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,
v.
JAMES RICHARD MATTHEWS, Defendant.
ORDER RE PENDING MOTIONS
SHARON
L. GLEASON UNITED STATES DISTRICT JUDGE.
Before
the Court at Docket 80 is Plaintiffs' (collectively,
“TD Ameritrade”) Motion to Dismiss. Defendant
James Matthews filed an opposition to the motion at Docket 82
and TD Ameritrade filed a reply at Docket 83. Mr. Matthews
also filed a Motion to File Surreply at Docket 88 and a
Motion to Strike and for Reconsideration at Docket 90. Oral
argument was not requested and was not necessary to the
Court's decision. Based on the foregoing, the Motion to
Dismiss will be granted in part and denied in part, the
Motion to File Surreply will be granted, and the Motion to
Strike and for Reconsideration will be denied.
LEGAL
STANDARD
When
reviewing a Rule 12(b)(6) motion, a court considers only the
pleadings and documents incorporated into the pleadings by
reference, as well as matters on which a court may take
judicial notice.[1] “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.'”[2] A claim is plausible on its face
“when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.”[3] Thus, there must
be “more than a sheer possibility that a defendant has
acted unlawfully.”[4] A court “accept[s] factual
allegations in the complaint as true and construe[s] the
pleadings in the light most favorable to the nonmoving
party.”[5]
When a
motion to dismiss for failure to state a claim is granted, a
court “should freely give leave when justice so
requires.”[6] But leave to amend is properly denied as
to those claims for which amendment would be
futile.[7] “Leave to amend may also be denied
for repeated failure to cure deficiencies by previous
amendment.”[8]
BACKGROUND
The
underlying facts of this case are well known to the parties
and are set forth in the Court's prior order on TD
Ameritrade's first motion to dismiss at Docket 62. The
pertinent facts as alleged in Mr. Matthews' Corrected
Second Amended Answer and Counterclaims (“SAAC”)
are briefly summarized as follows:
In early 2012, Mr. Matthews became aware of TD
Ameritrade's thinkorswim applications program interface
(“API”).[9] On or about April 11, 2012, Mr. Matthews
received access to a live, unfunded, user-modifiable
investment account with TD Ameritrade.[10] This allowed
him access to TD Ameritrade's thinkorswim API, which
enabled him to create a self-directed trading
environment.[11] Mr. Matthews alleges he created
analytical tools expressly permitted by
thinkorswim.[12] He alleges users were encouraged to
practice with the API and were encouraged to devise their own
software programs and modify software routines that were not
locked.[13] However, in his SAAC, Mr. Matthews also
alleges that he has not “claimed that any of the source
code created by him . . . was based upon a modification of
any code or software from any TD Ameritrade website or
trading platform, nor was it in any manner derived from any
of TD Ameritrade's software.”[14] Mr. Matthews
obtained a copyright registration for the computer code
effective June 28, 2012.[15]
Mr.
Matthews attaches an unsigned licensing agreement he
maintains that he downloaded from TD Ameritrade's website
in March 2017, and asserts that it “is substantially
the same” as the one in effect in May
2012.[16] He alleges that he had no agreement with
TD Ameritrade that precluded him from filing for copyright
protection for software created by him “in connection
with the TD Ameritrade website and
software.”[17]He alleges that the primary purpose of
the Client Agreement was to govern stock trading activity and
that the Court must determine “what, if any licensing
agreement existed between the parties” and then the
Court “must reconcile all such agreements which cannot
be done as a matter of a pleading.”[18]
Mr.
Matthews alleges that on May 27, 2012, TD Ameritrade
perpetrated a cyber attack against Mr. Matthews'
computer, destroying his hard drive controller and copying
his routines.[19] He maintains that “[a]ll or most
of the software stolen by thinkorswim had a copyright notice
imbedded by Matthews that clearly identified Matthews, and
his claim to copyright.”[20] Mr. Matthews alleges that TD
Ameritrade continues to use, provide, and permit others to
use Mr. Matthews' copyrighted code.[21]
On June
27, 2016, TD Ameritrade filed its Complaint, alleging causes
of action for declaratory judgment, cancellation and release
of claimed nonconsensual common law lien, and injunctive
relief.[22] On September 9, 2016, TD Ameritrade
filed a First Amended Complaint, alleging the same causes of
action as the original complaint.[23]
Mr.
