Dmarcian, Inc. v. DMARC Advisor BV

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:21-cv-00067-MR
DMARCIAN, INC., )
)
Plaintiff, )
)
vs. ) O R D E R
)
DMARC ADVISOR BV, f/k/a )
dmarcian Europe BV, )
)
Defendant. )
_______________________________ )
THIS MATTER comes before the Court on the parties’ respective
Motions for Summary Judgment [Docs. 294, 297] and the Defendant’s
Motion to Exclude Certain Opinions of Plaintiff’s Expert John R. Levine [Doc.
298].
I. BACKGROUND
On March 12, 2021, the Plaintiff, dmarcian, Inc. (“dmarcian” or “the
Plaintiff”) filed this action against DMARC Advisor BV (then known as
dmarcian Europe BV) (“DMARC Advisor” or “the Defendant”). [Doc. 1]. The
Plaintiff filed a Verified Amended Complaint on April 7, 2021 [Doc. 19], and
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a Second Amended Complaint on June 22, 2021 [Doc. 51].1 The Second
Amended Complaint alleges fifteen causes of action against the Defendant,
including claims for (i) breach of written contract, (ii) breach of oral contract,
(iii) copyright infringement under 17 U.S.C. § 101, et seq. (the “Copyright
Act”), (iv) trademark infringement under 15 U.S.C. § 1051, et seq. (the
“Lanham Act”); (v) false designation of origin under the Lanham Act; (vi)
defamation; (vii) misappropriation of trade secrets under the North Carolina
Trade Secrets Protection Act, N.C. Gen. Stat. § 66-152, et seq. (the
“NCTSPA”); (viii) computer trespass; (ix) tortious interference with contract;
(x) tortious interference with prospective economic advantage; (xi)
misappropriation of trade secrets under the Defend Trade Secrets Act of
2016, 18 U.S.C. §§ 1836(b), 1839, et seq. (the “DTSA”); (xii) common law
trademark infringement; (xiii) unjust enrichment; (xiv) cybersquatting under
the Anticybersquatting Consumer Protection Act, 15 U.S.C. § 1125(d)(1)(A)
(“ACPA”); and (xv) unfair or deceptive business practices under N.C. Gen.
Stat. §75-1.1, et seq. (“Chapter 75”). The Court entered an Order imposing
a Preliminary Injunction against the Defendant on May 26, 2021. [Doc. 39].
This matter is now before the Court on the parties’ respective motions
for summary judgment. By way of a separate motion, the Defendant seeks
1 The Second Amended Complaint is not verified.
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to exclude certain opinions of the Plaintiff’s designated expert, Dr. John
Levine. These matters have been fully briefed and are now ripe for
disposition.
II. STANDARD OF REVIEW
Summary judgment shall be granted “if the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). A factual dispute is
genuine “if the evidence is such that a reasonable jury could return a verdict
for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A fact is material only if it might affect the outcome of the suit under
governing law. Id.
The movant has the “initial responsibility of informing the district court
of the basis for its motion, and identifying those portions of the pleadings,
depositions, answers to interrogatories, and admissions on file, together with
the affidavits, if any, which it believes demonstrate the absence of a genuine
issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(internal citations omitted).
Once this initial burden is met, the burden shifts to the nonmoving
party. The nonmoving party “must set forth specific facts showing that there
is a genuine issue for trial.” Id. at 322 n.3. The nonmoving party may not
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rely upon mere allegations or denials of allegations in his pleadings to defeat
a motion for summary judgment. Id. at 324. Rather, the nonmoving party
must oppose a proper summary judgment motion with citation to
“depositions, documents, electronically stored information, affidavits or
declarations, stipulations …, admissions, interrogatory answers, or other
materials” in the record. See id.; Fed. R. Civ. P. 56(c)(1)(a). Namely, the
nonmoving party must present sufficient evidence from which “a reasonable
jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at
248. In considering the facts on a motion for summary judgment, the Court
will view the pleadings and material presented in the light most favorable to
the nonmoving party. Matsushita Elec. Industrial Co. v. Zenith Radio Corp.,
475 U.S. 574, 587-88 (1986).
III. FACTUAL BACKGROUND
At the outset, the Court notes that this case has been strenuously and
prolifically litigated for more than three years. The parties have litigated a
preliminary injunction, multiple discovery disputes, contempt motions, and a
request to the Register of Copyrights. This litigation involves hotly disputed
issues of copyright and trademark infringement and misappropriation of
trade secrets, based on events that took place on multiple continents over
the course of nearly a decade. The present action is just one of several court
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actions pending between the parties (or related parties), most of which are
pending in Europe. The current docket stands at nearly 350 entries, with
numerous declarations proffered by counsel and the officers and agents of
the parties, along with countless exhibits, including copies of judgments and
orders from courts in the Netherlands.
While the parties have submitted hundreds of pages of briefing to date
detailing the events underlying this action and their positions on the claims
and defenses arising therefrom, this litigation has always been presented in
a rather piecemeal fashion. The Court has been presented with motions
relating to discrete legal issues, and the parties have presented those facts
and legal authorities which they believed were pertinent to such issues.
Now, the parties have advanced to the summary judgment stage.
They now have the opportunity to marshal their forecasts of evidence and
argue, based on those forecasts, whether there are any disputes of fact that
warrant a trial on the remaining issues. In that sense, the evidence relied
upon by the parties is critical to the Court’s analysis.
In moving for summary judgment, the Defendant presents a statement
of facts which, albeit somewhat brief, generally sets out the course of
dealings between the parties. [Doc. 295 at 7-11]. The Plaintiff does not offer
a separate statement of facts in its brief opposing the Defendant’s Motion for
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Summary Judgment. Rather, in its response brief, the Plaintiff notes that the
Court’s Order [Doc. 39] granting the preliminary injunction, “reflects
numerous factual findings supporting the Plaintiff’s claims” and that “other
bolstering facts” would be offered throughout the Argument section of its
brief. [Doc. 326 at 7].
The Plaintiff’s reliance upon any “factual findings” set forth in the
Preliminary Injunction Order, however, is entirely improper. First and
foremost, the determination of whether to issue a preliminary injunction
involves an entirely different standard of review than the one used to review
a motion for summary judgment. As such, any “findings” made in the
Preliminary Injunction Order have no bearing on the Court’s summary
judgment analysis. Moreover, anything the Court “found” in entering a
preliminary injunction does not constitute a forecast of evidence, either
supporting or refuting any party’s position. The Plaintiff appears to
acknowledge as much. [See Doc. 326 at 7 (noting that preliminary injunction
order is “not binding”)].
As the non-moving party, the Plaintiff has an affirmative duty at this
stage in the proceedings to present a forecast of evidence from which the
Court can determine whether there is a genuine issue of material fact for trial.
The Plaintiff is not entitled to simply rely upon the Court’s prior rulings or the
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Court’s presumed familiarity with the facts of this case to meet this burden.
Rather, the Plaintiff must “cit[e] to particular parts of materials in the record,
including depositions, documents, electronically stored information,
affidavits or declarations, stipulations (including those made for purposes of
the motion only), admissions, interrogatory answers, or other materials” to
support its assertion that genuine disputes of fact exist. Fed. R. Civ. P.
56(c)(1)(A). To the extent that the Plaintiff supports such assertion with
citations to the record throughout its Argument, the Court will consider this
forecast of evidence.
Viewing the parties’ forecasts of evidence in the light most favorable to
the Plaintiff, the following is a recitation of the relevant facts relevant to the
Defendant’s Motion for Summary Judgment.
The Plaintiff is a Delaware corporation with its principal place of
business in Brevard, North Carolina. [Doc. 19: Verified Am. Complaint at ¶
3]. The Plaintiff provides DMARC email protection products and services,
which help protect businesses from phishing attacks. [Id. at ¶¶ 16-19]. Tim
Draegen is the Plaintiff’s founder and former CEO, and his wife Shannon
Draegen is the Plaintiff’s current CEO. [Id. at ¶ 24].
The Plaintiff owns several types of intellectual property protected by
United States intellectual property law. Copyright Registration number
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TX0008941559 protects “the dmarcian Code,” that is, the source code for
dmarcian’s software program. [Id. at ¶¶ 41-44]. The Plaintiff registered
Trademark Registration No. 5,702,379 to protects its trademark,
DMARCIAN®. [Id. at ¶¶ 45-46]. The Plaintiff also claims common law
trademark rights in the stylized Mark. [Id. at ¶ 48]. The Plaintiff further claims
a number of trade secrets, including source code; historical customer data;
client contacts; business and market intelligence; and sales leads. [Id. at ¶
162].
In February 2012, Timothy Draegen published www.dmarcian.com, a
free website that allowed users to convert DMARC reports from one format
to another so that users could then implement DMARC as an email security
control. [Doc. 289-1: Pltf. 30(b)(6) Dep. at 33, 38]. Draegen first began to
keep copies of the code for the website in June 2012. [Id. at 38].
In September 2014, Draegen formed the Plaintiff to commercialize
DMARC software. [Id. at 14]. In April 2015, Draegen assigned all of the
source code related to the operation of dmarcian.com and related DMARC
processing technology to the Plaintiff. [Id. at Ex. 7].
