throbber
Case: 2:20-cv-02972-MHW-KAJ Doc #: 32 Filed: 10/01/20 Page: 1 of 26 PAGEID #: 1626
`
`IN THE UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF OHIO
`
`
`Plaintiffs / Counterclaim Defendants,
`
`Case No. 2:20-cv-2972
`
`
`Judge Michael H. Watson
`
`Magistrate Judge Chelsey M. Vascura
`
`STRATESPHERE LLC, et al.,
`
`
`
`and
`
`TARIQ FARWANA,
`
`
`
`v.
`
`KOGNETICS INC,
`
`
`Counterclaim Defendant,
`
`Defendant / Counterclaim Plaintiff.
`
`
`
`
`
`
`
`SECOND AMENDED COUNTERCLAIMS OF DEFENDANT KOGNETICS INC.
`
`Now comes counterclaimant Kognetics Inc. (“Kognetics”), and for its second amended
`
`counterclaims against Stratesphere LLC, Kognetics Holding Company LLC, and Kognetics LLC
`
`(collectively, the “Stratesphere Companies”) and against Tariq Farwana (“Farwana”) states as
`
`follows:
`
`PRELIMINARY STATEMENT
`
`1.
`
`These counterclaims arise from the Stratesphere Companies’ and Farwana’s
`
`mistreatment of Kognetics, nominally their co-owner and business partner. Since the parties
`
`began their business relationship in August 2018, the Stratesphere Companies have refused to
`
`pay Kognetics over one million dollars owed to it under their various agreements. Moreover, the
`
`Stratesphere Companies and Farwana have engaged in concerted efforts to deprive Kognetics of
`
`the benefit of its investment in the Artificial Intelligence Platform that is the basis for this
`
`dispute, not only by using their power as majority members to oppress minority member
`
`

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`Case: 2:20-cv-02972-MHW-KAJ Doc #: 32 Filed: 10/01/20 Page: 2 of 26 PAGEID #: 1627
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`Kognetics, but also by seeking to destroy Kognetics’s business by preventing it from continuing
`
`to maintain, update, and service that platform, as Kognetics has been doing since the parties
`
`entered into their arrangement.
`
`2.
`
`Indeed, despite the Stratesphere Companies’ efforts to push Kognetics around, the
`
`truth is that Kognetics, not the Stratesphere Companies, remains the owner of the intellectual
`
`property rights in the Artificial Intelligence Platform—both as it existed in August 2018 and in
`
`all improvements made to it since then. Accordingly, the Stratesphere Companies’ continued
`
`use of that platform constitutes an ongoing infringement of Kognetics’s copyrights in that
`
`platform.
`
`PARTIES
`
`3.
`
`Counterclaim Plaintiff Kognetics Inc. is a corporation organized and existing
`
`under the laws of the State of Delaware. Kognetics does business and has its principal place of
`
`business in the State of New York.
`
`4.
`
`Counterclaim Defendant Stratesphere LLC is a limited liability company
`
`organized and existing under the laws of the State of Ohio, with its principal place of business at
`
`147 N. High Street, Gahanna, Ohio, 43230. On information and belief, Stratesphere LLC has the
`
`following members: Damon J. Caiazza, a resident of California; Daryl Sybert, a resident of Ohio;
`
`The Sybert Family LLC, an Ohio company; Avitta Holdings LLC, an Ohio company; and
`
`Kognetics Inc., which holds 10% of the membership interests in the company.
`
`5.
`
`Counterclaim Defendant Kognetics Holding Company LLC is a limited liability
`
`company organized and existing under the laws of the State of Ohio, with its principal place of
`
`business at 147 N. High Street, Gahanna, Ohio, 43230. On information and belief, Kognetics
`
`Holding Company LLC has one member: Stratesphere LLC.
`
`
`
`2
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`

