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Royaltystat, LLC v. Intangiblespring, Corp.

United States District Court, D. Maryland

October 25, 2018

ROYALTYSTAT, LLC, Plaintiff
v.
INTANGIBLESPRING, CORP., et al., Defendants

          MEMORANDUM OPINION

          PAULA XINIS UNITED STATES DISTRICT JUDGE

         Pending before the Court is RoyaltyStat, LLC, (“RoyaltyStat”) and Dr. Ednaldo Silva's motion to dismiss IntangibleSpring, Inc., (“IntangibleSpring”) and Raul Pacheco Quintanilla's amended counterclaims. ECF No. 73. The motion is fully briefed, and a hearing was held on October 15, 2018. For the reasons that follow, the Court grants RoyaltyStat's motion to dismiss.[1]

         I. BACKGROUND

         RoyaltyStat is a limited liability company founded by Dr. Ednaldo Silva. ECF No. 112 ¶ 1. RoyaltyStat provides its clients with a database of intellectual property royalty rates used for pricing and valuation in connection with litigation, corporate bankruptcy, business development, and mergers and acquisitions. Id. ¶ 11. RoyaltyStat registered the text of the RoyaltyStat database with the United States Copyright Office (“781 Registration”) and then registered the selection, coordination, and arrangement of data in 2015 (“811 Registration”). ECF No. 1 at 31.

         In 2000, RoyaltyStat hired Raul Pacheco Quintanilla to work on the RoyaltyStat database. ECF No. 112 ¶ 24; ECF No. 72 ¶¶ 13-14. Although RoyaltyStat alleges that Pacheco was a mere data processor (ECF No. 76 at 6), Pacheco avers that he was the “primary creator and curator” of the database until approximately 2004. ECF No. 75 at 3. Pacheco stopped working for RoyaltyStat entirely in 2011. ECF No. 112 ¶ 28. The next year, Pacheco founded IntangibleSpring, a direct competitor of RoyaltyStat. Id. ¶ 32.

         On December 23, 2015, RoyaltyStat filed its infringement action, alleging that IntangibleSpring's database includes records that Pacheco had impermissibly copied and stolen from RoyaltyStat's database. ECF No. 1 ¶ 39. After protracted litigation over the propriety of service, Pacheco accepted service through counsel on March 16, 2017. ECF Nos. 47, 48. Nearly a year later, IntangibleSpring filed counterclaims, asserting copyright infringement against RoyaltyStat for its use of Pacheco's database-related work (the “Pacheco Work”) that he had performed while employed for RoyaltyStat. ECF No. 72 ¶ 74-88. The counterclaims also include companion state law claims of unfair competition and tortious interference with contractual and other business relationships. Id. ¶¶ 89-116.

         A month before filing the counterclaims, Pacheco applied on an expedited basis to the Copyright Office for registration of his contribution to the RoyaltyStat database. ECF No. 72-2. The Copyright Office refused Pacheco's registration on several grounds. Id. The Office explained that it “does not have an option for registration of a contribution, or multiple contributions, to an automated database.” ECF No. 72-2 at 3. Nor could the work be registered as a contribution to a collective work, given that the Office could not discern from the application whether the RoyaltyStat database qualifies as a collective work. Id. Furthermore, as the Office explained, Pacheco submitted “three disassociated files that appear to be separate works.” Id. Finally, the Office noted formal requirements that were not met, including the failure to include a descriptive statement. Id.

         II. STANDARD OF REVIEW

         In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the well-pleaded allegations are accepted as true and viewed most favorably to the party pursuing the allegations. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The Court may also consider documents attached to the motion to dismiss when “integral to and explicitly relied on in the complaint, and when the [opposing parties] do not challenge the document[s'] authenticity.” Zak v. Chelsea Therapeutics, Int'l, Ltd., 780 F.3d 597, 606-07 (4th Cir. 2015) (quoting Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004) (internal quotation marks omitted). “Factual allegations must be enough to raise a right to relief above a speculative level.” Twombly, 550 U.S. at 555. “‘[N]aked assertions' of wrongdoing necessitate some ‘factual enhancement' within the complaint to cross ‘the line between possibility and plausibility of entitlement to relief.'” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 557). “[C]onclusory statements or ‘a formulaic recitation of the elements of a cause of action will not [suffice].'” EEOC v. Performance Food Grp., Inc., 16 F.Supp.3d 584, 588 (D. Md. 2014) (quoting Twombly, 550 U.S. at 555).

         III. ANALYSIS

         As a preliminary matter, the Court must determine which version of the counterclaims is before the Court. RoyaltyStat argues that the amended counterclaims are not operative because Pacheco did not seek leave to amend his original counterclaims. However, leave of court was not necessary because under Rule 15 of the Federal Rules of Civil Procedure, “[a] party may amend its pleading once as a matter of course within . . . 21 days after service of a motion under Rule 12(b), (e), or (f).” On March 9, 2018, RoyaltyStat moved to strike the original counterclaims under Rule 12(f) and 12(b)(6). Pacheco, in response, filed the amended counterclaims on March 23, 2018, well within the twenty-one day period provided under the Rule. Accordingly, the Court will consider the sufficiency of the amended counterclaims.

         A. Right to Bring Suit under 17 U.S.C. § 411(a)

         RoyaltyStat principally argues that IntangibleSpring's infringement action must fail because its application to the Copyright Office was insufficient and thus rejected on formal grounds. 17 U.S.C. § 411(a) provides, in pertinent part, that:

[N]o civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title. In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action ...

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