United States District Court, E.D. Virginia, Norfolk Division
MEMORANDUM OPINION AND ORDER
G. DOUMAR UNITED STAGES DISTRICT JUDGE
matter comes before the Court on Virtustream, Inc.'s
("Defendant") Motion to Dismiss Plaintiffs First
Amended Complaint ("Motion to Dismiss"). ECF No.
13. For the reasons stated herein, Defendant's Motion to
Dismiss the Amended Complaint is GRANTED IN PART and DENIED
October 7, 2016, TFOR LLC ("Plaintiff') filed the
complaint against Defendant. ECF No. 1. On January 18, 2017,
Plaintiff filed the First Amended Complaint
("FAC"), which is at issue here. ECF No. 12. The
FAC asserts the following seven claims: (1) declaratory
judgment; (2) misappropriation of invention; (3)
misappropriation of trade secret; (4) conversion; (5)
misappropriation of trade secret in violation of 18 U.S.C.
§ 1836; (5) breach of contract and/or breach of
constructive trust; and (6) fraud in the inducement.
Id. On February 1, 2017, Defendant filed the instant
Motion to Dismiss and supporting memorandum ("Def.
Mem.") seeking dismissal of all seven claims in the FAC.
ECF Nos. 16, 17. On February 15, 2017, Plaintiff filed a
Brief in Response to Defendant's Motion to Dismiss
("PI. Resp."). ECF No. 18. On February 21, 2017,
Defendant filed a Reply Memorandum ("Def. Reply").
ECF No. 20.
same day, Plaintiff filed a Motion for Leave to File a
Supplemental Brief ("PI. Suppl. Br. I") on the
grounds that, after filing its response brief on February 15,
2017, Plaintiff reportedly discovered that a key factual
representation made by Defendant in the briefing was
inaccurate. ECF No. 21. On February 24, 2017, the Court
granted Plaintiffs motion for leave to file. On March 1,
2017, Defendant filed a brief in opposition to Plaintiffs
Supplemental Brief. ECF No. 23. With leave of the Court,
Plaintiff then filed a response to Defendant's opposition
brief on March 6, 2017. ECF Nos. 24, 25. Defendant filed a
rebuttal on March 7, 2017. ECF No. 26. On March 13, 2017,
Plaintiff filed a second motion for leave to file an
additional responsive brief, which was denied by the Court on
April 3, 2017. ECF Nos. 27, 29.
23, 2017, in anticipation of the hearing on Defendant's
Motion to Dismiss, the Court ordered the parties each to
submit a one-page status report on the patent application,
Serial No. 15/008, 608, which is discussed in the
parties' briefing. On May 30, 2017, in accordance with
this Order, the parties submitted their respective status
reports. ECF No. 32 (Plaintiffs) and ECF No. 33
(Defendant's). On June 1, 2017, the parties appeared
before the Court and presented oral argument on
Defendant's Motion to Dismiss. See ECF No. 34. During
this hearing, the Court instructed Plaintiff to submit
additional legal support, if any, for the FAC's Seventh
Claim (Fraud in the Inducement). On June 5, 2017, pursuant to
this instruction and with Defendant's consent, Plaintiff
filed a supplemental brief to address the assignability of
fraud claims under Virginia law ("PI. Suppl. Br.
II"). ECF No. 35. On June 9, 2017, Defendant
filed a response in opposition to Plaintiffs supplemental
brief ("Def. Supp. Resp. II"). ECF No. 38.
Defendant's Motion to Dismiss is now ripe for decision by
motion to dismiss for failure to state a claim, the Court
accepts the plaintiffs properly pleaded factual allegations
as true. Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555 (2007). A summary of the facts alleged in Plaintiffs
First Amended Complaint follows.
2004, David von Vistauxx ("DvV") began developing
an idea for encryption software, which was designed to take
"digitized intelligible information and divid[e] that
information into randomized strings of data none of which
contain any information." FAC ¶ 9. Unlike prior
art, the invention "can reassemble [the data] without
having to make intermediate reassembles." Id.
