NC Interactive LLC v. Amber Studio SA

[1] HONORABLE RICHARD A. JONES [7] UNITED STATES DISTRICT COURT [8] WESTERN DISTRICT OF WASHINGTON 9 AT SEATTLE [10] NC INTERACTIVE, LLC, a Delaware 11 limited liability company, Case No.2:22-cv-01251-RAJ [12] Plaintiff, 13 ORDER GRANTING IN PART AND DENYING IN PART 14 v. DEFENDANTS’ MOTION TO DISMISS [15] AMBER STUDIO S.A., a Romanian 16 company; THE SYNDICATE PRODUCTION PTE LTD, a 17 Singapore entity; SUPERPOWER LABS, INC., a Delaware [18] corporation; JOHN DOES 1 through 19 10, inclusive, [20] Defendants. [21] 22 I. INTRODUCTION 23 THIS MATTER comes before the Court on a Motion to Dismiss filed by 24 Defendants, The Syndicate Production PTE LTD (“Syndicate”) and Superpower Labs, Inc. 25 (“Superpower”) (collectively, “Syndicate Defendants”). Dkt. # 41. Plaintiff NC 26 Interactive (“NCI” or “Plaintiff”) opposes this motion. Dkt. # 48. Syndicate Defendants 27 also filed a Motion for a Protective Order Staying Discovery Pending Resolution of Motion 1 to Dismiss. Dkt. # 67. Syndicate Defendants request oral argument, but the Court finds 2 this unnecessary. See Local Rules W.D. Wash. LCR 7(b)(4). For the reasons below, the 3 Court GRANTS in part and DENIES in part Syndicate Defendants’ Motion to Dismiss. 4 The Court DENIES as moot Syndicate Defendants’ Motion for a Protective Order Staying 5 Discovery. Dkt. # 67. 6 II. BACKGROUND 7 A. Procedural History 8 On September 7, 2022, NCI filed an initial complaint against Amber Studio SA 9 (“Amber”) alleging breach of contract, unjust enrichment, and copyright infringement. 10 Dkt. # 1. On April 12, 2023, after Syndicate Defendants produced documents in response 11 to a third-party subpoena, NCI filed its Amended Complaint that added Syndicate and 12 Superpower as defendants in this action. Dkt. # 24. NCI’s Amended Complaint (the 13 “Complaint”) is the operative complaint in this matter. NCI asserts claims of tortious 14 interference, unjust enrichment, and copyright infringement against Syndicate Defendants. 15 See id. On May 3, 2023, Amber filed its Answer and Counterclaims against NCI. Dkt. # 16 29. On June 6, 2023, Syndicate Defendants filed a motion to dismiss. Dkt. # 41. 17 B. Factual Allegations 18 The following is taken from the Complaint, which is assumed to be true for the 19 purposes of Syndicate Defendants’ motion to dismiss. Sanders v. Brown, 504 F.3d 903 , 20 910 (9th Cir. 2007); see also Dole Food Co. v. Watts, 303 F.3d 1104, 1107 (9th Cir. 2002). 21 In 2019, Amber and NCI entered into a work-for-hire agreement for Amber to 22 develop a video game named Criminal Empire (the “Game”). Dkt. # 24 ¶ 19. Under this 23 agreement, Amber developed source code, images, characters, and other materials for the 24 Game and NCI retained the rights to the related intellectual property. See id. In April 25 2020, NCI briefly and limitedly released the Game before taking it off the market. Id. ¶¶ 26 20-22. In July 2021, NCI and Amber were involved in negotiations for a licensing [27] 1 agreement to allow Amber to further develop the Game. Id. ¶ 23. In September 2021, 2 NCI and Amber executed the Game Licensing Agreement (the “GLA”). Id. ¶ 24. 3 The GLA contains rights and obligations that gave rise to this litigation. The GLA 4 “granted Amber an exclusive, non-assignable, non-sublicensable, royalty-bearing license 5 related to development, marketing, and distribution of the Game.” Id. ¶ 26. The GLA also 6 granted Amber a non-exclusive and non-sublicensable license “to use graphics, logos, 7 trademarks, service marks, and characters associated with the Game (the ‘Game Marks’).” 8 Id. ¶ 27. The GLA required Amber to submit a written plan for development of the Game, 9 a proposal for Game service offerings, and a Game distribution plan to NCI. Id. ¶ 28. 10 Additionally, the agreement prohibited Amber from disclosing confidential information to 11 third parties without NCI’s written consent. Id. ¶ 29. 12 NCI alleges Amber violated the terms of the GLA by secretly sublicensing the Game 13 and derivate works of the Game to Syndicate Defendants. Dkt. # 24 ¶¶ 26-27; 32-35. The 14 Complaint states that throughout negotiations of the GLA, Amber shared drafts of the 15 agreement with the CEO of Syndicate and Superpower. Id. ¶ 23. NCI also asserts Amber 16 and Syndicate negotiated a Master Services Agreement (the “MSA”) in parallel with 17 Amber and NCI’s GLA negotiations. Id. ¶ 33. The Complaint states that Amber and 18 Syndicate executed the MSA in October 2021, which was two weeks after Amber and NCI 19 executed the GLA. Id. ¶ 33. 