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Triage Logic Mgmt. & Consulting, LLC v. Innovative Triage Servs., LLC, 2020
NCBC 57.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
FORSYTH COUNTY 20 CVS 399

TRIAGE LOGIC MANAGEMENT
AND CONSULTING, LLC,

Plaintiff,

v. ORDER AND OPINION ON MOTION
TO DISMISS PURSUANT TO RULE
INNOVATIVE TRIAGE SERVICES, 12(b)(6)
LLC,

Defendant.

THE MATTER is before the Court on the Motion to Dismiss Pursuant to

Rule 12(b)(6) (the “Motion”) filed by Defendant Innovative Triage Services, RNs On-

Call LLC (formerly Innovative Triage Services, LLC) (“Defendant” or “ITS”) on March

17, 2020. (ECF No. 13.) The Motion seeks to dismiss all claims asserted by Plaintiff

Triage Logic Management and Consulting, LLC (“Plaintiff” or “TLMC”) for failure to

state a claim pursuant to Rule 12(b)(6). For the reasons stated below, the Court

hereby GRANTS in part and DENIES in part the Motion.

Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Clint S. Morse,
for Plaintiff Triage Logic Management and Consulting, LLP

Enns & Archer LLP, by Rodrick John Enns, and Mackenzie Hughes LLP,
by Dean J. DiPilato, for Defendant Innovative Triage Services, RNs On-
Call LLC

Robinson, Judge.

I. INTRODUCTION

This case arises out of a licensing agreement between Plaintiff, a medical

software provider, and Defendant, one of its former customers. Plaintiff specializes
in providing a software platform for triage nurses. It entered into a licensing

agreement with Defendant for the use of Plaintiff’s software. Defendant used

Plaintiff’s software for approximately eight years before the licensing agreement was

terminated. During the term of the licensing agreement, Defendant allegedly

disclosed Plaintiff’s software to a third-party who in turn made a competing product

similar to Plaintiff’s product. Plaintiff brings claims for breach of contract and

common law unfair competition stemming from Defendant’s alleged improper use of

Plaintiff’s software. Defendant has moved to dismiss both claims for failure to state

a claim.

II. PROCEDURAL AND FACTUAL BACKGROUND

The Court does not make findings of fact when ruling on a motion to dismiss

pursuant to Rule 12(b)(6) but only recites those factual allegations that are relevant

and necessary to the Court’s determination of the Motion.

Plaintiff initiated this action by filing the Complaint on January 21, 2020.

(ECF No. 3.) Thereafter, the action was designated as a mandatory complex business

case, (ECF No. 1), and assigned to the undersigned on February 28, 2020, (ECF No.

2).

Plaintiff is a Delaware limited liability company with its present place of

business in Florida. (Compl. ¶ 1.) Prior to its relocation to Florida, Plaintiff’s place

of business was located in Forsyth County, North Carolina. (Compl. ¶ 3.) Defendant

is a New York limited liability company with its principal place of business in

Missouri. (Compl. ¶ 2.)
In or about 2006, Dr. Charu Raheja, PhD and Dr. Ravi Raheja, MD co-

founded TLMC. (Compl ¶ 1.) TLMC was created in order to provide a software

platform used to ensure that triage nurses would be available throughout the day for

people that needed diagnosis and treatment in hospitals and other medical practices.

(Compl. ¶ 1).

TLMC software differs from the versions of triage contact technology that

were widely popular prior to Plaintiff’s development and commercialization of its

software. (Compl. ¶ 11). Its software provides contracting medical practices with a

telephone number unique to each medical practice that connects patients to a triage

nurse. (Compl. ¶ 10). Rather than forcing nurses to look through multiple binders of

practice information for each call, (Compl. ¶ 11), nurses utilizing TLMC software

have access to information specifically added to the TLMC database by the relevant

medical practice, making the job of a triage nurse more efficient, (Compl. ¶ 12).

TLMC software creates an easy-to-read single screen for nurses which

contains all relevant information needed to render services to a particular patient by

a triage nurse, (Compl. ¶ 14), which is referred to by TLMC as the “Easy Read

Screen[,]” (Compl. ¶ 15).

The features of TLMC software have given it a unique commercial

advantage when compared to traditional telephonic nurse triage networks. (Compl.

¶¶ 17–18.)

On or about June 20, 2011, Plaintiff entered into a System License

Agreement (the “Licensing Agreement”) with Defendant. (Compl. ¶ 20.) The
Licensing Agreement included a choice of forum clause setting Forsyth County, North

Carolina as the agreed-upon forum to resolve any disputes arising therefrom.

(Compl. ¶ 4.)

Of importance to Plaintiff’s claims for relief, Section 3.b. of the Licensing

Agreement contains the following restrictive covenants (the “Restrictive Covenants”):

3. Limitations to License; Equipment

a. Ownership Rights. Except for the limited license granted to
Licensee in Section 1 above, TLMC retains exclusive ownership
and all right, title and interest in and to the System.

b. Restrictions. Except as expressly permitted by this Agreement,
the Licensee shall not: i) grant sub licenses to sell, assign, give or
otherwise transfer the System or its rights thereto, in whole or in
part; ii) modify, disassemble, decompile, reverse engineer, or
otherwise re-create the System, in whole or in part; iii) copy or
otherwise reproduce the System, in whole or in part; iv) disclose,
divulge, or otherwise make available the System, in whole or in
part, to any third party; v) develop similar software, services or
product offerings substantially similar to the System; or vi)
disclose to any third party the payment terms agreed to by TLMC
and Licensee under this Agreement.

