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In MCS Services, the court explained, "the general rule is that matters involving breach of contract claims are not preempted because a breach of contract claim requires an `extra element' that renders the claim qualitatively different from a claim for copyright infringement: a promise by the defendant."
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CIVIL ACTION NO. 01-4430.
August 13, 2002
MEMORANDUM ORDER
Plaintiff MCS Services, Inc. ("MCS") brought this action against Defendants Raleigh Johnsen ("Johnsen") and Rivercross, Inc. ("Rivercross") alleging breach of contract and tortious interference with prospective business and contractual relations arising out of a dispute over the development of a computer program. Currently before the Court is Plaintiff, MCS's Motion to Remand Pursuant to 28 U.S.C. § 1447(c) (the "Motion to Remand," Docket No. 6). For the following reasons, the Motion to Remand will be denied.
I. STATEMENT OF FACTS
MCS is a Pennsylvania corporation that provides billing services and technical support to medical offices and medical supply facilities with its principal place of business in Philadelphia, Pennsylvania. Compl. ¶¶ 1-2. Defendant Johnsen is an individual with an individual address and principal place of business in Downingtown, Pennsylvania. Id. ¶ 3. Johnsen works as a computer programmer engaged in the business of designing computer systems and software for third parties. Id. ¶ 4. Defendant Rivercross, a computer company owned and operated by Johnsen, is a Pennsylvania corporation with its principal place of business located in Downingtown, Pennsylvania. Id. ¶¶ 5-6.
MCS owns and licenses a Frame Inventory System which permits ophthalmologists, optometrists and opticians to track and maintain their eyeglass and lens inventory. Id. ¶ 10. MCS alleges that, on March 23, 2000, it entered into an agreement with Johnsen and/or Rivercross under which Defendants were hired by MCS to develop a computer system and software, which later became known as the Retail Inventory Optical System ("RIOS" or the "RIOS Project"), to replace the Frame Inventory System in exchange for $15,000, payable in three (3) equal installments. Id. ¶¶ 11-12, 14. MCS alleges that the terms and conditions of the initial contract were set forth in a self-described "Letter of Understanding" dated March 23, 2000 from MCS to Johnsen. See Id. ¶ 12; Ex. A. Upon completion and sale/licensing of the product by MCS, MCS and Johnsen agreed that Defendants would receive royalties of no less than twenty percent of the software selling price for each installation. Id. ¶ 13. The Letter of Understanding makes no mention of copyright ownership, but does state that MCS intended to "distribute ownership based upon participation and capital" and that Defendants' ownership would not be less than twenty percent. Id. Ex. A at 2. Pursuant to this agreement, MCS agreed to provide Defendants with systems design and analysis information, as well as support from systems experts. Id. ¶ 15. It is unclear from the record whether this information and any experts were provided by MCS for Defendants' use. MCS also agreed to pay any expenses incurred by Defendants while they were developing the RIOS Project. Id. ¶ 16.
On December 5, 2000, the parties renegotiated some of the terms of the March 23, 2000 contract. Id. ¶ 17. The renegotiated terms were set forth in an agreement drafted in the form of a memorandum dated December 5, 2000 and signed by Johnsen on December 6, 2000 and by James Capone, an officer of MCS, on December 7, 2000 (the "December 5, 2000 Agreement"). See Id. ¶¶ 17-18; Ex. B. In it, MCS agreed to pay Defendants an additional $2,500. Id. ¶ 18. In pertinent part the December 5, 2000 Agreement states:
The plan, as outlined to me by Len Moeller and I assume, approved by Jim Capone, is to install the software at the Bustleton office of Soll Eye Associates and a stand alone entity, to debug its functionality and to complete the process of MCS' taking possession of the RIOS software. I completely agree with this program. The assumption is to have a base system Release 1.0 of RIOS that will be the basis of a product that can be marketed by MCS as per the original agreement of March 23, 2002. The ultimate goal will be to form a company that will fund, promote, refine and market the product.
Id. Ex. B at 1. Pursuant to the terms of the December 5, 2000 Agreement, MCS paid Defendants an additional $2,500 on December 11, 2000. Id. ¶ 21.
