Syncsort Inc. v. Sequential Software, Inc.

50 F.Supp.2d 318

SYNCSORT INCORPORATED, Plaintiff, v. SEQUENTIAL SOFTWARE, INC., Defendant.

No. CIV. A. 98-882(AJL).

United States District Court, D. New Jersey.

January 28, 1999.

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COPYRIGHT MATERIAL OMITTED

Ronald Abramson, Hughes Hubbard & Reed LLP, Saddle River, Jeff H. Galloway, Hughes, Hubbard & Reed LLP, New York, City, counsel for Syncsort Incorporated.

Michael S. Stein, Pashman Stein, P.C., Hackensack, John M. DiMatteo, Karla G. Sanchez, Patterson, Belknap, Webb & Tyler LLP, New York City, counsel for Sequential Software, Inc.

OPINION

LECHNER, District Judge.

This is an action commenced by plaintiff and counterclaim defendant Syncsort Incorporated ("Syncsort") against defendant and counterclaim plaintiff Sequential Software, Inc. ("Sequential"). In a complaint (the "Complaint"), filed by Syncsort on 26 February 1998, Syncsort seeks injunctive relief and compensatory and punitive damages for alleged misappropriation of trade secrets, false advertising, breach of contract copyright infringement and unfair competition. See Complaint. Jurisdiction is alleged pursuant to 28 U.S.C. §§ 1331, 1338(a) and (b), 15 U.S.C. § 1121 and 28 U.S.C. § 1367. See id. at ¶ 2.

On 8 April 1998, Sequential filed an answer to the Complaint (the "Answer"). See Answer. At that time, Sequential also alleged counterclaims for antitrust violations (the "Antitrust Counterclaim") and false advertising (the "False Advertising Counterclaim")(collectively, the "Counterclaims"). See Counterclaims. Jurisdiction over the Counterclaims is asserted under Fed.R.Civ.P. 13, 15 U.S.C. § 1121(a) and 28 U.S.C. §§ 1331 and 1367. See id. at ¶ 68.

Currently before the court is the motion (the "Motion") by Syncsort for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) ("Rule 12(c)"). Alternatively, Syncsort moves, pursuant to Fed.R.Civ.P. 42(b) ("Rule 42(b)"), for severance of the Counterclaims and a stay of discovery as to the counterclaims.¹ For the reasons set forth below, the Motion is granted in part, and denied in part.²

Facts³

A. Background

Syncsort is a large international corporation which has its principal place of business in New Jersey. See Complaint at ¶¶ 1, 3. It researches, develops and sells computer sorting programs for corporate data processing customers. See id. at ¶ 3. Syncsort is a leading company in the market for computer sorting software. See Counterclaims at ¶¶ 73, 75; Complaint at ¶ 3. It developed and released to the public a computer sorting product known as "SyncSort/UNIX."⁴ See Complaint at ¶ 3.

Sequential is a two-person software company also existing under the laws of New Jersey; it researches, develops and sells competing computer sorting programs. See id. at ¶ 4; Answer and Counterclaims at ¶¶ 4, 69, 73. Sequential recently released for sale a new computer sorting product called "PdqSort." See Answer and Counterclaims at ¶¶ 13, 14, 70.

According to Syncsort, the advanced sorting and operational algorithms and optimization for the various computer platforms for which Syncsort sorting packages are offered (collectively, the "Information") are trade secrets, except insofar as they are covered by issued patents. See Complaint at ¶ 5. To ensure confidentiality of the Information, Syncsort requires customers seeking to license or evaluate its sorting products to sign a licensing agreement (the "Licensing Agreement") and a non-disclosure agreement (the "Non-Disclosure Agreement"). The Licensing Agreement and the Non-Disclosure Agreement contain "strict requirements ... includ[ing] prohibitions against unauthorized disclosure, strict limitations on who may use Syncsort's software, express prohibitions against reverse engineering, and prohibitions against dissemination of any benchmark or test results." Id. at ¶ 7.

Sometime during the period from 1994 through 1997, Sequential sought to obtain trial copies of the sorting products of Syncsort, including SyncSort/UNIX. See id. at ¶ 8; Answer at ¶ 8. Syncsort advised Sequential that in order to obtain such copies, Sequential would be required to sign the Licensing Agreement. See Complaint at ¶ 8; Answer at ¶ 8. In light of the restrictions in the Licensing Agreement, Sequential declined the trial copies. See Complaint at ¶ 8; Answer at ¶ 8. Sequential then received an unsolicited copy of SyncSort/UNIX but did not sign or otherwise agree to sign the Licensing Agreement. See Answer at ¶ 9. Sequential alleged it received the copy of SyncSort/UNIX from Syncsort. Id.

Sequential denied that upon receiving a copy of SyncSort/UNIX, it reverse engineered or ran benchmark tests on SyncSort/UNIX in order to investigate its methods of operation. See Answer at ¶¶ 10, 11; Complaint at ¶¶ 10, 11. Sequential admitted only that it "ran SyncSort/UNIX." Answer at ¶ 12. Sequential instead contended it had completed the development of the core sorting algorithms and operations used in PdqSort before obtaining a copy of SyncSort/UNIX. See id. at ¶ 13. In fact, Sequential contended it "has been designing and refining PdqSort since 1993." Id. at ¶ 70. Sequential further contended it developed the user interface of PdqSort without copying any part of SyncSort/UNIX. Id. at ¶ 14.

