StorageCraft Technology v. Persistent Telecom Solutions
2:14-cv-00076
D. Utah
Dec 6, 2016

Background

  • StorageCraft develops ShadowProtect backup software and proprietary Data Center Recovery Product (DCRP) used to restore Image Files.
  • Doyenz (later assets purchased by Persistent) had an MSP Distribution Agreement with StorageCraft licensing StorageCraft products and the DCRP for cloud backup services; StorageCraft consented to assignment to Persistent.
  • StorageCraft notified Persistent it would not renew the MSP Distribution Agreement; Persistent exercised a contested transitional extension and later paid $285,000 for a 3-month license to use the DCRP after termination.
  • Persistent developed a Replacement Solution (rCloud) to continue cloud services; StorageCraft alleged Persistent continued to rely on StorageCraft code/components and instructed customers to install tools in ways that caused unlicensed RAM copies.
  • StorageCraft sued for copyright infringement, UCA violation, conversion, IP-related breach of contract, and intentional interference; Persistent counterclaimed for breach of the covenant of good faith and fair dealing and unjust enrichment.
  • Court heard cross-motions for partial summary judgment and resolved which claims survive summary judgment.

Issues

Issue StorageCraft's Argument Persistent's Argument Held
Whether StorageCraft breached implied covenant of good faith by denying Persistent use of DCRP during transitional extension StorageCraft says agreement did not require allowing DCRP use during extension and its actions followed contract terms Persistent says covenant required StorageCraft to allow DCRP use so it could fulfill existing MSP agreements Court: Genuine dispute of material fact as to whether StorageCraft owed an implied duty to permit DCRP use during the transitional extension; summary judgment denied on that aspect of counterclaim
Whether Persistent was entitled to unjust enrichment because the $285,000 license was procured under duress StorageCraft says valid contract existed; no duress Persistent says it paid under economic duress to avoid harm to customers Court: Persistent failed to show improper threat or lack of reasonable alternatives; summary judgment for StorageCraft on unjust enrichment claim
Whether Persistent is liable for contributory copyright infringement for encouraging end-user breaches of EULA and causing unlicensed copies (RAM copies/installations) StorageCraft contends Persistent instructed users to install components causing unlicensed copying, and EULA limits create scope beyond license Persistent contends EULA breaches are contractual only and lack proof of specific infringing acts by users Court: Sufficient circumstantial evidence exists that users followed Persistent's instructions and made unlicensed copies; contributory infringement claim survives summary judgment against Persistent
Whether StorageCraft's conversion claim succeeds (deprivation of possession) StorageCraft claims Persistent interfered with software Persistent argues software is intangible and StorageCraft retained possession and continued selling/supporting software Court: StorageCraft retained possession/use of its code; conversion claim dismissed (summary judgment for Persistent)
Whether StorageCraft's UCA and IP-related breach/intentional interference claims are preempted by Copyright Act StorageCraft argues UCA/breach/interference contain extra elements (intent, contractual violation) making them qualitatively different from federal copyright claims Persistent argues state claims are essentially copyright claims and preempted Court: State claims require extra elements (e.g., intent, contractual breach) and are not preempted; UCA, breach of contract (IP), and intentional interference survive summary judgment

Key Cases Cited

  • Oakwood Village LLC v. Albertsons, 104 P.3d 1226 (Utah 2004) (limits on implied covenant of good faith and fair dealing)
  • Metro-Goldwyn-Mayer Studios Inc. v. Grokster, 545 U.S. 913 (2005) (doctrine of secondary copyright liability)
  • MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir.) (loading software into RAM can create a copy for copyright purposes)
  • MDY Indus., LLC v. Blizzard Entertainment, Inc., 629 F.3d 928 (9th Cir.) (distinguishing license scope and infringement)
  • Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115 (9th Cir.) (nonexclusive licensee generally cannot be sued for infringement absent action beyond license scope)
  • Jacobsen v. Katzer, 535 F.3d 1373 (Fed. Cir.) (scope-limited licenses can support infringement claims when licensee exceeds scope)
  • Harold Stores, Inc. v. Dillard Dep't Stores, Inc., 82 F.3d 1533 (10th Cir.) (preemption test for state-law claims by the Copyright Act)
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