Rosciszewski v. Arete Associates, Inc.

• Decision Date: 29 July 1993
• Docket Number: 92-2390,Nos. 92-2122,s. 92-2122
• Parties: 1993 Copr.L.Dec. P 27,127, 27 U.S.P.Q.2d 1678 Jan J. ROSCISZEWSKI, Assignee of Physical Dynamics, Incorporated, Plaintiff-Appellant, v. ARETE ASSOCIATES, INCORPORATED; David E. Mann; Richard A. Martini; Wilma R. Murphy; Frank Fernandez, Defendants-Appellees. (Two Cases)
• Court: U.S. Court of Appeals — Fourth Circuit

Page 225

1 F.3d 225

1993 Copr.L.Dec. P 27,127, 27 U.S.P.Q.2d 1678

Jan J. ROSCISZEWSKI, Assignee of Physical Dynamics, Incorporated, Plaintiff-Appellant, v. ARETE ASSOCIATES, INCORPORATED; David E. Mann; Richard A.

Martini; Wilma R. Murphy; Frank Fernandez,

Defendants-Appellees. (Two Cases)

Nos. 92-2122, 92-2390.

United States Court of Appeals, Fourth Circuit.

Argued May 5, 1993.

Decided July 29, 1993.

Alex N. Saleh, David L. Duff, P.C., Fairfax, VA, argued, for appellant.

Mark L. Gerchick, Paul, Hastings, Janofsky & Walker, Washington, DC (Kenneth M. Willner, Michael D. Taxay, on brief), for appellees.

Before WILKINS and LUTTIG, Circuit Judges, and KISER, United States District Judge for the Western District of Virginia, sitting by designation.

OPINION

WILKINS, Circuit Judge:

Jan J. Rosciszewski appeals orders of the district court dismissing all counts of the complaint except one, remanding the remaining count (Count V) to state court, and awarding attorneys' fees and costs in favor of Arete Associates, Incorporated, David E. Mann, Richard A. Martini, Wilma R. Murphy, and Frank Fernandez (collectively, "Arete"). Rosciszewski maintains that the district court lacked subject matter jurisdiction and therefore erroneously refused to remand the entire action to state court. In addition, Rosciszewski contends that the award of attorneys' fees and costs was inappropriate and excessive. We conclude that subject matter jurisdiction was proper because Sec. 301(a) of the Copyright Act, 17 U.S.C.A. Sec. 301(a) (West 1977), completely preempts Rosciszewski's claim that Arete violated Sec. 18.2-152.3 of the Virginia Computer Crimes Act, Va.Code Ann. Sec. 18.2-152.3 (Michie 1988). However, because we take this opportunity to adopt a legal standard for determining whether an award of attorneys' fees and costs under 17 U.S.C.A. Sec. 505 (West 1977) is appropriate, we vacate the award imposed by the district court and remand for the district court to exercise its discretion utilizing this standard.

I.

During the late 1980s, Physical Dynamics, Incorporated (PDI) engaged primarily in providing technical and computer research services to the United States Department of Defense. PDI developed a copyrighted computer program called ORBIS which was used to analyze military systems. As alleged by Rosciszewski, Appellee Mann, while employed as General Manager of PDI, executed an agreement to keep secret all confidential matters of PDI both during and after his employment. However, both during and after Mann's employment with PDI, he attempted to persuade PDI's clients to engage in business with Arete by telling them that Arete possessed ORBIS and that PDI could not fulfill its contracts with them. Arete attempted to hire PDI's employees, particularly those computer programmers most knowledgeable about ORBIS, and some of PDI's key employees resigned from PDI to accept employment with Arete. Rosciszewski further alleges that two of these employees, acting under the direction of Arete, breached secure areas on PDI's property, accessed PDI's computer system, and procured copies of ORBIS and other proprietary works.

Approximately one year prior to the litigation that is the subject of this appeal, PDI filed an action in the United States District Court for the Eastern District of Virginia against Appellees in this action. ¹ Seeking injunctive relief and damages, PDI alleged a cause of action for federal copyright infringement and seven state-law causes of action. PDI subsequently filed an amended complaint that omitted the state claims. The parties settled the federal copyright claim, and the district court entered a consent decree in March 1991.

In May 1992, Rosciszewski, as an assignee of PDI, filed the present action against Arete in the Circuit Court of Fairfax County, Virginia, attempting to litigate the state-law claims that had not been pursued in the earlier action. Rosciszewski alleged: (Count I) violations of the Virginia Computer Crimes Act, see Va.Code Ann. Secs. 18.2-152.1 to .14 (Michie 1988 & Supp.1993); (Count II) violations of the Virginia Uniform Trade Secrets Act, see Va.Code Ann. Secs. 59.1-336 to -343 (Michie 1992); (Count III) conspiracy to injure PDI; (Count IV) intentional interference with PDI's contract rights and business expectancies; (Count V) conversion of PDI's corporate funds; (Count VI) breach of fiduciary duties owed to PDI; and (Count VII) disparagement of PDI's business.

