Yue v. MSC Software Corporation
Filing
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Order by Hon. Phyllis J. Hamilton denying 37 Motion for Leave to File First Amended Complaint and to Lift Restriction on Discovery Period.(pjhlc2, COURT STAFF) (Filed on 7/15/2016)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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DONGXIAO YUE,
Case No. 15-cv-05526-PJH
Plaintiff,
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v.
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MSC SOFTWARE CORPORATION,
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United States District Court
Northern District of California
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Defendant.
ORDER DENYING LEAVE TO FILE
FIRST AMENDED COMPLAINT,
DENYING MOTION TO LIFT
RESTRICTION ON DISCOVERY
PERIOD, AND VACATING HEARING
Re: Dkt. No. 37
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Before the court is pro se plaintiff’s Dongxiao Yue’s motion for leave to file a first
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amended complaint and to lift the time restriction on the discovery period. Dkt. 37. The
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matter is fully briefed and suitable for decision without oral argument. Accordingly, the
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hearing set for July 20, 2016 is VACATED. Having read the parties’ papers and carefully
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considered their arguments and the relevant legal authority, and good cause appearing,
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the court hereby rules as follows.
BACKGROUND
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This is a copyright case involving computer software. Beginning in 1994, Dr. Yue
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developed a software program called “PowerRPC,” which allows computers to remotely
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access other computers. Compl. ¶ 11 (Dkt. 1). In 1996, Yue founded an LLC, Netbula,
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to market PowerRPC. Compl. ¶ 12. Yue is the founder and sole owner of Netbula LLC.
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In 2005 and 2006, Netbula registered two copyrights in PowerRPC. Compl. ¶ 4. In 2007,
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Yue registered a copyright in the “pre-1996” version of PowerRPC, and Netbula assigned
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its copyrights in PowerRPC to Yue. Compl. ¶ 4.
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Defendant MSC Software Corporation (“MSC”) developed and sells the software
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programs PATRAN and Supermodel. Compl. ¶¶ 24–25. Yue alleges that these
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programs incorporate and use copyrighted elements of the PowerRPC software. Compl.
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¶¶ 25–30. Based on that incorporation, plaintiff asserts five copyright claims against
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defendant. Compl. ¶¶ 38–68. Plaintiff also asserts a single claim of trademark
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infringement against defendant. Compl. ¶¶ 69–77.
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On February 26, 2016, MSC’s motion to dismiss Yue’s trademark claim came on
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for hearing. The court denied the motion. Dkt. 24. At a subsequent case management
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conference, the court set a pretrial schedule and limited the discovery period to the past
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five years. Dkt. 30.
Yue now brings a motion for leave to file a first amended complaint pursuant to
United States District Court
Northern District of California
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Federal Rule of Civil Procedure 15(a)(2), and to lift the limitation on the discovery period.
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Mot. at 1 (Dkt. 37). Yue’s proposed amended complaint seeks to assert two new claims
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(the “fraud claims”), alleging intentional fraud and unfair competition in violation of
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California law. See Proposed First Amended Complaint (“PFAC”) ¶¶ 84–97 (Dkt. 37-1).
Yue’s new fraud claims arise out of a 2001 contract between MSC and Netbula
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(the “Agreement”). In June 2001, MSC signed a software license agreement with
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Netbula, which included five developer licenses and the right to distribute 1000 copies of
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software containing the PowerRPC “runtime files.” PFAC ¶ 25. In August 2005, MSC
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terminated the Agreement. PFAC ¶ 27. Around that time, “Plaintiff requested MSC
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Software to provide an accurate count of the licenses” actually used under the
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Agreement; MSC gave this number as 159. PFAC ¶ 28. Yue alleges that when MSC
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terminated the Agreement, it “represented to Plaintiff that it had stopped using
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PowerRPC.” PFAC ¶ 85. Contrary to MSC’s representation, Yue alleges that “in fact”
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PATRAN and SuperModel were developed with and used PowerRPC and were infringing
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on “a massive scale since 2004.” PFAC ¶ 86. On the basis of these new fraud claims,
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Yue seeks to extend the discovery period “to June 2001 or earlier.” Mot. at 1.
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MSC opposes leave to amend the complaint as futile, because Yue lacks standing
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to assert the fraud claims. Opp’n at 1 (Dkt. 38). MSC contends that because the fraud
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and unfair competition claims arise from an agreement between MSC and Netbula, these
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causes of action belong to Netbula, and not Yue personally. Opp’n at 2. MSC argues
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that Yue attempts to blur the legal distinction between Yue and his company in order to
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circumvent the rule against pro se representation of corporate entities, noting Yue’s
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previous attempts, in other cases in this district, “to litigate, pro se, claims that properly
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belong to” Netbula. Opp’n at 1.
