Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-00711/USCOURTS-cand-3_06-cv-00711-17/pdf.json

Nature of Suit Code: 820
Nature of Suit: Copyright
Cause of Action: 17:101 Copyright Infringement

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United States District Court

For the Northern District of California

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Docket No. 207.

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

NETBULA, LLC,

 Plaintiff,

 v.

 Bindview DEVELOPMENT CORPORATION

ET AL,

Defendant.

 /

No. C06-00711 MJJ

ORDER DENYING PLAINTIFF’S

MOTION FOR LEAVE TO FILE

SECOND AMENDED COMPLAINT

INTRODUCTION

Before the Court is Plaintiff Netbula, LLC’s (“Plaintiff” or “Netbula”) Motion for Leave to

File Second Amended Complaint.1

 Defendants Bindview Development Corporation (“Bindview”),

Symantec Corporation (“Symantec”), and Eric J. Pulaski (“Pulaski”), (collectively, “Defendants”)

oppose the motion. For the following reasons, the Court DENIES Plaintiff’s Motion for Leave to

File Second Amended Complaint.

FACTUAL BACKGROUND

I. Overview of the Action

The current copyright action arises from a dispute concerning certain computer software

code. In late September 2005, Bindview discovered some code possibly belonging to Netbula in one

of Bindview’s products, bv-Control for Internet Security (“bv-CIS,” formerly known as

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“HackerShield”). Bindview discovered the code during the course of its diligence prior to Bindview

being purchased by another company, Symantec. Bindview had acquired the HackerShield product

by virtue of its acquisition of another company, Netect, Inc. (“Netect”) in 1999. 

Bindview subsequently approached, Netbula, to determine whether Netect had entered into a

license agreement with Netbula and to acquire any additional licenses as necessary. Netbula

responded that Netect had purchased two licenses in July 1998, but that it was unable to locate the

license agreements. At that time, the parties were not able to settle or otherwise reach a licensing

agreement for the alleged infringing code. 

In the meantime, Bindview claims it suspended distributions of the bv-CIS product. 

According to Bindview, it replaced the allegedly infringing code – which was a modification of an

open source piece of software originally created by Sun Microsystems – with a free, open-source,

publicly available replacement, a process that was completed by December 2005. Shortly thereafter

Symantec acquired then Bindview in a reverse triangular merger effective on January 6, 2006. 

Bindview claims that at the time Symantec acquired Bindview, Bindview had already removed the

code in question from the bv-CIS product. The current lawsuit followed.

On January 31, 2006, Netbula initiated this lawsuit against Bindview, Symantec, and

Bindview’s former CEO, Pulaski. In its original complaint, Netbula alleged claims for copyright

infringement, as well as intentional fraud, breach of contract, and statutory unfair competition. 

Following the filing of the Complaint, on or about May 15, 2006, the parties met to discuss the

possibility of settlement. At that meeting, Defendants provided Netbula and its counsel with, among

other things, sales information for bv-CIS (formerly known as “HackerShield”), including the

unredacted names of customers who purchased the products. (Wakefield Decl. ¶ 2, Ex. 1.) 

According to Defendants, to date, Plaintiff has not attempted to add any of the identified customers

as a defendant in this action, nor has Plaintiff attempted any discovery from or about those

customers. (Id.)

II. Overview of Discovery

The parties have contentiously litigated nearly every stage of discovery before Magistrate

Judge Brazil. The parties continue to accuse each other of inexcusable delay and failure to comply

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with discovery rules. With respect to the issues now before the Court, the most pertinent of those

alleged delays pertains to the production of the code at issue. A summary of the parties’ respective

positions on source code production are as follows. 

A. Defendants’ Position

 With respect to source code production, Defendants claim to have made repeated attempts

over an eight month span to finalize the form and encryption of the parties’ respective source code

so that both parties could produce their respective code, including the Defendants’ code that is at

issue in Plaintiff’s new proposed claim. 

