Edgenet Inc v. GS1 AIBSL et al

Filing 42

ORDER signed by Judge J P Stadtmueller on 1/5/10 granting 33 plaintiff's Motion for Leave to File a Second Amended Complaint; denying 8 AHMA's Motion to Dismiss; denying 10 GS1 US and 1Sync's Motion to Dismiss; denying 14 GS1 AIBSL's Motion to Dismiss. See Order. (cc: all counsel) (nm)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN
____________________________________________ E D G E N E T , INC., Plaintiff, v. G S 1 AIBSL, GS1 US, INC., 1SYNC, INC., and A M E R IC A N HARDW A R E MANUFACTURERS ASSOCIATION, D e fe n d a n ts . ____________________________________________ Case No. 09-CV-65

ORDER
P la in tiff Edgenet, Inc. ("Edgenet") filed the instant suit alleging that the d e fe n d a n ts misappropriated and misrepresented its trade secrets regarding a ta xo n o m y1 of products. In response, defendants GS1 AIBSL ("GS1 Global"), GS1 U S , Inc. ("GS1 US"), 1Sync, Inc. ("1Sync"), and the American Hardware M a n u fa c tu re rs Association ("AHMA") filed motions to dismiss. W h ile the motions to d is m is s remained pending, Edgenet requested permission to file a Second Amended C o m p la in t. The court will grant this request and will deny the motions to dismiss. B AC K G R O U N D E d g e n e t is an information technology provider engaged in the creation and s a le of software programs and related services to assist product manufacturers, s u p p lie rs , distributors and retailers. Edgenet operates data pools that collect and
1

A taxonom y is the orderly classification of item s according to their relationships. See Merriam W e b s te r Online, www.m e r r ia m - w e b s te r .c o m /d ic tio n a r y/ta x o n o m y (last visited January 5, 2010). "A taxonomy is a way of describing item s in a body of knowledge or practice." ADA v. Delta Dental Plans Ass'n, 126 F.3d 9 7 7 , 980 (7th Cir. 1997).

d e live r "supply-chain" data used to describe the attributes of products. As part of its s e rvic e s , Edgenet developed a "Collection Taxonomy and Attributes" that provides a hierarchical classification system to organize products and describe

c h a ra c te ris tic s , properties, and qualities of those products. Edgenet obtained a f e d e ra lly registered copyright for its Collection Taxonomy and Attributes in 2008. E d g e n e t uses this Collection Taxonomy to provide data-related services and c u s to m iz e d derivative taxonomies to clients. D e fe n d a n t GS1 Global is a Belgian corporation engaged in the development a n d implementation of global business standards for describing products and moving th e m through the supply chain. Defendant GS1 US is an American company

e n g a g e d in similar efforts to develop and implement standards within the United S ta te s . Defendant 1Sync is a subsidiary of GS1 US and provides data pool services to customers. The final defendant, AHMA, is a trade association that provides s e rvic e s to hardware manufacturers and other members. GS1 US, 1Sync, and AHMA jointly initiated a project for incorporating m a rk e tin g attributes into the global standards. The initiative put out a request for in fo rm a tio n regarding marketing data taxonomies and, in response, the defendants o b ta in e d a customized taxonomy that Edgenet had created for one of its customers. E d g e n e t alleges that the defendants then used this confidential and copyrighted ta xo n o m y for their own benefit and disseminated it to others via an online "c o m m u n ity room."

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T h e s e events form the basis for the claims contained in Edgenet's current c o m p la in t, the "Amended Complaint." The Amended Complaint asserts claims for c o p yrig h t infringement, trade secret misappropriation, violations of the Lanham Act, d e c e p tive trade practices, and violations of W is . Stat. § 134.01. The defendants filed th re e separate motions to dismiss Edgenet's Amended Complaint. The two motions t o dismiss filed by GS1 US, 1Sync, and AHMA allege that the complaint must be d is m is s e d for failure to join necessary parties and that each count should also be d ism iss e d for failure to state a claim. Alternatively, the motions ask the court to d ire c t Edgenet to provide a more definitive statement of its claims, pursuant to F e d e ra l Rule of Civil Procedure 12(e). GS1 Global joins in these arguments, and a d d itio n a lly argues that all claims asserted against it must be dismissed because the c o u rt lacks personal jurisdiction. Edgenet now seeks to file a "Second Amended Complaint" asserting claims fo r monopolization pursuant to 15 U.S.C. § 2, monopolization pursuant to W is. Stat. § 133.18, a civil RICO conspiracy pursuant to 18 U.S.C. § 1962(c), a civil RICO c o n s p ira c y pursuant to 18 U.S.C. § 1962(d), violations of the W is c o n s in Organized C rim e Control Act, W is . Stat. § 946.80 et seq, copyright infringement, m is a p p ro p ria tio n of trade secrets pursuant to W is . Stat. § 134.90, violations of the N e w Jersey Consumer Fraud Act, N.J.S. § 56:8-2 and 56:8-2.7, common law m is a p p ro p ria tio n , and unjust enrichment. The proposed complaint eliminates many

