Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-02728/USCOURTS-caed-2_04-cv-02728-13/pdf.json

Parties Involved:
John Bodrozic
Counter Defendant
Mike Carrington
Counter Defendant
Computer Methods International Corp
Counter Claimant
Hardin Construction Company, LLC
Counter Claimant
Meridian Project Systems, Inc
Counter Defendant
James Olsen
Counter Defendant

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

MERIDIAN PROJECT SYSTEMS,

INC.,

Plaintiff,

v. NO. CIV. S-04-2728 FCD DAD

MEMORANDUM AND ORDER

HARDIN CONSTRUCTION COMPANY,

LLC, and COMPUTER METHODS

INTERNATIONAL CORP., 

Defendants.

 __________________________/

COMPUTER METHODS INTERNATIONAL

CORP., and HARDIN CONSTRUCTION

COMPANY, LLC, 

Counterclaimants,

v.

MERIDIAN PROJECT SYSTEMS,

INC., JAMES OLSEN, JOHN

BODROZIC, and MIKE CARRINGTON,

Counterdefendants.

_____________________________/

----oo0oo----

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1 Because oral argument will not be of material

assistance, the court orders the matter submitted on the briefs. 

E.D. Cal. L. R. 78-230(h).

2

This matter is before the court on defendants’ Hardin

Construction Company LLC (“Hardin”) and Computer Methods

International Corp. (“CMIC”) claim for conversion of physical and

intellectual property. Plaintiff opposes the motion. For the

reasons set forth herein,1 defendants’ motion is GRANTED in part

and DENIED in part. 

BACKGROUND

Meridian is a software company that provides project

management software for large real estate projects and other

capital-intensive construction initiatives. (Second Amended

Complaint (“SAC”) ¶ 9.) Meridian’s “flagship” product is Prolog

Manager (“Prolog”), a project management software package that

automates all aspects of the construction process, from project

design to closeout. (SAC ¶ 9.) 

Defendant Hardin is a large construction company in Georgia

and long time customer of Meridian for its Prolog product. (SAC

¶ 11.) Defendant CMIC is a software company based in Canada that

provides software products and software consulting. (SAC ¶ 14.) 

Meridian entered into contracts with both Hardin and CMIC,

licensing defendants to use Prolog in their respective

businesses. (SAC ¶¶ 12, 15.) Both defendants had copies of the

Prolog software, which, upon any breach of the End User License

Agreement (“EULA”), by the terms of the EULA, should have been

destroyed or returned to Meridian. (Id. at ¶ 71; Ex. A to SAC at

§§ 2-4.)

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3

Meridian alleges that, beginning in late 2000 or early 2001,

Hardin and CMIC initiated a scheme to reverse engineer Prolog for

the purpose of developing a competing project management software

solution that CMIC could combine with its existing financial and

operational software. (SAC ¶ 16.) As part of this scheme, CMIC

allegedly sent a programmer to Hardin’s facilities on numerous

occasions to view screen shots of Prolog, and then reverse

engineered and analyzed the functions, features, screens,

architecture, logic and operation of Prolog, in violation of

Meridian’s EULA. (SAC ¶ 16.) Meridian alleges that Hardin and

CMIC developed a competing project management software product,

called CMIC Projects, that has the same overall look and feel as

Prolog, and among other similarities, many of the features and

functions of Prolog. (SAC ¶ 17.) Meridian also alleges that

Hardin and CMIC are targeting Meridian customers to induce them

to switch from Prolog to CMIC Projects. (SAC ¶ 18.)

On November 29, 2004, Meridian filed a complaint against

CMIC and Hardin in the Superior Court of Sacramento County. CMIC

and Hardin subsequently removed the action to this court. The

original complaint asserted seven causes of action for breach of

contract against CMIC, breach of contract against Hardin, breach

of the implied covenant of good faith and fair dealing, fraud,

interference with contractual relations, intentional interference

with prospective economic advantage, and unfair competition. 

(SAC ¶¶ 20-58.) On January 14, 2005, plaintiffs filed the First

Amended Complaint (“FAC”), which added an eighth claim for

copyright infringement. (FAC ¶¶ 59-68.) Then on January 27,

2006, plaintiffs filed the second amended complaint adding a

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ninth claim for conversion. (SAC ¶¶ 70-75.) On February 14,

2006, defendants filed the instant motion to dismiss the

conversion claim. 

STANDARD

On a motion to dismiss, the allegations of the complaint

must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322

(1972). The court is bound to give plaintiff the benefit of

every reasonable inference to be drawn from the “well-pleaded”

allegations of the complaint. Retail Clerks Int'l Ass'n v.

Schermerhorn, 373 U.S. 746, 753 n.6 (1963). Thus, the plaintiff

need not necessarily plead a particular fact if that fact is a

reasonable inference from facts properly alleged. See id. 

Given that the complaint is construed favorably to the

pleader, the court may not dismiss the complaint for failure to

state a claim unless it appears beyond a doubt that the plaintiff

can prove no set of facts in support of the claim which would

entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45

(1957); NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.