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`6.
`
`Counterclaim Defendant Kognetics LLC is a limited liability company organized
`
`and existing under the laws of the State of Ohio, with its principal place of business at 147 N.
`
`High Street, Gahanna, Ohio, 43230. On information and belief, Kognetics LLC has the
`
`following members: Kognetics Holding Company LLC, which holds 80% of the membership
`
`interests in the company; and Kognetics Inc., which holds 20% of the membership interests in
`
`the company.
`
`7.
`
`Counterclaim Defendant Tariq Farwana is a resident of this judicial district with
`
`an address of 7566 Ogdenwoods Blvd., New Albany, OH 43054. Farana is the majority member
`
`of Stratesphere LLC.
`
`JURISDICTION AND VENUE
`
`8.
`
`This Court has jurisdiction over the claims and counterclaims raised in this action
`
`pursuant to 28 U.S.C. §§ 1331, 1338(a), and 1367.
`
`9.
`
`This Court has personal jurisdiction over the Stratesphere Companies because
`
`they are residents of Ohio, because they transacted business in Ohio, and because this action
`
`arises from their actions in this State.
`
`10.
`
`This Court has personal jurisdiction over Farwana because he is a resident of
`
`Ohio and because this action arises from his actions in this State.
`
`11.
`
`Venue is proper in this Court pursuant to 28 U.S.C. § 1391(b)(1) and (2), because
`
`the Stratesphere Companies have their principal places of business in this judicial district,
`
`because Farwana is a resident of this judicial district, and because these claims for relief arise out
`
`of activity conducted in this judicial district.
`
`
`
`3
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`

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`Case: 2:20-cv-02972-MHW-KAJ Doc #: 32 Filed: 10/01/20 Page: 4 of 26 PAGEID #: 1629
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`A.
`
`Kognetics’s Artificial Intelligence Platform.
`
`FACTS
`
`12.
`
`In the mid-2010s, Kognetics designed and built a software platform that used
`
`artificial intelligence to analyze merger, acquisition, and investment opportunities for businesses,
`
`analysts, and others in the financial-services sector (the “Artificial Intelligence Platform”).
`
`13.
`
`The Artificial Intelligence Platform that Kognetics designed is made up of several
`
`components.
`
`14.
`
`One of these components is the “Knowledge Graph,” a data structure
`
`incorporating and linking hundreds of thousands of data points to create a detailed overview of
`
`various sectors of the economy. By August 2018, the Knowledge Graph contained information
`
`about approximately 40,000 companies spanning nearly 50 sectors of the economy.
`
`15.
`
`The Artificial Intelligence Platform also contained an analytics engine that used
`
`the Knowledge Graph and certain proprietary algorithms and business insights to make
`
`predictions or answer questions about various business sectors and companies.
`
`16.
`
`The Artificial Intelligence Platform, as it existed in August 2018, also included a
`
`number of additional components, including an interface that allowed users to interact with the
`
`platform, supplemental information databases, and various other algorithms used to process,
`
`extract, and analyze data.
`
`17.
`
`Together, these components made up a system that investors, analysts, and other
`
`companies found to be very useful in analyzing and predicting business developments in various
`
`parts of the economy.
`
`
`
`4
`
`

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`B.
`
`Kognetics Agrees to Give Stratesphere Partial Ownership Over the Artificial
`Intelligence Platform and Other Assets in Exchange for Money Payments, Funding
`Commitments, and Partial Control Over the Resulting Venture.
`
`18.
`
`In early 2018, Stratesphere LLC approached Kognetics with a proposal.
`
`Stratesphere had seen the promise of Kognetics’s Artificial Intelligence Platform and wanted an
`
`ownership share in it. In exchange, Stratesphere offered operating capital and fundraising
`
`assistance, as well as direct payments of money to Kognetics’s principals.
`
`19.
`
`In August 2018, Stratesphere LLC and Kognetics finalized a deal. This deal was
`
`memorialized, in part, in an Asset Purchase Agreement (the “APA”) executed on or around
`
`August 22, 2018. Exhibit A to this document is a true and correct copy of the APA.
`
`20.
`
`Under the terms of this deal, Stratesphere would create two subsidiaries: Plaintiffs
`
`Kognetics LLC and Kognetics Holding Company LLC. One or both of these subsidiaries would
`
`then take ownership of certain of Kognetics’s assets, including its intellectual property rights in
`
`the Artificial Intelligence Platform as it then existed, the company’s existing financial-services
`
`customers, many of its other contractual relationships, and certain other assets.
`
`21.
`
`In exchange, the Stratesphere Companies promised (among other things) to give
`
`Kognetics:
`
`(a) “Class A membership units equal to ten percent (10%) of the issued and
`outstanding membership units” in Stratesphere LLC;
`
`(b) “Class B voting membership units[] constituting twenty percent (20%) of
`Kognetics LLC’s issued and outstanding membership units”; and
`
`(c) Royalty payments of $100,000 per year through the year 2022, due in $50,000
`installments on or about January 31 and July 31 of each year.
`
`(See APA §§ 1.05, 1.08).
`
`
`
`5
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`

