Td Ameritrade v. Matthews

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

D. AlaskaJanuary 30, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 COURTNEY L. COLLINS Alaska Bar No. 1311077 courtney.collins@kyl.com KEESAL, YOUNG & LOGAN 1029 West Third Avenue, Suite 650 Anchorage, Alaska 99501-1954 Telephone: (907) 279-9696 Facsimile: (907) 279-4239 Attorneys for Plaintiffs TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, INC., TD AMERITRADE IP COMPANY, INC. and TD AMERITRADE SERVICES COMPANY, INC. UNITED STATES DISTRICT COURT DISTRICT OF ALASKA TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, INC., TD AMERITRADE IP COMPANY, INC. and TD AMERITRADE SERVICES COMPANY, INC., Plaintiff, vs. JAMES RICHARD MATTHEWS, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 3:16-cv-00136-SLG PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED Plaintiffs TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, TD AMERITRADE IP COMPANY, INC., and TD AMERITRADE SERVICES COMPANY, INC. (collectively referred to as “TD Ameritrade” or “Plaintiffs”) respectfully move to dismiss the counterclaim asserted by Defendant JAMES RICHARD MATTHEWS pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Case 3:16-cv-00136-SLG Document 23 Filed 01/30/17 Page 1 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 I. INTRODUCTION This motion to dismiss addresses Defendant’s counterclaim asserted against Plaintiffs for alleged copyright infringement of Defendant’s “copyrighted source code.”1 Plaintiffs originally filed a complaint for declaratory judgment regarding the “security interest” Defendant purports to have against TD Ameritrade’s assets. Defendant’s claim for copyright infringement should be dismissed because 1) Defendant is not the owner of any software material under the entered and agreed to Client Agreement with Plaintiffs and 2) any software asserted by Defendant was derived from Plaintiffs’ proprietary thinkorswim® software and trading platform (“thinkorswim”), and only Plaintiffs and their affiliates have the exclusive right to create derivative works based on the original or preexisting material. II. FACTUAL BACKGROUND Plaintiffs provide a software and trading platform called thinkorswim that allows clients to trade multiple markets and provides a wide array of analytical tools. Amended Complaint (“Complaint”) at ¶ 9; Answer to First Amended Complaint, Counterclaim, and Jury Demand (“Answer”) at ¶ 9. Defendant applied online for an investment account with TD Ameritrade and received access to one in 2012. Answer at ¶ 8. Defendant never funded his account and never engaged in actual, funded trading activity. Id. at ¶ 10. TD Ameritrade then terminated Defendant’s account. Id. at ¶ 12. Defendant entered into a Client Agreement with Plaintiffs. Id. at ¶ 15; Complaint, Ex. C at 2, 14. The Client Agreement governs all brokerage accounts, including Defendant’s account. Complaint, Ex. C at 14. Defendant agreed in the Client Agreement that use of Plaintiffs’ platform does not confer any title, ownership interest, or intellectual property rights to 1 Plaintiffs disagree with Defendant’s factual assertions, but assume them only for purposes of presenting this motion in accordance with the standard for a motion to dismiss under Rule 12(b)(6). PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED TD AMERITRADE, et al. v. JAMES RICHARD MATTHEWS Case No. 3:16-cv-00136-SLG Page 2 of 8 Case 3:16-cv-00136-SLG Document 23 Filed 01/30/17 Page 2 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Defendant. Id. at 16, ¶ 7.d. Defendant also agreed that he would not, modify, copy, transfer, or create derivative works from Plaintiffs’ websites, services, information, tools, and content. Id. at 16, ¶ 7.b. In a self-styled “commercial affidavit” dated July 2015, Defendant notified Plaintiffs of the intention to hold Plaintiffs’ property as collateral for alleged copyright infringement. Id. at 4-5. Defendant alleges that his software is an altered version of the thinkorswim software. Complaint, Ex. C at 32-39, Ex. H at 22-132. “After studying the Plaintiffs’ ‘thinkorswim’ software,” Defendant alleges to have created his own “copyrighted source