Opinion
Case No. 5:17-cv-03313-EJD
12-15-2017
TIBCO SOFTWARE INC., Plaintiff, v. GAIN CAPITAL GROUP, LLC, Defendant.
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
Re: Dkt. No. 24
I. INTRODUCTION
Plaintiff Tibco Software Inc. ("Tibco") initiated this suit against Defendant Gain Capital Group, LLC ("Gain Capital"), asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing and copyright infringement based upon Gain Capital's allegedly unlawful "over-deployment" of Tibco's software outside the scope of the parties' licenses. Presently before the Court is Gain Capital's motion to dismiss the claims for breach of the implied covenant of good faith and fair dealing and copyright infringement. The Court finds it appropriate to take the motion under submission for decision without oral argument pursuant to Civil Local Rule 7-1(b). For the reasons set forth below, Gain Capital's motion is granted with leave to amend.
II. BACKGROUND
The Background summarizes the allegations set forth in Tibco's complaint. All well-pleaded facts are accepted as true. --------
Tibco, a corporation, incorporated in Delaware and headquartered in California, is the leading independent provider of software creating integration and analytics and events processing software for companies around the world. Tibco is headquartered in Palo Alto, California. Gain Capital is a limited liability company registered and headquartered in New Jersey. Gain Capital provides over 140,000 retail and institutional investors with access to foreign exchange markets.
In November of 2008, Tibco and Gain Capital allegedly entered into a Software License Terms and Conditions Agreement ("Terms and Conditions") and a Software License and Services Order Form (the "November 2008 Order Form"). Tibco alleges that the Terms and Conditions govern the November 2008 Order Form, as well as the parties' subsequent Order Forms, and contain provisions requiring Gain Capital to (1) pay fees and charges specified in the Order Forms net thirty (30) days from issuance of an invoice, (2) protect confidential information, and (3) pay costs, including attorney's fees, incurred in collecting past due amounts. The Terms and Conditions also allegedly grant Tibco and its independent auditors the right to audit Gain Capital.
Under the terms of the November 2008 Order Form, Gain Capital licensed an "enterprise" amount of Tibco's Enterprise Message Service software and Hawk software for a term of one year. "Enterprise" is defined as "an unlimited Number of Units . . . to be deployed by [Gain Capital] during a period of one (1) year from the Effective Date until November 25, 2009." Complaint, Ex. A.
In December of 2010, the parties entered into another Order Form ("December 2010 Order Form"), under which Gain Capital again licensed an "enterprise" amount of Tibco's software. Tibco alleges that pursuant to the December 2010 Order Form, the license expired on December 30, 2012, at which time the number of units that could be deployed became "fixed." Tibco alleges that on or about December 30, 2012, Gain Capital provided Tibco with the contractually required End of Term Deployment Report, which specified the number of units of software that Gain Capital had deployed.
On or about November of 2012, the parties executed an Amended Software License Terms and Conditions Agreement (the "Amendment"), which Tibco alleges amended the previously executed Terms and Conditions, the November 2008 Order Form and the December 2010 Order Form.
In May of 2016, Tibco allegedly notified Gain Capital of its intent to conduct an audit and retained KPMG, LLP ("KPMG") as an independent auditor. Tibco alleges that from May 2016 to August 2016, Gain Capital delayed the audit by refusing to comply with audit procedures. KPMG performed a two-day on-site audit of Gain Capital and produced a report which allegedly indicated that Gain Capital had substantially over-deployed Tibco software.
Following the audit, in October of 2016, Tibco advised Gain Capital that it had overdeployed the software and requested that Gain Capital place a "true-up" order. Tibco also sent Gain Capital a Bill of Materials totaling $22,064,629, an amount which represented what Tibco calculated Gain Capital would have had to pay if it had properly licensed the over-deployed software, the cost of support and maintenance for the over-deployed products, as well as the cost of one additional year of forward support. Gain Capital did not pay the Bill of Materials.
In November of 2016, the parties entered into another Order Form ("November 2016 Order Form") that specified a license for nine units of Tibco's ActiveSpaces Enterprise Edition software, fifty-nine (59) units of the Enterprise Message Service software and eighty-one (81) units of Hawk software. Tibco alleges that the number of units specified in the November 2016 Order Form was proposed by Gain Capital.
