MedTrak VNG, Inc. v. AcuNetx, Inc et al

Filing 59

ORDER that 46 Motion to Dismiss is DENIED. Signed by Judge Lloyd D. George on 9/26/13. (Copies have been distributed pursuant to the NEF - MMM)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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MEDTRAK VNG, INC.,

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Plaintiff,

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v.

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Case No. 2:12-cv-00853-LDG (GWF)

ACUNETX, INC., et al.,

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ORDER

Defendants.

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Defendant Chapin Hunt moves to dismiss (#46) plaintiff MedTrak VNG, Inc.’s

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complaint pursuant to Fed. R. Civ. Pro. 12(b)(6), for failure to state a claim. MedTrak

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opposes the motion (#49). Having considered the papers and pleadings, the Court will

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deny the motion.

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Motion to Dismiss

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The defendant’s motion to dismiss, brought pursuant to Fed. R. Civ. P. 12(b)(6),

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challenges whether the plaintiff’s complaint states “a claim upon which relief can be

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granted.” In ruling upon this motion, the court is governed by the relaxed requirement of

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Rule 8(a)(2) that the complaint need contain only “a short and plain statement of the claim

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showing that the pleader is entitled to relief.” As summarized by the Supreme Court, a

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plaintiff must allege sufficient factual matter, accepted as true, “to state a claim to relief that

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is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).

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Nevertheless, while a complaint “does not need detailed factual allegations, a plaintiff’s

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obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels

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and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”

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Id., at 555 (citations omitted). In deciding whether the factual allegations state a claim, the

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court accepts those allegations as true, as “Rule 12(b)(6) does not countenance . . .

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dismissals based on a judge’s disbelief of a complaint’s factual allegations.” Neitzke v.

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Williams, 490 U.S. 319, 327 (1989). Further, the court “construe[s] the pleading s in the

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light most favorable to the nonmoving party.” Outdoor Media Group, Inc. v. City of

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Beaumont, 506 F3.d 895, 900 (9 th Cir. 2007).

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However, bare, conclusory allegations, including legal allegations couched as

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factual, are not entitled to be assumed to be true. Twombly, 550 U.S. at 555. “[T]he tenet

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that a court must accept as true all of the allegations contained in a complaint is

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inapplicable to legal conclusions.” Ashcroft v. Iqbal 556 U.S.

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(2009). “While legal conclusions can provide the framework of a complaint, they must be

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supported by factual allegations.” Id., at 1950. Thus, this court considers the conclusory

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statements in a complaint pursuant to their factual context.

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, 129 S.Ct. 1937, 1949

To be plausible on its face, a claim must be more than merely possible or

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conceivable. “[W]here the well-pleaded facts do not permit the court to infer more than the

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mere possibility of misconduct, the complaint has alleged–but it has not ‘show[n]’–‘that the

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pleader is entitled to relief.” Id., (citing Fed. R. Civ. Proc. 8(a)(2)). Rather, the factual

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allegations must push the claim “across the line from conceivable to plausible.” Twombly.

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550 U.S. at 570. Thus, allegations that are consistent with a claim, but that are more likely

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explained by lawful behavior, do not plausibly establish a claim. Id., at 567.

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Federal Copyright Does Not Preempt MedTrak’s State Deceptive Trade Practices
and Unfair Competition Claims
The parties agree that the Ninth Circuit has established a two-pronged test to

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determine Copyright Act preemption. Laws v. Sony Music Entm’t, Inc., 448 F.3d 1134,

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1137-38 (9th Cir. 2006); Kodadek v. MTV Networks, Inc., 152 F.3d 1209, 1212 (9th Cir.

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1998). Only where (1) the subject matter in the claim is within the subject matter of the

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Copyright Act; and (2) the state law rights are equivalent to rights protected under the

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Copyright Act, may the claim be preempted. Laws, 448 F.3d at 1137-38; see also

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Salestraq America, LLC v. Zyskowski, 635 F.Supp. 2d 1178, 1184 (D.Nev. 2009) (holding

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that a state law claim is preempted only if the copyright infringement “necessarily violates a

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state created right...”) (emphasis added). In other words, if a plaintiff can possibly prevail on

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a state law claim without a corresponding act of infringement by defendant, the relief

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sought is not legally “equivalent” to a protected right under the Copyright Act and thus

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cannot be preempted. See id.

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MedTrak concedes that the first prong of this test has been met, as the VNG

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Software at issue is protected by copyright. MedTrak argues that the second prong is not

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met because its state law claims are not “equivalent” to its federal copyright claim. The

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Ninth Circuit has held that state law claims are not equivalent–and thus not preempted--

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when the following conditions are present: (a) the state claim protects different rights from

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those of copyright (which protects only the rights of “reproduction, preparation of derivative

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works, distribution, and display”), and (b) the state claim has an “extra element” than that of

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a federal copyright claim. Del Madera Properties v. Rhodes and Gardner, Inc., 820 F.2d

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973, 977 (9 th Cir. 1987) overruled on other grounds by Fogerty v. Fantasy, Inc. , 510 U.S.

