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)

Computer Fraud and Abuse Act claim dismissed where plaintiff failed to adequately plead loss or damage

Cost of investigating scope of information loss was not a “damage assessment” as contemplated by the CFAA.

BrokenlaptopPlaintiff sued defendant (a former employee) under the Computer Fraud and Abuse Act (“CFAA”) alleging that defendant intentionally and without authorization accessed plaintiff’s computers, intranet, and email system and sent plaintiff’s confidential customer information to his personal email account. Defendant allegedly used this information when he went to work for a competitor. Plaintiff also alleged that defendant attempted to conceal his actions by deleting the outgoing messages from the work email account.

Defendant moved to dismiss for failure to state a claim. The court granted the motion as to the CFAA claim.

The court found that plaintiff did not (and could not) claim defendant’s conduct caused “damage” within the meaning of the CFAA, because plaintiff did not allege any data were lost or impaired.

On the question of “loss” under the CFAA, the court found that plaintiff failed to allege any facts connecting its purported loss to an interruption of service, loss of data, or even a suspected loss of service or data. Although plaintiff attributed certain losses to “damage assessment and mitigation,” the court found it clear from the complaint that plaintiff’s “damage assessment” efforts were aimed at determining the scope of information defendant emailed to himself and disclosed to his new employer. Plaintiff did not allege it ever lost access to any of the information contained in defendant’s emails, notwithstanding defendant’s attempt to conceal his conduct by deleting the emails.

The court observed:

To be sure, assessing the extent of information illegally copied by an employee is a prudent business decision. But the cost of such an investigation is not “reasonably incurred in responding to an alleged CFAA offense,” because the disclosure of trade secrets, unlike destruction of data, is not a CFAA offense.

Accordingly, in this situation, the costs of investigating defendant’s conduct were not “losses” compensable under the CFAA.

SBS Worldwide, Inc. v. Potts, 2014 WL 499001 (N.D.Ill. February 7, 2014)

Co-founder liable for sending company’s social media followers to new competing company’s Facebook page

2261434057_87ddea278a_zThe owners of an LLC successfully published a magazine for several years, but the business declined and the company eventually filed bankruptcy. While the bankruptcy proceedings were still underway, one of the owners started up a new magazine publishing the same subject matter. He essentially took over the old company’s website to promote the new magazine. And he posted to the LLC’s Facebook page on three separate occasions, “reminding” those who liked the page to instead like his new company’s Facebook page.

The bankruptcy trustee began an adversary proceeding against the owner asserting, among other things, breach of fiduciary duty, unfair trade practices, and copyright infringement. The bankruptcy court held a trial on these claims and found the owner liable.

On the breach of fiduciary duty claim, the court equated the “reminding” of Facebook users to visit and like the new company’s Facebook page was equivalent to using the company’s confidential information. Similarly, as for the unfair trade practices claim (under the Louisiana Unfair Trade Practices Act), the court found that social media is “an important marketing tool,” and held that “taking away followers of [the old company] and diverting them to [the Facebook page of the new company]” was an unfair trade practice.

On the copyright infringement claim, the court found that the images and articles on the website belonged to the old company under the work made for hire doctrine and that the owner had not obtained consent nor paid compensation for their use in connection with the new enterprise.

In re Thundervision, L.L.C., 2014 WL 468224 (Bkrtcy.E.D.La. February 5, 2014)

Photo credit: Flickr user 1lenore under this Creative Commons license.

Police department did not violate First Amendment by demoting officer who posted Confederate flag on Facebook

Case illustrates the “frequent gamble” one makes when posting on social media.

When you hear about Georgia, the name Duke, dealing with the cops, and the Confederate flag, you think Hazzard County, right? Or better yet, Daisy Duke. This case had a number of those elements, but presented a much more serious free speech question than Bo or Luke could have ever done.

dukesPlaintiff (named Duke), a captain at Georgia’s Clayton State University police department, posted a picture of the Confederate flag to his Facebook account with the caption “It’s time for the second revolution.” He was not on duty when he posted it, nor did he intend it to be visible by everyone (just friends and family). He claimed that he wanted to “express his general dissatisfaction with Washington politicians.” At the time, the police department had no social media policy that would have prevented the post.

The chief of police demoted plaintiff and cut his pay by $15,000, stating that the Facebook post was inappropriate for someone in plaintiff’s position, and that officers should not espouse political views in public.

Plaintiff sued the police chief alleging, among other things, that his demotion over the Facebook post was a retaliation that violated his First Amendment rights. Defendant moved to dismiss. The court granted the motion.

It held that the police department’s legitimate interest in efficient public service outweighed plaintiff’s interest in speaking. The determination on this issue depended heavily on the content of the communication, and the fact that defendant was a police officer.