According to Defendants, beginning on October 12, 2006, Defendants’ counsel wrote to

Darrel Salomon, Plaintiff’s then counsel, with a proposal regarding the production of source code. 

Defendants suggested that source and object code “should [be produced] in its native electronic

form. Each party should agree that source code will be kept in an encrypted format, and when

sending it to an expert, the media containing the code will be encrypted and the decryption key will

be sent separately.” (Wakefield Decl. ¶ 4, Exh. 3.) A month later, after receiving no response to

their request, Defendants again forwarded the proposal to Plaintiff. (Id., Exh. 4.) Defendants

contend that as of November 30, 2006, Plaintiff continued to ignore Defendants’ concerns about the

protection of its source code. (Id., Exh. 5.)

After Plaintiff substituted in new counsel, Defendants raised the issue of source code

encryption with that new counsel, Ms. Vonnah Brillet, in a series of emails on February 9, 2007 and

again in a February 13, 2007 email. (Id. ¶ 6, Exhs. 7 & 8.) With the issue still unresolved,

Defendants again wrote to Ms. Brillet on March 30, 2007 that Bindview was preparing its source

code for production assuming that Plaintiff would agree to stipulate to basic measures to ensure the

code remained encrypted and otherwise safe from unauthorized access. (Id. ¶ 6, Exh. 9.)

On May 7, 2007, after seven months of Defendants’ requests for agreement regarding the

protection and production of the parties’ source code, Magistrate Judge Brazil ordered Plaintiff to

either sign Defendants’ proposed source code stipulation or provide a meaningful objection to

Defendants’ proposal. (Docket No. 120, p. 5:18-20) (“The parties must follow Mr. Wakefield’s

proposal for encrypting and protecting source code, unless Plaintiff can articulate a principled

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objection, and identify an efficient and effective alternative”). Judge Brazil’s May 7, 2007 Order

also set May 25, 2007 as the date for the parties to exchange their respective source codes. In the

weeks after the Court issued its order, Defendants raised the issue of the outstanding stipulation

repeatedly, without success. (Wakefield Decl. ¶ 7.) It was not until the final day for the parties to

produce source code that Plaintiff authorized the filing of the stipulation, which Defendants

subsequently filed. (Docket No. 141.) Defendants subsequently produced the code. (Wakefield

Decl. ¶ 7.) 

B. Plaintiff’s Position

Although Plaintiff offers no declaration or supporting evidence, Plaintiff attributes the delay

in source code production on Defendants. In its Opposition brief, Plaintiff claims that it served

document requests for source code and installable copies of the allegedly infringing software on

December 11, 2006, and that it was not until May 25, 2007, after being ordered to do so, when

Defendants actually produced the source code. 

Furthermore, Plaintiff contends that Defendants altered the produced software code in an

apparent attempt to conceal infringement. According to Plaintiff, Defendant altered Plaintiff’s code

and masqueraded the altered code as their own. In its brief, Plaintiff claims to have notified

Defendant of the altered software and its intent to amend the complaint accordingly, on June 4, 2007

and June 11, 2007, respectively. 

Plaintiff also claims to have notified Defendants of its intent to potentially add additional

third-party Defendants who purchased the allegedly infringing source code from Defendants. 

Plaintiff contends it has been unable to add additional third-party Defendants because Defendants

failed to sufficiently identify the third party purchasers. 

