Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 1 of 11
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF CALIFORNIA
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`NO. CIV. S-04-2728 FCD DAD
`MEMORANDUM AND ORDER
`
`MERIDIAN PROJECT SYSTEMS,
`INC.,
`
`Plaintiff,
`
`v.
`
`HARDIN CONSTRUCTION COMPANY,
`LLC, and COMPUTER METHODS
`INTERNATIONAL CORP.,
`Defendants.
` __________________________/
`COMPUTER METHODS INTERNATIONAL
`CORP., and HARDIN CONSTRUCTION
`COMPANY, LLC,
`Counterclaimants,
`
`v.
`MERIDIAN PROJECT SYSTEMS,
`INC., JAMES OLSEN, JOHN
`BODROZIC, and MIKE CARRINGTON,
`Counterdefendants.
`_____________________________/
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF CALIFORNIA
`
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`NO. CIV. S-04-2728 FCD DAD
`MEMORANDUM AND ORDER
`
`MERIDIAN PROJECT SYSTEMS,
`INC.,
`
`Plaintiff,
`
`v.
`
`HARDIN CONSTRUCTION COMPANY,
`LLC, and COMPUTER METHODS
`INTERNATIONAL CORP.,
`Defendants.
` __________________________/
`COMPUTER METHODS INTERNATIONAL
`CORP., and HARDIN CONSTRUCTION
`COMPANY, LLC,
`Counterclaimants,
`
`v.
`MERIDIAN PROJECT SYSTEMS,
`INC., JAMES OLSEN, JOHN
`BODROZIC, and MIKE CARRINGTON,
`Counterdefendants.
`_____________________________/
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 2 of 11
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`This matter is before the court on defendants’ Hardin
`Construction Company LLC (“Hardin”) and Computer Methods
`International Corp. (“CMIC”) claim for conversion of physical and
`intellectual property. Plaintiff opposes the motion. For the
`reasons set forth herein,1 defendants’ motion is GRANTED in part
`and DENIED in part.
`
`BACKGROUND
`Meridian is a software company that provides project
`management software for large real estate projects and other
`capital-intensive construction initiatives. (Second Amended
`Complaint (“SAC”) ¶ 9.) Meridian’s “flagship” product is Prolog
`Manager (“Prolog”), a project management software package that
`automates all aspects of the construction process, from project
`design to closeout. (SAC ¶ 9.)
`Defendant Hardin is a large construction company in Georgia
`and long time customer of Meridian for its Prolog product. (SAC
`¶ 11.) Defendant CMIC is a software company based in Canada that
`provides software products and software consulting. (SAC ¶ 14.)
`Meridian entered into contracts with both Hardin and CMIC,
`licensing defendants to use Prolog in their respective
`businesses. (SAC ¶¶ 12, 15.) Both defendants had copies of the
`Prolog software, which, upon any breach of the End User License
`Agreement (“EULA”), by the terms of the EULA, should have been
`destroyed or returned to Meridian. (Id. at ¶ 71; Ex. A to SAC at
`§§ 2-4.)
`
`Because oral argument will not be of material
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`assistance, the court orders the matter submitted on the briefs.
`E.D. Cal. L. R. 78-230(h).
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 3 of 11
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`Meridian alleges that, beginning in late 2000 or early 2001,
`Hardin and CMIC initiated a scheme to reverse engineer Prolog for
`the purpose of developing a competing project management software
`solution that CMIC could combine with its existing financial and
`operational software. (SAC ¶ 16.) As part of this scheme, CMIC
`allegedly sent a programmer to Hardin’s facilities on numerous
`occasions to view screen shots of Prolog, and then reverse
`engineered and analyzed the functions, features, screens,
`architecture, logic and operation of Prolog, in violation of
`Meridian’s EULA. (SAC ¶ 16.) Meridian alleges that Hardin and
`CMIC developed a competing project management software product,
`called CMIC Projects, that has the same overall look and feel as
`Prolog, and among other similarities, many of the features and
`functions of Prolog. (SAC ¶ 17.) Meridian also alleges that
`Hardin and CMIC are targeting Meridian customers to induce them
`to switch from Prolog to CMIC Projects. (SAC ¶ 18.)