Matthews filed an answer to the First Amended Complaint on
January 4, 2017. He asserted counterclaims and sought
injunctive relief for copyright infringement.[24] On March 20,
2017, Mr. Matthews filed a First Amended Answer to the
Amended Complaint, which also included eight counterclaims:
three claims for copyright infringement; an alleged violation
to Alaska's Unfair Trade Practices Act; two claims for
breach of contract and breach of the implied covenant of good
faith and fair dealing; trespass on real property; and a
demand for accounting.[25] TD Ameritrade filed a motion to
dismiss Mr. Matthews' counterclaims.[26] On October
25, 2017, this Court granted TD Ameritrade's Motion to
Dismiss, allowing Mr. Matthews to file an amended answer
allowing counterclaims only as to the copyright infringement
claims and the breach of an unspecified contract and an
associated implied covenant of good faith and fair dealing
claim.[27] All other counterclaims were dismissed
with prejudice.[28] On November 29, 2017, Mr. Matthews filed
his SAAC, which now alleges that he did not use TD
Ameritrade's trading software to create his copyrighted
source code.[29] TD Ameritrade seeks dismissal of the
SAAC.
DISCUSSION
Mr.
Matthews' SAAC alleges four counterclaims: a copyright
infringement claim in violation of 17 U.S.C. § 101
et seq.; a claimed violation of 17 U.S.C.
§§ 1201 and 1202; a claim seeking injunctive relief
on claims one and two; and a claim for breach of contract and
the implied covenant of good faith and fair
dealing.[30] TD Ameritrade again moves to dismiss
each counterclaim for failure to state a claim pursuant to
Federal Rule of Civil Procedure 12(b)(6).
1.
Motion at Docket 90[31]
Mr.
Matthews asserts that the Court cannot consider the terms of
the Client Agreement in determining whether he is a valid
copyright owner because he did not incorporate the Client
Agreement into his counterclaims.[32] He claims that this
failure to incorporate requires the Court to either disregard
the Client Agreement or convert the motion to dismiss to a
motion for summary judgment.[33]
“[A]
court may consider material which is properly submitted as
part of the complaint on a motion to dismiss without
converting the motion to dismiss into a motion for summary
judgment.”[34] “If the documents are not
physically attached to the complaint, they may be considered
if the documents' authenticity is not contested and the
plaintiff's complaint necessarily relies on
them.”[35] The Client Agreement was filed by TD
Ameritrade in the record at Docket 4-3 as Exhibit C to TD
Ameritrade's Complaint.[36] In Mr. Matthew's SAAC, he
“admits that the papers attached as Plaintiffs'
Exhibit C were sent to TD Ameritrade, and refers the Court to
the contents thereof[.]”[37] Moreover, Mr. Matthews
specifically refers to the Client Agreement in his
SAAC.[38] Mr. Matthews does not contest the
authenticity of the Client Agreement and relies on its
contents in his SAAC. Therefore, the Motion to Strike at
Docket 90 will be denied and the Court will consider the
Client Agreement in ruling on the Motion to Dismiss without
converting the motion to one for summary
judgment.[39]
At
Docket 90, Mr. Matthews also asks this Court to reconsider
its October 2017 order on TD Ameritrade's first motion to
dismiss. The Court will deny that aspect of the motion
because it is untimely.[40]
2.
Motion to Dismiss
a.
Copyright Infringement
Mr.
Matthews' copyright infringement counterclaim alleges
that his copyrighted source code was misappropriated by TD
Ameritrade without his permission.[41] TD Ameritrade asserts
that the Client Agreement precludes Mr. Matthews from having
a valid copyright in the source code because his source code
is a derivative work of TD Ameritrade's thinkorswim
applications program interface
(“API”).[42]
The
Court's previous order stated as follows:
Although 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.[43]
To the
extent Mr. Matthews seeks to pursue a counterclaim for
copyright infringement for code that is a derivative work of
TD Ameritrade's source code, he is precluded from doing
so, because the Client Agreement specifically prohibits Mr.
