TEGG Corporation v. Beckstrom Electric Co., et al.

The district court granted in part and denied in part the motion of defendant Beckstrom Electric Co. and granted the motion of defendant Extensia Technologies, dismissing plaintiff’s state law claims for tortious interference, civil conspiracy, and conversion as preempted under section 301 of the Copyright Act.

Plaintiff TEGG Corporation asserted copyright infringement, tortious interference, and civil conspiracy claims against both defendants, as well as breach of contract against defendant Beckstrom and conversion against defendant Extensia. TEGG is a software developer who entered into a franchise agreement with Beckstrom in 2002. After supplying Beckstrom with its TEGGTask 5 and TEGGTask 6 applications, TEGG agreed to end its licensing arrangement with Beckstrom in 2005. After agreeing to discontinue use of and return all copies of TEGG’s confidential and proprietary material, Beckstrom is alleged to have given Extensia access to TEGG’s software. TEGG has further alleged that Extensia marketed unauthorized copies of TEGG’s software, for which TEGG brought an action for copyright infringement and related state law claims against both defendants in 2008. Here, defendants moved to dismiss plaintiff’s state law tortious interference, civil conspiracy, and conversion claims as preempted by the Copyright Act.

The court stated that to show that a state common law or statutory claim is preempted by the Copyright Act, the defendant “must demonstrate that (1) the work in question falls within the type of works protected by the Copyright Act; and (2) the state law seeks to enforce rights that are equivalent to any of the exclusive rights of copyright found in Section 106 of the Copyright Act.” Dun & Bradstreet Software Servs. v. Grace Consulting, Inc., 307 F.3d 197, 216-17 (3d Cir. 2002). As a preliminary matter, the court found that “[p]laintiff’s software easily satisfies the first prong” of the test because it is “well-settled that computer source codes may be protected by copyright.” Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir. 1983). As to the second prong, the court used the “extra element” test, adopted by the Third Circuit in Dun & Bradstreet, to “determine whether a claim is either functionally equivalent to or qualitatively different” from a section 106 exclusive right. Unless the state cause of action “requires proof of an ‘extra element’ beyond reproduction, distribution, display, or preparation of derivative works,” the state cause of action will be found “functionally equivalent” to a section 106 right and preempted by the Copyright Act.

Analyzing Extensia’s argument that plaintiff’s civil conspiracy claims are preempted, the court applied the “extra element” test and found that the civil conspiracy claims are functionally equivalent to claims of contributory infringement. Basing its analysis on the elements of civil conspiracy under Pennsylvania law, the court cited district court opinions from the Second, Fifth, and Fourth Circuits which have found that such a claim only serves to vindicate rights already protected under the Copyright Act. Finding that plaintiff’s claim required no extra element distinct from the contributory infringement claim recognized by the Third Circuit, the court granted Extensia’s motion and dismissed plaintiff’s civil conspiracy claim against it. The court also sua sponte dismissed plaintiff’s conspiracy claim against Beckstrom on preemption grounds, denying as moot Beckstrom’s motion to dismiss plaintiff’s claim for failure to plead actual damages.

Moving next to plaintiff’s tortious interference claims, the court distinguished the facts of this case from those of the Cassway case, wherein the court “held that plaintiff’s tortious interference claim was not preempted by the Copyright Act.” Cassway v. Chelsea Historic Props. I, L.P., 1993 WL 64633 (E.D. Pa. Mar. 4, 1993). The court reasoned that the claim in Cassway was based on a contract right independent of any right enumerated in the Copyright Act. In this case, however, the focus of plaintiff’s tortious interference claim was on the distribution, reproduction, and production of derivative works based on copyrighted materials. As none of these are rights independent of the Copyright Act, no “extra element” exists. For this reason, the court granted defendants’ respective motions to dismiss plaintiffs’ tortious interference claims.

Finally turning to plaintiff’s conversion claim against Extensia, the court distinguished the facts of this case from the “limited situations” in which other district courts in the Third Circuit have found that a conversion claim is not preempted by the Copyright Act. The court found that the cases in which a conversion claim had been held to be not preempted involved defendant’s conversion of a tangible or physical embodiment of the work, like a software key or a manuscript. As this case involved the conversion of an intangible work, the software itself, the “extra element” was again missing. The court found that all of the rights asserted by plaintiff in its conversion claim were governed under the Copyright Act and dismissed the claim as preempted.