`On November 29, 2004, Meridian filed a complaint against
`CMIC and Hardin in the Superior Court of Sacramento County. CMIC
`and Hardin subsequently removed the action to this court. The
`original complaint asserted seven causes of action for breach of
`contract against CMIC, breach of contract against Hardin, breach
`of the implied covenant of good faith and fair dealing, fraud,
`interference with contractual relations, intentional interference
`with prospective economic advantage, and unfair competition.
`(SAC ¶¶ 20-58.) On January 14, 2005, plaintiffs filed the First
`Amended Complaint (“FAC”), which added an eighth claim for
`copyright infringement. (FAC ¶¶ 59-68.) Then on January 27,
`2006, plaintiffs filed the second amended complaint adding a
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 4 of 11
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`ninth claim for conversion. (SAC ¶¶ 70-75.) On February 14,
`2006, defendants filed the instant motion to dismiss the
`conversion claim.
`
`STANDARD
`On a motion to dismiss, the allegations of the complaint
`must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322
`(1972). The court is bound to give plaintiff the benefit of
`every reasonable inference to be drawn from the “well-pleaded”
`allegations of the complaint. Retail Clerks Int'l Ass'n v.
`Schermerhorn, 373 U.S. 746, 753 n.6 (1963). Thus, the plaintiff
`need not necessarily plead a particular fact if that fact is a
`reasonable inference from facts properly alleged. See id.
`Given that the complaint is construed favorably to the
`pleader, the court may not dismiss the complaint for failure to
`state a claim unless it appears beyond a doubt that the plaintiff
`can prove no set of facts in support of the claim which would
`entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45
`(1957); NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.
`1986).
`Nevertheless, it is inappropriate to assume that plaintiff
`“can prove facts which it has not alleged or that the defendants
`have violated the . . . laws in ways that have not been alleged.”
`Associated Gen. Contractors of Cal., Inc. v. Cal. State Council
`of Carpenters, 459 U.S. 519, 526 (1983). Moreover, the court
`“need not assume the truth of legal conclusions cast in the form
`of factual allegations.” United States ex rel. Chunie v.
`Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986).
`/////
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 5 of 11
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`ANALYSIS
`Defendants argue that plaintiff’s conversion claim should be
`dismissed because it is preempted by federal copyright law. The
`Copyright Act provides, in relevant part, that all “legal and
`equitable rights that are equivalent to any of the exclusive
`rights within the general scope of copyright” are preempted by
`federal law. 17 U.S.C. § 301(a). The Copyright Act establishes
`a two-part test for preemption. First, the work at issue must
`fall within the general subject matter protected by copyright.
`Del Madera Prop. v. Rhodes and Gardner Inc., 820 F.2d 973, 976
`(9th Cir. 1997). Second, the rights guaranteed by state law must
`be “equivalent to any of the exclusive rights within the general
`scope of the copyright.” Id. To survive preemption, the state
`law claim must contain an “extra element” beyond the elements
`needed to prove copyright infringement. Oddo v. Ries, 743 F.2d
`630, 635 (9th Cir. 1984). Both prongs of the copyright
`preemption test must be met if the state law claim is to be
`deemed preempted. Kodadek v. MTV Networks, Inc., 152 F.3d. 1209,
`1212 (9th Cir. 1998).
`1. Conversion of Tangible Items
`Meridian argues that defendants have converted tangible
`property and that this conversion is not preempted by the
`Copyright Act. The conversion of tangible property does not fall
`within the scope of copyright protection and is not a right that
`is protected by the Copyright Act. Oddo, 743 F.2d. at 635. A
`claim for conversion of tangible property is not preempted by the
`Copyright Act because conversion adds an “extra element” beyond
`those elements required to state a claim for copyright
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 6 of 11
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`infringement. Id.; Del Madera, 820 F.2d at 977. Specifically, a
`claim for conversion of physical property requires plaintiff to
`demonstrate that defendants wrongfully obtained possession over a
`specific piece of property. Oddo, 743 F.2d. at 635.
