Libertas Techs., L.L.C. v. Cherryhill Mgmt., Inc.

• Decision Date: 14 May 2012
• Docket Number: Case No. 1:10-cv-935
• Parties: LIBERTAS TECHNOLOGIES, L.L.C., Plaintiff v. CHERRYHILL MANAGEMENT, INC., et al., Defendants
• Court: U.S. District Court — Southern District of Ohio

LIBERTAS TECHNOLOGIES, L.L.C., Plaintiff

v.CHERRYHILL MANAGEMENT, INC., et al., Defendants

Case No. 1:10-cv-935

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION

Dated: May 14, 2012

Dlott, J.

Litkovitz, M.J.

REPORT AND RECOMMENDATION

This matter is before the Court on defendants' joint motion to dismiss plaintiff's amended complaint pursuant to Fed. R. Civ. P. 12(b) (Doc. 24), plaintiff's opposing memorandum (Doc. 26), and defendants' reply memorandum in support of their motion to dismiss. (Doc. 27).

I. Introduction

Plaintiff Libertas Technologies, L.L.C. (Libertas) brings this action for copyright infringement and various state law violations against its former employee, Todd Schwartz, and Cherryhill Management, Inc. (Cherryhill). Jurisdiction is premised on 28 U.S.C. § 1338, which grants the district courts original jurisdiction over copyright cases. The complaint does not assert a basis for the Court's jurisdiction over the state claims. However, those claims are necessarily brought pursuant to the Court's supplemental jurisdiction under 28 U.S.C. § 1367(a) as, according to the allegations of the complaint, complete diversity is lacking. See 28 U.S.C. § 1332.

Plaintiff Libertas filed the original complaint in this action on December 27, 2010. (Doc. 1). Libertas was subsequently granted leave to amend the complaint to accurately reflect the registration of the copyright for the material at issue in this matter. (Doc. 18). Libertas filed anamended complaint with a copy of the registration attached. (Doc. 22; Exh. D). The allegations of the original and amended complaints are virtually identical, with the following exceptions:

• Plaintiff alleged in the original complaint that from January 2005, it developed various components of software for use in Cherryhill's business pursuant to an agreement with Cherryhill and ultimately developed "a management interface to integrate individual software components into an integrated unit" (the "Cherryhill Software"). (Doc. 1, ¶¶ 5, 6). In the amended complaint, plaintiff has substituted the word "dashboard" for interface. (Doc. 22, ¶ 6).

• Plaintiff has added an allegation to the complaint that the copyright for all software, including all written code, that was developed for the Cherryhill Software has been registered with the United States Copyright Office as number TXu 1-688-153, effective November 5, 2010. (W.,¶7).

In the amended complaint, plaintiff presents the same claims raised in the original complaint: copyright infringement under federal law (Count 1) and state law claims for tortious interference with contract (Count 2); tortious interference with a business relationship (Counts 3, 4); misappropriation of trade secrets (Count 5); conversion (Count 6); replevin (Count 7); and civil conspiracy (Count 8). (Id., ¶¶ 27-63). As relief, Libertas seeks actual and compensatory damages; punitive or treble damages; replevin of its property; and preliminary and permanent injunctive relief.

Defendants move to dismiss plaintiff's federal copyright claim on the grounds the work is not copyrightable, and plaintiff is barred from bringing an action against an owner of a copy of a computer program who modifies or uses the program but does not sell it. Further, defendants contend that because plaintiff does not have a viable federal claim, the Court should decline to exercise supplemental jurisdiction over the remaining state law claims and should dismiss those claims without prejudice. In the event the federal claim survives and the Court chooses to exercise supplemental jurisdiction over the state law claims, defendants assert those claims mustbe dismissed for failure to state a claim for relief.

II. Rule 12(b)(6) standard

The standard for dismissal of a complaint under Rule 12(b)(6) is set forth in the Report and Recommendation issued in this matter on August 2, 2011. (Doc. 15). Plaintiff appears to question the applicability of Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007) and Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) to this matter by noting that neither is a copyright case. (Doc. 26 at 1). However, this is immaterial as Twombly established the pleading standard for all civil actions. Hensley Mfg. v. ProPride, Inc., 579 F.3d 603, 609 n.4 (6th Cir. 2009) (citing Iqbal, 129 S.Ct. at 1953). Accordingly, the Court must apply the Twombly pleading standard to the allegations of the amended complaint to determine whether the requirements of Rule 12(b)(6) are satisfied.

