Federal Rule of Civil Procedure 12(b)(6) for failure to state a
claim upon which relief can be granted. For the reasons that
follow, Defendants' motion to dismiss is granted in part and
denied in part. (R. 9-1.)
Higher Gear and Auto eDirect develop and sell automobile
dealership computer software. Higher Gear developed the computer
software at issue in this case and licensed it to Rockenbach. On
September 29, 1999, Higher Gear and Rockenbach entered into a
software license agreement whereby Rockenbach agreed to use
Higher Gear's software "only for internal business operations."
(R. 1-1, Compl. ¶ 7.) Rockenbach also agreed not to permit
software use for the benefit of third parties, not to re-license
or sell the software and not to copy or create derivative works
of the software. Id. Higher Gear claims that despite
contractual obligations Vitols allowed Auto eDirect to view,
access and copy Higher Gear's software. Furthermore, Higher Gear
alleges that Auto eDirect developed designs, features, logic and
computer code derived from Higher Gear's software.
On March 15, 2002, Higher Gear filed suit against Rockenbach,
Vitols and Auto eDirect. Higher Gear claims that all three
Defendants violated the Federal Copyright Act (count I) and the
Illinois Trade Secrets Act ("ITSA") (count II). In addition,
Higher Gear sues Rockenbach for breach of contract (count III),
Vitols and Auto eDirect for unfair competition and civil
conspiracy (counts IV and V) and Auto eDirect for tortious
interference with contract relations (count VI). Currently
before this court is Defendants' motion to dismiss counts II
through VI for failure to state a claim upon which relief can be
granted. Defendants argue that Higher Gear's state claims are
preempted by the Federal Copyright Act, 17 U.S.C. § 301(a),
and/or the Illinois Trade Secret Act, 765 ILCS 1065/8.
A motion to dismiss tests the sufficiency of the complaint,
not the merits of the suit. Gibson v. City of Chicago,
910 F.2d 1510, 1520 (7th Cir. 1990). When considering a motion to
dismiss, the Court views all facts alleged in the complaint, as
well as any inferences reasonably drawn from those facts, in the
light most favorable to Plaintiff. Autry v. Northwest Premium
Servs., 144 F.3d 1037, 1039 (7th Cir. 1998). The Court will
also consider facts asserted in Plaintiffs response to the
motion to dismiss as long as they are consistent with the
allegations found in the complaint. See Help at Home, Inc. v.
Med. Capital, L.L.C., 260 F.3d 748, 752-53 (7th Cir. 2001)
(citation and quotation omitted). We will grant a motion to
dismiss only if Plaintiff can prove no set of facts entitling
her to relief. Venture Assocs. Corp. v. Zenith Data Sys.
Corp., 987 F.2d 429, 432 (7th Cir. 1993).
I. Preemption under 17 U.S.C. § 301(a)
Defendants argue that all of Higher Gear's state claims
(counts II through IV) should be dismissed because the
conditions for preemption under 17 U.S.C. § 301(a) have been
satisfied. Plaintiff, on the other hand, contends that its state
claims should not be preempted because they require additional
elements that qualitatively differ from the elements necessary
to prove copyright infringement.
The Federal Copyright Act preempts state causes of actions
that are equivalent to copyright infringement claims.
17 U.S.C. § 301(a). The Seventh Circuit, interpreting § 301(a), developed
a two-prong test to preempt claims. Balt.
Orioles, Inc. v. Major League Baseball Players Ass'n.,
805 F.2d 663, 674 (7th Cir. 1986). First, a court must determine
that the work in which the right is asserted is fixed in
tangible form and comes within the subject matter of copyright.
Id. Second, the rights granted under state law must be
equivalent to the exclusive rights established by federal
copyright law in § 106. Id. A state right is `equivalent' to
the rights established by federal copyright law if it is
violated by the exercise of any of the rights set forth in §
106, which includes the right to reproduce (whether in original
or derivative form), distribute, perform and display the
copyrighted material. Id. at 676-77. Furthermore, a state
right is `equivalent' if it requires additional elements to make
out a cause of action, but the additional elements do not differ
in kind from those necessary for copyright infringement. Id.
