OpenRisk, LLC v. MicroStrategy Services Corp.

876 F.3d 518
CourtCourt of Appeals for the Fourth Circuit
DecidedNovember 13, 2017
Docket16-1852, 16-1906
StatusPublished
Cited by14 cases

This text of 876 F.3d 518 (OpenRisk, LLC v. MicroStrategy Services Corp.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fourth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
OpenRisk, LLC v. MicroStrategy Services Corp., 876 F.3d 518 (4th Cir. 2017).

Opinion

Affirmed by published opinion. Judge Harris wrote the opinion, in which Judge Wynn and Judge Floyd joined.

PAMELA HARRIS, Circuit Judge:

In 2011, OpenRisk, LLC contracted with MicroStrategy Services Corporation to create a cloud environment that would host OpenRisk data and programming.. But soon after, OpenRisk faced insolvency, and three of its principal officers resigned. At issue in this case is whether MicroStrategy wrongfully continued to provide services to OpenRisk’s ex-employees after they had left and formed a new company, Spectant Group LLC.

In particular, OpenRisk alleges that at the direction of its recently departed officers and without its knowledge, MicroStra-tegy copied and transferred data from the OpenRisk cloud environment to a new environment established for Spectant. And then, according to OpenRisk, MicroStrate-gy deleted the data from OpenRisk’s environment, without the notice of termination required by the' parties’ contract. When OpenRisk became aware of the copying and deletion of its data, it sued MicroStra-tegy for computer fraud under Virginia’s Computer Crimes Act and for other state-law violations.

The district court granted summary judgment almost entirely in Microstrate-gy’s favor. The primary issue now on appeal is whether the district court correctly held that the federal Copyright Act preempts OpenRisk’s computer fraud claims. We agree .with the district court that it does. We further agree that Mi-croStrategy is entitled to summary judgment on OpenRisk’s other claims against it. Accordingly, we affirm .the district court’s judgment in its entirety.

I.

A.

OpenRisk was a start-up company that ceased operations in 2011, shortly after the resignation of three of its key employees: President Craig Ott, Chief Technology Officer Shajy Mathai, and Chief Scientist Richard Murnane. This dispute arises out of Microstrategy’s dealings with the three employees, before and, critically, after their resignations.

Otf, Mathai, and Murnane began their relationship with MicroStrategy even before they formed OpenRisk, using MicroS-trategy-lieensed software to develop a computer program that would allow insurance companies to analyze exposure to natural disasters. Their business model included the creation of a web-based platform that customers could access on the “cloud,” or via the internet. To further this effort, they partnered with investors to establish OpenRisk in January 2011, and in September 2011, OpenRisk contracted with MicroStrategy for “cloud services.”

Under the parties’ contract, MicroStra-tegy agreed to provide OpenRisk with access to space on Microstrategy’s servers— a “cloud environment”—on which Open-Risk would store data and run the software it was licensing. In exchange, Open-Risk agreed .to make initial payments to MicroStrategy of $15,000 on October 31 and November 30, 2011, followed by quarterly payments of $63,000 thereafter, totaling approximately $1.26 million over the contract’s five-year term.

But at the time it entered into this contract with MicroStrategy, OpenRisk was already in dire financial straits. When OpenRisk was unable to close negotiations with a new investor, Ott, Mathai, and Mur-nane all resigned from OpenRisk and formed a new company, Spectant. And with Microstrategy’s help, OpenRisk alleges, they took OpenRisk’s data with them.

Specifically, OpenRisk points in its complaint to two key acts by MicroStrategy. First, on December 13, 2011, just hours after receiving a cease-and-desist letter from OpenRisk urging it to “cease and refrain from doing any work and making any efforts to commercialize the OpenRisk property with [Ott, Mathai, and Mur-nane],” J.A. 1068-70, MicroStrategy copied the data from the OpenRisk cloud environment and transferred it to a new environment created for Spectant. And second, on or around January 11, 2012, and after OpenRisk failed to make its first quarterly payment under the contract, MicroStrate-gy deleted the entire OpenRisk environment and all of its contents from its servers. Only after the data had been erased, on January 20, 2012, did MicroStrategy .provide OpenRisk with notice of contract termination for non-payment.

B.

OpenRisk sued MicroStrategy in the United" States District Court for the Eastern District of Virginia, invoking the court’s diversity jurisdiction. With respect to Microstrategy’s transfer of computer data from the OpenRisk to the Spectant cloud environment, OpenRisk raised Virginia state-law claims of conversion of intellectual property; computer fraud by embezzlement, larceny, and conversion under the Virginia Computer Crimes Act (“VCCÁ”); and misappropriation of trade secrets. The deletion of data from the OpenRisk environment, OpenRisk alleged, constituted unlawful trespass under the VCCA. OpenRisk also claimed that 'Mi-croStrategy tortiously interfered with the post-employment contractual duties owed to OpenRisk by its former employees, and engaged in unlawful business and civil conspiracies under Virginia law. 1

At the close of discovery, MicroStrategy moved for summary judgment, arguing that the federal Copyright Act preempts OpenRisk’s state-law claims for conversion and computer fraud, and that OpenRisk had failed to put forward sufficient evidence to support a favorable verdict on its other claims. OpenRisk cross-moved for partial summary judgment on its computer fraud and trespass cláims under the VCCA. The district court ruled for Mi-croStrategy, denying OpenRisk’s motion ánd granting Microstrategy’s motion for summary judgment on all claims relevant here. 2

The court began with what is now the primary issue on appeal: whether state-law claims arising from the copying and transfer of OpenRisk’s computer data are preempted.by the federal Copyright Act. The district court .held that, they are. In “substance,” the district court explained, OpenRisk’s claims for conversion and, under the VCCA, for embezzlement and larceny, all are premised, on “underlying conduct” that falls within the scope of copyright protection—the unauthorized copying of data—and thus preempted. J.A. 527. As for the deletion of data from the OpenRisk environment, the court held, OpenRisk could not prevail on its claim of trespass' under the VCCA because it had failed to create a genuine issue of material fact as to whether it had sustained the requisite injury as a result of MicroStrategy’s conduct. The court also noted á “substantial” threshold question as to'whether the deletion of data governed by a contract “even falls within the scope” of the VCCA—á criminal statute—rather than giving rise to an ordinary breach of contract action. J.A. 528.

With respect to OpenRisk’s claim for tortious interference, the district court held that OpenRisk had “not come forward with evidence that would allow a reasonable fact finder to conclude” that MicroS-trategy had induced or caused OpenRisk’s former officers to violate any contractual obligations they may have owed .to Open-Risk. J.A. 626, On the contrary: “The evidence .... quite clearly shows that these officers, independent of any interaction with MicroStrategy ...

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876 F.3d 518, Counsel Stack Legal Research, https://law.counselstack.com/opinion/openrisk-llc-v-microstrategy-services-corp-ca4-2017.