Unjust enrichment claim over unauthorized use of software was not preempted by the Copyright Act

preemptionThe Copyright Act is a federal law, and is drafted to “preempt” state laws that purport to give individuals rights that are “equivalent” to rights granted under the Copyright Act. The purpose of this preemption is to displace the effect of any equivalent state law, so that the federal framework gets to deal exclusively with copyright.

So when a plaintiff goes to court suing for copyright infringement and also adds a state law claim against the defendant based on the same underlying facts, defendants routinely move to dismiss that state law claim as preempted by the Copyright Act.

That is what happened in a recent case involving a plaintiff software developer who filed a copyright infringement case against a company for whom he had done some work. He added an “unjust enrichment” claim based on state law, which defendants moved to dismiss. But the court denied the motion, holding that in this situation, the unjust enrichment claim was not dealing with rights that were equivalent under the Copyright Act.

Plaintiff’s unjust enrichment claim was based on the fact that he had not been paid any money for the development work he provided to defendants. In other words, he delivered the copyrighted software, which defendants used without paying him. Sounds a lot like copyright infringement, doesn’t it? Or, more precisely, it sounds like the rights he was claiming were equivalent to those provided under the Copyright Act.

But the court held otherwise, namely, that plaintiff had pled an “extra element” that rendered his unjust enrichment claim to not be equivalent to rights under the Copyright Act.

The court drew an important distinction within the doctrine of unjust enrichment, between “implied-in-law” (quasi-) contracts, and “implied in fact” contracts. An implied-in-fact contract claim passes the threshold of having an “extra element” that defeats a preemption challenge, while an implied-in-law contract does not.

An implied-in-law contract is a “fictional” contract created by a court for equitable, not contractual, purposes. It is not an actual contract, but is a legal substitute formed to impose equity between two parties. An implied-in-fact contract, on the other hand, is indeed a contract that is agreed to by non-verbal conduct, rather than explicit words.

Infringement is the unauthorized use of a work, and a court applying an implied-in-law contract would simply be stepping in to remedy an injustice of that infringement. That is why an unjust enrichment claim based on an implied-in-law contract would be preempted. But the implied-in-fact contract has more to it – actual conduct (a factual reality) that is more than just the conduct of the infringement that took place. That is why an implied-in-fact contract claim of unjust enrichment passes the no-preemption test.

(Compare this to the 2010 case of Christen v. Iparadigms that dealt with Turnitin.com.)

Mahavisno v. Compendia Bioscience, Inc., 2014 WL 340369 (E.D.Mich. January 30, 2014)