While the court acknowledged that plaintiff intended to express his disapproval of Washington politicians, it found that “on its face his speech could convey a drastically different message with different implications.” The court noted that order and favorable public perception were critical. “[A] police department is a ‘paramilitary organization, with a need to secure discipline, mutual respect, trust and particular efficiency among the ranks due to its status as a quasi-military entity different from other public employers.’” And police departments have a particular interest in maintaining “a favorable reputation with the public.” In sum, the court found, the speech at issue was capable of impeding the government’s ability to perform its duties efficiently.

The fact that the post was made off-duty and just to friends and family did not dissuade the court from finding the demotion to be proper. A local television station picked up the story that plaintiff had made the post. The court noted that “this illustrates the very gamble individuals take in posting content on the Internet and the frequent lack of control one has over its further dissemination.”

Duke v. Hamil, 2014 WL 414222 (N.D.Ga. February 4, 2014)

Must a service provider remove all content a repeat infringer uploaded to qualify for the DMCA safe harbor?

459px-Enjoy_Don't_DestroyDoes an online service provider forfeit the safe harbor protections of the Digital Millennium Copyright Act if, when terminating the account of a repeat infringer, it does not delete all content the repeat infringer uploaded — infringing and noninfringing alike? A recent decision involving the antique internet technology Usenet sheds light on an answer.

Active copyright plaintiff Perfect 10 sued Usenet provider Giganews for direct and secondary liability for hosting allegedly infringing materials on the Giganews servers. Giganews asserted the safe harbor of the DMCA (17 U.S.C. 512) as an affirmative defense. Perfect 10 moved for summary judgment on whether the safe harbor applied – it argued that the safe harbor did not apply, Giganews argued that it did. The court denied Perfect 10’s motion.

Perfect 10 asserted that Giganews had not reasonably implemented a policy to terminate the accounts of repeat infringers as required by 17 U.S.C. 512 (i)(1)(A). One of the arguments Perfect 10 made was that Giganews did not reasonably implement its repeat infringer policy because Giganews terminated the accounts of the infringers but did not also delete all the content the infringers had uploaded.

The court was not persuaded that § 512(i)(1)(A) requires a service provider to disable or delete all content a repeat infringer has ever posted. The plain language of the statute requires “termination … of subscribers and account holders,” not the deletion of content. And because a requirement of taking down all content, not just infringing content, would serve no infringement-preventing purpose, the court held that there was no justification for reading such a requirement into the statute.

Perfect 10, Inc. v. Giganews, Inc., — F.Supp.2d —, 2014 WL 323655 (C.D.Cal. January 29, 2014)

Another court puts an end to a social media discovery fishing expedition

480px-Old_photo_of_woman_holding_a_fisherman_caught_fishPlaintiff sued a construction company and certain municipal authorities for negligence and loss of parental consortium after her toddler son was seriously injured in front of a construction site. Defendants sought broad discovery from plaintiff’s Facebook account, to which plaintiff objected in part. But the trial court required plaintiff to answer the discovery. So plaintiff sought review with the appellate court. On appeal, the court overturned the trial court.

It held that defendants’ discovery requests were overbroad and compelled the production of personal information that was not relevant to plaintiff’s claims.

Defendants had sought copies of postings on plaintiff’s Facebook account dealing with:

  • Any counseling or psychological care obtained by plaintiff before or after the accident
  • Relationships with [her injured son] or her other children, both prior to, and following, the accident
  • Relationships with all of plaintiff’s children, “boyfriends, husbands, and/or significant others,” both prior to, and following the accident
  • Mental health, stress complaints, alcohol use or other substance use, both prior to and after, the accident
  • Any lawsuits filed after the accident by plaintiff

The court observed that one of the defendants’ arguments to the trial court essentially conceded it was on a fishing expedition. The attorney stated, “These are all things that we would like to look under the hood, so to speak, and figure out whether that’s even a theory worth exploring.” And the magistrate judge in the trial court (though ordering the discovery to be had) acknowledged that “95 percent, or 99 percent of this may not be relevant,” and expressed some misgivings at the possibility that large amounts of material might have to be reviewed in camera.

Finding that the trial court order departed “from the essential requirements of the law” because it was overbroad and required the production of irrelevant personal information, the court quashed the discovery requests.

Root v. Balfour Beatty Const. LLC, — So.3d —, 2014 WL 444005 (Fla.App. 2 Dist. February 5, 2014)

Injunction against blogger violated the First Amendment

Prohibiting former tenant from blogging about landlord was unconstitutional prior restraint against speech.

