by the
copyright owner, unless that certificate or document is used
by the copyright owner solely for the purpose of monitoring
or tracking the copyright owner’s distribution channel and
not for the purpose of verifying that a copy [] is
noninfringing.
18 U.S.C. § 2318(b)(4).
Ubiquiti argues that the keys cannot be “illicit labels” because their only purpose is to help
15
Synopsys control its distribution channel and not (as required by the statute) to help Synopsys
16
identify that someone is using a counterfeit or infringing copy of its EDA software. Ubiquiti MTD
17
at 8-9. While Synopsys is correct that the AC alleges that the keys prevent “execution” of the
18
software, AC ¶ 26, there is no explanation of how the genuine keys enable Synopsys to verify
19
whether a particular copy of its software installed on a user’s system is counterfeit or infringing, or
20
being used without their permission. Its reliance on Microsoft Corp. v. Pronet Cyber Techs., Inc.,
21
593 F. Supp. 2d 876 (E.D. Va. 2009) is misplaced. There the facts were that plaintiffs maintained
22
“an internal list that matches each copy of a particular program to that copy’s unique Product
23
Key.” Id. at 878. There are no facts alleged here to show how each genuine Synopsys license key
24
is matched to a particular copy of a Synopsys EDA program, or that the genuine keys otherwise
25
help Synopsys verify or monitor who is using its EDA programs.
26
Second, Ubiquiti argues that Synopsys fails to plead that the legitimate license keys were
27
distributed by Ubiquiti or UNIL “not in connection” with the evaluation copies Ubiquiti or UNIL
28
were permitted (at the relevant times) to use. Ubiquiti MTD 9. Synopsys responds that it has
20
1
adequately pleaded that the legitimate keys were used with unauthorized copies of its software.
2
Oppo. 10 (citing AC ¶¶ 37, 39, 51, 59). However, the paragraphs of the AC Synopsys cites do not
3
allege that defendants “made unauthorized copies of Synopsys’ software and then improperly used
4
someone else’s legitimate temporary key to access those unauthorized copies.” Oppo. 10
5
(emphasis in original).
In light of these deficiencies, the claims regarding both counterfeit and illicit labels are
6
7
DISMISSED with leave to amend.
8
C.
9
The RICO statute, 18 U.S.C. § 1962(c) requires a plaintiff to prove that each defendant
Civil RICO
participated: in (1) the conduct of (2) an enterprise that affects interstate commerce (3) through a
11
United States District Court
Northern District of California
10
pattern (4) of racketeering activity, which (5) the proximately harmed the victim. See Eclectic
12
Properties E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014). To show an
13
enterprise, “plaintiffs must plead that the enterprise has (A) a common purpose, (B) a structure or
14
organization, and (C) longevity necessary to accomplish the purpose.” Id. “Racketeering
15
activity,” as defined in 18 U.S.C. § 1961(1)(B), is the commission of a predicate act that is one of
16
an enumerated list of federal crimes, which in this case are alleged to be: (i) violation of 18 U.S.C.
17
§ 2318, the Anti-Counterfeiting Act; (ii) fraud in connection with “access devices” under 18
18
U.S.C. § 1029; (iii) criminal copyright infringement under 17 U.S.C. § 506; and (iv) wire fraud
19
under 18 U.S.C. § 1343.
Ubiquiti argues that Synopsys has failed to allege both a predicate act and the existence of
20
21
an enterprise that engaged in a pattern of racketeering activity.11
22
1.
23
a.
Anti-Counterfeiting Act
As noted above, Synopsys has failed to alleged a claim under 18 U.S.C. § 2318. That
24
25
Predicate Act
claim cannot, for purposes of this motion, satisfy the predicate act requirement.
26
11
27
28
Ubiquiti argues in passing that the AC does not identify Ubiquiti and UNIL as members of the
Piracy Enterprise. When read fairly, the AC identifies them as members. See, e.g., AC ¶¶ 29, 31,
126, 127.
21
b.
1
2
Access Device Fraud Under 18 U.S.C. § 1029
18 U.S.C. § 1029 criminalizes the production, use, or trafficking in “counterfeit access
devices” with intent to defraud. The statute defines access devices as:
3
7
any card, plate, code, account number, electronic serial number,
mobile identification number, personal identification number, or
other telecommunications service, equipment, or instrument
identifier, or other means of account access that can be used, alone
or in conjunction with another access device, to obtain money,
goods, services, or any other thing of value, or that can be used to
initiate a transfer of funds (other than a transfer originated solely by
paper instrument).
8
Section 1029(e)(1). Ubiquiti argues that the statute is primarily directed to credit card and banking
9
system frauds, and asserts that the conduct alleged here is starkly different. As a result, Ubiquiti
10
contends that Synopsys has not alleged, and is unable to allege, facts showing that the license keys
11
can be considered access devices that are used to access a Synopsys “account” as required by the
12
statute. There needs to be, but are not, allegations about improper access to an account in
13
Synopsys’ EDA software delivery and access system.
4
5
United States District Court
Northern District of California
6
I agree that the conduct alleged here does not fit neatly within the apparent purpose and
14
15
aim of the statute, even if broadly construed, 12 but nothing in the language of the statute excludes
16
its application to this type of case and no cases cited by Ubiquiti have declined to apply it in light
17
of similar allegations. Ubiquiti, however, is correct that Synopsys has failed to allege sufficient
18
facts describing the actual or functional “account”13 Ubiquiti allegedly accessed using the
19
counterfeit access device and that Ubiquiti accessed the account in order to “obtain money, goods,
20
services, or any other thing of value” as required. Therefore, this predicate act is DISMISSED
21
with leave to amend.
22
c.
Criminal Copyright Infringement Under 17 U.S.C. § 506
Under 17 U.S.C. § 506, criminal copyright infringement occurs when a person “willfully
23
24
25
26
27
28
12
See, e.g., United States v. Bailey, 41 F.3d 413, 417 (9th Cir. 1994) (“[T]he purpose of the statute
is to deal with the abuse of new technologies that increasingly allow individuals and businesses
access to goods and services without immediate payment by cash or familiar, paper instruments.”)
13
“[A]n account is a contractual relationship that makes possible the provision of goods, services,
or money based on payment, or the expectation of payment, at some later point in time, as
described by the entry of credits and debits in a formal record.” Bailey, 41 F.3d at 417.
22
1
infringes a copyright” if the infringement was committed “(A) for purposes of commercial
2
advantage or private financial gain; (B) by the reproduction or distribution, including by electronic
3
means, during any 180-day period, of 1 or more copies [] of 1 or more copyrighted works, which
4
have a total retail value of more than $1,000.”
5
Ubiquiti argues that “run-of-the-mill” copyright infringement cases such as this one cannot
6
be a RICO predicate act because of the legislative history showing that Congress’s concern was
7
with piracy and counterfeiting when it added criminal copyright as a RICO predicate act. Ubiquiti
8
MTD at 13-14; Stewart v. Wachowski, No. CV 03-2873 MMM VBKX, 2005 WL 6184235, at *6
9
(C.D. Cal. June 14, 2005) (“The court can find no legislative history consistent with a
Congressional intent to expand RICO liability to all knowing copyright infringement, including
11
United States District Court
Northern District of California
10
acts that cannot be characterized as counterfeiting or piracy”); 5 Nimmer on Copyright § 15.05
12
(2017) (“Only the most egregious instances of criminal copyright infringement have ever been
13
upheld as predicate offenses to racketeering charges under RICO.”); see also Robert Kubicek
14
Architects & Assocs. Inc. v. Bosley, No. CV 11-2112 PHX DGC, 2012 WL 3149348, at *2 (D.
