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The case is Softech Worldwide, LLC v. Internet Tech. Broadcasting Corp., et al., E.D. Va. case no. 1:10-cv-651, and a copy of the opinion is here.  Plaintiff Softech, which creates software for video streaming, alleged that it had been hired by Defendant ITBC to develop software and provide software services for the Department of Veterans Affairs.  ITBC was a subcontractor, operating under general contractor Fedstore.  Softech sued both ITBC and Fedstore, alleging copyright infringement and a claim under Virginia’s Uniform Trade Secrets Act.  With respect to Fedstore, the copyright infringement claims rested upon contributory and vicarious liability theories.

The instant motion was one by Fedstore under the “Twiqbal” test of Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), and Ashcroft v. Iqbal, 129 S. Ct 1937 (2009), about which we’ve blogged several times.  We’ve also blogged about Judge Cacheris’s earlier opinion in this case on ITBC's Twiqbal challenge.  This time, the worm has turned.

The central issue raised by Fedstore’s motion was whether Softech had adequately pleaded the element of knowledge, necessary for both contributory liability and the trade secrets claim. 

Softech alleged: “Defendants’ ... Infringement has damaged Softech and has been and continues to be willful and deliberate with full knowledge of Softech’s rights.”  Fed. R. Civ. P. 9 specifically permits knowledge to be averred generally, and the Court acknowledged that the above allegation, on its own, would be sufficient under Twiqbal.

The Court concluded, however, that the above allegation contradicted two others, specifically:

• ITBC represents publicly, including to Fedstore and to others, that it owns, developed, or sponsored some or all of the Softech Software in a manner calculated to mislead the public, the trade, and consumers.


• ITBC takes active measures to restrict the visibility of Softech, including to Fedstore and others, in providing the ITBC Services in a manner calculated to mislead the public, the trade, and consumers. 

In short, the Court concluded that Plaintiffs were alleging both that Fedstore acted with knowledge and also that Fedstore was without knowledge because ITBC had been misleading Fedstore.

Because of the contradiction, the Court declined to consider the allegation of knowledge as well-pleaded, writing that it “cannot, therefore, ‘accept all well-pleaded allegations’ while reading the Complaint as adequately averring Fedstore’s knowledge of ITBC’s alleged infringement.” 

Although contributory liability fell by the wayside, the copyright claims survived on the vicarious liability theory.  The trade secrets claim, on the other hand, was doomed by the lack of knowledge.  Softech having amended once before, the opinion makes no mention of leave to amend again.

Fed. R. Civ. P. 8(d) permits a party to state a claim alternatively or hypothetically and also to state as many claims as it has, regardless of consistency.  The Court’s application of Twiqbal in a way that treats inconsistent allegations as not well-pleaded raises questions about the degree to which litigants must draft their pleadings to explicitly set up alternatives and invoke Rule 8(d).