Matthews from creating a derivative work and it is undisputed
that he signed and agreed to its terms.[44]
However,
Mr. Matthews' SAAC maintains that the source code he
created and copyrighted is not a derivative work of TD
Ameritrade.[45] He makes the following allegations in
his SAAC:
In this case, Defendant Matthews did not work with the
building blocks provided by thinkorswim; instead he created
new building blocks for thinkorswim, to accomplish certain
goals he wished to achieve, and substantially did achieve[.]
. . .
[N]ever has Matthews' [sic] ever claimed that any of the
source code created by him, upon which this action is based,
was based upon a modification of any code or software from
any TD Ameritrade website or trading platform, nor was it in
any manner derived from any of TD Ameritrade's software;
and if TD Ameritrade perceives that Matthews did so, then
their perception is faulty.
. . .
In addition, none of Matthews['] code was prepared inside
TD Ameritrade's website; to the contrary, all of
Matthews' code was created on Matthews' own computer
system, separate and apart from TD Ameritrade's system[.]
. . .
[N]one of the said software code in which Matthews claims the
aforesaid creative and ownership interest was derived from,
any software code owned by TD Ameritrade, and/or appearing on
any of TD Ameritrade's or TD Ameritrade's thinkorswim
website(s)-nor did Matthews ever claim it to be
so.[46]
“A
copyright registration is ‘prima facie evidence of the
validity of the copyright and the facts stated in the
certificate.'”[47] TD Ameritrade nonetheless seeks
dismissal of the copyright claims, arguing that Mr. Matthews
cannot show he is a valid copyright owner in light of the
Client Agreement.[48] “To rebut the presumption of
validity, an infringement defendant must simply offer some
evidence or proof to dispute or deny the plaintiff's
prima facie case of infringement.”[49] TD Ameritrade
cites to Bieg v. Hovnanian Enters., Inc., in
support.[50] In Bieg, the plaintiff had
filed copyright registrations for various drawings, creating
a rebuttable presumption of copyright ownership. The district
court held that the defendant had rebutted the presumption of
validity by “presenting evidence that the drawings were
created as ‘works-for-hire'” based on the
plaintiff conceding that the drawings were created as
“works-for-hire.”[51] However, Bieg was not
decided on a motion to dismiss; rather, it was decided on a
motion for summary judgment. Mr. Matthews' SAAC states a
plausible claim for copyright infringement to the extent it
alleges that Mr. Matthews' code was not derived from TD
Ameritrade's source code but was instead created on his
own computer system, “separate and apart from TD
Ameritrade's system”; to this extent, TD
Ameritrade's Motion to Dismiss Mr. Matthews'
counterclaim for copyright infringement will be denied.
b.
Digital Millennium Copyright Act
Mr.
Matthews' second counterclaim alleges violations under 17
U.S.C. § 1201 and 1202 of the Digital Millennium
Copyright Act (“DMCA”). 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 maintains that Mr. Matthews
has failed to state a claim under this section “because
Defendant has not pleaded facts supporting a
‘technological measure' as defined by the
statute.”[52]
The
Court's prior order provides as follows:
A 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. . . . Mr. 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 his claim across the line from
conceivable to plausible.[53]
Mr.
Matthews' SAAC includes citations to Wikipedia and
judicial decisions that discuss various security
devices.[54] He then alleges “[t]he protective
devices described above were in place at the time of TD
Ameritrade's attack.”[55] But the SAAC fails to
specifically allege what technological measure(s), if any,
Mr. Matthews had on his hard drive at the time of the alleged
cyber attack.[56] Accordingly, TD Ameritrade's Motion
to Dismiss is granted with regard to this counterclaim. TD
Ameritrade argues Mr. Matthews “should not be allowed
to amend the pleadings in his
Opposition.”[57] TD Ameritrade is correct in that regard,
but the Court will grant leave to amend solely to allow Mr.
Matthews to allege the specific technological measure(s) on
his hard drive at the time of the alleged attack.
Mr.
Matthews also alleges a copyright infringement claim under 17
U.S.C. § 1202 of the Digital Millennium Copyright Act
(“DMCA”).[58] The Court's prior order provides,
“Ownership of a valid copyright is a predicate to
asserting a claim under the DMCA.”[59]As discussed
above, Mr. Matthews has now adequately pleaded ownership of a
valid copyright. Accordingly, TD Ameritrade's ...