It is well established that computer software is fixed in a
tangible medium of expression and within the subject matter of
copyright. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1453
(7th Cir. 1996). The legislative history of the Federal
Copyright Act indicates that computer programs are considered
copyrightable as literary works. See Firoozye v. Earthlink
Network, 153 F. Supp.2d 1115, 1124-25 (N.D.Cal. 2001).
Therefore, the first condition for preemption has been
satisfied. As such, the Court will proceed with a discussion of
whether counts II through VI assert claims that are `equivalent'
to the exclusive rights established by federal copyright law.
Because counts II through VI contain elements that differ from
those necessary to prove a copyright infringement claim, the
Court will determine if the additional elements differ in kind
from those necessary for copyright infringement — i.e.
ownership of a valid copyright and copying of constituent
elements of the work that are original. See Susan Wakeen Doll
Co., Inc., v. Ashton Drake Galleries, 272 F.3d 441, 450 (7th
Cir. 2001). The Court will not preempt the state causes of
action if the additional elements change the nature of the
copyright infringement claim. See Computer Assocs. Int'l, Inc.
v. Altai, Inc., 982 F.2d 693, 716 (2d Cir. 1992). To determine
if an element changes the nature of a copyright action, it may
be necessary to consider the allegations supporting a claim as
well as the rights sought to be enforced. See Stephen & Hayes
Constr., Inc. v. Meadowbrook Homes, Inc., 988 F. Supp. 1194,
1198 (N.D.Ill. 1998); see also Mayer v. Josiah Wedgwood & Sons,
Ltd., 601 F. Supp. 1523, 1533-34 (S.D.N.Y. 1985).
II. Trade Secret Misappropriation (Count II)
To state a claim for misappropriation under the ITSA, a
plaintiff must show that: (1) she has a trade secret; (2)
defendant misappropriated the trade secret; and (3) defendant
used the trade secret for business purposes. See Composite
Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263,
1265-66 (7th Cir. 1992). Misappropriation of a trade secret
occurs when a person acquires a trade secret by improper means
or discloses a trade secret in breach of a duty of
confidentiality. See American Antenna Corp. v. Amperex
Electronic Corp., 190 Ill. App.3d 535, 137 Ill.Dec. 417,
546 N.E.2d 41, 44 (1989). Improper means includes acquisition by a
person who knows or has reason to know that a trade secret was
obtained in breach of a confidential relationship. See 765
The Court will not preempt Higher Gear's claim brought
pursuant to the ITSA because breach of a confidential
relationship is an additional element that changes the nature of
the action so that it qualitatively differs from the rights
protected by federal copyright law. See Computer
Assocs., 982 F.2d at 719. Although the Seventh Circuit has not
directly addressed whether a cause of action under the ITSA is
preempted under 17 U.S.C. § 301(a), several circuits have held
that a trade secret claim based on breach of a confidential duty
is not preempted by § 301(a). Id. See also S.O.S., Inc. v.
Payday, Inc., 886 F.2d 1081, 1090 (9th Cir. 1989) (holding that
trade secret claim under the California Uniform Trade Secret Act
— which is substantially similar to the ITSA — is not preempted
by § 301(a)); Gates Rubber Co. v. Bando Chem. Indus., Ltd.,
9 F.3d 823, 847-48 (10th Cir. 1993) (same under the Colorado
Uniform Trade Secrets Act). In our case, the gravamen of Higher
Gear's trade secret claim is Defendants' breach of
confidentiality. Rockenbach and Vitols allegedly allowed Auto
eDirect to view and/or copy Higher Gear's software in violation
of a duty of confidentiality imposed by the licensing agreement.
