Neo4j, Inc. v. Graph Foundation, Inc.

Background

Neo4j USA and Neo4j Sweden sued Graph Foundation, Inc. (GFI), GraphGrid, Inc., and AtomRain Inc. (ARI). Neo4j Sweden owns the copyrights related to the Neo4j graph database platform, including its source code. The plaintiffs offered the software under various licenses, including a license based on the GNU Affero General Public License version 3 and an additional restriction called the Commons Clause. The plaintiffs alleged that GFI created ONgDB as a free and open-source version of Neo4j Enterprise Edition, and that the defendants copied and distributed Neo4j source code after removing or changing copyright management information, including copyright notices, ownership information, and license terms.

The First Amended Complaint asserted a fifth cause of action against all defendants under the Digital Millennium Copyright Act (DMCA) for unauthorized distribution of altered copyright management information; a sixth cause of action against GFI for breach of the Neo4j Sweden Software License; and a seventh cause of action against all defendants under California’s Unfair Competition Law (UCL). GraphGrid and ARI moved to dismiss the fifth and seventh causes of action. GFI moved to dismiss the fifth, sixth, and seventh causes of action under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim.

Fifth Cause of Action: DMCA

The plaintiffs alleged that the defendants intentionally distributed Neo4j source code after removing or altering copyright management information and knew, or had reason to know, that their conduct would facilitate copyright infringement. The defendants argued that the license allowed them to remove the Commons Clause and other information because provisions of the underlying license permitted removal of further restrictions.

The court rejected that argument. It interpreted the license provisions as preventing licensees from imposing additional restrictions, not as allowing them to remove restrictions imposed by the licensor. The court also held that the defendants’ knowledge allegations were sufficiently plausible at the motion-to-dismiss stage. It further concluded that moving copyright management information into separate NOTICE.txt files could constitute altering that information, and that removing the Commons Clause could constitute removing it. The court therefore denied both motions as to the fifth cause of action.

Sixth Cause of Action: Breach of License Agreement

Neo4j Sweden alleged that GFI breached the Neo4j Sweden Software License by removing or altering the Commons Clause, copyright notices, and ownership information, and by distributing the altered source code and offering commercial support services for it. The court again rejected GFI’s argument that the license authorized removal of the disputed information. Because GFI did not challenge the other elements of the breach claim, the court found that the allegations were sufficient and denied GFI’s motion as to the sixth cause of action.

Seventh Cause of Action: California Unfair Competition Law

The plaintiffs alleged that GFI falsely presented itself as a nonprofit organization and that GraphGrid and ARI supported it through tax-deductible donations, giving the defendants an unfair competitive advantage. The court found that the plaintiffs did not adequately plead a fraudulent UCL claim because they acknowledged that the Internal Revenue Service had granted GFI tax-exempt status, and they did not allege that the plaintiffs themselves relied on the challenged statements.

The court also rejected the unfair and unlawful theories. It explained that there is no private right of action under Section 501(c)(3) to enforce the requirements for tax-exempt status, and that this court lacked jurisdiction to determine whether GFI qualified for or complied with that status. The plaintiffs therefore could not use the UCL to recast those allegations. Because the plaintiffs conceded that GFI had been granted tax-exempt status, the court found that further amendment would be futile. It granted the defendants’ motions as to the seventh cause of action and dismissed that cause of action with prejudice.

Disposition

The court granted in part and denied in part both motions to dismiss. It denied the motions as to the fifth cause of action, denied GFI’s motion as to the sixth cause of action, granted the motions as to the seventh cause of action, and dismissed the seventh cause of action with prejudice.