IN THE DISTRICT COURT OF THE UNITED STATES
`FOR THE WESTERN DISTRICT OF NORTH CAROLINA
` CHARLOTTE DIVISION
`
`CIVIL CASE NO. 3:05cv423
`
`))
`
`))
`
`FOREST2MARKET, INC.,
`
`Plaintiff,
`
`O R D E R
`
`vs.
`
`)
`)
`AMERICAN FOREST MANAGEMENT, )
`INC., FOREST RESOURCE
`)
`CONSULTANTS, INC., F & W
`)
`FORESTRY SERVICES, INC. and
`)
`PETERS FOREST RESOURCES, INC., )
`)
`)
`Defendants.
` )
`
`THIS MATTER is before the Court on the Defendants' Motion to
`
`Dismiss [Doc.22] and the Defendants' Objections [Doc.44] to the
`
`Memorandum and Recommendation [Doc.42] of Magistrate Judge David
`
`Keesler as to said Motion. Pursuant to 28 U.S.C. § 636(b) and the
`
`standing Orders of Designation of this Court, the Court referred the
`
`Defendants' Motion to Dismiss [Doc.22] to the Magistrate Judge for a
`
`recommendation as to its disposition. Having conducted a de novo review
`
`of those portions of the recommendation to which specific objections were
`
`filed, and for the reasons set forth below, the Court hereby adopts the
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 1 of 15
`
`
`FOR THE WESTERN DISTRICT OF NORTH CAROLINA
` CHARLOTTE DIVISION
`
`CIVIL CASE NO. 3:05cv423
`
`))
`
`))
`
`FOREST2MARKET, INC.,
`
`Plaintiff,
`
`O R D E R
`
`vs.
`
`)
`)
`AMERICAN FOREST MANAGEMENT, )
`INC., FOREST RESOURCE
`)
`CONSULTANTS, INC., F & W
`)
`FORESTRY SERVICES, INC. and
`)
`PETERS FOREST RESOURCES, INC., )
`)
`)
`Defendants.
` )
`
`THIS MATTER is before the Court on the Defendants' Motion to
`
`Dismiss [Doc.22] and the Defendants' Objections [Doc.44] to the
`
`Memorandum and Recommendation [Doc.42] of Magistrate Judge David
`
`Keesler as to said Motion. Pursuant to 28 U.S.C. § 636(b) and the
`
`standing Orders of Designation of this Court, the Court referred the
`
`Defendants' Motion to Dismiss [Doc.22] to the Magistrate Judge for a
`
`recommendation as to its disposition. Having conducted a de novo review
`
`of those portions of the recommendation to which specific objections were
`
`filed, and for the reasons set forth below, the Court hereby adopts the
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 1 of 15
`
`
`
`Magistrate Judge's Memorandum and Recommendation. [Doc.42].
`
`Accordingly, the Defendants' Motion to Dismiss [Doc.22] will be DENIED.
`
`PROCEDURAL HISTORY AND ALLEGATIONS OF THE COMPLAINT
`
`On October 5, 2005, the Defendants removed this matter from the
`
`North Carolina Superior Court for Mecklenburg County where the Plaintiff
`
`had initiated its action on September 2, 2005. [Doc. 1]. Defendants, all of
`
`whom consented to the removal, alleged both diversity and federal
`
`question jurisdiction. [Id.].
`
`In the Complaint, Forest2Market, Inc. alleges that it developed an
`
`interactive internet website for use in the forest and wood products
`
`industries. [Doc. 20 at ¶8]. The site was developed by outside consultants
`
`as well as computer technicians which are employed by the Plaintiff. [Id.].
`
`Companies pay a yearly membership fee for access to the website. [Id., at
`
`¶10]. In essence, Forest2Market developed a means for providing “real
`
`time” information about timber prices, sales and availability in the
`
`southeast, Arkansas, Oklahoma and Texas. [Id., at ¶11]. Any potential
`
`customer or member of the website must acknowledge, agree and accept
`
`the terms of conditions for use of the site. [Id., at ¶13]. Among those
`
`2
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 2 of 15
`
`
`
`conditions is acceptance of a license agreement which provides in
`
`pertinent part:
`
`access to and all use of the Forest2Market.com database and other
`services available on the site and all data provided thereby is subject
`to the terms and conditions set forward in this agreement. By
`clicking the accept button and accessing these services, you and all
`persons in your organization (“user”) agree to abide by the following
`terms and conditions.
`
`...