In February or March 2001, MCS discovered that Defendants had no intention of turning over to MCS the RIOS Project source code, which is the technical code for the program and, MCS contends, the proprietary aspect of the product. Id. ¶ 22. MCS alleges that Defendants, without the knowledge of MCS, filed to obtain a copyright for the RIOS Project and that Defendants are now asserting that they have a 100 percent ownership interest in the RIOS software and are offering to sell/license copies to MCS. Id. ¶¶ 23-24. To date, MCS has paid Defendants $12,500 for the services of Defendants. Id. ¶ 26. Defendants have refused to turn over the RIOS source code to MCS and have sold, marketed and/or licensed the RIOS software to several of MCS's customers and clients including, but not limited to, Eye Physicians and Surgeons, Milauskis Eye Institute and Starrer-Rizzo. Id. ¶¶ 27-28.
II. NATURE AND STAGE OF PROCEEDINGS
Plaintiff filed its complaint in the Court of Common Pleas of Philadelphia County, Pennsylvania on August 6, 2001 (the "Complaint"). Count I of the Complaint alleges that Defendants breached their contract with MCS. MCS contends that, pursuant to the parties' agreements, Defendants were to create RIOS and provide it, in its entirety, to MCS and that a separate company was to be formed by the parties to own and market RIOS. Compl. ¶¶ 30, 31. Plaintiff seeks damages not in excess of $50,000 including, but not limited to, reimbursement of $12,500 and $6,824.88 which has already been paid to Defendants, together with the costs of suit, counsel fees and any other such relief the Court deems just and applicable. Count II of the Complaint alleges Defendants' conduct constitutes tortious interference with prospective business and contractual relations. MCS contends Defendants copyrighted RIOS under their own name and sold RIOS to MCS's prospective customers, which had been introduced to Defendants by MCS, for Defendants' benefit. Id. ¶¶ 41, 42. Plaintiff seeks damages not in excess of $50,000 including, but not limited to, lost profits, royalties and licensing fees from the sale and/or licensing of the RIOS software system, together with the cost of the suit, counsel fees and any other relief such that the Court determines is just and applicable.
Defendants filed a timely Notice of Removal (the "Notice of Removal," Docket No. 1) with this Court on August 29, 2001 pursuant to 28 U.S.C. §§ 1331, 1338(a), 1441(a) and 1441(b). The asserted grounds for removal are that the claims alleged by MCS arise out of the Copyright Laws of the United States, 17 U.S.C. § 101 et seq. (the "Copyright Act"), and, therefore, federal district courts have original and exclusive jurisdiction under 28 U.S.C. § 1338(a).
Defendants answered the Complaint on September 17, 2001 (the "Counterclaims," Docket No. 4), asserting certain affirmative defenses and advancing various counterclaims. Count I of Defendants' Counterclaims seeks a declaration that the copyright in the RIOS program is owned by Rivercross, that it was properly copyrighted by Rivercross and that the copyright registration is good and valid in law. Count II of the Counterclaims alleges that Plaintiff breached their contract with Rivercross by refusing to accept delivery of the RIOS Project and by failing to make efforts to market it. Defendants seek damages of approximately $200,000 for lost time and effort in writing the program, or, in the alternative, for the approximately $200,000 of work turned away to write the program. Defendants also seek an unliquidated amount for the loss of the twenty percent royalty on each of the programs that would have been sold had MCS not breached the contract. Defendants further seek relief for unpaid invoices in the amount of $3,050 and the final $5,000 payment which MCS was to pay Rivercross under the Letter of Understanding dated March 23, 2000.
Plaintiff filed the instant Motion to Remand for lack of subject-matter jurisdiction arguing that the case must be resolved on state contract and tort theories over which the federal court does not have jurisdiction. In support of its Motion to Remand, MCS submitted a Memorandum of Law in Support of Plaintiff's Motion to Remand to State Court (the "Memorandum") and Plaintiff's Reply Brief in Support of the Motion to Remand to State Court (the "Reply Brief," Docket No. 11). Plaintiff argues that this case does not involve copyright issues or the ownership of the RIOS copyright, but that the case involves Defendants' performance under their contract with Plaintiff. Reply Brief at 1-2. In fact, Plaintiff says it "is not necessarily claiming that the RIOS software should have been copyrighted in the name of MCS." Id. at 2. In opposition to the Motion to Remand, Defendants submitted Defendants' Opposition to Plaintiff's Motion to Remand to State Court (the "Opposition," Docket No. 7). Defendants contend that the state law claims are preempted by the Copyright Act and that the dispute revolves around who is the true and rightful owner of the copyright rights to the RIOS Project, a matter which is governed by the Copyright Act. Opposition at 4, 7.