1986).

Nevertheless, it is inappropriate to assume that plaintiff

“can prove facts which it has not alleged or that the defendants

have violated the . . . laws in ways that have not been alleged.” 

Associated Gen. Contractors of Cal., Inc. v. Cal. State Council

of Carpenters, 459 U.S. 519, 526 (1983). Moreover, the court

“need not assume the truth of legal conclusions cast in the form

of factual allegations.” United States ex rel. Chunie v.

Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986).

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5

ANALYSIS

Defendants argue that plaintiff’s conversion claim should be

dismissed because it is preempted by federal copyright law. The

Copyright Act provides, in relevant part, that all “legal and

equitable rights that are equivalent to any of the exclusive

rights within the general scope of copyright” are preempted by

federal law. 17 U.S.C. § 301(a). The Copyright Act establishes

a two-part test for preemption. First, the work at issue must

fall within the general subject matter protected by copyright. 

Del Madera Prop. v. Rhodes and Gardner Inc., 820 F.2d 973, 976

(9th Cir. 1997). Second, the rights guaranteed by state law must

be “equivalent to any of the exclusive rights within the general

scope of the copyright.” Id. To survive preemption, the state

law claim must contain an “extra element” beyond the elements

needed to prove copyright infringement. Oddo v. Ries, 743 F.2d

630, 635 (9th Cir. 1984). Both prongs of the copyright

preemption test must be met if the state law claim is to be

deemed preempted. Kodadek v. MTV Networks, Inc., 152 F.3d. 1209,

1212 (9th Cir. 1998). 

1. Conversion of Tangible Items

Meridian argues that defendants have converted tangible

property and that this conversion is not preempted by the

Copyright Act. The conversion of tangible property does not fall

within the scope of copyright protection and is not a right that

is protected by the Copyright Act. Oddo, 743 F.2d. at 635. A

claim for conversion of tangible property is not preempted by the

Copyright Act because conversion adds an “extra element” beyond

those elements required to state a claim for copyright

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infringement. Id.; Del Madera, 820 F.2d at 977. Specifically, a

claim for conversion of physical property requires plaintiff to

demonstrate that defendants wrongfully obtained possession over a

specific piece of property. Oddo, 743 F.2d. at 635. 

Defendant concedes that conversion of physical property is

not preempted by the Copyright Act. Defendant argues that

plaintiff fails to allege the conversion of tangible property in

their ninth claim for relief. Defendant further asserts that

because Meridian did not specifically allege the conversion of

tangible items, Hardin and CMIC would have insufficient time to

discover facts relating to the claim of conversion of tangible

items. 

In its claim for conversion, Meridian does not specifically

allege the conversion of tangible property such as disks, files,

and other related Prolog documentation. Meridian does allege,

however, that defendants violated the EULA in various ways

including reverse engineering, copying, and modifying Prolog. 

(See SAC ¶¶ 20, 24, 29, 70, 71.) The EULA provides that, upon

any violation of the agreement, the Prolog licensee must either

destroy or return the physical components that comprise Prolog. 

(Id. at ¶ 71; Ex. A to SAC at §§ 2-4.) Meridian alleges that

since the physical components of the program were not destroyed

or returned, defendants wrongfully possessed such items. (Id.) 

The Federal Rules of Civil Procedure provide for broad

notice pleading. Fed. R. Civ. Proc. 8(a)(2). The inquiry is

whether the allegations in the complaint give defendants

sufficient notice of the claims against them and the factual

basis for such claims. Conley v. Gibson, 355 U.S. 41, 48 (1957).

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Drawing all reasonable inferences and viewing the complaint in

the light most favorable to the plaintiff, Meridian adequately

pleads conversion of physical disks, help files, and other

supporting documentation and materials comprising Prolog and

protected by the terms and conditions of the EULA. (SAC at ¶¶ 70-

71; Ex. A to SAC at §§ 2-4.) The Second Amended Complaint

provides sufficient notice to defendants of Meridian’s claim for

the conversion of tangible property. If defendants breached the

EULA, they unlawfully retained possession of the disks, files,

and other documents that comprise Prolog. 

Therefore, defendants’ motion to dismiss the conversion

claim with respect to tangible property is DENIED.

2. Conversion of Intangible Intellectual Property 

 Meridian also bases its claim for relief upon the

conversion of “concepts, logic, processes, features, and

functions of Prolog to the extent not covered by its copyrights.” 

(SAC ¶ 71.) The sole protection for works that fall within the

general subject matter of copyright is an action for copyright

infringement. 17 U.S.C. § 301. The Copyright Act protects

“works of authorship that are fixed in a tangible medium of

expression.” Id. Computer programs, including software, are

also accorded copyright protection under the Act. Id. at § 101;

Johnson Controls, Inc. v. Phoenix Control Sys., 886 F.2d 1173,

1175 (9th Cir. 1989).