`[Services and information] may not be published, redistributed or
`disseminated either in whole or in part outside of user’s organization
`without the prior written approval of Forest2Market. A registered
`user is permitted to store, reformat, print and display the services and
`information only for its personal use and may not otherwise copy,
`modify, adapt, publish, retransmit, redistribute, lend, sell, sublicense
`or otherwise use or transfer the services and information. Users may
`not modify, reverse engineer, disassemble or create any derivative
`work based on the services and information or any portion thereof.
`
`...
`[A]ll proprietary rights (including but not limited to any trademarks
`and trade secrets) in services and information are and shall remain
`the sole and exclusive property of Forest2Market[.] ... User expressly
`agrees and acknowledges that the services and information ...
`constitute the valuable intellectual property of Forest2Market[.] User
`agrees to protect the trademarks, copyrights, trade secrets and other
`proprietary rights of Forest2Market[.]
`
`[Id., at ¶15-17] (emphasis provided).
`
`Each of the Defendants entered into this license agreement with the
`
`Plaintiff. [Id., at ¶19-22]. After having been Forest2Market customers, the
`
`Defendants joined forces to purchase TimberMarketReport.com and
`
`3
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 3 of 15
`
`
`
`redesigned that website to emulate that of the Plaintiff, providing the same
`
`services and information as the Plaintiff. [Id., at ¶24]. That site is “identical
`
`in its look, feel, use, formation and services” to that of the Plaintiff. [Id.].
`
`In its Complaint, the Plaintiff alleged that each of the Defendants
`
`breached the license agreement by the formation of this new website
`
`because, in violation of the terms of that license agreement, the
`
`Defendants used the same “services and information” which had been
`
`provided during their membership with the Plaintiff. [Id., at ¶26-30]. As a
`
`second claim, the Plaintiff alleged that the Defendants violated that portion
`
`of the license agreement in which each agreed “to protect the trademarks,
`
`copyright, trade secrets and other proprietary rights of Forest2Market[.]”
`
`[Id., at ¶33]. The Defendants, it is alleged, misappropriated trade secret
`
`information from the Forest2Market website which they then used for their
`
`own advantage by the formation of their own website. [Id., at ¶34]. The
`
`third cause of action alleges unfair and deceptive trade practices because
`
`the Defendants, while acting under the guise of being Plaintiff’s customers,
`
`stole proprietary information to use for its own website. [Id., at¶38]. As an
`
`alternative claim, the Plaintiff sought relief for unjust enrichment in the
`
`event that no valid contract exists. [Id., at ¶42]. Again, it is alleged that the
`
`4
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 4 of 15
`
`
`
`Defendants used deception to gain access to the information and services
`
`provided in order to form their own competing business. [Id.].
`
`The Defendants moved to dismiss pursuant to Federal Rule of Civil
`
`Procedure 12(b)(6), claiming that the state law claims are preempted by
`
`federal copyright law. [Doc. 23]. Defendants also argue that since each
`1
`
`claim is preempted by copyright law, the Plaintiff lacks standing to bring a
`
`lawsuit for copyright infringement because it has not alleged that it owns a
`
`certificate or registration for copyright. 2
`
`The Magistrate Judge concluded that Plaintiff had adequately alleged
`
`that the “services and information” offered on Plaintiff’s website do not fall
`
`within the subject matter of copyright law, the state law claims are not
`
`preempted by federal copyright law, and since the Plaintiff has not
`
`In their motion, the Defendants referred extensively to matters outside the
`1
`Complaint. The Magistrate Judge appropriately excluded those matters from
`consideration rather than convert the motion to one for summary judgment.
`Fed.R.Civ.P. 12(d) (“If, on a motion under Rule 12(b)(6) ..., matters outside the
`pleadings are presented to and not excluded by the court, the motion must be treated
`as one for summary judgment under Rule 56.”). Likewise, the Court herein excludes
`such matters from consideration. The issue before the Court on the Defendants'
`pending motion is whether the Plaintiff in the Complaint has stated a claim upon which
`relief can be granted, not whether the Defendants can present a forecast of evidence to
`defeat such claim.
`
` In making this argument the Defendants argue, in substance, that the Plaintiff's
`2
`claim must be brought as a copyright claim (because of preemption), but Plaintiff's
`claim cannot be brought as a copyright claim (for failure of registration), and therefore
`the Plaintiff has no claim. The Plaintiff has not asserted a claim for copyright
`infringement in the Amended Complaint.
