Federation of State Massage Therapy Boards v. Mendez Master Training Center, Inc. et al
Filing
73
MEMORANDUM AND ORDER (Signed by Judge Nancy F Atlas) Parties notified.(sashabranner, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
FEDERATION OF STATE MASSAGE §
THERAPY BOARDS,
§
Plaintiff.
§
§
v.
§
§
MENDEZ MASTER TRAINING
§
CENTER, INC., et al.,
§
Defendants.
§
August 14, 2018
David J. Bradley, Clerk
Civil Action No. 4:17-cv-2936
MEMORANDUM AND ORDER
Pending before the Court in this intellectual property dispute is Defendants
Mendez Master Training Center, Inc., MMTC Texas, Inc., Tesla Shen Mendez’s,
and Jorge Mendez’s (collectively, “Defendants”) Motion to Dismiss the
Federation’s First Amended Complaint [Doc. # 66] (the “Motion”).
Plaintiff
Federation of State Massage Therapy Boards (“Plaintiff”) filed a timely response
to the Motion.1 In addition to its Response, Plaintiff, with leave of Court, also filed
a Corrected First Amended Complaint [Doc. # 71] (the “Corrected Complaint”).
The Corrected Complaint attaches exhibits that inadvertently were omitted from
Plaintiff’s First Amended Complaint [Doc. # 58] (the “First Amended
1
See Plaintiff’s Opposition to Defendant’s Motion to Dismiss the First Amended
Complaint (the “Response”) [Doc. # 72]. Defendants have not filed a reply to the
Response, and their deadline to do so under the Court’s procedures has expired.
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Complaint”). The Corrected Complaint, Plaintiff’s operative pleading for purposes
of the Motion, is otherwise substantively identical to the First Amended Complaint
and, with one exception, Defendants’ arguments in the Motion remain relevant to
the allegations in the Corrected Complaint.2 The Court therefore has evaluated the
Motion in the context of the Corrected Complaint. Having considered Defendants’
briefing, the applicable legal authorities, and all pertinent matters of record, the
Court concludes that the Motion should be denied in substantial part and
granted in part.
I.
BACKGROUND
Plaintiff develops and administers the national licensing examination that
assesses competence in massage and bodywork in the United States and its
territories, known as the Massage & Bodywork Licensing Exam (“MBLEx”).
According to Plaintiff, its MBLEx questions are protected by U.S. copyright law
and are registered with the U.S. Copyright office. MBLEx results are used by
licensing agencies throughout the United States, including in Texas, when
evaluating applicants for licensure. Among other requirements, these jurisdictions
2
The exception is Defendants’ contention that Plaintiff’s copyright infringement
claim should be dismissed because Plaintiff failed to attach copies of the relevant
copyright registrations to the First Amended Complaint. Even if failure to attach
copies of copyright registrations to a complaint were grounds for dismissing a
copyright infringement claim, a conclusion the Court does not endorse, this issue
is mooted by Plaintiff’s Corrected Complaint, which attaches the relevant
copyright registrations. The Motion is therefore denied in this respect.
2
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require applicants to obtain a passing result on the MBLEx to obtain a license to
practice massage and bodywork.
The core of Plaintiff’s Corrected Complaint is that Defendants have
impermissibly obtained and reproduced MBLEx questions, including the answers
thereto, and sold them to prospective MBLEx takers. As a result, Plaintiff argues
that Defendants have undermined the integrity of the MBLEx itself and the
massage and bodyworks licensing processes that use it as a criterion for licensure.
Plaintiff contends further that Defendants’ publication of its confidential MBLEx
questions has forced it to retire hundreds of questions from use in the examination
and incur significant costs to develop new, uncompromised exam material.