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`22.
`
`Under the terms of the parties’ deal, both the royalty payments and the ownership
`
`interest in Kognetics LLC would increase if the software business hit certain revenue goals. (See
`
`id.).
`
`23.
`
`In addition, Stratesphere LLC committed to funding Kognetics Holding Company
`
`LLC for a year after the APA business transaction, and it agreed to help the company raise up to
`
`$20 million in equity over the following five years. (Id. §§ 1.10–1.11).
`
`24.
`
`The parties believed that these funding and fundraising commitments were
`
`necessary to maximize the value of the assets that were to be transferred to Kognetics Holding
`
`Company LLC under the APA.
`
`25.
`
`The APA effecting this transaction included a non-competition covenant stating
`
`that Kognetics, for three years after closing and anywhere in the world, could not, “directly or
`
`indirectly, engage in, own, manage, operate, join, control, as partner, shareholder, consultant,
`
`manager, agent or otherwise, any individual, corporation, partnership, firm, other company,
`
`business organization, activity, entity or Person that distributes, provides, markets and/or sells
`
`one or more Competing Products,” defined as “any product or service which performs functions
`
`similar to or in substitution for the Software.” (Id. § 9.02(a)).
`
`26.
`
`The APA described only a portion of the deal between Kognetics and the
`
`Stratesphere Companies, however.
`
`27.
`
`In August 2018, the Stratesphere Companies did not have the ability to maintain,
`
`improve, or service the Artificial Intelligence Platform. Nor did the Stratesphere Companies
`
`have the necessary knowledge and experience to support customers of the Artificial Intelligence
`
`Platform.
`
`
`
`6
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`

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`28.
`
`Accordingly, the Stratesphere Companies agreed to pay Kognetics to perform
`
`these functions. This portion of the parties’ agreement was memorialized, shortly after signing
`
`the APA, in a Master Services Agreement (the “MSA”). A true and correct copy of the MSA is
`
`attached as Exhibit B.
`
`29.
`
`Under the terms of this MSA, Kognetics would provide Kognetics Holding
`
`Company LLC with certain services, including custom software development, support, and other
`
`services related to the Artificial Intelligence Platform. (See MSA at first Whereas clause; id.
`
`§ 1.1.5 (defining “Services”)).
`
`30. Moreover, the Stratesphere Companies also hired on Kognetics’s two principals,
`
`Inderpreet Thukral and Rajeev Vaid, in a further attempt to remedy Stratesphere’s lack of
`
`expertise regarding the Artificial Intelligence Platform.
`
`31.
`
`Under the terms of the MSA, Kognetics would provide services as set out in
`
`separate Statements of Work. (See id. § 2). Kognetics Holding Company would then pay
`
`Kognetics for its services (see id. § 7), and so long as Kognetics was paid in full, the Holding
`
`Company would receive all intellectual property rights in the deliverables created by Kognetics
`
`under the MSA.
`
`32.
`
`In particular, the MSA states:
`
`All intellectual property rights, including without limitation, all
`rights, title and interest in and to the final Deliverables specifically
`created for and provided to the Company by Service Provider
`and/or its officers, employees, contractors, subcontractors, agents,
`etc., through the course of performance of this Agreement or
`applicable SOW shall vest in and be exclusively owned by
`Company, subject to payment of charges, fees, costs, etc.,
`hereunder in full by the Company to the Service Provider.
`
`(Id. § 10.1 (emphasis added)).
`
`
`
`7
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`