15
Ariz. Aug. 1, 2012) (rejecting as RICO predicate act allegation of copyright infringement where
16
defendants were accused of using plaintiff’s copyrighted architectural drawings because there was
17
no suggestion of “piracy or counterfeiting”)
18
In opposition, Synopsys relies on cases that have rejected the Stewart court’s reliance on
19
legislative history (showing a particular concern over piracy and counterfeiting enterprises), and
20
instead applied the “plain language” of RICO which requires only “any” act of criminal copyright
21
infringement, no matter its size or impact. See, e.g., ICONICS, Inc. v. Massaro, 192 F. Supp. 3d
22
254, 269 (D. Mass. 2016) (permitting allegations of copyright infringement stemming from a
23
business dispute between two companies to be a predicate act under RICO). Synopsys also asserts
24
that while the alleged infringement might have been “small-scale” in terms of those involved (just
25
the three defendants), its allegations are of sufficient significance that this claim should be allowed
26
to proceed. At this juncture, I agree. Synopsys alleges a scheme of copyright infringement that
27
allowed defendants to avoid paying millions in license fees for multiple EDA programs that
28
extended for a period of years. That is sufficient for criminal copyright as a predicate act.
23
Ubiquiti also argues that Synopsys has failed to allege sufficient facts that: (i) Synopsys
1
2
owns copyright rights; (ii) defendants violated some portion of Synopsys’ exclusive rights under
3
17 U.S.C. § 106;14 and (iii) defendants’ acts were willful. I disagree. Synopsys has alleged that it
4
owns copyrights in the software at issue (AC ¶ 24); that defendants made, distributed, and used
5
copies without authorization in order to avoid paying license fees and benefit from that software
6
(AC ¶¶ 28, 29, 42, 45, 56, 63, 65); and that those acts were willful. AC ¶¶ 43, 65. As to the
7
allegations that defendants intended to exceed the scope of their temporary evaluation license, that
8
is also adequately alleged. AC ¶¶ 41, 42, 56.
Synopsys’ allegations, especially when considered in the context of the scheme alleged, are
9
10
sufficient to allege criminal copyright infringement.
United States District Court
Northern District of California
11
d.
Wire Fraud Under 18 U.S.C. § 1343
To prove wire fraud, plaintiff must show: (i) the formation of a scheme to defraud, (ii) the
12
13
use of interstate wires in furtherance of that scheme, and (iii) the specific intent to defraud.
14
Eclectic Properties E., LLC, 751 F.3d at 997.
15
Ubiquiti argues first that Synopsys fails to allege use of interstate wires to facilitate the
16
fraud because neither of the two wire transmissions identified in the AC – emails from Tsai to
17
Synopsys on October 14, 2013 (AC ¶ 38) and emails from Tsai to Synopsys on December 2, 2013
18
(AC ¶ 46) – were fraudulent in and of themselves. But as Synopsys points out, the emails
19
themselves do not need to be stand-alone actionable frauds as long as they were in furtherance of
20
the fraudulent scheme.15 Synopsys also points to other wire transmissions – although not
21
individually identified in the RICO “wire fraud” section of the AC – that were used in furtherance
22
14
23
24
25
26
27
28
Defendants argue that Synopsys does not identify the specific software it believes defendants
copied and distributed, or that defendants copied and distributed those specific titles (as opposed
to mere use). Ubiquiti MTD Reply 9. But Synopsys adequately alleges unauthorized “access and
use” of identified titles (see, e.g., ¶ 28), as well as the making and distributing copies of that
software (AC ¶ 29). Moreover, as noted above, “copying” occurs when a software program is
“used” to the extent it is loaded into a computer’s RAM. These allegations are sufficient.
15
See, e.g., United States v. Lo, 231 F.3d 471, 478 (9th Cir. 2000) (discussing analogous mail
fraud statute and noting that while “a mailing must occur in the execution of the scheme . . . the
mailing need not be an essential element of the scheme. Rather, it is sufficient if the mailing is
‘incident to an essential part of the scheme’”).
24
1
of defendants’ scheme to defraud, such as defendants’ fraudulent access of Synopsys’ servers in
2
California over the internet and Tsai’s and UNIL’s continued contacts via email with Synopsys in
3
California about Ubiquiti’s and then UNIL’s purported interests in evaluating the Synopsys
4
software when those representations were part of the scheme to gain access to the software so it
5
could be pirated.16 The AC also sufficiently alleges that the defendants used the internet to send
6
and access unauthorized copies of the software and the illegal keys.
Relatedly, Ubiquiti argues that Synopsys fails to identify with Rule 9(b) particularity: (i)
8
what fraudulent representations or omissions were made to Synopsys; (ii) that they were false or
9
misleading when made; (iii) that the misrepresentations and omitted facts were material; (iv) that
10
Synopsys relied on them to its detriment; and, (v) with respect to omissions, that Tsai owed a duty
11
United States District Court
Northern District of California
7
to disclose to Synopsys. Ubiquiti MTD 17-18. However, the AC is replete with details regarding
12
the fraudulent scheme; that Ubiquiti and UNIL, acting through Tsai, never intended to truly
13
evaluate Synopsys’ software but instead sought access in order to pirate it and that they did
14
exactly that once they secured access through the evaluation license keys. How the scheme was
15
carried out thereafter – with the creation of counterfeit license keys, repeated access of Synopsys’
16
websites for documentation and support – is described in detail. The specific communications
17
made by defendants to effectuate the scheme (emails and meetings) are repeatedly identified.17
Similarly, if the only allegations were that defendants accessed only the software programs
18
19
allowed under the evaluation licenses, using only legitimate keys, installing the programs only on
20
agreed-to computers, and accessing that software only during the timeframe agreed-to for
21
evaluation, defendants’ argument that Synopsys should be required to state additional facts
22
showing why defendants’ representations were false when made might carry some weight. But
23
24
25
26
27
28
16
Ubiquiti argues that Synopsys has not alleged sufficient facts that the wires used were interstate,
but the facts regarding UNIL’s operation in Taiwan, the use of keys by UNIL employees, and
computers associated with UNIL accessing and running Synopsys software through Synopsys’
California-based servers are sufficient. Of course, if discovery does not demonstrate that interstate
wires were used, this would be a ground for summary judgment.
17
Ubiquiti’s focus on cases addressing omissions and “failure to disclose” fraud theories that
require pleading a statutory or fiduciary duty between the parties is misplaced. Ubiquiti MTD 1718.
25
1
that is not this case as alleged. Allowing this case to go forward on a fraud theory will not turn
2
every evaluation license negotiated between two parties when a license deal is not consummated
3
into a potential fraud case. It is the additional conduct alleged here – the years-long impermissible
4
access to Synopsys’ servers and use of their software thousands of times with counterfeit keys –
5
that plausibly suggests fraudulent intent existed at the inception of the parties’ relationship.
6
7
8
9
Wire fraud has been adequately alleged as a predicate act.
2.
Pattern of Racketeering
Ubiquiti also argues that a RICO “pattern” has not been alleged. However, Synopsys has
alleged a scheme of first securing access to legitimate keys and software under fraudulent
pretenses and then repeated and continued impermissible access to and use of that software over a
11
United States District Court
Northern District of California
10
period of three years using counterfeit keys. There is no support for defendants’ attempt to limit
12
the scope of the racketeering activity to just the mere seven-month evaluation period. The fact
13
that the fraud may have originally occurred towards the inception of the parties’ relationship
14
(resulting in Ubiquiti and UNIL receiving temporary license keys) does not mean that the
15
continued actions to effectuate the scheme (continued use of software with both legitimate and
16
illegitimate keys created and shared by defendants, resulting in ongoing copyright infringement)
17
are not part of the pattern.
18
Synopsys also argues it has alleged a sufficient threat of ongoing activity, contending that
19
defendants still have Synopsis’ software on their systems and access to illegal keys. Defendants
20
argue that these allegations are absent from the AC. Reply 13. Synopsys is given leave to include
21
them in its Second Amended Complaint.
22
23
3.
Enterprise
Under 18 U.S.C. § 1962(c), a plaintiff must prove the existence of at least two distinct
24
entities: “(1) a ‘person’; and (2) an ‘enterprise’ that is not simply the same ‘person’ referred to by
25
a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001). Synopsys
26
has two theories of RICO enterprise. First, Ubiquiti and UNIL as otherwise legitimate businesses
27
joined with Tsai and “other employees” to conduct the affairs of Ubiquiti and UNIL through a
28
course of racketeering activity. Second, an association-in-fact enterprise (Piracy Enterprise) was
26
1
developed where Tsai, Ubiquiti, UNIL and others employees all came together to create the Piracy
2
Enterprise and conduct the illegal acts.
