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Embarcadero Technologies, Inc. v. NCR Corp.

United States District Court, S.D. Texas, Houston Division

August 12, 2019

EMBARCADERO TECHNOLOGIES, INC., Plaintiff,
v.
NCR CORPORATION, Defendant.

          MEMORANDUM AND OPINION

          LEE H. ROSENTHAL, CHIEF UNITED STATES DISTRICT JUDGE

         Embarcadero Technologies, Inc. has sued NCR Corporation, alleging copyright infringement. (Docket Entry No. 1). On July 2, 2019, soon after the deadline for NCR to answer or to file a responsive motion, Embarcadero requested entry of default. (Docket Entry No. 9). The next day, NCR moved to dismiss for lack of subject-matter jurisdiction or, alternatively, for failure to state a claim. (Docket Entry No. 11). NCR later responded to the motion for entry of default. (Docket Entry No. 13). Embarcadero replied, moved to strike, and responded to the motion to dismiss. (Docket Entry Nos. 13, 14, 15).

         Based on the motions, responses, and replies and the applicable law, the court denies the motion to enter default because NCR has shown good cause for its failure to answer, file a responsive motion, or appear before the deadline. (Docket Entry No. 9). The court denies Embarcadero's motion to strike the motion to dismiss, but also denies NCR's motion to dismiss on this record, without prejudice to raising the arguments at a later stage of the litigation. (Docket Entry Nos. 11, 14). The reasons are stated below.

         I. Background

         Embarcadero Technologies, Inc., holds United States copyrights for software programs it calls Delphi, Cꊕ힫, RAD Studio, and Interbase. (Docket Entry No. 1 at ¶ 7). Embarcadero's licenses for these software programs require registering with Embarcadero and complying with the service and license agreements. (Id. at ¶ 13). Embarcadero sells one-year license subscriptions, allowing purchasers to download the software with a license key for the year. The key expires and cuts off the purchaser's access to the software after the year ends. (Id. at ¶¶ 14- 16). Embarcadero offers some free versions of C Builder and Delphi, but those users are required to attest that they are (1) an individual, small business, or organization, (2) with less than $5, 000 per year in revenue, and (3) “with fewer than five developers.” (Id. at ¶¶ 17, 19).

         Embarcadero alleges-on information and belief-that NCR is a Maryland corporation with its principal place of business in Atlanta, Georgia and an office in College Station, Texas. (Id. at ¶ 2). NCR is involved in digital banking software and “makes self-service kiosks, point-of-sale terminals, automated teller machines, check processing systems, barcode scanners, and business consumables.” (Id. at ¶ 25).

         Embarcadero alleges that in May 2018, it discovered that three machines with an NCR domain had “cracked” license keys for the RAD Studio software. (Id. at ¶¶ 28, 29). A “cracked” key is allegedly a license software key that is modified to remove copyright features and avoid paying for the software. (Id. at ¶¶ 22, 23). Embarcadero notified NCR of the illegal use on May 7, 2018. (Id. at ¶ 30). NCR allegedly denied liability because “the use was one employee in Serbia.” (Id. at ¶ 31; see Id. at ¶¶ 32-34). Embarcadero alleges that the illegal use of the RAD Studio software happened at least six more times, and that it also found evidence of illegal use of Delphi and C Builder. (Id. at ¶¶ 37-42).

         II. Subject-Matter Jurisdiction

         A. The Legal Standard

         “This court is ‘duty-bound to examine the basis of subject[-]matter jurisdiction' in all cases before it, whether or not the parties raise the issue.” Tetra Techs., Inc. v. Cont'l Ins. Co., 755 F.3d 222, 228 (5th Cir. 2014) (quoting Union Planters Bank Nat'l Ass'n v. Salih, 396 F.3d 457, 460 (5th Cir. 2004)). Rule 12(b)(1) governs challenges to a federal court's subject-matter jurisdiction. “Under Rule 12(b)(1), a claim is ‘properly dismissed for lack of subject-matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate' the claim.” In re FEMA Trailer Formaldehyde Prods. Liab. Litig. (Miss. Plaintiffs), 668 F.3d 281, 286 (5th Cir. 2012) (quoting Home Builders Ass'n, Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998)). Courts may dismiss for lack of subject-matter jurisdiction based on: “(1) the complaint alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Clark v. Tarrant Cty., 798 F.2d 736, 741 (5th Cir. 1986).

         The plaintiff has the burden to demonstrate that subject-matter jurisdiction exists. See Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). When examining a factual challenge to subject-matter jurisdiction under Rule 12(b)(1), which does not implicate the merits of a plaintiff's cause of action, the district court has substantial authority “to weigh the evidence and satisfy itself as to the existence of its power to hear the case.” Garcia v. Copenhaver, Bell & Assocs., 104 F.3d 1256, 1261 (11th Cir. 1997) (quoting Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1986)); see Clark, 798 F.2d at 741. The court may consider matters outside the pleadings, such as testimony and affidavits, to resolve a factual challenge to subject-matter jurisdiction, without converting the motion to dismiss to one for summary judgment. Garcia, 104 F.3d at 1261.

         B. Analysis

         Federal courts have jurisdiction over federal copyright claims. 28 U.S.C. § 1338. Embarcadero sued under the federal Copyright Act, 17 U.S.C. § 501 et seq. However, NCR argues that this court lacks subject-matter jurisdiction because the alleged copyright violation occurred outside the United States and the Copyright Act does not have extraterritorial effect. (Docket Entry No. 11 at 1 (citing Palmer v. Braun, 376 F.3d 1254 (11th Cir. 2004); Update Art, Inc. v. Modiin Publ'g, Ltd., 843 F.2d 67 (2nd Cir. 1988); Subafilms Ltd. v. MGM-Pathe Commc'ns, Co., 24 F.3d 1088 (9th Cir. 1994); NDK, Inc. v. Pandora Jewelry, LLC, No. 3:07-cv-0457, 2008 WL 11350019 (N.D. Tex. July 24, 2008); Illustro Sys. Int'l, LLC v. Int'l Bus. Machs. Corp., No. 3:06-cv-1969, 2007 WL 1321825 (N.D. Tex. May 4, 2007))).

         Questions as to where the infringement took place are not jurisdictional. “[T]he Copyright Act's insistence that infringing conduct be domestic offers an essential element of a copyright infringement plaintiff's claim, not of jurisdiction.” Geophysical Serv., Inc. v. TGS-NOPEC Geophysical Co., 850 F.3d 785, 791 (5th Cir. 2017). “Because the domestic boundary is not ‘clearly state[d]' to ‘count as jurisdictional,' we ‘treat the ...


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