III. STANDARD
A case removed to federal court may be remanded to state court "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction. . . ." 28 U.S.C. § 1447(c). When faced with a motion to remand, "the burden of establishing removal jurisdiction rests with the defendant."Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 359 (3d Cir.) (citing Abels v. State Farm Fire Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985), cert. denied, 516 U.S. 1009 (1995). A case is not properly removed unless the case might have been brought in federal court under the court's original jurisdiction. Township of Whitehall v. Allentown Auto Auction, 966 F. Supp. 385, 386 (E.D. Pa. 1997) (citing Oklahoma Tax Comm'n v. Graham, 489 U.S. 838 (1989). See also 28 U.S.C. § 1441(a) ("Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending."). The removal statutes "`are to be strictly construed against removal and all doubts should be resolved in favor of remand.'" Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990) (quoting Steel Valley Auth. v. Union Switch and Signal Div., 809 F.2d 1006, 1010 (3d Cir. 1987)). "Generally speaking, the nature of plaintiffs' claim must be evaluated, and the propriety of remand decided on the basis of the record as it stands at the time the petition for removal is filed."Westmoreland Hospital Ass'n v. Blue Cross of W. Pa., 605 F.2d 119, 123 (3d Cir. 1979). See also 16 James Wm. Moore, et al.,Moore's Federal Practice § 107.41[1][e][ii] (3d ed. 2002) ("In general, when ruling on a motion to remand, the court looks to the plaintiff's complaint, as it is stated at the time of removal, and the defendant's notice of removal."). This means that a defendant may not seek removal based on a federal question alleged in defendant's counterclaim. See Township of Whitehall, 966 F. Supp. at 386 ("A case may not be removed on the basis of a defendant's counterclaims with federal claims . . . .") (citingGully v. First Nat'l Bank, 299 U.S. 109 (1936)); 16 James Wm. Moore, et al., supra, § 107.14[3][a][vi]. Cf. Caterpillar Inc. v. Williams, 482 U.S. 386, 399 (1987) (holding that defendant's defense could not be used as the basis for federal subject-matter jurisdiction saying, "[A] defendant cannot, merely by injecting a federal question into an action that asserts what is plainly a state-law claim, transform the action into one arising under federal law, thereby selecting the forum in which the claim shall be litigated.").
Defendants contend that this case is properly removed because the state law causes of action are preempted by the Copyright Act and federal district courts have exclusive jurisdiction over such cases. Opposition at 4. "The presence or absence of federal-question jurisdiction is governed by the `well-pleaded complaint rule,' which provides that federal jurisdiction exits only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar Inc., 482 U.S. 386, 392 (1987). A federal court determines whether a case is one "arising under" federal law based on "what necessarily appears in the plaintiff's statement of his own claim in the [complaint], unaided by anything alleged in anticipation or avoidance of defenses. . . ." Franchise Tax Board v. Laborers Vacation Trust, 463 U.S. 1, 10 (1983).
"The Supreme Court has recognized an exception to the well-pleaded complaint rule — the `complete preemption' exception — under which `Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character.'" Dukes, 57 F.3d at 359 (quoting Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987)). "On occasion, the Court has concluded that the pre-emptive force of a statute is so `extraordinary' that it `converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.'" Caterpillar Inc., 482 U.S. at 393 (quotingMetropolitan Life Ins. Co., 481 U.S. at 65). Under that scenario, "`a state cause of action [that] is `really' a federal cause of action . . . may be removed to `federal court if the federal cause of action completely preempts . . . [the] state cause of action.'" Russo v. Abington Memorial Hospital, 881 F. Supp. 177, 179 (E.D. Pa. 1995) (quoting Goepel v. Nat'l Postal Mail Handlers Union, 36 F.3d 306, 310 (3d Cir. 1994) (quoting Franchise Tax Bd., 463 U.S. at 24)). Therefore, the plaintiff "may avoid federal jurisdiction by foregoing a potential federal claim and relying exclusively on state law, unless the state claims are completely preempted." 16 James Wm. Moore, et al., supra § 107.14[3][a][iii].