20 NCI alleges Amber provided Game materials to Syndicate Defendants in order to 21 keep the profit from NCI. Id. ¶¶ 72-74. NCI asserts that Amber supplied Game materials 22 to Syndicate Defendants, for the benefit of Syndicate Defendants, while Amber developed 23 non-fungible tokens (“NFTs”) using Game images. See id. ¶¶ 2, 36-42, 67-69. Thereafter, 24 Amber and Syndicate Defendants rebranded the Game, initially renaming it “Syn City” 25 and later “MOBLAND,” to facilitate the marketing and sale of NFTs. Dkt. # 24 ¶¶ 36-45. 26 NCI alleges Amber and Syndicate Defendants did this, without NCI’s consent and in [27] 1 breach of the GLA, to sell cryptocurrency products and retain millions in proceeds for 2 themselves. See id. ¶¶ 3, 45, 63. 3 In July 2022, NCI notified Amber that it was terminating the GLA. Id. ¶ 48. After 4 the termination of the GLA, NCI alleges Amber and Syndicate Defendants continued to 5 use NCI’s intellectual property and market the sale of the cryptocurrency products. Id. ¶ 6 49. 7 III. LEGAL STANDARD 8 Fed. R. Civ. P. 12(b)(6) permits a court to dismiss a complaint for failure to state a 9 claim. The court must assume the truth of the complaint’s factual allegations and credit all 10 reasonable inferences arising from those allegations. See Sanders, 504 F.3d at 910 . A 11 court “need not accept as true conclusory allegations that are contradicted by documents 12 referred to in the complaint.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025 , 13 1031 (9th Cir. 2008). Instead, the plaintiff must point to factual allegations that “state a 14 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544 , 568 15 (2007). The court must accept all well-pleaded facts as true and draw all reasonable 16 inferences in favor of the plaintiff. Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 17 F.3d 658 , 661 (9th Cir. 1998). If the plaintiff succeeds, the complaint avoids dismissal if 18 there is “any set of facts consistent with the allegations in the complaint” that would entitle 19 the plaintiff to relief. Twombly, 550 U.S. at 563 ; Ashcroft v. Iqbal, 556 U.S. 662 , 678 20 (2009). 21 IV. DISCUSSION 22 A. Syndicate and Superpower 23 Syndicate Defendants argue briefly that the Complaint fails to allege any specific 24 acts attributable to Superpower versus Syndicate and erroneously treats them 25 interchangeably. See Dkt. # 41 at 12 n.6; id. at 13 n.7. However, the Court finds that this 26 is a factual dispute about the identity of the parties, rather than insufficient pleading, and 27 will treat Syndicate and Superpower the same for the purposes of resolving this motion. 1 The Complaint alleges “Amber was secretly sharing copies of the draft Agreement 2 with Roy Liu, who on information and belief is the majority owner and CEO of Syndicate 3 and Superpower.” Dkt. # 24 ¶ 23. Syndicate Defendants dispute Roy Liu’s role in these 4 companies. See Dkt. # 54 at 7-8. In the Complaint, Plaintiff alleges that Syndicate and 5 Superpower failed to provide discovery that would provide further information as to 6 Superpower’s ownership and organizational structure. Dkt. # 24 ¶ 55. Plaintiff used the 7 information available at the time in forming its allegations, and it is improper to dispute 8 these facts at the pleading stage. Therefore, at this time, this Court will not dismiss the 9 claims against Superpower due to a failure to allege specific facts attributable to 10 Superpower. 11 B. Judicial Notice 12 Syndicate Defendants request that this Court take judicial notice of the GLA 13 because it is an exhibit attached to the Complaint. Dkt # 41 at 6 n.3; see Dkt. # 24, Ex. A. 14 Defendants also seek consideration of the MSA through the “incorporation by reference” 15 doctrine because the Complaint refers to and relies on the document. Dkt # 41 at 11 n.5; [16] Id., Ex. 1. 