Case Name: NetApp, Inc. v. GODADDY Special Holdings, Inc., et al.

Case No.: 16-CV-301833

Plaintiff/cross-defendant NetApp, Inc. (?NetApp?) demurs to the first amended cross-complaint (?FACC?) filed by defendants/cross-complainants GoDaddy Special Holdings, Inc. (?GoDaddy?), GoDaddy.com, LLC (?GoDaddy.com?), GoDaddy Operating Company, LLC (?GoDaddy OC?), and GoDaddy, Inc. (?GoDaddy, Inc.?) (collectively, ?Defendants? or ?GoDaddy?).

This action arises out of a contract dispute between NetApp and GoDaddy.? According to the allegations of the underlying complaint (?Complaint?), NetApp and GoDaddy entered into a Master Purchase Agreement (?MPA?) under which NetApp would sell its products and services and license its software to GoDaddy.? (Complaint, ? 11.)? NetApp agreed to grant GoDaddy a nonexclusive, nontransferable license to use certain software in accordance with the terms of the MPA and other documentation, including but not limited to an End User License Agreement (?EULA?). (Id. at ? 12.) When a user, such as GoDaddy, would attempt to download NetApp?s software, the EULA would appear electronically and require the user to accept its terms first. (Ibid.)

Pursuant to the MPA, GoDaddy agreed to submit to NetApp a written purchase order specifying the products and/or services to be purchased or software to be licensed. (Id. at ? 13.) Over the course of the MPA?s term, GoDaddy purchased certain products and services and licensed certain software. (Ibid.)

Pursuant to the MPA and EULA, NetApp also had the right to conduct an audit of GoDaddy?s use of its products and software to ensure it was not violating the terms of the parties? agreement. (Id. at ? 14.) In March 2015, NetApp informed GoDaddy that it intended to audit GoDaddy?s use of its products. (Id. at ? 15.) The audit revealed that GoDaddy and/or other defendants violated the parties? licensing agreements in three respects. (Ibid.) First, the audit revealed that Defendants? hardware contained unlicensed copies of NetApp?s software that had not been paid for. (Ibid.) The audit also revealed that Defendants were using five of NetApp?s data storage system controllers purchased from the secondary market. (Ibid.) As such, Defendants violated the EULA by not purchasing the licenses for the software from NetApp or obtaining its permission to transfer the licenses from the original end users. (Ibid.) Lastly, the audit revealed that Defendants downloaded and installed unauthorized upgrades to NetApp?s ?ONTAP? operating system software on several controllers. (Ibid.) These upgrades were unauthorized because they took place after the support period provided to Defendants by NetApp had expired, something the EULA clearly prohibits. (Ibid.)

 

In May 2015, NetApp advised Defendants of the forgoing software license violations. However, Defendants denied liability and refused to pay for the unauthorized software upgrades and unlicensed software. (Id. at ?? 15-16.)

 

Based on the foregoing allegations, on October 27, 2016, NetApp filed the Complaint asserting the following causes of action: (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; (3) common counts for goods sold and delivered; (4) unjust enrichment; and (5) unfair competition law.

 

On March 28, 2017, Defendants filed their initial cross-complaint against NetApp and cross-defendant SMS Systems Maintenance Services, Inc. (?SMS?), and filed the FACC on July 21, 2017.? According to the allegations of this pleading, the most recent MPA[1] entered into between the parties provided that GoDaddy could purchase other ?Support Offerings ? [and] Professional Services? but was not required to do so.? (FACC, ? 9 and Exhibit A.)? The former is defined in the agreement as technical and maintenance services, while the latter is defined as technical services not covered by Support Offerings.? (Id.)

 

On information and belief, GoDaddy alleges that it developed software that allowed NetApp?s on-site experts to deploy various NetApp software programs across GoDaddy?s server environment at NetApp?s request.? (FACC, ? 11.)? The software required the on-site experts to check a box for each NetApp software program scheduled by NetApp for deployment, and in deploying the software against GoDaddy?s server environment, NetApp?s on-site experts consistently checked every box, ensuring the deployment of all available NetApp software across GoDaddy?s systems.? (Id.)? This full-scale deployment was not done at GoDaddy?s request.? (Id.)? GoDaddy did not use the majority of the deployed software, and thus was generally unaware of the breadth of its employment prior to its receipt of the results of NetApp?s audit.? (Id.)