DvV recorded his ideas for this invention and logged his
testing results of same in a single notebook
("Notebook"), which has entries spanning from April
17, 2004, to June 1, 2015. Id. ¶ 14. DvV called
the invention "Trans Encryption" ("TE").
Id. ¶ 8.
May, 2015, Defendant recruited DvV to work as a Senior SOC
Analyst in the Defendant's facility in
Fairfax, Virginia. FAC ¶¶ 8, 16; see May 6, 2015
Engagement Letter, Id. at Ex. 2. On May 6, 2015,
Defendant sent an engagement letter to DvV, which had as an
attachment the company's Proprietary Information and
Invention Assignment Agreement ("PIIAA") and which
instructed DvV to accept Defendant's offer of employment
by executing said agreement. May 6, 2015 Engagement Letter,
Id. at Ex. 2. In May 2015, both DvV and Defendant
signed the PIIAA, which took effect on DvV's first day of
employment, June 1, 2015. Id. at 8. The executed
PIIAA is attached as Exhibit 2 to the FAC. The PIIAA
contains a clause entitled "Prior Inventions, "
which provides, in part:
I have disclosed on Exhibit A a complete list of all
Inventions that (a) I have, or I have caused to be, alone or
jointly with others, conceived, developed, or reduced to
practice prior to the commencement of my employment by
Company: (b) in which I have an ownership interest or which I
have a license to use: (c) and that I wish to have excluded
from the scope of this Agreement (collectively referred to as
"Prior Inventions"). . . If, in the course of my
employment with Company, I incorporate a Prior Invention into
a Company process, machine or other work, I hereby grant
Company a non-exclusive, perpetual, fully-paid and
royalty-free, irrevocable and worldwide license .,. to
reproduce, make derivative works of, distribute, publicly
perform, and publicly display in any form or medium . . .,
make, have made, use, sell, import, offer for sale, and
exercise any and all present or future rights in such Prior
PIIA, FAC at Ex. 2, § 2.2. The PIIAA also contains the
following assignment clause:
Subject to the subsection entitled Government or Third Party
and except for Inventions that I have set forth in Exhibit A,
I hereby assign and agree to assign in the future (when any
such Inventions or Intellectual Property Rights are first
reduced to practice or first fixed in a tangible medium, as
applicable) to Company all my right, title, and interest in
and to any and all Inventions (and all Intellectual Property
Rights with respect thereto) made, conceived, reduced to
practice, or learned by me, either alone or with others,
during the period of my employment by Company.
alleges that, prior to signing the PIIAA, DvV "insisted
that the PIIAA be amended to exclude from its scope [TE] and
other works of the inventor." FAC ¶ 17. When DvV
executed the PIIAA, he attached as "Exhibit A" a
handwritten list of eight "Prior Inventions, "
including "(2) all work/design in
TransEncryption." PIIAA, Id. at Ex. 2, at
9. DvV also handwrote the following clause beneath his
signature on the signature page of the PIIAA:
"Addendum 'Exhibit A' attached including
areas of work excluded from this PIIAA." Id. at 8.
began his employment with Defendant on June 1, 2015. FAC
¶ 14. On June 6, 2015, "on his own time and
equipment, " and understanding that it was "his
work, " DvV conducted an additional test of TE on a
network configuration that was transatlantic in scope.
Id. ¶ 24. From June 16 through 18, 2015, DvV
attended a data residency conference in Berlin. Id.
¶¶ 18, 26. During his return trip, DvV realized
that TE could be used to solve an important problem relating
to international data residency, which could make TE
marketable. Id. ¶ 25. On June 19, 2015, DvV
outlined a "business proposal" for "engaging
Defendant in this project" and pitched the proposal,
including his "proposed terms for engaging Defendant,
" to his supervisor at Defendant, Brian Fennimore.
Id. ¶ 26. DvV then told Mr. Fennimore that
"a non-disclosure agreement would be needed to say
more." Id. That same day, Mr. Fennimore told
DvV via email that one of Defendant's co-founders was
"very interested" in the proposal. Id.
Fennimore's request, DvV then drafted a "one-page
summary of the business proposal, " which DvV called
"ROME." Id. ¶ 28. DvV submitted this
one-page document and additional revisions thereof to Mr.