Plaintiff brings this lawsuit asserting seven cause of action against some or
all Defendants based on their allegedly unlawful conduct: copyright infringement
under the U.S. Copyright Act of 19763 (the “Copyright Act” or the “Act”) (Count
One); contributory copyright infringement under the Copyright Act (Count Two);
misappropriation of trade secrets under the Texas Uniform Trade Secrets Act
(“TUTSA”), California Uniform Trade Secrets Act (“CUTSA”) and the common
law of Texas and California (Count Three); misappropriation of trade secrets under
3
17 U.S.C. § 101 et seq.
3
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the Defend Trade Secrets Act4 (Count Four); tortious interference with contract
(Count Five); breach of contract (Count Six); and violation of the Texas Harmful
Access by a Computer Act5 (Count Seven).
By the Motion, Defendants seek to dismiss Plaintiff’s Corrected Complaint
in its entirety pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on
the basis of Plaintiff’s purported failure to state a claim upon which relief can be
granted. For the following reasons, the Court concludes that the Motion largely
lacks merit and should be denied in substantial part and granted in part.
II.
LEGAL STANDARDS
A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure is viewed with disfavor and is rarely granted. Turner v. Pleasant, 663
F.3d 770, 775 (5th Cir. 2011) (citing Harrington v. State Farm Fire & Cas. Co.,
563 F.3d 141, 147 (5th Cir. 2009)). The complaint must be liberally construed in
favor of the plaintiff, and all facts pleaded in the complaint must be taken as true.
Harrington, 563 F.3d at 147. The complaint must, however, contain sufficient
factual allegations, as opposed to legal conclusions, to state a claim for relief that is
“plausible on its face.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Patrick v.
4
18 U.S.C. § 1836 et seq.
5
TEX. CIV. PRAC. & REM. CODE § 143.001 et seq.
4
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Wal-Mart, Inc., 681 F.3d 614, 617 (5th Cir. 2012). When there are well-pleaded
factual allegations, a court should presume they are true, even if doubtful, and then
determine whether they plausibly give rise to an entitlement to relief. Iqbal, 556
U.S. at 679. Additionally, regardless of how well-pleaded the factual allegations
may be, they must demonstrate that the plaintiff is entitled to relief under a valid
legal theory. See Neitzke v. Williams, 490 U.S. 319, 327 (1989); McCormick v.
Stalder, 105 F.3d 1059, 1061 (5th Cir. 1997).
III.
ANALYSIS
A.
Defendants’ Motion
In the Motion, Defendants assert three grounds for seeking dismissal of
Plaintiff’s Corrected Complaint. First, Defendants argue Plaintiff is a federal or
quasi-federal agency that lacks standing under the Copyright Act to assert claims
for copyright infringement.
Second, Defendants contend that alternatively,
Plaintiff is an unlawful state compact under the United States Constitution, and
thus lacks capacity to bring this lawsuit. Finally, Defendants argue that Plaintiff’s
claims in Counts Three through Seven of the Corrected Complaint are preempted
by the Copyright Act and must be dismissed. The Court addresses these arguments
in turn.
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1.
Federal or Quasi-Federal Agency
Defendants first argue Plaintiff is a federal or quasi-federal agency that lacks
capacity to sue for copyright infringement and related torts.6 Defendants provide
no legal authority to support their argument that Plaintiff is a federal or quasifederal agency, and it is not otherwise apparent from the Corrected Complaint and
Motion how Plaintiff could be a federal or quasi-federal agency.7
6
17 U.S.C. § 105 (“Copyright protection under this title is not available for any
work of the United States Government, but the United States Government is not
precluded from receiving and holding copyrights transferred to it by assignment,
bequest, or otherwise.”).
7
Indeed, Defendants cite no authority that the Fifth Circuit recognizes the “quasifederal agency” doctrine, which is not universally accepted. See, e.g., New York v.
Atl. States Marine Fisheries Comm’n, 609 F.3d 524, 534 (2d Cir. 2010) (“Taken
together, this authority provides scant support for the quasi-federal agency
doctrine. Indeed, we are skeptical of the validity of this judge-created concept”);
Kerpen v. Metro. Washington Airports Auth., 260 F.3d 567, 586 (E.D. Va. 2017)
(“Regardless, neither this Court nor the Fourth Circuit has embraced the quasifederal agency doctrine advanced by Plaintiffs. Indeed, the Fourth Circuit has
implicitly rejected it.”); Martha’s Vineyard/Dukes County Fisherman Ass’n v.