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o f the claims challenged by the defendants in their motions to dismiss and provides m o re detailed factual allegations than the current complaint. ANALYSIS T h e court now considers Edgenet's request for leave to file the Second A m e n d e d Complaint and the defendants' motions to dismiss the Amended C o m p la in t. I. M o tio n for Leave to Amend E d g e n e t seeks to file a Second Amended Complaint that eliminates two p re vio u s ly-a s s e rte d claims, adds eight new claims, and provides more detailed fa c tu a l allegations in support of existing claims. The defendants oppose Edgenet's m o tio n and argue that the proposed amendment is unduly prejudicial, represents a re p e a te d failure to cure a deficiency in the complaint, and that amendment of the c o m p la in t is futile because the suit is subject to dismissal under Rule 12(b)(7) for failu re to join necessary parties. However, the court disagrees and will grant leave fo r Edgenet to file its Second Amended Complaint. F e d e ra l Rule of Civil Procedure 15 states that a court should "freely give le a ve " for a party to amend its pleading "when justice so requires." Fed. R. Civ. P. 1 5 (a )(2 ). The Federal Rules envision a liberal policy toward amendment of the p le a d in g s . Kier v. Commercial Union Ins. Co., 808 F.2d 1254, 1258 (7th Cir. 1987). T h o u g h the rule is interpreted liberally in favor of amendment, a court may deny

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le a ve to amend based on undue delay, bad faith, dilatory motive, prejudice, or futility. G u is e v. BMW Mortgage, LLC, 377 F.3d 795, 801 (7th Cir. 2004). T h e defendants assert that permitting amendment of the complaint is unfairly p re ju d ic ia l because they spent considerable time and resources briefing their m o tio n s to dismiss. However, the defendants' argument is based only on their own in c o n ve n ie n c e and not on any legal authority. The defendants also argue that E d g e n e t repeatedly failed to cure deficiencies in its complaint and should now be p re c lu d e d from filing a second amended complaint. However, Edgenet has not a m e n d e d its complaint since the defendants filed their responsive pleadings. E d g e n e t amended its complaint once before, pursuant to a stipulation between the p a rtie s and prior to the filing of any response. Therefore, Edgenet's motion to file the S e c o n d Amended Complaint represents only its first attempt at resolving deficiencies ra is e d by the defendant's motions to dismiss. Denying Edgenet's request on either o f these grounds runs counter to a liberal interpretation and application of Rule 15. T h e defendants further argue that the court should deny leave to amend b e c a u s e Edgenet's attempt to amend is futile. The defendants assert that the p ro p o s e d Second Amended Complaint fails to name necessary parties and would n o t survive a motion to dismiss pursuant to Rule 12(b)(7) and Rule 19. The

d e fe n d a n ts incorporate the arguments they made in the pending motions to dismiss in to their opposition to Edgenet's request to amend. Therefore, the court will

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a d d re s s the arguments and determine whether the Second Amended Complaint fails to join necessary parties. F e d e ra l Rule of Civil Procedure 12(b)(7) provides for the dismissal of an action w h e n there is a failure to join a party under Rule 19. Fed. R. Civ. P. 12(b)(7). D ism iss a l for failure to join a party under Rule 19 requires a two-step inquiry. Davis C o m p a n ie s v. Emerald Casino, Inc., 268 F.3d 477, 481 (7th Cir. 2001). A court first c o n s id e rs whether the absent party is one that should be joined if feasible, tra d it io n a lly known as a "necessary" party. Id. In determining whether the absent p a rty is necessary under Rule 19(a), the court considers the following: 1) whether c o m p le te relief can be accorded without joinder of that party; 2) whether the party's a b ility to protect his interest will be impaired; and 3) whether the existing parties will b e subject to a substantial risk of multiple or inconsistent obligations unless the party is joined. Id. If the court deems the absent party "necessary" to the litigation, but the p a rty cannot be included in the action, then the court proceeds to the second part o f the inquiry. Id. The court next determines whether the litigation can proceed at a ll in the party's absence by considering whether it can structure a judgment that will p ro te c t the absent party's rights and the existing litigants' rights. Thomas v. United S ta te s , 189 F.3d 662, 667 (7th Cir. 1999). The defendants assert that Edgenet's action must be dismissed because it fa ils to name two necessary parties ­ the customer who provided Edgenet's p ro p rie ta ry information to the defendants, and the co-author of Edgenet's

