Enigma Software Group USA, LLC v. Malwarebytes Inc.
Docket: 16 Civ. 7885 (PAE)
Court: District Court, S.D. New York; May 12, 2017; Federal District Court
Enigma Software Group USA, LLC, a Florida-based developer of computer security products, has initiated legal action against its competitor, Malwarebytes, Inc., a Delaware corporation headquartered in California. Enigma claims that Malwarebytes altered its Malwarebytes Anti-Malware (MBAM) software's threat detection criteria in October 2016 to classify Enigma’s flagship product, SpyHunter, as a threat, thereby damaging Enigma’s reputation and disrupting its products on consumers' computers to gain an unfair competitive advantage. Enigma's legal claims include false advertising under the Lanham Act and various tort claims under New York law, including tortious interference with contractual and business relations, as well as a violation of New York General Business Law § 349.
Malwarebytes has filed a motion to dismiss Enigma's First Amended Complaint (FAC) based on Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6), or alternatively, to transfer the case to the Northern District of California under 28 U.S.C. § 1404. The Court has decided to grant the transfer motion and will not address the dismissal motion at this time.
Background information reveals that between 2008 and October 4, 2016, Malwarebytes did not classify Enigma’s products as any form of malware. The change in threat detection criteria occurred shortly before a deadline for Malwarebytes to respond to a subpoena related to an earlier lawsuit Enigma filed against Bleeping Computer LLC, which involved allegations of disparagement and promotion of Malwarebytes’ products at Enigma's expense.
SpyHunter and RegHunter were designated as potentially unwanted programs (PUPs) by Malwarebytes Anti-Malware (MBAM), resulting in automatic quarantine and blocking of these products if detected on a consumer's computer. Users could not access these programs unless they undertook complex steps to restore them. Additionally, if users attempted to install these products while MBAM was installed, the installation would be blocked. Following Malwarebytes' acquisition of AdwCleaner on October 19, 2016, AdwCleaner also began identifying SpyHunter and RegHunter as PUPs, mirroring MBAM's actions. Enigma alleges that Malwarebytes falsely labeled its products as threats to harm its business, interfere with its customer base, and retaliate for a separate lawsuit against Bleeping. This alleged "bad faith campaign" purportedly caused Enigma immediate financial losses and irreparable harm to its reputation.
Enigma filed a complaint on October 7, 2016, linking it to its prior lawsuit against Bleeping, asserting that both defendants conspired to harm it through false advertising and defamation. The court recognized the cases as related on October 13, 2016. Subsequent motions to dismiss or transfer the case were filed by Malwarebytes on November 16 and December 28, 2016, with various legal memoranda and requests for judicial notice submitted by both parties throughout the proceedings. Enigma opposed these motions and sought additional amendments to its complaint, with ongoing filings and responses exchanged into January 2017.
On February 3, 2017, the Court held arguments regarding a motion to dismiss or transfer, following a settlement notification from the parties involved on February 2, 2017. The excerpt outlines the standards for Malwarebytes’ motions to transfer and to dismiss.
Under 28 U.S.C. § 1404, a district court can transfer a civil action for the convenience of parties and witnesses, requiring a two-step analysis: first, determining if the action could have been initiated in the transferee district, and second, assessing whether the transfer is a proper exercise of discretion by balancing several factors, including the convenience of witnesses and parties, the location of relevant documents, the locus of operative facts, and the plaintiff's choice of forum.
For motions to dismiss under Rule 12(b)(2) for lack of personal jurisdiction, the plaintiff must demonstrate that the court has jurisdiction over the defendant, typically through legally sufficient allegations or affidavits before discovery. The court favors the plaintiff’s pleadings but does not accept legal conclusions as true.
For motions to dismiss under Rule 12(b)(6), a complaint must contain enough factual content to establish facial plausibility, meaning it must allow for a reasonable inference of the defendant's liability. Conclusory statements or mere consistency with liability are insufficient for a claim to survive a motion to dismiss.
Malwarebytes is seeking dismissal of the First Amended Complaint (FAC) on the grounds of lack of personal jurisdiction and failure to state a claim, or alternatively, to have the case transferred to the Northern District of California.
The Court grants the motion to transfer the case to the Northern District of California and does not address the motions to dismiss. It establishes that while personal jurisdiction challenges are typically resolved before venue motions, courts can prioritize venue when justified. Venue is deemed proper in the transferee district since Malwarebytes resides in the Northern District of California.
In applying a multi-factor balancing test, the Court finds that the factors favoring transfer outweigh those favoring retention in New York. Notably, the convenience of witnesses is highlighted as the most significant factor, with key witnesses from Malwarebytes likely to be based in California, while no essential witnesses are identified in New York. Furthermore, the locus of operative facts substantially supports transfer, as the events central to Enigma’s claims occurred in California, particularly regarding Malwarebytes' alleged bad faith in revising its PUP criteria to harm Enigma’s software. Overall, both witness convenience and the location of relevant facts strongly favor transferring the case to California.
The PUP criteria, developed in California, was incorporated into Malwarebytes’ software. While the First Amended Complaint (FAC) claims that New York consumers purchased Malwarebytes’ software and faced interference from SpyHunter or RegHunter, it does not establish any unique circumstances for New York consumers compared to others. Notably, less than 7% of affected consumers are based in New York, leading the Court to find that the relevance of New York sales in the transfer analysis is minimal. The case's center of gravity is determined to be in the Northern District of California.
Regarding party convenience, the Court highlights that both parties are located outside New York—Enigma in Florida and Malwarebytes in California. Thus, transferring the case to California would be more convenient for the defendant without significantly inconveniencing the plaintiff. Although Enigma’s choice of forum is given some weight, it is deemed less relevant due to the minimal connection to New York and the fact that the related lawsuit against Bleeping, which influenced this choice, has been settled.
The remaining factors are neutral, with no significant advantage for either side regarding document location, witness attendance, party resources, or familiarity with governing law. The interests of trial efficiency are also neutral in light of the recent settlement involving Bleeping.
Ultimately, the combination of factors supports transferring the case to the Northern District of California, outweighing Enigma’s choice of forum. Consequently, the Court grants Malwarebytes’ motion under 28 U.S.C. § 1404, leading to no further action on Malwarebytes’ motions for dismissal. Additionally, Malwarebytes has a pending motion for judicial notice related to its motion to dismiss and motion to transfer.
The Court has received a motion requesting judicial notice of several exhibits related to Enigma, including prior complaints, press releases, cease and desist letters from Enigma's website, and screen images from SpyHunter. Enigma opposes this motion and has also moved to strike the Scott Declaration and parts of the Harris Declaration, in addition to seeking permission to file supplemental allegations to the First Amended Complaint (FAC). The Court has opted not to rule on these motions, as they relate to the motions to dismiss, which will be addressed by the transferee court. The motion to transfer venue under 28 U.S.C. § 1404 is granted, with the case being transferred to the Northern District of California. The Court refrains from ruling on Malwarebytes’ motion to dismiss for personal jurisdiction and failure to state a claim, as well as Enigma’s motions.
In considering the motion to dismiss for failure to state a claim, the Court must accept the allegations in the complaint as true and draw inferences in favor of the plaintiff. For a motion to dismiss based on lack of personal jurisdiction, the Court may examine materials beyond the complaint but still favor the plaintiff. When deciding on the motion to transfer, the Court can consider factual submissions from the defendants, specifically the Harris Declaration, which the Court finds relevant for the transfer analysis, although Enigma seeks to strike parts of it related to the motions to dismiss. Ultimately, the Court does not find any portions of the Harris or Scott Declarations pertinent to the transfer decision.