Plaintiff now seeks leave to file a Second Amended Complaint making a number of

amendments. Plaintiff’s proposed Second Amendment Complaint seeks to: (1) increase the number

of Doe Defendants from 1-600 to 1-1000; (2) assert a new claim for relief under 17 U.S.C. § 1202

arising from Defendants’ alleged alteration of Plaintiff’s software; (3) assert a new claim for

copyright infringement related to the binary program module file “pwrpc32.dil”; (4) eliminate

Plaintiff’s alleged fraud damages—which Plaintiff had already ceded during the Court’s June 22,

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A comparison of Plaintiff’s Amended Complaint and the proposed Second Amended Complaint reveals that

Plaintiff’s putative “other minor changes,” are new allegations about supposed license restrictions, the scope of Plaintiff’s

software, and the events constituting Defendants’ supposed fraud. In particular, Plaintiff wants to add new allegations that

Plaintiff’s license terms prohibit the use of certain files outside of software development and restrict the number of people

who use a computer installed with Plaintiff’s software. (Proposed Second Amended Compl., at 6:4-6 (¶ 14); 8:2-3 (¶ 18);

25:7-10 (¶ 56) (now alleging that only one programmer could use a copy of Netbula’s software). Plaintiff also wants to

recharacterize the licenses at issue in this case, newly describing multiple-quantity licenses and pricing. (Id. at 6:22-26 (¶

15).) Plaintiff also wants an amendment that changes the description of how the RPC technology underlying the Plaintiff’s

software functions and an amendment listing additional files that Plaintiff considers the “most important” part of its software.

(Id. at 4:18-19 (¶ 10); 5:1-4 (¶ 12) (listing, for the first time, powerrpc.h, pwrpcapi.h, pwrpc32.lib, and powerrpc.exe).)

Plaintiff also seeks to amend what the parties allegedly represented to one another during the period of supposed

fraud, which purportedly was hatched when the parties were trying to settle their dispute informally. For example, Plaintiff

wants to add, “Mr. Yue further informed Bindview that: (1) the license Netect purchased was not transferable; and (2) the

1000-pak license must be pre-paid and since Bindview did not pre-pay, it was not entitled to purchase in 1000-paks.” (Id.

at 15:23-25 (¶ 32); 17:18-19 (¶ 36) (adding that “Netbula had previously informed Bindview that Bindview was not qualified

for pre-paid bulk license paks”).) Lastly, Plaintiff seeks to add statements supposedly made by Defendants and relied on by

Plaintiff. (Id. at 15:16-20 (¶ 32).)

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2007 discovery hearing, and (5) make “other minor changes.”2

 Defendants oppose the motion on

grounds of undue delay, bad faith, and prejudice.

PROCEDURAL BACKGROUND

On May 18, 2007, this Court considered the parties’ Request to Extend Dates for Discovery,

Dispositive Motions, and Trial. The Court set the following dates: (1) Discovery Cut-Off on June

26, 2007; (2) Parties to Name Experts by June 25, 2006; (3) Expert Reports to be Tendered by July

9, 2007; (4) Designation of Supplemental/Rebuttal Experts by July 16, 2007; (5) Expert Discovery

Cut-Off by July 30, 2007; (6) Supplemental/Rebuttal Reports by July 23, 2007; (7) Dispositive

Motions to be heard by August 21, 2007; (8) Pre-Trial Conference on September 25, 2007; (9) Trial

on October 1, 2007. 

LEGAL STANDARD

Rule 15(a) of the Federal Rules of Civil Procedure provides that a party may amend a

pleading once as a matter of course before a responsive pleading is served, after that the party may

amend the pleading only by leave of court or by written consent of the adverse party. Additionally,

Rule 15(a) instructs the Court that, “leave shall be freely granted when justice so requires.” The

Supreme Court has made it clear that courts are to carefully heed this mandate. See Foman v. Davis,

371 U.S. 178, 182 (1962). In determining whether to grant leave to amend, the Court considers the

following factors: (1) whether the movant unduly delayed in bringing the motion, (2) evidence of

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bad faith or dilatory motive on the part of the movant; (3) the movant’s repeated failure to cure

deficiencies by previous amendments; (4) prejudice to the opposing party; and (5) futility of

amendment. Id. Generally, the court engages in this analysis with all inferences in favor of granting

the motion. Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999). While each of these

factors is relevant to determining the propriety of leave to amend, the crucial factor is the resulting

prejudice to the opposing party. Howey v. Radio Corp. of Am., 481 F.2d 1187, 1190 (9th Cir. 1973). 