Locke, 811 F. Supp. 2d 308, 314-15 (D.D.C. 2011) (“Further, despite the
Plaintiff’s contentions, the ASMFC is not a quasi-federal agency. The ‘quasifederal agency’ doctrine itself is quite uncertain in our Circuit; indeed very few
cases support its existence… Further, the doctrine is incompatible with the modern
doctrine that causes of actions are created by Congress, not federal courts, ‘no
matter how desirable that might be as a policy matter, or how compatible with the
statute.’” (internal citations omitted)).
6
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The hallmark of a federal or quasi-federal agency is Congressional
authorization or federal involvement.8 Defendants’ purported evidence of a
relationship between Plaintiff and the United States government is unavailing.
Defendants point to various allegations in the Corrected Complaint and select
provisions of Plaintiff’s corporate bylaws and website. These materials lack any
indicia of federal involvement in Plaintiff’s formation or operations. Defendants
cite no allegation in the Corrected Complaint or any other evidence that suggests
that Congress has endowed Plaintiff with any regulatory power, that Plaintiff is
affiliated with any arm of the federal government, that Plaintiff receives any
federal funding, or that Plaintiff holds itself out to possess any federally derived
authority. Defendants have fallen well short of their burden in connection with the
Motion to establish Plaintiff’s federal character as a matter of law. Accordingly,
the Motion is denied with respect to Defendants’ argument that any of Plaintiff’s
claims should be dismissed because Plaintiff is a federal or quasi-federal agency.
2.
Unlawful State Compact
Defendants next assert that Plaintiff’s claims should be dismissed because
Plaintiff is an unlawful “state compact” that lacks capacity to sue. Defendants
8
See, e.g., Atl. States Marine, 609 F.3d at 535 (internal citation omitted) (holding
that a federal or quasi-federal agency exists when the entity is an “authority of the
government of the United States.”).
7
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contend Plaintiff violates the Compact Clause of the United States Constitution9
because Plaintiff is a state compact and both (1) the agencies from the various
states and territories comprising its membership have failed to obtain state
authorization to enter into a compact, and (2) Plaintiff lacks Congressional consent
to exist and operate.
This argument is without merit.
Defendants’ argument rests on the untenable premise that Plaintiff is, in fact,
a state compact. By definition, a state compact is an agreement, treaty, or contract
among two or more states.10 However, not every agreement between the states is a
compact within the meaning of the Compact Clause.11 The critical inquiry in
determining whether such an agreement falls under the Compact Clause is the
extent to which the agreement actually or potentially impacts the federal
structure.12 Specifically, the Constitution’s Compact Clause scope “is limited to
agreements that are ‘directed to the formation of any combination [of states]
9
U.S. CONST. art. 1, § 10, cl. 3 (“No State shall, without the Consent of Congress,
lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter
into any Agreement or Compact with another State, or with a foreign Power, or
engage in War, unless actually invaded, or in such imminent Danger as will not
admit of delay.”).
10
See, e.g., Arizona v. California, 373 U.S. 546, 550-51 (1963).
11
See, e.g., Cuyler v. Adams, 449 U.S. 443, 440 (1981); U.S. Steel Corp. v.
Multistate Tax Comm., 434 U.S. 452, 468, 470 (1978).
12
U.S. Steel Corp., 434 U.S. at 472.
8
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tending to the increase of political power in the States, which may encroach upon
or interfere with the just supremacy of the United States.’”13 Evidence of whether
an agreement “may encroach upon or interfere with the just supremacy of the
United States” includes whether the agreement affords states the right to exercise
powers they could not exercise in the absence of the agreement and the
voluntariness of the arrangement.14
As alleged in the Corrected Complaint, Plaintiff, a private and distinct
corporate entity, is not a compact subject to the Compact Clause. Plaintiff’s
Corrected Complaint does not allege, and indeed, does not even suggest, that
Plaintiff is a combination of states organized to increase the states’ political power
in an attempt to preempt federal law or authority. Defendants cite no allegation in
the Corrected Complaint authority, or any evidence to the contrary. Defendants
fail even to articulate what federal law or authority Plaintiff and its constituent
members allegedly are attempting to preempt. There is no evidence that the states
13
New Hampshire v. Maine, 426 U.S. 363, 369 (1976) (citing Virginia v. Tennessee,
148 U.S. 503, 519 (1893)); S&M Brands, Inc. v. Caldwell, 614 F.3d 172, 176 (5th
Cir. 2010).