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c o p yrig h te d taxonomies. Edgenet creates customized taxonomies for clients and re q u ire s its clients to maintain the confidentiality of this information. One of

E d g e n e t's clients, Lowe's,2 allegedly provided the customized taxonomy that E d g e n e t had prepared for it to the defendants as part of the standards-setting in itia tiv e . The defendants then allegedly misappropriated the taxonomy and

d is s e m in a te d it to Edgenet's direct competitors. The defendants suggest that if L o w e 's is not named as an additional party to the suit, then the court cannot accord c o m p le te relief because Lowe's is also culpable in any alleged misappropriation. T h e defendants further assert that Lowe's is necessary because they may be drawn in to a second round of litigation if Edgenet later sues Lowe's based on the same e ve n ts . Edgenet responds that its claims are akin to tort claims and that all joint to r tfe a s o rs need not be named as defendants in a single lawsuit. Edgenet also p o in ts out that the defendants are free to file a third-party complaint against Lowe's fo r contribution or indemnification if they are concerned about being held responsible fo r Lowe's conduct. This court agrees that Lowe's is not a necessary party.

Edgenet's Am e n d e d Com p la in t does not reveal the identity of this custom e r , but m e r e ly states that " o n e of Edgenet's custom e r s provided GS1 US, 1Sync and AHMA with the Custom iz e d Taxonom y that had b e e n specifically prepared for that custom e r by Edgenet." (Am . Com p l., at ¶ 24). However, in its response b r ie f to AHMA's m o tio n to dism is s , Edgenet identifies the custom e r as Lowe's. (Pl.'s Resp. Motion Dism is s , a t 3). Edgnet's proposed Second Am e n d e d Com p la in t also states that the custom iz e d taxonom y at issue w a s created for Lowe's and that Lowe's provided it to the defendants. (Pl.'s Proposed Am . Com p l., at ¶¶ 77, 7 9 , 97, 194). T h e reply briefs filed in support of the m o t io n s to dism is s also suggest that Hom e Depot m a y have b e e n involved in the allegedly im p r o p e r transfer of inform a tio n to the defendants. (GS1 US Reply Br, at 6-7; A H M A Reply Br., at 4 n.2). However, Edgenet does not m e n t io n Hom e Depot in either its pleadings or its d e c la r a tio n s . Therefore, the court disregards this unsupported speculation.

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T h e absence of Lowe's from the suit does not prevent the court from a c c o rd in g complete relief between the existing parties. Edgenet's proposed Second A m e n d e d Complaint asserts misappropriation of its proprietary information, copyright in frin g e m e n t, antitrust, conspiracy, and fraud claims against the current defendants. T h e fact that Edgenet may also bring tort and copyright claims against Lowe's does n o t mean Edgenet must do so. See Temple v. Synthes Corp., Ltd., 498 U.S. 5, 7 (1 9 9 0 ) (stating the general rule that joint tortfeasors are not necessary parties under R u le 19 and quoting Advisory Committee Notes to Rule 19(a) stating that "a to rtfe a s o r with the usual `joint-and-several' liability is merely a permissive party to an a c tio n against another with like liability."); see also Salton, Inc. v. Philips Domestic A p p lia n c e s & Pers. Care B.V., 391 F.3d 871, 877 (7th Cir. 2004) ("Under the p rin c ip le of joint and several liability, which governs not only the common law tort of m is a p p ro p ria tio n of trade secrets but also the federal statutory tort of copyright in frin g e m e n t (citations omitted), the victim of a tort is entitled to sue any of the joint tortfe a s o rs and recover his entire damages from that tortfeasor."). The liability of p o te n tia l joint tortfeasors is several, allowing one of a number of joint tortfeasors to b e sued alone. Pasco International (London) Ltd. v. Stenograph Corp., 637 F.2d 4 9 6 , 503 (7th Cir. 1980). Because Edgenet need not assert its claims against L o w e 's as a joint tortfeasor, Lowe's is not a necessary party. The defendants also h a ve the option of filing a third-party complaint against Lowe's pursuant to Rule 14.

