Synopsys, Inc. v. Ubiquiti Networks, Inc.

313 F.Supp.3d 1056

SYNOPSYS, INC., Plaintiff,

v.UBIQUITI NETWORKS, INC., et al., Defendants.

Case No. 17–cv–00561–WHO

United States District Court, N.D. California.

Signed March 13, 2018

Claudia Wilson Frost, Pro Hac Vice, Orrick, Herrington & Sutcliffe LLP, Houston, TX, Robert Luis Uriarte, Denise Marie Mingrone, Orrick, Herrington & Sutcliffe LLP, Menlo Park, CA, for Plaintiff.

Jennifer Lee Taylor, Amanda Danielle Phillips, Camila Alicia Tapernoux, Christopher Leonard Robinson, Joyce Liou, Michael Jeffrey Guo, Richard S.J. Hung, Robin L. Brewer, Stacey Michelle Sprenkel, Morrison & Foerster LLP, San Francisco, CA, Wendy Joy Ray, Morrison & Foerster LLP, Los Angeles, CA, for Defendants.

ORDER ON PENDING MOTIONS

William H. Orrick, United States District Judge

This case stems from the purported interest of defendants Ubiquiti Network, Inc., Ubiquiti Networks International Limited (UNIL), and Ching–Han Tsai to review and evaluate for licensing plaintiff Synopsys, Inc.'s semiconductor electronic design and automation software. In its Second Amended Complaint, Synopsys alleges that defendants fraudulently gained access to its copyrighted software and related support materials and used evaluation license keys and counterfeit keys to repeatedly and illegally access and copy those programs and materials over the course of three years. When defendants' alleged conduct was discovered by Synopsys—through embedded "piracy tracking" tools (as described by Synopsys) or "spyware" (as described by defendants)—Synopsys sued.

Ubiquiti and UNIL counterclaimed based on Synopsys's use of the piracy tracking tools. They argue that Synopsys's conduct—hiding or failing to disclose the presence and operation of the anti-piracy software, using the anti-piracy software to access information on defendants' systems, and then sharing defendants' confidential information with third-parties—violated the parties' master non-disclosure agreement (MNDA) as well as federal and state computer abuse and common laws. UNIL alleges the following counterclaims: (1) declaratory relief; (2) violation of 18 U.S.C. § 1030, Computer Fraud and Abuse Act; (3) violation of Cal. Penal Code § 502, Computer Data Access Fraud Act; (4) Trespass to Personal Property and Chattels; (5) Conversion; (6) violation of 18 U.S.C. § 1962(c), Civil RICO; (7) violation of 18 U.S.C. § 1962(d), RICO Conspiracy; and (8) Fraud. Ubiquiti currently has counterclaimed only for declaratory relief and breach of contract, but seeks leave to amend to match the counterclaims asserted by UNIL (e.g. , adding the federal and state computer abuse and common law claims).¹

Synopsys moves to dismiss UNIL's counterclaims, arguing that the counterclaims are either barred or inadequately pleaded. Similarly, Synopsys argues Ubiquiti's motion for leave to amend should be denied because of undue delay and prejudice in seeking leave, but also because amendment would be futile because the claims Ubiquiti seeks to allege (like UNIL's) are barred or inadequately pleaded. Finally, Synopsys moves to strike the state law counterclaims asserted by UNIL under California's anti-SLAPP statute, because those claims are based on Synopsys' privileged pre-litigation conduct in identifying what it believed were defendants' acts of piracy and seeking pre-litigation settlement of those claims.

As discussed below, defendants' theory of fraud is implausible and I agree in many respects with the arguments in Synopsys's motion. I GRANT the motion to dismiss UNIL's counterclaims. I DENY Ubiquiti's motion for leave to amend its counterclaims without prejudice and DENY Synopsys's motion to strike without prejudice.

BACKGROUND

The background to Synopsys's claims against defendants are laid out in full in my August 2017 Order. For purposes of ruling on the pending motions, I will focus on the allegations in Ubiquiti's existing counterclaims and those made in UNIL's counterclaims.

As part of the parties' agreement to allow Ubiquiti to review Synopsys's software, the parties entered into a master non-disclosure agreement (MNDA) to allow for the confidential exchange of information between the parties. UNIL Counterclaims ¶¶ 30–31, 34–35, 40.² Ubiquiti signed the MNDA on October 15, 2013, and Synopsys executed it on November 25, 2013. UNIL Counterclaims ¶ 40; see also Second Amended Complaint (SAC) ¶ 40.

