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Trust Safe Pay, LLC v. Dynamic Diet, LLC

United States District Court, D. Massachusetts

September 8, 2017

TRUST SAFE PAY, LLC, Plaintiff,
v.
DYNAMIC DIET, LLC, KOSTAS VADOKLIS, and VILMA VADOKLIS, Defendants.[2]

          MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS (#52).

          M. Page Kelley United States Magistrate Judge

         I. Introduction.

         On April 7, 2017, plaintiff Trust Safe Pay, LLC (Trust Safe)[3] filed the operative first amended complaint (#48) against defendants Dynamic Diet, LLC (Dynamic)[4] and Vilma and Kostas Vadoklis (the individual defendants) alleging copyright infringement, Count I, contributory infringement, Count II, and vicarious infringement, Count III, all in violation of the Copyright Act of 1976, as amended, 17 U.S.C. § 101, et seq.; misappropriation of trade secrets, Count IV, in violation of Mass. Gen. Laws ch. 93, §§ 42 and 42A; intentional fraud, Count V; common law misappropriation of trade secrets, Count VI; and violation of Mass. Gen. Laws ch. 93A, § 11, Count VII. (#48.) This action stems from a friendship gone awry between plaintiff's principal, Evelina Juchneviciute, her partner and co-member of Trust Safe, Darius Kersulis, and the individual defendants. The problems allegedly resulted in the individual defendants surreptitiously stealing proprietary information relating to Trust Safe, which information was then used to open and operate a competing company, Dynamic. Id.

         Presently before the court is defendants' motion to dismiss the amended complaint for failure to state a claim (##52, 53). Plaintiff has responded in opposition (#59), and defendants have replied (#62).

         II. The Facts.

         The facts as set forth in the amended complaint are as follows. In 2007, plaintiff's principal, Evelina, hired defendant Vilma to assist with a house cleaning business which Evelina owned. (#48 ¶ 7.) For the next seven years, Evelina, Darius, and the individual defendants interacted socially and became friends. Id. ¶ 8.

         In 2009, Evelina and Darius began a business “representing weight loss products.” Id. ¶ 9. As part of this process, they created an “algorithm” to facilitate the online marketing of their business. Id. ¶ 12. According to plaintiff, “the algorithm had a significant value” because it “generated substantially improved visitor intention accuracy, visitor time retention on the websites, increased percentage of sales for any given visitor amount (new end users to Plaintiff's websites) and new sales generated.” Id. ¶ 14. In an effort to protect the algorithm, Evelina and Darius locked the basement of their home - the room out of which the business was operating - and password protected the computer that held “the passwords to all the third party advertising accounts[] and the secret words and word combinations that formed the algorithm.” Id. ¶ 16.

         In April of 2012, Evelina and Darius needed someone to run the packaging and shipping portion of the business while they took a vacation. Id. ¶ 17. Vilma offered her assistance and was paid for the work she performed. Id. ¶¶ 18, 19. Vilma was afforded access to confidential information to include: “revenues generated, the costs of the business, the number of customers Plaintiff had and was acquiring daily, the location of Plaintiff's biggest customer base, and the profit margin realized by Plaintiff.” Id. ¶ 20.

         It is plaintiff's position that, after learning the inner workings of the business, the individual defendants decided to “misappropriate the algorithm and all other proprietary information [that] made Plaintiff a successful business” and “to start their own diet/supplement internet business.” Id. ¶ 21. Thereafter, Vilma offered repeatedly to babysit Evelina and Darius's children and was allowed to do so. Id. ¶¶ 23, 24. According to plaintiff, Vilma, who knew the location of the key to the locked basement from her prior work for the business, used her time babysitting to attempt to learn the password to plaintiff's computers[5] “by trying combinations of numbers and/or letters and symbols until she succeeded . . . .” Id. ¶ 26; see also Id. ¶ 25. Once she gained access to plaintiff's computers, Vilma began to purloin a substantial amount of information and eventually used it “to create a copycat business of Plaintiff's websites and business system using the Plaintiff's algorithm.” Id. ¶ 27.

         From April 2012 through January 2013, Kostas spoke with Darius regularly regarding Kostas's intention to start an online electronic cigarette business, asking Darius how to run such a business and increase sales. Id. ¶ 28. During this same period, Vilma spoke regularly with Evelina about Trust Safe and what “solutions [Evelina] [was] implementing to advance her business.” Id.

         In April and July of 2014, the individual defendants purchased domain names for their “copycat” websites. Id. ¶ 30. In January 2015, the individual defendants incorporated Dynamic. Id. ¶ 32. At this point plaintiff became aware of “a new competitor that was bidding on the same keywords Plaintiff used in its algorithms”[6] Id. Through research, plaintiff came to learn that the individual defendants were the owners of these competing websites. Id. ¶¶ 33, 34. “Since January 2015, Plaintiff has monitored Defendants[][7] and the company to whom they outsourced their website build[] for visits to Plaintiffs websites[] as well as the changes Defendants were making to their websites based on Plaintiffs . . . changes on their [sic] websites.” Id. ¶ 35. Based on this information, plaintiff asseverates that, from January 2015 through the date the amended complaint was filed, “Defendants and/or the website build company has visited Plaintiffs website several times per week, sometimes multiple times per day, accounting for hundreds of separate visits and tens of thousands of page views[, ]” and that “Defendants' websites would be changed in the exact ways Plaintiff would change its website.” Id. ¶ 36.