3
Under section 1962(c), the “person” who allegedly violates the statute must be distinct
4
from the “RICO enterprise” whose affairs that person is conducting or participating in. Cedric
5
Kushner Promotions, Ltd. v. King, 533 U.S. 158, 162 (2001). Ubiquiti argues that Synopsys has
6
not alleged a “person” distinct from the “RICO enterprise” because Ubiquiti and UNIL cannot be
7
both RICO defendants/persons and the RICO enterprise, and the inclusion of Tsai, as a corporate
8
employee of Ubiquiti, does not alter that fact. However, that Ubiquiti and UNIL are named as
9
RICO defendants/persons does not necessarily mean that a distinct RICO enterprise cannot be
alleged. The allegations are that Ubiquiti and UNIL, along with Tsai and other unidentified
11
United States District Court
Northern District of California
10
employees, came together for the purpose of conducting the affairs of Ubiquiti and UNIL through
12
RICO-prohibited fraud and copyright infringement; these persons created an association in fact
13
“Piracy Enterprise” that exists separately from the otherwise legitimate business of Ubiquiti and
14
UNIL.
District courts in the Ninth Circuit are somewhat split on the question of what is required
15
16
to show distinctness between related corporate entities. Some courts conclude that “the formal,
17
legal separation of the defendant entities satisfies the RICO distinctiveness requirement.”
18
Waldrup v. Countrywide Fin. Corp., No. 2:13-CV-08833-CAS, 2015 WL 93363, at *7 (C.D. Cal.
19
Jan. 5, 2015); see also Monterey Bay Military Hous., LLC v. Pinnacle Monterey LLC, 116 F.
20
Supp. 3d 1010, 1046 (N.D. Cal. 2015), order vacated in part on reconsideration on other grounds,
21
No. 14-CV-03953-BLF, 2015 WL 4624678 (N.D. Cal. Aug. 3, 2015) (“Defendants cannot shed
22
their other corporate distinctions when it suits them, particularly where it is alleged that the
23
separate corporate entities were critical in carrying out the racketeering activity.”);18 Negrete v.
24
18
25
26
27
28
Judge Freeman in Monterey Bay distinguished the primary case relied on by Ubiquiti for the
proposition that wholly-owned subsidiaries are not “distinct” enough to create an enterprise, In Re
Ice Cream Distributors of Evansville, LLC v. Dreyer's Grand Ice Cream, Inc., No. 09–5815 CW,
2010 WL 3619884 (N.D.Cal. Sept. 10, 2010), by noting that there was insufficient evidence in her
case of whether the subsidiaries were wholly-owned and controlled by one defendant. 116 F.
Supp. 3d. at 1046 n.20. The same is true here. Ubiquiti has been conspicuously vague –
presumably in light of UNIL’s pending motion to dismiss for lack of jurisdiction – regarding the
relationship between Ubiquiti and UNIL.
27
1
Allianz Life Ins. Co. of N. Am., 926 F.Supp.2d 1143, 1151 (C.D.Cal.2013) (finding that the
2
“formal separation [of parent and subsidiary companies] is alone sufficient to support a finding of
3
distinctiveness”). Others require “something more” than mere legal distinctiveness, like different
4
or uniquely significant role in the enterprise. See, e.g., In re Countrywide Fin. Corp. Mortgage
5
Mktg. & Sales Practices Litig., 601 F.Supp.2d 1201 (S.D.Cal.2009).
No matter which test I apply, at this juncture the allegations suffice to establish a RICO
6
enterprise. The presence of a separate corporate entity – UNIL – takes this case a step away from
8
cases finding insufficient distinctness where the alleged person is a corporate employee and the
9
alleged enterprise is the corporation. Ubiquiti and UNIL are separate corporate entities alleged to
10
have engaged in separate acts in furtherance of the conspiracy. This question may be revisited on
11
United States District Court
Northern District of California
7
summary judgment after discovery about the governance and operation of the two corporate
12
entities is conducted and as more evidence comes to light regarding whether the association-in-
13
fact enterprise was simply conducting its own affairs (e.g., the affairs of the corporations) or the
14
affairs of a distinct RICO enterprise.19
15
4.
No RICO Conspiracy Alleged
Finally, in addition to arguing that because Synopsys fails to allege a substantive RICO
16
17
violation there can be no conspiracy, Ubiquiti argues that Synopsys’ conspiracy claim fails for the
18
independent reason that Synopsys has failed to allege that any of the defendants “agreed to
19
facilitate” the scheme; in other words that all three reached an agreement to conduct the RICO
20
enterprise. All that the AC alleges, according to Ubiquiti, is that Tsai engaged in a series of
21
actions, which is insufficient.
But in addition to the actions of Tsai, other employees of Ubiquiti and UNIL are alleged to
22
23
have taken acts to support the conspiracy. Those allegations include the use of multiple illegal
24
keys connected to the names of employees of Ubiquiti and UNIL other than Tsai, as well as the
25
26
19
27
28
See, e.g., Gregory P. Joseph, Civil RICO a Definitive Guide 41 (ABA 2015) at § 9 (discussing
“Distinctness and Association-in-Fact Enterprises” and cases that have found insufficient
distinctness where the associated-in-fact enterprise is composed solely of the RICO defendant
persons).
28
1
use at least 39,000 times of the counterfeit keys to circumvent the Synopsys’ license key access-
2
control, and where those keys were used on multiple computers and devices associated with
3
Ubiquiti, UNIL, and others. AC ¶¶ 32, 59, 64. Fairly read, the allegations concern activities of all
4
three, going far beyond the activities of Tsai. Given the scope of the alleged piracy here,
5
agreement can be readily and plausibly inferred.
6
Therefore, Synopsys’ RICO claim has been adequately pleaded and may proceed.
7
Synopsys has leave to amend its Anti-Counterfeiting Act predicate acts (under 18 U.S.C. § 2318)
8
and the Access Device Fraud predicate acts (under 18 U.S.C. § 1029).
9
10
United States District Court
Northern District of California
11
D.
Fraud and Negligent Misrepresentation
1.
Legal Standard
Under FRCP 9(b), to state a claim for fraud, a party must plead with particularity the
12
circumstances constituting the fraud, and the allegations must be specific enough to give
13
defendants notice of the particular misconduct ... so that they can defend against the charge and
14
not just deny that they have done anything wrong.” See Kearns v. Ford Motor Co., 567 F.3d 1120,
15
1124 (9th Cir.2009) (citation omitted). “Averments of fraud must be accompanied by the who,
16
what, when, where, and how of the misconduct charged.” Vess v. Ciba-Geigy Corp., 317 F.3d
17
1097, 1106 (9th Cir. 2003) (citation omitted).
18
19
2.
Adequacy of Allegations
Ubiquiti generally reasserts the same arguments it made with respect to wire fraud as a
20
predicate act in arguing that Synopsys fails to adequately allege fraud and negligent
21
misrepresentation. However, Synopsys has identified the express representations made by Tsai
22
that it believes were false when made (i.e., that neither Ubiquiti nor UNIL had a honest and good
23
faith intent to actually evaluate Synopsys’ software and instead their intent was to copy and use it
24
without a license) and why those representations were false when made (i.e., the large scale
25
pirating and deception that Ubiquiti and UNIL subsequently engaged in). Whether Synopsys will
26
be able to prove these allegations is a different question, but Synopsys has adequately alleged the
27
facts supporting these claims in its AC.
28
In sum, Ubiquiti’s motion to dismiss is GRANTED in part. The claims under the Anti29
1
Counterfeiting Act (18 U.S.C. § 2318) are dismissed with leave to amend. The remaining claims
2
may proceed, although Synopsys may amend the deficiently alleged predicate acts and threat of
3
ongoing harm under its RICO claim.
4
II.
5
MOTION TO STRIKE AFFIRMATIVE DEFENSES
Ubiquiti’s declaratory relief counterclaim seeks a declaration that it cannot be liable for an
6
act of circumvention under 17 U.S.C. § 1201. Its breach of contract counterclaim is based on
7
Synopsys’ use of “monitoring software” placed in the software Synopsys provided to Ubiquiti and
8
the subsequent transfer and use of Ubiquiti’s confidential information to third parties, which
9
Ubiquiti claims violated the terms of the parties’ Master Non-Disclosure Agreement (MNDA).