 

In addition to the deployment of NetApp software, the company?s on-set specialists were also responsible for maintenance and repair of the NetApp server controllers purchased by GoDaddy; included within this work was the replacement of motherboards when they failed.? (FACC, ? 12.)? At no point during the relationship between the parties did NetApp or its on-site experts claim that a separate license was need for the installation or use of such replacements; as a result, GoDaddy alleges, it believes that it either paid for and received a standalone perpetual license, or NetApp did not have any ownership interest in the motherboard software in the first place.? (Id.)

 

In 2013, GoDaddy decided to look for an alternative maintenance service and aftermarket part provider and identified SMS as a possible replacement vendor.? (FACC, ? 13.)? SMS represented that it could source additional refurbished NetApp equipment as needed and could provide support and maintenance at more competitive rates than NetApp.? (Id.)? Based on these representations, GoDaddy and SMS started negotiations, which culminated in the parties entering into a written agreement with one another on January 22, 2014 (the ?SMS Agreement?).? (Id., ?? 13-14 and Exhibit B.)? The agreement imposed upon SMS a duty to indemnify, defend or hold GoDaddy harmless on claims by third parties ?based upon any representations or warranties arising out of or in connection with the respective products or services, representations ? of the parties, or upon alleged patent, trademark, or copyright infringement or unfair competition in connection with the respective products or services or representations of the parties.?? (FACC, ? 15 and Exhibit B at ? 7.)? At the time it entered into this agreement, GoDaddy notified NetApp of its intent not to renew the parties? maintenance agreement; in response, NetApp notified GoDaddy of its intent to conduct an audit of GoDaddy?s network environment.? (Id., ? 18.)? On April 22, 2014, SMS represented to GoDaddy that the two controllers SMS was selling to it came with various NetApp licenses.? (FACC, ? 17 and Exhibit C.)

 

On August 21, 2015, NetApp notified GoDaddy that its audit revealed that GoDaddy had over-deployed NetApp?s software and consequently demanded past and prospective licensing fees, despite the fact that it was responsible for said deployment.? (FACC, ? 19.)? NetApp additionally claimed that GoDaddy had sourced certain refurbished NetApp equipment and software from ?unauthorized channels.?? (Id., ? 20.)? Specifically, NetApp alleged that the licenses SMS claimed were transferred from two controllers GoDaddy purchased from SMS were not transferrable under the licensing agreement with the original purchaser of those controllers and thus, GoDaddy?s use of the hardware and related software infringed on NetApp?s intellectual property rights.? (Id.)? NetApp further alleged that GoDaddy?s replacement of motherboards from parts obtained from SMS on controllers purchased from NetApp also violated NetApp?s licensing agreement.? (Id.)? GoDaddy alleges that the operating software for the motherboard was placed into the public domain by NetApp long before GoDaddy acquired the replacement motherboards and therefore no fees were owed for its use.? (Id.)

 

NetApp subsequently demanded that GoDaddy compensate it $1,273,174 for the latter?s use of the two controllers and three motherboards sold to it by SMS- the amount GoDaddy allegedly would have paid NetApp if it had renewed the maintenance agreement rather than cancelling it in January 2014.? (FACC, ? 21 and Exhibit D.)? After providing SMS with notice of NetApp?s claims in October 2015, GoDaddy made three written demands for SMS to indemnify, defend, and hold it harmless pursuant to the SMS Agreement.? (Id., ? 22.)? SMS refused to accept GoDaddy?s demand based, in part, on its claim that the original purchaser of the equipment had received authorization from NetApp to transfer the licenses for the two controllers at issue.? (Id.)

 

On February 4, 2016, NetApp sent a second demand letter to GoDaddy in which it claimed that its hardware and software could only be purchased and licensed directly from NetApp or authorized resellers, or legitimized via a software license transfer authorized by NetApp.? (FACC, ? 23.)? NetApp increased its demand and threatened litigation in the event that GoDaddy did not acquiesce.? (Id. and Exhibit E.)? A third demand letter was sent on April 5, 2016 that was nearly identical to the preceding letter.? (Id., ? 24 and Exhibit F.)? In response, GoDaddy challenged NetApp?s contention that it was required to purchase all NetApp software exclusively through NetApp or its authorized resellers.? (Id., ? 25.)? In a further letter dated May 31, 2016, NetApp, through its counsel, continued to claim that GoDaddy?s use of software contained in any refurbished hardware required a license.? (Id., ? 26 and Exhibit G.)