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`33.
`
`In contrast to the APA, the MSA does not contain any non-competition covenant.
`
`(See generally id.). To the contrary, the MSA expressly states that it “forms the complete and
`
`exclusive agreement between the Parties in relation to the Services” and that “[a]ll previous
`
`agreements, correspondence and understandings relating to the subject of this Agreement are
`
`superseded by this Agreement ….” (Id. § 12.2).
`
`34.
`
`In short, then, this deal was meant to accomplish a number of goals, all aimed at
`
`ensuring that the parties would be able to jointly build the Artificial Intelligence Platform’s
`
`business going forward:
`
`(a) Put ownership of the then-existing Artificial Intelligence Platform and related
`
`assets with one or more newly created entities (Kognetics LLC and/or Kognetics
`
`Holding Company LLC);
`
`(b) Give Stratesphere LLC and Kognetics joint ownership of, and control over, those
`
`entities;
`
`(c) Fund those entities sufficiently to allow the Artificial Intelligence Platform
`
`business to continue to grow; and
`
`(d) Ensure that Kognetics would continue to develop the Artificial Intelligence
`
`Platform and support its customers.
`
`35.
`
`Kognetics entered into this deal believing that the support and funding to be
`
`provided by the Stratesphere Companies would give an important boost to the Artificial
`
`Intelligence Platform and its associated business. In so doing, it relied on the Stratesphere
`
`Companies’ promises, going to great efforts to share with the Stratesphere Companies its
`
`knowledge of and expertise with the Artificial Intelligence Platform, in hopes that the parties’
`
`combined efforts would ultimately benefit them all.
`
`
`
`8
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`

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`C.
`
`The Stratesphere Companies Deprive Kognetics of the Benefit of Its Bargain.
`
`36.
`
`The Stratesphere Companies, however, had no intention of following through on
`
`their promises to Kognetics.
`
`37.
`
`Indeed, in September 2018—one month after the APA was signed—Stratesphere
`
`LLC defaulted on the very first monthly capital contribution it had agreed to make to Kognetics
`
`Holding Company LLC.
`
`38.
`
`This default began a pattern of defaults and broken promises by the Stratesphere
`
`Companies.
`
`39.
`
`Through 2018 and into 2019, Stratesphere LLC repeatedly failed to make its
`
`promised capital contributions. It also failed to make progress toward raising the $20,000,000 in
`
`equity or debt capital, as promised.
`
`40.
`
`Kognetics Holding Company, for its part, failed to make its first two $50,000
`
`royalty payments to Kognetics in January and July of 2019.
`
`41.
`
`To cover their breaches of the APA in failing to pay due and owing royalty
`
`payments, Kognetics Holding Company and Stratesphere worked to falsely and improperly
`
`reclassify payments to Kognetics under the MSA as royalty payments.
`
`42. Moreover, the Stratesphere Companies have failed to give Kognetics the benefit
`
`of an ownership interest in Stratesphere LLC, Kognetics LLC, and (through its ownership
`
`interest in Stratesphere LLC) Kognetics Holding Company LLC, as promised in the APA. The
`
`Stratesphere Companies have failed to provide Kognetics with amounts owed to it as an owner
`
`of these companies; they have failed to properly involve Kognetics in the management and
`
`control of the companies; and they have failed to provide Kognetics with financial information
`
`regarding the companies, as required by Ohio Revised Code 1705.22, despite Kognetics’s
`
`
`
`9
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`