10
Ubiquiti moves to strike each of Synopsys’ affirmative defenses.
United States District Court
Northern District of California
11
A.
12
The parties disagree on whether the Twombly/Iqbal standard or the lower “fair notice”
13
standard applies to determining whether affirmative defenses have been adequately pleaded. I
14
previously agreed with my colleagues in this district that the Twombly/Iqbal standard applies to
15
affirmative defenses. See BlackBerry Ltd. v. Typo Prod. LLC, No. 14-cv-00023-WHO, 2014 WL
16
1867009, at *4-5 (N.D. Cal. May 8, 2014). However, the Ninth Circuit subsequently decided
17
Kohler v. Flava Enterprises, Inc., 779 F.3d 1016 (9th Cir. 2015). Kohler affirmed a district
18
court’s finding that an affirmative defense was adequately pleaded, stating, “the ‘fair notice’
19
required by the pleading standards only requires describing the defense in ‘general terms.’” Id. at
20
1019. Since Kohler, many of my colleagues have nonetheless reaffirmed that Twombly/Iqbal
21
apply to affirmative defenses. See Murphy v. Trader Joe's, No. 16-CV-02222-SI, 2017 WL
22
235193, at *2 (N.D. Cal. Jan. 19, 2017) (“Kohler did not directly address the pleading standard for
23
affirmative defenses; the court touched on the issue only in passing. . . . Accordingly, in the
24
absence of clear controlling authority, the Court will follow numerous decisions in this district
25
applying the Twombly/Iqbal standard to affirmative defenses.”); see also Prod. & Ventures Int'l v.
26
Axus Stationary (Shanghai) Ltd., No. 16-CV-00669-YGR, 2017 WL 1330598, at *3 (N.D. Cal.
27
Apr. 11, 2017) (same); Perez v. Wells Fargo & Company, No. 14-cv-0989-PJH, 2015 WL
28
5567746, at *3 (N.D. Cal. Sept. 21, 2015) (concluding Kohler “did not specifically hold . . . that
Legal Standard
30
1
the Twombly/Iqbal standard does not apply to the pleading of affirmative defenses.”). Other
2
courts, however, disagree. See MyGo, LLC v. Mission Beach Indus., LLC, No. 16-cv02350- GPC,
3
2017 WL 107346, at *7 (S.D. Cal. Jan. 11, 2017) (applying “fair notice” standard); Bcompany v.
4
Courtesy Oldsmobile-Cadillac, Inc., No. 15-cv-01137, 2016 WL 615335, at *3 (E.D. Cal. Feb. 16,
5
2016) (collecting cases applying fair notice standard).
6
Acknowledging that this issue is not settled, I will follow the most recent decisions from
7
this Court and apply the Twombly/Iqbal standard. Under this standard, “a defense need not
8
include extensive factual allegations,” but “bare statements reciting mere legal conclusions may
9
not be sufficient.” Perez v. Gordon & Wong Law Grp., P.C., No. 11-cv-03323-LHK, 2012 WL
1029425, at *8 (N.D. Cal. Mar. 26, 2012). “In other words, the simple listing of ‘a series of
11
United States District Court
Northern District of California
10
conclusory statements asserting the existence of an affirmative defense without stating a reason
12
why that affirmative defense might exist’ is not sufficient.” Hernandez v. Dutch Goose, Inc., No.
13
C 13-03537 LB, 2013 WL 5781476, at *4 (N.D. Cal. Oct. 25, 2013).
14
B.
15
Ubiquiti moves to dismiss the following affirmative defenses as inadequately pleaded.
16
17
18
19
20
21
22
23
24
25
Failure to State Sufficient Facts
1.
Waiver
In its Waiver Affirmative Defense, Synopsys alleges:
Ubiquiti waived the rights, if any, underlying its counterclaims
because Ubiquiti voluntarily and intentionally abandoned or
relinquished such rights by expressly consenting to the complained
of conduct in agreeing to Synopsys’ websites’ terms of use, which
gave Ubiquiti notice of the complained of conduct (including that
Synopsys would monitor login activity and access to its software)
and required Ubiquiti to assent to such conduct. Ubiquiti also
implicitly consented to Synopsys’ conduct in the course of
communications with ITCA by confirming and sharing additional
information with ITCA about Ubiquiti’s activities, employees, and
purported proprietary information in or about the summer of 2016.
Amended Answer 7.
“Waiver is the intentional relinquishment of a known right with knowledge of its existence
26
and the intent to relinquish it.” Catch a Wave, Inc. v. Sirius XM Radio, Inc., No. C 12-05791
27
WHA, 2013 WL 1996134, at *2 (N.D. Cal. May 13, 2013) (striking affirmative defense for waiver
28
under Twombly/Iqbal standard for failure “to explain how or when plaintiff intentionally
31
1
relinquished any known right”).
Ubiquiti argues that Synopsys fails to adequately plead facts supporting waiver because it
2
3
fails to allege: “(i) the language in the terms of use to which Ubiquiti allegedly assented, (ii) when
4
the alleged assent occurred, (iii) where the alleged assent occurred (i.e., which website), and (iv)
5
who allegedly assented on behalf of Ubiquiti.” Mot. to Strike 5. It contends that these failures are
6
significant because of allegations Tsai makes in support of UNIL’s motion to dismiss for lack of
7
personal jurisdiction as well as assertions Synopsys makes in opposition to that motion, which
8
create ambiguities such that “Ubiquiti genuinely has no idea when or how it allegedly waived any
9
rights, or what the scope of such a waiver might have been.” Id., 5 n.2. However, any facts
asserted or positions taken in response to the motion to dismiss for lack of personal jurisdiction are
11
United States District Court
Northern District of California
10
not properly subject to notice on a motion to dismiss or strike under Rule 12.
Ubiquiti also argues that because what it complains of is the improper “transmission,
12
13
utilization, and disclosure” of Ubiquiti’s confidential information to third-parties in violation of
14
the parties’ MNDA, its theoretical agreement allowing Synopsys to monitor log-in activity and
15
access to its software cannot support waiver. Ubiquiti argues that the waiver defense is also
16
“entirely conclusory” given the “vaguely” described terms of use that Synopsys contends Ubiquiti
17
agreed to at an unidentified point in time.
I disagree. The applicable terms of use, when they were agreed to, and by whom, will be
18
19
readily determined through discovery. What those terms of use expressly or reasonably allow will
20
be determined at summary judgment or trial. Similarly, what the parties’ actual intent was with
21
respect to the MNDA versus the terms of use will also be fleshed out during discovery and any
22
legal issues will be resolved at summary judgment or trial. The facts alleged in support of this
23
affirmative defense recite far more than “mere legal conclusions” and are sufficient as well as
24
plausible. Ubiquiti – as shown in part by its merits-based arguments on Reply – knows exactly
25
how to challenge this defense. 20
26
20
27
28
Ubiquiti makes a number of “merits” based challenges to the waiver argument regarding the
subject matter of the MNDA; what it might have allowed or prohibited, and when it was entered
into vis-à-vis the terms of use, but fails to attach the MNDA itself. In Opposition, Synopsys
attaches both the MNDA and a version of its terms of use, arguing that those documents are
32
1
2.
Laches
In its Laches Affirmative Defense, Synopsys alleges:
2
3
4
5
6
7
8
Ubiquiti’s counterclaims are barred by the doctrine of laches.
Ubiquiti has known for years or at least many months of the
complained of conduct (including that Synopsys would monitor
login activity and access to its software) and failed to pursue any
claim or raise any objection based on such conduct. Ubiquiti agreed
to Synopsys’ websites’ terms of service in late 2013 and has known
since that time of the complained of conduct. At the latest, Ubiquiti
learned of Synopsys’ conduct in May 2016 when it received
Synopsys’ cease and desist communications, yet Ubiquiti took no
action. Synopsys will suffer evidentiary and economic prejudice as a
result of Ubiquiti’s unreasonable delay.