 

Based on the foregoing, GoDaddy filed the FACC asserting the following causes of action: (1) breach of implied warranty of title (against NetApp); (2) violation of Business & Professions Code ? 17200 et seq. (the ?UCL?) (against NetApp); (3) declaratory relief (against NetApp); (4) declaratory relief (against NetApp and SMS); (5) breach of contract (against SMS); (6) breach of express and implied warranties (against SMS); (7) intentional misrepresentation (against SMS); (8) negligent misrepresentation (against SMS); (9) comparative equitable indemnity (against SMS); and (10) total equitable indemnity (against SMS).

 

On September 21, 2017, NetApp filed the instant demurrer to each of the four causes of action asserted against it in the FACC on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action.? (Code Civ. Proc., ? 430.10, subds. (e) and (f).)? GoDaddy opposes the motion.

 

As a preliminary matter, GoDaddy?s request for judicial notice of NetApp?s opposition to GoDaddy?s demurrer to NetApp?s Complaint and the Court?s order on that motion is GRANTED.? (See Evid. Code, ? 452, subd. (d).)

 

As set forth above, NetApp demurs to the claims asserted against it in the FACC on two grounds.? One of them, uncertainty, can be disposed rather quickly.? A demurrer on this ground is disfavored, and will not be sustained unless the allegations of the complaint are so unintelligible that a defendant cannot reasonably respond to them.? (See Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2 [stating that ?where the complaint contains substantive factual allegations sufficiently apprising a defendant of the issues it is being asked to meet, a demurrer for uncertainty should be overruled?]; see also Khoury v. Maly?s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616 [stating that a demurrer should not lie where ?even a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures?].)? Where a demurrer is made on the ground of uncertainty, it must distinctly specify exactly how or why the pleading is uncertain, and where such uncertainty appears (by reference to page and line numbers in the complaint).? (See Coons v. Thompson (1946) 75 Cal.App.2d 687, 690.)

 

Here, not only are the allegations of the FACC clear and thus far from unintelligible, but NetApp makes no effort to articulate how the pleading is uncertain, including identifying where such uncertainty appears.? Consequently, NetApp?s demurrer to the first, second, third and fourth causes of action on the ground of uncertainty is OVERRULED.

 

Turning to the remaining ground, failure to state sufficient facts, the initial target of NetApp?s demurrer is GoDaddy?s first cause of action for breach of implied warranty of title, which is based on allegations that by purporting to license the motherboard operating software to GoDaddy, NetApp impliedly warranted that it had good title to the motherboard operating software and that its transfer or licensing of it was rightful.? (FACC, ? 31.)? GoDaddy alleges that NetApp breached this implied warranty by licensing to it the operating software on each of the motherboards contained inside a NetApp controller purchased by GoDaddy when, in fact, NetApp did not have title to such software so as to transfer good title.? (FACC, ? 32.)? Instead, GoDaddy alleges, prior to NetApp?s licensing of the software to GoDaddy, the software was placed into the public domain by NetApp.? (Id.)? GoDaddy pleads that it is therefore entitled to recover monies charged by NetApp for every motherboard operating software license that it paid for.? (Id., ? 34.)

 

This cause of action is predicated on Commercial Code section 2312, which provides, in pertinent part, as follows:

 

  • Subject to subdivision (2) there is in a contract for sale a warranty by the seller that

 

  • The title conveyed shall be good, and its transfer rightful ?

 

This code section is identical to section 2-312 of the Uniform Commercial Code, and the statutory warranties contained within are derived from the implied warranty of title that emerged at common law as an ?exception to the caveat emptor doctrine.?? (Pacific Sunwear of California, Inc. v. Olaes Enterprises, Inc. (2008) 167 Cal.App.4th 466, 473 [internal citation omitted].)

 

In demurring to this claim, NetApp maintains that it fails for the following reasons: (1) GoDaddy disclaimed the implied warranty of title; (2) the Commercial Code does not apply because the MPA involved software licenses and services, not goods; (3) GoDaddy?s claim that NetApp lacks title is conclusory and inconsistent with the terms of the MPA; (4) GoDaddy fails to pleaded the necessary elements of this claim; and (5) the applicable statute of limitations has run.? None of these arguments are persuasive.

 

With respect to the first argument, NetApp asserts that the FACC reveals that GoDaddy disclaimed any such warranty based on section 9.4 of the MPA, which provides that the limited hardware and software warranties contained in sections 9.1 and 9.2 are ?exclusive and in lieu of all other warranties, express or implied.?? Section 9.1 of the MPA articulates NetApp?s hardware warranties, while the following section, 9.2, pertains to NetApp?s software warranties.? The contents of the MPA, NetApp explains, defeats GoDaddy?s allegation that ?NetApp did not expressly disclaim this implied warranty of title.?? (FACC, ? 33.)