In January 2016, Draegen traveled to the Netherlands to meet with
Martijn Groeneweg, a Dutch DMARC entrepreneur. [Id. at 110-11]. At that
time, Draegen and Groeneweg reached an agreement between dmarcian
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and Mailmerk, BV, a Dutch company associated with Groeneweg. [Id. at
115-17]. As part of this January 2016 agreement, the Plaintiff authorized
Mailmerk to distribute dmarcian’s software in the European Union (EU). [Id.
at 112-13, 122-23]. Draegen and Groeneweg agreed to split ownership of
Mailmerk, with Draegen having controlling ownership. [Id. at 112-13, 116].
In an email to Draegen dated December 7, 2016, Groeneweg summarized
the essential terms of the parties’ January 2016 agreement as follows:
1. dmarcian inc. (or you in person or any other entity
you want) gets 51% of the shares of Mailmerk BV, so
dmarcian inc. has the majority so you are in control
of the strategic direction
2. we rename Mailmerk BV (Dutch inc) to dmarcian
Europe BV
3. dmarcian Europe BV and dmarcian inc. worked
based on the principle of “Drag Along en Tag Along”
4. dmarcian Europe is responsible for all customers
located in Russia, EU or Africa
5. dmarcian Europe can sell dmarcian tooling and
revenues remain at dmarcian Europe to let the EU
organization grow
6. all knowledge build at Mailmerk from 2012 can be
used worldwide
Always difficult to write down those things in a clear way.
If you have any remarks or something needs to be added
to the list, please let me know.
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[Doc. 301-2: Groeneweg Dep. Ex. 2] (errors uncorrected). The Plaintiff has
not offered any forecast of evidence indicating that Draegen objected to
Groeneweg’s summary of the parties’ oral agreement.
In 2017, Groeneweg restructured Mailmerk, to promote and sell the
Plaintiff’s services and products in the respective markets, and renamed it
dmarcian Europe BV. [Doc. 19: Verified Am. Complaint at ¶¶ 4, 33; Doc. 26-
1: Harmeling Decl. at ¶ 6; Doc. 301-1: Groeneweg Dep. at 145]. On July 12,
2018, Tim Draegen exercised his option to purchase the majority interest in
dmarcian Europe BV (now known as the Defendant DMARC Advisor). [Doc.
26-17: Groeneweg Decl. Ex. H at 4]. At that point, Tim Draegen owned
50.01% of the Defendant. The other 49.99% was then owned by The Digital
Xpedition Holding BV (“TDX”), a Dutch corporation controlled by Groeneweg.
[Doc. 26-9: Groeneweg Decl. at ¶ 10; Doc. 26-12: Groeneweg Decl. Ex. C at
2]. TDX then served as the Defendant’s director and managed the
Defendant’s affairs. [Doc. 26-9: Groeneweg Decl. at ¶ 10].
Under the terms of the parties’ relationship, the Plaintiff fielded all sales
leads in North Carolina, routed certain leads coming from the European
Union, Russia, and Africa to the Defendant for service, and supported the
Defendant’s service to those customers by providing operational assistance,
technical support, and platform maintenance. [Doc. 26-9: Groeneweg Decl.
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at ¶ 10; Doc. 19: Verified Am. Complaint at ¶¶ 11, 33; Doc. 30: Draegen 2nd
Supp. Decl. at ¶¶ 4, 8, 9]. The Plaintiff continued developing, supplying, and
operating the services, products, and technology for each customer from its
North Carolina office. [Doc. 30: Draegen 2nd Supp. Decl. at ¶¶ 4, 8, 9].
The Plaintiff provided the Defendant with access to its computer
systems and its proprietary code. In May 2017, the Defendant began
contributing changes to the dmarcian software, mostly through Bulgarian
developers, whom the Defendant first hired as contractors and later
employed through a wholly owned subsidiary.2 [Doc. 301-1: Groeneweg
Dep. at 124]. The parties, however, never executed a formal written
agreement governing the ownership of the intellectual property in these
software contributions. [Id. at 156, 375-76]. The Plaintiff agreed to not
charge licensing fees to the Defendant in exchange for the Defendant
funding the continued development of the source code. [Doc. 19: Verified
Am. Complaint at ¶ 33]. From 2017 to the present, the Defendant has spent
at least €1,300,000 writing new code further developing the software. [Doc.
26-9: Groeneweg Decl. at ¶ 20]. The Plaintiff’s developers have also
continued to work on the software code during that same time. [See Doc.
2 The copyright in the software developed by these Bulgarian developers were assigned
to DMARC Advisor by means of written agreements in January and February 2021. [Doc.
57-1: Meijboom 2nd Decl. at ¶ 22].
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35-1: Groeneweg Decl. at ¶ 15]. Even when the Defendant’s employees
were working on the software code, the Plaintiff continued housing and
controlling it. [Doc. 30: Draegen 2nd Supp. Decl. at ¶¶ 13-16].
At the time that the parties entered into their oral agreement in January
2016, the issue of intellectual property ownership was not discussed. As
Groeneweg explained in his deposition:
Q Okay, and if I understood your earlier
testimony, you said that IP [intellectual property] was
just not part of the discussion, at all at that time
[referring to January 2016]?
A No, because there was no intention—sorry if I
need to search for words. It wasn’t the intention at
all at that time that we started developing software,
so it wasn’t an issue, so we didn’t make any
agreements on that.
[Doc. 301-1: Groeneweg Dep. at 156].
In December 2019, Groeneweg sent Draegen an email asserting a
right in the software contributions made by the Defendant and the Bulgarian
developers. [Doc. 289-3: T. Draegen Dep. Ex. 39]. The Plaintiff disagreed
and directed the Defendant to formally assign to the Plaintiff any new code
that had been created by the Bulgarian developers. [Doc. 19: Verified Am.
Complaint at ¶ 36]. The Defendant, through Groeneweg, refused and asked
the Plaintiff to present a buyout offer for the minority share of the Defendant.
[Id. at ¶¶ 36, 54]. The parties began quarreling over the terms of the licensing
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agreement and the Plaintiff responded by briefly suspending the Defendant’s
access to its computer systems. [Doc. 26-1: Harmeling Decl. at ¶¶ 18, 19].
Additionally, the Plaintiff migrated the website created by the Defendant and
shared and managed between the parties (www.dmarcian.com) from a
European host to a host within in the United States. This meant that the
Plaintiff began hosting all of the Defendant’s systems and therefore had the
power to take down the Defendant’s business operations completely. [Id. at
¶ 18].
Eventually, the Plaintiff restored the Defendant’s access, and the
parties met in the Netherlands in January 2020. [Id. at ¶ 19]. At that time,
Draegen expressed his view that the cooperation between the Plaintiff and
the Defendant had “been based on trust” but that this “trust-based agreement
cannot continue.” [Doc. 289-1: T. Draegen Dep. at Ex. 23]. Draegen wrote
that “real documents” were needed, including a “[l]icensing agreement for IP
and to allow [the Plaintiff] and [the Defendant] to openly collaborate.” [Id.].
However, no written licensing agreement was executed at that time.
In an email dated July 30, 2020, Draegen expressed concern that the
Plaintiff was “running production code” that did not belong to it because
“[o]wnership of IP related to software dev[elopment] is attributed to whoever
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pays the bill of the software developer.” [Doc. 289-4: T. Draegen Dep. at Ex.
45].
As the majority shareholder of the Defendant, Draegen undertook to
assign all of the Defendant’s intellectual property rights to the Plaintiff for no
payment, and he tried to use his majority interest in the Defendant to force
that assignment. [Doc. 26-1: Harmeling Decl. at ¶¶ 19, 20]. This attempt led
the Defendant’s other shareholders to ask a Dutch court to appoint an
independent director with a decisive vote for the Defendant. [Id. at ¶ 22]. In
September 2020, the Dutch Enterprise Court appointed H.J.M. Harmeling as
director of the Defendant. [Doc. 164-2: Enterprise Court Decision at ¶ 1.2].
On September 14, 2020, counsel for the Plaintiff sent a letter to Mr.
Harmeling advising that the Defendant was “in breach of the license
agreement under which it had the right to operate using our client’s brand,
technology, business model, and reputation”; that the Plaintiff was
suspending its cooperation with the Defendant; and that if the Defendant
intended to continue operating using the dmarcian brand, technology,
business model, and reputation, the Defendant would need to, inter alia,
assign the Plaintiff “[a]ll intellectual property developed by or on behalf of [the
Defendant].” [Doc. 285-2: S. Draegen Dep. at Ex. 10]. On the same day,
the Plaintiff completely shut out the Defendant from all of the Plaintiff’s
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systems for a second time. [Doc. 26-1: Harmeling Decl. at ¶ 25]. After a few
days, and at Harmeling’s insistence, Draegen caused partial access to most
essential systems to be restored to the extent that the Defendant was able
to conduct some of its business. [Id.].
Although the parties made efforts to resolve their dispute, on January
22, 2021, the Plaintiff advised that it would terminate its relationship with the
Defendant effective February 1, 2021, unless the Defendant agreed to sign
a distribution and settlement agreement which, among other things, vested
the Plaintiff with sole ownership of all the intellectual property developed by
the parties. [Doc. 17-1: Jansen Decl. at Ex. A]. When Mr. Harmeling
refused, the Plaintiff terminated all cooperation between the parties and
terminated all of the Defendant’s access to the Plaintiff’s computer systems.
