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BanxCorp v. Costco Wholesale Corp.

July 13, 2010


The opinion of the court was delivered by: Kenneth M. Karas, U.S.D.J.


Plaintiffs bring this case alleging copyright infringement, hot news misappropriation, fraud, breach of contract, unfair competition, and unjust enrichment in connection with Defendants' use of Plaintiffs' BanxQuote National Average Money Market and CD rates. Defendants move to dismiss the case in its entirety. For the reasons given herein, Defendants' Motion to Dismiss is granted in part and denied in part.

I. Background

A. Factual Background

For the purposes of this Motion to Dismiss, the Court accepts the allegations in the Second Amended Complaint ("SAC") as true. Plaintiffs Norbert Mehl ("Mehl") and BanxCorp do business as BanxQuote. (SAC ¶¶ 1-2.) BanxQuote publishes "database compilations and market research performance ind[ices] known as BanxQuote National Average Money Market and CD rates" ("BanxQuote Indices"). (Id. ¶ 21.) Plaintiffs describe the BanxQuote Indices as systematic compilations of selected banking, mortgage, and loan data that "are frequently used as original benchmarks to measure the rates and performance of the U.S. banking and mortgage markets." (Id. ¶¶ 33-34, 36.)

Plaintiffs allege that Defendant Costco Wholesale Corporation ("Costco") entered into an agreement with Defendant Capital One Financial Corporation through its subsidiaries (collectively, "Capital One") to provide a co-branded direct banking service that offered high yield savings accounts ("HYSAs") and certificate of deposit accounts ("CDs") to Costco's members. (Id. ¶¶ 19-20.) On January 28, 2004, Capital One and BanxCorp entered into a limited, non-transferable license agreement (the "License Agreement") commencing on January 12, 2004 with automatic annual renewals. (Id. ¶ 89.) The License Agreement permitted Capital One to access and use, for limited purposes, the BanxQuote Indices and the data contained therein. (Id. ¶¶ 89-91.) Plaintiffs allege that at the time Capital One entered into this agreement, it was acting on behalf of Costco (without disclosure), and that Capital One breached the License Agreement by redistributing the BanxQuote Indices to Costco in order to benefit the co-branded banking services. (Id. ¶¶ 88, 93.) Plaintiffs allege that they would not have entered into the License Agreement had they known of Capital One's intentions. (Id. ¶ 95.) Finally, Plaintiffs allege that data from the BanxQuote Indices have been distributed by Capital One and Costco in "direct mail, print advertisements, newspaper advertisements, websites, and marketing presentations" from December 2003 to December 2008. (Id. ¶¶ 95-96, 98.)

B. Procedural Background

Plaintiffs, proceeding pro se, filed their Complaint on February 25, 2009, and filed an Amended Complaint on March 25, 2009. After retaining counsel, Plaintiffs filed the SAC on September 2, 2009.

Plaintiffs allege seven causes of action. The two federal causes of action are Count One, which alleges copyright infringement based upon Defendants' improper use of the BanxQuote Indices (id. ¶¶ 106-16), and Count Three which alleges violation of the Digital Millennium Copyright Act ("DMCA"), based on allegations that when Defendants copied the BanxQuote Indices they altered or removed the copyright management information BanxCorp had associated with the data, (id. ¶¶ 126-33). The remaining causes of action arise under New York law. Count Two alleges hot news misappropriation of the time-sensitive data contained in the BanxQuote Indices. (Id. ¶¶ 117-25.) Count Four alleges fraud based on allegations that Defendants materially misrepresented their intentions with respect to their use of the BanxQuote Indices pursuant to the License Agreement. (Id. ¶¶ 134-43.) Count Five alleges breach of contract against Capital One only, based on the alleged distribution to, and use of the BanxQuote Indices by, Costco in violation of the License Agreement. (Id. ¶¶ 144-51.) Count Six alleges unfair competition based on allegations that Defendants' use of the BanxQuote Indices gave Defendants an unfair competitive advantage both in terms of decreased web traffic at Plaintiffs' websites, and in terms of direct competition in providing HYSAs and CDs. (Id. ¶¶ 121, 152-57.) Finally, Count Seven alleges unjust enrichment based on allegations that Defendants received value due to their wrongful use of the BanxQuote Indices. (Id. ¶¶ 158-61.) Defendants' Motion to Dismiss was fully submitted as of December 10, 2009. The Court held oral argument on May 11, 2010.

II. Discussion

A. Standard of Review

"On a Rule 12(b)(6) motion to dismiss a complaint, the court must accept a plaintiff's factual allegations as true and draw all reasonable inferences in [the plaintiff's] favor." Gonzalez v. Caballero, 572 F. Supp. 2d 463, 466 (S.D.N.Y. 2008); see also Ruotolo v. City of New York, 514 F.3d 184, 188 (2d Cir. 2008) ("We review de novo a district court's dismissal of a complaint pursuant to Rule 12(b)(6), accepting all factual allegations in the complaint and drawing all reasonable inferences in the plaintiff's favor." (internal quotation marks omitted)). "In adjudicating a Rule 12(b)(6) motion, a district court must confine its consideration to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken." Leonard F. v. Isr. Disc. Bank of N.Y.,199 F.3d 99, 107 (2d Cir. 1999) (internal quotation marks omitted).*fn1

The Supreme Court has held that "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted) (second alteration in Twombly).