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`repeated requests. Exhibits C, D, and E are true and correct copies of correspondence requesting
`
`these documents, including the Stratesphere Companies’ sole response to those requests.
`
`43.
`
`In addition, although Kognetics continued to maintain, update, and service the
`
`Artificial Intelligence Platform and provide related services to customers under the MSA,
`
`Kognetics Holding Company LLC began refusing to pay Kognetics’s invoices. By the end of
`
`2019, Kognetics Holding Company owed Kognetics more than $420,000 under the MSA, not
`
`including several hundred thousand dollars’ worth of transfer pricing fees mandated by the
`
`Indian government, which the Stratesphere Companies had also agreed to pay.
`
`44. Moreover, in early 2019, a third party had expressed interest in purchasing the
`
`Artificial Intelligence Platform business. The parties entered into discussions with this third
`
`party, which indicated its willingness to pay a substantial price for the business.
`
`45.
`
`These discussions ultimately amounted to nothing, however. The Stratesphere
`
`Companies’ majority members insisted on allocating to themselves an unfair share of the
`
`proposed purchase price, and the third party ultimately refused the Stratesphere Companies’
`
`lopsided proposal in November 2019.
`
`46.
`
`During this same time frame, the Stratesphere Companies had been reaching out
`
`to employees of Pythhos, the consultant group that Kognetics used to help maintain, update, and
`
`service the Artificial Intelligence Platform under the MSA. The Stratesphere Companies began
`
`soliciting these employees, trying to entice them to leave Pythhos in favor of employment with
`
`the Stratesphere Companies. It did so knowing that these employees had non-compete
`
`agreements that prevented them from taking the offered positions, and knowing that poaching
`
`these employees could substantially disrupt Kognetics’s ability to continue to provide services
`
`under the MSA.
`
`
`
`10
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`

`

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`47.
`
`Kognetics’s principals, Inderpreet Thukral and Rajeev Vaid, strenuously objected
`
`to the Stratesphere Companies’ actions. In retaliation, Kognetics LLC terminated Thukral and
`
`Vaid from its board of managers in late 2019.
`
`48.
`
`The Stratesphere Companies’ bad acts continued into 2020, which began the way
`
`2019 had ended—with Kognetics Holding Company LLC failing to make its promised $50,000
`
`royalty payment to Kognetics.
`
`49.
`
`Nor has Kognetics Holding Company LLC made the $50,000 royalty payment to
`
`Kognetics that came due in July 2020.
`
`50.
`
`Similarly, Kognetics Holding Company continued to refuse to pay Kognetics for
`
`the work it performed under the MSA. Instead, in January 2020, Stratesphere gave notice that it
`
`would be terminating the MSA in 60 days.
`
`51.
`
`By the end of March 2020, Kognetics Holding Company owed Kognetics
`
`approximately $539,000 under the MSA, plus approximately $295,000 worth of transfer pricing
`
`fees mandated by the Indian government, which the Stratesphere Companies had also agreed to
`
`pay. Kognetics Holding Company further owed Kognetics $150,000 in past-due royalty
`
`payments, and Stratesphere LLC owed Kognetics an additional profit-sharing distribution of
`
`approximately $50,000. In total, across all categories and companies, the Stratesphere
`
`Companies currently owe Kognetics over one million dollars.
`
`52.
`
`In April 2020, the Stratesphere Companies filed the present suit, seeking to bar
`
`Kognetics from continuing to support the Software and provide related services to the third-party
`
`clients. The Stratesphere Companies took this action despite being unable to maintain, update,
`
`and service the Artificial Intelligence Platform without Kognetics’s assistance.
`
`
`
`11
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`

