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Prominent Consulting LLC v. Allen Brothers

February 11, 2008

PROMINENT CONSULTING LLC, PLAINTIFF,
v.
ALLEN BROTHERS, INC., DEFENDANT.



The opinion of the court was delivered by: Robert M. Dow, Jr. United States District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Prominent Consulting, LLC ("Prominent") filed this action against defendant Allen Brothers, Inc. ("Allen Brothers") seeking damages and injunctive relief for alleged copyright infringement under the federal Copyright Act, 17 U.S.C. § 101, et seq., and for an alleged violation of the federal Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030(a)(4). On November 20, 2007, Judge Castillo denied Prominent' s motion for a temporary restraining order and a preliminary injunction [DE 18]. Allen Brothers then moved for a stay of this action [DE 20] in deference to a pending state court lawsuit in which Allen Brothers and Prominent (among others) are parties and in which some of the same alleged conduct is at issue. See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 818 (1976). For the reasons stated below, the Court denies the motion for stay.

I. Background

Allen Brothers is a well known purveyor of meats and other foodstuffs. It generates sales in a variety of ways, including through a printed catalog and an Internet website. Prominent provides various technology consulting and marketing services.

In 2004, Prominent began working on software for a new Allen Brothers website. Prior to the launch of the new website in February 2005, Prominent and Allen Brothers executed a Web Site Development and License Agreement ("Agreement") that set forth the parties' respective rights and obligations with respect to the ownership and use of the intellectual property associated with the new website and provided for certain compensation to Prominent for its services.

After the new web site became operational, Allen Brothers'web-based sales increased significantly. The growth in sales led to tension between the parties over the amount of compensation owed to Prominent. Subsequently, the provisions of the agreement dealing with Prominent' s compensation were amended. Over time, the parties'relationship deteriorated for a variety of reasons that are set forth in great detail in the state court pleadings, but are not material to the resolution of the issues before this Court at this time. Suffice to say that the difficulties between the parties gave rise to the filing in May 2007 of a state court lawsuit by Allen Brothers, captioned Allen Brothers, Inc. v. Marland, et al., No. 07 CH 11877 (Cir. Ct. Cook Co.). Between May and November of 2007, Allen Brothers added parties to the lawsuit, so that by the time that the instant action was filed in federal court, the state court lawsuit included as defendants Prominent, its principals, and several other parties who are not involved in the federal lawsuit.

On November 8, 2007, Prominent filed a two-count lawsuit in federal court, alleging copyright infringement (Count I)*fn1 and violation of the CFAA (Count II). On the same day, Prominent filed a counterclaim in the state court action. The federal lawsuit is much narrower in scope than the state lawsuit. The core issue in the federal suit centers on Allen Brothers' alleged use of the "source code"that Prominent claims to have designed for use in the new website and in which Prominent claims to have rights that are enforceable both as a matter of federal copyright law (asserted in this lawsuit) and as a matter of state contract law (asserted in its state court counterclaims). Specifically, Prominent contends in Count I that Allen Brothers has stolen Prominent' s source code and has used that source code to create and operate a new website that Allen Brothers is hosting independent of Prominent.

Shortly after filing its federal lawsuit, Prominent sought a temporary restraining order and a preliminary injunction. At the hearing on the requests for injunctive relief, it came to Judge Castillo' s attention that there was a similar action pending between the same parties (and others) in state court. Judge Castillo denied the motions for immediate injunctive relief and directed the parties to submit briefing on whether the federal action should be stayed under the Colorado River doctrine. While the parties were briefing that issue, the case was transferred to this Court as part of the Court' s initial calendar. After the parties completed briefing on the Colorado River issue, the Court requested that the parties file supplemental briefs on the possible effect on this case of the Seventh Circuit' s decision in Int'lArmor & Limousine Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912 (7th Cir. 2001).

II. Analysis

A. Subject Matter Jurisdiction

Although Prominent' s complaint does not identify the basis for federal jurisdiction over its complaint, it is evident that the possible bases for jurisdiction are 28 U.S.C. § 1338 as to Count I and 28 U.S.C. § 1331 as to Count II. In its supplemental brief, Allen Brothers contends that jurisdiction is lacking as to both counts.

Section 1338 states that the "district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to * * * copyrights" and that "[s]uch jurisdiction shall be exclusive of the courts of the states in * * * copyright cases." Courts have found that test easier to state than to apply. In fact, the authors of a leading copyright treatise have remarked that the "arising under"question "poses among the knottiest procedural problems in copyright jurisprudence." 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 12.01[A] at 12-4.1 (2007). The Seventh Circuit appears to follow the classic formulation of the test for "arising under" jurisdiction in a copyright case articulated by Judge Friendly more than forty years ago:

Mindful of the hazards of formulation in this treacherous area, we think that an action ' arises under'the Copyright Act if and only if the complaint is for a remedy expressly granted by the Act, e.g., a suit for infringement or for the statutory royalties for record reproduction * * * or asserts a claim requiring construction of the Act * * * or, at the very least and perhaps more doubtfully, presents a case where a distinctive policy of the Act requires that federal principles control disposition of the claim.

T.B. Harms Co. v. Eliscu, 339 F.2d 823, 828 (2d Cir. 1964) (cited in Int'lArmor, 272 F.3d at 915). And in Int'lArmor, the Seventh Circuit addressed in detail the circumstances in which a federal complaint asserting a ...


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