Instead, the Court has emphasized that "[f]actual allegations must be enough to raise a right to relief above the speculative level," id., and that "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint," id. at 563. A plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Id. at 570. If Plaintiffs "have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Id. "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to relief.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009) (internal citation omitted) (quoting Fed. R. Civ. P. 8(a)(2)) (alteration in original).

B. Federal Law Causes of Action

Defendants argue that Counts One (copyright infringement) and Three (DMCA violation) fail to state a claim. (Mem. of Law in Supp. of Defs.' Mot. to Dismiss ("Defs.' Mem.") 3; SAC ¶¶ 106-16, 126-33.)

1. Count One: Copyright Infringement

There is no disagreement as to the elements Plaintiffs must establish to state a claim for copyright infringement. (Defs.' Mem. 3; Pls.' Mem. of Law in Opp'n to Defs.' Mot. to Dismiss ("Pls.' Mem.") 4.) "'To prevail on a claim of copyright infringement, the plaintiff must demonstrate both (1) ownership of a valid copyright and (2) infringement of the copyright by the defendant.'" Cameron Indus., Inc. v. Caravan, Ltd., 676 F. Supp. 2d 280, 283-84 (S.D.N.Y. 2009) (quoting Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 109-10 (2d Cir. 2001)); see also Porto v. Guirgis, 659 F. Supp. 2d 597, 608 (S.D.N.Y. 2009) (requiring "'ownership of a valid copyright, and [] copying of constituent elements of the work that are original'" (quoting Williams v. Crichton, 84 F.3d 581, 587 (2d Cir. 1996))); Lewinson v. Henry Holt & Co., 659 F. Supp. 2d 547, 559 (S.D.N.Y. 2009) (same) (quoting Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991)); R.F.M.A.S., Inc. v. Mimi So, 619 F. Supp. 2d 39, 51 (S.D.N.Y. 2009) (requiring ownership of a valid copyright and "'unauthorized copying of the copyrighted work'" (quoting Jorgensen v. Epic/Sony Records, 351 F.3d 46, 51 (2d Cir. 2003))). The second element is further broken down into two components: "[t]o establish infringement, the copyright owner must demonstrate that '(1) the defendant has actually copied the plaintiff's work; and (2) the copying is illegal because a substantial similarity exists between the defendant's work and the protect[a]ble elements of the plaintiff's.'" Eyal R.D. Corp. v. Jewelex N.Y., Ltd., 576 F. Supp. 2d 626, 641 (S.D.N.Y. 2008) (quoting Yurman Design, 262 F.3d at 110); see also Cameron Indus., 676 F. Supp. 2d at 284 (same); Psihoyos v. Nat'l Geographic Soc'y, 409 F. Supp. 2d 268, 273 (S.D.N.Y. 2005) (same) (quoting Knitwaves, Inc. v. Lollytogs Ltd., 71 F.3d 996, 1002 (2d Cir. 1995)); Maharishi Hardy Blechman Ltd. v. Abercrombie & Fitch Co., 292 F. Supp. 2d 535, 553 (S.D.N.Y. 2003) (same).

In this case, Defendants concede that Plaintiffs have pled actual copying, and do not contest that, if the works at issue are protectable, Plaintiffs own a copyright. (Defs.' Mem. 3-8.) Instead, Defendants argue that Plaintiffs "have not validly alleged infringement of protectable elements of Plaintiffs' work." (Id. at 3.)

There are three levels of generality at which Plaintiffs could be alleging copyright infringement. The lowest level of generality is the raw data from which the BanxQuote Indices are created (the "raw data"). The second level of generality is the product of the raw data, i.e. the actual average listed in the BanxQuote Indices (the "final value"). The third level of generality is the arrangement and presentation of the final values (the "arrangement").*fn2 Both the final value and the arrangement are, in different ways, compilations, which the Second Circuit has suggested must meet three requirements for copyright protection: "(1) the collection and assembly of pre-existing data; (2) the selection, coordination, or arrangement of that data; and (3) a resulting work that is original, by virtue of the selection, coordination, or arrangement of the data contained in the work." Key Publ'ns, Inc. v. Chinatown Today Publ'g Enters., Inc., 945 F.2d 509, 512 (2d Cir. 1991).