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C o n s e q u e n tly, Edgenet's motion to amend is not futile for failing to name Lowe's as a defendant. A lte rn a tiv e ly, the defendants argue that Edgenet's action must be dismissed for failure to join Big Hammer, LLC ("Big Hammer") as a plaintiff. Big Hammer is lis te d as an author, along with Edgenet, on the Certificate of Registration for the c o p yrig h ted taxonomies at issue in the case. The defendants assert that they are a t risk of being sued separately by Big Hammer if Big Hammer is not joined in the s u i t. The defendants also argue that such duplicative litigation may lead to

in c o n s is te n t judgments. H o w e v e r, Big Hammer is not a necessary party for claims arising out of the c o p y rig h te d taxonomies because it no longer maintains its interest in those works. A party may only sue for infringement based on ownership, and not merely on coa u th o rs h ip . See Bourne Co. v. Hunter Country Club, Inc., 990 F.2d 934, 937 (7th Cir. 1 9 9 3 ) ("A copyright infringement action may only be brought by the `legal or b e n e fic ia l owner' of a copyright"); Davis v. Blige, 505 F.3d 90, 98-99 (2d Cir. 2007). B ig Hammer does not possess any ownership interest because it transferred all in te re s ts in the subject taxonomies to Edgenet in 2006, prior to the events in q u e s tio n . (Rudolph Decl. Dk #20, at ¶ 5; Second Amended Complaint, Dk #33, Ex. A , at ¶¶ 32, 149). Further, Big Hammer is not a necessary party even if it did retain a n ownership interest in the copyrighted taxonomy. Co-owners may sue for

c o p yrig h t infringement independently. Davis, 505 F.3d at 99.

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T h e defendants are not in danger of multiple suits or inconsistent judgments b e c a u s e Big Hammer retains no ownership rights upon which to base an in frin g e m e n t claim. Further, Big Hammer could not seek additional damages from th e defendants even if it did retain ownership interests and later filed separate in fr in g e m e n t litigation against them. In a case where infringement damages are a w a rd e d to only one of two co-owners of a copyright, redress is properly sought th ro u g h a suit between the co-owners and not through further litigation against the d e fe n d a n t. See Copyright.net Music Publ'g LLC v. MP3.com, 256 F. Supp. 2d 214, 2 1 8 (S.D.N.Y. 2003). Finally, the defendants suggest that Big Hammer is a necessary party b e c a u s e it may possess some important discovery that will be more easily obtained if Big Hammer is made a party to the lawsuit. The defendants cite no authority to s u p p o rt their argument that ease of discovery compels joinder of a party, and the la n g u a g e of the rule alone does not support this contention. Also, as Edgenet points o u t, it acquired all of Big Hammer's assets and now has in its custody or control all d o c u m e n t s once belonging to Big Hammer. (Reply Br. Mot. File Am. Compl, at 4-5). B ig Hammer's potential possession of discovery does not render it a necessary party to the litigation. T h e court finds that granting Edgenet's motion for leave to file its Second A m e n d e d Complaint is appropriate. There is no undue delay, bad faith, prejudice o r futility warranting denial of leave to amend. The fact that Edgenet's proposed

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S e c o n d Amended Complaint does not add Lowe's and Big Hammer as parties does n o t render the amendment futile. Further, the case remains in the pleading stage a n d no discovery has yet been conducted. II. M o t io n s to Dismiss In addition to granting leave to file Edgenet's Second Amended Complaint, th e court will also address the three pending motions to dismiss. The defendants' m o tio n s to dismiss assert that the previous complaint must be dismissed for failure to join necessary and indispensable parties.3 The court addressed this argument a b o ve and concluded that neither Big Hammer nor Lowe's is a necessary party. T h u s , their absence from the suit does not require dismissal under Rule 12(b)(7). The motions also argue that all counts of the previous complaint must be d is m is s e d for failure to state a claim. However, the majority of the defendants' a rg u m e n ts are no longer relevant because the claims they challenge are not a s s e rte d in the Second Amended Complaint. The Second Amended Complaint e lim in a te s the previously-asserted claims for violations of the Lanham Act, W is. Stat. § 134.01, and the Delaware Deceptive Trade Practices Act. The new complaint also re p la c e s the "Trade Secret Misappropriation" claim with a more generic common law

