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Enigma Software Group USA, LLC v. Malwarebytes Inc.

United States District Court, S.D. New York

May 12, 2017

ENIGMA SOFTWARE GROUP USA, LLC, Plaintiff,
v.
MALWAREBYTES INC., Defendant.

          OPINION & ORDER

          PAUL A. ENGELMAYER, District Judge.

         Enigma Software Group USA, LLC ("Enigma"), a developer of computer security products, brings this action against Malwarebytes, Inc. ("Malwarebytes"), which Enigma claims is its direct competitor in the anti-malware and internet security market. Enigma markets SpyHunter, its leading anti-malware program; Malwarebytes markets Malwarebytes Anti-Malware ("MBAM"), which detects and removes malware on consumers' personal computers. Enigma alleges that, in October 2016, Malwarebytes revised MBAM's threat detection criteria to identify its competitor Enigma's products-including SpyHunter-as threats to consumers. Malwarebytes did so, Enigma claims, to damage Enigma's reputation and to disrupt or disable Enigma's products on consumers' computers, so as to give Malwarebytes an unfair advantage. Enigma brings claims against Malwarebytes for false advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), and under New York law for tortious interference with contractual relations, tortious interference with business relations, and for violating New York General Business Law § 349.

         Malwarebytes now moves to dismiss Enigma's First Amended Complaint ("FAC") under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6) or, in the alternative, to transfer this case to the Northern District of California pursuant to 28 U.S.C. § 1404. For the reasons that follow, the Court grants the motion to transfer and declines to reach the motion to dismiss.

         I. Background

         A. Factual Background[1]

         1. The Parties

         The FAC alleges that Enigma is a Florida limited liability company that develops and markets computer security software. FAC ¶¶ 2, 35. Its computer security products "detect[] and remove[] malicious software (i.e., malware), which includes, inter alia, viruses, spyware and adware; enhance[] internet privacy; and eliminate[] other security threats." Id. ¶ 2. Enigma's flagship anti-malware product is called "SpyHunter." Id. ¶ 4.

         Malwarebytes is a Delaware corporation, headquartered in Santa Clara, California, that is a competitor of Enigma's in the computer security products market. Id. ¶¶ 4, 36. Its flagship anti-malware product is "Malwarebytes Anti-Malware" or "MBAM." Id. ¶ 4. MBAM detects "Potentially Unwanted Programs" or "PUPs" on consumers' computers. Id. ¶ 5. MBAM automatically quarantines these PUPs and flags them for consumers as "threats." Id. MBAM presents consumers with a list of its "Threat Scan Results, " with each "threat" preselected for removal from the consumer's computer. Id.

         2. Enigma's Earlier Lawsuit Against Bleeping Computer LLC

         In January 2016, Enigma filed, in this Court, a lawsuit against Bleeping Computer LLC ("Bleeping"). See Enigma Software Group USA, LLC v. Bleeping Computer LLC et al, No. 16 Civ. 57, Dkt. 1. Enigma alleged that Bleeping, a New York company, was affiliated with Malwarebytes and would promote Malwarebytes' MBAM product and earn a commission from Malwarebytes when consumers, through a link on Bleeping's website, bought MBAM. FAC ¶ 22. Enigma accused Bleeping of falsely disparaging Enigma's products, while instructing consumers to uninstall or not install Enigma's products and encouraging consumers to purchase MBAM. Id. ¶ 23. On July 8, 2016, the Court granted in part and denied in part Bleeping's motion to dismiss. 194 F.Supp.3d 263 (S.D.N.Y. 2016).

         During discovery in its lawsuit against Bleeping, Enigma served a subpoena on Malwarebytes. Enigma sought documents regarding the extent of Malwarebytes' involvement in Bleeping's alleged scheme. FAC ¶ 24. The deadline to respond to the subpoena was in October 2016. Id. ¶¶ 7, 25. In 2017, while discovery was ongoing, Enigma and Bleeping settled, and the Court dismissed, Enigma's lawsuit. See 16 Civ. 57, Dkts. 70-72.

         3. 2016: Malwarebytes' Products Begin Identifying Enigma's as Threats

         Between 2008 and October 4, 2016, Malwarebytes products had never identified Enigma products as PUPs, or as any other form of malware, and had never quarantined or interfered with the installation of Enigma products. Id. ¶ 6.

