Madison River Management v. Business Management, 1:03 CV 00379.

• Decision Date: 05 January 2005
• Docket Number: No. 1:03 CV 00379.,1:03 CV 00379.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: MADISON RIVER MANAGEMENT COMPANY, Plaintiff, v. BUSINESS MANAGEMENT SOFTWARE CORPORATION, a/k/a BMS, Defendant.

351 F.Supp.2d 436

MADISON RIVER MANAGEMENT COMPANY, Plaintiff, v. BUSINESS MANAGEMENT SOFTWARE CORPORATION, a/k/a BMS, Defendant.

No. 1:03 CV 00379.

United States District Court, M.D. North Carolina.

January 5, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Grady L. Shields, Lee Michael Whitman, Wyrick Robbins Yates & Ponton, L.L.P., Raleigh, NC, Malcolm H. Brooks, Laura A. Derouin, Holland & Knight, LLC, Chicago, IL, for Plaintiff.

George W. Trey Aycock, III, Coltrane Aycock & Overfield, PLLC, Greensboro, NC, Kenneth E. Peck, Bushell & Peck, L.L.C., Denver, CO, Richard P. Earley, The Law Offices of Richard P. Earley, Hackettstown, NJ, for Defendant.

MEMORANDUM OPINION AND ORDER

OSTEEN, District Judge.

Plaintiff Madison River Management Company ("Madison"), a corporation organized in Delaware with its principal place of business in North Carolina, brings this action against Defendant Business Management Software Corporation ("BMS"), formerly known as BMS Corporation, a corporation organized in Delaware with its principal place of business in Denver, Colorado. Plaintiff brought suit seeking a declaration that certain agreements between the parties were not void and remain in full force and effect, and that Plaintiff is not infringing Defendant's software copyright. Defendant counterclaimed for copyright infringement under the Copyright Act of 1976, as amended, 17 U.S.C. § 101 et seq. ("Copyright Act"), breach of contract, misrepresentation, conversion, Colorado statutory civil recovery for rights in stolen property, and unjust enrichment. This matter is now before the court on Plaintiff's Motion to Dismiss Claims 6-8, 10-19 of Defendant's Amended Counterclaim.¹ For the reasons set forth herein, Defendant's motion will be DENIED in part and GRANTED in part.

I. BACKGROUND

The following facts are presented in the light most favorable to Defendant.²

Defendant BMS is a software company that designed, developed, and copyrighted a suite of computer applications specifically for the telecommunications industry called the Ticket Control System ("TCS"). The TCS program allows telecommunication companies to manage problems with their networks. The TCS suite includes "TCS Control," the core event manager, and four additional products: (1) "TCS Provide" for service provisioning; (2) "TCS Resolve" for trouble management; (3) "TCS Force" for workforce management; and (4) "TCS Satisfy" for customer care. BMS received a certificate of copyright registration for its TCS program in May 2000.

Employees of BMS customers connect remotely to the TCS program via their individual computers. To gain access to the TCS program, the customer's employees sign onto the TCS server computer using special software. When the connection is made, the employee's computer makes a temporary copy of the TCS program on its local hard drive, which exists only so long as the employee is signed onto the TCS server computer. BMS monitors and logs the number of concurrent connections made to its TCS server and bases its licensing fee on the number of concurrent connections used by the customer.

Plaintiff Madison is a telecommunications company that specializes in rural telephone services. In 2000, Madison and BMS entered into extensive discussions regarding the use of TCS software, including such subjects as licensing fees and the number of concurrent connections needed by Madison. On October 2, 2000, BMS and Madison signed a Software License Agreement ("Agreement") for the TCS software. Under the Agreement, Madison purchased 15 TCS Control licenses and 15 TCS Provide licenses for its Gulf Telephone Company ("Gulf") division.³ The Agreement provided that Madison would pay for any actual usage exceeding the 15 licenses of TCS Control and TCS Provide.

In October 2001, Gulf began using the TCS Provide software. In February 2002, BMS informed Madison that Madison's usage of TCS Provide was exceeding the number of licenses it purchased under the Agreement. Madison explained to BMS that its excessive use was temporarily caused by the installation of an interface to its billing system and asked BMS not to bill for excessive use until the interface was installed. BMS agreed. In May 2002, Madison completed installation of its billing interface, but Madison's use was not reduced to the 15 concurrent connections it had licensed. Instead, Madison's use in May, after the interface installation, exceeded 80 concurrent connections. As a result of the excess use, Madison requested that BMS quote a price to Madison for an unlimited use license, also known as a site license.