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`53. Without continual maintenance and updates, the Artificial Intelligence Platform
`
`loses much of its value to customers. In particular, the platform’s knowledge base must be
`
`updated daily to incorporate newly released information, which is then used by the platform’s
`
`artificial-intelligence engine to build and support its analyses. Without a regularly updated
`
`knowledge base, the Software’s conclusions will also become outdated and thus largely useless
`
`to customers. Similarly, without a qualified and experienced team providing service and support
`
`to customers, the Artificial Intelligence Platform provides little value to customers, who had
`
`come to rely on that service and support from Kognetics.
`
`54.
`
`To date, the Stratesphere Companies have proven unable to maintain, update, and
`
`service the Artificial Intelligence Platform on its own. Accordingly, the Artificial Intelligence
`
`Platform continues to lose value, and the goodwill that has built up around the Artificial
`
`Intelligence Platform is being squandered.
`
`COUNT I
`(Breach of the APA)
`
`55.
`
`Kognetics incorporates and realleges the preceding paragraphs as if fully set forth
`
`herein.
`
`56.
`
`57.
`
`Kognetics Inc. has performed its obligations under the APA.
`
`Under the terms of the APA, Kognetics Holding Company LLC had certain
`
`obligations to Kognetics Inc., including but not limited to an obligation to make royalty
`
`payments of at least $50,000 in January 2018, July 2019, January 2020, and July 2020.
`
`58.
`
`59.
`
`Kognetics Holding Company LLC failed to make those payments as required.
`
`As a result of these breaches of the APA, Kognetics Inc. has been harmed in an
`
`amount greater than $25,000.
`
`
`
`12
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`

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`
`COUNT II
`(Fraudulent Inducement)
`
`60.
`
`Kognetics incorporates and realleges the preceding paragraphs as if fully set forth
`
`herein.
`
`61.
`
`Under the terms of the APA, the Stratesphere Companies promised to give
`
`Kognetics ownership interests in Stratesphere LLC and Kognetics LLC, in at least the following
`
`amounts: (1) Class A membership units equal to 10% of the issued and outstanding membership
`
`units in Stratesphere LLC; and (2) Class B voting membership units constituting 20% of
`
`Kognetics LLC’s issued and outstanding membership units.
`
`62.
`
`The Stratesphere Companies further promised, in the APA, to give Kognetics
`
`royalty payments of at least $100,000 per year through the year 2022, due in $50,000
`
`installments on or about January 31 and July 31 of each year. (See APA §§ 1.05, 1.08).
`
`63.
`
`In addition, the Stratesphere Companies promised in the APA to provide
`
`Kognetics Holding Company LLC with approximately $1,000,000 of funding over the year
`
`following closing, as well as with assistance in raising up to $20 million in equity over the
`
`following five years.
`
`64.
`
`The Stratesphere Companies represented to Kognetics that they would fulfill these
`
`obligations.
`
`65.
`
`Kognetics reasonably relied on those representations in entering into the APA and
`
`related agreements.
`
`66.
`
`These representations, however, were false. The Stratesphere Companies never
`
`intended to fulfill those obligations, as is demonstrated by their repeated failures to make
`
`required payments to Kognetics; their continuing failure to give Kognetics the benefit of an
`
`
`
`13
`
`

`

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`ownership interest in Stratesphere LLC and Kognetics LLC; and their inability or unwillingness
`
`to properly fund—or to seek funding for—Kognetics Holding Company LLC.
`
`67.
`
`Rather, the Stratesphere Companies made these promises knowing them to be
`
`false and intending to mislead Kognetics into relying on them.
`
`68.
`
`As a result of the Stratesphere Companies’ conduct, Kognetics has been and
`
`continues to be harmed, not just through the lack of monetary payments but also through the loss
`
`in value of the Artificial Intelligence Platform and its associated business, both of which
`
`Kognetics has a financial interest in through its ownership of Kognetics LLC and Stratesphere
`
`LLC (which in turn owns Kognetics Holding Company LLC). The amount of this harm exceeds
`
`$25,000.
`
`69.
`
`Accordingly, the APA may be voided as having been fraudulently induced.
`
`COUNT III
`(Declaratory Judgment – Pre-APA Intellectual Property)
`
`70.
`
`Kognetics incorporates and realleges the preceding paragraphs as if fully set forth
`
`herein.
`
`71.
`
`Immediately before the APA was executed on August 22, 2018, Kognetics held
`
`the copyright in the Artificial Intelligence Platform as it then existed.
`
`72.
`
`Because the Stratesphere Companies fraudulently induced Kognetics into
`
`executing the APA, that agreement is void and failed to transfer Kognetics’s copyright in the
`
`Artificial Intelligence Platform to Kognetics Holding Company LLC.
`
`73.
`
`Accordingly, Kognetics still holds all copyrights to the Artificial Intelligence
`
`Platform as it existed on August 22, 2018.
`
`74.
`
`Both in this litigation and elsewhere, the Stratesphere Companies have taken the
`
`position that pursuant to the APA, they are the current owner of all intellectual property in the
`
`
`
`14
`
`