(R. 20-1, Pl.'s Resp. at 6.) Auto eDirect allegedly copied
Higher Gear's software willfully and with knowledge of
Rockenbach's duty of confidentiality. (See R. 1-1, Compl. ¶
18; R. 20-1, Pl.'s Resp. at 6, 10.) Therefore, the weight of
authority persuades the Court that preemption of count II is not
appropriate because a trade secret claim based on breach of
confidentiality qualitatively changes the nature of a copyright
III. Breach of Contract (Count III)
The elements of a breach of contract claim are: (1) existence
of a valid and enforceable contract; (2) performance by the
plaintiff; (3) breach by the defendant; and (4) resultant injury
to the plaintiff. Henderson-Smith & Assocs. v. Nahamani Family
Serv. Ctr., Inc., 323 Ill. App.3d 15, 256 Ill.Dec. 488,
752 N.E.2d 33, 43 (2001). Generally speaking, contract claims affect
the rights of parties to the contract and not any of the
exclusive rights within the general scope of copyright. ProCD,
86 F.3d at 1455. A breach of contract claim should be preempted,
however, if the allegations of breach are based on nothing more
than the act of infringement. Nat'l Car Rental Sys., Inc. v.
Computer Assocs., Inc., 991 F.2d 426, 432-33 (8th Cir. 1993).
The Court will not preempt Higher Gear's breach of contract
claim to the extent that the claim is based on Vitols and/or
Rockenbach using the software for non-business purposes or for
the benefit of third parties in violation of the licensing
agreement because these contractual restrictions on use are
distinct from the exclusive copyright rights. The Court,
however, will preempt Higher Gear's breach of contract claim to
the extent that they intend to show that the licensing agreement
prohibited unauthorized copying and creation of derivative
products. The instant case is similar to National Car Rental
System, where the Eighth Circuit overturned a district court's
decision to preempt a breach of contract claim. Nat'l Car
Rental Sys., 991 F.2d at 427. The Eight Circuit determined that
the plaintiffs claim that the defendant processed data for third
parties in violation of a licensing agreement was qualitatively
different from any of the exclusive rights reserved under
copyright law. Id. at 433. Furthermore, the Seventh Circuit
has indicated its agreement with the reasoning in National Car
Rental System. See ProCD, Inc., 86 F.3d at 1454-55. Similarly,
in the instant case, the Court will not preempt Higher Gear's
breach of contract claim because Higher Gear alleges that
Rockenbach engaged in conduct that is qualitatively different
than reproduction, performance, distribution or display (i.e.
allowing Auto eDirect to view and access Higher Gear's
IV. Unfair Competition (Count IV)
Unfair competition, which is closely related to the tort of
is recognized in Illinois but has been most fully delineated in
New York. See Bd. of Trade of City of Chi v. Dow Jones & Co.,
Inc., 108 Ill. App.3d 681, 64 Ill.Dec. 275, 439 N.E.2d 526, 532
(1992). A claim of unfair competition exists when a defendant
misappropriates the labor and expenditures of a plaintiff and
reaps the profits of the plaintiffs work. Wilson v. Electro
Marine Sys., Inc., 915 F.2d 1110, 1118-19 (7th Cir. 1990)
(discussing better developed caselaw of New York). Generally,
unfair competition claims based on "passing off," or selling
your product under the name or mark of another, are not
preempted by the Federal Copyright Act. See FASA Corp. v.
Playmates Toys, Inc., 869 F. Supp. 1334, 1362 (N.D.Ill. 1994)
(citations omitted). In contrast, claims based on "reverse
passing off," where a defendant sells a plaintiffs product as
his own, are generally preempted. See id. (citing Waldman
Publ'g Corp. v. Landoll, Inc., 848 F. Supp. 498, 500-05
(S.D.N.Y. 1994)). See also Goes Lithography Co. v. Banta
Corp., 26 F. Supp.2d 1042, 1047 (N.D.Ill. 1998).
