Maxient, LLC v. Symplicity Corp.
Maxient, LLC v. Symplicity Corp.
Opinion of the Court
MEMORANDUM OPINION
The defendants removed this case from state court on the grounds that plaintiffs state law claims for misappropriation of trade secrets and computer fraud were completely preempted by the federal Copyright Act. The case is presently before the Court on Plaintiffs Motion to Remand to State Court [Doc. No. 16]. For reasons stated herein, the Court concludes that two of plaintiffs four challenged state law claims are not preempted by the Copyright Act, while two are preempted by the Copyright Act. The Plaintiffs motion to remand will therefore be GRANTED in part and DENIED in part.
I. Background
Plaintiff Maxient LLC (“Maxient”) and Defendant Corporation (“Symplicity”) are Virginia-based companies that develop and provide competing web-based software to institutions of higher education for student conduct records management (“SCRM”). As alleged in the Complaint, Symplicity, acting through defendants Fiedler, its Chief Executive Officer, Dhir, its Chief Technology Officer-, and Kelly, its Director of Sales, unlawfully accessed password protected confidential information that Maxient made available ori its web-site based network to its SCRM software customers. Defendants’ activities became the subject of a federal criminal investigation and in May and June 2014, Defendants Friedler, Dhir and Kelly pled guilty to violating the Computer Fraud and Abuse Act, 18 U.S.C. § 1030.
On August 12, 2014, Plaintiff filed its four count Complaint in the Circuit Court for Arlington County, alleging violations of the Virginia Trade Secrets Act, Virginia Code § 59.1-336 (Count I), and the Virginia Computer Crimes Act (“VCCA”), Virginia Code § 18.2—152.3 (Count Il-computer fraud), Virginia Code § 18.2-152.4 (Count Ill-computer trespass) and Virginia Code § 18.2-152.15 (Count TV-unlawful use of encryption in criminal activity). On September 8, 2014, Defendants’ filed a Notice of Removal to this Court on the grounds that the Copyright Act, 17 U.S.C. § 301(a), completely preempted Counts II-TV.
II. Standard of Review
There is a strong presumption against removal jurisdiction. See Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). The removing defendant has the burden to establish a proper basis for removal and “[fjederal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992); see also Lontz v. Tharp, 413 F.3d 435, 441 (4th Cir. 2005) (removal jurisdiction must be construed strictly). This burden is particularly heavy where removal is premised on the doctrine of “complete preemption.” Under that doctrine, “... if the subject matter of a putative state law claim has been totally subsumed by federal law—such that state law cannot even treat on the subject matter—then removal is appropriate.” 413 F.3d at 439-40. “Defendants’ burden, then, is to demonstrate that a federal' statute indisputably displaces any state cause of action over a given subject matter.” Id. at 440. To remove successfully under the doctrine of complete preemption, a moving defendant must therefore establish that Congress intended to extinguish the asserted state law claims by making the federal cause of action exclusive; and “... reasonable doubts must be resolved against the complete preemption basis for it.” Id.
The Copyright Act provides that the exclusive remedy for a violation of the rights within the scope of a copyright.
III. Analysis
Plaintiff contends that this Court does not have subject matter jurisdiction and therefore removal was improper. In this regard, it claims that none of its four counts is preempted by the Copyright Act since even if they involve text that is within the scope of the subject-matter of copyright,’they are based on state law claims that protect rights and interests that are not equivalent to those exclusive rights protected under the Copyright Act. On the other hand, -Defendants contend, relying centrally on Rosciszewski v. Arete Associates, Inc., 1 F.3d 225 (4th Cir. 1993), that under “black-letter Fourth Circuit law,”
There is no question that copyrightable subject matter includes computer programs;
As characterized by the Plaintiff in its Complaint, Maxient and Symplicity are direct competitors in the web-based software market for SCRM. Complaint at ¶ 10-13. Each company has developed and marketed to institutions of higher learning its own particular proprietary software solutions for SCRM. Cmpl. at ¶ 12. Maxient describes its software system as a “proprietary invention, utilizing unique formulas, techniques, functions, features, and methods, all constituting trade secrets which provide Maxient’s customers a valuable solution over competing software solutions.” Cmpl. at ¶ 16. Maxient “provide[s] its distributed solution [to SCRM] through protected servers that are accessible to its subscribers over a secure Internet connection.” Cmpl. at ¶ 14.