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517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994).

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Under Nevada law, a person engages in a deceptive trade practice if he, among
other things, “(1) knowingly passes off goods or services for sale or lease as those of
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another person . . . , (3) knowingly makes a false representation as to affiliation,

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connection, association with or certification by another person, . . . (8) disparages the

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goods, services or business of another person by false or misleading representation of fact,

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. . . (14) fraudulently alters any contract . . . or other document in connection with the sale

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of goods or services.” See NRS 598.0915. Copyright infringement, on the other hand,

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requires a plaintiff to prove “(1) ownership of a valid copyright, and (2) actionable copying

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by the defendant of constituent elements of the work that are original.” Feist Publications,

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Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991); 17 U.S.C. §501(a).

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MedTrak has alleged that Hunt not only improperly misappropriated and copied the

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protected VNG software, but that he intentionally deceived consumers through false

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representations about its ownership and quality. See Complaint at ¶ 109-110. MedTrak

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has not only alleged Hunt’s infringing use of the copyrighted material, but that Hunt

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intentionally claimed and informed consumers that MedTrack did not own the copyrighted

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material or the FDA Registration necessary to manufacture, market, and sell the VNG

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devices. These specific allegations of deception and misrepresentation have no

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counterpart under the Copyright Act, constituting the necessary “extra element” necessary

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to defeat Hunt’s argument that federal copyright law preempts MedTrak’s state claim for

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deceptive trade practices.

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Similar to deceptive trade practices, an unfair competition claim survives preemption

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under the Copyright Act when the claim is not solely based on an act of infringement.

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MedTrak’s common law unfair competition claim involves specific allegations of improper

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“passing off” and consumer deception, constituting the necessary “extra element”

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necessary to defeat Hunt’s argument that federal copyright law preempts the state claim.

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MedTrak has expressly alleged that Hunt and AcuNetXfraudulently used the copyrighted

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materials “for the purpose of trading upon MedTrak’s goodwill and reputation and the

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passing off of Defendants’ goods as the goods of another.” See Complaint at ¶ 113.
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Federal Food, Drug, and Cosmetic Act (FDCA) Does Not Preempt MedTrak’s

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Claims for Misappropriation of Intellectual Property, Fraud in the Inducement, Commercial

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Defamation, Intentional Interference with Contractual Relations, Breach of Contract (2011

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Agreement), and Breach of Good Faith and Fair Dealing.

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Hunt argues that the above-listed claims are preempted because MedTrak has

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alleged that the defendants fraudulently represented to the Food and Drug Administration

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that they owned the 510(k) registration, and fraudulently registered and renewed the

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registration with the FDA. As set forth in 21 U.S.C. § 337(a), the federal government has

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the exclusive power to enforce the FDCA:

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Except as provided in subsection (b), all such proceedings for
the enforcement, or to restrain violations, of this Act [21 USCS
§§ 301 et seq.] shall be by and in the name of the United
States.

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In short, private enforcement of FDCA violations is prohibited. PhotoMedex, Inc. v Irwin,
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601 F.3d 919, 924 (9th Cir. 2010) (“Section 337(a) of the FDCA bars private enforcement
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of the statute”). That private enforcement of FDCA violations is prohibited, and that
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MedTrak has alleged potential violations of the FDCA does not, however, establish that
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claims referencing the 510(k) registration are improper efforts to enforce the alleged
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violations. MedTrak alleges that it owned the registration. MedTrak may be able to show
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that ownership without having to establish that Hunt violated the FDCA. MedTrak has
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alleged that Hunt claimed ownership of the 510(k) registration, and made this claim to
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MedTrak consumers. MedTrak may be able to establish that Hunt claimed that ownership
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without establishing that Hunt also claimed that ownership to the FDCA. MedTrak has
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alleged that Hunt falsely represented to MedTrak that it would assign and transfer the
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510(k) registration to MedTrak. MedTrak may be able to establish this false representation
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without establishing that Hunt made an inconsistent representation to the FDCA. T he
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Court finds that the FDCA does not preempt any of MedTrak’s claims.
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Finally, the Court finds that, in light of the relaxed requirement of Rule 8(a)(2) that

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the complaint need contain only “a short and plain statement of the claim showing that the

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pleader is entitled to relief,” and the requirement that alleged factual matter must be

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accepted as true, MedTrak has pled sufficient facts to permit its claims to go forward.

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Therefore,

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THE COURT ORDERS that Defendant Chapin Hunt’s Motion to Dismiss (#46) is

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DENIED.

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DATED this ______ day of September, 2013.

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Lloyd D. George
United States District Judge

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