17 A court typically cannot consider evidence beyond the four corners of the complaint, 18 although it may rely on a document to which the complaint refers if the document is central 19 to the party’s claims and its authenticity is not in question. Marder v. Lopez, 450 F.3d 445 , 20 448 (9th Cir. 2006). A court may also consider evidence subject to judicial notice. See 21 United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). 22 Under the doctrine of incorporation by reference, the Court may not only consider 23 documents attached to the complaint on a 12(b)(6) motion, but also documents whose 24 contents are alleged in the complaint, provided the complaint “necessarily relies” on the 25 documents or contents thereof, the document’s authenticity is uncontested, and the 26 document’s relevance is uncontested. Coto Settlement v. Eisenberg, 593 F.3d 1031 , 1038 27 (9th Cir. 2010); Knieval v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). The purpose of 1 this rule is to “prevent plaintiffs from surviving a Rule 12(b)(6) motion by deliberately 2 omitting documents upon which their claims are based.” Swartz v. KPMG LLP, 476 F.3d 3 756, 763 (9th Cir. 2007) (internal quotation marks omitted). The doctrine should not be 4 used to “short-circuit the resolution of a well-pleaded claim,” and it is improper for a court 5 to “assume the truth of an incorporated document if such assumptions only serve to dispute 6 facts stated in a well-pleaded complaint.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 7 988, 1003 (9th Cir. 2018). 8 With these principles in mind, the Court takes judicial notice of the GLA and MSA. 9 Judicial notice is proper because these contracts are integral to the Complaint and no party 10 disputes their identity and accuracy. To the extent Syndicate Defendants utilize these 11 documents to contest facts, the Court cannot and will not consider their contents for such 12 purposes when ruling on a motion to dismiss. Notice is not appropriate for the substantive 13 truth of any representations made in the contracts. Lee v. City of Los Angeles, 250 F.3d 14 668 , 688–89 (9th Cir. 2001). The Court cannot “take judicial notice of a fact” in the GLA 15 or MSA “that is ‘subject to reasonable dispute.’” Id. at 689 (quoting Fed. R. Evid. 201(b)). 16 C. Copyright Claims 17 Syndicate Defendants move to dismiss copyright claims on the basis of an 18 affirmative defense that they acted as contractors within the scope of Amber’s license. Dkt. 19 # 41 at 14-16. Syndicate Defendants assert that because the GLA contemplated Amber’s 20 use of third parties, Syndicate Defendants’ actions were permitted under the licensing 21 agreement. See id. at 10. Syndicate Defendants purport they were merely third-party 22 contractors used by Amber to develop the Game. See id. 23 To support the defense, Syndicate Defendants cite to the MSA and GLA to dispute 24 Plaintiff’s claims that they were impermissible sublicensees. See id. at 9-12, 14-16. 25 Additionally, Syndicate Defendants cite to information not subject to judicial notice such 26 as Defendant Amber’s Counterclaims and the definition of “contractor” in Black’s Law 27 Dictionary. See id. 6-9; see also Dkt. # 54 at 6. Syndicate Defendants fail to show that 1 they are entitled to assert that defense at this stage of the litigation. At the motion to dismiss 2 stage, it is premature for a court to interpret contract terms and consider disputed facts 3 outside the Complaint. 4 To assert a valid copyright infringement claim, a plaintiff must plausibly assert “(1) 5 ownership of a valid copyright, and (2) copying of constituent elements of the work that 6 are original.” Great Minds v. Off. Depot, Inc., 945 F.3d 1106, 1110 (9th Cir. 2019) (internal 7 quotation marks omitted) (quoting Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 , 8 361 (1991)). 9 The facts in the Complaint assert NCI owns a valid copyright and that Syndicate 10 Defendants copied and used these images. See Dkt. # 24 ¶ 72. Here, NCI has met its 11 burden of alleging that it has a valid copyright, as the Complaint states NCI is the 12 “exclusive owner of rights in and to the Game and Game Marks and all derivative works.” [13] Id. The Complaint states that Syndicate and Superpower copied and used NCI’s 14 copyrighted material to sell millions of dollars of cryptocurrency products. Id. ¶¶ 3, 45. It 15 further alleges that Syndicate Defendants are sublicensees, rather than third-party 16 contractors, which the GLA expressly prohibits. Id. ¶¶ 2, 35. Therefore, Plaintiff’s 17 allegations are sufficient to state a claim for copyright infringement and that Syndicate 18 Defendants’ conduct was outside the scope of the license. 