III. The federal copyright infringement claim

Defendants Cherryhill and Schwartz move to dismiss plaintiff's federal copyright infringement claim on the grounds that: (1) the work in question is not, by its nature, eligible for copyright protection; and (2) defendants' conduct is not actionable because Cherryhill was within its rights to modify any computer program to suit its business needs under the authority of 17 U.S.C. § 117, the "utilization statute," which allows the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program if certain conditions are met.

The Copyright Act protects "original works of authorship fixed in any tangible medium of expression, now known or later developed, 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. §102(a). Works of authorship include literary works. 17 U.S.C. § 102(a)(1). The statutory definition of "literary works" may in turn include computer programs. Lexmark Intern., Inc. v. Static Control Components, Inc., 387 F.3d 522, 533 (6th Cir. 2004) (citing H.R. Rep. No. 1476 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5667 ("The term 'literary works'. . . includes . . . computer programs to the extent that they incorporate authorship in the programmer's expression of original ideas, as distinguished from the ideas themselves.") (case citations omitted).

The Copyright Act grants owners of protected works the exclusive right to reproduce copyrighted works, to create derivative works based on original works, to distribute copies of the works, and to perform or display the works publicly. 17 U.S.C. § 106. Subject to the requirements of 17 U.S.C. § 411, the legal or beneficial owner of an exclusive right under a copyright is entitled to institute an action for any infringement of that right committed during ownership of the right. 17 U.S.C. § 501(b). Section 411(a) requires that no civil action for infringement of a copyright can be instituted until preregistration or registration of the copyright claim has been made in accordance with that title. 17 U.S.C. § 411(a).

A copyright infringement claim under § 411 has two elements: "(1) ownership of a valid copyright; and (2) copying of constituent elements of the work that are original." Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 361 (1991). See also Bridgeport Music, Inc. v. WM Music Corp., 508 F.3d 394, 398 (6th Cir. 2007) (quoting Stromback v. New Line Cinema, 384 F.3d 283, 293 (6th Cir. 2004)). The Sixth Circuit has explained that the first prong "tests the originality and non-functionality of the work, see M.M. Bus. Forms Corp. v. Uarco, Inc., 472 F.2d 1137, 1139 (6th Cir. 1973), both of which are presumptively established by the copyright registration," while "[t]he second prong tests whether any copying occurred (a factual matter) andwhether the portions of the work copied were entitled to copyright protection (a legal matter)." Lexmark, 387 F.3d at 534 (citing Kepner-Tregoe, Inc. v. Leadership Software, Inc., 12 F.3d 527, 534-35 & n.14 (5th Cir. 1994); M. Nimmer & D. Nimmer, Nimmer on Copyright § 13.01[B] (2003)).

Copyright protection for an original work of authorship does not extend to any "idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work." 17 U.S.C. § 102(b). Copyright protection extends "only to the expression of the idea-not the idea itself." Lexmark, 387 F.3d at 534 (citations omitted). This general principle applies equally to computer programs. Id. (citations omitted). Courts have acknowledged that given the essentially functional nature of a computer program, "the task of separating expression from idea in this setting is a vexing one." Id. at 535 (citing Computer Assocs. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 704 (2d Cir. 1992) ("The essentially utilitarian nature of a computer program further complicates the task of distilling its idea from its expression."); Sega Enters., Ltd. v. Accolade, Inc., 977 F.2d 1510, 1524 (9th Cir. 1992); Lotus Dev. Corp. v. Borland Int'l, Inc., 49 F.3d 807, 819-20 (1st Cir. 1995) (Boudin, J., concurring) ("compared to aesthetic works, computer programs hover even more closely to the elusive boundary line described in § 102(b)").

In ascertaining the '"elusive boundary line' between idea and expression, between process and non-functional expression," courts have applied the merger doctrine. Id. The merger doctrine holds that copyright protection is denied to expression that is inseparable from or merged with the ideas, processes, or discoveries underlying the expression. Id. (citations omitted). Idea and expression are said to have "merged" in two situations: first, where the"expression is essential to the statement of the idea," id. (citing CCC Info. Servs., Inc. v. Maclean Hunter Mkt. Reports, Inc., 44 F.3d 61, 68 (2d Cir. 1994); Lotus Dev., 49 F.3d at 816 ("If specific words are essential to operating something, then they are part of a 'method of operation' and, as such, are unprotectable."); and second, where there is only one way or very few ways of expressing the idea. Id. (citing Warren Publ'g, Inc. v. Microdos Data Corp., 115 F.3d 1509, 1519 n. 27 (11th Cir. 1997)). Copyright protection does not exist in these situations because ...