After certain Symplicity SCRM software customers transferred their business to Maxient, Defendants decrypted certain of these former customers’ password codes still on file with Symplicity and learned that its former customers continued to use these same passwords for the purpose of accessing Maxient’s SCRM software support network. Cmpl. at ¶ 22. On two separate occasions, September 13, 2010, and August 17, 2011, Defendants, using techniques to conceal the source of their activities, falsely posed as Maxient customers and successfully accessed Maxient’s protected servers using the login credentials of its former customers. Cmpl. at ¶ 20-28. Once Defendants accessed Max-ient’s restricted, protected network, they “reviewed Maxient’s trade secrets and confidential information and proprietary product design and manuals, and copied-and-pasted key proprietary and confidential information into a 110-page document and saved it on Symplicity’s computer as “max-ient.docx” (“the Maxient Document”). Cmpl. at ¶ 24. The Maxient Document “contained, inter alia, detailed information about Maxient’s new and key features, planned upgrades, layout of the software, and key screen shots.” Id. Defendants subsequently used the information they had gained from the Maxient network to add features to their own SCRM software. See Cmpl. at ¶ 31 (defendants “used these features [learned through their unlawful access] to unfairly compete against Max-ient in the SCRM market in part by depriving them of their status as a sole source provider of these features”).
As reflected in the above summary of the Complaint, the core of Plaintiffs claims is illegal computer access to state law protected ideas, processes, procedures and methods of operation pertaining to its SCRM software, subject matter specifically excluded from copyright protection.
A. Count II—Computer Fraud under Va.Code § 18.2-152.3(1) and (3).
In Count II of its Complaint, Maxient seeks recovery under the VCCA, Va.Code § 18.2-152.3(1) and (3).
B. Count III—Computer Trespass un- ■ der Va.Code § 18.2-152.4(6)
In Count III, Maxient alleges that “[w]ith malicious intent Symplicity and Symplicity’s CEO used a computer and a computer network without authorization to make or cause to be made an authorized copy, in any form, including, but not limited to, any printed or electronic form of computer data, computer programs and computer software residing in, communicated by, or produced by a computer or computer network.” Cmpl. at ¶ 76. The only elements of this claim beyond those required to prove copyright infringement is the element that a computer be used ■without authorization and the element of “malicious intent.” Maxient does not argue that the requirement that a computer be used without authorization is sufficient to avoid preemption but does contend that
C. Count IV—Use of encryption to further criminal activity under Va. Code § 18.2-152.15
Plaintiffs last claim is that “Defendants Symplicity, Symplicity’s CEO, and Symplicity’s CTO willfully used encryption to further criminal activity, including, but not limited to, violating 18 U.S.C. §§ 371,1030(a)(2)(C) and (c)(2)(B)(i).” Cmpl. at ¶81. Va.Code § 18.2-152.15 provides' that “any person who willfully uses encryption to further any criminal activity shall be guilty of an offense which is separate and distinct from the predicate criminal activity and punishable as a Class 1 misdemeanor.” The use of encryption is a nature changing element that is beyond those necessary to provide a copyright infringement claim, and therefore, the claim under § 18.2-152.15 is not preempted.
III. Conclusion
For the above reasons, Plaintiffs state law claims under Va.Code, § 18.2-152.3(1) (false pretenses) and § 18.2-152.15(en-cryption) are not preempted under the Copyright Act and those under Va.Code § 18.2-152.3(3) (conversion) and § 18.2-152.4(6) (trespass) are preempted by the Copyright Act. Plaintiffs Motion to Remand is therefore DENIED as to the claims under Va.Code § 18.2-152.3(3), set forth in Count II, and Va.Code, § 18.2-152.4(6), set forth in Count III. The Court also concludes that the remaining non-preempted claims substantially predominate over the preempted claims and the Court therefore declines pursuant to 28 U.S.C. § 1367(c)(2), to exercise supplemental jurisdiction over the non-preempted claims set forth in Count I (trade secrets), Count II, and Count IV; and Plaintiffs Motion to Remand is GRANTED to that extent.
