CNC Software, LLC v. Glob. Eng'g Liab. Co.

• Decision Date: 23 March 2023
• Docket Number: 22-cv-02488-TSH
• Parties: CNC SOFTWARE, LLC, Plaintiff, v. GLOBAL ENGINEERING LIMITED LIABILITY COMPANY, et al., Defendants.
• Court: U.S. District Court — Northern District of California

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CNC SOFTWARE, LLC, Plaintiff, v. GLOBAL ENGINEERING LIMITED LIABILITY COMPANY, et al., Defendants.

No. 22-cv-02488-TSH

United States District Court, N.D. California

March 23, 2023

REQUEST FOR REASSIGNMENT WITH REPORT &amp RECOMMENDATION RE: MOTION FOR DEFAULT JUDGMENT RE: DKT. NO 29

THOMAS S. HIXSON UNITED STATES MAGISTRATE JUDGE

I. INTRODUCTION

Plaintiff CNC Software, LLC brings this action against Defendants Global Engineering LLC and Edwin Escobar for copyright infringement in violation of 17 U.S.C. § 101 et seq., violation of the Digital Millennium Copyright Act's anticircumvention prohibitions, 17 U.S.C. §§ 1201 and 1203, and for breach of contract. Pending before the Court is CNC's Motion for Default Judgment. ECF No 29. Defendants have neither opposed the motion nor appeared in this case. The undersigned finds this matter suitable for disposition without oral argument. Civ. L.R. 7-1(b). As not all parties have consented to magistrate judge jurisdiction pursuant to 28 U.S.C. § 636(c), the undersigned requests this case be reassigned to a district judge for disposition. Having reviewed the motion and controlling authorities, the undersigned RECOMMENDS the District Court GRANT the motion for the following reasons.

II. BACKGROUND

CNC, headquartered in Connecticut, is in the CAD/CAM (Computer Aided Design / Computer Aided Manufacturing) industry. Compl. ¶ 25, ECF No. 1. CNC's Mastercam® software is the most widely used CAM system software in the market today and is used in a wide variety of industries including Aerospace, Medical, and Transportation. Id. ¶ 26. CNC's Mastercam® software is protected by several United States copyrights. Id. ¶¶ 12-24, 27-30.

CNC does not sell or assign the ownership to its copyrights, or other intellectual property rights, in its Mastercam® software or to its associated services; instead, CNC licenses its software to its customers through resellers for a fee. Id. ¶ 31. CNC prevents unauthorized access of Mastercam® software through the use of a security mechanism. Id. CNC's license agreement states that customers are not allowed to use the Mastercam® software without the security mechanism, and that Mastercam® can detect the installation or use of illegal copies of the Mastercam® software and collect and transmit data about those illegal copies. Id.

Software hackers reverse engineer the security mechanism and then provide processes and utilities to bypass the license enforcement to allow unauthorized use of the software. Id. ¶ 34. These processes and utilities mimic the license verification technology to allow pirated software to function fully as legally purchased software. Id. Software utilities that mimic the license verification technology are often referred to as “cracked” licenses. Id. Piracy Detection and Reporting Security Software (“PDRSS”) exists to identify instances of pirated software in use and provides the identity and location of organizations utilizing the pirated software to the software providers. Id. ¶ 37.

Global is a California domestic limited liability company located at 3233 De La Cruz Boulevard, Suite C, Santa Clara, California 95054. Id. ¶ 2. Escobar is Global's President. Id. ¶ 5. CNC discovered Defendants were illegally downloading, copying, accessing and using its Mastercam® software via pirated versions of the software modified to bypass CNC's license enforcement technology. Id. ¶¶ 49-54. CNC has identified almost 4,000 instances of detectable infringement of Mastercam® software by Defendants, involving at least 11 computers located at Defendants' offices. Kennedy Decl. ¶¶ 6-7, ECF No. 29-3. Since January 24, 2022, CNC's counsel has made multiple demands to Defendants asking that they cease their unlawful infringement activity, but Defendants have consistently ignored CNC's requests and have continued to use the illegally obtained versions of Mastercam® software. Compl. ¶¶ 55-65.