IV. ANALYSIS
Defendants in this case allege there is federal-question jurisdiction because the state law causes of action are preempted by the Copyright Act and, therefore, arise under the copyright laws of the United States. Opposition at 4. Jurisdiction of the federal courts related to copyrights is governed by Title 28, Section 1338, which states, in pertinent part, "The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to . . . copyrights. . . . Such jurisdiction shall be exclusive of the courts of the states in . . . copyright cases." 28 U.S.C. § 1338(a) ("Section 1338).
"It is well-established that not every complaint that refers to the Copyright Act `arises under' that law for purposes of Section 1338(a)." Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343, 347 (2d Cir. 2000) (citing T.B. Harms Co. v. Eliscu, 339 F.2d 823, 824 (2d Cir. 1964) (Friendly, J.)). Because the Complaint, which alleges breach of contract and tortious interference with prospective business and contractual relations, does not state a federal cause of action on its face, removal is only appropriate if a "disputed question of federal law is a necessary element of one of the well-pleaded state claims, or that one or the other claim is `really' one of federal law." Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 13 (1983).
A. Plaintiff's Complaint is Preempted by the Copyright Act and thus Removable.
Since the Complaint does not state a federal cause of action on its face, we consider whether any of the state law claims fall into the complete preemption exception to the well-pleaded complaint rule. "The Supreme Court has recognized three ways in which federal law may preempt, and thereby displace, state law: (1) `express preemption,' (2) `field preemption' (which is also sometimes referred to as `implied preemption'), or (3) `conflict preemption.'" Orson. Inc. v. Miramax Film Corp., 189 F.3d 377, 381 (3d Cir. 1999). "Express preemption arises when there is an explicit statutory command that state law be displaced," and the "Copyright Act contains an express preemption provision in § 301." Id. at 381, 382.
Section 301 of the Copyright Act provides that "all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103 . . . are governed exclusively by this title." 17 U.S.C. § 301(a) ("Section 301"). State laws and claims based on state laws, "whether statutory or common law, are subject to express preemption under Copyright Act § 301 only if they create rights that are `equivalent' to the exclusive rights within the general scope of copyright." Orson, Inc., 189 F.3d at 382. Courts of this district have adopted the test announced in Harper Row Publishers, Inc. v. Nation Enterprises, 723 F.2d 195, 200 (2d Cir. 1983), rev'd on other grounds, 771 U.S. 539 (1985) to analyze copyright preemption issues. See, e.g., Pytka v. Van Allen, Civ. A. No. 92-1610, 1992 WL 129632, at *3, n. 6 (Hutton, J.) (E.D. Pa. June 8, 1992). Under the two-part test, courts must first determine whether the work is the appropriate subject matter of a copyright and then whether the state law creates rights equivalent to the exclusive rights protected by the Copyright Act. Harper Row Publishers, Inc., 723 F.2d at 200.
The "exclusive rights in copyrighted works" granted to the owner of a copyright are set forth in 17 U.S.C. § 106, which states:
Subject to sections 107 through 121, the owner of copyright under this title has the exclusive rights to do and authorize any of the following:
(1) to reproduce the copyrighted work in copies or phonorecords;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motions pictures and other audiovisual works, to perform the copyrighted work publicly;
(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and
(6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.17 U.S.C. § 106 ("Section 106").
The RIOS Project is of the appropriate subject matter, and the parties do not dispute that it is copyrightable material. See Whelan Assoc., Inc. v. Jaslow Dental Lab., Inc., 797 F.2d 1222, 1233 (3d Cir. 1986) ("It is well, though recently, established that copyright protection extends to a program's source and object codes."); Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1248 (3d Cir. 1983) ("We considered the issue of copyright protection for a computer program in Williams Electronics, Inc. v. Arctic International, Inc. and concluded that the `copyrightability of computer programs is firmly established after the 1980 amendment to the Copyright Act.") (quoting 685 F.2d 870, 875 (3d Cir. 1982)).
