Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-05115/USCOURTS-cand-4_04-cv-05115-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MOORTHY, RIGGS & ASSOCIATES, a

California corporation,

Plaintiff,

v.

NORMAN MCINTOSH and NJ PURSUITS,

Defendants.

 /

No. C 04-5115 CW

ORDER DENYING

DEFENDANTS'

MOTION TO AMEND

COUNTER-CLAIM

AND DENYING AS

PREMATURE

DEFENDANTS'

MOTION FOR

SUMMARY JUDGMENT

On April 7, 2005, Defendants Norman McIntosh and NJ

Pursuits filed a motion for summary judgment on their counterclaim for declaratory judgment that NJ Pursuits is the owner of

certain source code. On April 15, 2005, Defendants filed a

motion for leave to file an amended counter-claim to add a party

and claims. Plaintiff Moorthy, Riggs and Associates opposes

both motions. The matters were heard on May 20, 2005. Having

considered the parties' papers, the evidence cited therein and

oral argument on the motions, the Court DENIES Defendants'

motion for leave to file an amended counter-claim and DENIES as

premature Defendants' motion for summary judgment.

Case 4:04-cv-05115-CW Document 45 Filed 06/13/05 Page 1 of 8
United States District Court

For the Northern District of California

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BACKGROUND

Plaintiff is a Tiburon, California-based company that

provides data relating to products and services offered by

financial institutions. Plaintiff provides the data to its

clients in the form of reports that are available over

Plaintiff's web site. For several years, McIntosh was the

administrator of Plaintiff's web site, and he maintained some of

the hardware necessary for the site's operation. NJ Pursuits is

a company owned by McIntosh.

On November 10, 2004, Plaintiff entered into a purchase

agreement with Informa Research Services, Inc. (Informa) whereby

Plaintiff agreed to transfer its assets, domain name, and

intellectual property rights to Informa for an amount in excess

of $500,000. Plaintiff submits evidence that, on November 22,

McIntosh was informed of the purchase agreement. On the morning

of November 24, Plaintiff was told by one of its clients that

the web site was not functioning properly, and that the client

could not access the data reports. On the morning of November

26, McIntosh sent an email to Plaintiff in which he demanded

over $40,000 for unpaid work that he had allegedly performed. 

The next day, McIntosh sent Plaintiff another email in which he

stated that he was the true owner of Plaintiff's web site; later

that day, the web site became entirely inaccessible to Plaintiff

and its customers. When the web site was restored on November

28, Plaintiff's two chief executive officers could no longer log

onto the site, and Plaintiff was informed by several clients

that they were similarly unable to access the web site's

Case 4:04-cv-05115-CW Document 45 Filed 06/13/05 Page 2 of 8
United States District Court

For the Northern District of California

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services.

On December 2, 2004, Plaintiff filed a complaint against

McIntosh and NJ Pursuits alleging (1) violations of the Computer

Fraud and Abuse Act, (2) intentional misrepresentation, 

(3) conversion, and (4) intentional interference with

contractual relations. Also on December 2, Plaintiff moved for

a temporary restraining order. On December 3, the Court issued

a temporary restraining order (TRO) directing McIntosh to return

all of Plaintiff's property, "including, without limitation, all

computers, databases, data storage media, software, source code,

applications, historical files, web sites and all data storage

media."

On December 8, Defendants moved for clarification of the

TRO. Specifically, Defendants requested clarification on

whether they were required to return to Plaintiff unidentified

source code that allegedly allowed Plaintiff's web site to

function. In that motion, Defendants argued that McIntosh was

the owner of the alleged source code. On December 13, the Court

issued an order stating that the purpose of the TRO was to allow

Plaintiff to continue to maintain its web site, free from

McIntosh's interference; thus, Defendants were obliged to return

all material required for the web site to function. The Court

noted that Defendants might not prevail on their claim that they

own the alleged source code and, because the issue of the source

code's ownership had not been resolved, the Court included the

following language in its order: "Plaintiff may not disclose the

source code to third parties or use the code for any purpose

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United States District Court

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other than maintaining its web site until further order of the

Court."

On December 14, the parties and Informa entered into a

confidentiality agreement which stated that Defendants had

provided the alleged source code to Plaintiff and Informa for

the purpose of permitting both Plaintiff and Informa to operate

the web site, and that the alleged source code was confidential

and could only be used by Plaintiff and Informa for that

purpose. On December 17, at the preliminary injunction hearing,

the parties indicated that they were close to reaching an

agreement on a stipulated preliminary injunction. Based on

their agreement, the Court extended the TRO until such time as

they could do so.

On January 3, 2005, Defendants answered the complaint and

counter-claimed for declaratory judgment that NJ Pursuits was

the rightful owner of the alleged source code that enables

Plaintiff's web site to function. On February 14, the parties

submitted a stipulated preliminary injunction that required

Defendants to return Plaintiff's property, including software

enabling Plaintiff's web site to function, but which contained

the following provision: "this Order shall not be construed as

determinative of the issue of ownership of the source code used

to operate Plaintiff's web site."