`
`5
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 5 of 15
`
`
`
`asserted a claim for copyright infringement, that Plaintiff's failure to register
`
`a copyright did not bar Plaintiff's standing to bring this claim. The
`
`Magistrate Judge therefore recommended that the Motion to Dismiss be
`
`denied. The Defendants have objected.
`
`STANDARD OF REVIEW
`
`A district court reviews specific objections to a Memorandum and
`
`Recommendation under a de novo standard. 28 U.S.C. §636(b). "Parties
`
`filing objections must specifically identify those findings objected to.
`
`Frivolous, conclusive or general objections need not be considered by the
`
`district court." Battle v. United States Parole Commission, 834 F.2d 419,
`
`421 (5th Cir.1987), overruled on other grounds Douglass v. United Ervs.
`
`Auto. Ass’n, 79 F.3d 1415 (5 Cir. 1996). To the extent that a party
`th
`
`asserts claims in the objections which were not asserted in support of or in
`
`opposition to the motion, de novo review is not warranted. Price v. Dixon,
`
`961 F.Supp. 894 (E.D.N.C. 1997)(claims cannot be raised for the first time
`
`in objections to a memorandum and recommendation); Wells v. Shriners
`
`Hospital, 109 F.3d 198, 200 (4th Cir. 1997)(boilerplate objections will not
`
`avoid the consequences of failing to object altogether). This Court
`
`6
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 6 of 15
`
`
`
`therefore does not conduct a de novo review of those portions of the
`
`Memorandum and Recommendation to which non-specific objections have
`
`been filed.
`
`DISCUSSION
`
`The Defendants’ have not objected to the Magistrate’s statement of
`
`the applicable law which is briefly reiterated.
`
`The Copyright Act, 17 U.S.C. §301(a), preempts state law claims if
`
`two requirements are met. Rosciszewski v. Arete Associates, Inc., 1 F.3d
`
`225, 229 (4 Cir. 1993) (citations omitted). First, the work must fall within
`th
`
`the “subject matter of copyright as specified in 17 U.S.C. §§102 , 103" of
`3
`4
`
`the Act. Id. Second, if the work falls within that subject matter, “the rights
`
`granted under state law [must be] equivalent to any exclusive rights”
`
`granted by copyright law. “The work in question need not actually be
`
`copyrighted to come within the subject matter of the Act.” Innovative
`
`§102 provides copyright protection for original works of authorship, including
`3
`literary, musical, dramatic, pantomime, choreographic, pictorial, graphic, sculptural,
`motion pictures and other audiovisual works; sound recordings and architectural works.
`17 U.S.C. §102(a). It does not provide such protection to ideas, processes, systems, or
`methods of operation. 17 U.S.C. §102(b).
`
`4
`
`§103 relates to derivative work.
`
`7
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 7 of 15
`
`
`
`Medical Products, Inc. v. Felmet, 472 F.Supp.2d 678, 683 (M.D.N.C.
`
`2006).
`
`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.” In order to ascertain
`whether a specific state cause of action involves a right equivalent to
`one of those identified in §106, reference must be made to the
`elements of the state cause of action. State-law claims that infringe
`one of the exclusive rights contained in §106 are preempted by
`§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.’”
`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 cause of action, ... there is no
`preemption,’” provided that “the ‘extra element’ changes the ‘nature
`of the action so that it is qualitatively different from a copyright
`infringement claim.’”
`
`Rosciszewski, 1 F.3d at 229-230 (emphasis in original) (citations omitted).
`
`Where a “work” falls within the subject matter of copyright law, the
`
`Copyright Act provides that no action for infringement may be brought until
`
`the copyright has been registered. 17 U.S.C. §411. A copyright owner,
`
`however, may not escape the preemptive effect of the Copyright Act by
`
`merely failing to register its copyright. Trandes Corp. v. Guy F. Atkinson
`
`Co., 996 F.2d 655, 658 (4 Cir. 1993), certiorari denied 510 U.S. 965, 114
`th
`
`S.Ct. 443, 126 L.Ed.2d 377 (1993). In this case it is undisputed that the
`
`8
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 8 of 15
`
`
`
`Plaintiff has not registered a copyright in connection with its computer
`
`program, the website or the services and information offered thereon.
