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Binary Semantics Limited v. Minitab

March 20, 2008

BINARY SEMANTICS LIMITED, BINARY SEMANTICS, INC. PLAINTIFFS,
v.
MINITAB, INC., ET.AL., DEFENDANTS.



The opinion of the court was delivered by: Judge McClure

MEMORANDUM

BACKGROUND

On September 25, 2007, plaintiffs Binary Semantics Limited and Binary Semantics Inc. (collectively "Binary") commenced this civil action with the filing of a complaint against defendants Minitab, Inc., Barbara Ryan, Bruce Pincus, Patrick Sheehan, Asha Gopinath Menon, Malvinder Singh, and John Does 1-10. In its complaint, Binary sets forth causes of action based upon the Racketeer Influenced and Corrupt Organizations Act (Counts I and II), the Computer Fraud and Abuse Act (Count III), Unlawful Use of a Computer under the Pennsylvania Penal Code (Count IV), Computer Theft under the Pennsylvania Penal Code (Count V), Unlawful Duplication under the Pennsylvania Penal Code (Count VI), Computer Trespass under the Pennsylvania Penal Code (Count VII), Theft of Trade Secrets under the Pennsylvania Penal Code (Count VIII), Intentional Interference with Prospective Economic Advantage (Count IX), Negligent Interference with Prospective Economic Advantage (Count X), Unfair Competition (Count XI), Procuring Information by Improper Means (Count XII), Conversion (Count XIII), Unjust Enrichment/Restitution (Count XIV), Fraud (Count XV), Fraud/Fraudulent Inducement (Count XVI), Breach of Fiduciary Duty (Count XVII), Civil Conspiracy (Count XVIII), and claim for "An Accounting" (Count XIX).

On December 17, 2007, defendants Minitab, Barbara Ryan, Bruce Pincus, and Patrick Sheehan (collectively "the Minitab defendants") filed a motion to dismiss. (Rec. Doc. No. 18.) Opposing and reply briefs have been filed and the matter is ripe for disposition. Now, for the following reasons, the court will grant in part and deny in part the motion.

DISCUSSION

I. Motion to Dismiss Standard

When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the court must view all allegations stated in the complaint as true and construe all inferences in the light most favorable to plaintiff. Hishon v. King & Spaulding, 467 U.S. 69, 73 (1984); Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). In ruling on such a motion, the court primarily considers the allegations of the pleading, but is not required to consider legal conclusions alleged in the complaint. Kost, 1 F.3d at 183. At the motion to dismiss stage, the court considers whether plaintiff is entitled to offer evidence to support the allegations in the complaint. Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir. 2000). A complaint should only be dismissed if, accepting as true all of the allegations in the complaint, plaintiff has not plead enough facts to state a claim to relief that is plausible on its face. Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1960 (2007).

The failure-to-state-a-claim standard of Rule 12(b)(6) "streamlines litigation by dispensing with needless discovery and factfinding." Neitzke v. Williams, 490 U.S. 319, 326-27 (1989). A court may dismiss a claim under Rule 12(b)(6) where there is a "dispositive issue of law." Id. at 326. If it is beyond a doubt that the non-moving party can prove no set of facts in support of its allegations, then a claim must be dismissed "without regard to whether it is based on an outlandish legal theory or on a close but ultimately unavailing one." Id. at 327.

II. Allegations in the Complaint

The following allegations are taken from Binary's lengthy complaint. (Rec. Doc. No. 1.) Defendant Minitab is a software development company. (Id. ¶ 2.) Plaintiff Binary is an Indian company that sells and supports software to the Indian market. (Id. ¶ 1.) In 1999, Minitab began utilizing Binary's services to distribute Minitab products in India. (Id. ¶ 3.) In 2001, Binary and Minitab entered into a contract whereby Binary would promote, market, and sell its products and licenses in India and would also offer maintenance, support, and servicing for Minitab's products. (Id. ¶ 4.) The contract could be renewed yearly by the parties and could be terminated by either party for any reason upon thirty-days written notice. (Id. ¶¶ 6, 63.)

In early 2007, Minitab decided to open offices in India to promote its products and services directly to the end-users and avoid paying fees to Binary. (Id. ¶¶ 15-16.) Still, Minitab realized that opening such an office would take a long period of time and would require knowledge of the Indian market place and experience in promoting and selling software products and services in India. (Id. ¶ 17.) Therefore, plaintiff alleges that Minitab decided to target defendant Asha Gopinath Menon, an employee of Binary, and induce her to come to Minitab and bring other Binary employees. (Id. ¶ 18.) Minitab also induced Menon to steal Binary's trade secrets and give them to Minitab. (Id.) Plaintiff further alleges that Menon took certain confidential and proprietary information from Binary at Minitab's direction and gave it to Minitab. (Id. ¶ 143.) On June 20, 2007, after receiving the information from Menon, Minitab terminated the contract. (Id. ¶ 154.) The same day, Minitab publicly announced its intention to open offices in India. (Id. ¶ 155.)

