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RoyaltyStat, LLC v. IntangibleSpring, Corp.

United States District Court, D. Maryland

August 1, 2019

INTANGIBLESPRING, CORP., et al., Defendants.



         This case centrally concerns the copyrightability of a database that supports a royalty research business. Pending before the Court is Defendants IntangibleSpring, Inc. (“IntangibleSpring”) and Raul Pacheco Quintanilla (“Pacheco”)'s motion for summary judgment (ECF No. 123), Plaintiff RoyaltyStat, LLC (“RoyaltyStat”)'s cross-motion for summary judgment (ECF No. 135), and the parties' dispute over the allegedly privileged nature of certain documents submitted as part of the record evidence. ECF No. 146. The motions are fully briefed. A conference call was held on April 3, 2019, regarding RoyaltyStat's claims of privilege (ECF Nos. 151-52), and no further hearing is necessary. See Loc. R. 105.6. For the following reasons, the Court grants in part and denies in part Defendants' motion for summary judgment, denies RoyaltyStat's motion for summary judgment, and finds that RoyaltyStat has waived any privilege associated with the exhibit in question.

         I. Background

         RoyaltyStat, LLC (“RoyaltyStat”) publishes a database of royalty rate information gathered primarily from licensing agreements included within corporations' Securities and Exchange Commission (“SEC”) filings. ECF No. 63-1 at 2. The RoyaltyStat database is comprised of information extracted from the agreements. ECF No. 125-48 at 2. Subscribers pay RoyaltyStat a fee to access the database through unique usernames and passwords, after signing a subscription agreement that limits use of the data. ECF No. 135-2 at 46-47.

         RoyaltyStat was the first royalty database on the market. In 1997, Dr. Ednaldo Silva, RoyaltyStat's founder, published an article about the potential for such databases. ECF No. 63-1 at 2; ECF No. 135-15 at 4. Since the company's inception, Silva has acted as RoyaltyStat's managing director. In that capacity, he has established RoyaltyStat's employee responsibilities and manages its staff. ECF No. 113-1 at 18; ECF No. 135-6 at 7.

         RoyaltyStat hired Pacheco in 2000. From 2000 to 2004, Pacheco extracted information from license agreements and made suggestions for how to edit fields for the database. ECF No. 129-1 at 29; ECF No. 125-24 at 2. Pacheco's access to the database was password protected. ECF No. 125-20 at 2. During the course of Pacheco's employment, he secured permission to download the database onto his computer to complete his work. ECF No. 140-2 at 3. Silva also expressly directed Pacheco to not disclose specific database information to anyone outside the company. ECF No. 125-27 at 5; ECF No. 135-8 at 1. Pacheco understood that access to the database was limited to subscribers who paid and signed the subscription agreement. ECF No. 135-2 at 46-47.

         Throughout Pacheco's lengthy tenure with RoyaltyStat, Silva referred to Pacheco as an independent contractor and as an intern for the company. ECF No. 140-8 at 2; ECF No. 141-5. In the beginning, Pacheco completed his work on a computer that Silva had purchased for him. ECF No. 145-5 at 5. Pacheco worked in Silva's home or an apartment paid for by Silva. ECF No. 141-5 at 2. At some point, however, Pacheco purchased his own computer for use with RoyaltyStat and, in 2001, he began to work from Mexico. ECF No. 145-5 at 6; ECF No. 135-2 at 26. The parties dispute whether Pacheco signed a confidentiality agreement in connection with his employment. Compare ECF No. 129-2 at 2, with ECF No. 145-4 at 5-6. In 2002, Pacheco began to work as a supervisor and sales representative for RoyaltyStat. ECF No. 129-2 at 4. During his tenure, RoyaltyStat paid Pacheco a monthly stipend and commissions earned in connection with Pacheco's sales of subscriptions. ECF No. 135-2 at 30.

         In 2004, Pacheco ceased his data extraction work entirely to focus on sales. Id. However, as late as January 2011, Pacheco continued to download portions of the RoyaltyStat database. ECF No. 125-61 at 3. In September 2011, RoyaltyStat terminated Pacheco and revoked his permission to access and download the database. ECF No. 129-2 at 5.