[Id.; Doc. 26-1: Harmeling Decl. at ¶¶ 28, 30].
On January 29, 2021, the Defendant instituted an action in the District
Court of Rotterdam in the Netherlands (“the Rotterdam Court”). On February
1, 2021, the Rotterdam Court directed the Plaintiff and Draegen to lift the
blockade to the Defendant’s access within 24 hours. [Doc. 26-1: Harmeling
Decl. at ¶ 40].
On February 9, 2021, the Plaintiff learned that the Defendant had
cloned the dmarcian website, notified all EU-based customers that there had
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been a “personal data breach,” and was urging customers to move their data
to the Defendant’s separate platform. [Doc. 15: S. Draegen Supp. Decl. at
¶¶ 7(a)-(d)].
On February 18, 2021, an attorney from Blank Rome LLP filed a
copyright application on behalf of the Plaintiff for “dmarcian Source Code.”
[Doc. 148-1: Dorey Decl. Ex. 1 at 31]. In support of this application, the
Plaintiff submitted twenty pages of code and represented that the work for
which it sought copyright was completed in 2012 and first published on
February 9, 2012; that the nation of first publication was the United States;
and that the work’s author was Eudaemonic Development, LLC.3 [See id. at
31-55; Doc. 206: Order at 6]. The portions of the code that the Plaintiff
submitted in support of its application were from the code as it existed in
2021. The 2021 version of the code contains the modifications that were
incorporated into the code between 2012 and 2021, including modifications
made by the Defendant and its Bulgarian software developers. [See Doc.
206: Order at 20].
Based on the information provided in the application, the Copyright
Office had no reason to question the Plaintiff’s representations and accepted
3 Tim Draegen created Eudaemonic Development, LLC in 2010 or 2011 to serve as a
vehicle to develop software projects. [Doc. 289-1: T. Draegen Dep. at 16].
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them as true and accurate. [Doc. 272-1: Response of Register of Copyrights
at 4]. The Copyright Office thus registered the claim on March 9, 2021 and
assigned it registration number TX0008941559. [Doc. 148-1: Dorey Decl.
Ex. 1 at 26].
Three days later, on March 12, 2021, the Plaintiff filed this lawsuit.
[Doc. 1: Complaint]. In its Complaint, the Plaintiff alleged that it had received
Copyright Registration number TX0008941559 for the “dmarcian Code,” [id.
at ¶¶ 43, 44], and it asserted a copyright claim against the Defendant for
allegedly “infring[ing] Plaintiff’s copyright in the dmarcian Code,” [id. at ¶
127]. The Plaintiff amended its Complaint in April 2021 and again in June
2021, without altering these allegations. [Doc. 19: Amended Complaint; Doc.
51: Second Amended Complaint].
In July 2022, the Defendant served the Plaintiff with a document
request seeking the “deposited material” that Plaintiff provided to the
Copyright Office and the “written agreement” between the Plaintiff and
Eudaemonic Development, LLC. [Doc. 267-2: Defendant’s First Set of
Requests for Production at 3-4]. In August 2022, the Plaintiff filed “an
application for supplementary registration” with the Copyright Office in which
it “sought to change the author from Eudaemonic [Development] LLC to
Timothy G. Draegen.” [Doc. 272-1: Response of Register of Copyrights at
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4]. Once again, the Copyright Office “had no reason to question Plaintiff’s
representations and accepted them as true and accurate.” [Id. at 4-5]. The
Copyright Office registered the supplemental claim on September 1, 2022,
effective August 19, 2022, and assigned it registration number
TX0009164197. [See id. at 5].
On September 30, 2022, DMARC Advisor filed a motion in this Court
“alleging inaccuracies in the Plaintiff’s application for copyright registration
and requesting the review of the Register of Copyrights.” [Doc. 206: Order
at 2]. In June 2023, the Court granted that motion in part. Specifically, the
Court concluded that DMARC Advisor had “sufficiently alleged inaccuracies
regarding year of completion and publication date” and referred the following
three questions to the Copyright Office:
(1) Would the Register of Copyrights have refused
Registration Numbers TX0009164197 or
TX0008941559 had it known that the deposited code
was created in or after 2017?
(2) Would the Register of Copyrights have refused
Registration Numbers TX0009164197 or
TX0008941559 had it known that the deposited lines
of code were the lines in use in 2021, and not an
exact copy of the code as it existed in 2012?
(3) Would the Register of Copyrights have refused
Registration Numbers TX0009164197 or
TX0008941559 had it known that the deposited code
was published in or after 2017?
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[Id. at 26-27].
On October 11, 2023, and while this referral was pending, the Plaintiff
filed another supplementary application with the Copyright Office, this time
seeking “to remove the date of first publication and the nation of publication
information from the Registration.” [Doc. 275-1: Addendum to Response of
Register of Copyrights at 2]. In the application, the Plaintiff explained:
The work originally registered under TX0008941559
was inadvertently and incorrectly identified as
published in the original submission. The registrant
mistakenly construed the 2012 launch of its software-
as-a-service platform as publication of the work. In
actuality, the work (i.e., the underlying source code)
was never published and remains today unpublished
within the meaning of the Copyright Act.
[Id.]. The Plaintiff did not disclose that the registration that it sought to
supplement was the subject of this litigation. [Id.]. Because the registration
specialist who received the application was not aware of this ongoing suit,
the specialist had no reason to question the Plaintiff’s representations and
accepted them as true and accurate. [Id. at 2-3]. Accordingly, the
registration specialist issued a supplementary registration to the Plaintiff
under TXu002393361, effective October 11, 2023. [Id. at 3].
On October 16, 2023, the Register of Copyrights responded to the
three questions this Court had referred. The Register stated that “the
Copyright Office would not have registered the Work if it had known that the
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application provided incorrect dates of first publication and/or completion, or
that the deposit included material created or published after the dates
provided on the application.” [Doc. 272-1 at 1, 15].
On November 27, 2023—after the expert report deadlines had expired
and just before the December 1, 2023 fact discovery deadline—the Plaintiff
filed yet another supplementary application. This time, the Plaintiff sought to
change the year of completion of the code by nine years, from 2012 to 2021.
[Doc. 289-3: T. Draegen Dep. Ex. 30].
On February 6, 2024, the Copyright Office advised the Plaintiff that the
supplementary claim correcting the copyright’s year of completion to 2021
was refused. [Doc. 343-1 at 11]. In so doing, the Copyright Office stated its
conclusion that the initial copyright registration “was issued in error because
the deposited copy of the work was incomplete.” [Id.]. As such, the
Copyright Office concluded, dmarcian’s copyright registration “is now eligible
for cancellation.” [Id.].
IV. DISCUSSION
A. Defendant’s Motion for Summary Judgment
1. Breach of Contract Claims (Counts One and Two)
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The Defendant first moves for summary judgment as to the Plaintiff’s
claim for breach of a written contract (Count One) and its alternative claim of
breach of an oral contract (Count Two).
To prevail on a breach of contract claim, whether written or oral, a
plaintiff must prove (1) the existence of a valid contract and (2) a breach of
the terms of that contract. Wells Fargo Ins. Servs. USA, Inc. v. Link, 372
N.C. 260, 276, 827 S.E.2d 458, 472 (2019). To prove the existence of a
valid contract, a plaintiff must show that there was an “offer, acceptance,
consideration, and mutuality of assent to terms that are sufficiently definite
to enable a court to enforce them.” MedShift, LLC v. Charles W. Morgan
Pelle, LLC, 584 F.Supp.3d 112, 122 (M.D.N.C. 2022); Society for Hist. Pres.
of Twentysixth N.C. Troops, Inc. v. City of Asheville, 282 N.C. App. 700, 707,
872 S.E.2d 134, 140 (2022).
Here, the Plaintiff has failed to present a forecast of evidence that the
parties had any written agreement. Accordingly, its claim for breach of a
written contract must be dismissed. However, viewing the forecast of
evidence in the light most favorable to the Plaintiff, there is sufficient
evidence from which a jury could reasonably conclude that, at a minimum,
the parties had an oral agreement that: gave Draegen a majority and
controlling stake in Mailmerk; renamed Mailmerk as dmarcian Europe BV
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(later DMARC Advisor); and effectively gave DMARC Advisor a license to (1)
use the Plaintiff’s marks, copyright, and trade secrets and (2) access the
Plaintiff’s databases, support resources, website support, website content,
and proprietary information in order to service dmarcian customers located
in Russia, EU and Africa. The Plaintiff has presented a sufficient forecast of
evidence to support a finding that the Defendant breached the oral licensing
agreement by continuing to use the Plaintiff’s marks and trade secrets
following the Plaintiff’s termination of the agreement and by claiming
ownership rights in the source code. Accordingly, the Defendant’s motion
for summary judgment with respect to the Plaintiff’s claim for a breach of oral
contract is denied.
For all these reasons, the Court will grant the Defendant summary
judgment with respect to the Plaintiff’s claim for breach of a written contract
(Count One), and that claim is dismissed. The Defendant’s motion for
summary judgment with respect to the Plaintiff’s claim for breach of an oral
contract (Count Two) is denied.
