Brignoli v. Balch Hardy and Scheinman, Inc.

• Decision Date: 30 September 1986
• Docket Number: No. 86 Civ. 4103 (RWS).,86 Civ. 4103 (RWS).
• Citation: 645 F. Supp. 1201
• Parties: Richard J. BRIGNOLI, Plaintiff, v. BALCH HARDY AND SCHEINMAN, INC., Peter Scheinman and Steve Hardy, Defendants.
• Court: U.S. District Court — Southern District of New York

645 F. Supp. 1201

Richard J. BRIGNOLI, Plaintiff, v. BALCH HARDY AND SCHEINMAN, INC., Peter Scheinman and Steve Hardy, Defendants.

No. 86 Civ. 4103 (RWS).

United States District Court, S.D. New York.

September 30, 1986.

COPYRIGHT MATERIAL OMITTED

Arie E. David, New York City, for plaintiff.

Fink, Weinberger, Fredman, Berman & Lowell, P.C., New York City, for defendants; Paul A. Feigenbaum, of counsel.

SWEET, District Judge.

Defendants Balch, Hardy and Scheinman, Inc. ("BHS"), Peter Scheinman ("Scheinman") and Steve Hardy ("Hardy") have moved for an order dismissing the amended complaint for failure to state a cause of action and imposing sanctions on plaintiff and his counsel. For the reasons stated below, the motion to impose sanctions is denied, and the motion to dismiss the complaint is granted in part and denied in part.

The Amended Complaint

According to the amended complaint, prior to November, 1978, plaintiff Richard Brignoli ("Brignoli") created and developed computer programs incorporating liquid secondary option market formulas for use in options account management. BHS is a New York corporation registered as an investment advisor with the Securities and Exchange Commission that manages the options trading activities of institutional clients. Its shareholders are William Balch ("Balch") and defendants Scheinman and Hardy. In 1978 Brignoli and defendant BHS are alleged to have entered into an agreement whereby BHS would offer Brignoli's computer programs on a "month-to-month" basis in return for fees equal to 30% of the gross revenues earned by BHS from each of the clients for whose benefit the programs would be used. On or about November 14, 1978, Brignoli and BHS executed a writing acknowledging that certain computer programs were "developed by Richard Brignoli," were "his exclusive property" and could be used by BHS "subject only to the content" of the writing, which contained a provision requiring that BHS obtain the prior approval of Brignoli for each client or account. The writing does not include any terms of payment or specify a time limit.

The amended complaint also alleges that Balch, an officer of BHS, arranged on or about November 14, 1978 for payments to be made to Brignoli through third-party brokers with whom BHS placed orders. It is further alleged that on or about April 12, 1982 Brignoli and BHS agreed to reduce the payments from 30% to 25% for future clients. Brignoli claims that he received payments from those brokers pursuant to the agreement between Brignoli and BHS but that they were less than the agreement provided for and stopped in March, 1986 although BHS has continued to use Brignoli's programs.

Although defendants assert that they had no financial obligation whatsoever to Brignoli, it is conceded by BHS that BHS would inform Brignoli or Brignoli Models, Inc. ("BMI"), a consulting firm with which Brignoli was associated, how much to invoice the brokers for the previous month. The brokers then paid the consultants. BHS alleges that at present it is not using anything that belongs to Brignoli.

Brignoli seeks money damages, imposition of a constructive trust and an injunction in connection with the alleged improper use of Brignoli's computer programs. In his First Claim, Brignoli alleges that defendant BHS breached its oral agreement with Brignoli to pay him a percentage of its gross revenues from clients for whom Brignoli's computer programs were used. Brignoli's Second Claim alleges breach of the written agreement between BHS and Brignoli to obtain the prior approval of Brignoli before using his programs for particular customers and wilful unauthorized use of plaintiff's property.

In his Third Claim, Brignoli alleges that at various times from 1979 to the present, BHS, Balch, Hardy and Scheinman falsely represented to him that the payments he was receiving conformed to the 25% and 30% of BHS' revenues as agreed upon. In his Fourth Claim, Brignoli alleges that BHS and Balch "craftily" drafted the November 14 agreement and never planned to abide by the agreement. Brignoli's Fifth Claim states that BHS refused to stop using the programs despite notice from Brignoli that such use is unauthorized. The Sixth and Seventh Claims allege unfair competition and wrongful appropriation in connection with alleged inducement of Brignoli's associates to disclose confidential information and alleged disparagement of Brignoli's products.

Finally, the Eighth Claim alleges that defendants Scheinman and Hardy knew of the alleged misrepresentation, misappropriation, unfair competition and disparagement by the corporate defendant and knowingly received from the corporate defendant sums of money derived therefrom.