Accordingly, the Court will preempt Higher Gear's unfair
competition claim because it only alleges reverse passing off.
According to Plaintiff, the unfair competition claim is based on
Auto eDirect allegedly developing "its own version of the same
software" and marketing the software program "without the time
and expense of creating it from scratch." (R. 20-1, Pl.'s Resp.
at 8-9.) The crux of the claim is that Auto eDirect and/or
Vitols made unauthorized copies of Higher Gear's software, which
is the same conduct necessary to support a copyright
infringement claim. The fact that Higher Gear alleges that Auto
eDirect sold and/or misrepresented the origin of the infringing
software does not change the nature of the claim. In a previous
case, this Court held that allegations of selling unauthorized
copies and misrepresenting the source of those copies did not
qualitatively change the nature of a copyright infringement
claim. See FASA Corp., 869 F. Supp. at 1363. Today, the Court
concurs with that reasoning and thus preempts Higher Gear's
unfair competition claim.
V. Tortious Interference with Contract Relations (Count VI)
The elements of a tortious interference with contract claim
are: (1) the existence of a valid and enforceable contract; (2)
knowledge of that relationship on the part of the interferer;
(3) an intentional interference inducing breach of contract; (4)
a breach of contract caused by the interferer's acts; and (5)
damages to the plaintiff. See Fieldcrest Builders v.
Antonucci, 311 Ill. App.3d 597, 243 Ill.Dec. 740, 724 N.E.2d 49,
61 (1999). The Court preempts Higher Gear's tortious
interference with contract claim because the additional elements
of knowledge and intent do not render the asserted right
different in kind than the rights protected in a copyright
infringement claim. See FASA Corp., 869 F. Supp. at 1360, n. 43
(citing Harper & Row, Publishers, Inc. v. Nation Enters.,
723 F.2d 195, 201 (2d Cir. 1983)). The tortious interference with
contract claim is based on Auto eDirect creating software that
"closely functioned and resembled the Higher Gear licensed
software." (R. 20-1, Pl.'s Resp. at 11.) The allegations
supporting this claim are not qualitatively different than
unauthorized copying, which is the same conduct necessary to
support a copyright infringement claim. Therefore, Higher Gear's
claim of tortious interference asserts rights that are
equivalent to federal copyright law and must be preempted.
VI. Civil Conspiracy (Count V)
A conspiracy is an agreement by two or more people to commit
an unlawful act or a lawful act by unlawful
means. Adcock v. Brakegate, Ltd., 164 Ill.2d 54, 206 Ill.Dec.
636, 646 N.E.2d 888, 894 (1994). A cause of action for civil
conspiracy exists only if one of the parties to the agreement
commits a tort in furtherance of the agreement. Id. Therefore,
the tort is the "gist" of a civil conspiracy claim. Id. The
Court will preempt Higher Gear's claim of civil conspiracy under
§ 301(a) because it is premised on the allegations supporting
the preempted tortious interference claim. (See R. 20-1, Pl.'s
Resp. at 10.) Furthermore, the civil conspiracy claim might also
be preempted under the ITSA. See 765 ILCS 1065/8. See also
Thomas & Betts Corp. v. Panduit Corp., 108 F. Supp.2d 968, 975
(N.D.Ill. 2000). If the Court viewed the civil conspiracy claim
as based on trade secret misappropriation, preemption under the
ITSA would apply. Id. As such, the civil conspiracy claim is
preempted by both the Federal Copyright Act and the ITSA.*fn2
For the foregoing reasons, we grant in part and deny in part
Defendants' motion to dismiss. (R. 9-1.) We grant Defendants'
motion with respect to counts IV, V and VI and deny Defendants'
motion with respect to counts II and III.
A full litigation schedule for this lawsuit, including a firm
trial date, will be set at the next status hearing on September
10, 2002 at 9:45 a.m.