“Absent prejudice, or a strong showing of any of the remaining factors, there exists a presumption

under Rule 15(a) in favor of granting leave to amend. Eminence Capital, LLC v. Aspeon, Inc., 316

F.3d 1048, 1052 (9th Cir. 2003). Thus, if the party opposing the motion fails to establish any of

these factors, “the leave sought should, as the rules require, be ‘freely given.’” Foman, 371 U.S. at

182. 

However, leave to file an amended cause of action should not be granted “when the movant

present[s] no new facts but only ‘new theories’and ‘provide[s] no satisfactory explanation for [its]

failure to fully develop [its] contentions originally.’” Allen v. City of Beverly Hills, 911 F.2d 367,

374 (9th Cir. 1990) (citation omitted). Additionally, a court’s discretion to deny leave to amend is

particularly broad where, the plaintiff has already had an opportunity to amend the complaint. 

Fidelity Financial Corp. v. Federal Home Loan Bank, 792 F.2d 1432, 1438 (9th Cir. 1986).

ANALYSIS

A review of the applicable factors, on this record, reveals that Plaintiff’s undue delay in

seeking amendment would result in unfair prejudice to Defendants at this late stage in the litigation.

I. Prejudice to Defendants

Prejudice is the most crucial factor in determining whether to grant leave to amend. Howey,

481 F.2d at 1190. Prejudice is heightened when a Plaintiff seeks to amend a complaint late in

litigation. See Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1161 (9th Cir. 1989). Such

prejudice may result when the new allegations add claims based on different legal theories or require

proof of different facts. See, e.g., Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387-88 (9th Cir.

1990) (affirming denial of leave to add claims based on different legal theories and requiring proof

of different facts). Other courts have found intolerable prejudice when plaintiffs have sought to add

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defendants a month before the close of discovery when nearly all pre-trial work was complete.

See, e.g., Acosta-Mestre v. Hilton Intern. of Puerto Rico, 156 F.3d 49, 52-53 (1st Cir. 1998)

(reasoning that the current defendant would be prejudiced by additional discovery and postponement

of trial because defendant might have to alter strategy and tactics to deal with theories involving the

new defendants); Ferguson v. Roberts, 11 F.3d 696, 706 (7th Cir. 1993) (noting that increased

complexity would have resulted if leave to amend to add new claims had been granted); Callan v.

Amdahl Corp., Civ. No. C-94-0295, 1995 U.S. Dist. LEXIS 5684, *13-*15 (N.D. Cal. Apr. 24,

1995) (denying leave to amend “fourteen months after plaintiff first filed his complaint, only two

weeks before the discovery cut-off and two months before trial,” even though “plaintiff complains

he could not file his proposed amended complaint until he had received certain discovery from

defendants”).

On the current record to allow Plaintiff to file a Second Amended Complaint would unduly

prejudice Defendants. Plaintiff’s proposed amendments come after the close of discovery and

involve adding an additional 400 unnamed Doe defendants, asserting two new claims, and alleging a

number of factual allegations. In this case, the Court made it clear at the May 18, 2007 Status

Conference that the trial date is October 1, 2007. Granting leave at this late stage, would require

Defendants to attempt to prepare new defenses involving new issues and new Defendants in an

unreasonably short period between now and the current trial date.

Regarding Plaintiff’s proposed addition of new third-party Defendants, it is relevant to the

Court’s analysis that Plaintiff has known the identities of Defendants’ customers and what they

licensed from BindView for well over a year, yet has refused to state, even at this late date, exactly

whom it is suing or what theory of liability it is asserting against the various newly proposed

defendants. (Wakefield Decl. ¶ 2, Exh. 1.) Plaintiff attributes its failure to earlier identify the new

parties on Defendants’ refusal to adequately identify its customers. However, the Court finds this

excuse unavailing because the list provided by Defendants contained adequate information for

Plaintiff to further investigate the identities of any potential third party customer Defendants. 

