United States District Court, N.D. California
ORDER DENYING MOTIONS TO DISMISS FOR FAILURE TO STATE
A CLAIM FILED BY DEFENDANTS ATLAS SYSTEMS, INC. AND TELEPHONE
MAN OF AMERICA LLC RE: DKT. NOS. 76, 77
ILLSTON UNITED STATES DISTRICT JUDGE.
12, 2019, the Court held a hearing on defendants' motions
to dismiss the complaint. For the reasons set forth below,
the Court DENIES the motions.
January 31, 2019, Avaya Inc. filed this lawsuit against Jason
Hines; Dedicated Business Systems International, LLC
(“DBSI”); U.S. Voice & Data, LLC (“US
Voice”); Raymond Bradley Pearce; Atlas Systems, Inc.;
and Telephone Man of America LLC. Atlas and Telephone Man
move to dismiss Avaya's first amended complaint
(“FAC”) for failure to state a claim.
provides hardware, software, and business communication
solutions to a broad range of companies, from small
businesses to large firms and government organizations. FAC
¶ 21 (Dkt. No. 59). Avaya is incorporated in Delaware
and its principal place of business is in California.
Id. ¶ 6. Avaya also offers IP Office
(“IPO”), a telephone system that can support
anywhere from five to thousands of users at up to 150
different physical locations. Id. ¶ 23. Each
phone or computer on the system requires a software license
to work. Id. Avaya sells the IPO software licenses
to authorized resellers, and then distributes the software to
end customers through unique software license keys.
is a Michigan corporation. Id. ¶ 10. Telephone
Man is a Florida citizen and Avaya reseller. Id.
¶ 11. Plaintiff alleges Atlas and Telephone Man
participated in the distribution scheme of unauthorized Avaya
software licenses. Id. ¶ 37.
The Underlying Factual Allegations
alleges the defendants “perpetrat[ed] a massive illegal
software piracy operation, which resulted in the theft and
subsequent resale of thousands of unauthorized Avaya Internal
Use Software Licenses (‘Internal Use Licenses') to
end customers duped into buying pirated software, rather than
buying genuine Avaya software licenses through authorized
Avaya distribution channels.” FAC ¶ 1.
licenses its software through authorized resellers instead of
selling its software directly to end customers or on
third-party marketplaces. Id. ¶ 33. The
software is licensed to a specific end customer and is
generally non-transferrable. Id. Plaintiff claims
the defendants have been selling unauthorized Avaya software
licenses in competition with authorized Avaya software and
misusing Avaya's trademarks to do so. Id. Avaya
uncovered the unauthorized software license sales through
purchasing sample software licenses resold by the defendants.
Id. ¶ 35. Avaya tracked the unauthorized
software licenses to a former employee, defendant Pearce.
an Oklahoma citizen, was an Avaya employee from 2000-2018.
Id. ¶ 7. He allegedly distributed thousands of
unauthorized software licenses worth millions of dollars.
Id. ¶ 35. Pearce worked in an Oklahoma-based
Avaya call center and would generate Internal Use Licenses to
help resolve customer support issues. Id. ¶ 34.
Pearce used his employee account and other former employee
accounts to generate unauthorized software licenses and to
avoid Avaya internal controls he knew were in place.
Id. ¶¶ 35, 37. Pearce provided the
unauthorized software licenses to reseller Hines to
distribute to customers and other resellers such as Atlas and
Telephone Man. Id. ¶ 37. The Internal Use
Licenses are functionally no different than the software
licenses sold to customers. Id. ¶ 34. But the
Internal Use Licenses are billed to Avaya instead of to the
distributor or customer. Id. These unauthorized
software licenses had no associated revenue or related
customer orders. Id.
2016, plaintiff allegedly received a customer complaint
regarding a high phone failure rate for a purchase of over a
thousand Avaya-branded phones. Id. ¶ 49. Avaya
discovered the phones were counterfeit, with “fake
serial numbers, fake manufacturing codes, internal components
that had been hacked and programmed to bypass internal
software controls, and counterfeit factory seal box
labels.” FAC ¶ 49. The phones were traced back to
alleges that because Atlas and Telephone Man were authorized
Avaya resellers, they should have known that Pearce and Hines
were selling unauthorized software licenses because the
prices were below Avaya's authorized resale price.
Id. ¶ 98. Plaintiff also claims Hines'
login credentials to Avaya's software licensing portal
were used in Auburn Hills, Michigan, where Atlas has its
principal place of business, and in the Tampa-area of Florida
near Plant City, where Telephone Man has its principal place
of business. Id. ¶¶ 11, 99.
Defendants' 12(b)(6) Motions to Dismiss for Failure to
State a Claim
moves to partially dismiss plaintiff's fourth cause of
action because defendant does not traffic in circumventing
technology. Atlas also argues plaintiff's seventh causes
of action fails to allege how ...