Court examines conversion claim in breach of EULA case

Plaintiff Meridian Project Systems, Inc., a purveyor of construction project management software, was peeved to see that a couple of its licensees collaborated to reverse engineer Meridian’s flagship software product. Meridian filed suit, alleging numerous claims, including conversion. It claimed that the defendants converted both tangible property relating to the licensed software, as well as “concepts, logic, processes, features and functions of [the software] to the extent not covered by its copyrights.”

The defendants moved to dismiss, alleging that Meridian had failed to state a claim upon which relief could be granted. Furthermore, the defendants argued that the claim of conversion of the intangible aspects of the software was preempted by the Copyright Act. The court denied the motion in part, and granted it in part.

The court held that Meridian adequately alleged conversion of the physical components of the software. The End User License Agreement (“EULA”) provided that upon any violation of the agreement, the licensees were to either destroy or return the software’s physical components. In this case, Meridian sufficiently alleged a breach of the agreement, namely, the act of reverse engineering the software. Because the defendants did not thereupon return the “disks, files, and other documents,” such items were “unlawfully retained.” These allegations supported a claim of conversion.

There could be no conversion, however, of the intangible aspects of the software. The court held that the elements which Meridian claimed were converted fell within the general subject matter of copyright, even though they were not actually entitled to copyright protection. Meridian’s claim arising out of the alleged conversion was one seeking to assert rights equivalent to a claim for copyright infringement. Accordingly, this portion of the conversion claim was preempted by the Copyright Act.

Meridian Project Systems, Inc. v. Hardin Construction Co., (Slip Op.) 2006 WL 1062070 (E.D. Cal., April 21, 2006).