DISCUSSION
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A.
Legal Standards
United States District Court
Northern District of California
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1.
Federal Rule of Civil Procedure 15(a)(2)
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Under Federal Rule of Civil Procedure 15, a party may amend its pleading as
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matter of course within 21 days. Fed. R. Civ. P. 15(a)(1). Thereafter, amendment
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requires either the opposing party’s written consent or the court’s leave. Fed. R. Civ. P.
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15(a)(2). However, courts should “freely give leave when justice so requires.” Id. In
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deciding whether to grant a motion for leave to amend, the court considers bad faith,
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undue delay, prejudice to the opposing party, futility of amendment, and whether the
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moving party has previously amended the pleading. In re W. States Wholesale Natural
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Gas Antitrust Litig., 715 F.3d 716, 738 (9th Cir. 2013). Of these factors, the consideration
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of prejudice to the opposing party carries the greatest weight. Eminence Capital, LLC v.
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Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). “The party opposing amendment
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bears the burden of showing prejudice.” See DCD Programs, Ltd. v. Leighton, 833 F.2d
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183, 187 (9th Cir.1987).
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2.
Standing
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“Standing addresses whether the plaintiff is the proper party to bring the matter to
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the court for adjudication.” Chandler v. State Farm Mutual Auto. Ins. Co., 598 F.3d 1115,
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1122 (9th Cir. 2010). There are three requirements for standing: (1) the plaintiff must
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suffer an actual or imminent, concrete, and particularized injury-in-fact; (2) the injury must
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be fairly traceable, as a casual matter, to the conduct of the defendant; and (3) the injury
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must be redressable by a favorable judicial decision. See Lujan v. Defenders of Wildlife,
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504 U.S. 555, 560–61 (1992). “[A] plaintiff must demonstrate standing for each claim he
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seeks to press and for each form of relief that is sought. DaimlerChrysler Corp. v. Cuno,
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547 U.S. 332, 352 (2006) (citation and quotations omitted).
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B.
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Analysis
The determinative issue in this motion is whether Yue has standing to bring the
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fraud claims. If he does not, then granting leave to amend would be futile, unless
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Netbula were joined as a plaintiff. “Futility alone can justify a court’s refusal to grant
leave to amend.” Novak v. United States, 795 F.3d 1012, 1020 (9th Cir. 2015) (citations
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United States District Court
Northern District of California
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and quotations omitted).
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Yue’s fraud claims center on alleged misrepresentations that MSC made in 2005,
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surrounding the termination of MSC’s software license with Netbula. Yue claims that
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these misrepresentations led him to believe MSC had stopped using PowerRPC,
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preventing him from uncovering their infringement until 2014. PFAC ¶¶ 27–29, 85–86. It
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is not disputed that the software license was between MSC and Netbula, and that Yue
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was not personally a party to this contract. PFAC ¶ 25; Dkt 40, Ex. A.
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Yue argues that he has standing because the relevant misrepresentations were
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made to him. Reply at 6 (Dkt. 41). In particular, Yue cites an exchange between Netbula
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and him wherein Netbula represented the number of licenses used under the Agreement
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as 159. PFAC ¶ 28. MSC has produced this email exchange, which was made in July
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2005 between a representative of MSC and one “John Young,” using the email
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“sales@netbula.com”. Dkt. 40, Ex. C–E. Yue avers, plausibly, that “John Young” was an
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alias for Dongxiao Yue. Dkt. 41-1 ¶ 16.
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Accepting as true the allegation that the alleged misrepresentations were made to
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Yue in the literal sense, this does not mean that the fraud claims are Yue’s to assert.
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When communicating with MSC in 2005, Yue was clearly acting on Netbula’s behalf and
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as a representative of Netbula. Yue used the “sales@netbula.com” email address, and
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he signs the email “John Young; Netbula LLC”. Dkt. 40, Ex. C. Moreover, given the
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context, it is obvious that Yue was acting on Netbula’s behalf. The 2005 communications
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between MSC and Yue were all in relation to the 2001 Agreement between MSC and
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Netbula. Dkt 40, Ex. A.
