Harris et al v. Lexjet Corporation et al

Filing 19

MEMORANDUM AND OPINION. Signed by District Judge James R. Spencer on 12/3/09. (kyou, )

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION ROBERT HARRIS, and WORLD ANSWERS, INC., and NATURAL SYSTEMS TECHNOLOGIES, INC. v. Plaintiffs, Action No. 3:09­CV­616

LEXJET CORP. and LEXJET SERVICES CO., LLC, Defendants. MEMORANDUM OPINION THIS MATTER is before the Court on Defendants' Motion to Dismiss (Docket No. 5) based on Rule 12(b)(6).1 For the reasons that follow, the Court GRANTS the Motion WITHOUT PREJUDICE as to Counts 1, 2, and 5 and GRANTS the Motion WITH PREJUDICE as to Counts 3 and 4. I. BACKGROUND This controversy concerns software that Plaintiffs World Answers, Inc., Natural Systems, Technologies, Inc., and Robert Harris developed while H a r r i s w a s e n g a g e d a s a n

Although Harris filed a surresponse brief, the Court has not considered it. No new a r g u m e n t s w e r e d i s c u s s e d i n L e x j e t ' s R e p l y a n d t h e p a r t i e s ' a r g uments were fully communicated to the Court within the briefs that the Rules permit. 1

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independent contractor2 by the makers of digital printing technologies, Defendants Lexjet Corporation and Lexjet Service Co., LLC (collectively "Lexjet"). The parties' relationship commenced in 1999 when Lexjet hired Harris, as president of Plaintiff Natural Systems, to create a computer program to manage Lexjet's Internet sales. In 2005, Harris terminated Natural Systems and instead began contracting with Lexjet through Plaintiff World Answers, another corporation sta rted by Harris. A year l a t e r , W o r l d A n s w e r s w a s a l s o t e r m i n a t e d , h o w e v e r , H a r r i s c o n t i nued to consult for Lexjet in his individual capacity. Despite the changing nature of H a r r i s ' s a f f i l i a t i o n s , t h e w o r k he did for Lexjet remained the same throughout his tenure there. So too did the billing arrangement: Harris worked for half his normal rate and Lexjet agreed to grant Harris ownership rights to the software developed by Harris and permission to market the software to other Internet based sales companies. The parties never memorialized this arrangement or the exact nature of Harris's relationship with Lexjet in a written agreement. According to Harris, it was expressly understood that the software was an experimental beta version and that upon completion of the project, Lexjet would retain no property rights in it.

Harris states that he paid all the expenses incurred while developing the software, that he did the work from his home, that he had complete discretion when to work, that Lexjet was not in the business of software development, and that he person ally paid all his state and federal withholding taxes himself. (Amend. Compl. ¶¶ 3338.) Although labeling an i n d i v i d u a l a n " i n d e p e n d e n t c o n t r actor" is a legal conclusion, t h e r e a r e s u b s t a n t i a l f a c t s t o support the label in the Complain t a n d L e x j e t m a d e n o i s s u e w i t h t h e d e s c r i p t i o n i n i t s memoranda in support of its Motion to Dismiss. These facts and the facts that follow are taken from Harris's Complaint and are assumed true for purposes of this Motion. See Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). 2

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The software Harris eventually developed--dubbed the "Rob System"--enables L e x j e t t o e f f i c i e n t l y m a n a g e i t s I n t e r n e t p u r c h a s i n g , s a l e s , a n d distribution. The Rob System operates as a "Software as a Service," or "SaaS," which i s a m o d e l o f s o f t w a r e deployment whereby Lexjet provides the software to customers for use as a service on demand as opposed to a permanent program located on customers' hard drives. When a consumer makes a purchase from Lexjet's website, www.lexjet.com , e x e c u t a b l e s o f t w a r e i s downloaded to the consumer's computer. When a consumer returns to that site, the computer can pull up the version stored on the hard drive rather than download the software anew. This type of technology is used in many popular web programs such as Google's email program Gmail and the popular social networking site Facebook.com. Harris continued to develop the software until Lexjet ended its relationship with him in 2006. Since that time, while Lexjet has not compensated H a r r i s i n a n y w a y o r entered into a licensing agreement with him, Lexjet continues to use the Rob System or a derivative of it. On November 22, 2007, Harris registered the Rob System with the U n i t e d S t a t e s Copyright Office, who assigned it copyright registration number TXu 1599694. The registration document indicates the "Date of Creation" as 2007. At some point in time, which the A m e n d e d C o m p l a i n t d o e s n o t r e v e a l , H a r r i s entered into negotiations to license his software to Media One. When Harris approached Lexjet about obtaining a stateme n t f r o m L e x j e t a c k n o w l e d g i n g H a rris's ownership of the software, Lexjet refused even though it knew Harris was trying to license it. As a result, Harris was apparently never able to establish a licensing arrangement with Media One.