Copyright Pre-emption

Although Brignoli has dropped all claims of copyright infringement against defendants, defendants assert in their motion to dismiss the amended complaint that Brignoli's first seven claims are based on a right equivalent to exclusive rights within the scope of copyright, and therefore are precluded by 17 U.S.C. § 301(a). See Universal City Studios, Inc. v. Nintendo Co., Ltd., 615 F.Supp. 838, 856 (S.D.N.Y.1985) (citing Durham Industries, Inc. v. Tomy Corp., 630 F.2d 905, 919 (2d Cir.1980)). 17 U.S.C. § 301(a) provides that: "all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright ... are governed exclusively by this title." To fall within 17 U.S.C. § 301(a) pre-emption, (1) the work in question must be within the subject matter of copyright as defined in 17 U.S.C. §§ 102, 103 and (2) the state law created right must be equivalent to any of the exclusive copyright rights in 17 U.S.C. § 106. See Universal City Studios, 615 F.Supp. at 856-57.

The great weight of authority indicates that computer programs are entitled to protection under copyright law. Videotronics, Inc. v. Bend Electronics, 564 F.Supp. 1471, 1477 (D.Nev.1983); see, e.g., Williams Electronics, Inc. v. Artic Int'l, Inc., 685 F.2d 870, 875 (3d Cir.1982); Apple Computer Inc. v. Formula Int'l, Inc., 562 F.Supp. 775 (C.D.Cal.1983), aff'd, 725 F.2d 521 (9th Cir.1984). The fact that portions of the computer programs may be uncopyrightable as "ideas" rather than "expressions," see Q-Co Industries, Inc. v. Hoffman, 625 F.Supp. 608, 616, (S.D.N.Y.1985), does not take the work as a whole outside the subject matter protected by the Act. See Harper & Row Publishers, Inc. v. Nation Enterprises, 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).

The second element requires that state law claims be equivalent to any of the rights in 17 U.S.C. § 106, that is, the right to "reproduce the copyrighted work," "prepare derivative works," "distribute copies," or "perform" or "display" the copyrighted work publicly. Therefore, to assert a state law claim, a plaintiff must allege rights "qualitatively different from the rights of reproduction, performance, distribution, or display." Harper & Row, Publishers, Inc. v. Nation Enterprises, 501 F.Supp. 848, 852 (S.D.N.Y.1980), aff'd in relevant part, 723 F.2d 195 (2d Cir.1983), rev'd on other grounds, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985); see 1 Nimmer on Copyrights § 101B1 at 1-10, 11.

The evolving common law rights of "privacy," "publicity," and trade secrets, and the general law of defamation and fraud, would remain unaffected as long as the causes of action contain elements, such as an invasion of personal rights or a breach of trust or confidentiality, that are different in kind from copyright infringement.

Id. Pre-emption will not occur "when a state law violation is predicated upon an act incorporating elements beyond mere reproduction or the like." Harper & Row, Publishers, Inc. v. Nation Enterprises, 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).

A claim that a defendant made unauthorized use of copyrightable material falls squarely within § 301 and thus is preempted. Peckarsky v. American Broadcasting Co., 603 F.Supp. 688, 695-96 (D.D. C.1984). Nevertheless, plaintiffs' claims allege more than unauthorized use. Claims One, Two, Four, and Five are essentially breach of contract claims that involve an element beyond unauthorized reproduction and use—a promise to pay plaintiff for use of his product. Cf. Peckarsky v. American Broadcasting Co., 603 F.Supp. 688 (D.D.C.1984) (sustaining breach of contract and fraudulent misrepresentation claims against motion for summary judgment, even where claims involved unauthorized publication of plaintiff's article). The Fourth Claim is one for fraud, involving the extra element of misrepresentation. Cf. id. Although that part of Brignoli's second claim which alleges "willful unauthorized use of plaintiff's property" might seem to come within § 301, Brignoli's allegations that the programs are trade secrets makes this claim "qualitatively different" from a copyright claim. To succeed on a trade secret claim, a plaintiff must demonstrate that "(1) it possessed a trade secret, and (2) defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means." Videotronics, Inc. v. Bend Electronics, 564 F.Supp. 1471, 1475 (D.Nev.1983) (quoting Rapco Form, Inc. v. Scientific Applications, Inc., 479 F.Supp. 1027, 1029 (S.D.N.Y.1979).

Other factors in determining whether a trade secret exists are:

(1) The degree of secrecy both within and without the plaintiff's business;

(2) the efforts by plaintiff to develop the process and to preserve its secrecy;

(3) the value of the process to the plaintiff and its competitors; and

(4) the difficulty with which the process could be duplicated by others.

Videotronics, supra, 564 F.Supp. at 1475. Defendants do not challenge in their briefs the complaint's characterization of the computer programs as trade secrets, and the court cannot...