`

`Case: 2:20-cv-02972-MHW-KAJ Doc #: 32 Filed: 10/01/20 Page: 15 of 26 PAGEID #: 1640
`
`Artificial Intelligence Platform, including in particular all intellectual property in the Artificial
`
`Intelligence Platform existing as of the APA’s execution on August 22, 2018.
`
`75.
`
`The Stratesphere Companies have taken this position despite the APA’s
`
`voidability for fraudulent inducement and despite the Stratesphere Companies’ failure to fulfill
`
`their obligations under the APA.
`
`76.
`
`The Stratesphere Companies’ statements have created a real, substantial, and
`
`immediate controversy regarding the relative rights of the parties to this intellectual property.
`
`77.
`
`Declaratory relief from this Court will resolve this controversy between the
`
`parties and limit the uncertainties created by the Stratesphere Companies’ improper conduct.
`
`78.
`
`Accordingly, Kognetics seeks a declaratory judgment against Stratesphere LLC,
`
`Kognetics Holding Company LLC, and Kognetics LLC, declaring that between Kognetics and
`
`those parties, Kognetics owns all intellectual property rights in the Artificial Intelligence
`
`Platform that existed when the APA was executed on August 22, 2018.
`
`COUNT IV
`(Breach of the MSA)
`
`79.
`
`Kognetics incorporates and realleges the preceding paragraphs as if fully set forth
`
`herein.
`
`80.
`
`81.
`
`Kognetics Inc. has performed its obligations under the MSA.
`
`Under the terms of the MSA, Kognetics Holding Company LLC had certain
`
`obligations to Kognetics Inc., including but not limited to paying Kognetics Inc. for the services
`
`it performed under the MSA.
`
`82.
`
`Kognetics Holding Company has failed to perform these obligations as required,
`
`refusing to pay hundreds of thousands of dollars’ worth of Kognetics Inc.’s invoices since 2018.
`
`
`
`15
`
`

`

`Case: 2:20-cv-02972-MHW-KAJ Doc #: 32 Filed: 10/01/20 Page: 16 of 26 PAGEID #: 1641
`
`83.
`
`As a result of these breaches of the MSA, Kognetics Inc. has been harmed in an
`
`amount greater than $25,000.
`
`COUNT V
`(Declaratory Judgment – Post-APA Intellectual Property)
`
`84.
`
`Kognetics incorporates and realleges the preceding paragraphs as if fully set forth
`
`herein.
`
`85.
`
`Since August 22, 2018, Kognetics has modified and added to the Artificial
`
`Intelligence Platform, with the Stratesphere Companies’ knowledge and consent and pursuant to
`
`the terms of the MSA and related agreements with the Stratesphere Companies and customers.
`
`86.
`
`Section 10.1 of the MSA provides that intellectual-property rights in deliverables
`
`created under the MSA will vest in Kognetics Holding Company LLC only if that company fully
`
`pays Kognetics for its work:
`
`All intellectual property rights, including without limitation, all
`rights, title and interest in and to the final Deliverables specifically
`created for and provided to the Company by Service Provider
`and/or its officers, employees, contractors, subcontractors, agents,
`etc., through the course of performance of this Agreement or
`applicable SOW shall vest in and be exclusively owned by
`Company, subject to payment of charges, fees, costs, etc.,
`hereunder in full by the Company to the Service Provider.
`
`(MSA § 10.1 (emphasis added)).
`
`87.
`
`The MSA “forms the complete and exclusive agreement between the Parties in
`
`relation to the Services,” and it supersedes “[a]ll previous agreements, correspondence and
`
`understandings relating to the subject of this Agreement.” (Ex. B § 12.2).
`
`88.
`
`Kognetics Holding Company LLC has not fully paid Kognetics for its work under
`
`the MSA.
`
`89.
`
`Accordingly, Kognetics retains all intellectual-property rights in the modifications
`
`and additions it has made to the Artificial Intelligence Platform since August 22, 2018.
`
`
`
`16
`
`

