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Infogroup, Inc. v. DatabaseLLC

United States District Court, D. Nebraska

March 30, 2015

Infogroup, Inc., et al., Plaintiffs,
v.
DatabaseLLC, et al., Defendants

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[Copyrighted Material Omitted]

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For Infogroup, Inc., Delaware corporation, infoUSA, Inc., Delaware corporation, infoUSA Marketing, Inc., Delaware corporation, Plaintiffs, Counter Defendants: Alan D. Sege, ALAN SEGE LAW FIRM, Los Angeles, CA; Ari N. Rothman, VENABLE LAW FIRM, Washington, DC; Brooke H. McCarthy, Douglas W. Peters, John P. Passarelli, KUTAK, ROCK LAW FIRM - OMAHA, Omaha, NE.

For John Does, 1-20, Defendants: Patrick S. Cooper, FRASER, STRYKER LAW FIRM, Omaha, NE.

For Vinod Gupta, Blake Van Gilder, Jason Dailey, Mark Puljan, Jon McCormick, DatabaseUSA.com LLC, a Nevada limited-liability company, doing business as Database101.com, Defendants: Mark C. Laughlin, Patrick S. Cooper, FRASER, STRYKER LAW FIRM, Omaha, NE.

For Blake Van Gilder, Jason Dailey, Jon McCormick, Mark Puljan, DatabaseUSA.com LLC, a Nevada limited-liability company, Vinod Gupta, Counter Claimants: Mark C. Laughlin, FRASER, STRYKER LAW FIRM, Omaha, NE.

MEMORANDUM AND ORDER

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John M. Gerrard, United States District Judge.

This matter is before the Court on the plaintiffs' motion for preliminary injunction (filing 12), motion to strike affirmative defenses (filing 61), and motion to dismiss counterclaims (filing 63). The Court will deny each of the plaintiffs' motions.

I. BACKGROUND

The plaintiffs and the defendants are all, generally speaking, in the information business: they compile databases about consumers and businesses and they sell access to that information through various Web sites. The plaintiffs are Infogroup, Inc., infoUSA, Inc., and infoUSA Marketing, Inc. (collectively, Infogroup). Filing 23 at 1. The defendants are DatabaseUSA.com and several individual employees of DatabaseUSA.com (collectively, DatabaseUSA).[1] Filing 23 at 1-2 The individual defendants are all former employees of Infogroup--most pertinently, Vinod Gupta, the founder of Infogroup, and a former officer and shareholder. Filing 23 at 2; filing 13 at 2. Gupta founded DatabaseUSA

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after leaving Infogroup, and there is no love lost between them.

Infogroup has pled several claims for relief, but as relevant to the current motions, Infogroup's claims generally fall into three categories: (1) DatabaseUSA's alleged acquisition of information from Infogroup's proprietary database, (2) alleged false advertising regarding the extent to which DatabaseUSA's information is " verified," and (3) alleged false representations suggesting to potential customers that there is a corporate relationship between DatabaseUSA's products and Infogroup.

1. Proprietary Information

As mentioned above, the basis of Infogroup's business is its proprietary database. To check the security of its database, Infogroup inserts " seed data" into its listings, containing fictitious combinations of name, address, and telephone number. Filing 14-1 at 3. Seed data is disbursed through the database geographically, and per industry, on a monthly basis. Filing 32-2 at 19-20; filing 33-1 at 2. So, if Infogroup's seed data appears in the wild, in a competitor's list, Infogroup knows that the competitor has somehow gained access to Infogroup's information.[2] Filing 14-1 at 3. But the word " somehow" is important, because how the competition got information from Infogroup's database makes all the difference when it comes to establishing liability--and, as a precursor to liability, obtaining a preliminary injunction.

In June 2013, Infogroup found its November 2011 seed data in DatabaseUSA's products.[3] Filing 33-1 at 5; filing 40-1 at 2. Specifically, Infogroup found all of the expected seeds for its November 2011 data set. Filing 33-1 at 3. According to Infogroup's Vice President of Business Optimization, the presence of November 2011 seed files--but no other seed files--and the high match rate between Infogroup's data and DatabaseUSA's data suggests that DatabaseUSA acquired Infogroup's full business database at one point in time.[4] Filing 40-1 at 2-3. Infogroup sued, theorizing that the individual defendants--each of whom had left Infogroup and been hired by DatabaseUSA--had provided DatabaseUSA with misappropriated data or access to Infogroup's systems. Filing 23 at 7, 11, 13-14, 16-17.