The argum e n ts referenced in this section are asserted within three different m o tio n s to dism is s , one f ile d by GS1 US and 1Sync (Dk #10), one filed by AHMA (Dk #8), and one filed by GS1 Global (Dk #14). The m o tio n to dism is s filed by GS1 US and 1Sync asserts that the am e n d e d com p la in t m u s t be dism is s e d for f a ilu r e to join Big Ham m e r and that Count V (violation of W is . Stat. § 134.01) fails to state a claim upon which r e lie f m a y be granted. The m o tio n to dism is s filed by AHM A argues that the am e n d e d com p la in t m u s t be d is m is s e d for failure to join Edgenet's custom e r ­ later identified as Lowe's ­ as a necessary party. AHMA a ls o argues that Count II (trade secret m is a p p r o p r ia tio n ) , Count III (violations of the Lanham Act), and Count IV (deceptive trade practices under 6 Delaware Code § 2532) m u s t all be dism is s e d for failure to state a claim . T h e m o tio n to dism is s filed by GS1 Global joins in the Rule 12(b)(6) and Rule 12(b)(7) argum e n ts asserted b y the other defendants.

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m is a p p ro p ria tio n claim (Count IX).4

Finally, the Second Amended Complaint

in c lu d e s substantially more factual allegations than the previous complaint and a d d re s s e s the defendants' original request for a more definitive statement of claims p u rs u a n t to Rule 12(e). Consequently, the motions to dismiss the counts asserted in the now-defunct Amended Complaint are moot. T h e motion to dismiss filed by defendant GS1 Global makes an additional a r g u m e n t asserting that all claims against GS1 Global must be dismissed because th e court lacks personal jurisdiction over it. However, GS1 Global's motion to d is m is s is based upon the previous complaint and the claims contained therein. The S e c o n d Amended Complaint asserts a new claim against GS1 Global which impacts th e court's analysis. Edgenet now asserts a RICO conspiracy under 18 U.S.C. § 1962(d) against GS1 Global. The RICO statute authorizes nationwide service of p ro c e s s . In re Bridgestone/Firestone, Inc., Tires Products Liability Litigation, 333 F . 3 d 763, 768 (7th Cir. 2003) (citing 18 U.S.C. § 1965(b)). The authorization of s e rvic e provided for in § 1965(b) of the RICO statute creates personal jurisdiction. L is a k v. Mercantile Bancorp, Inc., 834 F.2d 668, 671 (7th Cir. 1987). GS1 Global did n o t address this issue in its motion to dismiss because the claim was not included

As a result of this substitution of claim s , the defendant's argum e n t that trade secret m is a p p r o p r ia tio n c la im s are preem p te d by the W is c o n s in Trade Secret Act is no longer directly on point. This is because the W is c o n s in Trade Secret Act precludes civil law rem e d ie s based on m is a p p r o p r ia tio n of trade secrets, but does n o t preclude all civil law rem e d ie s based on m is a p p r o p r ia tio n of confidential inform a tio n falling outside of the s t a t u t o r y definition of a trade secret. Burbank Grease Services, LLC v. Sokolowski, 2006 W I 103, ¶ 33, 294 W i s . 2d 274, ¶ 33, 717 N.W . 2 d 781, ¶ 33. The newly-asserted com m o n law claim alleges that Edgenet's " c o n f i d e n t ia l and proprietary intellectual property" was m is a p p r o p r i a t e d , but does not assert that this property c o n s tit u te s a trade secret. Therefore, the issue of whether the m o r e recent m i s a p p r o p r ia tio n claim is p r e e m p te d by the statute has not been briefed.

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in the previous complaint. Therefore, the question of whether the court can exercise p e rs o n a l jurisdiction over GS1 Global has not been fully argued and the court cannot g r a n t the motion to dismiss. A c c o r d in g ly , IT IS ORDERED that the plaintiff's motion for leave to file a Second Amended C o m p la in t (Docket #33) be and the same is hereby GRANTED. IT IS FURTHER ORDERED that the motion to dismiss filed by AHMA (Docket # 8 ) be and the same is hereby DENIED; IT IS FURTHER ORDERED that the motion to dismiss filed by GS1 US and 1 S yn c (Docket #10) be and the same is hereby DENIED. IT IS FURTHER ORDERED that the motion to dismiss filed by GS1 AIBSL (D o c k e t #14) be and the same is hereby DENIED. D a te d at Milwaukee, W is c o n s in , this 5th day of January, 2010. BY THE COURT:

J .P . Stadtmueller U .S . District Judge

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