OpenRisk, LLC v. MicroStrategy Services Corp.
876 F.3d 518
4th Cir.2017Background
- OpenRisk contracted with MicroStrategy in Sept. 2011 for cloud hosting of OpenRisk software and data; payments were due quarterly under a five-year agreement.
- Before and after contracting, three principal OpenRisk officers (Ott, Mathai, Murnane) resigned, formed Spectant, and worked with MicroStrategy to set up a Spectant cloud environment.
- OpenRisk alleges MicroStrategy copied OpenRisk’s cloud data to the Spectant environment on Dec. 13, 2011, and then deleted OpenRisk’s cloud environment around Jan. 11, 2012, only notifying OpenRisk of termination on Jan. 20, 2012.
- OpenRisk sued in Virginia state law (diversity jurisdiction) asserting conversion, computer fraud under the Virginia Computer Crimes Act (VCCA) via embezzlement/larceny and trespass, trade-secret misappropriation, tortious interference, and conspiracy.
- The district court granted summary judgment to MicroStrategy: it held conversion and VCCA claims predicated on copying were preempted by the federal Copyright Act; trespass failed for lack of evidence of injury; tortious interference and conspiracy lacked evidentiary support or depended on preempted claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether OpenRisk’s VCCA computer-fraud claims (copying/transfer) are preempted by the Copyright Act | VCCA predicates (embezzlement, larceny) have extra elements (e.g., entrustment, lack of consent) that make claims qualitatively different from copyright infringement | The core of OpenRisk’s claims is unauthorized copying/distribution of software/data — equivalent to copyright rights and therefore preempted | Preempted: federal Copyright Act bars OpenRisk’s conversion and VCCA claims based on copying/transfer |
| Whether embezzlement under Virginia law contains an extra element that avoids preemption | Embezzlement’s ‘‘entrustment’’ requirement creates a duty-based element like trade-secret misappropriation, qualifying as qualitatively different | Virginia embezzlement’s elements are conversion plus lawful possession; entrustment or fiduciary duty is not a required core element | No extra element: embezzlement is not qualitatively different; preempted when based on copying |
| Whether MicroStrategy’s deletion/alteration of OpenRisk data violated VCCA trespass and caused actionable injury | Deletion/alteration occurred before termination notice and injured OpenRisk’s property/liquidation value | OpenRisk was essentially out of business and provided no evidence it needed the data; no proof of injury; deletion arguably contract dispute | No injury shown; summary judgment for MicroStrategy on trespass; court notes potential contract-vs-crime threshold issue |
| Whether MicroStrategy tortiously interfered or conspired to harm OpenRisk | MicroStrategy enabled and induced ex-employees to misuse OpenRisk property; opening access is enough | Evidence shows ex-employees independently decided to form Spectant and use OpenRisk IP; Virginia requires proximate causation and inducement; conspiracy depends on underlying torts | Summary judgment for MicroStrategy: no evidence of inducement/proximate causation; conspiracy fails because underlying torts are preempted or meritless |
Key Cases Cited
- Rosciszewski v. Arete Assocs., 1 F.3d 225 (4th Cir. 1993) (state claims based on unauthorized copying of software are preempted by Copyright Act)
- United States ex rel. Berge v. Bd. of Trs., 104 F.3d 1453 (4th Cir. 1997) (describing §301 preemption two-prong inquiry and its breadth)
- Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655 (4th Cir. 1993) (trade-secret claim not preempted where an extra element—breach of duty of confidentiality—qualitatively distinguishes it)
- Computer Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992) (intent/awareness elements do not change the nature of a copying claim for preemption purposes)
- ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (state contract/license claims can be preempted when they vindicate rights equivalent to copyright)
- Tire Eng’g & Distrib., LLC v. Shandong Linglong Rubber Co., 682 F.3d 292 (4th Cir. 2012) (state conspiracy claim fails if underlying tort is dismissed or preempted)
- United States v. Stockton, 788 F.2d 210 (4th Cir. 1986) (describing traditional elements of embezzlement)
- Stegall v. Commonwealth, 160 S.E.2d 566 (Va. 1968) (Virginia recognizes embezzlement when property is lawfully possessed under rental/entrustment arrangement)