800px-Taize-SilenceDefendants wrote several blog posts critical of their former commercial landlord. The landlord sued for defamation and tortious interference, and sought an injunction against defendants’ blogging. The trial court granted the injunction, determining that defendants had “blogged extensively about [plaintiffs] and many of these blogs [were] arguably defamatory.” Although the court noted that a trial on the defamation claims was yet to be held, it ordered defendants “not to enter defamatory blogs in the future.”

Defendants sought review with the Court of Appeal of Florida. On appeal, the court reversed and remanded.

It held that injunctive relief was not available to prohibit the making of defamatory or libelous statements. “A temporary injunction directed to speech is a classic example of prior restraint on speech triggering First Amendment concerns.” But the court noted a limited exception to the general rule where the defamatory words are made in the furtherance of the commission of another intentional tort.

In this case, plaintiffs alleged another intentional tort – intentional interference with advantageous business relationships. But the court found that plaintiffs failed to present sufficient evidence to show they were entitled to an injunction for that claim. The trial court record failed to support an inference that the defendants’ blog posts had a deleterious effect upon defendants’ prospective business relationships.

Chevaldina v. R.K./FL Management, Inc., — So.3d —, 2014 WL 443977 (Fla.App. 3 Dist. February 5, 2014)

Image credit: By Maik Meid (Own work) [CC-BY-SA-3.0], via Wikimedia Commons

No copyright protection for two word phrase

quipIn a final pretrial order, plaintiff stated that “to this day [defendant] persists in using [plaintiff's] copyrighted ‘usurpassed performance’ language on its packages.” Defendant filed a motion in limine (a motion to exclude evidence) to preclude plaintiff from introducing evidence or putting on testimony that would infer or suggest the phrase “unsurpassed performance” has been registered as a copyright.

The court granted the motion.

Under the Copyright Act, “[w]ords and short phrases such as names, titles, and slogans” are not subject to copyright. 37 C.F.R. § 202.1(a). The court looked to a number of cases in which short phrases had been denied copyright protection. For example, other courts had held that “Where Words Come Alive,” “Earth Protector,” “Chipper,” and “Retail Plus” were not copyrightable material.

One wonders whether plaintiff was really trying to assert some form of unfair competition or trademark infringement. The notion is worth entertaining for but a brief moment, till one realizes that laudatory phrases such as “unsurpassed performance” find no protection under trademark law either.

Predator International, Inc. v. Gamo Outdoor USA, Inc., 2014 WL 321069 (D.Colo. January 29, 2014)

No copyright liability against founder of competing company for overseeing development of infringing website

oversightAfter defendant left plaintiff’s employment to co-found a competing company, plaintiff sued defendant personally for copyright infringement based on the new company’s website’s resemblance to plaintiff’s website. The infringement theory was interesting – plaintiff alleged that defendant did not commit the infringement himself, but that he was secondarily liable for playing a significant role in the direct infringement by the new company’s employees.

Defendant moved to dismiss the copyright infringement claim. The court granted the motion.

There are two types of secondary copyright infringement liability: contributory liability and vicarious liability. A defendant is a contributory infringer if it (1) has knowledge of a third party’s infringing activity, and (2) induces, causes, or materially contributes to the infringing conduct. See Perfect 10, Inc. v. Visa Int’l Service Ass’n, 494 F.3d 788, 795 (9th Cir.2007) (quoting Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir.2004)). In the context of copyright law, vicarious liability extends beyond an employer/employee relationship to cases in which a defendant has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities. A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1022 (9th Cir.2011) (quoting Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 262 (9th Cir.1996)).

In this case, the court held that plaintiff had not alleged enough detail to state a claim of secondary liability against defendant. Instead, the complaint simply recited the elements of contributory and vicarious liability. Specifically, plaintiffs failed to allege:

  • That defendant was uniquely in possession of the original material on plaintiff’s website, but rather plaintiffs alleged that the material was publically available on the website for anyone to read and copy.
  • How defendant, as a non-employee (but founder) of the new company, was personally responsible for the content of the new company’s website. (Interestingly, the court held it was not sufficient to allege that defendant was a founder of the new company. Although plaintiffs alleged some factual details about what was actually copied from plaintiff’s website, they alleged no factual details as to defendant’s personal involvement in the infringement.)
  • Facts that suggested that defendant induced the new company to infringe plaintiff’s website.
  • Facts that suggested that defendant had the right to control and supervise the new company’s employees who were involved in the alleged infringement.

Plaintiff’s attempts to impose secondary liability were (if they had worked) a clever method for accomplishing the same objective as piercing the corporate veil. Granular control by the individual founder could be equated with the “alter ego” aspect of the veil-piercing analysis. The absence of such specific control by the individual defendant, however, left the possibility of liability only with the company.

BioD, LLC v. Amnio Technology, LLC, 2014 WL 268644 (D.Ariz. January 24, 2014)