Enigma Software Grp. U.S. v. Malwarebytes Inc.
| Decision Date | 09 August 2021 |
| Docket Number | 5:17-cv-02915-EJD |
| Parties | ENIGMA SOFTWARE GROUP USA LLC, Plaintiff, v. MALWAREBYTES INC., Defendant. |
| Court | U.S. District Court — Northern District of California |
Plaintiff Enigma Software Group USA, LLC (“Enigma”) alleges that Malwarebytes Inc. (“Malwarebytes”) wrongfully categorized Enigma's cybersecurity and anti-malware software as “malicious, ” a “threat, ” and as a Potentially Unwanted Program (“PUP”). In its Second Amended Complaint (“SAC”), Enigma asserts claims for (1) violations of the Lanham Act, (2) violations of New York General Business Law § 349, (3) tortious interference with contractual relations, and (4) tortious interference with business relations. Dkt. No. 140.
Malwarebytes moves to dismiss the SAC, asserting that because Enigma's allegations are insufficient as a matter of law, all of Enigma's claims should be dismissed. For the reasons set forth below, Malwarebytes' motion is GRANTED.[1]
Enigma is a Florida limited liability company that designs and develops cybersecurity software to combat malware, ransomware, viruses, Trojans, hackers, and other problematic computer system attacks. SAC ¶¶ 2, 48. Enigma's flagship anti-malware product, SpyHunter 4, was an adaptive malware detection and removal tool that provided rigorous protection against the latest malware threats. Id. ¶ 48. SpyHunter 4 was available on the market until mid-2018, when an Enigma affiliate introduced a new malware software program, SpyHunter 5. Id. Additionally, Enigma offers a PC privacy and software optimizer program known as RegHunter 2. With RegHunter 2, Enigma's aim is to enhance users' personal privacy by providing certain privacy tools such as a powerful file shredding function that ensures secure deletion and prevents unwanted recovery of deleted files. Id. ¶ 49. The program also offers a privacy scan which provides for removal of web browsing history, temporary files, and other web browsing remnants. Id.
As part of its software offerings, Enigma allowed users to download a free scanning version of SpyHunter 4 which would detect whether a computer had malware, spyware, ransomware, Trojans, rootkits, viruses or other malicious or threatening software. Id. ¶ 50. SpyHunter 4 also allegedly detected PUPs based on defined objective and industry-based criteria. Id. In addition to the free scanning version, Enigma also gave users the option to buy the full version of SpyHunter 4 and provided users with a “Buy Now” link to do so. Id. The full version of SpyHunter 4 included the scanner, tools to remove and remediate malware, and other security protection features. Id. Enigma also previously provided users with a free version of RegHunter 2 which, among other features, scanned for and detected privacy and optimization issues and “effected certain repairs.” Id. ¶ 51. As it did with SpyHunter 4, Enigma gave users the option of paying for and accessing a full version of RegHunter 2 which included additional privacy tools and registry repair functions. Id.
Malwarebytes is a software company that sells, markets, and directly competes with Enigma in the anti-malware and Internet security market. Id. ¶ 7. Its flagship anti-malware offerings (collectively known as “MBAM”) directly competed with Enigma's SpyHunter 4 product for the entirety of SpyHunter 4's market life. Id. Moreover, Malwarebytes promotes, markets, and sells its MBAM products as consumer and business solutions that detect and remove malware, PUPs, and other potentially threatening programs on users' computers. Id. The MBAM products detect PUPs, automatically identify and list those purported PUPs as “threats, ” and automatically quarantine those programs, blocking their operation and rendering them inaccessible for users. Id.
From its inception in 2008 until October 4, 2016, Malwarebytes' products did not identify any of Enigma's products as “malicious, ” “threats, ” PUPs, or any other label denoting an unwanted or problematic program. SAC ¶ 10. Malwarebytes also did not quarantine or block businesses or consumers from using any of Enigma's products, including SpyHunter 4 and RegHunter 2. Id.