(Compl. ¶ 18.)

The Restrictive Covenants “survive the end of the license term” pursuant

to Section 7.c of the Licensing Agreement. (Compl. ¶¶ 19, 22.)

Plaintiff alleges that it performed all of its obligations under the Licensing

Agreement. (Compl. ¶ 23.) Sometime during the Spring of 2019, Plaintiff and

Defendant terminated their relationship and the Licensing Agreement. (Compl. ¶

24.)
Prior to the termination of the Licensing Agreement, Defendant contracted

with a software development company named PQC Tech to create software similar to

that provided by Plaintiff. (Compl. ¶ 25.) Defendant allegedly provided PQC Tech

access to Plaintiff’s software packages. (Compl. ¶ 28.) In so doing, Plaintiff alleges

that Defendant recreated Plaintiff’s software packages, in whole or in part, and

developed “software substantially similar to TLMC’s software packages.” (Compl. ¶

29.)

After being provided access to Plaintiff’s software, PQC Tech created

software, called “On-Call Hub”, with similar features to the TLMC Easy Read Screen.

(Compl. ¶¶ 26, 27.) PQC Tech released its On-Call Hub in 2019. (Compl. ¶ 26.)

Plaintiff does not allege what, if any, ownership interest or rights Defendant had in

On-Call Hub.

As a result of Defendant’s conduct, Plaintiff initiated this lawsuit. (ECF

No. 3.) Defendant moved to dismiss all Plaintiff’s claims by filing the Motion on April

17, 2020. (ECF No. 13 [“Br. in Supp.”].) Thereafter, Plaintiff filed a response in

opposition to the Motion on May 29, 2020. (ECF No. 15.) On June 8, 2020, Defendant

filed a reply. (ECF No. 19 [“Reply”].) On July 15, 2020, the Court held a hearing on

the Motion, at which both parties were represented by counsel. The Motion is ripe

for determination.
III. LEGAL STANDARD

In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court

reviews the allegations in the complaint in the light most favorable to the plaintiff.

See Christenbury Eye Ctr., P.A. v. Medflow, Inc., 370 N.C. 1, 5, 802 S.E.2d 888, 891

(2017) (citation omitted). The Court’s inquiry is “whether, as a matter of law, the

allegations of the complaint . . . are sufficient to state a claim upon which relief may

be granted under some legal theory[.]” Harris v. NCNB Nat’l Bank, 85 N.C. App. 669,

670, 355 S.E.2d 838, 840 (1987). The Court accepts all well-pleaded factual

allegations in the relevant pleading as true. See Krawiec v. Manly, 370 N.C. 602, 606,

811 S.E.2d 542, 546 (2018). The Court is not required, however, “to accept as true

allegations that are merely conclusory, unwarranted deductions of fact, or

unreasonable inferences.” Good Hope Hosp., Inc. v. N.C. Dep’t of Health & Human

Servs., 174 N.C. App. 266, 274, 620 S.E.2d 873, 880 (2005) (citation omitted).

Our Supreme Court has noted that “[i]t is well-established that dismissal

pursuant to Rule 12(b)(6) is proper when ‘(1) the complaint on its face reveals that no

law supports the plaintiff’s claim; (2) the complaint on its face reveals the absence of

facts sufficient to make a good claim; or (3) the complaint discloses some fact that

necessarily defeats the plaintiff’s claim.’” Corwin v. British Am. Tobacco PLC, 821

S.E.2d 729, 736−37 (N.C. 2018) (quoting Wood v. Guilford Cty., 355 N.C. 161, 166,

558 S.E.2d 490, 494 (2002)). This standard of review for Rule 12(b)(6) is the standard

our Supreme Court “uses routinely . . . in assessing the sufficiency of complaints in

the context of complex commercial litigation.” Id. at 737 n.7 (citations omitted).
IV. ANALYSIS

The Motion seeks dismissal of both Plaintiff’s claims for (i) breach of

contract; and (ii) common law unfair competition. The Court addresses each in turn.

A. Breach of Contract

Plaintiff’s breach of contract claim is predicated upon the Restrictive

Covenants contained in Section 3.b. of the Licensing Agreement between Plaintiff

and Defendant. (Compl. ¶¶ 18–19.) Defendant contends that the Restrictive

Covenants are naked restraints on trade and should be invalidated as a matter of

public policy based on existing North Carolina non-compete law in the employment

and/or sale-of-business context. (Br. in Supp. 4–5.)

In determining whether the allegations of a complaint are sufficient to state

a breach of contract claim upon which relief may be granted, Plaintiff must allege “(1)

the existence of a valid contract and (2) breach of the terms of that contract.” Poor v.