Fennimore between June 22 and early July of 2015.
Id. "In July [DvV] also drafted a longer
document setting out the business case, laying out the
proposal in detail and including a non-disclosure
agreement." Id. The first two pages of this
document are attached to the FAC as Exhibit 4. Plaintiff
alleges that "[t]his proposal was written by DvV on his
own time, on his own equipment, in his own personal
office." Id. On October 13, 2015,
"Defendant asked DvV to again submit the ROME business
proposal." FAC ¶ 33. Then, in early December 2015,
Mr. Fennimore "notified DvV that Defendant would be
interested in pursuing the ROME business proposal and a
patent for [TE]." Id. ¶ 34.
December 2, 2015, DvV was contacted via email by
Defendant's patent attorney who said he was
"instructed to draft a patent application based on your
invention disclosure EMC-15-1154" and to file the
application before the end of the year. Id. ¶
35; Id. at Ex. 5. DvV responded by email with his
availability and indicated to the patent attorney that DvV
"conceived" of the ROME concept "during and
shortly after" his attendance at the data residency
conference in Berlin. Id. at Ex. 5. In that same
email, DvV also indicated that he had "reduced [the ROME
concept] to practice on my own time, utilizing my own
servers, and other than discussions with [Mr. Fennimore]
regarding required disclosure, no company time or equipment
has been authorized or used for this development."
McLoughlin, the Associate General Counsel for EMC,
Defendant's corporate owner, was copied on the above
email exchange between DvV and Defendant's patent
attorney. FAC ¶ 36. In response to the exchange, Mr.
McLoughlin requested an "oral discussion" with DvV.
Id. ¶ 37. This discussion took place on
December 4, 2015, during which McLoughlin told DvV that
"what DvV had done prior to employment belonged to DvV
but what DvV had done after employment belonged to
Defendant." Id. During that same discussion,
"DvV asserted that under his agreement with Defendant
what he did on [TE] on his own time and equipment belonged to
him in the same way that [TE] had been specifically excluded
from the PIIAA." Id. Plaintiff alleges that, on
information and belief, "McLoughlin was not aware at
that time that the Defendant's standard PIIAA had been
modified for DvV to exclude Trans Encryption."
'608 Patent Application
December 3 through December 31, 2015, DvV worked with
Defendant's patent attorney to complete the patent
application "in accordance with the [TE] technology
disclosed in the Notebook." ]d ¶ 39. On December
31, 2015, the patent attorney emailed DvV (1) the draft
patent application; (2) a declaration form in need of
DvV's signature, (3) an assignment form in need of
DvV's signature; and (4) an Application Data Sheet
("ADS") naming Defendant as the applicant pursuant
to DvV's assignment. Id. ¶ 40. DvV then
signed the declaration form but did not sign the assignment
form. Id. DvV refused to execute the assignment
because TE was "specifically excluded from his work with
Defendant by the PIIAA" and "because the financial
terms of his ROME business proposal had not yet been
December of 2015 and early 2016, DvV engaged in numerous
communications with Defendant regarding TE. Id.
¶ 42. "DvV anticipated that negotiations in
response to his ROME business proposal would resolve how the
parties would be compensated, and this was the basis on which
DvV helped with the patent preparation during December
2015." Id. DvV explicitly stated to Defendant
that he would not assign his TE invention "without
compensation and an executed written contract following
through on his ROME business proposal." Id.
January 28, 2016, Defendant filed the patent application,
Serial No. 15/008, 608, ("'608 Patent
Application") with the United States Patent and
Trademark Office ("USPTO") without DvV's
knowledge or permission. Id. ¶ 44. This
application included DvV's signed declaration but not an
assignment form, which DvV refused to sign. Id.
Plaintiff alleges that "[t]he '608 Application was
completely derived from the pre-employment Notebook of the
Inventor DvV, and did not include DvV's post Berlin work
or work done as an employee of Defendant." W.¶41.
Termination from Defendant
about March 10, 2016, DvV was relieved from his duties with
Defendant, ]d ¶ 45. Three weeks later, he was
terminated. Id. After his termination, Defendant
transferred a small sum into DvV's account as a
"bonus" for developing TE. Id. ¶ 46.