 

The foregoing argument by NetApp is based on the well-settled rule that ?[a]ny allegations in the complaint which are inconsistent with facts set out in an unambiguous written instrument, incorporated by reference, may be stricken.?? (Fundin v. Chicago Pneumatic Tool Co. (1984) 152 Cal.App.3d 951, 956 [internal citations omitted].)? Stated alternatively, ?if there are inconsistencies between the complaint and the written instrument, the written instrument controls.?? (Id.) ?Here, NetApp maintains that the MPA demonstrates disclaimer of the implied warranty of title and defeats any allegations to the contrary.

 

A disclaimer of a warranty by a seller is a renunciation of the promises contained in an implied warranty, and is intended to limit the seller?s liability for breach of that warranty.? (See Black?s Law Dict. (10th ed. 2014).)? Per Commercial Code section 2312(2), a warranty of title may be ?excluded,? i.e., disclaimed, ?only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.?? Where a seller purports to disclaim an implied warranty, the words used to accomplish that purpose ?shall be construed wherever reasonable as consistent with each other ?.?? (Comm. Code, ? 2316(1).)? Here, the specific language utilized in the MPA, specifically section 9.4, that the express warranties provided therein are ?exclusive and in lieu of all other warranties, express or implied? seems to leave no question that NetApp disclaimed the implied warranty of title, and thus that GoDaddy cannot maintain a claim against it for the breach of a warranty that did not exist.

 

GoDaddy, however, contends that any assertion that the implied warranty of title was disclaimed and that no claim for breach of that warranty can therefore be maintained by it fails for several reasons.? First, GoDaddy asserts that NetApp?s reliance on the disclaimer language of the MPA incorrectly assumes that that agreement governs the motherboard software to which it alleges that NetApp did not actually have title.? According to GoDaddy, the motherboard software does not constitute ?Software? under the MPA because it is not alleged to be a NetApp computer program and ?Software? is defined within the agreement as ?the machine executable, object code only version of NetApp computer programs and updates, upgrades and/or permitted copies thereof licensed by Customer under this Agreement.?? (FACC, ? 9, Exhibit A, ? 2.11 [emphasis added].)? This fact, GoDaddy continues, is supported by its allegation that during the parties? entire twelve-year business relationship, NetApp never once claimed a license was required when a motherboard was replaced.? (Id., ? 12.)? A reasonable inference from this, it explains, is that NetApp never licensed the motherboard software pursuant to the MPA at any time.

 

GoDaddy?s contention that the motherboard software is not a NetApp computer program is based on its allegations that the motherboard operating software was placed in the public domain by NetApp prior to its purported licensing of that software to GoDaddy.? (FACC, ? 32.)? NetApp insists that this allegation is not supported with any facts and thus entirely conclusory, and that it is inconsistent with the terms of the MPA, which expressly provides that the software ?is NetApp?s confidential property? and ?is protected by the Copyright Act.?? (FACC, ? 9, Exhibit A, ? 6.4.)

 

The veracity of the foregoing arguments ultimately turn on a factual issue that cannot be resolved on demurrer: whether or not the motherboard software was placed in the public domain by NetApp prior to the parties entering into the MPA.? As set forth above, it is NetApp?s contention that GoDaddy has not sufficiently pleaded the circumstance of the motherboard software being placed into the public domain.? However, NetApp cites no authority articulating what exactly must be pleaded in order to adequately allege such a condition and the Court otherwise finds GoDaddy?s allegations in this regard to be sufficient.? GoDaddy has pleaded the placing of the software in the public domain on information and belief, which it is permitted to do where it lacks knowledge and the means of obtaining knowledge of facts material to this cause of action.? (Swars v. Council of Vallejo (1944) 64 Cal.App.2d 858, 864.)?? If GoDaddy is correct that the software was in the public domain prior to the MPA, than that agreement and its disclaimer of all other warranties, express or implied, is of no consequence to the motherboard software and would not operate to bar GoDaddy?s breach of warranty of title claim based on the license fees it was charged for the software?s use.? Given the allegations of the first cause of action and the Court?s obligation to accept them as true for the purposes of this motion (see, e.g., Stonehouse Homes v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538), the Court at this juncture rejects NetApp?s contention that the language of the MPA unequivocally operates as a barrier to the first cause of action.

