which the right is asserted is fixed in tangible form and comes within the subject matter of
copyright. /d.. Second, the rights granted under state law must be equivalent to the exclusive
rights established by federal copyright law in § 106. Jd. 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. Jd. 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. Jd. at
678.

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 I 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 avalid 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


N.E.2d 49, 61 (Ill. App. Ct. 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, Lid., 645 N.E.2d 888, 894 (Ill. 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. /d. Therefore, the tort is the “gist” of a civil conspiracy
claim. fd. 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. Hl. 2000). If the Court viewed the civil conspiracy claim as based on


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
IL is not appropriate because a trade secret claim based on breach of confidentiality qualitatively
changes the nature of a copyright infringement action.

HI 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 Sery. Ctr., Inc., 752 N.E.2d 33,
43 (UL. App. Ct. 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’! 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


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 Wedgewood & Sons, Ltd., 601 F. Supp. 1523, 1533-34 (S.D.N.Y. 1985).
Il. Trade Secret Misappropriation (Count I)

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., 546 N.E.2d 41, 44
(Ill. App. Ct. 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 ILCS
1065/2(a)-(b).

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). Zd.

See also S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1090 (9th Cir. 1989) (holding that trade


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 plaintiff's 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. Ina
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, 724


a ~
Miiute Order Fort (06/97)

United States District Court, Northern District of Iinois

courtroom
deputy’s
initials

RO

Aare)

gy ony 20

Name of Assigned Judge Ruben Castillo Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 02 C 1906 DATE 8/19/2002
CASE The Higher Gear Group, Inc. vs. Rockenbach Chevrolet Sales, Inc.,
TITLE
[in the following box (a) indicate the party filing the motion, e.g, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.] .
DOCKET ENTRY:
qd) o Filed motion of [ use listing in “Motion” box above.]
(2) im Brief in support of motion due
(3) Oo Answer brief to motion due _ Reply to answer brief due.
(4) Qa Ruling/Hearing on set for at
(8) im] Status hearing[held/continued to} [set for/re-set for] on set for at
(6) o Pretrial conference[held/continued to] [set for/re-set for] on set for at :
(C) oO Trial[set for/re-set for] on at
(8) a [Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) (Local Rule 41.1 OC) FRCP41(a)(1) C1 FRCP41(a)(2).
(10) MM [Otherdocket entry] Enter Memorandum Opinion and Order. Defendants’ motion to dismiss [9-1]
is granted in part and denied in part.

di) (For further detail see order attached to the original minute order.]

No notices required, advised in open court. Document

- , Number

No notices required, number of notices

Notices mailed by judge’s staff. 0 2002

Notified counsel by telephone. AUG 2 dock
VY | Docketing to mail notices.

Mail AO 450 form, docks fay initials

Copy to judge/magistrate judge.

date mailed notice

rmiiey

Date/time received in
central Clerk's Office

mailing deputy initials



trade secret misappropriation, preemption under the ITSA would apply. Jd. As such, the civil
conspiracy claim is preempted by both the Federal Copyright Act and the ITSA?
CONCLUSION .
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 JJ and III.

A full litigation schedule for this lawsuit, including a firm trial date, will be set at the next

ENTERED: Z

; Judge Ruben Castillo
United States District Judge

status hearing on September 10, 2002 at 9:45 a.m.

Dated: August 19, 2002

? The Court recognizes that counts IV (unfair competition) and VI (tortious interference with
contract relations) are subject to preemption under the ITSA. See Thomas & Betts Corp., 108 F.
Supp. at 973-74 (holding that unfair competition claim is preempted to the extent that claims are
based on trade secret misappropriation). See also Labor Ready, Inc. v. Williams Staffing, L.L.C.,
149 F. Supp. 2d 398, 409-10 (N.D. Ill. 2001) (holding that tortious interference with contract
claim is preempted to the extent that it is based on trade secret misappropriation). Because the
Court finds these counts preempted by the Federal Copyright Act, it is unnecessary to consider
preemption under the ITSA.

10


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 plaintiff's 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. Jd. 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 software).
IV. Unfair Competition (Count IV)

Unfair competition, which is closely related to the tort of misappropriation, 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., 439 N.E.2d 526, 532 (Ill. App. Ct. 1992). Aclaim of unfair competition
exists when a defendant misappropriates the labor and expenditures of a plaintiff and reaps the
profits of the plaintiff's 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


LEGAL STANDARDS

A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit.
Gibson v. City of Chi., 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
Plaintiff's 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).

ANALYSIS
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


RELEVANT FACTS

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 VJ).
Currently before this court is Defendants’ motion to dismiss counts 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 Secrets

Act, 765 ILCS 1065/8.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

THE HIGHER GEAR GROUP, INC.,
Plaintiff,

)
)
d. .
) No. 02 C 1906
v. )
) Judge Ruben Castillo
ROCKENBACH CHEVROLET SALES, ) ,
INC., GAIL VITOLS, individually, and)

AUTO EDIRECT.COM, INC., )

)
Defendants. )

MEMORANDUM OPINION AND ORDER

Plaintiff The Higher Gear Group, Inc. (“Higher Gear”) sues Defendants Rockenbach
Chevrolet Sales, Inc. (“Rockenbach”), Gail Vitols and Auto eDirect.Com, Inc. (“Auto eDirect”)
for copyright infringement under the Federal Copyright Act of 1976, 17 U.S.C. § 101 et seq.,
trade secret misappropriation under the Illinois Trade Secrets Act, 765 ILCS 1065/2, breach of
contract, unfair competition, civil conspiracy and tortious interference with contract relations.!
Currently before the Court is Defendants’ motion to dismiss pursuant to 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.)

‘In its response to the instant motion, Higher Gear attempts to add causes of action under the
Ulinois Uniform Deceptive Trade Practices Act, 815 ILCS 510/2(a)(8), and the Illinois Consumer
Fraud and Deceptive Business Practices Act, 815 ILCS 505/2. The Court will not consider these
claims as they were not properly presented to the Court in a separate motion for leave to amend
pursuant to Federal Rule of Civil Procedure 15(a).