Defendants allege that Synopsys formed an "Enterprise" with QuatreWave LLC d/b/a SmartFlow Compliance Solutions (SmartFlow) and related-entity IT Compliance Association ("ITCA"), and the founders and current officers of those companies (Ted Miracco and Chris Luijten). The Enterprise placed SmartFlow's "phone-home" "spyware" in Synopsys' software programs. UNIL Counterclaims ¶¶ 8–16.³ UNIL alleges that SmartFlow and ITCA "work in partnership in schemes to generate revenue for software companies by targeting supposed unlicensed uses of their customers' software." UNIL Counterclaims ¶ 11. As part of that effort:

SmartFlow's spyware is embedded at least into that company's software and subsequently used to monitor and collect data from computers, servers, and unsuspecting individuals who use or have access to that software. The data includes individuals' personally identifiable information, such as user names and email addresses, the software programs and features accessed by users, and the locations, dates, and times of access. SmartFlow then shares the data that it collects and the identity of the suspected unlicensed users with its software customers. SmartFlow also offers the services of its sister company ITCA, who uses various coercive techniques to pressure individuals to pay exorbitant fees or other compensation to the software company for the alleged unlicensed uses.

UNIL Counterclaim ¶ 11.

UNIL asserts (and Ubiquiti wants to allege) that Synopsys concealed the presence of the spyware in the products that was downloaded pursuant to the parties' agreements onto Ubiquiti and UNIL's servers and computers. UNIL contends that Synopsys's license evaluation and MNDA agreements fail to disclose the presence and operation of this spyware in its products. UNIL Counterclaims ¶¶ 17, 47.

UNIL states that Synopsys together with ITCA and SmartFlow use the spyware to identify, often mistakenly, unauthorized users of Synopsys's software in order to "extract exorbitant license fees under the threat of litigation." UNIL Counterclaims ¶¶ 14, 18–25. UNIL identifies five lawsuits Synopsys filed based on unlicensed use of its software and alleges on information and belief that the facts regarding unauthorized use in those suits were obtained from phone-home spyware and that the Enterprise monitored, collected, and transmitted the confidential information of the defendants in those cases. Id. ¶¶ 18–25.

UNIL asserts that the Enterprise likewise monitored, collected, and transmitted UNIL and Ubiquiti's confidential information through the spyware in violation of the MNDA, unbeknownst to UNIL or Ubiquiti, and without their consent. Id. ¶¶ 29–36, 40, 52–53. That confidential information includes "IP addresses, MAC addresses, user names, host names, user accounts, email addresses, workstation information, system administrators, IT system logs, and other confidential information." Id. ¶ 47.

UNIL and Ubiquiti became aware of the spyware and the activities of the Enterprise in May 2016, when ITCA emailed Ubiquiti's CEO as an agent of Synopsys and disclosed its possession of the confidential UNIL and Ubiquiti information it had gathered through the spyware. ITCA made that disclosure and contact in order to convince Ubiquiti to pay "exorbitant fees" for the Synopsys software programs allegedly accessed by UNIL and Ubiquiti employees. Id. ¶¶ 51–52. Ubiquiti and UNIL argue that Synopsys delayed notifying them of the matter until two and one-half years after Synopsys had notice in order to allow the Enterprise to keep collecting confidential information and enlarge the period over which Synopsys could claim damages in the form of retroactive license fees. Id. ¶ 55.

In opposing Ubiquiti's motion for leave to amend and in support of its separate motion to strike UNIL's state law counterclaims, Synopsys relies on evidence that in order for Tsai to download Synopsys' software in December 2013 (which is when Tsai admits he downloaded Synopsys software initially: UNIL Counterclaim ¶ 41; Ubiquiti's Proposed Counterclaims ¶ 42), Tsai would have had to "click through" a notice and agreement that disclosed that "Licensed Products communicate with Synopsys services for the purpose of ... detecting software piracy and verifying that customers are using Licensed Products in conformity with the applicable License Key" and that Synopsys will use that information to "pursue software pirates and infringers." Declaration of Norman F. Kelly [Dkt. No. 78–1], Ex. 2. Similarly, when an unnamed UNIL employee admittedly downloaded Synopsys software in April 2014, UNIL Counterclaim ¶ 44, he or she would have had to click through the same notice. Kelly Decl. ¶ 5.⁴

LEGAL STANDARD

I. MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss if a claim fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the claimant must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is facially plausible when the plaintiff pleads facts that "allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation omitted). There must be "more than a sheer possibility that a defendant has acted unlawfully." Id. While courts do not require "heightened fact pleading of specifics," a claim must be supported by facts sufficient to "raise a right to relief above the...