`Defendant concedes that conversion of physical property is
`not preempted by the Copyright Act. Defendant argues that
`plaintiff fails to allege the conversion of tangible property in
`their ninth claim for relief. Defendant further asserts that
`because Meridian did not specifically allege the conversion of
`tangible items, Hardin and CMIC would have insufficient time to
`discover facts relating to the claim of conversion of tangible
`items.
`In its claim for conversion, Meridian does not specifically
`allege the conversion of tangible property such as disks, files,
`and other related Prolog documentation. Meridian does allege,
`however, that defendants violated the EULA in various ways
`including reverse engineering, copying, and modifying Prolog.
`(See SAC ¶¶ 20, 24, 29, 70, 71.) The EULA provides that, upon
`any violation of the agreement, the Prolog licensee must either
`destroy or return the physical components that comprise Prolog.
`(Id. at ¶ 71; Ex. A to SAC at §§ 2-4.) Meridian alleges that
`since the physical components of the program were not destroyed
`or returned, defendants wrongfully possessed such items. (Id.)
`The Federal Rules of Civil Procedure provide for broad
`notice pleading. Fed. R. Civ. Proc. 8(a)(2). The inquiry is
`whether the allegations in the complaint give defendants
`sufficient notice of the claims against them and the factual
`basis for such claims. Conley v. Gibson, 355 U.S. 41, 48 (1957).
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 7 of 11
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`Drawing all reasonable inferences and viewing the complaint in
`the light most favorable to the plaintiff, Meridian adequately
`pleads conversion of physical disks, help files, and other
`supporting documentation and materials comprising Prolog and
`protected by the terms and conditions of the EULA. (SAC at ¶¶ 70-
`71; Ex. A to SAC at §§ 2-4.) The Second Amended Complaint
`provides sufficient notice to defendants of Meridian’s claim for
`the conversion of tangible property. If defendants breached the
`EULA, they unlawfully retained possession of the disks, files,
`and other documents that comprise Prolog.
`Therefore, defendants’ motion to dismiss the conversion
`claim with respect to tangible property is DENIED.
`2. Conversion of Intangible Intellectual Property
` Meridian also bases its claim for relief upon the
`conversion of “concepts, logic, processes, features, and
`functions of Prolog to the extent not covered by its copyrights.”
`(SAC ¶ 71.) The sole protection for works that fall within the
`general subject matter of copyright is an action for copyright
`infringement. 17 U.S.C. § 301. The Copyright Act protects
`“works of authorship that are fixed in a tangible medium of
`expression.” Id. Computer programs, including software, are
`also accorded copyright protection under the Act. Id. at § 101;
`Johnson Controls, Inc. v. Phoenix Control Sys., 886 F.2d 1173,
`1175 (9th Cir. 1989).
`Plaintiff argues that those elements of expression within a
`copyrighted work that are not protected by copyright, do not fall
`within the “general subject matter of copyright” and that
`therefore, a claim of conversion as to such elements is not
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 8 of 11
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`preempted by the Act. The Ninth Circuit has not ruled on whether
`those elements of a copyrighted work that are unprotected by
`copyright laws fall within the general subject matter of
`copyright. However, most circuits that have addressed the issue
`have held that the “scope of the Copyright Act's subject matter
`is broader than the scope of the Act's protections.” Wrench LLC
`v. Taco Bell Corp., 256 F.3d 446, 455 (6th Cir. 2001) (citing
`Nat’l Basketball Assn. v. Motorola Inc., 105 F.3d 841, 849-50 (2d
`Cir. 1997); United States v. Berge, 104 F.3d 1453, 1463 (4th Cir.
`1997); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1452-53 (7th Cir.
`1996); see also Firoozye v. Earthlink Network, 153 F.Supp. 2d
`1115, 1124 (N.D. Cal. 2001); but see Dunlap v. G&L Holding Group,
`Inc., 381 F.3d 1285, 1295 (11th Cir. 2004) (holding that ideas,
`the expression of which have merged with the idea, are not within
`the general scope of copyright for the purposes of complete
`preemption of a state law conversion claim).