On April 22, 2022, CNC filed this case against Defendants for direct copyright infringement and contributory and vicarious copyright infringement.1 On June 14 and September 8, 2022, CNC's counsel served Defendants a copy of documents for service. Keshishian Decl. ¶¶ 2-3, ECF No. 29-2; see also ECF Nos. 18-19. After Defendants failed to respond, CNC filed a request for entry of default, which the Clerk of Court entered on October 3, 2022 (Escobar) and November 29, 2022 (Global). ECF Nos. 20-21, 26-27.

CNC filed the present motion on January 5, 2023, seeking a permanent injunction, actual damages totaling $870,000.00; (2) costs of $582.00; (3) attorney's fees of $21,410.50; and (4) any post-judgment interest that accrues pursuant to 28 U.S.C. § 1961(a).

III. LEGAL STANDARD

Federal Rule of Civil Procedure 55(b)(2) permits a court, following default by a defendant, to enter default judgment in a case. “The district court's decision whether to enter default judgment is a discretionary one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980).

At the default judgment stage, the factual allegations of the complaint, except those concerning damages, “together with other competent evidence submitted” are deemed admitted by the non-responding parties. Shanghai Automation Instrument Co. v. Kuei, 194 F.Supp.2d 995, 1000 (N.D. Cal. 2001); see also Fair Hous. of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002) (“With respect to the determination of liability and the default judgment itself, the general rule is that well-pled allegations in the complaint regarding liability are deemed true.”). “However, a defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law.” DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (citation and quotation omitted)). Therefore, “necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1 CNC also named Robert Avila as a defendant but subsequently dismissed its claims against him on September 8, 2022. ECF No. 17 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)); accord DIRECTV, 503 F.3d at 854. Further, the scope of relief is limited by Federal Rule of Civil Procedure 54(c), which states that a “default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.”

In determining whether default judgment is appropriate, the Ninth Circuit has enumerated the following factors for courts to consider:

(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.

Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).

IV. DISCUSSION

A. Jurisdiction and Service of Process

In considering whether to enter default judgment, a district court must first determine whether it has jurisdiction over the subject matter and the parties to the case. In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). “[T]he district court is not restricted to the face of the pleadings, but may review any evidence, such as affidavits and testimony, to resolve factual disputes concerning the existence of jurisdiction.” McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988) (considering subject matter jurisdiction on a 12(b)(1) motion).

1. Subject Matter Jurisdiction

Federal courts are courts of limited jurisdiction and are presumptively without jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A federal court may dismiss an action if it finds that it lacks subject matter jurisdiction. Fiedler v. Clark, 714 F.2d 77, 78-79 (9th Cir. 1983); see also Fed.R.Civ.P. 12(h)(3) (“If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.”). Here, the Court has subject matter jurisdiction because federal courts have exclusive jurisdiction over copyright infringement actions pursuant to 28 U.S.C. § 1338 and 28 U.S.C. § 1331.

2. Personal Jurisdiction

a. Basis for Personal Jurisdiction

To enter default judgment, the Court must have a basis for the exercise of personal jurisdiction over the defendants in default. In re Tuli, 172 F.3d at 712. “Without a proper basis for [personal] jurisdiction, or in the absence of proper service of process, the district court has no power to render any judgment against the defendant's person or property unless the defendant has consented to jurisdiction or waived the lack of process.” S.E.C. v Ross, 504 F.3d 1130, 1138-39 (9th Cir. 2007). Traditional bases for conferring a court with personal jurisdiction include a defendant's consent to jurisdiction, personal service of the defendant within the forum state, or a defendant's citizenship or domicile in the forum state. J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 880 (2011). Absent one of the traditional bases for jurisdiction, the Due Process Clause requires that the defendant have “certain minimum contacts with the forum ‘such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'” Int'l Shoe Co. v. State of Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945) (citations and quotation marks omitted). The party seeking to invoke jurisdiction has the burden of establishing that jurisdiction is proper. Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1392 (9th Cir. 1984). “[M]ere ‘bare bones' assertions of minimum contacts with the forum or legal conclusions unsupported by...