Amended Answer 7.
9
10
United States District Court
Northern District of California
11
12
13
To state a claim for laches, a defendant must allege that “(1) the plaintiff delayed in
initiating the lawsuit; (2) the delay was unreasonable; and (3) the delay resulted in prejudice.”
Petrella v. Metro-Goldwyn-Mayer, Inc., 695 F.3d 946, 951–52 (9th Cir. 2012), rev’d on other
grounds by 134 S. Ct. 1962 (2014). “Laches is an equitable defense that prevents a plaintiff, who
‘with full knowledge of the facts, acquiesces in a transaction and sleeps upon his rights.’” Danjaq
14
LLC v. Sony Corp., 263 F.3d 942, 950–51 (9th Cir. 2001) (internal citation omitted). As to
15
prejudice, there are generally two kinds, evidentiary and expectations. “Evidentiary prejudice
16
includes such things as lost, stale, or degraded evidence, or witnesses whose memories have faded
17
or who have died. . . . A defendant may also demonstrate prejudice by showing that it took actions
18
or suffered consequences that it would not have, had the plaintiff brought suit promptly.”
19
Id. at 955 (internal citation omitted).
20
Related to its argument on waiver, Ubiquiti asserts that the terms of use did not give
21
22
Synopsys the permission to engage in the conduct Ubiquiti complains of (the “transmission,
utilization, and disclosure” of Ubiquiti’s confidential information to third-parties). Mere recitation
23
to the terms of use in this affirmative defense is deficient, it contends, because it lacks factual
24
25
26
27
28
incorporated by reference by Ubiquiti’s counterclaim and by Synopsys’ Amended Answer.
Exhibits A & C to Oppo. In Reply, Ubiquiti ignores the actual language of those documents and
contends that they should be ignored because they are not supported by affidavit or declaration
and are not authenticated. Reply 4 n.3. Both sides are making merits arguments that are not
appropriately resolved here when the question is simply the adequacy of the pleading of the
waiver affirmative defense.
33
1
allegations showing that Ubiquiti could have slept on its rights or had full knowledge of the facts
2
from the alleged agreement to the terms of use in 2013. However, what was actually disclosed in
3
the terms of use and what Ubiquiti or a reasonable company would have known or expected to
4
have happened under those terms of use is something that will be determined after discovery and
5
at summary judgment or trial.
6
Similarly, Ubiquiti complains that the cease and desist from Synopsys in 2016 could not
have put Ubiquiti on notice that Synopsys had transmitted its confidential information to third
8
parties. As above, what Ubiquiti or an objective company would have understood as to how
9
Synopsys learned of Ubiquiti’s alleged continued use of Synopsys’ software in 2016 (and
10
therefore whether Ubiquiti or a reasonable company should have known transmission of
11
United States District Court
Northern District of California
7
confidential data to a third party had occurred) as well as the exact contours of what was disclosed
12
in that cease and desist will be fleshed out in discovery and determined through motion practice or
13
at trial. For now, the facts alleged in support of this affirmative defense recite far more than “mere
14
legal conclusions” and are sufficient as well as plausible.
15
As to the sufficiency of allegations of “prejudice” for laches, the type of prejudice claimed
16
to have been suffered by Synopsys is not expressly pleaded but Synopsys is correct that given
17
reasonable inference, the prejudice at issue is that relevant evidence has been lost since 2013 and
18
that Synopsys’ potential liability has increased over time. Oppo. 9.
19
20
21
22
23
24
25
3.
Mitigation
In its Mitigation Affirmative Defense, Synopsys alleges:
Synopsys incorporates the factual allegations set forth above and the
factual allegations of its Amended Complaint, including without
limitation paragraphs 1 through 66. Ubiquiti has failed to mitigate or
attempt to mitigate its damages, if any. Ubiquiti has known for years
or at least many months of the complained of conduct (including
that Synopsys would monitor login activity and access to its
software), yet Ubiquiti undertook no effort to remedy the alleged
unauthorized disclosure of its proprietary information.
Amended Answer 8. Ubiquiti moves to strike because (as above) it cannot be a defense to the
26
complained-of conduct of disclosure of Ubiquiti’s confidential information to third-parties because
27
the terms of use address something else. I have already rejected that line of argument. As to the
28
34
1
point of when Ubiquiti discovered the wrong – and therefore when the duty to mitigate arose – that
2
is subject to discovery (e.g., when did or should Ubiquiti have understood given the terms of use
3
that third-parties had access to its “confidential information” about IP addresses and users).
4
Finally, Ubiquiti also moves to strike because “mitigation” is not really an affirmative defense but
5
more of a factor in determining damages. However, because mitigation is relevant to and has a
6
“plausible bearing” to this litigation (even if not a stand-alone affirmative defense), I will not
7
strike it. See Platte Anchor Bolt, Inc. v. IHI, Inc., 352 F. Supp. 2d 1048, 1057 (N.D. Cal. 2004).
8
9
10
United States District Court
Northern District of California
11
12
13
14
4.
Novation
In its Novation Affirmative Defense, Synopsys alleges:
Ubiquiti’s breach counterclaim is barred by the doctrine of novation.
Subsequent to executing the contract underlying its counterclaim, on
November 26, 2013, Ubiquiti consented in writing to a superseding
Synopsys evaluation license agreement that expressly stated that it
extinguished the obligations underlying Ubiquiti’s counterclaim and
replaced them with new obligations under the evaluation license
agreement.
Amended Answer 8.
15
“Novation is the substitution of a new obligation for an existing one.” Cal. Civ.Code, §
16
1530. “The substitution is by agreement and with the intent to extinguish the prior obligation.”
17
Wells Fargo Bank v. Bank of Am., 32 Cal. App. 4th 424, 431 (1995) (citing Cal. Civ.Code, §§
18
1530, 1531). Under California law, a party attempting to prove “novation” must satisfy “four
19
essential requisites”: (1) the existence of a previous valid obligation; (2) the agreement of all the
20
parties to a new contract; (3) the extinguishment of the old contract; and (4) the validity of the new
21
one. See Miran v. Convergent Outsourcing, Inc., No. 316CV00692AJBJMA, 2017 WL 1410296,
22
at *3 (S.D. Cal. Apr. 20, 2017) (relying on Young v. Benton, 21 Cal. App. 382, 384 (1913)).
23
Ubiquiti initially argues that Synopsys fails to allege facts sufficient to establish novation
24
because (i) Synopsys fails to adequately allege the contents of the superseding Synopsys
25
evaluation license agreement and (ii) the subsequent evaluation license agreement could not
26
novate the MNDA because those agreements govern distinct subject matters. Mot. to Strike 10-
27
11. In Opposition, Synopsys attaches as exhibits the evaluation license and the MNDA; as noted
28
above, Ubiquiti objects to my consideration of those documents and disputes their authenticity.
35
1
Reply 4 n.3. Nonetheless, apparently because Ubiquiti thinks consideration of the terms of those
2
agreements is (for this argument) helpful to it, Ubiquiti addresses the contents of the MNDA and
3
the evaluation license and argues that “[n]o rational objective reading of these agreements leads to
4
the conclusion” that the evaluation license novated the MNDA. Reply 8 - 9. I will not get into the
5
merits by comparing these two agreements or make findings as to when the agreements were
6
entered into, because these arguments were raised only on reply. It is sufficient for present
7
purposes that Ubiquiti’s original argument (Synopsys didn’t plead enough facts) is without merit.
8
The novation defense has been adequately and plausibly alleged and Ubiquiti clearly has enough
9
information to contest it.
Failure to Meet Rule 9(b)’s Specificity Requirement
C.
11
United States District Court
Northern District of California
10
Ubiquiti moves to dismiss the following affirmative defenses for the failure to plead facts
12
13
to the required specificity for claims sounding in fraud under Rule 9(b).
1.
