United States District Court, D. Alaska
TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, INC., TD AMERITRADE IP COMPANY, INC., and TD AMERITRADE SERVICES COMPANY, INC., Plaintiffs,
JAMES RICHARD MATTHEWS, Defendant.
ORDER RE MOTION TO DISMISS
L. GLEASON, UNITED STATES DISTRICT JUDGE
the Court at Docket 41 is Plaintiffs' Rule 12(b)(6)
Motion to Dismiss. The motion has been fully
briefed. Oral argument was not requested and was
not necessary to the Court's decision.
(collectively, "TD Ameritrade") initiated this
action on June 27, 2016. TD Ameritrade's Amended Complaint
asserts three causes of action: declaratory judgment,
cancellation and release of claimed nonconsensual common law
lien pursuant to Alaska law, and injunctive
relief. Defendant James Matthews filed an Answer
to the Amended Complaint that also asserted a counterclaim
for copyright infringement. On March 20, 2017, Mr. Matthews
filed an Amended Answer asserting seven additional
Court has jurisdiction as to Mr. Matthews' copyright
infringement claims under federal question
jurisdiction. The Court has supplemental jurisdiction
over Mr. Matthews' state law counterclaims.
Ameritrade moves to dismiss all of Mr. Matthews'
counterclaims pursuant to Federal Rule of Civil Procedure
12(b)(6) and the Supreme Court's interpretation of that
rule in Ashcroft v. Iqbal "To survive a motion to
dismiss, a complaint must contain sufficient factual matter,
accepted as true, to 'state a claim to relief that is
plausible on its face.'" Iqbal does not
require a litigant to prove his case in his pleading, but it
requires the litigant to "state 'enough fact[s] to
raise a reasonable expectation that discovery will reveal
evidence of [the misconduct
alleged].'" The pleading must contain "enough
facts to state a claim to relief that is plausible on its
face." This inquiry requires a court to
"draw on its judicial experience and common
sense." When reviewing a Rule 12(b)(6) motion, a
court considers only the complaint and other pleadings,
documents incorporated into the pleadings by reference, and
matters on which a court may take judicial
motion to dismiss for failure to state a claim is granted, a
court "should freely give leave when justice so
requires." But leave to amend is properly denied as
to those claims for which amendment would be
purposes of TD Ameritrade's Motion to Dismiss, the Court
accepts the factual allegations in Mr. Matthews'
operative pleading as true and "construe[s] them in the
light most favorable" to him. According to the First
Amended Answer and Counterclaims, in April 2012, Mr. Matthews
applied for an unfunded user-modifiable investment account
with TD Ameritrade. At or about the same time as he opened
the account, Mr. Matthews entered into a Client Agreement
with TD Ameritrade. The account provided Mr. Matthews access
to TD Ameritrade's "thinkorswim" applications
program interface ("API"), which gave him the
ability to create his own analytical tools for a
self-directed trading environment. Mr. Matthews alleges that
users such as him were permitted to download the API and
"were encouraged to devise their own software
programs" by "modifying software routines available
on the site." Mr. Matthews alleges that "all
copyrighted routines created by TD Ameritrade [were] locked,
and thus could not be modifiable." After signing
up for an account, Mr. Matthews alleges that he used the API
to create analytical routines "in a novel
manner." By May 27, 2012, Mr. Matthews alleges
that he had created source code for over 100 routines to work
with the thinkorswim API.
27, 2012, Mr. Matthews alleges that TD Ameritrade
"perpetrated a cyber attack" which "destroyed
[Mr. Matthews'] hard drive
controller." Mr. Matthews had saved 84 of the
routines he had developed on another hard drive, so they were
not destroyed by the cyber attack. However, Mr. Matthews
asserts that TD Ameritrade had copied the routines he had
created, all or most of which had copyright notices that Mr.
Matthews had imbedded in them. After obtaining Mr.
Matthews' software, TD Ameritrade is alleged to have
inserted its own copyright notice and date into Mr.
Matthews' software. TD Ameritrade alleges that it
terminated its business relationship with Mr. Matthews in
early June 2012. Mr. Matthews maintains that TD
Ameritrade had "effectively wrongfully terminated"
his account on May 27, 2012.
Matthews filed a copyright notice for the 84 routines under
United States Copyright Registration Number TXu1-822-654
effective June 28, 2012. Mr. Matthews asserts that TD
Ameritrade has been using his routines and allows at least
6.5 million of its funded users to use Mr. Matthews' code
without his authorization.
Matthews alleges eight counterclaims: a copyright
infringement claim in violation of 17 U.S.C. § 101
etseq.; one claimed violation of 17 U.S.C.