Hill, 138 N.C. App. 19, 26, 530 S.E.2d 838, 843 (2000) (quoting Jackson v. California

Hardwood Co., 120 N.C. App. 870, 871, 463 S.E.2d 571, 572 (1995)). Here, the parties

do not dispute that there is an agreement—the Licensing Agreement—that governs

this dispute at large. Accordingly, the Court focuses on whether Plaintiff has

sufficiently alleged breach of the Licensing Agreement for purposes of 12(b)(6), which

requires a specific analysis of Section 3.b. and the alleged breaches complained

thereof.

Though defined in the Complaint as “Protective Covenants[,]” Plaintiff does

not clarify whether it interprets each sub-section of Section 3.b. to be standalone
covenants. Defendant argues that Section 3.b. should be read as a single covenant.

Construction of a contract is ordinarily a matter of law for the Court. Southpark Mall

Ltd. P’ship v. CLT Food Mgmt., 142 N.C. App. 675, 679, 544 S.E.2d 14, 17 (2001).

Accordingly, the Court first determines whether, pursuant to common canons of

contract construction, Section 3.b. contains uniquely distinct and severable

provisions, such that if any one sub-section of Section 3.b. constituted an enforceable

covenant that Defendant allegedly breached, Plaintiff’s claim for breach of contract

would go forward. Section 3.b. reads, in total:

b. Restrictions. Except as expressly permitted by this Agreement, the
Licensee shall not: i) grant sub licenses to, sell, assign, give or otherwise
transfer the System or its rights thereto, in whole or in part; ii) modify,
disassemble, decompile, reverse engineer, or otherwise re-create the
System, in whole or in part; iii) copy or otherwise reproduce the System,
in whole or in part; iv) disclose, divulge, or otherwise make available the
System, in whole or in part, to any third party; v) develop similar
software, services or product offerings substantially similar to the
System; or vi) disclose to any third party the payment terms agreed to
by [Plaintiff] and Licensee under this Agreement.

Each sub-section of Section 3.b. is delineated by small roman numerals i.–

vi. and separated by semi-colons. Each sub-section concerns a different prohibition

of conduct on the part of the licensee (in this case, Defendant). No one sub-section

relies on another sub-section to make its meaning clear. It is generally recognized in

legal writing that semicolons are used to separate items in a series, especially when

those items are enumerated, see BRYAN A. GARNER, THE REDBOOK: A MANUAL ON

LEGAL STYLE §§ 1.19, 1.24(c) (West eds., 3rd ed. 2013), and that the use of commas or

semicolons in this context results in divisible provisions, Premier Res. of N.C., Inc. v.

Kelly, 2014 N.C. App. LEXIS 1411, at *11–12 (N.C. Ct. App. Dec. 31, 2014).
For these reasons, the Court concludes that each sub-section, separated by

small roman numerals i.–vi. and semicolons, shall be interpreted as standalone

protective covenants. Accordingly, the Court addresses each sub-section separately

for purposes of evaluating Plaintiff’s breach of contract claim.

Though there are six sub-sections of Section 3.b., Plaintiff does not allege

that Defendant breached Sections 3.b.i. or 3.b.vi. Accordingly, the Court focuses its

analysis on Sections 3.b.ii.–v.

Although Defendant did not move for dismissal pursuant to Rule 12(b)(1)

or brief the issue of copyright preemption,1 the Court and counsel discussed at the

July 15, 2020 hearing the relationship between Plaintiff’s state law claims and

federal copyright laws. Claims for breach of software licensing agreements, like

Plaintiff’s claim here, “raise[] issues that lie at the intersection of copyright and

contract law.” SiteLink Software, LLC v. Red Nova Labs, Inc., 2018 NCBC LEXIS

90, at *20 (N.C. Super. Ct. Aug. 20, 2018) (citing MDY Indus., LLC v. Blizzard Entm’t,

Inc., 629 F.3d 928, 939 (9th Cir. 2010)). Therefore, as a matter of standing and subject

matter jurisdiction, the Court must determine whether part or all of Plaintiff’s breach

of contract claim is preempted by the United States Copyright Act, 17 U.S.C. § 301(a)

(2014) (the “Copyright Act” or the “Act”). State law claims are preempted by the

1 Defendant’s counsel argued at the July 15, 2020 hearing that because Defendant’s position

is that the Restrictive Covenants should be read as a single non-competition agreement,
taken as a whole, the Restrictive Covenants prohibit more than mere copying, thereby taking
Plaintiff’s claim out of copyright preemption. However, Defendant argued that if the Court
were to construe each subsection of the Restrictive Covenants as separate, standalone
covenants, then a discussion of copyright preemption was necessary.
Copyright Act to the extent that the claims assert rights “equivalent to any of the

exclusive rights within the general scope of copyright” granted under the Act.

SiteLink Software, 2018 NCBC LEXIS 90, at *20.

Section 106 of the Copyright Act provides, in pertinent part, that “the owner

of copyright . . . has the exclusive rights to . . . [1] reproduce the copyrighted work in

copies or phonorecords[;] . . . [2] prepare derivative works based upon the copyrighted

work; [and 3] . . . distribute copies or phonorecords of the copyrighted work to the

public by sale or other transfer of ownership . . . .” 17 U.S.C. § 106(1)–(3). As this

Court has reinforced, there are two parts to a court’s analysis when considering

whether state law claims are preempted by federal copyright law: (1) does the cause

of action fall within the subject matter of copyright law, and if so, (2) are the rights

protected by state law equivalent to any of the exclusive rights granted by the

LEXIS 55, at *19–20 (N.C. Super. Ct. Oct. 30, 2012) (citing Rosciszewski v. Arete

Assocs., Inc., 1 F.3d 225, 229 (4th Cir. 1993)).