Fraud
14
In its Fraud Affirmative Defense, Synopsys incorporated the allegations of fraud from its
15
AC, but it also separately identifies eleven affirmative misrepresentations or omissions made by
16
Tsai to Synopsys between October 2013 and May 2014. Amended Answer 5-6. The “heart” of
17
this defense, according to Synopsys’ Opposition, is that Ubiquiti fraudulently induced Synopsys to
18
enter into the MNDA (and other agreements). Oppo. 12-13. Ubiquiti asserts that the allegations
19
of “fraud” against it cannot form a stand-alone defense to its claim that Synopsys breached the
20
MNDA claim, because the MNDA is not specifically mentioned in the fraud affirmative defense
21
averments and is mentioned only in passing in the paragraph 40 of the AC, incorporated by
22
reference. Reply 10-11. Ubiquiti claims that because the affirmative defense itself does not refer
23
to AC ¶ 40 or otherwise itself give notice that the basis of the fraud claim is fraudulent inducement
24
for the MNDA, this affirmative defense is insufficiently pleaded and provides insufficient
25
guidance for Ubiquiti moving forward.
26
27
I agree that the fraud affirmative defense could have been more clearly pleaded, but
Ubiquiti clearly understands the basis for the defense. That is sufficient.
28
36
1
2.
Unclean Hands
In its Unclean Hands Affirmative Defense, Synopsys incorporated the allegations from its
2
Amended Complaint, and stated:
3
6
Ubiquiti engaged in unjust bad faith conduct that is directly related
to the subject matter of the litigation and Ubiquiti’s counterclaim by
deceiving Synopsys to gain access to its software and by carrying
out a scheme to pirate Synopsys’ software using counterfeit license
keys and unauthorized copies of Synopsys’ software. Ubiquiti’s bad
faith conduct was egregious and caused serious harm to Synopsys.
7
Amended Answer 6-7. As the alleged deficiencies with this defense are the same as with the fraud
8
affirmative defense that I rejected above, this affirmative defense is sufficiently pleaded.
4
5
9
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
18
19
3.
Estoppel
In its Estoppel Affirmative Defense, Synopsys incorporated the allegations from its
Amended Complaint, and added that:
Ubiquiti’s counterclaims are estopped by virtue of its own
misconduct, which includes deceiving Synopsys to gain access to its
software and using counterfeit license keys to pirate Synopsys
software. Ubiquiti knew all material facts about its conduct with
respect to its scheme to pirate Synopsys’ software and intended for
Synopsys to rely on Ubiquiti’s conduct and representations.
Synopsys was ignorant to the true facts and relied on Ubiquiti’s
conduct and representations, causing Synopsys prejudice. In
addition, Ubiquiti affirmatively represented its assent to the
complained of conduct. It would be unjust to award Ubiquiti relief
under the circumstances.
Amended Answer 7-8.
Estoppel requires four elements: “(1) the party to be estopped must know the facts; (2) he
20
must intend that his conduct shall be acted on or must so act that the party asserting the estoppel
21
has a right to believe it is so intended; (3) the latter must be ignorant of the true facts; and (4) he
22
must rely on the former’s conduct to his injury.” Catch a Wave, Inc. v. Sirius XM Radio, Inc.,
23
2013 WL 1996134, at *3. Synopsys clarifies that this defense is based in part on the same
24
grounds as fraud and in part on the same grounds as waiver (addressed above). As above and for
25
the same reasons as applied to the fraud-based defense, this defense is adequately alleged.
26
27
28
4.
Mistake
In its Mistake Affirmative Defense, Synopsys incorporated the allegations from its
Amended Complaint, and added that:
37
Ubiquiti’s breach counterclaim is barred by the doctrine of mistake.
Synopsys was mistaken about Ubiquiti’s true intent in entering into
the underlying agreement because Synopsys believed Ubiquiti was
acting in good faith and intended to license Synopsys software.
Ubiquiti knew of Synopsys’ mistake because it affirmatively acted
to give Synopsys the mistaken impression that Ubiquiti intended to
license Synopsys software and comply with all license terms.
Synopsys’ mistaken understanding was caused by no fault of
Synopsys. Synopsys would not have entered into the agreement but
for its mistake.
1
2
3
4
5
6
Amended Answer 8-9. Under California law, “‘[w]here a mistake of one party at the time a
7
contract was made as to a basic assumption on which he made the contract has a material effect on
8
the agreed exchange of performances that is adverse to him, the contract is voidable by him if he
9
does not bear the risk of the mistake under the rule . . . , and (a) the effect of the mistake is such
10
that enforcement of the contract would be unconscionable, or (b) the other party has reason to
United States District Court
Northern District of California
11
know of the mistake or his fault caused the mistake.” Spitzer v. Aljoe, No. 13-CV-05442-MEJ,
12
2016 WL 3279167, at *10 (N.D. Cal. June 15, 2016) (quoting Restatement (Second) of Contracts
13
14
§ 153). Ubiquiti first argues that because this claim is coextensive with Synopsys’ fraud claim, it
fails for the same reasons. However, Synopsys’ fraud affirmative defense has been sufficiently
15
stated and the same is true for mistake.
16
Ubiquiti also argues that Synopsys has not alleged facts showing that its alleged mistake
17
18
(not knowing Ubiquiti had no intent to respect the parties’ contractual agreements) had “a material
effect on the agreed exchange of performance” in a way that was adverse to Synopsys. 21
19
However, Synopsys has alleged facts as to how Ubiquiti intended to and did mislead Synopsys,
20
part of which resulted in the signing of the MNDA. As a result, Synopsys relied on the MNDA in
21
providing Ubiquiti access to its software and other resources when it otherwise would not have.
22
Based on the facts alleged in the AC and incorporated into the Amended Answer, this defense has
23
been adequately alleged.
24
25
26
27
28
21
In Reply, Ubiquiti argues that Synopsys must also allege facts showing enforcement of the
contract would be unconscionable, but Ubiquiti relies on the wrong test. This is not a case of
“unilateral mistake,” where one of the parties to the contract “has no reason to know of and does
not cause the” other side’s “unilateral mistake of fact.” See Donovan v. RRL Corp., 26 Cal. 4th
261, 282 (2001), as modified (Sept. 12, 2001). Here, Synopsys alleges that Ubiquiti had
knowledge of the mistake and/or caused the mistake, therefore, unconscionability need not be
alleged.
38
D.
1
Unjust Enrichment
Finally, Ubiquiti moves to strike the “unjust enrichment” affirmative defense, arguing that
2
is it not an affirmative defense, and even if it is, has not been adequately alleged because: (i) none
3
of Synopsys’ other equitable defenses have been adequately alleged; (ii) Synopsys fails to allege
4
how permitting recovery by Ubiquiti on its breach of MNDA claim would be unjust; and (iii)
5
Synopsys fails to allege any connection between Ubiquiti’s alleged piracy and the breach of the
6
MNDA. Mot. 17-18. In its Amended Answer, Synopsys alleges the following:
7
Synopsys incorporates the factual allegations set forth above and the
factual allegations of its Amended Complaint, including without
limitation paragraphs 1 through 66. Ubiquiti has been unjustly
enriched by its piracy of Synopsys’ software and is therefore
estopped from seeking any recovery. Ubiquiti pirated Synopsys’
software to avoid paying millions of dollars-worth of license fees to
Synopsys. It would be unjust for Ubiquiti to retain the benefits of
that piracy or to obtain any relief on it counterclaims.
8
9
10
United States District Court
Northern District of California
11
12
Amended Answer 8.
13
As an initial matter, the California Supreme Court recently confirmed that unjust
14
enrichment can be a stand-alone cause of action. See Bruton v. Gerber Prod. Co., No. 15-15174,
15
2017 WL 1396221, at *1 (9th Cir. Apr. 19, 2017) (relying on Hartford Cas. Ins. Co. v. J.R. Mktg.,
16
L.L.C., 61 Cal.4th 988, 1000 (2015)). In addition, as discussed above, Synopsys’ equitable
17
defenses have been adequately alleged. As to the specifics of why preventing Ubiquiti from
18
recovering on its breach claim would be unjust, the allegations are adequate. Ubiquiti understands
19
exactly why Synopsys thinks it would be unjust for Ubiquiti to receive or retain damages (if any)
20
from Synopsys for the alleged breach of contract if Synopsys proves its piracy claims. I will not
21
strike this defense.
Ubiquiti’s motion to strike is DENIED.
22
23
III.