But DatabaseUSA's evidence pokes some holes in that theory. The information in Infogroup's database is not wholly unavailable to the world at large--to begin with, while some data may come from private sources or Infogroup's own information-gathering, a substantial amount of the data is compiled from publicly-available sources. Filing 32-2 at 5-6; filing 33-1 at 2. And, of course, because Infogroup makes money by selling information, some

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data is made publicly available after it is compiled. Some of Infogroup's data is available to the public on search services such as Google, Yahoo!, Bing, and Ask.com. Filing 32-2 at 8-10. The business database is available through a reference service provided to libraries. Filing 32-2 at 10. Obviously, data sets have been sold to customers, sometimes through resellers, although Infogroup's licensed customers are prohibited by licensing agreements from providing that data to DatabaseUSA. Filing 32-2 at 10-11; filing 33-1 at 12, 18-19. And DatabaseUSA points out that third parties have been able to " scrape" database information from publicly-accessible sources and bundle it for resale. Filing 33-2 at 4. Information from at least some of Infogroup's seed files has been found in other competitors' data and on public search engines. Filing 33-1 at 9-10; filing 33-3 at 69-225.

DatabaseUSA's evidence also casts substantial doubt on whether any of the individual employee defendants could have obtained the data at issue. Three of the five individual defendants were terminated by Infogroup before the November 2011 seed data was inserted into the Infogroup database. Another was not hired by DatabaseUSA until after the June 2013 audit that discovered the seed data. And none of the former Infogroup employees (with the presumable exception of Gupta, who was out the door by 2008) had the necessary access to Infogroup's database to have perpetrated a heist.

None of that conclusively proves that the individual defendants were uninvolved--for instance, someone might have been secretly working for DatabaseUSA, exceeded his authorized access to Infogroup's database, or been working with someone else at Infogroup. But there is no evidence of any of that. Infogroup speculates that perhaps DatabaseUSA bought the information from someone else who " scraped" it. Filing 39 at 4. But in the end, it suffices to say this: it is certain that information from Infogroup's proprietary database ended up in DatabaseUSA's hands, and it is wholly uncertain how that happened.[5]

2. " Verified" Listings and False Advertising

Infogroup claims that DatabaseUSA is falsely representing its database entries as " verified" when they are not. Filing 23 at 9-11, 32-33. This claim, factually, is mostly derived from the presence of Infogroup's seed files in DatabaseUSA's database. DatabaseUSA promotes its database as " Triple-Verified." Filing 14-2 at 36. When Infogroup marks a listing in its database as " verified," that apparently means an Infogroup employee has confirmed that the information is accurate and current. Filing 14-1 at 2. It is far less apparent what a " verified" record means to DatabaseUSA. E.g., filing 48-1 at 2; filing 51 at 8. But there is evidence that DatabaseUSA promotes its " verification process" as involving " original sources," telephone verification, and Internet research. Filing 82-1 at 8; Ex. A.

DatabaseUSA displayed some of Infogroup's seed files as " verified" records, stating that " Verified Records have been through our verification process that includes phone verification, search engine research and business website review."

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Filing 14-2 at 23. Infogroup's argument is simple: how could DatabaseUSA have " verified" a fictitious entry? Filing 13 at 9. And Infogroup points to other inaccuracies in supposedly-" verified" entries in DatabaseUSA's data. Filing 82-3. But DatabaseUSA points out that even Infogroup's seed files contain some real information. For instance, one of the seed files at issue is a fictional business, but the address is a real place, and the telephone number is a working number belonging to an Infogroup employee. Filing 31 at 19. So, there is still some information that could be " verified" by certain methods. DatabaseUSA also points to similar inaccuracies among Infogroup's " verified" listings, filing 86-3, and argues that even " verified" listings will sometimes be incorrect because information changes and not every listing can be verified every day. Filing 85 at 12-13. And DatabaseUSA presented evidence of the process that it uses, internally, to verify the accuracy of its listings. Filing 33-2 at 2-3; filing 48-1 at 1-2.

3. False Representations about Relationship Between Companies

Infogroup claims that DatabaseUSA is making misleading statements, in press releases and advertisements, that falsely imply an ongoing relationship between Gupta and Infogroup, or DatabaseUSA and Infogroup. Infogroup has presented evidence of these instances:

& #8226; A press release about a managerial promotion at AtoZdatabases said that the promoted employee had " spent eight years at InfoGroup, a similar reference company that shares the same Founder, Vin Gupta." Filing 14-2 at 25.
o A press release about a private equity investment in infofree.com said that it " was founded by and is under the leadership of industry pioneer Vin Gupta, proprietor of companies such as infoUSA and Salesgenie. He brings nearly 40 years of experience in building databases, creating sales leads, and helping salespeople and small businesses to his new company." Filing 14-2 at 27.
o A press release touting customer savings at infofree.com included a quotation from Gupta, " who also founded InfoUSA, infogroup, and Sales Genie." Filing 14-2 at 30.
o A promotional article published on infofree.com described it as having been " started by the founder and former head of InfoGroup, Vin Gupta." Filing 14-2 at 33.
o An advertising letter to a " loyal customer" from DatabaseUSA included a picture of Gupta at the bottom, and a facsimile of his signature; the picture was captioned, " Vin Gupta, Founder & Chairman (also Founder of infoUSA)." Filing 14-2 at 36.
o DatabaseUSA uses Google AdWords, or similar products with other search engines, to place DatabaseUSA advertisements in proximity to search results when a consumer searches for Infogroup marks. Filing 82-1 at 25-26; filing 82-2 at 5, 7.
o A letter sent to Gupta by President Bill Clinton is posted on infofree.com. The letter, sent to Gupta in 1998, was addressed to Gupta as the " Chairman and Chief Executive Officer" of infoUSA. Filing 82-1 at 5, 33-34.
o DatabaseUSA advertising describes DatabaseUSA as " Serving the Database Industry Since 1972" or " Creators of the Finest Databases Since 1972." Filing 82-1 at 28-29, Ex. A; filing 82-2 at 9. As Infogroup points out, it was Infogroup that was founded in 1972; DatabaseUSA was founded in 2009. Filing 82-1 at 16.