19 Accordingly, the Court DENIES Syndicate Defendants’ motion to dismiss 20 Plaintiff’s copyright infringement claims. 21 D. Unjust Enrichment 22 Syndicate Defendants argue that Plaintiff’s unjust enrichment claim fails for three 23 reasons: 1) the Copyright Act preempts NCI’s unjust enrichment claim; 2) the GLA bars 24 NCI’s unjust enrichment claim; and 3) NCI fails to state a claim for unjust enrichment 25 under Washington State law. Dkt. # 41. For the reasons below, the Court finds that NCI 26 has failed to state a claim for relief under Washington State law. [27] 1 “Unjust enrichment occurs when one retains money or benefits which in justice and 2 equity belong to another.” Young v. Young, 191 P.3d 1258, 1262 (Wash. 2008) (quoting 3 Bailie Commc’ns, Ltd. v. Trend Bus. Sys., Inc., 810 P.2d 12, 18 (Wash. Ct. App. 1991)). 4 “Three elements must be established in order to sustain a claim based on unjust enrichment: 5 (1) a benefit conferred upon the defendant by the plaintiff; (2) an appreciation or knowledge 6 by the defendant of the benefit; and (3) the acceptance or retention by the defendant of the 7 benefit under such circumstances as to make it inequitable for the defendant to retain the 8 benefit without the payment of its value.” Id. (quoting Bailie Commc'ns, 810 P.2d at 18 ). 9 Washington courts are clear that the “plaintiff must confer a benefit on the defendant to 10 satisfy the first element of unjust enrichment.” Lavington v. Hillier, 510 P.3d 373 , 379 11 (Wash. Ct. App. 2022) (compiling cases), rev. denied, 518 P.3d 212 (Wash. 2022). 12 The Washington Court of Appeals has repeatedly held that the first element of an 13 unjust enrichment claim requires the plaintiff to confer a benefit on the defendant directly. 14 See, e.g., Lavington, 510 P.3d at 379; Falcon Props. LLC v. Bowfits 1308 LLC, 478 P.3d 15 134, 140 n.3 (Wash. Ct. App. 2020) (holding buyer’s unjust enrichment claim against 16 broker failed where seller, rather than buyer, paid the broker's commission and thus buyer 17 did not confer a benefit on the broker); Allyis, Inc. v. Schroder, No. 74511-5-I, 2017 WL 18 751329, at *4-5 (Wash. Ct. App. Feb. 27, 2017) (unpublished) (compiling cases and 19 affirming the trial court’s determination that the first element of an unjust enrichment claim 20 requires the plaintiff to “directly confer a benefit on the defendant”). 21 The Complaint states that NCI conferred a benefit upon “Amber when it transferred 22 NC Interactive’s intellectual property and non-public, proprietary information to Amber . 23 . . [and] Amber transferred that property to Syndicate and Superpower, which used NC 24 Interactive’s property to create and sell NFTs and SYNR tokens without the necessary 25 contractual rights.” Dkt. # 24 ¶ 67. Plaintiff’s articulation of the facts indicate that any 26 benefit Syndicate Defendants may have received was conferred by Amber, not by NCI. [27] 1 Plaintiff’s unjust enrichment claim relies on the indirect conferral of a benefit 2 through Amber’s transaction with Syndicate Defendants. Therefore, NCI has not plausibly 3 established the first element of their unjust enrichment claim. The Court GRANTS 4 Syndicate Defendants’ motion to dismiss NCI’s unjust enrichment claim. Accordingly, the 5 Court need not reach Syndicate Defendants’ other arguments regarding the unjust 6 enrichment claims. 7 On a Rule 12(b)(6) motion, “a district court should grant leave to amend even if no 8 request to amend the pleading was made, unless it determines that the pleading could not 9 possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. v. N. Cal. 10 Collection Serv., Inc., 911 F.2d 242 , 247 (9th Cir. 1990). The Court concludes that Plaintiff 11 can plead no facts consistent with the allegations in the Complaint that would enable them 12 to cure its unjust enrichment claim. Therefore, the Court DISMISSES Plaintiff’s unjust 13 enrichment claim against Syndicate Defendants with prejudice and without leave to amend. 