14
See U.S. Steel Corp., 434 U.S. at 472-73 (finding multistate tax compact not
subject to the Compact Clause because it did not interfere with the supremacy of
the United States, did not purport to authorize the member states to exercise
powers they could not exercise in the absence of the compact, and member states
were free to accept or reject rules and regulations or withdraw from the compact at
any time).
9
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comprising Plaintiff’s membership are required to join or are prevented from
withdrawing from membership at will. Further, there is no cited allegation or
authority that Plaintiff has any power to bind any state government or licensing
agency, or that Plaintiff allows any member state to exercise a power or authority it
would lack absent Plaintiff’s existence. Defendants have failed to carry their
burden of showing that Plaintiff, as a matter of law, is a state compact subject to
the Compact Clause. Whether or not Congress or the legislatures of the states that
chose to comprise Plaintiff’s membership authorized Plaintiff’s creation is thus
irrelevant.
Accordingly, the Motion is denied with respect to Defendants’
argument that Plaintiff is an unlawful state compact that lacks capacity to sue.15
3.
Misappropriation of Trade Secrets, Interference with
Contract, Improper Access by a Computer, and Breach of
Contract
Finally, Defendants argue that the Court should dismiss “the series of counts
for misappropriation of trade secrets, interference with contract, improper access
by a computer, and breach of contract” because they “are each and all preempted”
15
Defendants also argue that Count Two of Plaintiff’s Corrected Complaint for
contributory copyright infringement should be dismissed because Plaintiff
purportedly lacks standing or capacity to assert claims for copyright infringement.
Defendants’ argument for dismissal of Plaintiff’s contributory copyright claims
necessarily fails because the predicate that Plaintiff is either a federal agency or a
state compact is meritless. The Motion is denied on Count Two of the Corrected
Complaint.
10
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by the Copyright Act.16 The Court is unpersuaded regarding Plaintiff’s claims of
misappropriation of trade secrets, improper access by a computer, and breach of
contract claims are preempted. However, the Court concludes Plaintiff’s tortious
interference claim is preempted to the extent it is based on Defendants’
dissemination of its copyrighted materials.
For a state law claim to be preempted by the Copyright Act, the state law
claim must (1) fall within the subject matter of copyright as defined by the Act,
and (2) that state cause of action must protect rights that are equivalent to any of
the exclusive rights of a federal copyright.17 The Fifth Circuit uses an “extra
element” test to determine whether the Copyright Act preempts a state law claim.18
Under the extra element test, if “one or more qualitatively different elements are
16
Motion [Doc. # 66], pp. 21-22. Defendants also have moved to dismiss each of
those claims on the grounds that Plaintiff is a federal agency or a quasi-federal
agency and that Plaintiff is an unlawful state compact. For the reasons stated in
sections III.A.1. and III.A.2., supra, those grounds for dismissal are without merit.
Accordingly, the Motion is denied with respect to Defendants’ argument that
these claims should be dismissed based on Plaintiff’s putative status as a federal or
quasi-federal agency or an unlawful state compact. Moreover, Defendants’
preemption argument is plainly inapplicable to Count Four, Plaintiff’s federal
misappropriation of trade secrets claim, which does not implicate any state law.
The Motion is denied regarding Count Four.
17
Spear Mktg. Inc. v. Bancorp South Bank, 791 F.3d 586, 594 (5th Cir. 2015) (citing
Carson v. Dynegy, Inc., 344 F.3d 446, 456 (5th Cir. 2003)).