The Court will issue an appropriate order.
. Defendants Notice of Removal asserts the Court’s supplemental jurisdiction over the remaining state law claim (Count I), which was
. Section 301(a) of the Copyright Act provides in pertinent part:
[A]ll legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright ... in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright ... are governed exclusively by this title [N]o person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
. Section 101 defines “computer program” as "a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.”
. The Maxient Document contains a variety of subject matter, including purely descriptive text of the SCRM software, detailed instructions on how to use the SCRM software and screen shots with accompanying instructional text. In short, the Maxient Document contains elements of both copyright protectable "expression” and non-copyright protectable "ideas;” and it would appear to the Court, without .deciding, that it is, at least in part, subject to copyright protection. In any event, as stated above, the Court concludes that the Maxient Document contains text that is "within the scope of the subject-matter of copyright.”
. The Copyright Act expressly excludes copyright protection for “any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated or embodied in such work.” 17 U.S.C. § 102(b).
. 18.2-152.3, as applicable to Maxient's claims, provides as follows:
Any person who uses a computer or computer network, without authority and:
1. Obtains property or services by false pretenses;
2. Embezzles or commits larceny; or
3> Converts the property of another; is guilty of the crime of computer fraud.
. The Court recognizes that at points in its Complaint Maxient alleges only intent and not actual use of false pretenses. Important, however, for the purposes of the preemption analysis are the elements of Maxient's Subsection 1 claim, not whether Maxient has adequately alleged facts to support that claim. Moreover, the Complaint, read as a whole, clearly alleges defendants’ actual use of false pretenses to access Maxient’s network. In any event, whether Maxient has alleged facts sufficient to state a claim under Subsection 1 is an issue reserved to the state court upon remand.
.At the time Rosciszewski was decided, Va. Code § 18.2-152.3 had only an intent element that the Fourth Circuit concluded was insufficient to qualitatively distinguish a claim under that section from a claim under the Copyright Act. See Rosciszewski, supra, 1 F.3d at 230 (the intent requirement did "not require proof of elements beyond those necessary to prove copyright infringement of a computer program....”) In 2005, after the decision in Rosciszewski, § 18.2-152.3 was amended to its present form. In Cvent, Inc. v. Eventbrite, Inc., 739 F.Supp.2d 927, 934 (E.D.Va. 2010), the Court acknowledged that "the statute as
. Va.Code § 18.2-152.4(6) provides: "It shall be unlawful for any person, with malicious intent, to: ... (6) Use a computer or computer network to make or cause to be made an unauthorized copy, in any form, including, but not limited to, any printed or electronic form of' computer data, computer programs or computer software residing in, communicated by, or produced by a computer or computer network! ]”
. Plaintiffs briefing focuses on the .title § 18.2-152.4, "computer trespass," as evidence of an extra element, i.e. the invasion by Defendants into Maxient’s secured computers and network. See Doc. No. 17 at 17. Notably, Plaintiff does not address the actual elements of § 18.2-152.4(6). See also Pennsylvania Dep’t of Corr. v. Yeskey, 524 U.S. 206, 212, 118 S.Ct. 1952, 1956, 141 L.Ed.2d 215 (1998) ("[T]he title of a statute ... cannot limit the plain meaning of the text. For interpretive purposes, [it is] of use only when [it] shed[s] light on some ambiguous word or phrase.") (internal citations omitted).
. Again, whether Maxient’s factual allegations sufficiently allege the use of encryption to state a claim under Va.Code, § 18.2-152.15 is an issue left to the state court.
Reference
- Full Case Name
- MAXIENT, LLC v. SYMPLICITY CORP., Ariel M. Friedler, Alok K. Dhir, & Matthew Kelley
- Cited By
- 1 case
- Status
- Published