As to the first part of this inquiry, here, Plaintiff’s breach of contract claim

“falls within the subject matter of copyright law” because the allegations are derived

from Defendant’s alleged misappropriation of Plaintiff’s triage nurse contact

software, which is an original work of authorship fixed in a tangible medium. This

Court has previously held that software programs like Plaintiff’s are subject to

Software Corp., 351 F. Supp. 2d 436, 442 (M.D.N.C. 2005)).
As to the second part of this inquiry, in determining whether the provisions

of the Licensing Agreement underpinning Plaintiff’s alleged breach of contract claim

are “equivalent to any of the exclusive rights granted by the Copyright Act,” this

Court has consistently drawn upon the Fourth Circuit’s articulation of the “extra

element” test:

In order to ascertain whether a specific state cause of action involves a
right equivalent to one of those identified in § 106 [of the Copyright Act],
reference must be made to the elements of the state cause of action.
State law claims that infringe one of the exclusive rights contained in §
106 are preempted by § 301(a) if the right defined by state law “may be
abridged by an act which, in and of itself, would infringe one of the
exclusive rights. However, “if an ‘extra element’ is required instead of or
in addition to the acts of reproduction, performance, distribution or
display in order to constitute a state-created cause of action . . . there is
no preemption,”’ provided that “the ‘extra element’ changes the ‘nature
of the act so that it is qualitatively different from a copyright
infringement claim[.]”’

Sparrow Sys. v. Private Diagnostic Clinic, PLLC, 2014 NCBC LEXIS 70, at *13 (N.C.

Super. Ct. Dec. 24, 2014) (quoting Out of the Box Developers, 2012 NCBC LEXIS 55,

at *20 (relying upon fourth circuit case law)).

The “extra element” inquiry can be summed up as this: when you remove

the protections affording by the Copyright Act, is there still conduct complained of

that would be supported by a separate state law claim? See Storage Tech. Corp. v.

Custom Hardware Eng’g & Consulting, Inc., 421 F.3d 1307, 1316 (Fed. Cir. 2005)

(providing an illustration of the extra element test). With these principles in mind,

the Court addresses each subsection of Section 3.b. to determine if any are preempted

by federal copyright law.
First, Section 3.b.ii. requires that Defendant refrain from “modify[ing],

disassembl[ing], decompiling, reverse engineer[ing] or otherwise re-creat[ing]

[Plaintiff’s software system], in whole or in part.” (Compl. ¶ 18.) At bottom, Section

3.b.ii. prohibits Defendant from reverse engineering Plaintiff’s software. This Court

has recognized that “[r]everse engineering is not within the scope of the exclusive

rights of copyright,” because it does not constitute “mere copying.” Sparrow Sys.,

2014 NCBC LEXIS 70, at *18 (quoting Meridian Project Sys. v. Hardin Constr. Co. v.

Hardin Constr. Co., L.L.C., 426 F. Supp. 2d 1101 (E.D. Cal. 2006)); see also Davidson

& Assocs. v. Jung, 422 F.3d 630, 639 (8th Cir. 2005). When considering claims of

reverse engineering, courts focus on the fact that the defendant, when contracting to

purchase a license of a product or service—such as Plaintiff’s software product here—

relinquished or contracted away their right to reverse engineer the product by

entering into an agreement with a covenant against reverse engineering. Davidson,

422 F.3d at 636, 639. Reverse engineering is one step beyond copying a licensor’s

product; it instead involves “analyz[ing] a product to learn the details of its design,

construction, or production in order to produce a copy or improved version.” SAS Ins.,

Inc. v. World Programming, Ltd., 874 F.3d 370, 381 (4th Cir. 2017). The result of a

reverse engineered product, therefore, is not necessarily an exact replica or “copy” of

the licensor’s product. Contracting away this right, thus, is better considered a

matter of contract law, not a matter of copyright law. See Altera Corp. v. Clear Logic,

Inc., 424 F.3d 1079, 1089 (9th Cir. 2005).
Here, Section 3.b.ii. expressly prohibits Defendant from reverse

engineering Plaintiff’s software, and Plaintiff alleges that Defendant did exactly that

when it contracted with PQC Tech, a software developer, to use Plaintiff’s product to

create a similar software system. (Compl. ¶¶ 25–29.) Accordingly, Plaintiff’s claim

for breach of contract premised on Section 3.b.ii. includes more than just “mere

copying[,]” Sparrow Sys., 2014 NCBC LEXIS 70, at *18, and is therefore not

preempted by the Copyright Act.

In contrast, Section 3.b.iii. provides that Defendant may not “copy or

otherwise reproduce [Plaintiff’s software system], in whole or in part[.]” (Compl. ¶

18). Under the Copyright Act, a holder has exclusive rights to: “reproduce the

copyrighted work; copy or distribute the work; prepare derivative works; or display

the work publicly.” SiteLink Software, 2018 NCBC LEXIS 90, at *18 (citing 17 U.S.C.