14 E. Tortious Interference 15 Syndicate Defendants argue that Plaintiff fails to allege facts of intentional 16 interference or improper purpose to support the third and fourth elements of a tortious 17 interference claim. See Dkt. # 41 at 22-25. 18 Under Washington State law, to plead a claim for tortious interference with a 19 business expectancy, a plaintiff must allege “(1) the existence of a valid contractual 20 relationship or business expectancy; (2) that defendants had knowledge of that relationship; 21 (3) an intentional interference inducing or causing a breach or termination of the 22 relationship or expectancy; (4) that defendants interfered for an improper purpose or used 23 improper means; and (5) resultant damage.” Leingang v. Pierce Cnty. Med. Bureau, Inc., [24] 131 Wash.2d 133, 157 (1997). The fourth element requires the interference to “be 25 wrongful by some measure beyond the fact of the interference itself, such as a statute, 26 regulation, recognized rule of common law, or an established standard of trade or 27 profession.” Moore v. Commercial Aircraft Interiors, LLC, 278 P.3d 197, 200 (Wash. 1 2012). 2 Syndicate Defendants argue that the MSA indicates that they clearly intended not 3 to interfere with NCI and Amber’s relationship. See Dkt. # 41 at 23. Syndicate Defendants 4 cite express warranties in the MSA to dispute Plaintiff’s claims that they intentionally 5 interfered with Amber and NCI’s business relationship. Id.; see also Dkt. # 41, Ex. 1. 6 However, Defendants’ intent is a disputed fact and “a court may not take notice of a fact 7 that is ‘subject to reasonable dispute.’” Lee, 250 F.3d at 689 (quoting Fed. R. Evid. 201(b)). 8 In any event, the issue before the Court is not whether Syndicate Defendants had an 9 intention to interfere, but rather to determine whether Plaintiff plausibly stated claim for 10 relief. 11 Plaintiff’s Complaint asserts that Syndicate Defendants intentionally interfered with 12 Amber’s obligations under the GLA. See Dkt. # 24 ¶¶ 78-83. Plaintiff alleges that 13 Syndicate Defendants knew they were using NCI’s images and that Amber did not have 14 written authorization to do so. Id. ¶ 36. Further, Plaintiff alleges that Syndicate Defendants 15 knew about Amber’s obligation to pay royalties on items such as NFTs but did not share 16 the revenue from their cryptocurrency product sales with NCI. Id. ¶¶ 39-40, 81-83. 17 Additionally, Plaintiff alleges Syndicate Defendants knew about the sublicensing 18 prohibition and signed the MSA in parallel with the GLA without disclosing information 19 about it to NCI. Id. ¶¶ 33-34. These allegations are sufficiently detailed to plausibly claim 20 that Syndicate Defendants intentionally interfered with NCI and Amber’s business 21 relationship. Therefore, NCI has alleged facts to establish the third element of tortious 22 interference. 23 Further, Syndicate Defendants argue that NCI fails to establish an interference 24 through improper means or for an improper purpose. Dkt. # 41 at 24. The Court agrees. 25 For the fourth element, the interference “must be wrongful by some measure beyond the 26 fact of the interference itself, such as a statute, regulation, recognized rule of common law, 27 or an established standard of trade or profession.” Moore, 278 P.3d at 200 . The Complaint 1 fails to state a wrongful measure beyond the interference itself. See Dkt. # 24 ¶¶ 78-83. 2 The Court concludes that it is possible for Plaintiff to plead facts consistent with the 3 allegations in the Complaint that would cure its tortious interference claim. Therefore, the 4 Court DISMISSES Plaintiff’s tortious interference claim with leave to amend within 21 5 days of the entry of this Order. 6 V. CONCLUSION 7 For the foregoing reasons, the Court GRANTS in part and DENIES in part 8 Syndicate Defendants’ Motion to Dismiss. Dkt. # 41. Plaintiff’s unjust enrichment claims 9 against Syndicate and Superpower, Dkt. # 24 ¶¶ 65-69, are DISMISSED with prejudice. 10 The Court grants Plaintiff leave to file an amended complaint within 21 days of the entry 11 of this Order. In light of this ruling, the Court DENIES as moot Syndicate Defendants’ 12 Motion for a Protective Order Staying Discovery. Dkt. # 67. [14] 15 Dated this 26th day of April, 2024 [17] 18 A [19] 20 The Honorable Richard A. Jones United States District Judge