2. Copyright Infringement (Count Three)
The Defendant next moves for summary judgment as to the Plaintiff’s
copyright claim. Specifically, the Defendant argues that the Plaintiff’s
copyright registration for the “dmarcian Source Code” is invalid because the
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Plaintiff submitted the 2021 version of the code with its application, but
claimed that the code was created and published in 2012. [Doc. 295 at 14].
The Plaintiff contends that there is nothing inaccurate about its deposit
copy, as it “intended to register the 2021 code and deposited the 2021
code….” [Doc. 326 at 13]. To the extent that there were any other
inaccuracies in its original copyright application, the Plaintiff argues that such
inaccuracies do not invalidate its registration pursuant to the Copyright Act’s
safe harbor provision.
The Copyright Act provides that “no civil action for infringement of the
copyright in any United States work shall be instituted until . . . registration of
the copyright claim has been in accordance with this title.” 17 U.S.C. §
411(a). A valid registration is “a prerequisite for bring a ‘civil action for
infringement’ of the copyrighted work.” Unicolors, Inc. v. H&M Hennes &
Mauritz, L.P., 595 U.S. 178, 181 (2022) (citation and internal quotation marks
omitted).
To obtain a copyright registration, the author of a work submits a copy
of the work and an application to the Register of Copyrights. See 17 U.S.C.
§§ 408, 409. The application provides both factual and legal information
about the work. Id. § 409. If the Register determines that the work is
copyrightable and meets the necessary statutory requirements, a certificate
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of registration will issue. Id. § 410(a). The information on the registration
certificate reflects the information provided by the copyright holder on the
application. Id.
In the event that it is determined that inaccurate information was
provided in the copyright application, the Copyright Act’s safe harbor
provision provides that a copyright registration is nevertheless valid “unless
(A) the inaccurate information was included on the application for copyright
registration with knowledge that it was inaccurate; and (B) the inaccuracy of
the information, if known, would have caused the Register of Copyrights to
refuse registration.” Id. § 411(b)(1). This safe harbor provision “does not
distinguish between a mistake of law and a mistake of fact. Lack of
knowledge of either fact or law can excuse an inaccuracy in a copyright
registration.” Unicolors, 595 U.S. at 182.
Here, the Plaintiff concedes that its original copyright application
contained a number of inaccuracies, including inaccurate information
regarding the year of completion, the date of first publication, and the author
of the claimed work. The Plaintiff points out that it filed supplemental
applications addressing the date of publication and the author of the claimed
work, and that the Copyright Office issued supplemental registrations
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thereon.4 As for the inaccurate year of completion, the original application
claimed that the Source Code was completed in 2012, despite the fact that
the Plaintiff intended to register the 2021 version of the Source Code. To
explain this error, the Plaintiff contends that it “had confusion of what date of
‘completion’ meant in filling out the application.” [Doc. 326 at 13].
The Plaintiff’s claimed “confusion” about the legal requirements for
filing the copyright application—without more—is merely conclusory and is
not sufficient to create an issue of fact for trial. See Evans v. Techs.
Applications & Serv. Co., 80 F.3d 954, 962 (4th Cir. 1996) (holding that
conclusory or self-serving statements without objective corroboration may be
properly disregarded at summary judgment); HEALTHeSTATE, LLC v.
United States, 168 Fed. Cl. 624, 651 (2023) (finding applicant’s assertion
that “he did the best he could” and that he did what he thought the Copyright
Office was asking of him was insufficient to create an issue for trial).
To support its claim of confusion, the Plaintiff cites the deposition
testimony of Tim Draegen, who provided the factual information to counsel
to be incorporated into the original application. [See Doc. 244: 9th Decl. of
4 The Defendant argues that these supplemental registrations are not valid because they
were filed after the institution of this action. The Court need not address this argument,
however, because the Court concludes, for the reasons stated infra, that the inaccurate
year of completion—which has not been amended by a supplemental registration—
renders the copyright invalid.
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T. Draegen at ¶ 2]. Mr. Draegen acknowledged in his deposition that
changes had been made to the source code in 2021, and that it is his
“understanding now” that the year of completion should have been listed as
2021. [Doc. 323-5: T. Draegen Dep. at 282-83] Mr. Draegen testified that
including 2012 as the year of completion in the original application was “[his]
mistake,” [id. at 311], and that he is “not an expert” on matters of law [id. at
282].
While Mr. Draegen claims that he was unaware of what was legally
required in claiming the year of completion, this denial alone does not resolve
the issue. See HEALTHeSTATE, 168 Fed. Cl. at 651. The Court “need not
automatically accept a copyright holder’s claim that it was unaware of the
relevant legal requirements of copyright law.” Unicolors, 595 U.S. at 187.
As the Unicolors Court explained, a court may find that an applicant had
knowledge, or at least willful blindness, of a legal inaccuracy in a copyright
application based on the circumstantial evidence presented, including “the
significance of the legal error, the complexity of the relevant rule, the
applicant’s experience with copyright law, and other such matters . . . .” Id.
at 187-88 (internal citation omitted). Thus, the issue before the Court is
whether the Plaintiff has presented a forecast of evidence consisting of
sufficient circumstantial evidence to buttress the Plaintiff’s self-serving
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conclusory statement such that a reasonable jury could find that the Plaintiff
actually made a mistake of law regarding the “date of completion.”
The undisputed evidence presented in this case is that the Plaintiff
knew that the code had been modified—on a number of occasions—
between 2012 and 2021. In fact, the Defendant alone had made at least
€1.3 million worth of modifications in that time period. The Plaintiff had even
agreed to allow the improvements to the code to stand for license royalties
from the Defendant. Nevertheless, the Plaintiff—through its counsel—
submitted a copyright application claiming that the 2021 source code that
was deposited in support of the application was “completed” in 2012. The
error committed in claiming 2012 as the year of completion on the application
was significant. “The information provided in the application defines the
claim that is being registered, rather than the information provided in the
deposit copy(ies) or elsewhere in the registration materials.” U.S. Copyright
Office, Compendium of U.S. Copyright Practices, § 618.1 (3d ed. 2021)
(emphasis added).5 Because the terms of the application itself defines the
registered claim, and not the deposit copy, the inclusion of 2012 as the year
5 The Compendium is the administrative manual of the Register of Copyrights and
“provides instruction to agency staff regarding their statutory duties and provides expert
guidance to copyright applicants, practitioners, scholars, the courts, and members of the
general public regarding institutional practices and related principles of law.” Id. at 1.
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of completion in the application meant that the Plaintiff registered a copyright
based upon source code “completed in” 2012, not 2021. The inclusion of
this date, therefore, completely changes the nature of the Plaintiff’s claimed
copyright.
The Court next considers the applicant’s experience with copyrights.
While the Plaintiff relies upon Mr. Draegen’s lack of familiarity of the legal
requirements of copyright registration, it must be noted that Mr. Draegen was
not the applicant: the Plaintiff was. Further, and most significantly, at all
times relevant to this action, the Plaintiff was represented by competent legal
counsel, Blank Rome LLP. Attorneys from Blank Rome prepared and
submitted the original application, as well as the supplements that followed.
[See Doc. 148-1: Dorey Decl. Ex. 1]. Blank Rome is an international law firm
with “a long and successful history of working on copyright cases” and “the
ability to navigate complex and notoriously difficult areas of copyright law.”
https://www.blankrome.com/services/intellectual-property-litigation/copyrigh
t-litigation (last accessed Apr. 26, 2024).
Moreover, the relevant rules regarding the “year of completion” are not
complex. See HEALTHeSTATE, 168 Fed. Cl. at 652 (“interpreting the plain
language of the guidance on the [Copyright Office’s] website . . . requires no
legal training”). In fact, a brief internet search quickly reveals a link to a
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Copyright Office website entitled “Standard Application Help:
Publication/Completion,” which clearly defines “Year of Completion” at the
very top of the webpage as follows:
Year of Completion (Year of Creation)
Provide the year in which the creation of this work
was completed, If there are multiple versions of
this work, provide the year of completion for the
particular version being submitted for
registration. The year of completion should not
refer to earlier or later versions of this work.
https://www.copyright.gov/eco/help-publication.html (last accessed Apr. 26,
2024) (emphasis added). In addition, the Compendium provides the
following guidance regarding “year of completion”:
611 Year of Completion / Year in Which Creation of This Work
Was Completed
To register a work of authorship with the U.S. Copyright
Office, the applicant must identify the year that the work
was created. 17 U.S.C. § 409(7). A work is considered
created when it is fixed in a copy or phonorecord for the
first time. If the work was prepared over a period of time,
the portion or portions of the work that existed in a fixed
form on a particular date constitute the work that has been
created as of that date. 17 U.S.C. § 101 (definition of
“created”)….
611.1 Completing the Application: Year of Completion / Year
in Which Creation of this Work Was Completed
When completing an online application, the applicant
should identify the year that the work was completed on the
Publication/Completion screen in the field marked Year of
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Completion (Year of Creation). The year of completion
must be provided in four numeric digits.