§ 106(1)–(4)). Here, Section 3.b.iii. falls squarely within the scope of the Copyright

Act, because the act of “copy[ing] or otherwise reproduce[ing]” Plaintiff’s software

system is nearly verbatim to a copyright holder’s exclusive right to reproduce its work

pursuant to Section 106(1) of the Act. A claim for breach of Section 3.b.iii. amounts

to a claim for copying Plaintiff’s software, and nothing more. There is no “extra

element” to Defendants’ conduct here that would support a breach of contract claim

outside the protections afforded by the Copyright Act. See Madison River Mgmt., 351

F. Supp. 2d at 443 (preempting a breach of contract claim that included daily copying

of the software database). Accordingly, the Court concludes that Plaintiff’s breach of

contract claim, to the extent based on a breach of Section 3.b.iii., is preempted by the
Copyright Act. Once it is determined that a state law claim is preempted by federal

dismissed for failure to state a claim. See WJ Global LLC v. Farrell, 941 F. Supp. 2d.

688, 694 (2013). Therefore, to the extent that Plaintiff’s breach of contract claim is

based on Defendant’s breach of Section 3.b.iii., the claim is DISMISSED.

Section 3.b.iv. provides that Defendant may not “disclose, divulge, or

otherwise make available [Plaintiff’s software system], in whole or in part, to any

third party[.]” (Compl. ¶ 18.) Breach of this provision is akin to Section 106(3) of the

copies or phonorecords of the copyrighted work . . . .” 17 U.S.C. § 106(3). In Out of

the Box Developers, Judge Gale of this Court confronted a similar provision in a

license agreement, which prohibited the “transfer [of] any copy of the [software]

System without the express prior written consent” of the licensor (the “Transfer

Provision”). Out of the Box Developers, 2012 NCBC LEXIS 55, at *27. The plaintiff

there claimed that the defendant breached the Transfer Provision by providing an

unauthorized copy of the plaintiff’s software file to another defendant, and argued

that a claim based on this breach was not preempted because “there is no transferring

right in the bundle of rights under the Copyright Act.” Id. at *28. Instead, the

plaintiff argued that Section 106(3) should be construed narrowly to only apply to

“distribution for profit or to change ownership[,]” not to distribute to another party

for purposes of creating a competing product. Id.
This Court was unpersuaded by this argument, finding, in part, that

another provision in the license agreement—which expressly prohibited the

defendant from engaging in anticompetitive behavior—did have an “extra element”

but that the Transfer Provision did not. Id. at *29–30. The Court concluded that to

prove breach of the Transfer Provision, all the plaintiff needed to show was that the

defendant furnished a copy of the plaintiff’s software file to another person, which is

an act that “without further proof constitute[s] copyright infringement under Section

106(3).” Id. at *30.

The same rationale applies here. Based on the language of Section 3.b.iv.,

the purpose for which Defendant gave a copy of Plaintiff’s software to PQC Tech is

not a necessary element to properly alleging breach of Section 3.b.iv. Rather,

consistent with the two elements for asserting a breach of contract claim long-

recognized by our Courts, see Poor, 138 N.C. App. at 26, 530 S.E.2d at 843, all Plaintiff

would need to allege is that Defendant did, in fact, “disclose, divulge, or otherwise

make available” Plaintiff’s software to a third party. (Compl. ¶ 18.) This squarely

falls within Section 106(3), and accordingly, a claim based on breach of this provision

is preempted. Like with Section 3.b.iii., the Court lacks jurisdiction to consider a

breach of contract claim predicated on breach of Section 3.b.iv., and therefore this

claim is DISMISSED in this regard.

Lastly, Section 3.b.v. prohibits Defendant from “develop[ing] similar

software, services or product offerings substantially similar to [Plaintiff’s software

system].” Like the Court’s analysis regarding Sections 3.b.ii., success on the merits
of Plaintiff’s breach of this section would require proof of an extra element: that

Defendant did, in fact, cause software to be developed for the purposes of competing

with Plaintiff. A claim predicated on the creation of new software to directly compete

with Plaintiff likely goes beyond the bundle of rights and protections afforded by the

Out of the Box Developers is instructive here as well. In addition to the

provision discussed in paragraphs 34 and 35 above, the license agreement at issue in

that case also had a provision that prohibited the defendant from using the software

system “for the purpose of . . . competing with [the plaintiff].” Id. at *26. Judge Gale

determined that to succeed on its breach of contract claim for the alleged conduct, the

plaintiff had to prove more than just copying or decompiling plaintiff’s software, but

that this conduct was done for the purposes of competing with the plaintiff. Id. at

*30. The Court concluded, therefore, that breach of this provision of the license

agreement was “not the equivalent of [] copyright protection and [was] thus not

preempted” because of this necessary additional proof element. Id. at *30. Likewise,

the Court concludes here that proving breach of Section 3.b.v. requires proof of an

“extra element” that takes Plaintiff’s claim predicated on this provision out of

competitive conduct.

Having determined that Plaintiff’s contract claim based on Defendant’s

alleged breach of Sections 3.b.ii. and 3.b.v. are not preempted by federal copyright

law, the Court next considers whether Plaintiff has sufficiently alleged conduct
amounting to a breach of each of these provisions. The Court addresses each

subsection separately below.