         Shortly after his termination, Pacheco founded IntangibleSpring. ECF No. 129-2 at 5. IntangibleSpring maintains a database that directly competes with RoyaltyStat. Id. The two databases are similar in style, design, and business objectives-to provide easily accessible royalty information for paid subscribers. At its inception in 2011, IntangibleSpring's database included approximately 10, 000 agreements, roughly the same number of agreements as in the RoyaltyStat database. ECF No. 135-14 at 1; ECF No. 135-20 at 1. IntangibleSpring claimed to be adding about 600 agreements per month to their database, but only had [XXXXX] records in 2018. ECF No. 135-20; ECF No. 125-52 at 9. Pacheco testified that he used the knowledge he acquired while employed with RoyaltyStat on locating relevant data to build the IntangibleSpring database. ECF No. 129-10 at 10.

         IntangibleSpring represents that, unlike RoyaltyStat, it does not include data from certain types of licensing agreements or agreements obtained from Freedom of Information Act requests. ECF No. 129-2 at 5. Yet, IntangibleSpring's database included four entries gained from Freedom of Information Act requests. ECF No. 137-7 at 13. The data accessible through IntangibleSpring's database employs language also found in RoyaltyStat's database that does not appear in the original licensing agreements, including errors that are found in RoyaltyStat's descriptions of agreements. ECF No. 137-7 at 19. RoyaltyStat's descriptions overlapped with the text of the source agreements 98% of the time, while IntangibleSpring's only overlapped 45% of the time. ECF No. 125-52 at 29. Out of RoyaltyStat's 16 and IntangibleSpring's 49 data categories, the titles of five categories overlapped verbatim. ECF No. 125-52 at 11.

         RoyaltyStat registered its database with the United States Copyright Office and was issued certificates, effective in 2009 and 2015, regarding original expression in the text, selection, coordination, and arrangement of data. ECF No. 125-45; ECF No. 125-46. However, RoyaltyStat did not seek any special relief for its trade secrets when depositing portions of its database to the Copyright Office. See Id. On December 23, 2015, RoyaltyStat filed this action against Pacheco and IntangibleSpring, alleging violations of the Copyright Act, 17 U.S.C. § 101 et seq.; the Lanham Act, 15 U.S.C. § 1125(a); the Maryland Uniform Trade Secrets Act (“MUTSA”), Md. Code, Com. Law § 11-1201 et seq.; and tortious interference with contract. Defendants now move for summary judgment in their favor on all claims, contending that RoyaltyStat has failed to generate sufficient triable issues of genuine material fact. RoyaltyStat cross-moves for summary judgment in its favor solely as to the MUTSA claim.

         II. Standard of Review

         Summary judgment is appropriate when the Court, construing all evidence and drawing all reasonable inferences in the light most favorable to the non-moving party, finds no genuine dispute exists as to any material fact, thereby entitling the movant to judgment as a matter of law. Fed.R.Civ.P. 56(a); see In re Family Dollar FLSA Litig., 637 F.3d 508, 512 (4th Cir. 2011). Summary judgment must be granted “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

         “In responding to a proper motion for summary judgment, ” the opposing party “must present evidence of specific facts from which the finder of fact could reasonably find for him or her.” Venugopal v. Shire Labs., 334 F.Supp.2d 835, 840 (D. Md. 2004), aff'd sub nom. Venugopal v. Shire Labs., Inc., 134 Fed.Appx. 627 (4th Cir. 2005) (citing Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986); Celotex, 477 U.S. at 322-23)). Genuine disputes of material fact are not created “through mere speculation or the building of one inference upon another.” Othentec Ltd. v. Phelan, 526 F.3d 135, 140 (4th Cir. 2008) (quoting Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985)). Where a party's statement of a fact is “blatantly contradicted by the record, so that no reasonable jury could believe it, ” the Court credits the record. Scott v. Harris, 550 U.S. 372, 380 (2007).

         “Where, as here, cross motions for summary judgment are filed, a court must ‘evaluate each party's motion on its own merits, taking care [in each instance] to draw all reasonable inferences against the party whose motion is under consideration.'” Snyder ex rel. Snyder v. Montgomery Cty. Pub. Sch., No. DKC 2008-1757, 2009 WL 3246579, at *5 (D. Md. Sept. 29, 2009) (quoting Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987)).

