Intellectual Property – Copyright & Trademark – Personal Jurisdiction – Dutch Company – Software – Handshake Deal – Preliminary Injunction

The founder of the defendant-Dutch software company learned of the plaintiff-North Carolina software company’s product and reached into North Carolina to initiate a deal between the two companies. The companies entered into an oral contract that was to be substantially performed in North Carolina, the companies’ employees worked closely together, and defendant’s founder even visited North Carolina. The district court correctly found that it had personal jurisdiction over defendant.

We affirm the district court’s denial of defendant’s motion to dismiss and its grant of plaintiff’s motion for a preliminary injunction. However, we vacate the monetary sanction and remand for further proceedings.

Facts

After being approached by defendant’s founder, plaintiff agreed – via a handshake deal – to license its email-security software to defendant for use in Europe and Africa. Defendant’s employees worked closely with plaintiffs and even made improvements to the software.

A dispute arose as to the ownership of those improvements. Plaintiff suspended defendant’s access to plaintiff’s computer systems. Defendant filed suit in a Dutch court, which seized control of defendant and appointed a Dutch attorney as managing director pending an investigation.

Plaintiff announced a termination of defendant’s license. The Dutch court ordered plaintiff to reinstate defendant’s access to plaintiff’s computer systems and to maintain defendant’s license during the investigation.

Thereafter, defendant allegedly set up multiple websites, began directing American customers to its own websites, and lured away one of plaintiff’s American customers. This shift from partnership to competition prompted plaintiff to file the instant lawsuit.

Personal Jurisdiction

Defendant’s contacts with North Carolina were coordinated, systematic and purposefully maintained. Defendant purposefully reached out by entering a contractual relationship that envisioned continuing and wide-reaching contacts in North Carolina. Defendant thus purposefully availed itself of the protections of North Carolina law.

Plaintiff’s intellectual property claims arose from defendant’s North Carolina-directed activities. Plaintiff alleges that defendant misused trademarks that had developed a reputation within North Carolina and that defendant misappropriated copyrighted material and trade secrets, which stem from the shared software jointly developed by the parties. Indeed, defendant’s use of the trademark grew out of its collaboration with plaintiff, which defendant concedes was necessary to its operations over several years. Here, substantial collaboration between the parties, working jointly to create something, forms an important part of plaintiff’s claims. Plaintiff’s claims thus arose out of activities defendant directed at North Carolina.

The district court’s assertion of personal jurisdiction over defendant abided by North Carolina’s long-arm statute and comported with due process.

Preliminary Injunction

Plaintiff presented to the district court its registered copyright in its software. Plaintiff also showed that defendant likely went beyond the scope of its license by marketing its services to customers outside of Europe and Africa, thus encroaching on plaintiff’s sales territory. Clearly, there can be no reasonable contention that defendant’s license extended to the ability to use plaintiff’s own software to compete for plaintiff’s own customers in the United States.

In short, defendant marketed “copies” of plaintiff’s copyrighted work in the United States without authorization. A defendant who directs infringing material into the United States from abroad commits a domestic violation of the Copyright Act. The district court did not err in finding that domestic violations occurred for purposes of extraterritorial application of the Copyright Act.

As for plaintiff’s claim of trademark violation, defendant does not contest that plaintiff holds a valid trademark. The similarity of the parties’ marks has likely caused confusion in the email-security marketplace. In fact, plaintiff supplied evidence of actual confusion.

The district court also found that plaintiff would likely succeed on a misappropriation claim under the Defend Trade Secrets Act. The district court correctly concluded that two of defendant’s “acts” would qualify as acts “in furtherance of the offense,” 18 U.S.C. § 1837(2), taken inside the United States: First, defendant had originally gained access to plaintiff’s trade secrets through data stored on servers within the United States and, second, defendant had likely facilitated the trade secrets’ use or disclosure within the United States. While defendant insists that it only received the alleged trade secrets under an agreement reached in the Netherlands, plaintiff only needed to show that “an act” occurred in the United States, not the entire “offense.” § 1837(2).

Defendant’s alleged act of luring an American customer away from plaintiff also makes it likely that plaintiff will succeed on its claim of tortious interference with contract.

Defendant contends that the district court abused its discretion by issuing the preliminary injunction before the Dutch court had clarified the status of the parties’ 2016 agreement. In defendant’s telling, all of plaintiff’s claims rest on the flawed premise that plaintiff had rightfully terminated the 2016 agreement between the parties. We are not so persuaded.

Whether or not the agreement had been terminated, defendant’s conduct still reflects a violation of the statutes discussed above. The district court did not abuse its discretion in concluding, at this preliminary stage, that the license would not plausibly account for a record of full-rigged piracy.

Although the parties’ agreement was never written down, the district court did not err in combining law with logic. Whatever the license’s precise contours, it makes little sense that plaintiff would have given away the store— source code, client lists, and trademark—to a first-time partner who would then utilize plaintiff’s entire shelf of intellectual properties to put plaintiff out of business.

The preliminary injunction ordered defendant to confine its activities to Europe and Africa, not take certain steps to compete directly with plaintiff, and disclaim the nature of its relationship to plaintiff should it wish to continue using plaintiff’s trademark. The decree’s remaining provision instructed defendant to make no further alterations to the software. Nowhere did the decree forbid defendant from servicing customers in Europe and Africa, nor from dressing itself in plaintiff’s mark on those continents if accompanied by the disclaimer.

The record supports the district court’s conclusion that defendant violated the injunction. However, the $5,000-per-day sanction is not supported by sufficient evidence that it constituted compensation rather than punishment.

Affirmed in part, vacated in part and remanded.

dmarcian, Inc. v. dmarcian Europe BV (Lawyers Weekly No. 001-017-23, 43 pp.) (Harvie Wilkinson, J.) No. 21-1721. Appealed from USDC at Asheville, N.C. (Martin Reidinger, C.J.) Samuel Hartzell and Pressly Millen for appellant; Pamela Suzanne Duffy and David Anthony Dorey for appellee. 4^th Cir.