Breach of Section 3.b.ii.

As noted above, Section 3.b.ii. requires that Defendant refrain from

“modify[ing], disassembl[ing], decompiling, reverse engineer[ing] or otherwise re-

creat[ing] [Plaintiff’s software system], in whole or in part.” (Compl. ¶ 18.)

Defendant contends that the Restrictive Covenants should be read as a single

covenant, and therefore the Motion and briefing in support thereof hones in on the

anti-competitive language in Section 3.b.v., arguing that the Restrictive Covenants

are “a naked restraint of trade and unenforceable under North Carolina law.” (Br. in

Supp. Mot. 4.) In essence, Defendant argues that the Restrictive Covenants should

be construed and interpreted consistent with North Carolina non-compete law.

When considering Section 3.b.ii., however, the Court is not dealing with a

prohibition against competition, but with a bundle of rights afforded, or not afforded,

to Defendant pursuant to the Licensing Agreement. Our Courts, and federal courts

sitting in this State applying North Carolina law, consider the sufficiency of reverse

engineering claims based on general contract interpretation law. See Sparrow Sys.,

2014 NCBC LEXIS 70, at *38 (focusing on issues of mutual assent when determining

the legal sufficiency of the plaintiffs’ claims); SAS, 874 F.3d at 380 (discussing the

definitiveness of contract terms bearing striking similarity to those in this case).

Section 3.b.ii. is, in the most traditional sense, a basic contract provision

that Defendants’ breach thereof would be sufficient to withstand scrutiny on a Rule
12(b)(6) motion. Here, Plaintiff alleges that Defendant breached Section 3.b.ii. by

contracting with a third party, PQC Tech, “to create” a software package that

“mimicked” Plaintiff’s product. (Compl. ¶ 25.) Plaintiff alleges that Defendant

provided PQC Tech with access to Plaintiff’s software during the term of the

Licensing Agreement so that it could develop and recreate a similar product to be

used to compete with Plaintiff’s product. (Compl. ¶¶ 28–29.) Section 3.b.ii. expressly

prohibits Defendant from re-creating Plaintiff’s software system. (Compl. ¶ 18.)

Accordingly, Plaintiff has sufficiently alleged a breach of this contract provision to

withstand dismissal at this time.

Breach of Section 3.b.v.

Plaintiff also alleges breach of Section 3.b.v. of the Licensing Agreement,

which prohibits Defendant from “develop[ing] similar software, services or product

offerings substantially similar to the System.” (Compl. ¶ 18.) Specifically, Plaintiff

alleges that Defendant “developed similar software substantially similar to TLMC’s

software packages.” (Compl. ¶ 29.) Defendant’s chief argument for dismissal of

Plaintiff’s breach of contract claim stems from its interpretation that Section 3.b.v is

an agreement not-to-compete that is neither reasonable as to time or territory and

therefore violates North Carolina public policy as an illegal restraint on trade. (Br.

in Supp. 4–8; Reply Br. 4–5.)

In support of its position, Defendant cites North Carolina cases dealing with

non-competes in the employment context. Non-competition agreements of this type

are closely scrutinized because they prohibit an employee from working for a
competing business to his or her former employer for a certain duration of time,

ranging from months to years, and covering a certain geographic area. See Outdoor

Lighting Perspectives Franchising v. Harders, 228 N.C. App. 613, 620, 747 S.E.2d

256, 262 (2013). Given the drastic nature of employment non-competition

agreements, our Courts analyze time and territory restrictions “in tandem” so that

the combination of both together is not an unreasonable restraint on the employee’s

ability to seek new employment. Market Am., Inc. v. Christman-Orth., 135 N.C. App.

143, 152, 520 S.E.2d 570, 577–78 (1999). The restrictions must be no longer and no

wider in scope than necessary to protect the former employer’s legitimate business

interests. Manpower of Guilford Cty., Inc. v. Hedgecock, 42 N.C. App. 515, 521, 257

S.E.2d 109, 114 (1979).

Notwithstanding the heavy scrutiny non-competition agreements receive in

the employment context, there is another line of cases in North Carolina discussing

the reasonableness of non-competition agreements related to the sale of a business.

There, our Courts have enforced decades-long non-competes. See Jewel Box Stores

Corp. v. Morrow, 272 N.C. 659, 664, 158 S.E.2d 840, 843–44 (1968) (citing a string of

North Carolina supreme court cases where sale-of-business non-competes ranging

from ten years to life were upheld as valid and enforceable).

In contrast, the non-competition agreement at issue in this case—a

licensing agreement—is fundamentally different from non-competition agreements

in either the employment or sale-of-business context. The sale-of-business line of

cases is perhaps the closer analogy, because both the sale of a license and the sale of
a business involve the purchasing of certain “sticks” in the proverbial “bundle.”

However, even in the sale-of-business context, the purchaser of a business is paying

for the entire bundle of sticks, whereas, in the license context, the licensor still retains

ownership rights. A license is, by definition, a limited right of use. License, Black’s

Law Dictionary (10th ed. 2014) (“A permission, usually revocable, to commit some act

that would otherwise be unlawful[.]”). As Plaintiff argued at the July 15, 2020

hearing, Defendant could have negotiated—and paid more—for more rights and less

limitations on its use of Plaintiff’s software, such as the right to own or reproduce

Plaintiff’s software.