§§ 1201 and 1202; a claim seeking injunctive relief
on claims one and two; a violation of Alaska Statute
45.50.471, the Unfair Trade Practices Act; two claims of
breach of contract and breach of the implied covenant of good
faith and fair dealing; trespass on real property; and a
demand for accounting. TD Ameritrade moves to dismiss each
counterclaim for failure to state a claim pursuant to Federal
Rule of Civil Procedure 12(b)(6). The Court will address each
claim in turn, and consistent with the Supreme Court's
guidance in Iqbal, "begin[s] by taking note of
the elements a plaintiff must plead to state a
Matthews' First Counterclaim alleges copyright
infringement. To state a prima facie case of direct copyright
infringement under 17 U.S.C. § 101, et seq., a
party must satisfy two requirements: "(1) they must show
ownership of the allegedly infringed material and (2) they
must demonstrate that the alleged infringers violate at least
one exclusive right granted to copyright holders under 17
U.S.C. § 106."
Ameritrade asserts that Mr. Matthews "does not have
ownership rights in any asserted copyrightable work" and
that it holds "all copyrights relative to the
thinkorswim software." Mr. Matthews responds that
registration of a copyright is prima facie evidence of a
registration of the copyright certificate itself establishes
a prima facie presumption of the validity of the copyright in
a judicial proceeding . . ., " But the statutory
presumption of validity can be rebutted. To rebut this
presumption, a party disputing validity of the copyright
"must simply offer some evidence or proof to dispute or
deny the plaintiffs prima facie case of
Mr. Matthews alleges that he has obtained a copyright
registration for his code, TD Ameritrade points to the Client
Agreement to rebut the presumption of the copyright's
validity. Mr. Matthews acknowledges he signed and agreed to
the terms of the Client Agreement, which states that
"[m]y use of [TD Ameritrade's] Services will not
confer any title, ownership interest, or intellectual
property rights to me." The agreement also expressly
prohibits Mr. Matthews from creating derivative works:
"I will not. . . create derivative works from,
distribute, redistribute, display, sell or transfer, or
create derivative products from the
Services." Thus, even if Mr. Matthews obtained a
copyright registration for work he claims is original and
novel, he appears to be precluded from obtaining a copyright
of any derivative works by the terms of the Client Agreement.
Matthews alleges in his First Amended Answer and
Counterclaims that users of TD Ameritrade's API
"were permitted and encouraged to modify certain
software routines available on the site . . .
." However, Mr. Matthews has not alleged
any facts as to who, how, or when he was "permitted and
encouraged" to modify TD Ameritrade's software.
Moreover, Mr. Matthews has not alleged any basis to disregard
the restriction on derivative works in the Client Agreement.
reply, TD Ameritrade asserts that dismissal is warranted
because Mr. Matthews has provided no factual allegations to
support his claim that TD Ameritrade permitted and encouraged
him to use its software. The Court agrees. Mr. Matthews'
claim that he had been given the authority to create and
copyright derivative work appears to be directly at odds with
the Client Agreement. While such a claim is possible, Mr.
Matthews has failed to allege any facts to demonstrate that
the claim is plausible. Accordingly, TD Ameritrade's
Motion to Dismiss as to the First Counterclaim will be
granted. However, leave to amend will be accorded so as to
permit Mr. Matthews the opportunity to allege nonconclusory
facts that explain why Mr. Matthews' alleged software
modifications to TD Ameritrade's API are protected by a
Digital Millennium Copyright Act
Matthews' Second Counterclaim alleges violations under 17
U.S.C. §§ 1201 and 1202 of the Digital Millennium
Copyright Act. Section 1201(a) provides "[n]o person
shall circumvent a technological measure that effectively
controls access to a work protected under this title."
TD Ameritrade contends that Mr. Matthews has not provided
facts to show that TD Ameritrade bypassed the requisite
technological measure in accessing and obtaining Mr.
Matthews' code. Mr. Matthews asserts that "it is .
. . common knowledge that hard drives have for many years . .
. used encryption technology to secure information on the
technological measure "effectively controls access to a
work if the measure, in the ordinary course of its operation,
requires the application of information, or a process or a
treatment, with the authority of the copyright owner, to gain
access to the work." The House Judiciary Committee
provided the following analogy:
[t]he act of circumventing a technological protection measure
put in place by a copyright owner to control access to a
copyrighted work is the electronic equivalent of breaking
into a locked room in order to obtain a copy of a
Matthews' First Amended Answer and Counterclaims alleges
that TD Ameritrade hacked his computer, "destroyed
Defendant's hard drive controller, " and
"copied the routines" he had created. But Mr.