When completing a paper application, the applicant should
identify the year that the author completed the work on
space 3(a) under the heading Year in Which Creation of
This Work was Completed. The specific month and day
that the author completed the work need not be provided.
611.1(A) Year of Completion for an Unpublished Work Created
Over a Period of Time
If the work is unpublished and if the author created the work
over an extended period of time, the applicant should
provide the year of completion for the most recent iteration
of the work. If the applicant provides a year of completion
for each iteration of the work (e.g., a cover letter explaining
that the author completed the first draft in 2006, the second
draft in 2007, and the final draft in 2008), the registration
specialist will replace that information with the year of
completion for the most recent iteration, and will add an
annotation to the registration record specifying the source
of that information, such as: “Regarding year of completion:
Corrected by Copyright Office from cover letter.”
611.1(B) Year of Completion for Multiple Versions of the Same Work
If the author created multiple versions of the same work,
each version is considered a separate work. 17 U.S.C. §
101 (definition of “created”). As a general rule, the
applicant must submit a separate application and filing fee
for each of those versions. See 17 U.S.C. §§ 408(a), 409.
In preparing each application, the applicant should provide
the year of completion for the specific version that is being
registered.
Compendium at §§ 611-611.1(B). Specifically with respect to computer
programs, the Compendium provides as follows:
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721.9(D) Year of Completion
The applicant should identify the year that the author
completed the specific version of the program that the
applicant intends to register. As a general rule, the
applicant should provide a year of completion only for
the specific version of the program that will be
submitted for registration. The applicant should not
provide a year of completion for the first version of the
program or any other version of the program that is not
included in the application.
For the purpose of copyright registration, each version of a
computer program is considered a separate work. Each
version of a program is considered complete when that
version has been fixed in a tangible medium of expression
for the first time. When a program is prepared over a
period of time, the portion that has been fixed at any
particular time constitutes the version that has been
completed as of that date. See 17 U.S.C. § 101 (definition
of “created”); see also 37 C.F.R. § 202.3(c)(4) (explaining
that the year of completion means “the latest year in which
the creation of any copyrightable element was completed”).
Id. at § 721.9(D) (emphasis added). Thus, the Compendium plainly instructs
applicants who are seeking to register source code to provide a year of
completion only for the specific version of the code submitted for registration.
Viewing this circumstantial evidence as a whole, and viewing such
evidence in the light most favorable to the Plaintiff as the non-moving party,
the Court concludes that the Plaintiff has failed to present a forecast of
evidence from which a reasonable jury could find in the Plaintiff’s favor on
the issue of knowledge. Given the significance of the legal error, the clarity
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of the requirements regarding providing the year of completion, and the legal
representation that the Plaintiff had throughout the registration process, the
Court finds that the Plaintiff has failed to present a forecast of evidence from
which a reasonable jury could find that the Plaintiff did not know that the year
of completion provided on the copyright application (and repeated on two of
the subsequent supplemental applications) was legally inaccurate.
Accordingly, Court concludes as a matter of law that the first prong of the
safe harbor provision set forth in § 411(b) is satisfied.
The second prong of the safe harbor provision requires a determination
of whether the inaccurate statement in the application would have caused
the Register, had it known of the inaccuracy, to refuse registration. The
Court requested advice from the Register of Copyrights pursuant to §
411(b)(2). In its Response, the Register stated that the Copyright Office
“would not have registered the Work if it had been aware that (1) the Work’s
first publication date and/or completion date were incorrect and/or (2) the
deposit material consisted of a copy of code created after 2012, and not the
code as it existed on the date claimed in the application.” [Doc. 272-1:
Register Resp. at 15]. Therefore, the Court concludes that the inclusion of
the inaccurate year of completion would have caused the Register to refuse
registration.
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In sum, there are no genuine issues of material fact as to the question
of copyright registration. Based on the forecasts of evidence presented by
the parties, the Court concludes as a matter of law that the Plaintiff’s
copyright registration is invalid because the Plaintiff submitted an application
that claimed an inaccurate year of completion for the claimed source code;
that the Plaintiff did so with knowledge of, or at least willful blindness to, the
inaccuracy; and that the Register would have refused registration had it
known of the inaccuracy. Accordingly, the Defendant’s motion for summary
judgment is granted with respect to the Plaintiff’s claim for copyright
infringement.
3. Trademark Infringement (Counts Four, Five, and
Twelve)
The Plaintiff asserts three separate trademark infringement claims. In
Count Four, the Plaintiff asserts that the Defendant infringed the dmarcian
Mark in interstate and international commerce in violation of the Lanham Act,
15 U.S.C. § 1114, by using the Mark in its name, as well as continued use of
the Mark in several domain names, including dmarcian.eu, dmarcian.co.uk,
and finance.dmarcian.eu. [Doc. 51: Second Am. Complaint at ¶¶ 137-48].
In Count Five, the Plaintiff asserts a claim for false designation of origin under
the Lanham Act, 15 U.S.C. § 1125(a). [Id. at ¶¶ 149-57]. In Count Twelve,
the Plaintiff asserts a claim of common law infringement under North
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Carolina law. [Id. at ¶¶ 211-15]. The Defendant moves for summary
judgment as to all of these claims, arguing that the Plaintiff cannot show any
domestic infringing use of its trademarks. [Doc. 295 at 20-22].
a. Lanham Act Claims (Counts Four and Five)
In granting the Plaintiff a preliminary injunction in 2021, the Court
concluded that the Plaintiff had demonstrated that the Defendant’s
trademark infringement was “damaging the Plaintiff’s reputation and
confusing consumers in the United States” and that the Plaintiff had
“demonstrated a likelihood of success on a claim that the Defendant’s
actions have had and are having a significant effect on United States
commerce.” [Doc. 39: Prelim Inj. Order at 53-54].
In 2023, the United States Supreme Court decided the foreign reach
of the Lanham Act in Abitron Austria GmbH v. Hetronic International, Inc.,
600 U.S. 412 (2023). In that case, a U.S. company (Hetronic) sued its
foreign distributors (collectively referred to as Abitron) for trademark
infringement. Id. at 415. Abitron argued that Hetronic sought an
impermissible extraterritorial application of the Lanham Act. Id. at 416.
The Supreme Court first noted that there is a “presumption against
application to conduct in the territory of another sovereign.” Id. at 417
(citation and internal quotation marks omitted). Applying this presumption
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against extraterritoriality requires a two-step analysis. First, the Court must
determine whether Congress intended for the statute to apply to foreign
conduct. Id. at 417-18. If the statute is not extraterritorial, the Court then
turns to the second step, which requires identifying the “focus of [the] statute”
and determining “whether the conduct relevant to that focus occurred in
United States territory.” Id. at 418 (emphasis in original). As the Supreme
Court explained:
Step two is designed to apply the presumption
against extraterritoriality to claims that involve both
domestic and foreign activity, separating the activity
that matters from the activity that does not. After all,
we have long recognized that the presumption would
be meaningless if any domestic conduct could defeat
it. Thus, if the conduct relevant to the statute's focus
occurred in the United States, then the case involves
a permissible domestic application of the statute,
even if other conduct occurred abroad. And if the
relevant conduct occurred in another country, then
the case involves an impermissible extraterritorial
application regardless of any other conduct that
occurred in U. S. territory.
Id. at 419 (internal citations and quotation marks omitted).
Applying this framework to the Lanham Act, the Court readily
concluded that Sections 1114 and 1125(a)(1) of the Lanham Act are not
extraterritorial in scope. Id. at 419-20. The Court therefore moved to the
second part of the inquiry, i.e., determining the focus of the Lanham Act and
determining whether the conduct relevant to that focus occurred in the United
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States. Id. On this point, Abitron argued that § 1114(1)(a) and § 1125(a)(1)
both “focus on preventing infringing use of trademarks,” while Hetronic
argued that these provisions focus “both on protecting the goodwill of mark
owners and on preventing consumer confusion.” Id. at 421. The Court found
that both parties missed the “critical point” by centering their arguments on
the “focus of the relevant provisions without regard to the conduct relevant
to that focus.” Id. (citation and internal quotation marks omitted). Rather,
the Court found that “[t]he ultimate question regarding permissible domestic
application turns on the location of the conduct relevant to the focus,” which
in the case of trademark infringement, “is infringing use in commerce, as the
[Lanham] Act defines it.” Id. at 422 (emphasis added). Accordingly, the
Court concluded that § 114(1)(a) and § 1125(a)(1) “extend only to claims
where the claimed infringing use in commerce is domestic.” Id. at 415.