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Infogroup also complains about excerpts of a " 60 Minutes" segment that are played in a video on infofree.com, and referenced in DatabaseUSA advertising. The story, originally aired in August 2003, was meant to alert viewers to the amount of personal information that was being sold to data companies. Filing 82-2 at 15-21. Gupta, then the CEO of infoUSA, was interviewed for the story, and the portions of the video played by DatabaseUSA include Gupta describing the detailed data that infoUSA had compiled about businesses and consumers. Filing 82-2 at 16-18.

The video was recorded at infoUSA while Gupta was in charge there, but the clips played by DatabaseUSA do not identify the company. Filing 82-1, Ex. A, Ex. E. DatabaseUSA contends that it has permission from Infogroup to use those clips, pursuant to a prior agreement. Filing 14-2 at 42. But DatabaseUSA's advertising also makes repeated claims to the effect that its databases are " so good, they were featured on '60 Minutes.'" [6] Filing 82-1 at 20, 22, Ex. A, Ex. E; filing 82-2 at 9.

Infogroup contends that references by DatabaseUSA to Infogroup have led to confusion among consumers about the association among the various business entities. Infogroup cites these instances:

o The " loyal customer" advertising letter described above, sent to an Infogroup customer, caused the recipient to contact Infogroup asking if Infogroup and DatabaseUSA were the same company. Filing 14-1 at 8; Hr'g Ex. 2.
o In September 2012, two consumers called Infogroup asking about an advertising special that was being offered by infofree.com. Filing 14-1 at 8-9.
o A customer question posted at infofree.com's customer support portal asked, " You are not part of Sales Genie are you?" An agent replied, " Yes, that is correct. Vin Gupta was the founder of InfoUSA (Sales Genie), but sold it and is not the CEO of infofree.com which is a separate company." Filing 14-2 at 38.
o A customer of Infogroup sent an email to an Infogroup account executive asking for a copy of a particular invoice, but when the account executive replied that no such invoice existed, the customer replied, " You are info free correct?" Filing 14-2 at 40.
o In a telephone call from a consumer to Infogroup, the consumer said that he had been told (by whom is unclear) that " the Database USA company was the one that has been around forever." Filing 82-1, Ex. C.
o A customer had been exchanging emails with a DatabaseUSA sales manager for several months regarding a purchase. When an email wasn't replied to for a couple of days, the customer emailed an Infogroup employee he had apparently also been in contact with to ask about it, implying that he believed the two worked for the same company.[7] Hr'g Ex. 3.
o An email exchange between Gupta and Infogroup's CEO referenced a recorded call to Infogroup from a customer

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who apparently used both businesses, and an email from an Infogroup customer about a DatabaseUSA promotional email that he was repeatedly receiving. Hr'g Ex. 5, 6, 7. But the voice recording is not in the record (or if it is, it is not identified as such), and it is not clear from the email exchange what either customer was confused about, or why.[8]

II. DISCUSSION

As noted above, Infogroup's audit detected its seed files in DatabaseUSA's database in June 2013. But Infogroup waited several months to file suit. See filing 1. Infogroup explains that at the time, Infogroup and Gupta were codefendants in litigation arising from events that occurred while Gupta was associated with Infogroup. Filing 40-2 at 1. Infogroup, needing Gupta's participation and cooperation with that litigation, waited until it was resolved to file suit against him. Filing 40-2 at 2; filing 78 at 45-49. But as soon as that litigation concluded, Infogroup determined to settle all family business: it initiated the present case and moved for a preliminary injunction. See filing 12. Limited discovery, an evidentiary hearing, and extensive briefing have been had on that motion.[9] DatabaseUSA also raised several affirmative defenses and alleged several counterclaims in its answer to Infogroup's operative complaint. See filing 60. Infogroup, in turn, moved to strike DatabaseUSA's affirmative defenses and dismiss some of its counterclaims. Filing 61; filing 63.

So, there are three pending motions that require disposition: a motion for preliminary injunction (filing 12), a motion to strike (filing 61), and a motion to dismiss ...


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