         On October 5, 2016, one week before the deadline to respond to Enigma's subpoena in the suit against Bleeping, Malwarebytes revised the criteria its MBAM software used to identify PUPs. Id. ¶¶7, 25. Before then, Malwarebytes had last changed its PUP criteria in 2013. Id. The new criteria identified SpyHunter, and another Enigma product, "RegHunter, " as PUPs. Id. ¶ 9. As a result, if a consumer had SpyHunter or RegHunter on his or her computer and then downloaded or scanned that computer with MBAM, MBAM would automatically quarantine the Enigma products and identify them to the consumer as PUPs. Id. ¶ 10. Once the products were quarantined, the consumer would not be able to launch or use SpyHunter or RegHunter, even if the consumer attempted to "restore" those programs, unless the consumer undertook a series of "additional steps that may not be readily apparent to, or understood by, a novice user." Id. Alternatively, if a consumer had MBAM on his or her computer and then attempted to download or install SpyHunter or RegHunter, MBAM would block the installation of the Enigma products, again regardless whether the consumer tried to "restore" the products from quarantine. Id. ¶ 11.

         On October 19, 2016, Malwarebytes acquired an anti-adware product called "AdwCleaner, " which ostensibly "identif[ies] and remove[s] PUPs, adware, toolbars, and other unwanted software for its users." Id. ¶ 12. At the time Malwarebytes acquired it, AdwCleaner did not identify SpyHunter or RegHunter as PUPs. Id. ¶ 13. On or about October 27, 2016, AdwCleaner began identifying SpyHunter and RegHunter as PUPs. Id. ¶ 14. AdwCleaner then quarantined and blocked these products just as MBAM did. Id.

         The FAC alleges that Malwarebytes falsely identified Enigma's products as threats. In truth, it alleges, these products are "legitimate and pose no security threat to users' consumers." Id. It alleges that Malwarebytes purposely revised its criteria to target Enigma's products for the purpose of "harming [Enigma] by, inter alia, interfering with [Enigma's] current and prospective customer base, injuring [Enigma's] business, and retaliating against [Enigma] for its lawsuit against Bleeping." 7<i. ¶ 8.

         The FAC alleges that, as a result of Malwarebytes' "bad faith campaign" against Enigma, id. ¶ 34, Enigma has suffered "immediate harm ... in the form of lost sales and revenue" and "irreparable harm to [Enigma's] business reputation, " id. ¶ 20.

         B. Procedural History

         On October 7, 2016, Enigma filed the complaint. Dkt. 1. The action was initially referred to this Court as possibly related to Enigma's lawsuit against Bleeping. In a Statement of Relatedness filed with the Court, Enigma explained the relationship between these lawsuits. It noted that, as alleged, "[b]oth defendants are acting in concert to harm the plaintiff, " "[b]oth cases involve harm to consumers as a result of the defendants' false advertising, defamation, and unfair competition, " and "[t]he plaintiff seeks similar injunctive relief against" both Bleeping and Malwarebytes. Dkt. 5. Enigma also explained that Malwarebytes was already a subpoenaed witness in the case against Bleeping and that Bleeping would be a witness in this case against Malwarebytes. Id. On October 13, 2016, this Court accepted the action as related to the pending lawsuit against Bleeping.

         On November 16, 2016, Malwarebytes filed a motion to dismiss the complaint or transfer the case, Dkt. 17, and a request for judicial notice, Dkt. 20. On November 17, 2016, the Court issued an order stating that it would resolve the request for judicial notice, if opposed, in the course of resolving the motion to dismiss. Dkt. 29.

         On December 7, 2016, Enigma filed the FAC. Dkt. 34. On December 28, 2016, Malwarebytes filed a motion to dismiss the FAC or transfer the case, Dkt. 37, and, in support, a memorandum of law, Dkt. 38 ("Def. Br."), and the declaration of Mark Harris, Dkt. 39 ("Harris Decl."). Also on December 28, 2016, Malwarebytes filed a request for judicial notice in support of its motion to dismiss or transfer, Dkt. 40, and the supporting declarations of Nathan Scott, Dkt. 41 ("Scott Decl."), and Tyler Newby, Dkt. 42 ("Newby Decl.").

         On January 11, 2017, Enigma filed one memorandum of law in opposition to the motions to dismiss or transfer, Dkt. 49 ("PI. Br."), and another in opposition to the request for judicial notice, Dkt. 45. That same day, Enigma filed a motion to strike, Dkt. 46, and a motion for leave to file supplemental allegations to the FAC, Dkt. 50.

         On January 18, 2017, Malwarebytes filed a reply memorandum of law. Dkt. 53 ("Def. Rep. Br.").

         On January 25, 2017, Malwarebytes filed one memorandum of law in opposition to the motion to strike, Dkt. 56, and another in opposition to the motion for leave to file supplemental allegations to the FAC, Dkt. 57.

         On February 3, 2017, the Court held argument on the motion to dismiss or transfer. Just one day prior, on February 2, 2017, the parties to the lawsuit against Bleeping had notified the Court that ...


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