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Navistar, Inc., et al. v. New Baltimore Garage

September 20, 2012

NAVISTAR, INC., ET AL. PLAINTIFFS,
v.
NEW BALTIMORE GARAGE, INCORPORATED, DEFENDANT.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Plaintiffs Navistar, Inc. ("Navistar") and International Truck Intellectual Property Company, LLC ("International") (collectively "Plaintiffs") allege that Defendant New Baltimore Garage's unauthorized use and distribution of codes needed to access Plaintiffs' computer system enabled unauthorized third parties to access Plaintiffs' proprietary and confidential materials and intellectual property, in direct violation of the parties' agreements and to the detriment of Plaintiffs and their authorized dealers. Plaintiffs' original complaint asserts claims for (1) breach of contract; (2) violation of the Digital Millennium Copyright Act ("DMCA"); (3) violation of the Computer Fraud and Abuse Act ("CFAA"); and (4) misappropriation of trade secrets. Defendant has moved to dismiss all claims. In response, Plaintiffs have filed a motion for leave to amend their complaint, which Defendant opposes. Plaintiffs' amended complaint contains additional factual allegations as well as two new claims for unjust enrichment (Count II) and contributory copyright infringement (Count VI). For the reasons set forth below, the Court grants in part and denies in part Defendant's motion to dismiss [17] and grants Plaintiffs' motion for leave to amend [24], subject to the limitations set forth in this opinion.

I. Background*fn1

Navistar manufacturers, sells, and services trucks, buses, engines, and parts. Navistar operates in segments, and, as relevant here, the International Truck Intellectual Property Company segment holds and administers the intellectual property of Navistar. Navistar creates, develops, oversees, controls, and utilizes proprietary and confidential information essential to Navistar's success. Compl. at ¶ 11--12. A significant aspect of Navistar's business is the merchandising and licensing of distinctive elements associated with its products and services, including material protected under U.S. copyright law. Navistar enters into license agreements before authorizing others to access or use this information, as well as Navistar's other intellectual property. Id. at¶¶ 20, 22--24. Navistar has implemented a variety of measures to protect this information, including technological barriers to prevent unauthorized access, such as its "Dealer Communication Network" ("DCN"). Id. at ¶¶ 18--24. Navistar's DCN is a password-protected computer system that enables only authorized users access to some of Navistar's confidential information and intellectual property subject to the "DCN System and Services Agreement," which prohibits use of DCN, or the underlying materials and information, by unauthorized parties. Id. Notably, this agreement specifically prohibits sharing with or otherwise distributing passwords to third parties and using a third party's password to gain access to DCN. Id. at ¶ 24.

Plaintiffs allege that on August 11, 2008, Navistar sent Defendant a cease and desist letter when it was alerted that Defendant may have provided a third party, Liberty Equipment Repair, with unauthorized access to DCN. Id. at ¶ 25. When third party Liberty Equipment's license with Navistar terminated in 2005, it was no longer authorized to access DCN and the information and materials contained on the network. Id. at¶ 27--29. New Baltimore responded to the correspondence, denying that it authorized a third party to access DCN.

Relying on Defendant New Baltimore's representation, in July 2009, Navistar hired investigative firm Pinkerton to ascertain whether any unauthorized access had occurred, how, and the extent of the damage resulting from any breach. From July through November 2009, Pinkerton investigated Plaintiffs' concerns, including an investigation of Liberty. Plaintiffs allege that Pinkerton's investigation of Liberty revealed evidence of Liberty employees (1) logging into Navistar's website on August 10, 2009, and printing off a spindle specification, (2) logging into Navistar's website on August 31, 2009, using a DYY access code, and (3) logging into Navistar's website on September 18, 2009, using a DYY access code and printing steering gear specifications. Navistar's authorized dealer, International Trust Sales of Richmond ("ITSR"), eventually filed a complaint against Liberty in Virginia state court. Plaintiffs allege that during discovery in the Virginia case, Liberty Equipment admitted that it and its employees continued to surreptitiously access and utilize DCN with the permission of New Baltimore, which at all times relevant had a DCN password. Id. at ¶¶ 30--32. According to Plaintiffs, this access was in direct contravention of the terms of Navistar's agreement with New Baltimore. Id. at ¶ 24.

II. Legal Standards

A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of the complaint, not the merits of the case. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). To survive a Rule 12(b)(6) motion to dismiss, the complaint first must comply with Rule 8(a) by providing "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), such that the defendant is given "fair notice of what the * * * claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Second, the factual allegations in the complaint must be sufficient to raise the possibility of relief above the "speculative level," assuming that all of the allegations in the complaint are true. E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). "[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Twombly, 550 U.S. at 563. The Court accepts as true all of the well-pleaded facts alleged by the plaintiff and all reasonable inferences that can be drawn therefrom. See Barnes v. Briley, 420 F.3d 673, 677 (7th Cir. 2005).

Leave to amend a complaint should be freely given "when justice so requires." Fed. R. Civ. P. 15(a). However, it is well settled that a district court may deny a motion for leave to amend when the amended pleading would be futile. Bethany Phamacal Co. v. QVC, Inc., 241 F.3d 854, 861 (7th Cir. 2001). An amended complaint is futile if it could not withstand a motion to dismiss. See Smart v. Local 702 Int'l Bhd. of Elec. Workers, 562 F.3d 798, 811 (7th Cir. 2009).

III. Analysis

Plaintiffs seek leave to amend their complaint to add a few new factual allegations and two new counts. Defendants seek dismissal of all counts in the original complaint and maintain that the proposed amended complaint would be futile. In ruling on the parties' motions, the Court will consider together the various arguments presented by the parties in briefing both motions.

A. Violation of DMCA (Count III of Proposed Amended Complaint)

Plaintiffs allege that Defendant violated the Digital Millennium Copyright Act ("DMCA"). Specifically, Plaintiffs allege that Defendant "circumvented the digital security of Navistar's [DCN] and related computers which protected Navistar's materials and Defendant trafficked in the means to do so." Congress enacted the DMCA in 1998 "to strengthen copyright protection in the digital age." Universal City Studios, Inc. v. Corley, 273 F.3d 429, 435 (2d Cir. 2001); see also Egilman v. Keller & Heckman, LLP., 401 F. Supp. 2d 105, 112 (D.D.C. 2005). Section 1201 of the DMCA addresses liability for circumventing systems that protect copyrights. See 17 U.S.C. § 1201. Based on their response brief, Plaintiffs appear to bring their claim pursuant to §§ 1201(a)(1), (a)(2), and (b)(1) of the DMCA.

Section 1201(a)(1)(A) provides: "No person shall circumvent a technological measure that effectively controls access to a work protected under this title." 17 U.S.C. § 1201(a)(1)(A). Section 1201(a)(2)(A) provides that no person "shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that * * * is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under" the copyright laws. 17 U.S.C. § 1201(a)(2)(A). To "circumvent a technological measure" means to "descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner." 17 U.S.C. § 1201(a)(3)(A). Further, "a technological measure 'effectively controls ...


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