Applying Abitron here, the Court concludes that the Plaintiff has
presented a forecast of evidence from which a reasonable jury could
conclude that at least some of the Defendant’s “infringing use in commerce”
occurred within the United States. For example, the Defendant’s website
included an option for customers “in the Americas,” including specifically the
United States. [Doc. 16: T. Draegen Supp. Decl. at ¶ 7]. Further, Clarizen,
a United States company based in San Mateo, California, changed its RUA
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from the dmarcian-eu.com (which had been redirected to the Plaintiff’s U.S.
platform) to the Defendant’s platform “dmarcadvisor.com” on March 17,
2021. [Doc. 15: S. Draegen Supp. Decl. at ¶ 4]. Additionally, several other
U.S. companies—including Megacool.co based in San Francisco, California;
NVIDIA based in Santa Clara, California; and TechData.com based in
Clearwater, Florida—utilize the EU platform and therefore were likely
exposed to the Defendant’s communications (including the data breach
notification) through that platform. [Doc. 30: T. Draegen 2nd Supp. Decl. at
¶ 32; Doc. 323-6: S. Draegen Dep. at 88]. Because there are genuine
disputes of fact as to whether the Defendant’s infringing use in commerce
occurred within the United States, the Court will deny summary judgment as
to the Plaintiff’s Lanham Act claims (Counts Four and Five).
b. Common Law Infringement (Count Twelve)
The test for common law trademark infringement in North Carolina is
“essentially the same” as that under the Lanham Act. Georgia Pac.
Consumer Prods., LP v. Von Drehle Corp., 618 F.3d 441, 449 (4th Cir. 2010).
“[A] complainant must demonstrate that it has a valid, protectible trademark
and that the defendant's use of a colorable imitation of the trademark is likely
to cause confusion among consumers.” Lone Star Steakhouse & Saloon,
Inc. v. Alpha of Virginia, Inc., 43 F.3d 922, 930 (4th Cir. 1995). Because
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dmarcian’s common law trademark infringement claim essentially rises and
falls with its Lanham Act claims, the Defendant’s motion for summary
judgment is denied with respect to the Plaintiff’s common law claim for
trademark infringement.6
4. Defamation (Count Six)
The Defendant moves for summary judgment with respect to the
Plaintiff’s claim for defamation.
In order to recover for defamation under North Carolina law, a plaintiff
must demonstrate “that the defendant caused injury to the plaintiff by making
false, defamatory statements of or concerning the plaintiff, which were
published to a third person.” Boyce & Isley, PLLC v. Cooper, 153 N.C. App.
25, 29, 568 S.E.2d 893, 897 (2002).
As a preliminary matter, the Defendant argues that the Plaintiff cannot
maintain a defamation claim under North Carolina law because the Plaintiff
has failed to present any forecast of evidence that any allegedly false
statement was “published or republished in North Carolina.” [Doc. 295 at 23].
6 The Defendant argues that the Plaintiff’s common law trademark claim must be
dismissed because the Plaintiff has not presented any forecast of evidence that the
Defendant used the Plaintiff’s trademark anywhere in North Carolina. [Doc. 295 at 22].
The Defendant, however, cites no authority for the proposition that a North Carolina
trademark holder cannot assert a common law infringement claim without proof of actual
infringement within the state.
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Because this is a supplemental state law claim, the Court applies the
choice of law principles of North Carolina. See Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496-97 (1941). For tort claims, such as defamation,
North Carolina applies the lex loci delicti rule “i.e., where the injury occurred.”
Terry v. Swift Transportation, No. 1:16CV256, 2017 WL 1013074, at *7
(M.D.N.C. Mar. 14, 2017), report and recommendation adopted, No.
1:16CV256, 2017 WL 2881141 (M.D.N.C. July 6, 2017). For a defamation
claim, “the place of the harm has traditionally been considered to be the
place where the defamatory statement was published, i.e., seen or heard by
non-parties.” Wells v. Liddy, 186 F.3d 505, 521–22 (4th Cir. 1999); see also
Restatement (First) of Conflict of Laws § 377 n.5 (1934) (“Where harm is
done to the reputation of a person, the place of wrong is where the
defamatory statement is communicated.”). North Carolina courts have not
yet addressed the application of the lex loci delicti rule in the context of a
defamatory statement made in a multistate internet communication. Federal
district courts within the State, however, have predicted that, in such a case,
the North Carolina Supreme Court would apply the law of the state where
the plaintiff suffered its injury, i.e., its reputational and financial harm. See,
e.g., Wiener v. AXA Equitable Life Ins. Co., No. 3:18-cv-00106-RJC-DSC,
2021 WL 665112, at *4 (W.D.N.C. Feb. 19, 2021) (Conrad, J.), reversed on
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other grounds by 58 F.4th 774 (4th Cir. 2023); Castro v. Goggins, No.
1:16CV10, 2016 WL 7217282 at *3 (M.D.N.C. Dec. 12, 2016), report and
recommendation adopted sub nom. Castro v. Coggins, 2017 WL 5749731
(M.D.N.C. Jan. 10, 2017); Nobles v. Boyd, No. 7:14-CV-214-FL, 2015 WL
2165962 at *5 (E.D.N.C. May 8, 2015); Ascend Health Corp. v. Wells, No.
4:12-CV-00083-BR, 2013 WL 1010589, at *2 (E.D.N.C. Mar. 14, 2013).
Here, any reputational and financial injury that the Plaintiff suffered as a
result of the Defendant’s statements regarding a data breach occurred in
North Carolina, as this is the state where the Plaintiff has its principal place
of business. Accordingly, the Defendant’s contention that North Carolina law
cannot support the Plaintiff’s defamation claim is without merit.
Next, the Defendant contends that the Plaintiff has failed to present a
forecast of evidence that any defamatory statements were made. Here, the
primary basis for the Plaintiff’s defamation claim is that the Defendant
advised customers that the Plaintiff’s actions in disconnecting the Defendant
from all of its systems that the Plaintiff had technical and operational access
to qualified as a data breach. [Doc. 8-13: S. Draegen Decl. Ex. G-1]. The
Plaintiff also claims that it was defamed by the Defendant (1) using the
Plaintiff’s marks and the likenesses and information of the Plaintiff’s
employees on the Defendant’s website to falsely represent that the Plaintiff’s
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employees and executives continue to be involved in the Defendant’s
business and to falsely suggest that the customers were continuing to do
business with the Plaintiff; (2) falsely representing to customers that more
than 50% of the source code was developed by the Defendant and the
Bulgarian developers ; and (3) falsely representing to such customers that
the source code belongs to the Defendant rather than the Plaintiff. [Doc. 51:
Second Am. Complaint at ¶ 159]. Viewing the forecast of evidence in the
light most favorable to the Plaintiff, the Court finds that the Plaintiff has
presented a forecast of evidence sufficient for a reasonable jury to conclude
that the Defendant’s statements were defamatory. Accordingly, the
Defendant’s motion for summary judgment with respect to the Plaintiff’s
defamation claim is denied.
The Defendant asserts the defense of qualified privilege with respect
to its statements regarding the alleged data breach, arguing that it had a
legal duty to notify its customers and the Dutch Data Protection Authority of
the Plaintiff’s actions. [Doc. 295 at 22-23]. “Qualified privilege is a defense
for a defamatory publication[.]” Clark v. Brown, 99 N.C. App. 255, 262, 393
S.E.2d 134, 138 (1990).
A qualified privilege exists when a communication is
made: (1) on subject matter (a) in which the declarant
has an interest, or (b) in reference to which the
declarant has a right or duty, (2) to a person having
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a corresponding interest, right, or duty, (3) on a
privileged occasion, and (4) in a manner and under
circumstances fairly warranted by the occasion and
duty, right, or interest.
Phillips v. Winston-Salem/Forsyth Cnty. Bd. of Educ., 117 N.C. App. 274,
278, 450 S.E.2d 753, 756 (1994). Again, viewing the forecast of evidence in
the light most favorable to the Plaintiff, the Court finds that there are
numerous questions of fact as to whether the Defendant’s communications
were “in a manner and under circumstances fairly warranted by the occasion
and duty, right, or interest.” Id. Accordingly, the Defendant’s motion for
summary judgment based upon the application of qualified privilege is also
denied.
5. Misappropriation of Trade Secrets (Counts Seven and
Eleven)
The federal Defend Trade Secrets Act (DTSA) authorizes suits by
owners of trade secrets that have been misappropriated. 18 U.S.C. § 1836.
North Carolina law also prohibits the misappropriation of trade secrets. N.C.
Gen. Stat. §§ 66-152—66-162. A trade secret consists of:
business or technical information, including but not
limited to a formula, pattern, program, device,
compilation of information, method, technique, or
process that:
a. Derives independent actual or potential
commercial value from not being generally known or
readily ascertainable through independent
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development or reverse engineering by persons who
can obtain economic value from its disclosure or use;
and
b. Is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.
Id. § 66-152(3).
“Under both North Carolina law and the DTSA, information must be
subject to reasonable efforts to maintain its secrecy to be considered a trade
secret, and misappropriation occurs only where that information is acquired
or used without either express or implied consent.” Sysco Mach. Corp. v.
DCS USA Corp., No. 5:23-CV-134-BO-RJ, 2023 WL 7752051, at *3
(E.D.N.C. Nov. 15, 2023). Moreover, “trade secret protection is eviscerated
when otherwise protected information is disclosed to others who have no
obligation to protect its confidentiality.” MicroStrategy Servs. Corp. v.
OpenRisk, LLC, No. 1:14CV1244 JCC/IDD, 2015 WL 1221263, at *7 (E.D.
Va. Mar. 17, 2015), on reconsideration, No. 1:14CV1244 JCC/IDD, 2015 WL
2126924 (E.D. Va. May 6, 2015).