`

`Case: 2:20-cv-02972-MHW-KAJ Doc #: 32 Filed: 10/01/20 Page: 17 of 26 PAGEID #: 1642
`
`90.
`
`Both in this litigation and elsewhere, the Stratesphere Companies have taken the
`
`position that pursuant to the APA, they are the current owner of all intellectual property in the
`
`Artificial Intelligence Platform, including in particular all intellectual property in the Artificial
`
`Intelligence Platform that was created after the APA was executed on August 22, 2018.
`
`91.
`
`The Stratesphere Companies have taken this position despite the fact that the APA
`
`says nothing about the ownership of intellectual property created after its execution, and despite
`
`the fact that the MSA provided that Kognetics Holding Company LLC would receive intellectual
`
`property rights in the deliverables created by Kognetics under the MSA only if Kognetics
`
`Holding Company LLC paid Kognetics for its work in full—something that Kognetics has
`
`refused to do.
`
`92.
`
`The Stratesphere Companies’ statements have created a real, substantial, and
`
`immediate controversy regarding the relative rights of the parties to this intellectual property.
`
`93.
`
`Declaratory relief from this Court will resolve this controversy between the
`
`parties and limit the uncertainties created by the Stratesphere Companies’ improper conduct.
`
`94.
`
`Accordingly, Kognetics seeks a declaratory judgment against Stratesphere LLC,
`
`Kognetics Holding Company LLC, and Kognetics LLC, declaring that between Kognetics and
`
`those parties, Kognetics owns all intellectual property rights in the Artificial Intelligence
`
`Platform that has been created since the APA was executed on August 22, 2018.
`
`COUNT VI
`(Copyright Infringement)
`
`95.
`
`Kognetics incorporates and realleges the preceding paragraphs as if fully set forth
`
`herein.
`
`96.
`
`Kognetics holds all copyrights to the Artificial Intelligence Platform, both as it
`
`existed on August 22, 2018, and to all modifications made to it since that date.
`
`
`
`17
`
`

`

`Case: 2:20-cv-02972-MHW-KAJ Doc #: 32 Filed: 10/01/20 Page: 18 of 26 PAGEID #: 1643
`
`97.
`
`In particular, Kognetics holds copyrights to two components of the Artificial
`
`Intelligence Platform that were created after the execution of the APA on August 22, 2018.
`
`98.
`
`The first of these components, referred to as the “Boston Analytics Sector
`
`Knowledge Graph” or “BASKG,” serves much the same purpose as the Knowledge Graph
`
`included in the Artificial Intelligence Platform as of August 22, 2018, but has been fully
`
`rewritten since that time. The BASKG consists of three separate compilations of information,
`
`which together provide a detailed and extensive description of various sectors of the economy.
`
`As of December 1, 2019, the BASKG included data regarding well over 100,000 companies.
`
`99.
`
`The second of these components, referred to as the “Boston Analytics System for
`
`Decision Making” or “BASDM,” serves much the same purpose as the analytics engine included
`
`in the Artificial Intelligence Platform as of August 22, 2018, though it too has been fully
`
`rewritten since that time. The BASDM includes a set of software modules that analyze the
`
`information stored in the BASKG and derive insights from that information. The BASDM
`
`further includes modules that allow users of the Artificial Intelligence Platform to explore the
`
`BASKG and to derive their own insights from that information.
`
`100. On July 22, 2020, the United States Copyright Office granted Kognetics’s
`
`application for a registered copyright on the BASDM. Kogn

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