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This state of affairs led Harris and his two former corporations to file a five count Amended Complaint against Lexjet in November 2009. In Counts 1 and 2, Harris alleges Lexjet is directly and secondarily infringing on Harris's copyrighted software. Count 5 seeks to enjoin that behavior. I n Count 3, Harris alleges a v i o l a t i o n o f t h e V i r g i n i a Computer Crimes Act. Count 4 alle g e s t h a t L e x j e t t o r t i o u s l y i n t e r f e r e d w i t h H a r r i s ' s business relationships. Prior to Harris filing his Amended Complaint, Lexjet filed this Motion to Dismiss, a s s e r t i n g t h a t t h e C o m p l a i n t f a i ls to state any claims upon whi c h r e l i e f c a n b e g r a n t e d . II. LEGAL STANDARD Rule 8 of the Federal Rules of Civil Procedure requires a complaint stating a claim f o r r e l i e f t o c o n t a i n a s h o r t p la i n s t a t e m e n t o f t h e c l a i m t h a t g i v e s t h e d e f e n d a n t f a i r n o t i c e of what the claim is and the grounds upon which it rests. Fed. R. Civ. P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Defendants police this requirement using Rule 12(b)(6), which permits a party to test the legal sufficiency of a complaint. Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citing 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1356 (1990)). A 12(b)(6) motion does n o t , h o w e v e r , " r e s o l v e c o n t e s t s s u r r o u n d i n g t h e f a c t s , t h e m e r i ts of a claim, or the a p p l i c a b i l i t y o f d e f e n s e s . " I d . As a result, in resolving a 12(b)(6) motion, a court must r e g a r d a l l o f p l a i n t i f f ' s w e l l p l e a d e d a l l e g a t i o n s a s t r u e , M y l a n L a b s . , I n c . v . M a t k a r i , 7 F.3d 1130, 1134 (4th Cir. 1993), as well as any facts that could be proved consistent with those allegations, Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). In contrast, the court does not have to accept legal conclusions couched as factual allegations, Twombly, 550 U.S. at

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555, or "unwarranted inferences, unreasonable conclusions, or arguments," E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000); see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). With these principles in mind, the court must ultimately ascertain whether the plaintiff has stated a "plausible, not merely speculative, claim for relief." Twombly , 5 5 0 U . S . a t 5 5 5 . " D e t e r m i n i n g w h e t h e r a c o m p l a i n t states a plausible claim for r e l i e f [ i s ] . . . a contextspecific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S. Ct. at 1950. While Rule 8(a)(2) requires a showing, not simply a blanket assertion of "en titlement to relief," the plai ntiff is not required to show that it is likely to obtain relief. Twombly, 550 U.S. at 556 n.3; Iqbal, 129 S. Ct. at 1949. In the end, if the complaint alleges--directly or indirectly--each of the elements of "some viable legal theory," the plaintiff should be given the opportunity to prove that claim. Twombly, 550 U.S. at 563 n.8. III. DISCUSSION A. Direct Copyright Infringement Under the federal Copyright Act, copyright infringement occurs when a person " v i o l a t e s a n y o f t h e e x c l u s i v e r ights of the copyright owner." 1 7 U . S . C . § 5 0 1 ( a ) . T h e r e f o r e , the two elements of an infringement claim are (1) ownership of a valid copyright and (2) encroachment upon one of the exclusive rights afforded by the copyright. Avtec Sys, Inc. v. Peiffer, 21 F.3d 568, 571 (4th Cir. 1994). The Copyright Act grants the owner of a copyright the exclusive right to, among other things, "distribute copies . . . of the copyrighted work to