Matthews did not allege any facts regarding the security of
his hard drive or facts to indicate that his hard drive had
encryption technology that was circumvented by TD Ameritrade.
Although a hard drive with adequate protections could be a
"technological measure, " Mr. Matthews has failed
to allege sufficient facts to push this claim "across
the line from conceivable to plausible."
Matthews also alleges that TD Ameritrade violated 17 U.S.C.
§ 1202 of the Digital Millennium Copyright
Act. Section 1202(b) provides that "[n]o
person shall, without the authority of the copyright owner or
the law . . . (1) intentionally remove or alter any copyright
management information ... ." Under the statute,
"copyright management information" includes
"[t]he name of, and other identifying information about,
the author of a work."
Ameritrade asserts that Mr. Matthews "does not provide
any copyright management information" and did not allege
that TD Ameritrade "intentionally removed or altered
such information." But in Mr. Matthews' First
Amended Answer and Counterclaims, Mr. Matthews alleges that
after TD Ameritrade stole his software, it removed or struck
through his copyright notice that he had imbedded in the
software.However, as discussed above, Mr. Matthews
has not shown valid ownership of a copyright. Ownership of
a valid copyright is a predicate to asserting a claim under
the Digital Millennium Copyright Act. As discussed
above with regard to the copyright infringement counterclaim,
the existence of a valid copyright has not been adequately
pleaded. Accordingly, Mr. Matthews' Second Counterclaim
will be dismissed with leave to amend.
Matthews' Third Counterclaim seeks injunctive relief as
it relates to both the First and Second Counterclaims. As
discussed above, Mr. Matthews has not pleaded facts to
establish a plausible claim for either copyright infringement
or violations to the Digital Millennium Act. Therefore, Mr.
Matthews' claim for injunctive relief will also be
dismissed with leave to amend.
Unfair Trade Practices Act
Matthews' Fourth Counterclaim alleges TD Ameritrade
violated Alaska's Unfair Trade Practices
Act. Mr. Matthews does not oppose dismissal
of this claim, but asserts it should be without prejudice. In
an affidavit appended to TD Ameritrade's Complaint, Mr.
Matthews stated that "on or about, April 11, 2012
Affiant discovered his, (copyrighted source code) was
appropriated, copied and placed in [TD Ameritrade's]
publicly accessible library for use by all other system
users." Mr. Matthews was aware of TD
Ameritrade's alleged misappropriation in 2012, yet he did
not file this counterclaim until 2016, considerably more than
two years after the statute of limitations on this claim had
run. Based on the foregoing, TD
Ameritrade's Motion to Dismiss Mr. Matthews' Fourth
Counterclaim under the Unfair Trade Practices Act will be
granted with prejudice and without leave to amend.
Breach of Contract and Implied Covenant of Good Faith and
Matthews' Fifth and Sixth Counterclaims each allege
breach of contract and breach of implied covenant of good
faith and fair dealing under Nebraska, Alaska, and/or
Illinois law. To establish a breach of contract claim
in Alaska, Nebraska, or Illinois, a claimant must establish
the existence of a contract, a breach of that contract, and
Matthews' Fifth Counterclaim alleges that TD Ameritrade
violated a licensing agreement published on TD
Ameritrade's website. The pleading references the
agreement as being annexed as Exhibit A; but no agreement was
annexed. Mr. Matthews has failed to state a claim for breach
of contract in his Fifth Counterclaim. He has failed to
clearly identify the contractual agreement that existed
between TD Ameritrade and himself; he has failed to identify
the specific provision(s) of that agreement that he is
alleging was breached by TD Ameritrade and when and how that
breach occurred; and he has failed to identify the damages he
incurred as a result of that alleged breach. However, because
it appears there was some contractual relationship between
the parties at some point, one final opportunity to amend as
to this claim will be granted. Since Mr. Matthews fails to
identify the contract he is alleging that TD Ameritrade
breached, he has also not pleaded enough facts to establish a
claim for breach of the implied covenant of good faith and
fair dealing. Accordingly, the Fifth Counterclaim will be
dismissed with leave to amend.
Matthews' Sixth Counterclaim alleges that TD
Ameritrade's cancellation of his account constituted a
breach of contract. However, the Client Agreement between
the parties specifies that TD Ameritrade "reserve[s] the
right to suspend and deny access to the Services without
prior notice or for any reason." It is not
plausible that TD Ameritrade's cancellation of Mr.
Matthews' account constituted a breach of contract. Nor
has Mr. Matthews pleaded any facts that could plausibly
support a claim for a breach of the implied covenant of good
faith and fair dealing based on the ...