Sequential launched PdqSort in February 1998. See id. at ¶ 70. Also in February 1998, Sequential advertised PdqSort on a site on the Internet (the "Sequential Web Site"). See Complaint at ¶ 16; Opposition Brief at 2. The Sequential Web Site contained benchmark results demonstrating that PdqSort was twice as fast as SyncSort/UNIX. See Opposition Brief at 2; Complaint at ¶ 16.

Syncsort also maintains a web site on the Internet (the "Syncsort Web Site"), accessible to consumers throughout the United States. See False Advertising Counterclaim at ¶ 85. In an advertisement on the Syncsort Web Site (the "Syncsort Web Site Advertisement") concerning SyncSort/UNIX, Syncsort stated:

`SyncSort is the fastest commercial sort product in the world. SyncSort provides unmatched sort performance on UNIX systems. It's been proven time and time again in benchmark tests ... [SyncSort made] a new world record.'

Id. at ¶ 86 (quoting Syncsort Web Site Advertisement, attached as Exhibit A to Answer and Counterclaims).

Sequential alleged Syncsort recently introduced another sorting software product compatible with Windows NT(R) operating systems that competes with an existing product of Sequential. See id. at ¶ 78. Syncsort, in an advertisement published in ENT Magazine on 18 March 1998 (the "Syncsort Magazine Advertisement"), stated: "`Now the world's fastest sort technology has the friendly face of Windows NT.'" Id. at ¶ 88 (quoting Syncsort Magazine Advertisement, attached as Exhibit B to Answer and Counterclaims). Additionally in a recent mass mailing (the "Syncsort Mailing Advertisement"), Syncsort stated that it combines the "`world's fastest sort technology'" with a new Windows program. Id. at ¶ 90 (quoting Syncsort Mailing Advertisement, attached as Exhibit C to Answer and Counterclaims). "`Benchmark tests ... rigorously test SyncSort's design to ensure that it is the fastest and most efficient sort product on every platform.'" Id.

Sequential alleged Syncsort controls the computer sorting market despite the fact that SyncSort is not the fastest sort product. See id. at ¶ 75-76. Sequential also alleged the advertisements (collectively, the "Syncsort Advertisements") professing SyncSort/UNIX to be the fastest sort product are false, deceptive and misleading. See id. at ¶¶ 91-94.

B. Procedural History

As mentioned, Syncsort filed the Complaint on 26 February 1998. See Complaint. On 3 April 1998, pursuant to a scheduling conference and accompanying order (the "3 April 1998 Order"), the time in which Sequential was permitted to answer the Complaint was extended to 8 April 1998. See 3 April 1998 Order. Sequential filed the Answer and Counterclaims on 8 April 1998. See Answer and Counterclaims. Syncsort filed a reply to the Counterclaims (the "Reply to Counterclaims") on 29 April 1998. See Reply to Counterclaims.

Discussion

A. Standard For Dismissal Under Rule 12(c)

A defendant may move to dismiss a complaint or parts of a complaint before or after filing an answer. See Fed.R.Civ.P. 12(b)(6) and (c). A motion made before an answer is filed is a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) ("Rule 12(b)(6)"). A motion made after an answer is filed is a motion for judgment on the pleadings pursuant to Rule 12(c).⁵ "A defense of failure to state a claim upon which relief can be granted ... may be made in ... [a] motion for judgment on the pleadings." See Fed.R.Civ.P. 12(h)(2). In the instant action, the Motion was filed after the Answer and Counterclaims and is based on the argument that the Antitrust Counterclaim and the False Advertising Counterclaim fail to state a claim upon which relief can be granted.

A Rule 12(c) motion for judgment on the pleadings is treated like a motion to dismiss under Rule 12(b)(6). See Fed. R.Civ.P. 12(h)(2); see also Turbe, 938 F.2d at 428; Institute for Scientific Information, Inc. v. Gordon & Breach, Science Pubs. Inc., 931 F.2d 1002, 1006 (3d Cir.), cert. denied, 502 U.S. 909, 112 S.Ct. 302, 116 L.Ed.2d 245 (1991); Britamco Underwriters, Inc. v. C.J.H., Inc., 845 F.Supp. 1090, 1092 (E.D.Pa.), aff'd, 37 F.3d 1485 (3d Cir.1994); Southmark Prime Plus, L.P. v. Falzone, 776 F.Supp. 888, 891 (D.Del.1991).

Like Rule 12(b)(6), Rule 12(c) requires the Court "accept the allegations in the complaint as true, and draw all reasonable factual inferences in favor of the plaintiff. [The motion can be granted] only if no relief could be granted under any set of facts that could be proved." Turbe, 938 F.2d at 428 (citing Unger, 928 F.2d at 1394-95); see also Dykes, 68 F.3d at 1565 n. 1; Piecknick, 36 F.3d at 1255; Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994).

A complaint may be dismissed for failure to state a claim where it appears...