         Plaintiff contends that since the launch of defendants' competing websites, in January 2015, Trust Safe's revenue generated from California, which is the location from which it obtains the largest portion of its customer base and sales, has shown the “largest decline.” Id. ¶¶ 37, 38.

         III. Standard of Review.

         A Rule 12(b)(6) motion to dismiss challenges a party's complaint for failing to state a claim. In deciding such a motion, a court must “‘accept as true all well-pleaded facts set forth in the complaint and draw all reasonable inferences therefrom in the pleader's favor.'” Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011) (quoting Artuso v. Vertex Pharm., Inc., 637 F.3d 1, 5 (1st Cir. 2011)). When considering a motion to dismiss, a court “may augment these facts and inferences with data points gleaned from documents incorporated by reference into the complaint, matters of public record, and facts susceptible to judicial notice.” Haley, 657 F.3d at 46 (citing In re Colonial Mortg. Bankers Corp., 324 F.3d 12, 15 (1st Cir. 2003)).

         In order to survive a motion to dismiss under Rule 12(b)(6), the plaintiff must provide “enough facts to state a claim to relief that is plausible on its face.” See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The “obligation to provide the grounds of [the plaintiff's] entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 555 (internal quotation marks and alteration omitted). The “[f]actual allegations must be enough to raise a right to relief above the speculative level, ” and to cross the “line from conceivable to plausible.” Id. at 555, 570.

         “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). However, the court is “‘not bound to accept as true a legal conclusion couched as a factual allegation.'” Id. at 678 (quoting Twombly, 550 U.S. at 555). Simply put, the court should assume that well-pleaded facts are genuine and then determine whether such facts state a plausible claim for relief. Id. at 679.

         IV. Discussion.[8]

         A. Copyright Infringement - Count I.

         “To establish copyright infringement under the Copyright Act, ‘two elements must be proven: (1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original.'” Johnson v. Gordon, 409 F.3d 12, 17 (1st Cir. 2005) (quoting Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991)). Plaintiff bears the burden of proof on both elements. Id.

         1. Ownership of a Valid Copyright.

         Subsection (A) of 17 U.S.C. § 411 states that “no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title.” Nowhere in the amended complaint does Trust Safe claim to be the owner of a validly registered copyright. Thus, plaintiff's claim, if viable, must satisfy the “preregistration” component of the statute. The amended complaint asserts that “Plaintiff is the assignee of three (3) applications for copyright registrations in works of visual art, which include[] various web-pages of Plaintiff's websites, application numbers 1-3998164856; 1-3998164250; 1-4018230311 . . . .” (#48 ¶ 41.) Trust Safe takes the position that this allegation is sufficient to pass muster under § 411. See #59 at 10.[9] While the court need not decide the issue at this juncture - plaintiff's claim fails on other grounds, see infra Section 2 - it notes that a plaintiff relying on the “application approach”[10] must demonstrate that it “sent the requisite application (together with deposit and fee) to the Copyright Office.” Alicea v. Machete Music, 744 F.3d 773, 779 (1st Cir. 2014) (internal citation omitted); see also Concordia Partners, LLC v. Pick, No. 2:13-CV-415-GZS, 2013 WL 6817627, at *2 (D. Me. Dec. 23, 2013) (“As Defendants acknowledge, Plaintiff has alleged that they have applied for copyright registration and satisfied all of the necessary formalities to obtain the registration certificates.”). Contrary to Trust Safe's assertion that such information is “readily verifi[able] . . . through the Copyright Office website[, ]” (#59 at 10), should plaintiff choose to replead its copyright infringement claim, such a showing must be made in the repleader or via documents attached to it.

         2. Copying of Constituent Elements.

         The mere allegation that a defendant copied the work of a plaintiff is insufficient, on its own, to establish a claim for copyright infringement. See Johnson, 409 F.3d at 18 (“copying does not invariably constitute copyright infringement”) (citing Feist, 499 U.S. at 361).

To show actionable copying ‘involves two steps: (a) that the defendant actually copied the work as a factual matter, . . . and (b) that the defendant's copying of the copyrighted material was so extensive that it rendered the infringing and copyrighted works “substantially similar.”' Situation Mgmt. Sys., Inc. v. Asp. Consulting LLC, 560 F.3d 53, 58 (1st Cir. 2009) (citation and quotation marks omitted). ‘The plaintiff bears the burden of proof as to both elements.' Johnson v. Gordon, 409 F.3d 12, 17 (1st Cir. 2005).

McGee v. Benjamin, No. CIV.A. 08-11818-DPW, 2012 WL 959377, at *5 (D. Mass. Mar. 20, 2012) (alteration in original); Calden v. Arnold Worldwide LLC, No. CIV.A. 12-10874-FDS, 2012 WL 5964576, at *4 (D. Mass. Nov. 27, 2012).

         a. Actual Copying.

         Actual copying may be shown via direct or circumstantial evidence. Johnson, 409 F.3d at 18 (citing Segrets, Inc. v. Gillman Knitwear Co., 207 F.3d 56, 60 (1st Cir. 2000)).

Plagiarists rarely work in the open and direct proof of actual copying is seldom available. To fill that void, the plaintiff may satisfy his obligation indirectly by adducing evidence that the alleged infringer enjoyed access to the copyrighted work and that a sufficient degree of similarity exists between the copyrighted work and ...

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