DvV returned the sum to Defendant in full. Id. On
April 5, 2016, DvV filed a provisional application for a
patent, No. 63/318, 714, which consisted of the USPTO form
and the Notebook ('"714 Provisional
Application"). Id., ¶ 49.
September 6, 2016, DvV assigned all of his right, title and
interest in the '714 Provisional Application, the
'608 Patent Application, TE, and the Notebook to TFOR
LLC, the named Plaintiff in this case. Id. ¶
50; see Executed Assignment, Id. at Ex. 1.
moves to dismiss Plaintiffs FAC in its entirety under Rules
12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure
(hereinafter, "Rule 12(b)(1)" and "Rule
12(b)(6), " respectively). ECF No. 16 at 1.
Motion to Dismiss for Lack of Subject Matter Jurisdiction
defendant may challenge subject matter jurisdiction under
Rule 12(b)(1) in one of two ways: (1) by contending that the
complaint is insufficient on its face to establish such
jurisdiction or (2) by challenging the factual predicate of
subject matter jurisdiction set forth in the complaint.
Kerns v. United States. 585 F.3d 187, 192 (4th Cir.
2009) (citing Adams v. Bain. 697 F.2d 1213, 1219
(4th Cir. 1982)). In the first case, the facts alleged in the
complaint are taken as true, and the motion must be denied if
the complaint alleges sufficient facts to invoke subject
matter jurisdiction. Id. In the second case, the
plaintiff is afforded less procedural protection: the
district court need not presume the truthfulness of the
complaint and is instead "entitled to decide disputed
issues of fact with respect to subject matter
jurisdiction." Id. The court may consider
evidence outside the pleadings to make this determination.
Richmond. Fredericksburg & Potomac R. Co. v. United
States. 945 F.2d 765, 768 (4th Cir. 1991). Additionally,
in the second case, the plaintiff bears the burden of proving
subject matter jurisdiction. Adams. 697 F.2datl219.
Motion to Dismiss for Failure to State a Claim
defendant may also move to dismiss a complaint under Rule
12(b)(6) on the grounds that it fails to state a claim on
which relief can be granted. Such a motion should be granted
if it appears that the plaintiff is not "entitled to
relief under any legal theory which might plausibly be
suggested by the facts alleged." Harrison v. United
States Postal Serv., 840 F.2d 1149, 1152 (4th Cir. 1988)
(citation omitted). To survive a motion to dismiss, the facts
alleged in the complaint "must be enough to raise a
right to relief above a speculative level" and must be
sufficient "to state a claim to relief that is plausible
on its face." Twombly, 550 U.S. at 547. In
resolving a Rule 12(b)(6) motion, the court must assume the
truth of all facts alleged in the complaint and construe the
factual allegations in favor of the non-moving party.
Robinson v. Am. Honda Motor Co., 551 F.3d 218, 222
(4th Cir. 2009). But the court is not bound by the
complaint's legal conclusions. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). Furthermore, the court
may not consider any matters outside the pleadings, but it
may consider written instruments that are attached as
exhibits to a pleading, Occupy Columbia v. Haley,
738 F.3d 107, 116 (4th Cir. 2013), as these exhibits are
"part of the pleading for all purposes, "
Fed.R.Civ.P. 10(c). Where the complaint's bare
allegations conflict with such an exhibit, the exhibit
controls. Favetteville Inv'rs v. Commercial Builders.
Inc., 936 F.2d 1462, 1465 (4th Cir. 1991).
Motion to Dismiss seeks dismissal of each of the seven claims
alleged in Plaintiffs First Amended Complaint. They are
discussed in turn.
First Claim: Declaratory Judgment
First Claim seeks a declaratory judgment that (1) DvV was the
rightful applicant and owner of the invention when the
'608 Patent Application was filed; and (2) that all
ownership, rights, and interests in TE, the ROME business
proposal, and the '608 Patent Application are exclusively
owned by Plaintiff. FAC ¶¶ 97-100. In its Motion,
Defendant moves to dismiss the First Claim on two grounds:
(1) that the claim is moot, and (2) that it fails to state a
claim on which relief can be granted.