Here, the Plaintiff has presented a forecast of evidence that it had an
agreement with the Defendant that its trade secrets would only be used in
the context of the parties’ cooperation. To that end, the Plaintiff used
“industry standard methods to control data in terms of [d]marcian maintaining
account provisioning and access” so that, as far as Mr. Draegen knew, “no
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one outside of the cooperation had access to [d]marcian’s IP or trade
secrets.” [Doc. 323-5: T. Draegen Dep. at 299-300]. Additionally, the
Defendant expressly assured the Plaintiff that the Defendant had “employee
contracts in place to protect [the Defendant] and to protect [d]marcian’s
assets.” [Id. at 297]. Thus, while the parties never executed written
confidentiality agreements addressing the use of the Plaintiff’s intellectual
property rights by the Defendant or any of the software developers that it
employed, the Plaintiff has presented a forecast of evidence that it took at
least some measures to protect its trade secrets that were reasonable under
the circumstances. Accordingly, the Defendant’s motion for summary
judgment with respect to the Plaintiff’s trade secret claims is denied.
6. Computer Trespass (Count Eight)
The Defendant next moves for summary judgment with respect to the
Plaintiff’s computer trespass claim, arguing that the Plaintiff has failed to
present a forecast of evidence that it was injured by someone accessing its
computer or computer network without authority. [Doc. 295 at 24-25].
North Carolina law prohibits a person from using “a computer or
computer network without authority and with the intent to . . . [m]ake or cause
to be made an unauthorized copy” of information residing there. N.C. Gen.
Stat. § 14-458(a). The Plaintiff asserts a claim under § 1-539.2A, which
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authorizes a private right of action for a person whose property or person is
injured by reason of a violation of G.S. 14-458.” Id. § 1-539.2A(a).
In support of this claim, the Plaintiff presents the following forecast of
evidence. On January 22, 2021, the Plaintiff notified the Defendant that the
Plaintiff was terminating cooperation. [Doc. 19: Verified First Am. Complaint
at ¶ 64]. Simultaneously, Tim Draegen sent notice to TDX and the Defendant
that he was terminating cooperation under the TDX shareholder agreement.
[Doc. 301-1: Def. 30(b)(6) Dep. at 314-17; Doc. 301-3: Dep. Ex. 27]. The
Defendant had lost access to the version-controlled source code a month
before and was uncertain that the developers had all the code on their
laptops needed to run a platform. [Doc. 323-3: TDX 30(b)(6) Dep. at 409-10].
On January 28, 2021, at the Defendant’s instruction, one of the Bulgarian
developers accessed and downloaded the Plaintiff’s Core Repository in
South Carolina so that the Defendant would have the source code necessary
to operate on its own. [Doc. 244: T. Draegen 9th Decl. at ¶ 6; Doc. 244-1: T.
Draegen 9th Decl. Ex. 1; Doc. 323-1: Def. 30(b)(6) Dep. at 280-82; Doc. 57-
12: Harmeling 2nd Decl. Ex. A]. The Core Repository houses the code for
the “vast majority” of the program’s functionality. [Doc. 317-2: Pltf. 30(b)(6)
Dep. at 141-42]. The Defendant also accessed customer data on the
Plaintiff’s system without authorization to identify new users after license
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termination by exploiting a bug in the Plaintiff’s system. [Doc. 289-3: T.
Draegen Dep. at 85-91]. Viewing this forecast of evidence in the light most
favorable to the Plaintiff, the Court concludes that there are genuine issues
of fact as to whether the Defendant committed a computer trespass in
violation of North Carolina law. The Defendant’s motion for summary
judgment with respect to the Plaintiff’s computer trespass claim is denied.
7. Tortious Interference Claims (Counts Nine and Ten)
The Plaintiff asserts a tortious interference with contract claim in Count
Nine of the Second Amended Complaint, and a tortious interference with
prospective economic advantage claim in Count Ten. [Doc. 51 at ¶¶ 177-
99]. The Defendant moves for summary judgment with respect to both
claims, arguing that the Plaintiff has failed to forecast evidence of any
contract that the Defendant induced a third party not to perform or any
contract that a third party would have entered into with the Plaintiff but for
the Defendant’s interference. [Doc. 295 at 25-26].
To prevail on a claim for tortious interference with contract, a plaintiff
must show:
(1) a valid contract between the plaintiff and a third
person which confers upon the plaintiff a contractual
right against a third person; (2) the defendant knows
of the contract; (3) the defendant intentionally
induces the third person not to perform the contract;
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(4) and in doing so acts without justification; (5)
resulting in actual damage to plaintiff.
Beverage Sys. of the Carolinas, LLC v. Associated Beverage Repair, LLC,
368 N.C. 693, 700, 784 S.E.2d 457, 462 (2016) (citation omitted). The tort
of tortious interference with prospective economic advantage “arises when a
party interferes with a business relationship by maliciously inducing a person
not to enter into a contract with a third person, which he would have entered
into but for the interference, if damage proximately ensues, when this
interference is done not in the legitimate exercise of the interfering person's
rights.” Id. at 701, 784 S.E.2d at 463 (citation and internal quotation marks
omitted).
Here, the Plaintiff has presented a forecast of evidence that the
Defendant induced the Plaintiff’s customers to switch from the Plaintiff’s
platform to the Defendant’s platform, “thereby effectively terminating [the
Plaintiff’s] services to such customers.” [Doc. 19: Verified First Am.
Complaint at ¶ 180]. As a result of being induced to switch platforms, the
customers were not able to perform the Plaintiff’s Terms of Service (TOS),
thereby interfering with contracts governed by North Carolina law. [Doc. 289-
7: S. Draegen Dep. at 136 (discussing Mathworks) and at 138 (noting loss
of 15,000 European customers); Doc. 37-5, dmarcian TOS]. The Plaintiff
has produced a list of customers whom the Defendant induced to switch
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platforms and who are utilizing the Plaintiff’s platform and services but are
paying the Defendant. [Doc. 323-9: Plf. Supp. Rsp. to Int. #8; Doc. 289-8,
pp. 81-156, Exh. B to Plf. Supp. Int.].
As for the Plaintiff’s claim for tortious interference with prospective
economic advantage, the Plaintiff has presented a forecast of evidence [see
Doc. 19: Verified First Am. Complaint at ¶¶ 192-93] from which a jury could
reasonably conclude that the Defendant’s “‘misleadingly similar’ websites
had siphoned off would-be customers from [the Plaintiff].” dmarcian, Inc. v.
dmarcian Europe BV, 60 F.4th 119, 142 (4th Cir. 2023) (quoting dmarcian,
Inc. v. dmarcian Europe BV, No. 1:21-cv-00067-MR, 2021 2144915, at *24
(W.D.N.C. May 26, 2021)).
For all these reasons, the Defendant’s motion for summary judgment
with respect to the Plaintiff’s claims for tortious interference with contract and
tortious interference with prospective economic advantage as set forth in
Counts Nine and Ten is denied.
8. Unjust Enrichment (Count Thirteen)
In Count Thirteen of the Second Amended Complaint, the Plaintiff
asserts, in the alternative to its breach of contract claims, a claim for unjust
enrichment. [Doc. 51 at ¶¶ 216-22].
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The Defendant contends that the Plaintiff cannot pursue a claim for
unjust enrichment because the parties’ oral agreement governs the claims
and relationships between the parties. [Doc. 295 at 26-27].
The Defendant is correct that “a claim for unjust enrichment cannot
stand where an express contract exists covering the same subject.” Am.
Circuits, Inc. v. Bayatronics, LLC, No. 22 CVS 2915, 2023 WL 8597896, at
*14 (N.C. Super. Dec. 8, 2023). However, a plaintiff alleging a breach of
contract may plead a claim of unjust enrichment in the alternative. Jessey
Sports, LLC v. Intercollegiate Men's Lacrosse Coaches Ass'n, Inc., 289 N.C.
App. 166, 172, 888 S.E.2d 677, 682 (2023).
Here, the Defendant denies the existence of a contract between the
parties. To the extent that any such contract existed, the Defendant disputes
the Plaintiff’s characterization of the terms of that contract. Given these
genuine disputes of fact and the uncertain status of the parties’ alleged oral
agreement, it would be premature to dismiss the Plaintiff’s claim for unjust
enrichment at this time. See Davis v. Davis Funeral Serv., Inc., No. 22 CVS
583, 2023 WL 7029602, at *3 ¶ 15 (N.C. Super. Oct. 25, 2023). Accordingly,
the Defendant’s motion for summary judgment with respect to the Plaintiff’s
unjust enrichment claim is denied.
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9. Cybersquatting (Count Fourteen)
In Count Fourteen of the Second Amended Complaint, the Plaintiff
asserts a cybersquatting claim under the ACPA. [Doc. 51: Second Am.
Complaint at ¶¶ 223-44]. To establish an ACPA violation, the Plaintiff must
prove that: (1) DMARC Advisor had a bad faith intent to profit from using the
infringing domain names7 and (2) these infringing domain names are
“identical or confusingly similar to, or dilutive of, the Plaintiff’s distinctive and
famous” Mark. People for Ethical Treatment of Animals v. Doughney, 263
F.3d 359, 367 (4th Cir. 2023).