Thereafter, pursuant to the terms of the November 2016 Order Form, Tibco issued two invoices to Gain Capital that totaled $5,243,800. As of the filing of the complaint, Gain Capital has not paid the invoices.
III. STANDARDS
Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient specificity to "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotations omitted). The factual allegations in the complaint "must be enough to raise a right to relief above the speculative level" such that the claim "is plausible on its face." Id. at 556-57, 127 S.Ct. 1955. A complaint that falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). "Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory." Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008).
When deciding whether to grant a motion to dismiss, the court must generally accept as true all "well-pleaded factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 664, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The court must also construe the alleged facts in the light most favorable to the plaintiff. See Retail Prop. Trust v. United Bhd. Of Carpenters & Joiners of Am., 768 F.3d 938, 945 (9th Cir. 2014) (providing the court must "draw all reasonable inferences in favor of the nonmoving party" for a Rule 12(b)(6) motion). However, "courts are not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.
Also, the court usually does not consider any material beyond the pleadings for a Rule 12(b)(6) analysis. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir. 1989). Exceptions to this rule include material submitted as part of the complaint or relied upon in the complaint, and material subject to judicial notice. See Lee v. City of Los Angeles, 250 F.3d 668, 688-69 (9th Cir. 2001).
IV. DISCUSSION
A. Copyright Infringement
Gain Capital moves to dismiss the copyright infringement claim, asserting that by entering into a license, Tibco waived its right to sue for copyright infringement and may only sue for breach of contract. Gain Capital argues that it had a contractual right to use an unlimited number of software units pursuant to the 2008 and 2010 Order Forms and that the subsequent Order Forms did not restrict its license to a limited or specific number of units. Gain Capital reasons that in the absence of a specific numeric limitation on the number of units, the alleged over-deployment may constitute a violation of a covenant giving rise to a breach of contract claim, but not a violation of a condition of the contract that would allow Tibco to assert a claim for copyright infringement. See e.g. MDY Industries, LLC v. Blizzard Entertainment, Inc., 629 F.3d 928, 939 (9th Cir. 2010) (contractual terms that limit a license's scope are conditions, the breach of which constitutes copyright infringement; all other license terms are covenants, the breach of which is actionable only under contract law); Actuate Corp. v. Fidelity Nat'l Information Services, Inc., No. 14-2274 RS, 2014 WL 4182093, at *3 (N.D. Cal. Aug. 22, 2014) (claim for unpaid use and distribution of software not cognizable as a copyright infringement where license did not establish any numeric limits on defendant's right to install and distribute software); Quest Software, Inc. v. DirecTV Operations, LLC, No. 09-1232 AG, 2011 WL 4500922, at *4 (C.D. Cal. Sept. 26, 2011) (restriction on number of CPUs on which software could run is a covenant, the breach of which provides no grounds to claim copyright infringement).
In response, Tibco clarifies that its claim is based upon Gain Capital's deployment of Tibco software after the enterprise licenses expired when Gain Capital had no valid license to the software. As pled, however, the copyright infringement claim does not distinguish between Gain Capital's alleged use of Tibco's software while a valid license was in effect and the alleged use of the software after the licenses expired. The copyright infringement claim is accordingly dismissed with leave to amend.
B. Breach of the Implied Covenant of Good Faith and Fair Dealing
Gain Capital also moves to dismiss the breach of the implied covenant of good faith and fair dealing claim as superfluous of the breach of contract claim. In response, Tibco clarifies that the breach of the implied covenant of good faith and fair dealing claim is based upon conduct that goes beyond breach of the contract. As pled, however, the two claims are nearly identical. The breach of implied covenant claim is accordingly dismissed with leave to amend. // // //
V. CONCLUSION
For the reasons set forth above, Gain Capital's motion is granted with leave to amend. Tibco shall file and serve an amended complaint no later than December 29, 2017.
IT IS SO ORDERED. Dated: December 15, 2017
/s/_________
EDWARD J. DAVILA
United States District Judge