 

NetApp next argues that the Commercial Code does not apply to the MPA because it involves software license and services, and not goods.? In its opposition, GoDaddy responds that the MPA, by its very terms, is for the sale of goods.

 

The Commercial Code applies to the transaction of ?goods,? which are defined as ?all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale ?? (Comm. Code, ? 2105.)? Because software transactions often combine elements of both goods and services, courts utilize a test- the predominant factor test- to determine whether the software at issue is a good or not.? (See Simulados Software, Ltd. v. Photon Infotech Private, Ltd. (N.D. Cal. 2014) 40 F.Supp.3d 1191, 1199 [applying California law].)? With this test, courts ?look to the essence of the agreement on a case-by-case base to decide how to characterize the transaction.?? (Id. [internal citations and quotations omitted].)? Generally, courts have found that mass-produced, standardized, or generally available software, even with modifications and ancillary services included in the agreement, is a good covered by the Commercial Code.? (See, e.g., RRX Industries, Inc. v. Lab-Con, Inc. (9th Cir. 1985) 772 F.2d 543, 546.)

 

Here, the MPA defines the scope of the agreement as follows: ?This Agreement states the terms and conditions under which NetApp will sell and deliver Customer the Products and Services, and will license to Customer the Software ordered by Customer from NetApp.?? (FACC, ? 9, Exhibit A, ? 1.1.)? GoDaddy argues, persuasively, that the ?Services? offered are merely ancillary to the Products sold and the Software licensed, with such a term defined as ?Support Offerings and Professional Services provided by NetApp or NetApp?s authorized service provider? and ?Support Offerings,? in turn, defined as ?technical support and maintenance services ?.?? (Id., ?? 2.10, 2.13.)? These are similar to the services deemed ancillary in RRX Industries, Inc., supra and NetApp fails to demonstrate to the contrary.? Consequently, the Court finds that NetApp?s assertion that the Commercial Code does not apply to the MPA lacks merit.

 

Next, NetApp asserts that GoDaddy?s claim is time-barred.? The statute of limitations for a cause of action for breach of warranty is four years.? (See Comm. Code, ? 2725(1); see also Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 642.)? Such a claim accrues when the breach occurs.? (Comm. Code, ? 2725(2).)? NetApp?s argument that the instant claim is time-barred is based an accrual date of the day the MPA was entered into by the parties.? However, GoDaddy does not allege that the breach of the implied warranty occurred at that time.? In fact, it is not clear based on the allegations of the FACC when the alleged breaches specifically occurred.? Consequently, NetApp cannot succeed on its argument that the first cause of action is time-barred because a demurrer based on the statute of limitations is only sustainable where the dates alleged in the complaint show ?clearly and affirmatively? that the action is barred.? (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 324-325.)? It is not enough that the action might be barred.? (Id.)? In their reply, NetApp insists that GoDaddy?s claim cannot succeed because it has not alleged that it paid any motherboard licensing fees during the sixth month window from July 22, 2013, when the cross-complaint was initially filed, to January 2014, when the relationship between the parties ended, but this argument presumes that GoDaddy is obligated to affirmatively establish the timeliness of its claim in its pleading.? It is not.? NetApp only succeeds on this argument where the accrual of the claim is clear from the dates alleged.? That is not the case here.? Accordingly, NetApp?s contention that GoDaddy?s breach of implied warranty claim is time-barred is without merit.

 

Finally, NetApp insists that GoDaddy fails to plead the elements necessary to state a claim for breach of implied warranty of title, explaining that it must plead facts to demonstrate that ?the seller was a merchant regularly dealing in goods of the kind, the goods were subject to a rightful infringement claim of any third party upon delivery, the buyer did not furnish specifications to the seller, and the parties did not form another agreement.?? (Phoenix Solutions, Inc. v. Sony Elecs., Inc. (N.D. Cal. 2009) 637 F.Supp.2d 683, 693; see also Comm. Code, ? 2312(3).)? NetApp maintains that GoDaddy has not alleged any of the foregoing and most problematically has not pleaded ?infringement? by a third party.? The entire purpose of the implied warranty of title proscribed by Commercial Code section 2312(3), NetApp argues, is to protect buyers from third party claims and because it is GoDaddy?s contention that no one has title to the motherboard software, title infringement and consequently breach of the implied warranty of title can never be alleged.