III. Defendants' Motion to Dismiss

In their motion, the Minitab defendants essentially argue that plaintiff fails to state a claim with respect to each count of the complaint.

A. RICO Claims

Defendants argue that plaintiff fails to state a claim with respect to plaintiff's RICO claim in Count I and its RICO conspiracy claim in Count II of the complaint. (Rec. Doc. No. 19, at 12-20.) Specifically, defendants argue that plaintiff has not alleged a pattern of racketeering activity or injury. (Id.)

18 U.S.C. § 1964(c) states that "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court. . ." Thus, to prove a civil RICO claim, a plaintiff must establish: 1) a violation of 18 U.S.C. § 1962; 2) an injury to the plaintiff's business or property; and 3) that the RICO violation was the proximate cause of the injury. Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 265-268 (1992)); Dongelewicz v. First Eastern Bank, 80 F.Supp.2d 339, 344 (M.D.Pa. 1999) (McClure, J.) (citations omitted). To establish a violation of § 1962, a plaintiff must prove: 1) the conduct 2) of an enterprise 3) through a pattern 4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985); Dongelewicz, 80 F.Supp.2d at 444-45 (citation omitted).

A "pattern of racketeering activity" is the occurrence of at least two acts of racketeering activity, known as predicate acts and enumerated in the statute, within a period of ten years. Dongelewicz, 80 F.Supp.2d at 445 (citation omitted). Furthermore, plaintiff must show that the predicate acts are related and that they amount to or pose a threat of continued criminal activity. Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1412 (quoting H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239 (1989)). In other words, to establish a pattern of racketeering activity, a plaintiff must satisfy both a relatedness and a continuity test. Id. Predicate acts are related when they have "the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." Hughes v. Consol-Pennsylvania Coal Co., 945 F.2d 594, 609 (3d Cir. 1991) (quoting H.J. Inc., 492 U.S. at 239-40). Furthermore, continuity is "both a closed- and open-ended conduct, referring to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." Id. (quoting H.J. Inc., 492 U.S. at 241). To established "closed-ended" continuity, the predicate offenses must occur over a "substantial period of time." Id. (quoting H.J. Inc., 492 U.S. at 242). To establish "open-ended" continuity, there must be a "threat of continuity." Id. at 609-10 (quoting H.J. Inc., 492 U.S. at 241). A "threat of continuity" exists when the predicate acts are defendant's "regular way of doing business" and defendant operates a "long-term association that exists for criminal purposes." Id. at 610 (quoting H.J. Inc., 492 U.S. at 241).

Defendants' primary argument with respect to plaintiff's RICO claim is that plaintiff has not alleged a pattern of racketeering activity because plaintiff is unable to establish the continuity requirement of such a claim. (Rec. Doc. No. 19, at 15-18.) We agree. Plaintiff is unable to establish closed-ended continuity because the complaint only alleges predicate acts that occur over the course of 6 months. Specifically, the earliest predicate acts are alleged to have occurred in "early 2007" when Minitab contacted defendant Menon to explore the possibility of her coming to work for Minitab and bringing trade secret information with her. (Rec. Doc. No. 1, ¶¶ 21, 23.) The latest predicate acts occur in June of 2007 with defendant Menon actually taking the trade secret information and bringing it to Minitab and Minitab's subsequently giving 30-days notice of termination of the contract with Binary. (Id. ¶¶ 132-60.) Thus, there is at most a period of activity of six months if we assume that "early 2007" is the beginning of January. As we have mentioned, under the closed-ended theory, the predicate acts must occur over a substantial period of time. We have reviewed various Third Circuit cases and find that the Third Circuit has consistently held that several periods of time longer than six months do not constitute a substantial period of time. See Hughes, 945 F.2d at 612 (holding that twelve months is not a substantial period of time); Kehr Packages, Inc. v. Fidelcor, 926 F.2d 1406, 1418 (3d Cir. 1991) (holding that eight months was not a substantial period of time); Hindes v. Castle, 937 F.2d 868, 875 (3d Cir. 1991) (eight month period not substantial). Furthermore, we note that we have been unable to find and plaintiff has not cited a single case from any district or circuit which has held that a period of time of six months or less is a substantial period of time under the closed-ended theory of continuity. Therefore, we find that the six month period of alleged predicate acts is insufficient to establish continuity under a closed-ended theory.

