The OpenAI Case: What the Company Has to Say Against the Plaintiffs' Claims

II. ARGUMENT

F. Plaintiffs Fail to State an Unfair Competition Claim

Plaintiffs have not stated a UCL claim under any prong.[2] Plaintiffs do not dispute that the FAC failed to establish an inadequate remedy at law sufficient to state a UCL claim. (See MTD at 21; Opp. at 23.)

This alone warrants dismissal of their UCL claim. See Sharma, 524 F. Supp. 3d at 907 (concluding that, under Sonner v. Premier Nutrition Corp., 971 F.3d 834, 844 (9th Cir. 2020), plaintiffs “must establish that they lack an adequate remedy at law before securing equitable restitution” under the UCL) (cleaned up); Lou v. Am. Honda Motor Co., Inc., No. 16- CV-04384-JST, 2022 WL 18539358, at *2 (N.D. Cal. Aug. 26, 2022) (finding plaintiff “concedes” argument when plaintiff “offers no response to [defendant’s] argument that he failed to plead an inadequate remedy at law”).

Moreover, Plaintiffs’ argument that they were “denied their license, permission, and recognition” does not establish economic injury sufficient for UCL standing. (Opp. at 23.)

Standing under the UCL is “substantially narrower than federal standing under article III” and has “more stringent” requirements.

Kwikset Corp. v. Super. Ct., 51 Cal. 4th 310, 324 (2011). Intangible losses are not enough. In re Yahoo! Inc. Customer Data Sec. Breach Litig., No. 16- MD-02752-LHK, 2017 WL 3727318, at *22 (N.D. Cal. Aug. 30, 2017) (Plaintiffs’ “imminent risk of future costs as a result of the [d]ata [b]reaches” fail to “show that [p]laintiffs have specifically lost money or property as a result of [d]efendants’ misconduct.”) (cleaned up).

Labeling alleged intangible losses as “economic benefits” does not create standing; “generating market share for programs, increasing national or international reputation…, and deriving value from improvements to software based on suggestions by end-users" do not constitute “lost money or property” under the UCL. (See FAC ¶¶281, 243.)

Plaintiffs’ cited cases do not show otherwise. Jacobsen and Arifex Software did not involve UCL claims. Jacobsen, 535 F.3d at 1377 (copyright infringement); Artifex Software, Inc. v. Hancom, Inc., No. 16-CV-06982-JSC, 2017 WL 4005508, at *2 (N.D. Cal. Sept. 12, 2017) (breach of contract).

Rather, Jacobsen and Arifex Software merely noted that the “lack of money changing hands in open source licensing should not be presumed to mean there is no economic consideration” in an open source agreement. Jacobsen, 535 F.3d at 1379; Arifex, 2017 WL 4005508, at *4 (citing Jacobsen).

Moreover, even if these purported “benefits” could qualify as economic injuries, Plaintiffs have not alleged that OpenAI’s conduct caused decreased “market share[s] for [Plaintiffs’ code],” decline in Plaintiffs’ “national or international reputation,” or any loss in value of Plaintiffs’ code. (See FAC ¶¶ 243, 281.)

Plaintiffs’ UCL claim under the unlawful, unfair, and fraudulent prongs fails for additional reasons. For the “unlawful” prong, Plaintiffs do not dispute that their derivative UCL claim fails if the predicate DMCA and state law claims fail. (See MTD at 21; Opp. at 22-23.)

For the “unfair” prong, Plaintiffs’ conclusory assertion that OpenAI’s use of Plaintiffs’ code for training is an “immoral, unethical, oppressive, or unscrupulous business practice[]” that “outweighs the utility of the practice” (Opp. at 23.) is deficient.

See Doe v. CVS Pharmacy, Inc., 982 F.3d 1204, 1215 (9th Cir. 2020) (affirming dismissal of unfair claim where plaintiffs “assert in a conclusory fashion that [defendant’s] conduct outweighs any justification, motive or reason therefor, but they do not allege how that is so”) (cleaned up); Nazemi v. Specialized Loan Servicing, LLC, No. 2:22-cv-05006-MCS-PVC, 2022 WL 17220707, at *4 (C.D. Cal. Oct. 31, 2022) (“Plaintiff’s bare conclusory recitation of one of the UCL’s legal standards does not clarify how Defendants’ conduct satisfies” the tests for the unfair prong.) (cleaned up).

For the “fraudulent” prong, Plaintiffs do not dispute that they must demonstrate actual reliance and satisfy the heightened pleading requirements under Federal Rule of Civil Procedure 9(b) on the purported deception to state a UCL claim. (See MTD at 22; Opp. at 23.)

As Plaintiffs’ own cited case shows, plaintiffs must plead “actual reliance on the alleged fraudulent conduct” and plead “with specificity to meet Rule 9(b)’s strictures.” Garcia v. Sony Comput. Ent. Am., LLC, 859 F. Supp. 2d 1056, 1063, 1066 (N.D. Cal. 2012). Plaintiffs have not done so here.

See Opperman v. Path, Inc., 84 F. Supp. 3d 962, 974 (N.D. Cal. 2015) (claims sounding in fraud must contain “an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations”). Their UCL claim should be dismissed.