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t h e p u b l i c b y s a l e o r o t h e r t r a n s f e r o f o w n e r s h i p , o r b y r e n t a l, l e a s e , o r l e n d i n g , " 1 7 U . S . C . § 106(3), and "to prepare derivative works based upon the copyrighted work." Id. § 106(2). In his Complaint, Harris attempts to allege that he has a valid copyright in the Rob S y s t e m a n d t h a t e a c h t i m e a L e x j e t c u s t o m e r u s e s t h e s o f t w a r e , it is duplicated without permission in violation of copyright law. (Amend. Compl. ¶¶ 4852.) The Court finds, however, that Harris's Amended Complaint fails to plead factual content that allows this Court to conclude or reasonably infer that Harris is the owner of the software currently used by Lexjet. See Iqbal, 129 S. Ct. at 1949. Despite several references to the copyright registration in his Complaint, Harris did not provide a copy of it. Lexjet, however, did a t t a c h t h r e e p a g e s o f r e g i s t r a t i o n d o c u m e n t s t o i t s M e m o r a n d u m in Support of its Motion to Dismiss.3 Those registration documents unequivocally state that the "Date of Creation" is 2007. If Harris created the software in 2007--a year after his relationship with Lexjet e n d e d -- t h e n t h e s o f t w a r e t h a t L e x j e t b e g a n u s i n g i n 2 0 0 6 c a n n o t be the software registered by Harris. Since registration is a prerequisite to a copyright claim, Harris's claim must fail. Harris attempts to rebut this dat e by providing a document that allegedly is also a copyright registration form for the software. The date of creation field is left blank in the document Harris provided, which the Court presumes Harris believes helps his case by sowing doubt as to when the software was created. Apart from a ny doubt it may create, what the document does not do is help to establish that Harris owns a copyright in the

A district court may consider documents "attached to the motion to dismiss, so long as t h e y a r e i n t e g r a l t o t h e c o m p l a i nt and authentic." Sec'y of St a t e o f D e f e n c e v . T r i m b l e Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007). 6

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s o f t w a r e u s e d b y L e x j e t . M o r e o v e r, although the document Harri s p r o v i d e d l i s t s t h e c a s e number "1271348171" at the top of t h e p a g e , t h e r e i s n o i n d i c a t i o n o n t h e f a c e o f t h i s document that it actually has anything to do with the software in this case. As a result, the Court GRANTS the Motion to Dismi ss as to this claim because Har r i s h a s n o t p r o v i d e d sufficient factual support for an essential element of his copyright infringement claim. B. Secondary Copyright Infringement Courts recognize several types of secondary liability for copyright infringement. See MetroGoldwynMayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005). One category of such secondary liabi l i t y i s v i c a r i o u s l i a b i l i t y , w h i c h g e n e r a l l y e x i s t s w h e n a defendant (1) possesses the right and ability to supervise the infringing conduct and (2) h a s " a n o b v i o u s a n d d i r e c t f i n a n c i a l i n t e r e s t i n t h e e x p l o i t a t i on of copyrighted material." Gershwin Publishing Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971); see also Nimmer on Copyright, § 12.04[A][2] (2008). Because the Court grants the Motion to Dismiss as to Harris's d i r e c t i n f r i n g e m e n t c l a i m , i t m u s t a l s o G R A N T t h e M o t i o n a s t o t h e s e c o n d a r y i n f r i ng e m e n t c l a i m a s H a r r i s c a n n o t a d v a n c e a n i n f r i n g e m e n t c l aim for a copyright he has not s u f f i c i e n t l y p l e a d t h a t h e has registered. See 17 U.S.C. § 411. C. Virginia Computer Crimes Act Claim The elements necessary to show a violation of § 18.2152.3 of the Virginia Computer Crimes Act ("VCCA") are: (1) that the defendant "use[d] a computer or computer network;" (2) "without authority;" and (3) "with the intent to . . . [o]btain property or services by false pretenses; . . . [e]mbezzle or commit larceny; or . . . [c]onve r t t h e p r o p e r t y o f a n o t h e r . " V a .

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Code Ann. § 18.2152.3; see also id. § 18.2152.12(A) (providing a civil cause of action for damages to one injured as a result of a violation of the Act). The Virginia Supreme Court h a s h e l d t h a t p u r s u a n t t o § 1 8 . 2 1 5 2 . 8 o f t h e V C C A , " c o m p u t e r d ata, computer programs, [and] computer software" are "personal property subject to embe z z l e m e n t . " P e r k v . V e c t o r Resources Group, Ltd., 485 S.E.2d 140, 143 (Va. 1997). The Fourth Circuit has held tha t f e d e r a l c o p y r i g h t l a w p r e e m p t s t a t e l a w c l a i m s t h a t are equivalent to copyright infringement claims under federal law. Rosciszewski v. Arete Associates, Inc., 1 F.3d 225, 230 (4th Cir. 1993). In order to ascertain whether a specific state cause of action involves a right equivalent to one of tho s e i d e n t i f i e d i n § 1 0 6 , reference must be made to the elements of the state cause of action. See Trandes Corp. v. Guy F. Atkinson, Co., 996 F.2d 655, 659 (4th Cir. 1993). Statelaw claims that infringe one of the exclusive rights contained in § 106 are preempted by § 3 01(a) if the right defined by state law "`may be abridged by an act which, in and of itself, would infringe one of the exclusive rights.'" Computer Assocs. Int'l v. Altai, Inc. , 9 8 2 F . 2 d 6 9 3 , 7 1 6 ( 2 d C i r . 1 9 9 2 ) (quoting Harper & Row, Publishers, Inc. v. Nation Enters., 723 F.2d 195, 200 (2d Cir.1983), rev'd on other grounds, 471 U.S. 539 (1985)). However, "if an `extra element' is `required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a statecreated cause of action, . . . there is no preemption,'" id. (quoting 1 Nimmer on Copyright § 1.01 [B], at 114 to 115 (1992)), provided that "the `extra element' changes the `nature of the action so that it is qualitatively different from a copyright infringement claim,'" id. (quoting Mayer v. Josiah Wedgwood & Sons, Ltd., 601 F. Supp. 1523, 1535 (S.D.N.Y. 1985)).