To advance their Motion, Defendants make two arguments. First, Defendants contend that the raw data and final values are facts, which are not protectable, and not predictions or estimates, which Defendants concede would be protectable. (Defs.' Mem. 4-6.) Second, Defendants claim that "[t]o the extent that Plaintiffs claim [that] Defendants infringed copyright in a compilation, the claim should be dismissed because it is conclusory and implausible," and go on to argue that Plaintiffs have not alleged copyright in the arrangement. (Id. at 6-8.) Plaintiffs respond by conceding that they do not allege a copyright in the raw data (Pls.' Mem. 3), but argue that they have a copyright in the final values (id. at 4-9), because the final values are not facts. Plaintiffs make no claim that they have a copyright in the arrangement.

No copyright can exist in facts "because facts do not owe their origin to an act of authorship[,] . . . [and are] not created[,] . . . [but] merely discovered . . . ." Feist, 499 U.S. at 347. However, as originality, which is a constitutional requirement, "remains the sine qua non of copyright," "[f]actual compilations . . . may possess the requisite originality . . . [where] [t]he[] choices as to selection and arrangement . . . are made independently by the compiler and entail a minimum degree of creativity." Id. at 348; see also CDN Inc. v. Kapes, 197 F.3d 1256, 1259 (9th Cir. 1999) ("Discoverable facts, like ideas, are not copyrightable. But compilations of facts are copyrightable where the underlying facts are not.").

The Second Circuit has provided some guidance on how to determine the border between unprotected data and protectable compilations of data in the form of final values. In dicta in New York Mercantile Exchange, Inc. v. IntercontinentalExchange, Inc., 497 F.3d 109 (2d Cir. 2007) ("New York Mercantile"), the Second Circuit was presented with the question of whether settlement prices for futures contracts were facts. Id. at 114. The court described the contracts as follows:

A futures contract requires the delivery of a commodity at a specified price at a specified future time, though most contracts are liquidated before physical delivery occurs. . . . The settlement prices are used to value the open positions. . . . Unlike on a securities exchange, the settlement price may not be the final trade, for two reasons. First, because of the nature of trading, it is not always clear which trade was the closing trade. . . . Second, . . . [f]or the "outer" months, those further from the trading date, there is often little or no trading on a particular day. . . . For high-volume months, settlement prices are based on a formula: "a weighted average of all trades done within the closing range." . . . For low-volume months, the extent of the . . . creative judgment is disputed.

Id. at 110-11 (footnote omitted). The Second Circuit ultimately decided the case on alternative grounds, id. at 115 ("we do not decide whether settlement prices are unoriginal, and instead affirm based on the merger doctrine"), but stated that "there [wa]s a strong argument" that the settlement prices were unprotectable facts, id. at 114, though that argument was weaker for the low-volume months, id. at 116 (stating that if "there is no real market to speak of" in the low-volume months, the settlement prices "appear[] closer to creation, to making predictions of expected values" (internal quotation and ellipsis omitted)). As the New York Mercantile court noted:

For high-volume months, settlement prices are determinations of how the market values a particular futures contract . . .[,] not how the market should value them or will value them. Under this view, the market is an empirical reality, an economic fact about the world . . . . So characterized, there is one proper settlement price; other seemingly-accurate prices are mistakes which actually overvalue or undervalue the futures contract.

Id. at 115 (emphasis in original). Therefore, consistent with the dicta in New York Mercantile, when confronted with raw data that have been converted into a final value through the use of an original formula, the Court should put significant weight on the degree of consensus and objectivity that attaches to the formula.*fn3 For example, if a scientist knew an object's mass and the force acting upon the object, this raw data could be converted into the object's acceleration due to that force by using the "formula" known as Newton's Second Law of Motion. This use of a formula would merely discover an "empirical reality." On the other hand, "formulae" that purport to identify the best baseball player based on some weighted composition of batting average, on-base percentage, defensive efficiency, and a myriad of other selective factors, are not discovering "empirical realities." The difference lies in the originality of the method used to compile or analyze the data. See Key Publ'ns, 945 F.2d at 513 ("Selection implies the exercise of judgment in choosing which facts from a given body of data to include in a compilation."); Eckes v. Card Prices Update, 736 F.2d 859, 863 (2d Cir. 1984) (holding that the selection of 5,000 "premium cards" out of "18,000 or so different baseball cards" was sufficiently original to be protected under the Copyright Act).*fn4

Since New York Mercantile, at least one district court has attempted to navigate the current state of the law, though noting that the point at which raw data have become copyrightable expressions through the use of sufficiently original formulae "has not been fully clarified by the Second Circuit." RBC Nice Bearings, Inc. v. Peer Bearing Co., 676 F. Supp. 2d 9, 21 (D. Conn. 2009). In that case, the court considered "load ratings" of ball bearings, which are measures of the "radial force a particular bearing having known geometric and physical attributes, such as size and quantity of balls, can withstand." Id. at 16 (internal quotation marks omitted). The exact values of the load ratings were "mainly a function of the geometry of the bearing and material, [but also considered] certain other 'life factors' enumerated in published industry guidelines . . . [such as] tolerances, material cleanliness, lubrication, hardness, and operating temperature." Id. The plaintiff's strongest argument that the load ratings were not mere facts was that ...

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