18
Carson, 344 F.3d at 456 (referencing Alcatel USA, Inc. v. DGI Technologies, Inc.,
166 F.3d 772, 787 (5th Cir. 1999)).
11
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required to constitute the state-created cause of action being asserted, then the right
granted under state law does not lie within the general scope of copyright, and
preemption does not occur.”19 In other words, the Copyright Act “only preempts
rights equivalent to the exclusive rights within the general scope of the copyright
law. A right is equivalent if the mere act of reproduction, distribution, or display
infringes it.”20
Regarding Count Three of the Corrected Complaint, Plaintiff’s state law
trade
secret
misappropriation
claim,
the
Fifth
Circuit
has
held
that
misappropriation claims under the TUTSA, are not preempted by the Copyright
Act.21
The Ninth Circuit apparently has not directly addressed whether
misappropriation claims under California law, specifically CUTSA, are preempted
by the Copyright Act, the Ninth Circuit has adopted the “extra element” test.22 The
elements of misappropriation claim under CUSTA and TUTSA are substantively
19
Id.
20
Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir. 1990).
21
Alcatel USA, Inc., 166 F.3d at 785-89 (distinguishing the claims of
misappropriation of trade secrets under Texas state law and unfair competition by
misappropriation under Texas state law, and holding that misappropriation of trade
secret claims are not preempted by the Copyright Act).
22
Del Madra Props. v. Rhodes and Gardner, Inc., 820 F.2d 973, 977 (9th Cir. 1987)
(internal quotations omitted) (adopting “extra element” test).
12
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identical,23 and courts in California have held that misappropriation claims under
CUTSA are not preempted by the Act.24
Accordingly, Count Three of the
Corrected Complaint is not preempted by the Copyright Act and the Motion is
denied on this claim.25
Plaintiff’s breach of contract (Count Six) claim also appears to contain at
least one qualitatively different element from the elements of infringement under
the Copyright Act and thus is not subject to preemption. Claims for breach of
23
Compare CAL. CIV. CODE § 3426.1 with TEX. CIV. PRAC. & REM. CODE
§ 134A.002 (similar definitions of critical terms “improper means,”
“misappropriation” and “trade secret”).
24
AtPac, Inc. v. Aptitude Solutions, Inc., 787 F. Supp. 2d 1108, 1115-16 (E.D. Cal.
2011) (finding that misappropriation of trade secrets claim under CUTSA is not
preempted by the federal Copyright Act because it contains an extra element);
Mattel, Inc. v. MGA Entm’t, Inc., 782 F. Supp. 2d 911, 987 (C.D. Cal. 2011)
(same).
25
Plaintiff also claims that Defendants violated the “common law of Texas and
California, or other applicable law” in respect to their misappropriation of trade
secrets claims. However, TUTSA preempts any common law claim of
misappropriation of trade secrets under Texas law. TEX. CIV. PRAC. & REM. CODE
§ 134A.007 (“this chapter displaces conflicting tort, restitutionary, and other law
of this state providing civil remedies for misappropriation of trade secret”);
BCOWW Holdings, LLC v. Collins, 2017 WL 3868184, at *13 (W.D. Tex. Sept. 5,
2017) (alleged misappropriations occurring after TUTSA’s enactment preempt
common law misappropriation of trade secrets claims). Similarly, a common law
claim for misappropriation of trade secrets under California law is preempted by
CUTSA. Copart, Inc. v. Sparta Consulting, Inc., 277 F. Supp. 3d 1127, 1157
(E.D. Cal. 2017) (citing K.C. Multimedia, 171 Cal. App. 4th 939, 950, 954
(2009)); Accumulate Diagnostics AccuImage Diagnostics Corp v. Terarecon, Inc.,
260 F. Supp. 2d 941, 954 (N.D. Cal. 2003); PMMR, Inc. v. Chaloner, 2015 WL
13283060, at *3 (C.D. Cal. Feb. 12, 2015).
13
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contract require the existence of a binding agreement between a plaintiff and a
defendant. Because establishing an existence of a binding agreement requires “an
element in addition to mere reproduction, distribution or display,” such claim
arguably satisfies the extra element test and is not preempted by the Copyright
Act.26
Accordingly, the Motion is denied on Count Six of the Corrected
Complaint.