On October 5, 2016, however, Malwarebytes revised the “criteria” it used to identify PUPs. Id. ¶ 12. The new criteria identified SpyHunter 4 and RegHunter 2 as PUPs and “threats.” Id. As a result, if a consumer had SpyHunter 4 or RegHunter 2 on his or her computer and then downloaded or scanned that computer with MBAM products, the MBAM products would automatically quarantine the Enigma products and identify them to the consumer as “threats” and PUPs, denying users access to the products' protection features. Id. ¶ 117. Once the products were quarantined, the consumer would not be able to automatically launch or use SpyHunter 4 or RegHunter 2, even if the consumer attempted to restore those programs. Id. ¶ 121. The user would have to access the “Quarantine” window and manually click the “Restore” button. Id. Further, Enigma claims that subsequent attempts by the user to “re-launch” the Enigma product would result in it being automatically quarantined, once again, by Malwarebytes' MBAM products. Id. Enigma alleges that if the user restarted the computer, she would still not be able to launch the Enigma program upon reboot because Malwarebytes continued to block the operation of necessary Enigma files. Id. Alternatively, if a user had MBAM products on her computer and then attempted to download or install SpyHunter 4 or RegHunter 2, the MBAM products would block the installation of the programs regardless of whether the consumer tried to “restore” them from quarantine. Id. ¶ 123.
Malwarebytes also acquired an anti-adware product called “AdwCleaner, ” in October 2016. Id. ¶ 15. According to Enigma, AdwCleaner “identif[ies] for removal PUPs, adware, toolbars, and other unwanted software for its users.” Id. At the time Malwarebytes acquired AdwCleaner, the product did not identify SpyHunter 4 or RegHunter 2 as PUPs and “threats.” Id. Enigma alleges this changed following Malwarebytes' acquisition, as AdwCleaner began identifying, detecting, and pre-selecting for removal SpyHunter 4 and RegHunter 2 as PUPs and “threats.” Id. ¶ 16. AdwCleaner would then quarantine and block these products in a similar way as Malwarebytes' MBAM products. Id.
After Malwarebytes began identifying and blocking Enigma's products as “threats” and PUPs, Enigma attempted to mitigate the issue by providing its users with an option to download an alternative SpyHunter 4 installer that disabled Malwarebytes' MBAM products and allowed the user to use SpyHunter 4 instead. Id. ¶ 165. In December 2016, Enigma issued a press release to announce this “Countermeasure” informing its customers that it had developed the alternative installer to allow those customers who wished to use SpyHunter instead of MBAM to do so. Id. ¶ 166. Thereafter, MBAM products began blocking all *.enigmasoftware.com domains and designating them “Malicious Website[s].” Id. ¶ 167.
Enigma also became aware of a Malwarebytes' “Trusted Advisor” identified as “Aura” who wrote on Malwarebytes' message board forum that Malwarebytes was “now flagging SpyHunter products following a more aggressive stance against PUP” and that “SpyHunter fits in many of the [PUP] criterias [sic].” Id. ¶ 141. After another forum user mentioned that they would be cancelling their subscription to SpyHunter, Aura replied: “[m]ake sure that your subscription gets cancelled for real when you do, since there's been a lot of report[s] in the past (and even today) of users still being charged by [Enigma] for SpyHunter[.]” Id.
In June 2018, EnigmaSoft, an Enigma affiliate, released SpyHunter 5, an adaptive malware detection and removal software designed to target a wide range of threats and potential problems to protect users' cybersecurity. Id. ¶ 171. According to Enigma, two months after SpyHunter 5's introduction, MBAM products began to detect, quarantine, and block SpyHunter 5 as an identified PUP and “threat.” Id. ¶ 172. Enigmasoft contacted Malwarebytes requesting an explanation for why SpyHunter 5 had been designated as a PUP and “threat” and for Malwarebytes to reconsider its designation. Id. ¶ 173. Malwarebytes never provided Enigmasoft with a formal explanation nor did it respond by changing the designations of any Enigma products. Id.
Enigma first brought this action in the Southern District of New York alleging that Malwarebytes' actions (1) violated the Lanham Act § 43(a), (2) violated New York General Business Law § 349, (3) constituted tortious interference with Enigma's contractual relations, and (4) constituted tortious interference with Enigma's business relations. After Enigma amended its complaint, Malwarebytes moved to transfer the case under 28 U.S.C. § 1404, and in the alternative, to dismiss Enigma's complaint pursuant to Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6). In May 2017, the court held that transfer of venue to the Northern District of California was warranted for the convenience of the parties and witnesses, and in the interest of justice. See Enigma Software Grp. USA, LLC v. Malwarebytes Inc., 260 F.Supp.3d 401, 413 (S.D.N.Y. 2017). Although the court granted Malwarebytes' motion to transfer venue, it declined to rule on Malwarebytes' motion to dismiss for lack of personal jurisdiction and for failure to state a claim. Therefore, Malwarebytes renewed its motion to dismiss all of Enigma's claims once the case was before this Court.
The Court...
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