Sitelink Software, LLC v. Red Nova Labs, Inc., 061416 NCSUP, 14 CVS 9922

Docket Nº:14 CVS 9922
Opinion Judge:James L. Gale Chief Special Superior Court Judge
Party Name:SITELINK SOFTWARE, LLC, Plaintiff, v. RED NOVA LABS, INC., Defendant.
Attorney:Daughtry, Woodard, Lawrence & Starling by Luther D. Starling, Jr. for Plaintiff. Morningstar Law Group by W. Swain Wood, J. Christopher Jackson, and John T. Kivus for Defendant.
Case Date:June 14, 2016
Court:Superior Courts of Law and Equity of North Carolina
 
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2016 NCBC 43

SITELINK SOFTWARE, LLC, Plaintiff,

v.

RED NOVA LABS, INC., Defendant.

No. 14 CVS 9922

Superior Court of North Carolina, Wake

June 14, 2016

Daughtry, Woodard, Lawrence & Starling by Luther D. Starling, Jr. for Plaintiff.

Morningstar Law Group by W. Swain Wood, J. Christopher Jackson, and John T. Kivus for Defendant.

ORDER & OPINION

James L. Gale Chief Special Superior Court Judge

I. INTRODUCTION

{1} THIS MATTER is before the Court on Plaintiff SiteLink Software, LLC's Motion to Dismiss Counterclaims of Defendant Red Nova Labs, Inc. ("Motion"), brought under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure ("Rule(s)"). For the reasons discussed below, the Court GRANTS the Motion and DISMISSES the challenged counterclaims without prejudice.

{2} This lawsuit is between two companies that develop and market facility-management software for the self-storage industry. The dispute centers on the ability of Red Nova Labs, Inc. ("Red Nova") and its customers to access SiteLink Software, LLC's ("SiteLink") application-programming interface ("API") and underlying database.

{3} SiteLink issues licenses to use its API and facility-management software, but conditions those licenses on the user's agreement not to purchase any product or service from SiteLink's competitors in the self-storage management-software industry, including Red Nova.

{4} SiteLink contends that Red Nova improperly accessed SiteLink's API by competing with SiteLink while the API license agreement was still in place and by later accessing the API without SiteLink's consent. Red Nova claims that SiteLink's API licensing agreement imposes a restraint of trade in violation of North Carolina's antitrust laws, and that SiteLink has engaged in unfair methods of competition, including tortiously interfering with Red Nova's contracts.

II. PROCEDURAL HISTORY

{5} SiteLink initiated this action on July 24, 2014, by filing a verified complaint in Wake County District Court. On September 29, 2014, Red Nova filed an answer, counterclaims, and a motion to transfer the matter to Wake County Superior Court.

{6} The district court entered a consent order to transfer the case to the superior-court division on October 28, 2014. That same day, Red Nova filed a notice of designation, and the matter was designated as a mandatory complex business case. The case was assigned to the undersigned on October 29, 2014.

{7} The Court entered a Consent Preliminary Injunction on May 4, 2015.

{8} SiteLink filed its Amended Verified Complaint for Permanent Injunction and Other Relief ("Amended Complaint") on August 4, 2015.

{9} Red Nova filed its answer to the Amended Complaint on August 14, 2015, along with counterclaims for (1) tortious interference with contract, (2) anticipatory repudiation of contract, (3) defamation, and (4) unfair and deceptive trade practices and antitrust violations under sections 75-1, 75-1.1, 75-2, and 75-2.1 of the North Carolina General Statutes, N.C. Gen. Stat. §§ 75-1, -1.1, -2, -2.1 (2015).

{10} SiteLink filed its Motion to dismiss some but not all of Red Nova's counterclaims on September 11, 2015. In particular, the Motion targets Red Nova's counterclaims that assert violations of sections 75-1, 75-2, and 75-2.1 (the "antitrust claims"); violations of section 75-1.1, to the extent that claim is based on SiteLink's API licensing agreement; and claims for tortious interference with contract and anticipatory repudiation of contract, to the extent those claims are based on SiteLink's API licensing agreement.

{11} Red Nova filed an amended answer and counterclaims on November 25, 2015, for the sole purpose of amending the factual allegations relating to its defamation claim.1

{12} The Motion has been fully briefed, argued, and is ripe for ruling.