In sum, the Court is not convinced that it should determine the

enforceability of Section 3.b.v. with firm adherence to non-compete law in the

employment or sale-of-business contexts. In fact, our Court of Appeals has cautioned

against applying these legal frameworks with “unbending rigidity” to contexts

outside the employer-employee or buyer-seller contexts. See Outdoor Lighting, 228

N.C. App. at 622, 747 S.E.2d at 263; see also KNC Techs., LLC v. Tutton, 2019 NCBC

LEXIS 72 (N.C. Super. Ct. Oct. 9, 2019) (summarizing Outdoor Lighting and applying

the court’s rationale to a non-competition agreement in a context outside the

employer-employee or buyer-seller relationship). “Ultimately, ‘the reasonableness of

a restraining covenant is a matter of law for the court to decide.’” KNC Techs., 2019

NCBC LEXIS, at *17 (quoting Jewel Box Stores Corp., 272 N.C. at 663, 158 S.E.2d at

843).
In determining the reasonableness of Section 3.b.v., and absent any other

applicable controlling law in North Carolina, the Court finds the Fourth Circuit’s

decision in Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970 (1990) instructive. There,

on appeal from a Middle District of North Carolina judgment, the Fourth Circuit had

to determine for the first time whether misuse of copyright was a valid defense to a

defense of misuse of copyright bars a culpable plaintiff from prevailing on an action

for infringement of the misused copyright.” Id. at 972. In that case, the defendants

claimed the plaintiff misused its copyright by including in its licensing agreement an

overly broad non-competition agreement. Id. at 972–93. Based on the language in

the licensing agreement, the licensee was barred from competing with the licensor

for the term of the license agreement and one year thereafter. Id. at 973. In effect,

this was a non-competition term of ninety-nine years. Id.

Drawing on comparable law in the patent misuse context, the Fourth

Circuit concluded that an agreement not-to-compete for ninety-nine years could

extend beyond the life of the copyright itself, and the need to protect one’s investment

in their intellectual property does not outweigh the public’s right to compete in the

marketplace after a reasonable restrictive period. Id. at 978–79 (citing Compton v.

Metal Products, Inc., 453 F.2d 39 (4th Cir. 1971)). The court reached this conclusion

by drawing on antitrust law, noting that while copyright misuse involves a separate

analysis, the two are “’similar” to one another. Id. at 979.
Section 3.b.v. is even more restrictive than the non-competition agreement

in Lasercomb. Here, there is no end date for the non-competition provision, resulting

in an agreement by Defendant to never compete with Plaintiff. Plaintiff makes this

point clearer by alleging that pursuant to Section 7.c. of the Licensing Agreement,

“the Protective Covenants survive the end of the license term.” (Compl. ¶ 22.)

An indefinite and perpetual restraint on trade in the context of a software

licensing agreement seems to be counter to the antitrust laws of this State. While a

licensing agreement involves some nuance that separates it from non-competition

agreements in the employment or sale-of-business contexts, the Court concludes that

even in the context of a limited use agreement, a time restriction of some reasonable

duration is needed so as to not inhibit free trade in this State. Accordingly, the Court

concludes that Section 3.b.v. is unreasonable and unenforceable as a matter of law,

and Plaintiff has therefore failed to state a breach of contract claim based on this

specific provision of the Licensing Agreement. The Motion, therefore, is GRANTED

in this regard.2

B. Common Law Unfair Competition

In the alternative to its breach of contract claim, Plaintiff asserts a claim

for common law unfair competition. (Compl. ¶¶ 39–41.) As with Plaintiff’s breach of

2 Although the Court strikes this provision as unreasonable and unenforceable, the Court

determines, in its discretion, for the reasons stated in paragraphs 22 through 24 of this Order
and Opinion, that Section 3.b.v. is divisible and therefore, pursuant to the “blue pencil rule”
recognized by the courts of this State, the Court may still enforce the reasonable provisions
of Section 3.b, namely Section 3.b.ii, such that Plaintiff’s breach of contract claim premised
on breach of Section 3.b.ii. may go forward. See Beverage Sys. of the Carolinas, LLC v.
Associated Bev. Repair, LLC, 368 N.C. 693, 696–97, 784 S.E.2d 457, 460 (2016).
contract claim, the Court first analyzes whether Plaintiff’s unfair competition claim

is preempted by the Copyright Act. The Court concludes that it is not. First, some

courts addressing this preemption issue have determined that a claim brought in the

alternative to a breach of contract claim will survive preemption if the breach of

contract claim also survives preemption. See, e.g. Forest2Market v. Am. Forest Mgmt.,

2008 U.S. Dist. LEXIS 33185, at *16–17 (W.D.N.C. 2008) (concluding that it was

unnecessary to address the viability of an unjust enrichment claim brought in the

alternative to a breach of contract claim where the breach of contract claim was not

preempted); Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 927 (4th Cir. 1988)

(concluding same).