`
`The Defendants raise three objections to the Memorandum and
`
`Recommendation. The first is a technical objection to a characterization
`
`made therein by the Magistrate Judge. The Magistrate noted:
`
`Defendant asserts that Plaintiff’s claims are preempted by the
`Copyright Act, specifically 17 U.S.C. §301, and that even if Plaintiff
`“had properly couched its Amended Complaint in terms of copyright
`infringement” that the case should be dismissed because Plaintiff
`lacks standing to maintain an infringement action in federal court
`because it has not registered a copyright claim pursuant to 17
`U.S.C.A. §411(a).
`
`Plaintiff has never stated a claim for copyright infringement or
`acknowledged that the “services and information” its website
`provides are copyrightable.
`
`...
`[I]t is undisputed that Plaintiff has neither applied for nor received, a
`copyright protecting the services or information provided by the
`Forest2Market.com website.
`
`[Doc. 42, supra., at 4-5, 8] (emphasis provided).
`
`Based on a narrow reading of the italicized quote, the Defendants
`
`object, claiming that it is
`
`clear that Judge Keesler is confusing copyright existence with
`copyright registration. Copyright exists automatically upon the
`creation and fixation of an original work of authorship in a tangible
`medium. ... Plaintiff’s program and website were copyrights as soon
`as they were created. While Plaintiff must apply for a copyright
`
`9
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 9 of 15
`
`
`
`registration on a copyrighted work to having standing to bring a
`copyright claim, whether Plaintiff has applied for or received a
`copyright registration is irrelevant to the applicability of the exclusive
`rights granted in Section 106 of the Copyright Act. The exclusive
`rights granted in Section 106 of the Copyright Act are granted to
`owners of all copyrighted works, not just registered works.
`
`[Doc. 44, at 2] (emphasis in original).
`
`In making this objection the Defendant are narrowly reading one
`
`sentence which they have taken out of the context of the Magistrate
`
`Judge's opinion as a whole. The Magistrate Judge acknowledged the
`
`Plaintiff’s position that its services and information do not fall within the
`
`subject matter of copyright, whereupon Plaintiff did not seek registration.
`
`When one corrects the semantic error in this one sentence of the
`
`Memorandum and Recommendation wherein “copyright” and “copyright
`
`registration” are confused, it remains clear that the Magistrate Judge
`5
`
`correctly applied the applicable law. This objection is rejected.
`
`Defendants' second and third objections pertain to the Magistrate
`
`Judge's conclusions regarding the two prongs of the preemption analysis
`
`under Rosciszewski. The Magistrate Judge held that neither prong was
`
` This is the same semantic error found in the quote from Innovative Medical
`5
`Products, Inc. v. Felmet, 472 F.Supp.2d at, 683 found supra at p.7. There, just as in
`the Memorandum and Recommendation herein, it made no difference as to the proper
`application of the law.
`
`10
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 10 of 15
`
`
`
`met, and thus the Plaintiff's claims were not preempted by the Copyright
`
`Act. Since both prongs of the test must be met in order for a state law
`
`claim to be preempted, the failure of either of these objections must
`
`necessarily result in the Defendants' objections being overruled and
`
`Defendants' motion being denied.
`
`As stated above, a state law claim is not preempted if such claim
`
`includes an "extra element" that makes it qualitatively different from a
`
`copyright infringement claim. Rosciszewski, 1 F.3d at 229-230. The
`
`Magistrate Judge concluded that each claim asserted by the Plaintiff has
`
`such an extra element and thus was not preempted. Defendants have not
`
`actually objected to this conclusion. They only object to the Magistrate’s
`
`statement that the Defendants failed to explain which of the Plaintiff’s
`
`claims were the equivalent of a copyright claim.
`
`In fact, Defendants went through the Amended Complaint, paragraph
`by paragraph and quoted the language that sounded in copyright.
`Plaintiff’s Amended Complaint is literally mired [sic] in the language
`of copyright.
`
`[Doc. 44 at 5].
`
`Assuming arguendo that the Defendants did as so noted, they do not
`
`object to the Magistrate’s conclusion that the state law claims for breach of
`
`contract, misappropriation of trade secrets and unfair trade practices
`
`11
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 11 of 15
`
`
`
`contain an extra element worthy of removal from preemption. A review of
`
`the case law shows that this conclusion in the Memorandum and
`
`Recommendation is correct. See, e.g., Altera Corp. v. Clear Logic, Inc.,
`
`424 F.3d 1079, 1989 (9 Cir. 2005) (“Most courts have held that the
`th
`
`Copyright Act does not preempt the enforcement of contractual rights.”),
`
`citing, Bowers v. Baystate Techs., Inc., 320 F.3d 1317, 1323-24 (Fed.Cir.