code” made “to operate with the ‘thinkorswim’ software.” Answer at ¶ 60. Defendant now asserts copyright infringement against Plaintiffs, Id. at ¶ 55, who, with their affiliates, hold all rights to all software, source and object code, and any other content related to the thinkorswim platform. III. LEGAL STANDARDS A. Motion to Dismiss A party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). Under Rule 12(b)(6), a complaint “does not need detailed factual allegations,” but must provide the plaintiff's grounds for entitlement to relief— including factual allegations that when assumed to be true “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The plaintiff’s obligation to state a claim “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. A complaint must include “enough facts to state a claim to relief that is plausible on its face.” Id. at 570. To meet this “facial plausibility” standard, a plaintiff must “plead[] 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. PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED TD AMERITRADE, et al. v. JAMES RICHARD MATTHEWS Case No. 3:16-cv-00136-SLG Page 3 of 8 Case 3:16-cv-00136-SLG Document 23 Filed 01/30/17 Page 3 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 662, 678 (2009). Dismissal is required where plaintiffs “have not nudged their claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. A Rule 12(b)(6) motion to dismiss may be granted if the complaint either (1) lacks a cognizable legal theory or (2) fails to allege sufficient facts under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). “We accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). But a plaintiff's factual allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 545. B. Copyright Infringement “To establish a successful copyright claim, a plaintiff must show: (1) his ownership of the copyright; (2) the defendant's access to his work; and (3) ‘substantial similarity’ between the defendant's work and his own.” Berkic v. Crichton, 761 F.2d 1289, 1291–92 (9th Cir. 1985). A plaintiff's failure to establish any one of these three elements is fatal to the complaint. White v. Twentieth Century Fox Corp., 572 F. App'x 475, 476 (9th Cir. 2014). “Under § 201(a) of the Copyright Act, copyright ownership ‘vests initially in the author or authors of the work,’ which is generally the creator of the copyrighted work.” U.S. Auto Parts Network, Inc. v. Parts Geek, LLC, 692 F.3d 1009, 1015 (9th Cir. 2012). Copyright ownership may be transferred by operation of law or by a written instrument of conveyance signed by the copyright owner or the owner’s duly authorized agent. 17 U.S.C. § 204(a). A copyright gives the owner the right to control the work and confers a number of exclusive rights, including the right “to prepare derivative works based upon the copyrighted work.” 17 U.S.C. §106(2); Jules Jordan Video, Inc. v. 144942 Canada Inc., 617 F.3d 1146, 1152 (9th Cir. 2010). PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED TD AMERITRADE, et al. v. JAMES RICHARD MATTHEWS Case No. 3:16-cv-00136-SLG Page 4 of 8 Case 3:16-cv-00136-SLG Document 23 Filed 01/30/17 Page 4 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 IV. ARGUMENT A. Defendant cannot assert a claim for copyright infringement because he is not the copyright owner and no ownership rights have been transferred to him. Defendant’s counterclaim for copyright infringement should be dismissed because, based on the pleadings, Defendant is not a valid copyright owner. To raise a claim for copyright infringement, Defendant must plead sufficient facts to prove ownership of a copyright. See Topolos v. Caldewy, 698 F.2d 991, 994 (9th Cir. 1983) (“In an action for infringement plaintiff necessarily must establish ownership of a valid copyright and copying by the defendant”). Defendant has not done so here. Defendant admits having entered into a signed Client Agreement governing the terms of use for all brokerage accounts opened through TD Ameritrade’s websites. Id. at ¶ 15; Complaint, Ex. C at 2, 14. In the Client Agreement, Defendant agreed that his use of services does not “confer any title, ownership interest, or intellectual property rights” to