In moving for summary judgment, the Defendant argues that the
Plaintiff cannot show any customer confusion because the Defendant did not
use any of the allegedly infringing domains within the United States. [Doc.
295 at 28]. However, the Plaintiff has presented a forecast of evidence from
which a reasonable jury could conclude that there was actual customer
confusion between the Plaintiff’s U.S. website and the allegedly infringing
domains used by the Defendant. [See, e.g., Doc. 8: S. Draegen Decl. at ¶¶
6-24]. The Defendant’s argument on this point is without merit.
7 These domains are identified as dmarcian.app; dmarcian.email; dmarcian-europe.com;
dmarcian.nl; dmarcian.co.uk; dmarcian.es; dmarcian.fr, dmarcian.de, dmarcian.it, and
dmarcian.ru. [Doc. 51: First Am. Compl. at ¶ 231].
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The Defendant further argues that the Plaintiff cannot show bad faith
because the allegedly infringing domains include the Defendant’s former
legal name. [Doc. 295 at 22]. Viewing the evidence in the light most
favorable to the Plaintiff, however, the Court concludes that the issue of
whether the Defendant had a bad faith intent to profit from use of the
dmarcian domain names is question of fact that must be resolved by the jury.
For all of these reasons, the Defendant’s motion for summary judgment
with respect to the Plaintiff’s cybersquatting claim is denied.
10. Chapter 75 (Count Fifteen)
For its final claim, the Plaintiff asserts that the Defendant’s “conduct as
set forth in Counts Four through Thirteen of the Complaint is unfair and
deceptive within the meaning of N.C. Gen. Stat. § 75-1.1.” [Doc. 51: First
Am. Complaint at ¶ 246].
The Defendant first contends that the Plaintiff cannot prevail on a
Chapter 75 claim because it cannot show that any of DMARC Advisor’s
alleged unfair and deceptive conduct actually occurred in North Carolina.
[Doc. 295 at 29]. The Fourth Circuit has already rejected this jurisdictional
argument in upholding this Court’s determination that North Carolina’s long-
arm statute was satisfied by the fact that the Plaintiff, a North Carolina
business, claimed injury from the foreign conduct of the Defendant at a time
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when the Plaintiff provided services on behalf of the Defendant. dmarcian,
60 F.4th at 132. Now at the summary judgment stage, the Plaintiff has
presented a forecast of evidence sufficient to show that it suffered injurious
effects to its business as a result of the Defendant’s conduct abroad. The
Defendant’s argument on this issue is without merit.
The Defendant further argues that summary judgment is warranted on
the Plaintiff’s Chapter 75 claim for the same reasons the Defendant asserted
with respect to Counts Four through Thirteen, supra. For the reasons
previously stated, the Court finds that the Plaintiff has submitted a forecast
of evidence sufficient for a reasonable jury to conclude that the Defendant
engaged in unfair and deceptive trade practices. Accordingly, the
Defendant’s motion for summary judgment with respect to the Plaintiff’s
Chapter 75 claim is denied.
11. Damages
The Defendant also moves for summary judgment based on the
Plaintiff’s purported failure to “disclose cognizable evidence of damages.”
[Doc. 295 at 23-24]. The Court declines to address the sufficiency of the
Plaintiff’s evidence regarding damages in the context of summary judgment.
Such issues are more appropriately addressed in a motion in limine or at
trial.
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B. Plaintiff’s Motion for Summary Judgment
The Plaintiff moves for summary judgment with respect to 27 of the 38
defenses asserted in the Defendant’s Answer. [Doc. 297]. In reviewing this
motion, the Court construes the forecasts of evidence presented by the
parties in the light most favorable to the Defendant. Smith v. Collins, 964
F.3d 266, 274 (4th Cir. 2020).
1. Defenses Related to Copyright Claim
As an initial matter, the Plaintiff moves for summary judgment with
respect to various defenses related to the Plaintiff’s copyright claim. As that
claim has been dismissed, the Plaintiff’s motion for summary judgment is
moot with respect to the Defendant’s Third Defense (failure to join necessary
parties), Eleventh Defense (standing), Twelfth Defense (real party in
interest), Eighteenth Defense (lack of signed transfer), and Twenty-Fourth
Defense (misuse), as well as the Defendant’s Fourteenth Defense (fair use),
insofar as such defense relates to the Plaintiff’s copyright.
2. Defenses for Which No Argument is Offered
Although the Plaintiff moves for summary judgment with respect to the
Defendant’s Seventeenth Defense (rescission), Nineteenth Defense
(estoppel), Twentieth Defense (material breach), and Twenty-First Defense
(repudiation), it offers no argument with respect to these defenses.
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Accordingly, the Plaintiff’s motion for summary judgment with respect to the
Defendant’s Seventeenth, Nineteenth, Twentieth, and Twenty-First
Defenses are denied.
3. Thirty-Seventh Defense
As its Thirty-Seventh Defense, the Defendant asserts the defense of
duress. [Doc. 126: Answer at 23]. Essentially, the Defendant contends that
the Plaintiff’s conduct in terminating the Defendant’s access to the shared
platform and computer systems needed to service its customers forced the
Defendant to take immediate action to mitigate the damages, including
taking the previously shared software and creating a standalone platform
controlled by the Defendant. [Doc. 319 at 28].
“Duress exists where one, by the unlawful act of another, is induced to
make a contract or perform or forego some act under circumstances which
deprive him of the exercise of free will.” Radford v. Keith, 160 N.C. App. 41,
43-44, 584 S.E.2d 815, 817 (2003). A threatened act is unlawful “if made
with the corrupt intent to coerce a transaction grossly unfair to the victim and
not related to the subject of such proceedings.” Link v. Link, 278 N.C. 181,
194, 179 S.E.2d 697, 705 (1971).
Here, the Defendant has failed to produce a forecast of evidence from
which a reasonable jury could conclude that the Plaintiff’s actions subjected
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the Defendant to duress within the meaning of North Carolina law.
Accordingly, the Plaintiff’s motion for summary judgment is granted with
respect to the Thirty-Seventh Defense asserted in the Defendant’s
Complaint.
4. Thirty-Eighth Defense
In its Thirty-Eighth Defense, the Defendant asserts that the Plaintiff’s
claims are barred in whole or in part because the Defendant “acted under
the control of a court-appointed independent director,” Hub Harmeling. [Doc.
126: Answer at 23]. The Defendant offers no legal authority to support its
contention that the appointment of Mr. Harmeling somehow shields the
Defendant from legal liability for its actions. The Plaintiff’s motion for
summary judgment is granted with respect to this defense.
5. Other Defenses
With respect to the other defenses for which the Plaintiff seeks
summary judgment, the Court finds that there are numerous issues of fact
which preclude a grant of summary judgment in favor of the Plaintiff.
Accordingly, the Plaintiff’s motion for summary judgment is denied with
respect to the Defendant’s Ninth Defense (claim preclusion); Tenth Defense
(issue preclusion); Fourteenth Defense (fair use of trademark); Fifteenth
Defense (authorization of conduct); Sixteenth Defense (ownership of
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intellectual property); Twenty-Second Defense (laches); Twenty-Third
Defense (statute of limitations); Twenty-Sixth Defense (fraudulent
inducement); Twenty-Ninth Defense (acquiescence); Thirtieth, Thirty-First,
Thirty-Second, Thirty-Third, and Thirty-Fourth Defenses (related to
defamation); Thirty-Fifth Defense (statutory immunity under § 1833); and
Thirty-Sixth Defense (good faith).
For all of these reasons, the Plaintiff’s Motion for Summary Judgment
is granted with respect to the Defendant’s Thirty-Seventh Defense (duress)
and Thirty-Eighth Defense (acting under control of court-appointed
independent director). In all other respects, the motion is denied.
C. Defendant’s Motion to Exclude Plaintiff’s Expert
The Defendant moves to exclude certain opinions proffered by the
Plaintiff’s expert, John R. Levine, PhD. [Doc. 298]. All of Dr. Levine’s
challenged opinions relate to the Plaintiff’s copyright claims. Because these
claims have been dismissed, the motion to exclude Dr. Levine’s opinions has
been rendered moot.
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O R D E R
IT IS, THEREFORE, ORDERED that:
(1) The Defendant’s Motion for Summary Judgment [Doc. 294] is
GRANTED IN PART and DENIED IN PART as follows: the Defendant’s
Motion for Summary Judgment is GRANTED with respect to the Plaintiff’s
claim for breach of written contract (Count One) and the Plaintiff’s claim for
copyright infringement (Count Three), and these claims are DISMISSED
WITH PREJUDICE. In all other respects, the Defendant’s Motion for
Summary Judgment is DENIED.
(2) The Plaintiff’s Motion for Summary Judgment [Doc. 297] is
GRANTED IN PART and DENIED IN PART as follows: the Plaintiff’s Motion
for Summary Judgment is GRANTED with respect to the Defendant’s Thirty-
Seventh Defense (duress) and Thirty-Eighth Defense (acting under control
of court-appointed independent director). In all other respects, the motion is
DENIED.
(3) The Defendant’s Motion to Exclude Certain Opinions of Plaintiff’s
Expert John R. Levine [Doc. 298] is DENIED AS MOOT.
IT IS SO ORDERED. Signed: May 1, 2024
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