         III. Analysis

         A. Attorney-Client Privilege

         As a preliminary matter, the Court must determine whether it may consider as part of the record evidence a report which had been attached to an email that Pacheco's supervisor, Marcia Coutinho, sent to him and Silva. RoyaltyStat contends that the report is protected by the attorney-client privilege. The report in question is a representative sample of a competitor database. Silva had forwarded the email and attachments from Coutinho to RoyaltyStat's attorney for the purposes of receiving legal advice as to whether the competitor was infringing on RoyaltyStat's copyright, to which the attorney responded in writing. However, Pacheco was not included in the correspondence with the attorney.

         Defendants do not seek to use the letter written by the attorney, but do wish to admit the other emails and the attached report that was sent to Pacheco. RoyaltyStat objects on privilege grounds. Attorney-client privilege protects confidential communications between lawyer and client from disclosure. Hawkins v. Stables, 148 F.3d 379, 383 (4th Cir. 1998). Courts narrowly construe the privilege because “its application interferes with ‘the truth seeking mission of the legal process.'” In re Grand Jury Subpoena: Under Seal, 415 F.3d 333, 338 (4th Cir. 2005) (quoting United States v. Tedder, 801 F.2d 1437, 1441 (4th Cir. 1986)). “The party invoking the attorney-client privilege bears the burden of demonstrating its applicability.” Clark v. Unum Life Ins. Co. of Am., 799 F.Supp.2d 527, 536 (D. Md. 2011).

         “Any disclosure inconsistent with maintaining the confidential nature of the attorney-client relationship waives the attorney-client privilege.” United States v. Jones, 696 F.2d 1069, 1072 (4th Cir. 1982). However, disclosure of protected attorney communications between and among corporate employees does not waive the privilege “if the information is relayed from a non-lawyer employee or officer to other employees or officers of the corporation on a need to know basis.” F.C. Cycles, Int'l, Inc. v. Fila Sport, S.P.A., 184 F.R.D. 64, 71 (D. Md. 1998); see also Upjohn Co. v. United States, 449 U.S. 383, 393 (1981). Similarly, when the information is disclosed to a third-party who needs to know the information, and who “is the ‘functional equivalent' of an employee for the corporation, ” disclosure does not amount to waiver. Maxtena, Inc. v. Marks, No. DKC 11-0945, 2014 WL 4384551, at *20 (D. Md. Sept. 2, 2014).

         For purposes of this analysis, the Court assumes without deciding that the report attached to the request for attorney advice was protected by the attorney-client privilege when forwarded to counsel. However, even giving RoyaltyStat the benefit of the doubt in that respect, the email chain reflects that RoyaltyStat waived any privilege as to the report itself when the report was forwarded to Pacheco after Silva received the attorney's advice. The email correspondence reflects that Pacheco was first asked to compare the competitor database to RoyaltyStat's before the attorney was involved. Then, after Silva obtained his attorney's advice, Pacheco received a copy of the report without any further instruction or communication. Nowhere does the email chain suggest that Pacheco was given the report so he could follow counsel's guidance. Nor did anyone advise Pacheco that such information is privileged or somehow protected from disclosure. See United States ex rel. Barko v. Halliburton Co., 74 F.Supp.3d 183, 190-91 (D.D.C. 2014). Thus, finding that any privilege was waived, the Court will consider the exhibit.

         RoyaltyStat also argues that evidence pertaining to RoyaltyRange, another competitor, must not be considered by the Court because it was produced “at the end of discovery” and is inadmissible hearsay. ECF No. 145 at 6. However, these documents are not, on their face, inadmissible. Rather, they appear to be the business records of RoyaltyRange. See Fed. R. Evid. 803(6). IntangibleSpring's expert also intends to opine on issues of copyrightability based in part on the RoyaltyRange report. The expert opinions are not currently the subject of any separate challenge and so the underlying data is relevant in that respect. See Fed. R. Evid. 703. Thus, at this stage, the Court will consider this evidence.[1]

         The Court next turns to the parties' motions for summary judgment. The Court first considers Defendants' motion for summary judgment challenging the sufficiency of the evidence as to all claims against them, and next ...

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