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StorageCraft Technology Corporation v. Persistent Telecom Solutions Inc.

United States District Court, D. Utah, Central Division

November 22, 2016

STORAGECRAFT TECHNOLOGY CORPORATION, a Utah corporation, Plaintiff/Counterclaim Defendant,
v.
PERSISTENT TELECOM SOLUTIONS, INC., a Delaware corporation, D efendant/C ounterclaim Plaintiff.

          REDACTED MEMORANDUM DECISION AND ORDER

          DALE A. KIMBALL United States District Judge

         This matter is before the court on Plaintiff StorageCraft Technology Corporation's ("StorageCraft's") Motion for Partial Summary Judgment on Defendant Persistent Telecom Solutions Inc.'s ("Persistent's") Non-Proprietary Information Based Counterclaims and on Persistent's Motion for Partial Summary Judgment on StorageCraft's Second, Third, Fourth, Fifth, and Eighth Claims for Relief. A hearing on the matter was held on October 26, 2016. At the hearing, StorageCraft was represented by Jason E. Greene, Heather M. Sneddon, Thomas Karrenberg, and John Durham. Persistent was represented by Stanley J. Preston and Brandon T. Crowther. Before the hearing, the court carefully considered the memoranda and other materials submitted by the parties. Since taking the matter under advisement, the court has further considered the law and facts relating to the matter. Now being fully advised, the court renders the following Memorandum Decision and Order.

         BACKGROUND

         StorageCraft is a computer software company that specializes in the development and marketing of backup, disaster recovery, and system migration software. In particular, StorageCraft developed and sells the ShadowProtect family of products, which, once installed on a computer, makes periodic backups of all data contained on the computer's hard drive using StorageCraft's proprietary file format. These backups take the form of Image Files, which are saved to another drive or computer on the same or a remote network and which can be used to quickly restore the data in the event of a disaster.

         Before 2012, Doyenz, hie. was a company that, among other things, provided a cloud services product that allowed its customers to upload backup Image Files created by third-party software for storage on off-site servers controlled by Doyenz ("Doyenz's Cloud") and facilitated recovery of those images from the cloud in the event of a disaster. For much of its history, Doyenz's Cloud was designed to work primarily with backup Image Files created by StorageCraft's ShadowProtect products.

         On December 30, 2009, Doyenz and StorageCraft entered into their first Software Distribution and License Agreement ("SDLA"), which permitted Doyenz to purchase certain StorageCraft products for the purpose of redistributing them in a bundle with Doyenz's Cloud to Managed Service Providers ("MSPs"). MSPs are end users of StorageCraft's software for the benefit of MSP customers and are subject to StorageCraft's End User License Agreement ("EULA") for StorageCraft's ShadowProtect line of products. Shortly after entering into the SDLA, StorageCraft and Doyenz agreed to enter into a license agreement to permit Doyenz to use a group of StorageCraft proprietary tools, referred to as the Data Center Recovery Product ("DCRP"). The DCRP license was incorporated into a new MSP Distribution Agreement that was executed on July 31, 2012, and that expressly superseded the December 2009 SDLA. Doyenz needed the DCRP to restore the Image Files on Doyenz's Cloud to the protected computer in their original format.

         During the fall of 2012, StorageCraft consented to the assignment of its rights and obligations under the MSP Distribution Agreement from Doyenz to Persistent, which was in the process of negotiating the purchase of virtually all of Doyenz's assets. On March 18, 2013, StorageCraft notified Persistent that it would not be renewing the MSP Distribution Agreement, which expired on July 31, 2013, which would have left Persistent without a license to use the DCRP or any of its component parts. However, the MSP Distribution Agreement allowed for a transitional extension period, and Persistent exercised its right to the transitional extension, although StorageCraft disputes whether Persistent met all of the conditions within the agreement required to exercise its right to a transitional extension.

         The MSP Distribution Agreement identifies the rights extended during the transitional extension period. Persistent believed that the rights included the right to use StorageCraft's DCRP, but StorageCraft believed that Persistent did not have the right to use the DCRP during the transitional extension period. StorageCraft offered to grant a license to use the DCRP for a limited period in exchange for a license fee. Persistent maintained that its interpretation of the MSP Distribution Agreement was correct, but Persistent negotiated an extension of the license to use the DCRP. After arm's-length negotiations, Persistent agreed to pay StorageCraft $285, 000 for the right to use the DCRP for three additional months after the termination of the MSP Distribution Agreement, which extended the right to use the DCRP to October 31, 2013.

         During the three additional months, Persistent developed and released a software product ("Replacement Solution") that would allow Persistent to continue to offer cloud storage services through its rCloud product to customers using ShadowProtect software products. Although the Replacement Solution does not directly include the DCRP or its components, it does rely on components of the DCRP included in the ShadowProtect end user's license.

         Around that same time, StorageCraft discovered that Persistent was continuing to offer a version of its cloud services product that could only function by using StorageCraft's copyrighted code. In response, StorageCraft initiated this action claiming that Persistent was engaging in, among other things, direct and contributory copyright infringement. In response, Persistent asserted several counterclaims. StorageCraft renewed a motion for partial summary judgment, which was denied without prejudice to allow further discovery, on Persistent's counterclaims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment. Persistent filed its own motion for partial summary judgment on the following StorageCraft claims for relief: Second (Contributory Copyright Infringement), Third (Violations of the Unfair Competition Act), Fourth (Conversion), Fifth (Breach of Contract - Intellectual Property), and Eighth (Intentional Interference with Contractual Relations).

         DISCUSSION

         The court will address the motions for partial summary judgment in the order that they were filed. Therefore, the court will first address StorageCraft's summary judgment motion on some of Persistent's counterclaims and then the court will address Persistent's summary judgment motion on some of StorageCraft's claims for relief.

         STANDARD OF REVIEW

         Summary judgment is appropriate when the moving party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "An issue of material fact is genuine if a reasonable jury could return a verdict for the non-movant." Jenkins v. Wood, 81 F.3d 988, 990 (10th Cir. 1996) (citation omitted). A fact is material if it "might affect the outcome of the suit under the governing law, " Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         "The moving party has 'both the initial burden of production on a motion for summary judgment and the burden of establishing that summary judgment is appropriate as a matter of law.'" Kannady v. City of Kiowa, 590 F.3d 1161, 1169 (10th Cir. 2010) (quoting Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976, 979 (10th Cir. 2003)). The moving party can meet its burden by "point[ing] to an absence of evidence to support the non-movant's claim." Id. (quoting Sigmon v. CommunityCare HMO, Inc., 234 F.3d 1121, 1125 (10th Cir. 2000)). After the moving party has met its burden, the non-moving party must "bring forward specific facts showing a genuine issue for trial as to those dispositive matters for which it carries the burden of proof." Id. (quoting Jenkins v. Wood, 81 F.3d 988, 990 (10th Cir. 1996).

         PERSISTENT'S NON-PROPRIETARY INFORMATION BASED COUNTERCLAIMS

         StorageCraft moves for summary judgment on Persistent's counterclaims for violating the covenant of good faith and fair dealing and for unjust enrichment. In this section, the court will address both of these counterclaims.

         The Covenant of Good ...


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