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Because the alleged misrepresentations were made to Netbula, and concerned a
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contractual relationship between MSC and Netbula, Yue lacks standing to assert these
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claims. “A person who is not a party to a contract does not have standing either to seek
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its enforcement or to bring tort claims based on the contractual relationship.” Ambers v.
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Wells Fargo Bank, N.A., 13–cv–03940–N C, 2014 WL 883752, at *4 (N.D. Cal. Mar. 3,
2014) (emphasis added). See also Paclink Commc’ns Int’l v. Superior Court, 90 Cal.
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United States District Court
Northern District of California
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App. 4th 958, 965 (2001) (“Because members of the LLC hold no direct ownership
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interest in the company’s assets, the members cannot be directly injured when the
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company is improperly deprived of those assets.”); Lombardi v. Pleasure Cove Resort
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Asset Mgmt. Grp., No. C 05-05219 RS, 2006 WL 1709723, at *2 (N.D. Cal. June 21,
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2006) (“Under California law that governs the LLC, Petty’s status as member of the LLC
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does not give him any legal interest in the property of the LLC.”) (citation omitted).
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The facts of NovelPoster v. Javitch Canfield Group are instructive here. See No.
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13-CV-05186-WHO, 2014 WL 5687344 (N.D. Cal. Nov. 4, 2014). In NovelPoster, Mark
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Javitch, the founder and owner of The Javitch Group LLC, entered into an agreement
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between his LLC and Alex Yancher regarding Yancher’s business NovelPoster. Id. at *1.
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After this business relationship soured, Javitch’s LLC took control of NovelPoster in
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attempt to mitigate their damages from a breach of contract. Id. at *2. Because the
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contract at issue was “between counterdefendants and The Javitch Group LLC, not
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between counterdefendants and [Javitch]”, the court held that the breach of contract
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claims could not be asserted by Javitch, a non-party to the contract. Id. at *4–*5.
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Moreover, because the fraud claims are “injuries arising directly from the alleged
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contract,” they too could not be brought by Javitch. Id. at *6. This result aligns with the
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general rule that, to prove fraud, “it is axiomatic that plaintiff must allege she ‘actually
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relied upon the misrepresentation.’” Schauer v. Mandarin Gems of Cal., Inc., 125 Cal.
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App. 4th 949, 960 (2005) (emphasis added). Here, Netbula, not Yue, is the party that
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would have relied on the alleged misrepresentations.
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Yue also argues that his “pre-1996” copyright in PowerRPC gives him standing to
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bring the fraud claims. The argument appears to be that even if the misrepresentations
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were not made to him personally, he suffered indirect injury from the fraud as the
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copyright owner of the predecessor code to PowerRPC. Reply at 2–4. Although the
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complaint tries to blur any distinction by referring generally to “Plaintiff’s software,” the
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copyrighted work that MSC allegedly used after its 2005 termination would be the same
work that was the subject of the Agreement between Netbula and MSC. See PFAC
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United States District Court
Northern District of California
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¶ 27–29. Prior to 2007, that work was owned by Netbula. PFAC ¶ 4; Dkt. 41-1 Ex. 2.
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“Netbula PowerRPC” may well have been a derivative work of code that Yue wrote prior
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to creating Netbula in 1996, but there is no allegation that it was unauthorized. 17 U.S.C.
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§ 103. Moreover, the context makes it clear that Yue, who founded Netbula in order to
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market and distribute PowerRPC, granted Netbula an implied license in any pre-1996
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copyright interest during the relevant period. Any copyright injury prior to 2007 would
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thus be to Netbula, and not Yue personally.
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Accordingly, plaintiff lacks standing to bring the fraud claims. Granting leave to
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amend would be futile, unless and until Netbula is joined as a party. Because Yue’s
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request to lift the restriction on the discovery period is based upon the new fraud claims,
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this request, too, must be denied. The court’s prior order required a showing of good
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cause to extend the discovery period beyond five years, Dkt. 30, and the fraud claims do
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not provide such a basis for extension.
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CONCLUSION
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For the foregoing reasons, plaintiff’s motion for leave to file an amended complaint
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and to lift the restriction on the discovery period is DENIED. The hearing set for July 20,
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2016 is VACATED. If plaintiff wishes to assert the fraud claims, he will need to join
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Netbula as a plaintiff, secure counsel, and seek leave of the court or consent from the
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defendant to amend the complaint.
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IT IS SO ORDERED.
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Dated: July 15, 2016
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__________________________________
PHYLLIS J. HAMILTON
United States District Judge
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United States District Court
Northern District of California
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