 

In its opposition, GoDaddy responds that while it may be true that most claims for breach of the implied warranty of title arise in circumstances involving third party infringement claims, there is no California authority which provides that there cannot, as a matter of law, be a breach of the implied warranty when a party claim to have licensed software but does not, in fact, have any ownership rights therein.? GoDaddy cites to a New York case for this proposition, Tams-Witmark Music Lib. v. New Opera Co. (1948) 298 N.Y. 163, in which an opera company that was granted a license to perform an operetta was sued by the operetta?s copyright holder for failing to pay royalties on the license. The company refused to pay additional amounts on the license based on its contention that the copyright had expired and the work had moved into the public domain.? The company also asserted counterclaims against the copyright holder to recover amounts paid on the license.? The trial court?s ruling in the company?s favor was affirmed on appeal, with the appellate court concluding that a breach of warranty claim against the former copyright holder was established where it was shown that the holder had warranted that it was the sole owner of the operetta (i.e., that the title it conveyed was good) after the copyright had expired and the work had passed into the public domain.? Thus, a viable claim for breach was not dependent on an allegation of third-party infringement.? GoDaddy maintains that a similar claim is being alleged here.

 

While the Court acknowledges both, as NetApp contends, that the foregoing authority is not binding and the official UCC comments to Commercial Code section 2312(1), the implied warranty of title, provide that this section ?makes provision for a buyer?s basic needs in respect to a title which he in good faith expects to acquire by his purchase, namely, that he receive a good, clean title transferred to him also in a rightful manner so that he will not be exposed? to a lawsuit in order to protect it,? it nevertheless finds persuasive GoDaddy?s contention that it can plead a claim for breach of implied warranty without alleging infringement by a third party.? As with the copyright holder in Tams-Witmark Music Lib., supra, NetApp allegedly impliedly warranted that it had good title to the motherboard operating software when it purported to license it to GoDaddy, when in fact it did not because the software had passed into the public domain.? (FACC, ?? 30-34.)? Based on that implication, GoDaddy asserts that it paid licensing fees to NetApp that it was not entitled to.? In alleging that NetApp did not have ?good? title, the Court finds that GoDaddy has stated a claim for breach of the implied warranty of that title.? As for the comments to this code section cited by NetApp, there is no indication that the purpose articulated therein was intended to be the sole purpose of the statute; infringement may simply be the primary place in which claims for breach of warranty of title arise.? Without language which requires infringement, the Court is not persuaded that a claim for breach of warranty is limited in the manner in which NetApp suggests.? Consequently, the Court finds NetApp?s remaining argument to lack merit and therefore its demurrer to the first cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

 

Turning to the second cause of action for violation of the UCL, this claim is predicated on allegations that NetApp falsely represented to customers, including GoDaddy, that it is the rightful owner of certain operating software for motherboards within each controller sold to its customers, when in fact it placed such software in the public domain prior to GoDaddy?s payment of licensing fees related to such software.? (FACC, ? 38.)? This claim is further based on allegations that NetApp ?fraudulently, unfairly, and unlawfully? represented to each of its customers, including GoDaddy, that its provision of replacement parts and maintenance services was permissive, when in actuality its enforcement practices upon a customer?s termination of its repair and maintenance agreement with NetApp render NetApp as the sole source for such replacement parts and maintenance.? (Id., ? 40.)? GoDaddy alleges further wrongful conduct by NetApp pertaining to the actions of its employees in installing and deploying its software.? (Id., ? 42.)? NetApp contends that its demurrer to this cause of action should be sustained because (1) GoDaddy lacks standing to maintain this claim and (2) GoDaddy fails to allege a viable remedy.

 

The UCL, i.e., Business and Professions Code section 17200 et seq., ?prohibits unfair competition, including unlawful, unfair, and fraudulent business acts. The UCL covers a wide range of conduct. It embraces anything that can properly be called a business practice and that at the same time is forbidden by law.? (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143 (?Korea?).) ?By proscribing unlawful business practices, the UCL borrows violations of other laws and treats them as independently actionable. In addition, practices may be deemed unfair or deceptive even if not proscribed by some other law.? (Blakemore v. Superior Court (2005) 129 Cal.App.4th 36, 48.) ?Because Section 17200 is written in the disjunctive, a business act or practice need only meet one of the three criteria? unlawful, unfair, or fraudulent?to be considered unfair competition under the UCL.? ?(Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1093 [emphasis in original].)