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C i t i n g D o r s e y v . M o n e y M a c k M u s i c , I n c . , 304 F. Supp. 2d 858, 865 (E.D. La. 2003), Harris asserts that his VCCA claim is not preempted because he is claiming the conversion o f m o n e t a r y f u n d s , n o t t h e c o n v e r s i o n o f i n t a n g i b l e r i g h t s u n d e r copyright law. (Amend. Compl. ¶ 61.) However, Dorsey not only fails to support Harris's argument, it actually supports the opposite conclusion. In Dorsey, the court specifically stated that "[p]reemption is appropriate in the majority of instances because the typical unjust enrichment claim is qualitatively equivalent to a cause of action for copyright infringement." Id. The only reason the court in Dorsey held that there was no preemption was because plaintiff's underlyi ng damages were the result of s tate law fiduciary duty c l a i m s t h a t r e n d e r e d t h e c l a i m s q u a l i t a t i v e l y d i f f e r e n t f r o m a c o p y r i g h t i n f r i n g e m e n t c l a i m . Id. Unlike in Dorsey, Harris's claim for "conversion" is simply an attempt to seek monetary damages for alleged copyright violations under a different name. As such, the Court holds that Count 3 is preempted and thus the Motion to Dismiss this claim is GRANTED. D. Tortious Interference with Business Relationship Claim A claim of tortious interference requires a showing of: "(1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferor; (3) intentional inter ference inducing or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship or expectancy has been disrupted." T. G. Slater & Son, Inc. v. Donald P. and Patricia A. Brennan LLC , 385 F.3d 836, 844 (4th Cir. 2004) (quoting Chaves v. Johnson, 335 S.E.2d 97, 102 (Va. 1985)).

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In his Amended Complaint, Harris alleges that he had entered into negotiations with Media One and that Lexjet knew o f t h e s e n e g o t i a t i o n s . I n r e f e r ence to the third element, Harris then adds that Lexjet has intentionally interfered with Harris's business expectancy by "refus[ing] to acknowledge Harris' [sic] ownership rights in t h e s o f t w a r e , t h e r e f o r e effectively barring Harris' [sic] licensing activities with Media One." (Amend. Compl. ¶ 69.) Harris's Amended Complaint does not expand in any way on how re fusing to acknowledge Harris's ownership interfered with Harris's business relationships. Nor does Harris's A m e n d e d C o m p l a i n t e x p l a i n w h y a third party would care about wh a t L e x j e t s a y s a b o u t ownership of the software, especially since Harris has a registered copyright in it. Even v i e w e d i n i t s m o s t f a v o r a b l e l i g ht, Harris's allegations on the t h i r d e l e m e n t a r e conspicuously lean on facts. It is well settled that "[t]hread b a r e r e c i t a l s o f t h e e l e m e n t s o f a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S. Ct. a t 1 9 4 9 . H a r r i s ' s a l l e g a t i o n s a r e simply sterile legal conclus i o n s t h a t " a r e n o t e n t i t l e d t o the assumption of truth." Id. at 1950. Stripped of such legal i n c a n t a t i o n , t h e s e a l l e g a t i o n s provide insufficient factual support for at a minimum the third element of his tortious interference claim. As a result, Harris's Amended Complaint fails to sufficiently plead a c l a i m o f t o r t i o u s i n t e r f e r e n c e w i t h a b u s i n e s s r e l a t i o n s h i p , a n d thus the Court GRANTS the Motion to Dismiss as to Count 4. IV. CONCLUSION For the foregoing reasons, the Court will GRANT the Motion WITHOUT PREJUDICE as to Counts 1, 2, and 5 and GRANT the Motion WITH PREJUDICE as to Counts 3 and 4. An appropriate Order will accompany this Memorandum.

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Let the Clerk send a copy of this Memorandum to all counsel of record.

/s/ James R. Spencer Chief United States District Judge

ENTERED this 3rd day of December 2009

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