Regarding Plaintiff’s proposed addition of the new claims, predicated in part on the code

produced by Defendants on May 25, 2007, the Court similarly finds Plaintiff’s request unavailing. 

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Again, Plaintiff attempts to attribute its failure to earlier amend on Defendants. However, the Court

finds this excuse similarly unavailing. A review of the record reveals that it was Plaintiff who

delayed Defendants from producing the code as early as October 2006. (See Docket No. 120, Order,

May 7, 2007) (stating, “[t]he parties must follow [Defendants’] proposal for encrypting and

protecting source code, unless Plaintiff can articulate a principled objection, and identify an efficient

and effective alternative”)). The May 7, 2007 Order set May 25, 2007 as the date for the parties to

exchange their respective source code, and came seven months after Defendants’ initial requests for

agreement regarding the protection and production of the parties’ source code. Moreover, it was not

until the final day for the parties to produce source code that Plaintiff authorized the filing of the

stipulation, which Defendants subsequently filed. (Docket No. 141.) 

Also important in the Court’s analysis is that defending against Plaintiff’s new claims would

require Defendants to investigate, among other things, precisely what material was present in the

new code in question, the genesis of that information, whether it was removed, the knowledge and

intent of those that allegedly removed it, and the magnitude of any resulting damages. This

investigation introduces not only new areas of factual and legal investigation but also the likely need

for expert opinion. While Plaintiff claims it does not need to take additional discovery for its new

claims, it does not follow that Defendants should be forced to proceed in their defense without the

benefit of discovery into these allegations, expert preparation, and motions for summary judgment to

exclude these claims from trial.

For these reasons, the Court finds that allowing Plaintiff to file a Second Amended

Complaint would unduly prejudice Defendants at this late stage of the litigation.

II. Plaintiff’s Undue Delay

A second factor in determining whether the district court properly denied the motion for

leave to amend is whether Plaintiff unduly delayed in filing its motion. See, e.g., Parker v. Joe

Lujan Enters., Inc., 848 F.2d 118, 121 (9th Cir. 1988) (affirming district court’s denial of motion to

amend in part on ground of undue delay). Relevant to evaluating the delay issue is whether the

moving party knew or should have known the facts and theories raised by the amendment in the

original pleading. E.g., E.E.O.C. v. Boeing Co., 843 F.2d 1213, 1222 (9th Cir. 1988); Jordan v.

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County of Los Angeles, 669 F.2d 1311, 1324 (9th Cir.), vacated on other grounds, 459 U.S. 810

(1982).

The current record evinces that Plaintiff’s new factual allegations consist of information that

have long been within Plaintiff’s control. (Proposed Second Amended Compl., at 6:4-6 (¶ 14); 8:2-3

(¶ 18); 25:7-10 (¶ 56) (alleging that only one programmer could use a copy of Netbula’s software);

8:19-21 (¶ 19); 12:5-10 (¶ 24) (alleging that, despite not having any copy of the license agreement

between Netect and Netbula, that Defendants obtained not “an individual SDK license and/or

individual runtime license,” but rather merely “one SDK license”); 6:22-26 (¶ 15) (recharacterizing

the licenses at issue, newly describing multiple-quantity licenses and pricing); 4:18-19 (¶ 10); 5:1-4

(¶ 12) (listing, for the first time, powerrpc.h, pwrpcapi.h, pwrpc32.lib, and powerrpc.exe). Because

Plaintiff has failed to explain why it could not have alleged these facts earlier—and allow

Defendants to conduct proper discovery—the Court finds Plaintiff’s request to now add them to the

complaint to be unsupported.

CONCLUSION

For the foregoing reasons, the Court DENIES Plaintiff’s Motion for Leave to File Second

Amended Complaint.

IT IS SO ORDERED.

Dated: August___, 2007 

MARTIN J. JENKINS

UNITED STATES DISTRICT JUDGE

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