UNIL MOTION TO DISMISS
24
A. Motion to Dismiss for Lack of Personal Jurisdiction
25
UNIL moves to dismiss, arguing that there is no basis for general or specific jurisdiction
26
over it with respect to the claims made by Synopsys. Dkt. No. 35. In Opposition, Synopsys relies
27
on specific, not general, jurisdiction. It asserts that by illegally downloading the software and user
28
materials from its websites located in California (or in one instance, in Ireland but through a host
39
1
located in California), UNIL has not only expressly agreed to venue here but has also purposefully
2
directed its illegal conduct and performed some of that conduct in California.
3
4
1.
Legal Standard
For the exercise of personal jurisdiction over a defendant, due process requires that the
5
defendant “have certain minimum contacts” with the forum state “such that the maintenance of the
6
suit does not offend ‘traditional notions of fair play and substantial justice.’” Int'l Shoe Co. v.
7
Washington, 326 U.S. 310, 316 (1945).
8
9
In the Ninth Circuit, there is a three-prong test for analyzing a claim of specific personal
jurisdiction: (1) the non-resident defendant must purposefully direct his activities or consummate
some transaction with the forum or resident thereof; or perform some act by which he purposefully
11
United States District Court
Northern District of California
10
avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits
12
and protections of its laws; (2) the claim must be one which arises out of or relates to the
13
defendant’s forum-related activities; and (3) the exercise of jurisdiction must comport with fair
14
play and substantial justice, in other words, be reasonable. Schwarzenegger v. Fred Martin Motor
15
Co., 374 F.3d 797, 802 (9th Cir. 2004). The “purposeful availment analysis is most often used in
16
suits sounding in contract. . . . A purposeful direction analysis, on the other hand, is most often
17
used in suits sounding in tort.” Id.
18
As both sides point out, under the second prong, the Supreme Court recently clarified that
19
“[f]or a State to exercise jurisdiction consistent with due process, the defendant’s suit-related
20
conduct must create a substantial connection with the forum State.” Walden v. Fiore, 134 S. Ct.
21
1115, 1121 (2014). That occurs where, first, the relationship “arise[s] out of contacts that the
22
‘defendant himself’ creates with the forum State.” Id. at 1122. Second, the “minimum contacts”
23
analysis “looks to the defendant’s contacts with the forum State itself, not the defendant’s contacts
24
with persons who reside there.” Id. The concern, especially with respect to the second factor, is to
25
hail a defendant “into court in a forum State based on his own affiliation with the State, not based
26
on the ‘random, fortuitous, or attenuated’ contacts he makes by interacting with other persons
27
affiliated with the State.” Id. at 1123.
28
40
2.
1
2
UNIL’s Contacts with California
As alleged, UNIL’s connections with and activities directed at California include:
Tsai, while physically located in California, began negotiating with Synopsys for
3
evaluation access to its software for evaluations to be done in Taiwan. AC ¶ 49. Tsai
4
admits his initial contact was with Bergman in California, with UNIL employees copied on
5
those emails. According to Tsai, the subsequent contacts were with Huang, whom Tsai
6
believes is associated with Synopsys Taiwan. Tsai Decl. ¶ 6.
7
Tsai continued the negotiations on behalf of UNIL, attending an in-person meeting in
8
Taiwan. AC ¶ 50. Tsai asserts that the only Synopsys employees involved in that meeting
9
were Synopsys Taiwan employees. Tsai Decl. ¶¶ 9-10.
10
United States District Court
Northern District of California
11
The software and documentation UNIL downloaded on April 16, 2014 – as a result of
Tsai’s negotiations – came from servers in California, and the software downloaded by
12
UNIL on May 19, 2014 came via a remote host located in California. AC ¶¶ 53, 56.
13
Synopsys alleges that UNIL and the other defendants continued to access Synopsys’
14
California-based websites after that time. Id. ¶ 56.
15
Synopsys alleges that in order to download that materials at issue, the user would have had
16
to agree to terms of use, which contain choice of law and venue provisions consenting to
17
jurisdiction in this Court. AC ¶ 17. Tsai does not indicate who downloaded the software
18
on behalf of UNIL, limiting his declaration to his initial download of the VCS software on
19
behalf of Ubiquiti. Tsai Decl. ¶ 11.
20
21
Ubiquiti and UNIL used the same “virtual machines” to run unauthorized copies of
Synopsys’ software using counterfeit license keys, and some of these machines were
22
located in California. AC ¶ 62.
23
Using Ubiquiti and UNIL’s shared IT infrastructure, UNIL transmitted counterfeit keys
24
and key generation tools to Ubiquiti in California. AC ¶¶ 57-58.
25
26
a.
Terms of Use
Synopsys argues first that through accessing Synopsys’ customer support and download
27
websites (hosted physically in or remotely through California), UNIL necessarily agreed to
28
41
1
Synopsys’ venue selection clause placing jurisdiction in this Court. Oppo. 6-7; AC ¶ 17.
In Reply, UNIL relies on the Tsai declaration stating that when he downloaded software
2
for Ubiquiti in late 2013, he did not recall agreeing to terms of use. Reply 2; Tsai Decl. ¶ 11.
4
However, Tsai is not exactly adamant about not agreeing to any terms of use. Instead, he simply
5
cannot recall that he did. Moreover, Tsai does not address who at UNIL downloaded the software
6
and other documentation in April and May 2014. Nor does Tsai address any use of Synopsys’
7
websites after that time, despite Synopsys’ allegations that UNIL and the other defendants
8
continued to access Synopsys’ websites in conjunction with their use of the software downloaded
9
in April and May 2014. Instead of providing fact testimony to counter Synopsys’ allegations,
10
UNIL argues that because Tsai didn’t see any or remember agreeing to any terms of use, there
11
United States District Court
Northern District of California
3
must have been none and that “would have been true” at the time unidentified users at UNIL
12
downloaded Synopsys’ files “in that same time period.” Reply 3.
13
UNIL attempts to skip over the gaps in Tsai’s declaration, arguing that it needn’t come
14
forward with facts because the initial burden is on Synopsys to present affirmative proof that a
15
UNIL user “clicked through” and affirmatively agreed to their terms of use as of a specific date.
16
Reply 2. UNIL points out that in its Opposition, Synopsys may have undercut its own argument
17
by seemingly admitting that the venue selection clause may not have been in place prior to
18
November 24, 2014. Oppo. 6 (“The evidence will show that UNIL assented to jurisdiction at least
19
by accessing Synopsys’ customer support and file download websites after November 24, 2014,
20
thereby agreeing to terms of use . . . .’”). However, Synopsys has also alleged that UNIL and the
21
other defendants “continued” to access Synopsys websites after the May 2014 download. Oppo.
22
6-7.
23
24
25
26
On this record, UNIL has not shown why Synopsys’ allegations of UNIL’s agreement to
Synopsys’ terms of use does not weigh strongly in favor of jurisdiction over UNIL.
b.
Purposeful Direction
Even if UNIL was correct and neither Tsai nor anyone else at UNIL agreed to Synopsys’
27
terms of use, there are still sufficient allegations of purposeful direction to support jurisdiction
28
over UNIL. Synopsys points to the following: (i) UNIL’s uncontested downloading of software
42
1
from servers located in California, where Synopsys is headquartered; (ii) allegations that UNIL
2
transmitted counterfeit and illicit license keys as well as unauthorized copies of software to
3
California-based Ubiquiti; (iii) UNIL is associated with virtual machines that used counterfeit
4
license keys within California; and (iv) a UNIL employee contacted Synopsys’ U.S.-based
5
customer service support personnel to obtain assistance. These intentional acts, according to
6
Synopsys, demonstrate that UNIL purposefully aimed its conduct to California. Oppo 8-9.