 

Standing to bring a UCL claim is limited to any ?person who has suffered an injury in fact and has lost money or property as a result of the unfair competition.?? (Bus. & Prof. Code, ? 17204.)? Stated alternatively, to satisfy the standing requirements of the UCL, a party must plead facts which ?(1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.?? (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322 [emphasis added].)

 

Here, NetApp first argues that GoDaddy lacks standing to assert this claim because it cannot allege injury or causation.? In the FACC, GoDaddy expressly alleges that it has suffered an injury in fact and has ?lost considerable money as a result of the actions? by NetApp as set forth therein.? More specifically, GoDaddy pleads that its losses include, but are not limited to the following:

 

  • licensing fees paid for motherboard operating software that was actually in the public domain;
  • monies paid for software license fees and hardware based on NetApp?s false representation that the acquisition of replacement parts and maintenance services from NetApp was permissive when NetApp enforces its contractual agreements and intellectual property rights in such a way as to render the foregoing mandatory;
  • amounts paid for on-site NetApp employees who over-deployed and improperly upgraded NetApp software; and
  • legal fees incurred for responding to NetApp?s trademark and copyright misuses prior to the initiation of the instant action.

 

NetApp characterizes the foregoing losses into two categories: (1) payments made pursuant to the MPA and (2) legal fees, and asserts that both are inadequate to confer standing. With respect to the first, NetApp contends that the mere payment of money pursuant to a performed contract does not constitute economic injury for the purposes of the UCL.? While this may be a true statement of law, as applied here this argument presumes that all amounts which GoDaddy was charged by NetApp purportedly pursuant to the MPA were valid.? However, GoDaddy has alleged that it was injured by being charged for the installation of software by Netscape that it did not request or authorize, and thus that those amounts as pleaded were not valid.? Consequently, NetApp?s assertion that the foregoing purported losses do not confer standing is without merit.? As for the legal fees claimed as an injury in fact, because a demurrer does not lie to part of a cause of action (see PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682 [stating that ?[a] demurrer does not lie to a portion of a cause of action?]) and monies paid to NetApp for the installation of software that was allegedly not requested by GoDaddy are sufficient to confer standing on GoDaddy to pursue its UCL claim, the Court need not address whether or not they qualify as an injury in fact for the purposes of the statute.

 

Relying on Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 135 for the proposition that a corporate plaintiff may not rely on the UCL for relief, NetApp next argues that GoDaddy lacks standing to pursue a UCL claim because it is not a consumer or competitor within the meaning of the statute.? However, NetApp takes out of context the Linear court?s statement that ?a corporate plaintiff may not rely on the UCL for the relief it seeks.?? (Linear Technology Corp., 152 Cal.App.4th at 135.)? When this quote is read in toto with the rest of the court?s decision, it is clear that the court was simply limiting the standing of the corporate plaintiff as a class representative in a UCL action because it was concerned that allowing it to act in such capacity would raise due process concerns for other class members.? (Id. [?[b]y purporting to act as their self-appointed representative and asserting claims on their behalf in a UCL action [Linear] could in fact deprive [respondents?] alleged victims of the individual opportunity to seek remedies far more extensive that those available under the UCL?] [internal citations omitted].)? It did not prohibit any corporate plaintiff from proceeding under the UCL in a case arising from a contract that does not involve either the public or individual consumers.? As this is the only authority NetApp cites in support of its contention that GoDaddy cannot maintain its UCL claim as a corporation and it does not so hold, this argument does not provide a basis upon which to sustain NetApp?s demurrer to the second cause of action.

 

NetApp next argues that GoDaddy has no remedy under the UCL because it does not allege that it paid NetApp any money that it was not owed.? As a general matter, two remedies are available to private litigants who bring claims under the UCL: injunction and restitution.? GoDaddy requests both in the FACC.? (Bus. & Prof. Code, ?? 17203, 17535.)? NetApp argues that GoDaddy received the benefit of the bargain- the hardware, software, and services for which it contracted- and thus any injury resulting from NetApp?s alleged conduct requires payment of damages, not restitution.? Business and Professions Code section 17203 provides for the ?restoration? of money or property acquired by means of unfair competition.? Citing to Witkin?s Summary of California Law, NetApp maintains that ?[i]f the money is paid in satisfaction of an obligation actually owed by the plaintiff, he or she is obviously not entitled to restitution even though the performance was induced by mistake of fraud.?? However, it is GoDaddy?s position that it was not obligated to pay certain license fees, maintenance costs and other amounts pursuant to the MPA because those items were never agreed to in the first place and were acquired by NetApp through its unlawful, unfair and fraudulent practices.? (FACC, ? 44.)? It therefore requests restoration of the monies obtained by NetApp as the result of its conduct; this is restitution.? Consequently, the Court finds that NetApp?s argument is without merit.? As for NetApp?s assertion that GoDaddy is not entitled to injunctive relief, because the Court has already determined that GoDaddy has pleaded its entitlement to restitution warranted under the UCL, it need not evaluate its validity because, as stated above, a demurrer does not lie to only part of a cause of action.? (See PH II, Inc. v. Superior Court, supra, 33 Cal.App.4th at 1682.)