III. STATEMENT OF FACTS

A. The Parties

{13} SiteLink is a North Carolina limited-liability company with a principal place of business located in Wake County, North Carolina.

{14} Red Nova is a Kansas corporation with a principal place of business located in Johnson County, Kansas.

{15} Both SiteLink and Red Nova provide facility-management software to clients that own or operate self-storage facilities.

B. Facility-Management Software in the Self-Storage Industry

{16} The self-storage industry comprises storage-facility owners and operators who rent storage space to consumers. (Def.'s Am. Answer, Defenses, and Countercls. to Pl.'s First Am. Compl. ("Am. Countercls.") ¶ 14.) Storage-facility owners and operators use software technology to perform a variety of functions, including internal office tasks and external customer-facing operations. (Am. Countercls. ¶ 15.)

{17} Less than half of all self-storage-facility operators use customized, facility-specific management software to manage their internal office functions. Red Nova refers to this type of software as facility-management software ("FMS").2(Am. Countercls. ¶ 15.)

{18} SiteLink has provided an FMS package since 2006 and currently provides FMS to approximately eleven thousand facility locations, which equals "approximately 35–40% of the addressable market of self-storage facilities in the United States." (Am. Countercls. ¶ 12.) The Court understands that market to include the portion of self-storage-facility owners or operators that use some type of facility- or business-management software, but not the self-storage facility owners and operators that use less-specialized software, such as a noncustomized database or accounting program.

{19} Apart from FMS packages, self-storage-facility owners and operators use Internet-based services, such as lead generation and website design, to increase the number of units rented at their storage facilities. (Am. Countercls. ¶ 15.) For example, a self-storage-facility owner might contract with a third-party company for access to software that compiles information about potential customers.

C. SiteLink's API

{20} SiteLink does not provide Internet-based services, but it maintains a "Partner" program through which it allows third-party Internet-based-service providers to use its API to access real-time data for mutual customers. (Am. Countercls. ¶¶ 27–29.) The API facilitates communication between software applications, which allows the third-party companies to provide services to SiteLink and the third-party companies' mutual customers (e.g., a website that contains payment functions and integrates with SiteLink's FMS).

{21} Use of the API is subject to SiteLink's licensing terms. (Am. Countercls. ¶¶ 28–30.)

{22} When Red Nova began its operations in 2009, it offered only online-marketing and website-design services. By 2011, Red Nova had begun to offer other online services, including Internet-based lead generation. (Am. Countercls. ¶ 16.) At that time, Red Nova used SiteLink's API to provide Internet-based services to SiteLink's FMS customers but did not offer its own FMS platform. (Am. Countercls. ¶¶ 17, 23.)

{23} Red Nova learned from customers that FMS platforms, including SiteLink's products, "were falling woefully short of meeting" customer needs. (Am. Countercls. ¶ 17.) In particular, Red Nova was advised that SiteLink's online platform did not integrate well with other software functions used in the industry, including those that were the core of Red Nova's product. (Am. Countercls. ¶ 19.)

{24} In fall 2012, Red Nova approached SiteLink to propose that the companies collaborate to provide an FMS platform that could respond to the customer needs that Red Nova had identified. SiteLink declined Red Nova's proposed collaboration. (Am. Countercls. ¶ 21.) At that time, approximately 40% of Red Nova's customers were also SiteLink's customers. (Am. Countercls. ¶ 22.)

{25} Following its discussions with SiteLink, Red Nova continued to use SiteLink's API to offer Internet-based services to SiteLink customers. (Am. Countercls. ¶ 23.)

{26} By 2013, Red Nova had begun to develop its own FMS platform. In January 2014, Red Nova released a "beta" version of its FMS known as storEDGE to two customers, followed by the general release of its FMS in April 2015. (Am. Countercls. ¶¶ 24–25.)

{27} SiteLink first learned of Red Nova's efforts to develop its own FMS platform in fall 2013. (Am. Countercls. ¶ 33.) Red Nova alleges that, at that point, SiteLink began a campaign to prevent Red Nova's FMS from progressing. (Am. Countercls. ¶ 34.) That campaign included efforts by SiteLink to divert Red Nova and SiteLink's mutual customers away from Red Nova, encouraging the customers to switch to SiteLink's other partners to fulfill their...

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