1. Breach of Contract
The breach of contract action brought by Plaintiff is not preempted by Section 301 of the Copyright Act. Although the law regarding whether breach of contract actions involving copyrights are preempted by Section 301 is, to say the least, "unsettled,"Ballas v. Tedesco, 41 F. Supp. 2d 531, 536 (D.N.J. 1999), the general rule is that matters involving breach of contract claims are not preempted because "`a breach of contract claim requires an `extra element' that renders the claim qualitatively different from a claim for copyright infringement: a promise by the defendant.'" Expediters Int'l of Wash., Inc. v. Direct Line Cargo Mgmt. Services, Inc., 995 F. Supp. 468, 483 (D.N.J. 1998) (quoting Architectronics, Inc. v. Control Systems, Inc., 935 F. Supp. 425, 439 (S.D.N.Y. 1996)). See also Video Pipeline, Inc. v. Buena Vista Home Entm't, Inc., ___ F. Supp. 2d ___, Civ. A. No. 00-5236(JBS), 2002 WL 1729518, at *13 (Simandle, J.) (D.N.J. July 26, 2002) (concluding that "alleged promises" under a licensing agreement "amount to more than promises to refrain from reproducing, performing, distributing or displaying the works at issue . . . which would render them under the purview of copyright law, as they in part obligate plaintiff to return tangible property of [the defendant]. This right is separate and distinct from defendant['s] . . . exclusive rights granted to it under . . . the Copyright Act."); 1 Melville B. Nimmer David Nimmer, Nimmer on Copyrights § 1.01[B][1][a] (2002) ("Without a promise there is no contract, while a promise on the part of one who engages in unlicenced reproduction or distribution is not required in order to constitute him a copyright infringer.").
The Third Circuit Court of Appeals has yet to examine the issue, but several district courts have looked at this question and concluded that "if a cause of action contains an `extra element' that qualitatively distinguishes it and its underlying rights from those addressed by the Copyright Act, the cause of action is not preempted." Technology Based Solutions, Inc. v. Electronics College, Inc., 168 F. Supp. 2d 375, 380 n. 3 (E.D. Pa. 2001) (indicating that "the allegations of misappropriation, unfair competition and unjust enrichment are functionally equivalent to a copyright infringement claim," unlike the allegation that plaintiffs breached a contract); Pytka, 1992 WL 129632, at *4 ("Where the contracts grant rights in the parties other than those granted by the copyright laws, the contract claims are not equivalent to the copyright claims). See also Nat'l Car Rental Sys., Inc. v. Computer Assoc. Int'l, Inc., 991 F.2d 426, 431 (8th Cir.) (concluding that restrictions in contracts "constitute an extra element in addition to the copyright rights making this cause of action [breach of contract] qualitatively different from an action for copyright."), cert. denied, 510 U.S. 861 (1993). Clearly, not all contract actions are free from preemption under Section 301. Only those contract actions which seek to enforce rights not equivalent to those protected by the Copyright Act will avoid preemption. See Ballas 41 F. Supp. 2d at 536 n. 14. See also Nat'l Car Rental Sys., Inc., 991 F.2d at 434 n. 6 (holding that because the specific contract right at issue was not equivalent to any of the rights under the Copyright Act it was not preempted, not that no breach of contract claim could ever be preempted by Section 301).
The numerous courts that have addressed the issue of contracts and preemption have found that the rights protected by breach of contract claims are not the same as copyright rights. See Operating Sys. Support, Inc. v. Wang Labs., Inc., Civ. A. No. 98-2138(DRD), 2001 WL 1602106, at *10 (Debevoise, J.) (D.N.J. Apr. 23, 2001) (citing ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); Nat'l Car Rental Sys., Inc. v. Computer Assoc. Int'l, Inc., 991 F.2d 426, 434 n. 6 (8th Cir.), cert. denied, 510 U.S. 861 (1993); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488 (5th Cir. 1990)); Expediters Int'l of Wash., Inc. v. Direct Line Cargo Mgmt, Services, Inc. 995 F. Supp. 468, 483 (D.N.J. 1998) (citing the same cases).
In the instant case, Plaintiff seeks protection under rights of assignment agreed to in an alleged contract. Plaintiff will, therefore, have to prove the existence of a contract or promise in order to prevail at trial, adding elements not at issue under the Copyright Act and thus protecting the claim from possible preemption. Ownership of a copyright and/or assignment of rights under the Copyright Act without more is not an issue where federal subject-matter jurisdiction is proper. See New Marshall Engine Co. v. Marshall Engine Co., 223 U.S. 473 (1912) (holding that a case regarding the assignment of a patent not the validity or construction of the patent, nor any claim of infringement, was properly within the subject-matter jurisdiction of the state court); T.B. Harms Co. v. Eliscu, 339 F.2d 823, 827 (2d Cir. 1964) ("The relevant statutes create no explicit right of action to enforce or rescind assignments of copyrights, nor does any copyright statute specify a cause of action to fix the locus of ownership."); Rotardier v. Entertainment Company Music Group, 518 F. Supp. 919, 921 (S.D.N.Y. 1981) (arguing that a "dispute over title to a copyright arising from an alleged breach of contract" is "dependent upon principles of common law and equity, not the federal copyright laws."). Generally, "the federal grant of a patent or copyright has not been thought to infuse with any national interest a dispute as to ownership or contractual enforcement turning on the facts or on ordinary principles of contract law." T.B. Harms Co., 339 F.2d at 826. We, therefore, conclude that MCS's claim for breach of contract is not preempted by the Copyright Act.