In regard to Plaintiff’s statutory claim under Texas law for improper access
by a computer (Count Seven), Defendants make only the conclusory allegation that
this claim is preempted without citing any authority, allegation, or evidence in
support. At this very early stage of the litigation, the precise contours and factual
predicate of this claim are not well defined, and neither the Corrected Complaint
nor the parties’ briefing provides clarity. The Court is unable to determine as a
matter of law whether Count Seven is qualitatively different from Plaintiff’s
copyright infringement claim. Accordingly, in an exercise of caution, the Motion
is denied at this time with respect to Count Seven of the Corrected Complaint.
26
See, e.g., Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir.
1990) (holding that breach of contract claim was not preempted because “this
action for breach of contract involves an element in addition to mere reproduction,
distribution or display; the contract promise made by [the Plaintiff], therefore, is
not preempted”); Real Estate Innovations, Inc. v. Houston Ass’n of Realtors, Inc.,
422 F. App’x 344, 349 (5th Cir. 2011) (citing Taquino for the proposition that
breach of contract claims are not preempted by the Copyright Act and finding the
district court “erred in holding that [the Plaintiff’s] breach of contract claim is
preempted by the Copyright Act”).
14
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The Court reaches a different conclusion with respect to certain aspects of
Count Five, Plaintiff’s claim for tortious interference with contract. Under Texas
law, the elements of a claim for tortious interference with contract are: (1) an
existing contract that the defendant (2) willfully and intentional interferes with that
(3) proximately causes (4) actual damage or loss.27 Plaintiff asserts two grounds
for its tortious interference claim. The first is that Defendants caused test takers to
breach their contracts with Plaintiff by providing those test takers with actual
MBLEx exam material or accepting information about MBLEx questions from
those test takers.28 This claim, which essentially argues that Defendants’ copying,
reproduction, use, and distribution of Plaintiff’s copyrighted material constitutes
tortious interference, is not qualitatively different from Plaintiff’s copyright
infringement claim. Rather, it is substantively identical to a claim that Defendants
have interfered with Plaintiff’s exclusive rights to use the MBLEx questions, and
to that extent the tortious interference claim is preempted by the Act.29 The
Motion is granted regarding Plaintiff’s tortious interference claim premised on the
copying, reproduction, use or distribution of Plaintiff’s copyrighted material.
27
Butnaru v. Ford Motor Co., 84 S.W.3d 198, 207 (Tex. 2002).
28
Corrected Complaint [Doc. # 71], ¶ 141.
29
MI-LLC v. Stelly, 733 F. Supp. 2d 759, 788-89 (S.D. Tex. 2010) (holding tortious
interference claims preempted to the extent “based on [the plaintiff] losing
benefits flowing from its exclusive right to . . . copyrightable material.”).
15
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The second basis for the tortious interference with contract claim is that
Defendants allegedly helped “test takers misrepresent their massage education
background and English-language skills.”30 Unlike Plaintiff’s first grounds for
tortious interference, this claim does not appear to rely on the copying or
distribution of Plaintiff’s copyrighted material, but instead on Defendants
providing test takers with false credentials.31 This is qualitatively different than
Plaintiff’s copyright infringement claim, and is not preempted by the Act. The
Motion is therefore denied on this aspect of Count Five of the Corrected
Complaint.
IV.
CONCLUSION
For the foregoing reasons, it is hereby
ORDERED Defendants’ Motion [Doc. # 66] is GRANTED with respect to
Count Five of the Corrected Complaint to the extent, and only to the extent, that
Plaintiff’s tortious interference claim is based on the copying, reproduction, use, or
distribution of its copyrighted material. All such claims are DISMISSED WITH
PREJUDICE.
In all other respects, the Defendants’ Motion [Doc. # 66] is
DENIED.
30
Corrected Complaint [Doc. # 71], ¶ 142.
31
Id., ¶ 52.
16
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SIGNED at Houston, Texas, this 14th day of August, 2018.
NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE
17
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