`
`2003), certiorari denied 539 U.S. 928, 123 S.Ct. 2588, 156 L.Ed.2d 606
`
`(2003); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7 Cir. 1996); Wrench
`th
`
`LLC v. Taco Bell Corp., 256 F.3d 446, 457 (6 Cir. 2001), certiorari denied
`th
`
`534 U.S. 1114, 122 S.Ct. 921, 151 L.Ed.2d 885 (2002); Taquino v.
`
`Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5 Cir. 1990); and Acorn
`th
`
`Structures v. Swantz, 846 F.2d 923, 926 (4 Cir. 1988) (“Plaintiff’s claim for
`th
`
`breach of contract entails a distinct cause of action which is clearly not
`
`within the subject matter of copyright but arises out of the implicit
`
`contractual provisions of the design agreement.”); accord, Davidson &
`
`Associate v. Jung, 422 F.3d 630 (8 Cir. 2005) (computer software
`th
`
`designer’s state law claims for breach of end user license agreement and
`
`terms thereof not preempted; users were free to contractually waive
`
`reverse engineering rights); Dun & Bradstreet Software Services, Inc. v.
`
`12
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 12 of 15
`
`
`
`Grace, 307 F.3d 197 (3 Cir. 2002), certiorari denied 538 U.S. 1032, 123
`rd
`
`S.Ct. 2075, 155 L.Ed.2d 1061 (2003) (misappropriation of trade secrets
`
`claim not preempted by Copyright Act where deception or breach of
`
`confidentiality involved), citing Gates Rubber Co. v. Bando Chem. Indus., 9
`
`F.3d 823, 847-48 (10 Cir. 1993); accord, Cambridge Literary Properties,
`th
`
`Ltd. v. W. Goebel Porzellanfabrik G.m.b.H. & Co., KG., 510 F.3d 77 (1st
`
`Cir. 2007); Stromback v. New Line Cinema, 384 F.3d 283 (6 Cir. 2004);
`th
`
`Trandes Corp., 996 F.2d at 660; Innovative Medical Products, Inc., v.
`
`Felmet, 472 F.Supp.2d 678, 683 (M.D.N.C. 2006) (claim alleging breach of
`
`confidential relationship or deception stated unfair and deceptive trade
`
`practices claim which is not preempted by copyright); Chicago Bd. Options
`
`Exchange, Inc. v. International Securities Exchange, 2007 WL 604984 **5
`
`(N.D.Ill. 2007) (claims for misappropriation and unfair competition not
`
`preempted). Because the state law claim for breach of contract remains
`
`viable, it is unnecessary to address the claim for unjust enrichment at this
`
`point. Acorn Structures, 846 F.2d at 927 (“We, however, find no occasion
`
`to resolve this matter here because at best [unjust enrichment] is only an
`
`alternative ground of action to that breach of contract which we have
`
`sustained.”).
`
`13
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 13 of 15
`
`
`
`Since it has been concluded that each of the claims asserted by
`
`Plaintiff are not preempted by the Copyright Act because they overcome
`
`the second element of the preemption analysis, there is no need for the
`
`Court to address the Defendants' objections to the Magistrate Judge's
`
`conclusion as to the first element. The Magistrate Judge concluded that
`
`the "services and information" contained within Plaintiff's website are not
`
`copyrightable, and thus the Plaintiff's claims are not preempted for that
`
`reason as well. Defendant objected to this conclusion. The analysis,
`
`however, of whether the Plaintiff's work in the website, including the
`
`software, the information and services provided therein and the website
`
`itself are copyrightable involves a fact intensive review that is inappropriate
`
`in the context of a motion under Rule 12(b)(6). Since it has already been
`
`determined that the claims Plaintiff alleges in its Complaint are not
`
`preempted, the Court will not endeavor to conduct such review, particularly
`
`at the pleading stage.
`
`Accordingly, IT IS, THEREFORE, ORDERED that the Magistrate
`
`Judge's Memorandum and Recommendation [Doc. 42] filed October 9,
`
`2007 is hereby ADOPTED, and the Defendants' Objections thereto [Doc.
`
`44] are OVERRULED.
`
`14
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 14 of 15
`
`
`
`IT IS FURTHER ORDERED that the Defendants' Motion to Dismiss
`
`[Doc. 22] is DENIED.
`
` Signed: April 21, 2008
`
`15
`
`Case 3:05-cv-00423-MR-DCK Document 49 Filed 04/21/08 Page 15 of 15
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