Furthermore, we find that plaintiff is unable to satisfy the open-ended theory of continuity. Although plaintiff argues that there is a continuing threat of continuity based on the fact that defendants will continue to use plaintiff's trade secrets (Rec. Doc. No. 27, at 20-21), we do not find that this is sufficient to establish a "threat of continuity." As we have mentioned, a "threat of continuity" exists when the predicate acts are defendant's "regular way of doing business" and defendant operates a "long-term association that exists for criminal purposes." Hughes, 945 F.2d at 610 (quoting H.J. Inc., 492 U.S. at 241). Plaintiff has cited two cases from districts outside of this circuit which have found that use of stolen trade secrets is sufficient to show a threat of continuity in circumstances similar to the allegations in the instant complaint. General Motors Corp. v. Ignacio Lopez de Arriortua, 948 F.Supp. 670, 678 (E.D.Mich. 1996); Gould, Inc. v. Mitsui Mining & Smelting Co., 750 F.Supp. 838 (N.D.Ohio 1990). We respectfully disagree with the rulings of these courts, and believe that the use of stolen trade secrets is not sufficient to constitute a threat of continuity. As a preliminary matter, we believe that using trade secrets is quite different from the initial act of stealing them. In fact, we believe that the theft of trade secrets necessarily implies that they will be used. Therefore, under plaintiff's theory, every misappropriation of trade secrets could result in a RICO claim. This would surely expand the scope of the statute beyond what it was intended to reach. If plaintiff's complaint were to allege that defendants would continue to steal plaintiff's trade secrets, as opposed to use those which have already been stolen, then there may well be a threat of continuity, but that is not the case here. Furthermore, plaintiff has not addressed the multitude of cases from district courts within this circuit which have reached conclusions contrary to General Motors and Gould. See Clement Communications, Inc. v. American Future Systems, Inc., Civ. No. 89-6280, 1990 WL 106762 at * 6 (E.D.Pa. July 19, 1990) (McGirr Kelly, J.) (finding that use of allegedly stolen trade secrets not sufficient to constitute a threat of continued criminal activity); Forbes v. Eagleson, Civ. No. 95-7021, 1996 WL 420829 at * 2 (E.D.Pa. July 23, 1996) (O'Neill, J.) (stating that "further use or profit from a previously obtained item would not constitute a further predicate act"); National Risk Management, Inc. v. Bramwell, Civ. No. 92-4366, 1992 WL 368370 at * 4 (E.D.Pa. Dec. 3, 1992) (Newcomer, J.) (finding that mere fact that copyrighted material will be used in the future does not establish a threat of continued criminal activity); PlaterZyberk v. Abraham, Civ. No. 97-3322, 1998 WL 67545 at * 10 (E.D.Pa. Feb. 17, 1998) (Hutton, J.) (stating that "a plaintiff may not rely on the defendants' retention or use of his assets to establish open-ended continuity"). Therefore, we find that plaintiff is unable to establish continuity under an open-ended theory.

Having concluded that plaintiff's complaint is insufficient to establish the continuity of the predicate acts, we find that plaintiff has failed to state a claim under RICO because it has not alleged a pattern of racketeering activity. Furthermore, we note that Count II states a claim of conspiracy under RICO, which necessarily fails due to the failure to state a claim under RICO in Count I. Therefore, we will dismiss counts I and II of the complaint.

B. Computer Fraud and Abuse Act Claim

Defendants also argue that plaintiff has failed to state a claim under the Computer Fraud and Abuse Act ("CFAA") because plaintiff has failed to allege that any of the Minitab defendants accessed a protected computer. (Rec. Doc. No. 19, at 20-23.) Specifically, they argue that plaintiff has only alleged that defendant Asha accessed a protected computer, not any of the Minitab defendants. (Id. at 21-22.)

A claim under § 1030(a)(4) of the CFAA has four elements: 1) defendant accessed a protected computer; 2) without authorization or by exceeding such authorization as was granted; 3) did so "knowingly" and with "intent to defraud"; and 4) as a result has furthered the intended fraud and obtained anything of value. P.C. Yonkers, Inc. v. Celebrations the Party and Seasonal Superstore, LLC., 428 F.3d 504, 508 (3d Cir. 2005) (citing 18 U.S.C. § 1030(a)(4)) (other citation omitted).

We believe that plaintiff's allegations are sufficient to state a claim under the CFAA against the Minitab defendants. Although the complaint alleges that defendant Asha was the individual who actually accessed the protected computer, the allegations make it clear that she was acting at the direction of Minitab when she did so. Specifically, the complaint alleges that Minitab targeted defendant Asha in an attempt to bring her and other Binary employees as well as Binary's trade secrets to Minitab. (Rec. Doc. No. 1, ¶ 18.) Furthermore, it alleges that defendant Asha did in fact steal plaintiff's trade secrets and did so by accessing a protected computer. (Id. ¶¶ 69-76, 235-40.) Finally, it alleges that these trade secrets were given to Minitab by Asha. (Id. ¶¶ 132-51.) Thus, we do not have the situation in which Minitab merely received information from a protected computer. Rather, the complaint sufficiently alleges that defendant Asha was acting at the direction of Minitab when she allegedly accessed plaintiff's protected computer and stole plaintiff's trade secrets. Therefore, we conclude that Minitab may be held liable for the CFAA violation. See Role Models America, Inc. v. Jones, 305 F.Supp.2d 564, 567-68 (D.Md. 2004) ("It would be a different case if Dr. Jones had acted as NSU's agent in accessing ...


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