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Scientific Computing Associates, Inc. and v. Gregory R. Warnes

April 5, 2011

SCIENTIFIC COMPUTING ASSOCIATES, INC. AND
REVOLUTION COMPUTING, INC., PLAINTIFF,
v.
GREGORY R. WARNES, DEFENDANT.



The opinion of the court was delivered by: Michael A. Telesca United States District Judge

DECISION and ORDER

INTRODUCTION

Plaintiffs, Scientific Computing Associates, Inc. and Revolution Computing, Inc. (collectively, "Plaintiffs") bring this action pursuant to 15 U.S.C. §§ 1051 et seq., alleging trademark infringement, specifically false designation of origin, false representation and unfair competition, and violations of New York and Connecticut state law. See Compl. at ¶1. Plaintiffs specifically allege that Defendant, Gregory R. Warnes*fn1 ("Defendant" or "Warnes"), unlawfully advertised, marketed and offered for sale certain computer software products under names which are registered trademarks of the Plaintiffs, and that Defendant misrepresented the origin of the products to potential customers and unlawfully interfered with the business relationships between Plaintiffs and their potential customers. See Compl. at ¶ 21-33.

Defendant, proceeding pro se, answered the complaint and asserted counterclaims against the Plaintiffs and five other individuals, Martin Schultz, Richard Schultz, Beverly Thalburg Shultz, Kirk Mettler and Steve Weston (collectively, the "Partners"), who are not yet parties to this action.*fn2 Defendant alleges that the Plaintiffs and the Partners breached an oral partnership agreement, an employment contract and a separation agreement, relating to an alleged business arrangement whereby Defendant agreed to contribute certain intellectual property to the formation of a business (Revolution Computing, Inc.), in return for equity in the company and employment, and that Plaintiffs and the Partners committed several other unlawful acts with respect to this alleged partnership.

Plaintiffs now move to dismiss Defendant's Counter Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)"), arguing that Defendant has not stated a plausible claim for relief as to any of his thirteen counterclaims. See Pl. Mem of Law at 3 (Docket #85-2). Defendant opposes the motion and argues that he has stated a plausible claim for relief on each of eleven of his thirteen counterclaims, and he seeks leave to amend his Counter Complaint should this Court find that his factual allegations are insufficient to support a claim for relief.

Defendant, however, concedes that he has not stated a plausible claim for relief for malicious prosecution or abuse of process, accordingly Count XII of Defendant's Counter Complaint is hereby dismissed. Defendant also concedes that he has not met the registration requirement under 17 U.S.C. § 411 (a) in order to properly assert a cause of action for copyright infringement, accordingly, Count VIII is also dismissed. Further, for the reasons set forth below, this Court grants in part and denies in part Plaintiffs' Motion to Dismiss, and Defendant's request for leave to amend his Counter Complaint is hereby granted.

BACKGROUND

The following facts are taken from the Defendant's Answer and Counter Complaint. (Docket #50.)*fn3 Warnes became acquainted with the Partners through his employment at Pfizer, Inc., where he worked as a statistician. Warnes states that he was an "expert" in "R" open source statistical software,*fn4 and that he and the Partners were interested in developing a commercial version of the product.

Warnes alleges that in early 2005 he and the Partners, who were, at that time, "staff" of the Plaintiff, Scientific Computing Associates, Inc. ("SCA"), orally agreed that he and the Partners would enter into a partnership agreement for the purpose of developing and marketing "an enhanced version of the open-source 'R' statistical analysis system" for commercial use by pharmaceutical companies and other businesses. At the time, however, Warnes's employment contract with Pfizer, Inc. did not allow him to fully participate in this type of business partnership. Warnes later left Pfizer in 2006 and began working at the University of Rochester Medical Center ("URMC") as an Associate Professor in the Department of Biostatistics and Computational Biology. Warnes alleges that he took this position, at a substantially lower salary, in order to participate in the alleged business partnership with the Partners.

Warnes alleges that the terms of the partnership agreement were that he would contribute, inter alia, his reputation, experience and expertise in "R" open source software as well as his ideas relating to the development and marketing of the potential product. In return, Warnes alleges that the Partners agreed that he would receive ownership equity in the new company, Revolution Computing, Inc. ("Revolution")*fn5 and employment at a salary of $180,000 per year, "once venture or other funding was obtained."

Warnes states that the terms of the agreement were repeatedly affirmed by the Partners and that they were included or referenced in various written documents, none of which are described in any further detail or attached to the Counter Complaint.

He further alleges that he contributed ideas that led to the selection of the product names that were trademarked by the Plaintiffs and are now the subject of this litigation ("RPro" and "NetWorkSpaces for RPro"), and that he contributed to the business model of the new company that would be formed, Revolution. Warnes states that he and the Partners agreed that once funding was obtained, the new company would purchase SCA and that, until that time, SCA "would be used as the operational organization."

Following this oral agreement, however, Warnes alleges that he began to realize that the Partners did not intend to formalize the partnership agreement or abide by its terms. He states that the Partners informed him that "it was not possible to create any formal agreement before venture funding was obtained," and that "there were insufficient funds to pay Warnes the agreed upon salary." Warnes alleges that Partner Richard Schultz, "acting as an agent for the other [P]artners, refused to formalize the partnership agreement with the full intent of unilaterally changing the partnership terms to benefit himself and the other [P]artners."

Warnes alleges that, in January 2007, he proposed a "Separation Agreement" whereby the Partners and he could each continue to develop their separate business interests and would each retain the rights to certain intellectual property that had been created prior to this time by the respective parties. Warnes states that the Separation Agreement specifically provided that Warnes would retain the rights to develop and produce the commercially supported version of the "R" software called "RPro," and that the Partners would be permitted to "resell" this product. Conversely, the Partners would retain the rights to develop the parallel computing product known as "NetWorkSpaces for RPro" and Warnes would be permitted to resell this product. Warnes alleges that the Partners agreed to these terms.

Warnes then began to pursue the development of "RPro" through a company he formed for this purpose, Random Technologies, LLC, and later attempted to register "R Pro" (with the space) as a trademark. However, on June 26, 2007, the United States Patent and Trademark Office (USPTO) notified Warnes that the trademark "RPro" was already registered to SCA. Then, on June 29, 2007, Warnes received a letter from SCA asserting its rights to the trademarks "RPro" and "NetWorkSpaces for RPro" and demanding, inter alia, that Warnes cease using the trademarks. Warnes states that he immediately stopped using the trademarks and attempted to contact SCA in order to meet the other demands of their June 29, 2007 letter. SCA and Revolution then filed this suit on July 18, 2007.

Warnes alleges that he was damaged by the Partners failure to consummate the partnership agreement and their continued use of intellectual property to which he contributed or that he created. Specifically, he alleges that he contributed to the business plan for Revolution and to documents used as sales materials and product specifications for "RPro" and "NetWorkSpaces," and that he invented the ...


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