2. Tortious Interference with Prospective Business and Contractual Relations
The same analysis is required for Plaintiff's claim of tortious interference with prospective business and contractual relations. In contrast to a breach of contract claim, a claim of tortious interference with prospective business and contractual relations is more likely to be preempted because interference claims more often involve the same elements as copyright infringement. See Harper Row Publishers, Inc., 723 F.2d at 201 (discussing the equivalency between a claim of tortious interference and rights under the Copyright Act); 1 Melville B. Nimmer David Nimmer,supra, § 1.01[B][1][a] ("Insofar as unauthorized reproduction, distribution, performance or display causes the plaintiff to lose the benefits that would flow from an actual or prospective contract whereby plaintiff would authorize any such acts, the rights created by the tort of contract interference do not appear to differ qualitatively from rights under copyright. . . ."). Indeed, numerous courts have found that tortious interference is generally preempted by the Copyright Act. See, e.g., Tingley Systems, Inc. V. CSC Consulting, Inc., 152 F. Supp. 2d 95, 111 (D. Mass. 2001) (finding that "[o]ther courts . . . find tortious interference of contract claims preempted under analogous reasoning."); FASA Corp. v. Playmates Toys, Inc., 869 F. Supp. 1334, 1359 (N.D. Ill. 1994) (collecting eight cases for the principle that courts generally conclude that "state law claims for tortious interference with contract (or prospective advantage) are preempted. . . .").
Tortious interference with business and contractual relations, whether existing or prospective, has four elements:
(1) [T]he existence of a contractual, or prospective contractual relation between the complainant and a third party; (2) purposeful action on the part of the defendant, specifically intended to harm the existing relation, or to prevent a prospective relation from occurring; (3) the absence of privilege or justification on the part of the defendant; and (4) the occasioning of actual legal damage as a result of the defendant's conduct.Crivelli v. General Motors Corp., 215 F.3d 386, 394 (3d Cir. 2000) (citing Strickland v. Univ. of Scranton, 700 A.2d 979, 985 (Pa.Sup.Ct. 1997)). The fact that Plaintiff pleads "additional elements of awareness and intentional interference, not part of a copyright infringement claim, goes merely to the scope of the right; it does not establish qualitatively different conduct on the part of the infringing party, nor a fundamental nonequivalence between the state and federal rights implicated."Harper Row Publishers, Inc, 723 F.2d at 201.
Here, Plaintiff's tortious interference claim is preempted by the Copyright Act. To determine whether a state law claim is qualitatively different from a claim made under the Copyright Act, "courts generally examine both the elements of the state law cause of action and the way the plaintiff has actually pled that cause of action." Sturdza v. United Arab Emirates, 281 F.3d 1287, 1304 (D.C. Cir. 2002). Essentially, Plaintiff is alleging that Defendants distributed copies of RIOS without Plaintiff's authorization in violation of the Copyright Act. Distribution is an exclusive right that is protected under the Copyright Act. 17 U.S.C. § 106. Courts have typically found tortious interference claims involving distribution to be preempted by the Copyright Act. See Quadro Enterprises, Inc. v. Avery Dennison Corp., Civ. A. No. 97-5402, 1999 WL 759488, at *9 (Pallmeyer, J.) (N.D. Ill. Sept. 8, 1999) (concluding that "the tort of interference with prospective economic advantage is preempted to the extent that it is equivalent to Section 106's grant to copyright owners the exclusive right to distribute their copyrighted work."); Titan Sports, Inc. v. Turner Broadcasting Systems, Inc., 981 F. Supp. 65, 74 (D. Conn. 1997) (holding that "Plaintiff's tortious interference claim emerges from the unauthorized reproduction, distribution, performance, etc." is preempted); Long v. Quality Computers and Applications, Inc., 860 F. Supp. 191, 196-97 (M.D. Pa. 1994) (finding that the tortious interference claim alleging defendants improperly sold the product at issue was equivalent to a copyright infringement claim). Plaintiff alleges that Defendants, the current copyright holder of RIOS, provided copies of RIOS to companies known to Defendants as prospective customers of Plaintiff in violation of the contract between MCS and Defendants anticipating the establishment of a joint company to market RIOS exclusively. Compl. ¶ 31. Although Plaintiff couches the claim in language that appears to limit the allegation of tortious interference to the harm resulting from the distribution to a finite sphere of identifiable customers known to Defendants as prospective customers of MCS and the violation of the asserted contract, at its core the claim involves distribution. Id. ¶¶ 37-42.