Arete removed the action to the United States District Court for the Eastern District of Virginia. Rosciszewski moved to remand the action to state court, arguing that the district court lacked subject matter jurisdiction. Arete responded by moving to dismiss Rosciszewski's complaint on the alternative bases that all of the claims, except Count V, were barred by res judicata as a result of the prior consent decree and were preempted by Sec. 301(a) of the Copyright Act. The district court agreed and granted Arete's motion to dismiss. Denying Rosciszewski's motion to remand the case in its entirety, the district court ordered that the remaining claim, Count V, be remanded to state court. After Rosciszewski filed a notice of appeal, however, the court stayed execution of its remand order. On appeal Rosciszewski does not contend that the district court was in error in holding that the claims, except for Count V, were barred by res judicata. Thus, since no challenge was made to this ruling, if jurisdiction was properly vested in the district court by virtue of preemption, it must stand absent plain error.

Thereafter, Arete moved for attorneys' fees and costs pursuant to 17 U.S.C.A. Sec. 505. The district court awarded $93,354.00 in fees and $3,141.87 in costs; Rosciszewski also appealed from this order. The two appeals have been consolidated before this court.

II.

Rosciszewski maintains that the district court erred in finding that Sec. 301(a) of the Copyright Act preempted the state-law claims alleged in the complaint. In addition, Rosciszewski argues that even if Sec. 301(a) does preempt one of the state-law claims, removal based on the preemption defense was improper because the claim did not arise under federal law. Thus, Rosciszewski concludes, because the district court lacked subject matter jurisdiction, it should have remanded the action to state court without addressing the merits. See Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1, 8, 103 S.Ct 2841, 2846, 77 L.Ed.2d 420 (1983). We first address whether Sec. 301(a) of the Copyright Act preempted any of Rosciszewski's claims. Concluding that Rosciszewski's allegation that Arete violated Sec. 18.2-152.3 of the Virginia Computer Crimes Act by copying PDI's ORBIS computer program is preempted, we then turn to the question of whether removal on this basis provided subject matter jurisdiction to the district court.

A.

Section 301(a) of the Copyright Act states in pertinent part:

[A]ll legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 [of the Copyright Act] in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103 ... are governed exclusively by this title.

17 U.S.C.A. Sec. 301(a) (West 1977). Thus, Sec. 301(a) preempts state-law claims if "the work is within the scope of the 'subject matter of copyright' as specified in 17 U.S.C. Secs. 102, 103" and "the rights granted under state law are equivalent to any exclusive rights within the scope of federal copyright as set out in 17 U.S.C. Sec. 106." Ehat v. Tanner, 780 F.2d 876, 878 (10th Cir.1985), cert. denied, 479 U.S. 820, 107 S.Ct. 86, 93 L.Ed.2d 39 (1986).

Count I of Rosciszewski's complaint alleges that the unauthorized copying by Arete of PDI's ORBIS computer program violated Sec. 18.2-152.3 of the Virginia Computer Crimes Act. ² The parties do not dispute that computer programs, like the one at issue here, are within the subject matter of copyright because they are "original works of authorship fixed in [a] tangible medium of expression ... from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." 17 U.S.C.A. Sec. 102(a) (West Supp.1993); see Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 659 (4th Cir.1993). The critical question before the court, then, is whether rights granted under the state laws upon which Rosciszewski relies are equivalent to any of the exclusive rights granted by copyright law. ³ This is a question of law that we review de novo. See id. at * 1.

Section 106 of the Copyright Act "affords a copyright owner the exclusive right to: (1) reproduce the copyrighted work; (2) prepare derivative works; (3) distribute copies of the work by sale or otherwise; and, with respect to certain artistic works, (4) perform the work publicly; and (5) display the work publicly." Computer Assocs. Int'l v. Altai, Inc., 982 F.2d 693, 716 (2d Cir.1992). In order to ascertain whether a specific state cause of action involves a right equivalent to one of those identified in Sec. 106, reference must be made to the elements of the state cause of action. See Trandes Corp., 996 F.2d at 659. State-law claims that infringe one of the exclusive rights contained in Sec. 106 are preempted by Sec. 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.' " Computer Assocs. Int'l, 982 F.2d at 716 (quoting Harper & Row, Publishers, Inc. v. Nation Enters., 723 F.2d 195, 200 (2d Cir.1983), rev'd on other grounds, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985)). 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...