`In ProCD, the Seventh Circuit held that a computer program
`containing a searchable database of telephone directories was
`“within the subject matter of copyright” even though the data in
`the program copied by the defendant was not “sufficiently
`original to be copyrighted.” Id. at 1453. The court reasoned
`that the purpose of copyright preemption is to prevent states
`from giving works of authorship protection beyond those
`protections granted by the Copyright Act. Id. The court noted
`that one of the functions of copyright preemption is to prevent
`states from giving protection to “works of authorship that
`Congress has decided should be in the public domain.” Id. The
`Seventh Circuit found that this goal can only be accomplished if
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 9 of 11
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`the general subject matter of copyright is interpreted broadly.
`Id. The court finds the Seventh Circuit’s rationale compelling.
`Further, the Northern District of California recently
`addressed the issue in a similar case involving a claim of
`conversion of intellectual property in software. In Firoozye,
`the court found that those noncopyrightable elements that are
`part of a copyrighted computer software program fall within the
`general subject matter of copyright because the subject matter of
`copyright is broader than the scope of copyright protection.
`Firoozye, 153 F.Supp. 2d at 1124-25. The court then went on to
`address whether the plaintiff’s conversion claims were equivalent
`to the rights protected by copyright. Id. at 1125. The court
`noted that, although a claim for the conversion of tangible
`property adds the extra element of “wrongful possession”
`sufficient to bring a conversion claim outside the scope of
`copyright preemption, conversion claims with respect to
`intellectual property arise from the reproduction, copying and
`misuse of a work. Id. at 1130 quoting Dielsi v. Falk, 916
`F.Supp. 985, 992 (C.D. Cal. 1996) (holding that a claim for the
`conversion of intangible intellectual property is “part and
`parcel” of a copyright claim). The court held that such rights
`are “clearly equivalent to [those of] a copyright claim.” Id.
`The court agrees with the analysis of the Northern District
`in Firoozye. Those elements of Prolog that are not copyrightable
`fall within the general subject matter of copyright. Meridian’s
`claim arising out defendants’ alleged conversion of intellectual
`property also seeks to enforce rights equivalent to those
`asserted in the copyright claim. Plaintiff alleges that
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 10 of 11
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`defendants wrongfully reproduced aspects of Prolog into CMIC
`projects, the essence of a claim for copyright infringement.
`Therefore, to the extent that plaintiff alleges the conversion of
`otherwise noncopyrightable intellectual property contained within
`Prolog, the claim is preempted by the Copyright Act.2
`Because a claim for the conversion of unprotected intangible
`elements of Prolog falls within the general subject matter of
`plaintiff’s copyright, and because such a claim protects rights
`equivalent to those protected by Meridian’s copyright
`infringement claim, defendants’ motion to dismiss plaintiff’s
`conversion claim with respect to intangible intellectual property
`is GRANTED.
`/////
`/////
`/////
`/////
`/////
`/////
`/////
`/////
`/////
`/////
`/////
`
`Plaintiff relies on Kremen v. Cohen to argue that
`2
`intangible property is protected by conversion. 337 F.3d 1024
`(9th Cir. 2003). However, Kremen is not applicable to the issue
`at hand. In Kremen, the court held that an internet domain name
`was a form of intangible property protected by California’s
`conversion laws. Id. at 1035. Kremen did not involve a work
`protected by copyright or raise the question of copyright
`preemption.
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`Case 2:04-cv-02728-FCD-DAD Document 169 Filed 04/21/06 Page 11 of 11
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`CONCLUSION
`For the foregoing reasons, defendants’ motion to dismiss
`Meridian’s ninth claim for conversion is GRANTED in part and
`DENIED in part. To the extent that plaintiff’s conversion claim
`alleges the conversion of tangible property the claim is not
`preempted, and defendant’s motion to dismiss is denied. To the
`extent that plaintiff’s conversion claim alleges conversion of
`unprotected, intangible intellectual property, the claim is
`preempted by the Copyright Act, and defendants motion to dismiss
`is granted.
`IT IS SO ORDERED.
`DATED: April 21, 2006
`
`/s/ Frank C. Damrell Jr.
`FRANK C. DAMRELL, Jr.
`UNITED STATES DISTRICT JUDGE
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