Moreover, applying the “extra element” test to a common law unfair

competition claim warrants the same conclusion. To succeed on its unfair competition

claim, Plaintiff must prove additional elements that go beyond those required to

prove a copyright claim under federal copyright law. This Court has previously stated

that “[t]he standard which a plaintiff must meet to recover on an unfair competition

claim under the common law is not appreciably different from a claim for unfair or

deceptive trade practices.” Global Textile Alliance, Inc. v. TDI Worldwide, LLC, 2018

NCBC LEXIS 104, at *23 (N.C. Super. Ct. Oct. 8, 2018) (citing BellSouth Corp. v.

White Directory Publishers, Inc., 42 F. Supp. 2d 598, 615 (M.D.N.C. 1999)). And in

Sparrow Systems, Chief Judge Bledsoe of this Court, drawing on federal copyright

preemption cases, determined that a UDTP claim is not preempted by federal

copyright law because such a claim requires the proof of additional elements “such as
misrepresentation and deceitful conduct.” Sparrow Sys., 2014 NCBC LEXIS 70, at

*29.

Likewise, a claim for common law unfair competition requires the plaintiff

to prove that the defendant engaged in an act or practice that misappropriates the

plaintiff’s “competitive advantage earned through organization, skill, labor, and

money.” Gateway Mgmt. Servs. v. Carrbridge Berkshire Grp., Inc., 2018 NCBC

LEXIS 45, at *19 (N.C. Super. Ct. May 9, 2018) (quoting Henderson v. U.S. Fid. &

Guar. Co., 346 N.C. 741, 749, 488 S.E.2d 234, 239–40 (1997)). This “extra element”

required to prove Plaintiff’s unfair competition claim is sufficient to take this claim

out of copyright preemption.

Concluding that Plaintiff’s unfair competition claim is not preempted, the

Court next considers the sufficiency of Plaintiff’s allegations. “Traditionally at

common law, including that of North Carolina, the tort of unfair competition has

consisted of acts or practices by a competitor which are likely to deceive the

consuming public.” Stearns v. Genrad, Inc., 564 F. Supp. 1309, 1320 (M.D.N.C. 1983)

(citing Charcoal Steak House of Charlotte, Inc. v. Staley, 263 N.C. 199, 139 S.E.2d 185

(1964)). “The gravamen of unfair competition is the protection of a business from

misappropriation of its commercial advantage earned through organization, skill,

labor, and money.” Henderson, 346 N.C. at 749, 488 S.E.2d at 239–40. Unfair

competition has been found to encompass a range of behaviors “such as trademark

infringement, imitation of a competitor’s product or its appearance, interference with

a competitor’s contractual relations, disparagement of a competitor’s product or
business methods, and misappropriation of a competitor’s intangible property rights

such as advertising devices or business systems.” Stearns, 564 F. Supp. at 1320. In

North Carolina, “common law unfair competition claims are limited to claims between

business competitors . . . .” Gateway, 2018 NCBC LEXIS 45, at *18.

Here, although Plaintiff alleges that Defendant misappropriated its

commercial advantage by contracting with PQC Tech and disclosing Plaintiff’s

software to PQC Tech, nowhere in the Complaint does Plaintiff allege that Defendant

was its competitor. In fact, Plaintiff alleges that PQC Tech is the owner and marketer

of the competing software package. (Compl. ¶¶ 26–27.) This failure is fatal to

Plaintiff’s common law unfair competition claim, and for this reason, the claim must

be dismissed.

Moreover, Plaintiff does not explain anywhere within the Complaint how

Defendant’s software deceived the public, an essential basis upon which an unfair

competition claim lies. See Staly, 263 N.C. at 203, 139 S.E.2d at 188 (“Unfair

competition is the child of confusion” (internal quotations and citation omitted).)

Plaintiff has alleged no consumer confusion or deception between Plaintiff’s Easy

Read Screen and the On-Call Hub. For this additional reason, Plaintiff’s common law

unfair competition claim should be dismissed.

Notwithstanding the Court’s conclusion that Plaintiff’s common law unfair

competition claim should be dismissed, “[t]he decision to dismiss an action with or

without prejudice is in the discretion of the trial court[.]” First Fed. Bank v. Aldridge,

230 N.C. App. 187, 191, 749 S.E.2d 289, 292 (2013). The Court concludes, in the
exercise of its discretion, that Plaintiff's claim for common law unfair competition

should be dismissed without prejudice to Plaintiff’s right to attempt to reassert this

claim through proper factual allegations by way of a motion to amend.

V. CONCLUSION

THEREFORE, based on the foregoing, the Court hereby GRANTS in part

and DENIES in part the Motion as set forth below:

A. The Motion is GRANTED in part as to Plaintiff’s breach of contract claim

premised on breach of Section 3.b.iii., Section 3.b.iv., and Section 3.b.v. of the

Licensing Agreement. Otherwise, the Motion is DENIED as to Plaintiff’s breach of

contract claim, and this claim goes forward.

B. The Motion is GRANTED in part as to Plaintiff’s common law unfair

competition claim. This claim is DISMISSED, but the dismissal is WITHOUT

PREJUDICE.

SO ORDERED, this the 11th day of August, 2020.

/s/ Michael L. Robinson
Michael L. Robinson
Special Superior Court Judge
for Complex Business Cases

Triage Logic Mgmt. & Consulting, LLC v. Innovative Triage Servs. LLC

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