 

Because the Court does not find any of the arguments asserted by NetApp in support of its demurrer to the UCL claim to be meritorious, its demurrer to the second cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

 

Finally, with respect to the remaining claims for declaratory relief, NetApp asserts that this claims fail for the following reasons: (1) GoDaddy may not seek declaratory relief on behalf of others; (2) GoDaddy may not seek declaratory relief based on past conduct; (3) declaratory relief is unnecessary because all disputes will be resolved through the parties? substantive claims; and (4) the First Sale Doctrine is inapplicable.

 

With respect to NetApp?s first argument, with its claims for declaratory relief, GoDaddy seeks numerous declarations, several of which are not only on behalf of others, but also on its own behalf. (FACC, ?? 55, 57.)? As the instant motion is a demurrer and not a motion to strike, this argument does not provide a basis by itself to sustain the demurrer to the third and fourth causes of action in their entirety.

 

With respect to the second argument, while it is a true statement of law that declaratory relief cannot be based on past conduct (see Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909 [stating that declaratory relief ?generally operates prospectively to declare future rights, rather than to redress past wrongs?]), as pleaded here GoDaddy is seeking prospective relief with regards to its rights and obligations concerning its acquisition and use of aftermarket refurbished NetApp equipment and maintenance services from providers other than NetApp.? (FACC, ??48-58; 60-66.)? GoDaddy alleges that its need to purchase use refurbished NetApp equipment is continuing, and thus future rights are implicated by these claims for declaratory relief.

 

NetApp?s third argument is also easily disposed of.? NetApp asserts the third and fourth causes of action are unnecessary because all of the parties? disputes will be resolved through the preceding claims and therefore its demurrer should be sustained.? Although declaratory relief may be denied ?where its declaration or determination is not necessary or proper at the time under all the circumstances,? including for example, where it is redundant of other claims or the plaintiff has a fully matured cause of action for money (see Jolley, supra, 213 Cal.App.4th at 909-910), the Court does not find these claims to be unnecessary because even if GoDaddy succeeds on its preceding causes of action and recovers monetarily, a declaration of the parties rights and obligations with respect to the use of refurbished NetApp equipment, etc. is necessary to provide clarity regarding the parties? future interactions.? Thus, this argument is without merit.

 

NetApp lastly argues that the first sale doctrine is inapplicable to the circumstances at bar and therefore GoDaddy?s request for a declaration that the doctrine protects its conduct is improper and demurrable.? In the FACC, GoDaddy contends that its purchase and use of refurbished NetApp parts without any licensed software is protected under the first sale doctrine ?as applied to trademarks.?? (FACC, ? 52.)

 

As a general matter, a copyright owner has the exclusive right to control the first public distribution of its protected work.? (17 U.S.C. ? 106(3).)? This right is limited by the so-called ?first sale doctrine,? which provides that once a copy of protected work is sold by the copyright holder, the copyright owner loses the right to restrict further sales of that particular copy.? (U.S. Wise (9th Cir. 1977) 550 F.2d 1180.)?? The Court need not evaluate the merits of this argument because even if it proves meritorious, it would not eliminate the declaratory relief claims in their entirety, which is necessary in order to sustain NetApp?s demurrer.? GoDaddy?s claims for declaratory relief are not predicated entirely on the foregoing theory; they are also based on GoDaddy?s contention that the motherboard software was placed in the public domain.? Thus, this argument is not persuasive.

 

Because the Court does not find any of the arguments asserted by NetApp in support of its demurrer to the declaratory relief claims to be meritorious, its demurrer to the third and fourth causes of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

[1] This document, referred to as the ?MPA? in the Complaint, is called the ?Master Services Agreement? (?MSA?) in the FACC.? For the sake of clarity and simplicity, this order will refer to this document as the MPA.