Plaintiff argues that those elements of expression within a

copyrighted work that are not protected by copyright, do not fall

within the “general subject matter of copyright” and that

therefore, a claim of conversion as to such elements is not

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preempted by the Act. The Ninth Circuit has not ruled on whether

those elements of a copyrighted work that are unprotected by

copyright laws fall within the general subject matter of

copyright. However, most circuits that have addressed the issue

have held that the “scope of the Copyright Act's subject matter

is broader than the scope of the Act's protections.” Wrench LLC

v. Taco Bell Corp., 256 F.3d 446, 455 (6th Cir. 2001) (citing

Nat’l Basketball Assn. v. Motorola Inc., 105 F.3d 841, 849-50 (2d

Cir. 1997); United States v. Berge, 104 F.3d 1453, 1463 (4th Cir.

1997); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1452-53 (7th Cir.

1996); see also Firoozye v. Earthlink Network, 153 F.Supp. 2d

1115, 1124 (N.D. Cal. 2001); but see Dunlap v. G&L Holding Group,

Inc., 381 F.3d 1285, 1295 (11th Cir. 2004) (holding that ideas,

the expression of which have merged with the idea, are not within

the general scope of copyright for the purposes of complete

preemption of a state law conversion claim). 

In ProCD, the Seventh Circuit held that a computer program

containing a searchable database of telephone directories was

“within the subject matter of copyright” even though the data in

the program copied by the defendant was not “sufficiently

original to be copyrighted.” Id. at 1453. The court reasoned

that the purpose of copyright preemption is to prevent states

from giving works of authorship protection beyond those

protections granted by the Copyright Act. Id. The court noted

that one of the functions of copyright preemption is to prevent

states from giving protection to “works of authorship that

Congress has decided should be in the public domain.” Id. The

Seventh Circuit found that this goal can only be accomplished if

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the general subject matter of copyright is interpreted broadly. 

Id. The court finds the Seventh Circuit’s rationale compelling.

Further, the Northern District of California recently

addressed the issue in a similar case involving a claim of

conversion of intellectual property in software. In Firoozye,

the court found that those noncopyrightable elements that are

part of a copyrighted computer software program fall within the

general subject matter of copyright because the subject matter of

copyright is broader than the scope of copyright protection. 

Firoozye, 153 F.Supp. 2d at 1124-25. The court then went on to

address whether the plaintiff’s conversion claims were equivalent

to the rights protected by copyright. Id. at 1125. The court

noted that, although a claim for the conversion of tangible

property adds the extra element of “wrongful possession”

sufficient to bring a conversion claim outside the scope of

copyright preemption, conversion claims with respect to

intellectual property arise from the reproduction, copying and

misuse of a work. Id. at 1130 quoting Dielsi v. Falk, 916

F.Supp. 985, 992 (C.D. Cal. 1996) (holding that a claim for the

conversion of intangible intellectual property is “part and

parcel” of a copyright claim). The court held that such rights

are “clearly equivalent to [those of] a copyright claim.” Id. 

The court agrees with the analysis of the Northern District

in Firoozye. Those elements of Prolog that are not copyrightable

fall within the general subject matter of copyright. Meridian’s

claim arising out defendants’ alleged conversion of intellectual

property also seeks to enforce rights equivalent to those

asserted in the copyright claim. Plaintiff alleges that

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2 Plaintiff relies on Kremen v. Cohen to argue that

intangible property is protected by conversion. 337 F.3d 1024

(9th Cir. 2003). However, Kremen is not applicable to the issue

at hand. In Kremen, the court held that an internet domain name

was a form of intangible property protected by California’s

conversion laws. Id. at 1035. Kremen did not involve a work

protected by copyright or raise the question of copyright

preemption. 

10

defendants wrongfully reproduced aspects of Prolog into CMIC

projects, the essence of a claim for copyright infringement.

Therefore, to the extent that plaintiff alleges the conversion of

otherwise noncopyrightable intellectual property contained within

Prolog, the claim is preempted by the Copyright Act.2

Because a claim for the conversion of unprotected intangible

elements of Prolog falls within the general subject matter of

plaintiff’s copyright, and because such a claim protects rights

equivalent to those protected by Meridian’s copyright

infringement claim, defendants’ motion to dismiss plaintiff’s

conversion claim with respect to intangible intellectual property

is GRANTED.

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CONCLUSION

For the foregoing reasons, defendants’ motion to dismiss

Meridian’s ninth claim for conversion is GRANTED in part and

DENIED in part. To the extent that plaintiff’s conversion claim

alleges the conversion of tangible property the claim is not

preempted, and defendant’s motion to dismiss is denied. To the

extent that plaintiff’s conversion claim alleges conversion of

unprotected, intangible intellectual property, the claim is

preempted by the Copyright Act, and defendants motion to dismiss

is granted.

IT IS SO ORDERED.

DATED: April 21, 2006

/s/ Frank C. Damrell Jr. 

FRANK C. DAMRELL, Jr.

UNITED STATES DISTRICT JUDGE

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