We also find telling that the remedies sought by Plaintiff for its tort claim are remedies available under the Copyright Act for violation of its protected rights. See Compl. ¶ 44 (seeking damages in the form of "lost license fees, lost royalties and lost profits from the ownership and anticipated sale of RIOS software. . . .").
We believe it is worth explanation that Plaintiff could have chosen to plead tortious interference in a manner that would have avoided preemption by not implicating one of the exclusive rights under the Copyright Act, for example, by alleging that Defendants refused to turn over the RIOS source code, thus preventing Plaintiff from entering into new contracts.See Natkin v. Winfrey, 111 F. Supp. 2d 1003, 1014 (N.D. Ill. 2000) (holding that plaintiffs' claim of tortious interference was not preempted because plaintiffs alleged that defendants refused to provide the photographic negatives which plaintiffs needed to negotiate a book deal and that this allegation extends beyond rights under the Copyright Act); Cassway v. Chelsea Historic Properties I, L.P., Civ. A. No. 92-4124, 1993 WL 64633, at *5 (Bechtle, C.J.) (E.D. Pa. Mar. 4, 1993) (concluding that the act of seeking to retain plaintiff's consultants without paying plaintiff its fees due under the contract, not the act of copying, gave rise to the tortious interference claim, hence the rights at issue were not equivalent to rights under the Copyright Act and the claim was not preempted). Instead, Plaintiff has based their claim of tortious interference on Defendants' distribution of RIOS, an exclusive right protected under the Copyright Act, making the tortious interference claim equivalent to a claim of copyright infringement.
For these reasons, Plaintiff's claim of tortious interference with prospective business and contractual relations is preempted. "[S]tate law claims that are completely preempted by § 301(a) of the Copyright Act may be converted into federal claims."Technology Based Solutions, Inc., 168 F. Supp. 2d at 379. Moreover, federal district courts have exclusive jurisdiction over civil actions arising under the Copyright Act. 28 U.S.C. § 1338(a). Under the circumstances, Plaintiff's claim will be converted into a claim under the Copyright Act, removal is appropriate, and the Motion to Remand is denied. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 66-67 (1987) (holding that when state law cases are completely preempted by federal law removal jurisdiction is appropriate); Information Handling Services, Inc. v. LRP Publications, Inc., Civ. A. No. 00-1859, 2000 WL 433998 (Fullam, J.) (E.D. Pa. Apr. 18, 2000) (holding that removal was appropriate once the court decided that two of plaintiff's four claims were completely preempted by the Copyright Act).
B. Costs and Fees will not be Awarded.
Both parties have asked the Court for the cost of the suit, counsel fees and any other relief such that the Court determines is just and applicable. Although we have denied the Motion to Remand, in our view it would be inappropriate to award either party costs and fees. The request for costs and fees is therefore denied.
V. CONCLUSION
Based upon the foregoing, the Motion to Remand is denied. Removal is appropriate because the claim of tortious interference with prospective business and contractual relations is preempted by the Copyright Act, bringing the case under the exclusive jurisdiction of the federal district courts pursuant to 28 U.S.C. § 1338(a). No costs and/or attorney's fees will be awarded to either party.
An appropriate Order follows.
ORDER
AND NOW, this 13th day of August 2002, upon consideration of Plaintiff, MCS Services, Inc.'s Motion to Remand Pursuant to 28 U.S.C. § 1447(c) (the "Motion to Remand," Docket No. 6) and all papers filed in support thereof or in opposition thereto, it is ORDERED that the Motion to Remand is DENIED.