Beginning August 1, 2002, Madison and BMS entered into discussions with the intent that Madison purchase an unlimited site license for the TCS software. Madison did not purchase the site license or any additional licenses, but continued its excessive use of the TCS software. BMS subsequently provided Madison with a notice of copyright infringement and invoices for the excessive use. In response, Madison invoked the dispute resolution provision in the Agreement. The parties then entered into negotiations to resolve Madison's overuse. During the negotiations, BMS again suggested that Madison purchase an unlimited site license and Madison agreed to conduct an evaluation of the costs and benefits of purchasing a site license. The parties then executed a First Amendment to the Software License Agreement ("First Amendment") and an Expanded License Letter of Intent ("Letter of Intent") to memorialize their negotiations.

On January 24, 2003, after repeated inquiries by BMS, Madison informed BMS that Madison would not purchase a site license from BMS. When BMS requested that Madison provide BMS a copy of its evaluation of the costs and benefits of purchasing a site license, Madison informed BMS that Madison had not prepared a written assessment. Madison also informed BMS that it had never conducted and never intended to conduct an analysis of replacing its current system with TCS products and had never intended to purchase a site license.

After further discussions between the parties broke down, Madison brought suit for declaratory judgment that the First Amendment and Letter of Intent were not void and remain in full force and effect and that Plaintiff is not infringing Defendant's software copyright. Defendant counterclaimed for copyright infringement, breach of contract, misrepresentation, conversion, Colorado statutory civil recovery for rights in stolen property, and unjust enrichment. Now before the court is Plaintiff's Motion to Dismiss Claims 6-8, 10-19 of Defendant's Amended Counterclaim.

II. STANDARD OF REVIEW

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the pleadings, but does not seek to resolve disputes surrounding the facts. Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992). A court must determine only if the challenged pleading fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The issue is not whether the defendant will ultimately prevail on its claims, but whether it is entitled to offer evidence to support the claim. Revene v. Charles County Comm'rs, 882 F.2d 870, 872 (4th Cir.1989). A pleading "should not be dismissed for failure to state a claim unless it appears beyond doubt that the [nonmoving party] can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). The pleading must be "liberally construed" in the light most favorable to the nonmoving party and allegations made therein are taken as true. Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1849, 23 L.Ed.2d 404 (1969).

III. ANALYSIS

Plaintiff moves for dismissal of Defendant's counterclaims on two grounds: (1) because certain state law counterclaims are preempted by the Copyright Act; and (2) because Defendant's counterclaims for misrepresentation have not been pleaded with particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure("Rule 9(b)").

A. Preemption of State Law Claims

Madison argues that BMS' counterclaims for breach of contract (claims 6-8), conversion (claims 13-16), Colorado statutory recovery of stolen property (claim 18) and unjust enrichment (claim 19) are preempted by the Copyright Act.

Congress has specifically preempted all state law rights that are equivalent to those protected under federal copyright law. See 17 U.S.C. § 301(a). For preemption to apply, a two-prong test must be met: (1) the work must be "within the scope of the subject-matter of copyright as specified in 17 U.S.C. §§ 102, 103"; and (2) the "rights granted under state law must be equivalent to any exclusive rights within the scope of federal copyright as set out in 17 U.S.C. § 106." United States ex rel. Berge v. Board of Trs. of the Univ. of Ala., 104 F.3d 1453, 1463 (4th Cir.1997) (internal quotation marks omitted) (quoting Rosciszewski v. Arete Assocs., Inc., 1 F.3d 225, 229 (4th Cir.1993)).

The first prong of the preemption test is satisfied. Here, Madison's allegedly wrongful use of the TCS computer program underlies all of BMS's state law claims, and computer programs clearly fall within the subject matter of copyright. See Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 659 (4th Cir.1993) (holding that rights in a computer program clearly come within subject matter of copyright); M. Kramer Mfg. Co. v. Andrews, 783 F.2d 421, 434-35 (4th Cir.1986) (holding that computer programs are copyrightable).

The remaining prong, that of the nature of the right asserted, is a more complex issue. The court must determine whether the causes of action in BMS' counterclaims, as defined by either Colorado or North Carolina common law,⁴ are being asserted to protect rights that are equivalent to the rights protected by federal copyright law. In this determination, the court will apply...