Defendant. Complaint, Ex. C at 16, ¶ 7.d. Furthermore, Defendant agreed that he would not modify, copy, transfer, or create derivative works from Plaintiffs’ websites, services, information, tools, and content. Id. at 16, ¶ 7.b. TD Ameritrade and its affiliates hold the rights to all copyrights relating to the thinkorswim software and trading platform and derivative software. This is made clear by the Client Agreement, to which Defendant agreed. The fact that Defendant purportedly registered a copyright on source code derived from the thinkorswim software and trading platform does not render him the copyright owner or confer any rights to him.2 Therefore, Defendant has not 2 “In general, copyright registration is a legal formality to make a public record of the basic facts of a particular copyright. However, registration is not a condition of copyright protection.” United States Copyright Office, Copyright Basics 7, https://www.copyright.gov/circs/circ01.pdf (last visited on January 26, 2017). The copyright registration process can be completed by submitting a two-page application form, along with a filing fee and a copy of the work. Id. An example application form can be found here: https://www.copyright.gov/forms/formtx.pdf. PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED TD AMERITRADE, et al. v. JAMES RICHARD MATTHEWS Case No. 3:16-cv-00136-SLG Page 5 of 8 Case 3:16-cv-00136-SLG Document 23 Filed 01/30/17 Page 5 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 pleaded facts that would allow the Court to conclude that Defendant is the owner of a valid copyright relating to the thinkorswim software, and thus, Defendant cannot raise a plausible claim with respect to the first element of a cause of action for copyright infringement. B. Defendant did not have any rights to create a derivative work, and therefore, Defendant has no cause of action for copyright infringement. Defendant’s claim should be dismissed because Defendant has no right to create a derivative work or assert a derivative work against Plaintiffs. “The owner of a copyright has a number of exclusive rights, including the right ‘to prepare derivative works’ based on its original work of authorship.” DC Comics v. Towle, 802 F.3d 1012, 1023 (9th Cir. 2015) (quoting 17 U.S.C. § 106(2)). As rights holders to the thinkorswim copyright, Plaintiffs have the exclusive right to prepare any derivative works based on the software, source and object code, platform, and all other related content available to its users. A derivative work is defined as a “work based upon one or more preexisting works that recasts, transforms, or adapts the preexisting work.” Parts Geek, 692 F.3d at 1015-16 (alterations omitted) (quoting 17 U.S.C. §101). Defendant admits that “[a]fter studying Plaintiffs’ ‘thinkorswim’ software, Defendant determined he could create software to operate with the ‘thinkorswim’ software.” Answer at ¶ 60. As evident in the pleadings, Defendant asserted, in detail, how his alleged software was derivative of the thinkorswim software. Complaint, Ex. C at 32-39, Ex. H at 22-132. Based on his own pleaded allegations, Defendant had no right to create the software whose copyright he now asserts against Plaintiffs. Because Defendant based his software code upon the thinkorswim software, Defendant’s work is, at best, derivative and falls under the list of exclusive rights granted to the copyright owner set out in 17 U.S.C. § 106. “A copyright owner also has the exclusive right to ‘authorize others to prepare derivative works based on their copyrighted works.’” DC Comics, 802 F.3d at 1023. No such PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED TD AMERITRADE, et al. v. JAMES RICHARD MATTHEWS Case No. 3:16-cv-00136-SLG Page 6 of 8 Case 3:16-cv-00136-SLG Document 23 Filed 01/30/17 Page 6 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 authorization was given here. To the contrary, Plaintiffs explicitly prohibited the creation of derivative works in the Client Agreement which Defendant signed and agreed to (“I will not modify, copy, . . . reproduce, create derivative works from, . . . or in any way exploit the Services”) (emphasis added). Complaint, Ex. C