7
As to the first acts of downloading, UNIL argues that Synopsys has failed to “prove” that
8
any UNIL employees knew Synopsys had servers in California. It relies exclusively on Tsai’s
9
Reply Declaration where Tsai –who again expressly disclaims being a UNIL employee, yet is
testifying on behalf of what UNIL did and knew – says that in his experience “a user of a
11
United States District Court
Northern District of California
10
company’s file download website may not know where that company’s computer servers are
12
located.” Tsai Reply Decl. ¶ 5. Synopsys points out that at this juncture it cannot disprove what
13
UNIL employees actually knew, but that it has presented detailed allegations regarding Synopsys
14
being headquartered in California and UNIL’s knowledge of the same given its experience in the
15
industry. I agree that those allegations make it sufficiently plausible to infer knowledge or
16
reckless disregard on the part of UNIL. See Walden, 688 F.3d at 575 (“We will draw reasonable
17
inferences from the complaint in favor of the plaintiff where personal jurisdiction is at stake, and
18
will assume credibility.”).
19
Synopsys also relies on decisions that have found that there were sufficient contacts where
20
defendants access intellectual property on servers within the forum state. For example, in
21
Microsoft Corp. v. Mountain W. Computers, Inc., No. C14-1772RSM, 2015 WL 4479490 (W.D.
22
Wash. July 22, 2015), the district court (following Walden) held that where “[d]efendants
23
affirmatively contacted Microsoft through internet contact with its servers and by telephone to
24
validate the software it was installing,” that was sufficient “express aiming,” regardless of
25
“whether Defendants knew where Plaintiff's servers were located” because defendants “admit that
26
they knew Microsoft is located in Washington.” Id. at *7; see also Gen. Motors L.L.C. v. Autel.
27
US Inc., No. 14-14864, 2016 WL 1223357, at *4 (E.D. Mich. Mar. 29, 2016) (“that Autel ITC has
28
reached into Michigan to access GM’s intellectual property located on its servers residing in
43
1
Michigan. . . . This is an example of purposeful availment.”); see also Autodesk, Inc. v. Kobayashi
2
+ Zedda Architects Ltd., 191 F. Supp. 3d 1007, 1018 (N.D. Cal. 2016) (“Defendant’s alleged
3
copying of Plaintiff's software purportedly caused Plaintiff injury in California, and this particular
4
injury would not have occurred ‘but for’ Defendant’s alleged infringing conduct.”).
UNIL attempts to distinguish the Microsoft case by arguing that in that case there were
5
allegations there that the defendant entered an unauthorized key on Microsoft’s computer server in
7
Washington to unlock a security feature, but here Synopsys gave UNIL permission to download
8
the software in April/May 2014. That is true, but it ignores Synopsys’ allegations that Synopsys
9
would not have given UNIL that permission but for UNIL’s fraudulent representations about its
10
intentions. As discussed above, Synopsys’ fraud-based allegations are sufficient and plausible.
11
United States District Court
Northern District of California
6
The Amended Complaint identifies the fraudulent statements that convinced Synopsys to provide
12
UNIL access to the software actually or virtually hosted on Synopsys’ California servers. That
13
those statements were made by Tsai, acting on behalf of UNIL and allegedly with the knowledge
14
of, if not the participation of, UNIL employees. UNIL does not dispute that because of
15
representations made by Tsai and the other UNIL employees at the Taipei in-person meeting,
16
UNIL secured access to and downloaded Synopsys’ software that was hosted physically or
17
virtually on California-based servers.22
As to the second and third acts, UNIL presents no evidence from a UNIL employee to
18
19
counter or raise an issue as to whether UNIL transmitted counterfeit and illegal license keys or
20
unauthorized software to Ubiquiti, or dispute that UNIL is associated with virtual machines that
21
used counterfeit license keys in California. Instead, UNIL relies on the Tsai and Wang Reply
22
declarations that state “to their knowledge,” as the only Ubiquiti employees who worked with
23
UNIL employees on semiconductor chip design activities, no UNIL employee transmitted to any
24
Ubiquiti employee “in California” unauthorized license keys or unauthorized copies of software.
25
26
27
28
22
UNIL appears to argue that because the in-person Taipei meeting was held with individuals Tsai
believes are employees of Synopsys Taiwan – assertions that Synopsys objects to, although
substantiated in part in Tsai’s Reply Declaration – there can be no fraud directed at California.
However, neither Tsai nor any UNIL employee declares that UNIL believed it was securing the
software from Synopsys Taiwan or that it was downloading the software from Synopsys Taiwan.
44
1
Tsai Reply Decl. ¶¶ 2-3, Wang Decl. ¶¶ 2-3. However, these declarations are from Ubiquiti
2
employees, not UNIL employees, and made only to the best of their knowledge. More
3
fundamentally, these assertions go to the heart of this case. UNIL cites no case law allowing a
4
defendant to avoid personal subject matter jurisdiction based on factual assertions that contradict
5
the heart and theory of the plaintiff’s complaint. “They did not do it” because I would have
6
known about it will not suffice.
Finally, UNIL does not address Synopsys’ allegations that Ubiquiti and UNIL share IT
8
infrastructure and it appears that UNIL and the other Enterprise members are “associated” with
9
virtual machines that used counterfeit license keys within California. AC ¶¶ 62, 133. Instead,
10
UNIL argues that Synopsys’ allegations are insufficient because Synopsys fails to identify with
11
United States District Court
Northern District of California
7
specificity the acts UNIL separately took in California that would support specific jurisdiction on
12
this basis. Reply 7 (citing AC ¶ 62). However, UNIL had the opportunity to contradict Synopsys’
13
allegations about its IT infrastructure and the acts but failed to do so. Further specificity will be
14
provided by Synopsys through discovery as the case progresses.
15
As to the fourth alleged intentional act – UNIL’s communications with California-based
16
Synopsys support personal – UNIL argues that the U.S.-based employee at issue was in Taiwan
17
when UNIL communicated with him. Tsai Decl. ¶ 12. I agree that if this was the only express
18
fact relied on by Synopsys, it would be insufficient. See, e.g., Walden, 134 S. Ct. at 1122 (“[O]ur
19
‘minimum contacts’ analysis looks to the defendant’s contacts with the forum State itself, not the
20
defendant’s contacts with persons who reside there.”). But this is not the only jurisdictional fact
21
alleged. The others are more than sufficient to demonstrate that UNIL’s intents with and
22
connections to California were far more than “random, fortuitous, or attenuated.” Id. at 1123.23
23
B.
24
UNIL incorporates and reasserts the arguments made by Ubiquiti addressed above on
Motion to Dismiss for Failure to State a Claim
25
23
26
27
28
As noted above, in addition to an analysis of purposeful direction and defendant’s forum-related
contacts, courts also consider whether exercise of jurisdiction is reasonable. In its Motion, UNIL
expressly and knowingly failed to raise an argument as to reasonableness of exercising
jurisdiction. UNIL MTD at 7 n.3. Having presented no argument on the point, I will not consider
it, but note that given the facts alleged and UNIL’s relationship to Ubiquiti, exercise of jurisdiction
over it in this forum is not unreasonable.
45
1
Ubiquiti and Tsai’s motion to dismiss under Rule 12(b)(6). UNIL makes an additional, separate
2
argument that because there are no allegations that UNIL used any counterfeit license keys or
3
infringed any copyrights within the United States, there is no liability under the DMCA or civil
4
RICO for its wholly extraterritorial conduct. I disagree. The Amended Complaint is replete with
5
allegations that UNIL accessed through fraud Synopsys’ software stored on servers in the United
6
States (or through a virtual host located in California). There are also adequate allegations that
7
UNIL had connections to virtual machines running in California using counterfeit keys and
8
running unauthorized software. See AC ¶¶ 28, 52-56, 62.
9
10
UNIL’s motion to dismiss for lack of jurisdiction and for failure to state a claim is
DENIED.
CONCLUSION
United States District Court
Northern District of California
11
12
For the foregoing reasons, Ubiquiti and Tsai’s motion to dismiss is GRANTED in limited
13
part with respect to the Anti-Counterfeiting Act claim , and as to some of the predicate acts under
14
RICO. Ubiquiti and Tsai’s motion to strike the affirmative defenses is DENIED. UNIL’s motion
15
to dismiss for lack of jurisdiction is DENIED. If Synopsys wishes to file a further Amended
16
Complaint, it must do so within twenty (20) days of the date of this Order.
17
18
IT IS SO ORDERED.
Dated: August 15, 2017
19
20
William H. Orrick
United States District Judge
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