LEGAL STANDARD

Federal Rule of Civil Procedure 15(a) provides that leave

of the court allowing a party to amend its pleading "shall be

freely given when justice so requires." Leave to amend lies

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within the sound discretion of the trial court, which discretion

"must be guided by the underlying purpose of Rule 15 to

facilitate decision on the merits, rather than on the pleadings

or technicalities." United States v. Webb, 655 F.2d 977, 979

(9th Cir. 1981) (citations omitted). Thus, Rule 15's policy of

favoring amendments to pleadings should be applied with "extreme

liberality." Id.; DCD Programs, Ltd. v. Leighton, 833 F.2d 183,

186 (9th Cir. 1987) (citations omitted).

The Supreme Court has identified four factors relevant to

whether a motion for leave to amend should be denied: undue

delay, bad faith or dilatory motive, futility of amendment, and

prejudice to the opposing party. Foman v. Davis, 371 U.S. 178,

182 (1962). The Ninth Circuit holds that these factors are not

of equal weight; specifically, delay alone is insufficient

ground for denying leave to amend. Webb, 655 F.2d at 980. 

Further, the "liberality in granting leave to amend is not

dependent on whether the amendment will add causes of action or

parties." DCD Programs, 833 F.2d at 186. Rather, the court

should consider whether the proposed amendment would cause the

opposing party undue prejudice, is sought in bad faith, or

constitutes an exercise in futility. Id. (citing Acri v. Int’l

Ass'n of Machinists & Aerospace Workers, 781 F.2d 1393, 1398-99

(9th Cir. 1986); United States v. City of Twin Falls, 806 F.2d

862, 876 (9th Cir. 1986); Howey v. United States, 481 F.2d 1187,

1190-91 (9th Cir. 1973); Klamath-Lake Pharm. Ass’n v. Klamath

Med. Serv. Bureau, 701 F.2d 1276, 1293 (9th Cir. 1983)).

DISCUSSION

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I. Motion to Amend Counter-Claim

Defendants contend that, because Informa is now in

possession of the source code that is the subject of its initial

counter-claim, the amended counter-claim is compulsory under

Federal Rule of Civil Procedure 13(a). Thus, Defendants argue,

they would be prejudiced if they were not allowed leave to amend

because they would lose the ability to bring the amended claim

in the future.

The motion for leave to amend is denied because the

proposed counter-claim is futile. Defendants' proposed counterclaim would add a claim for copyright infringement against

Plaintiff and Informa based upon their use, solely for the

purpose of maintaining the web site while this dispute is

pending, of source code that is allegedly owned by Defendants. 

First, the confidentiality agreement entered into voluntarily by

the parties and Informa expressly permits both Plaintiff and

Informa to operate the web site. Second, the preliminary

injunction to which the parties stipulated explicitly allows

Plaintiff to continue operating the web site despite the fact

that ownership over the alleged source code remains unresolved.

The proposed counter-claim alleges a cause of action for

copyright infringement arising solely from activity -- the

operation of the web site -- to which Defendants have twice

agreed in writing. One of those agreements, the preliminary

injunction to which Defendants stipulated, is a standing Court

order. Defendants have not alleged facts adequate to plead a

cause of action for copyright infringement. If, in the future,

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Defendants discover facts that could give rise to a claim for

copyright infringement, they may move again to amend their

counter-claim.

For the foregoing reasons, Defendants' motion for leave to

amend their counter-claim is denied.

II. Motion for Summary Judgment

On April 7, Defendants moved for summary judgment on their

initial counter-claim for declaratory relief, arguing that

"there is no genuine issue of material fact that [Plaintiff] is

not the owner of copyright in the source code and that NJ

Pursuits is the owner of said copyright."

After Defendants moved for summary judgment on their

initial counter-claim, they moved to amend the counter-claim to

add Informa as a party and add a counter-claim for copyright

infringement. Nevertheless, Defendants argue that the motion to

amend their initial counter-claim "in no way affects the current

motion because the courts [sic] resolution of the ownership

issue would be the same under either motion."

Defendants' motion for summary judgment is premature

because the parties have conducted very little discovery in this

case. As Plaintiff notes, the parties have not exchanged their

initial disclosures, nor had the Court, at the time Defendants

filed their motion, held an initial case management conference

to set dates for discovery cut-offs. Critically, Plaintiff

asserts that it has not yet deposed McIntosh in order to

challenge, inter alia, his central assertion that he owns the

source code at issue here because it was derived from source

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code that he developed prior to his business relationship with

Plaintiff. It is not even clear what particular source code

Defendants claim they own.

For the foregoing reasons, Defendants' motion for summary

judgment on their initial counter-claim for declaratory judgment

is denied as premature.

CONCLUSION

For the foregoing reasons, the Court DENIES Defendants'

motion to amend their counter-claim (Docket No. 30) and DENIES

as premature Defendants' motion for summary judgment (Docket No.

27).

IT IS SO ORDERED.

Dated: 6/13/05 /s/ CLAUDIA WILKEN 

CLAUDIA WILKEN

United States District Judge

Case 4:04-cv-05115-CW Document 45 Filed 06/13/05 Page 8 of 8