at 2, 16. Thus, there was no authority for Defendant to create or assert a derivative work for software based upon Plaintiffs’ original work. Because Defendant cannot show that his purported derivative work gives rise to a plausible claim against Plaintiffs, the Court should dismiss Defendant’s claim. V. CONCLUSION For the foregoing reasons, Defendant fails to plead facts sufficient to support a plausible claim for copyright infringement. Plaintiffs respectfully request that the Court dismiss Defendant’s deficient claims under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. DATED at Anchorage, Alaska this 30th day of January, 2017. KEESAL, YOUNG & LOGAN Attorneys for Plaintiffs TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, INC., TD AMERITRADE IP COMPANY, INC. and TD AMERITRADE SERVICES COMPANY, INC. s/ Courtney L. Collins 1029 West Third Avenue, Suite 650 Anchorage, Alaska 99501-1954 Phone: (907) 279-9696 Fax: (907) 279-4239 E-mail:courtney.collins@kyl.com PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED TD AMERITRADE, et al. v. JAMES RICHARD MATTHEWS Case No. 3:16-cv-00136-SLG Page 7 of 8 Case 3:16-cv-00136-SLG Document 23 Filed 01/30/17 Page 7 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 CERTIFICATE OF SERVICE I hereby certify that on the 30th day of January, 2017 I caused a true and correct copy of the foregoing PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED to be served electronically via CM/ECF in accordance with the Court’s electronic filing procedures on the following: Vincent J. D’Elia D’Elia & McCarthy 574 Newark Avenue Jersey City, NJ 07306 vjd@deliamccarthy.com s/ Courtney L. Collins 4898-85/# KYL4833-9388-3457.1 PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED TD AMERITRADE, et al. v. JAMES RICHARD MATTHEWS Case No. 3:16-cv-00136-SLG Page 8 of 8 Case 3:16-cv-00136-SLG Document 23 Filed 01/30/17 Page 8 of 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 COURTNEY L. COLLINS Alaska Bar No. 1311077 courtney.collins@kyl.com KEESAL, YOUNG & LOGAN 1029 West Third Avenue, Suite 650 Anchorage, Alaska 99501-1954 Telephone: (907) 279-9696 Facsimile: (907) 279-4239 Attorneys for Plaintiffs TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, INC., TD AMERITRADE IP COMPANY, INC. and TD AMERITRADE SERVICES COMPANY, INC. UNITED STATES DISTRICT COURT DISTRICT OF ALASKA TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, INC., TD AMERITRADE IP COMPANY, INC. and TD AMERITRADE SERVICES COMPANY, INC., Plaintiff, vs. JAMES RICHARD MATTHEWS, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 3:16-cv-00136-SLG [PROPOSED] ORDER GRANTING PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Upon consideration of Plaintiffs TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, TD AMERITRADE IP COMPANY, INC., and TD AMERITRADE SERVICES COMPANY, INC.’s Rule 12(b)(6) Motion To Dismiss For Failure To State A Claim Upon Which Relief Can Be Granted and all documents filed in support of and in opposition to said Motion, Case 3:16-cv-00136-SLG Document 23-1 Filed 01/30/17 Page 1 of 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 IT IS HEREBY ORDERED that Plaintiffs’ Rule 12(b)(6) Motion To Dismiss For Failure To State A Claim Upon Which Relief Can Be Granted is GRANTED. All counterclaims asserted by Defendant JAMES RICHARD MATTHEWS are dismissed with prejudice. DATED at Anchorage, Alaska this _____ day of February, 2017. SHARON L. GLEASON UNITED STATES DISTRICT COURT CERTIFICATE OF SERVICE I hereby certify that on the 30th day of January, 2017 I caused a true and correct copy of the foregoing [PROPOSED] ORDER GRANTING PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM to be served electronically via CM/ECF in accordance with the Court’s electronic filing procedures on the following: Vincent J. D’Elia D’Elia & McCarthy 574 Newark Avenue Jersey City, NJ 07306 vjd@deliamccarthy.com s/ Courtney L. Collins 4898-85/# KYL4842-4624-5185.1 [PROPOSED] ORDER GRANTING PLAINTIFFS’ RULE 12(B)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM TD AMERITRADE, et al. v. JAMES RICHARD MATTHEWS Case No. 3:16-cv-00136-SLG Page 2 of 2 Case 3:16-cv-00136-SLG Document 23-1 Filed 01/30/17 Page 2 of 2