Opinion ID: 172539
Heading Depth: 2
Heading Rank: 2

Heading: State-Law Causes of Action

Text: Beck also contends that E3's conduct subjects it to liability under three Colorado causes of action: (1) a common-law claim of unfair competition, (2) a common-law claim of unjust enrichment, and (3) a claim of deceptive trade practices prohibited by the Colorado Consumer Protection Act (CCPA), Colo.Rev.Stat. § 6-1-101, et seq. We affirm the judgment in favor of E3 on these claims. Beck's unfair-competition and unjust-enrichment claims are preempted by the Copyright Act, and Beck cannot establish an essential element of its deceptive-trade-practices claim.
E3 moved to dismiss Beck's unfair-competition and unjust-enrichment claims on the ground that they were preempted by the Copyright Act. Because E3 provided evidence in support of its motion to dismiss Beck's complaint as a whole, the district court treated all of the motion to dismiss as a motion for summary judgment. See Fed.R.Civ.P. 12(d) (if matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56). But no evidence was necessary to dispose of Beck's two state common-law claims. Therefore, we will review the dismissal of those claims as we would review a dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). We review such a dismissal de novo. See Christy Sports, LLC v. Deer Valley Resort Co., 555 F.3d 1188, 1191 (10th Cir.2009). We note that Beck did not seek to amend its complaint in district court. Section 301 of the Copyright Act describes the extent to which the Act preempts state common-law and statutory causes of action. The pertinent provisions state: (a) [A]ll 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, whether... published or unpublished, are governed exclusively by this title. [N]o person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State. (b) Nothing in this title annuls or limits any rights or remedies under the common law or statutes of any State with respect to (1) subject matter that does not come within the subject matter of copyright as specified by sections 102 and 103, including works of authorship not fixed in any tangible medium of expression; or . . . (3) activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106. 17 U.S.C. § 301. In short, a state-law claim is preempted if (1) the work is within the scope of the `subject matter of copyright' as specified in 17 U.S.C. § § 102 and 103; and (2) the rights granted under state law are equivalent to any exclusive rights within the scope of federal copyright as set out in 17 U.S.C. § 106. Gates Rubber Co., 9 F.3d at 847 (internal quotation marks omitted). We do not read E3's brief as contesting the first requirement. In any event, it appears that it is satisfied. Section 102 states that [c]opyright protection subsists ... in original ... literary works.... And Beck's reports are literary works. See 17 U.S.C. § 101 (defining the term literary works as works, other than audiovisual works, expressed in words, ... regardless of the nature of the material objects ... in which they are embodied); 1 Nimmer on Copyright, supra § 2.04[A], at 2-43 (The use of the term `literary' in this context does not connote any criterion of literary merit or qualitative value. (internal quotation marks omitted)). Copyrightable material often contains uncopyrightable elements within it, but Section 301 preemption bars state law ... claims with respect to uncopyrightable as well as copyrightable elements. Nat'l Basketball Ass'n v. Motorola, Inc., 105 F.3d 841, 849 (2d Cir.1997). As the court explained: The fact that portions of [Beck's reports] may consist of uncopyrightable material ... does not take the work[s] as a whole outside the subject matter protected by the Act. Were this not so, states would be free to expand the perimeters of copyright protection to their own liking, on the theory that preemption would be no bar to state protection of material not meeting federal statutory standards. Id. (internal quotation marks omitted). Preemption thus turns on whether the state-law rights asserted by Beck are equivalent to any of the exclusive rights within the general scope of copyright, as specified in 17 U.S.C. § 106. That section grants to the copyright owner the exclusive rights to (1) reproduce the copyrighted work; (2) prepare derivative works; (3) distribute copies of the work; (4) perform the work publicly; and (5) display the work publicly. When a right defined by state law may be abridged by an act which, in and of itself, would infringe one of the exclusive rights, the state law in question must be deemed preempted. Ehat v. Tanner, 780 F.2d 876, 878 (10th Cir.1985) (internal quotation marks omitted). On the other hand, when a state law violation is predicated upon an act incorporating elements beyond mere reproduction or the like, the rights involved are not equivalent and preemption will not occur. Id. (internal quotation marks omitted). A comparison of two of our opinions, Gates Rubber, 9 F.3d 823, and Ehat, 780 F.2d 876, is instructive. In Gates Rubber we concluded that the Copyright Act did not preempt the plaintiff's claim for trade-secret misappropriation under Colorado law. 9 F.3d at 848. The elements of the state-law claim were (i) that [the plaintiff] possessed a valid trade secret, (ii) that the trade secret was disclosed or used without consent, and (iii) that the defendant knew, or should have known, that the trade secret was acquired by improper means. Id. at 847. We held that this third element, proof of a breach of trust or confidence, qualitatively distinguishe[d] such trade secret causes of action from claims for copyright infringement ... based solely on copying. Id. at 848. See Briarpatch Ltd., LP v. Phoenix Pictures, Inc., 373 F.3d 296, 307 (2d Cir.2004) (claims requiring a breach of fiduciary duty add[] an extra element that makes the claims qualitatively different from a claim of copyright infringement). On the other hand, in Ehat we concluded that the plaintiff's unfair-competition and unjust-enrichment claims were both preempted by the Copyright Act. 780 F.2d at 879. The plaintiff's research materials were secretly removed from a colleague's office, copied, and replaced. See id. at 877. The defendants, who played no role in the removal, obtained an unauthorized copy of the materials, which included quotations that the plaintiff had recorded from original sources, in addition to his own notes and commentary. See id. The defendants blacked out material added by the plaintiff, reprinted the original source material, and sold it to the public. See id. The district court concluded that the plaintiff's state-law claims did not fall within the scope of copyright, and thus were not preempted, because they were based on his right in the notes `as a physical matter and property.' Id. at 878. We disagreed because [the plaintiff had] not allege[d] a state law claim of conversion to recover for the physical deprivation of his notes. Instead, he sought to recover for damage flowing from their reproduction and distribution. Id. We saw no distinction between the state rights asserted in the plaintiff's complaint and those exclusive rights encompassed by the federal copyright laws. Id. As in Ehat, the state common-law rights asserted by Beck are equivalent to the exclusive rights set forth in § 106 of the Copyright Act. Beck's complaint alleges that employees who left ... Beck and went to work at E3 ... took ... Beck's copyrighted Reports with them, and made unauthorized copies of some or all of ... Beck's Reports. Aplt. Appl., Vol. I at 9. It further alleges that E3 has used and... continues to use and distribute, without... Beck's permission, reports that E3 substantially copied from ... Beck's consulting Reports. Id. at 10. But these allegationsthat E3 reproduced and distributed Beck's reportsassert rights that are equivalent to rights under the Copyright Act. See 17 U.S.C. § 106(1) (exclusive right to reproduce copyrighted work); id. § 106(3) (exclusive right to distribute copyrighted work). Beck's common-law unjust-enrichment claim incorporates two additional allegations: (1) that E3 knowingly passed off text from ... Beck's proprietary and copyrighted Reports as [its] own text, and (2) that E3 knowingly made false representations about the source of its reports. Aplt.App., Vol. I at 11. The crux of the allegations is that E3 represented to the public that the reports it distributed were its own when, in fact, they were copies of Beck's reports. At first glance, these allegations appear to incorporate elements that extend beyond the scope of copyrightpassing off and knowing misrepresentation. Further analysis, however, reveals that these elements do not convert Beck's claim to something more than the equivalent of a claim of copyright infringement. The passing-off allegation does not assist Beck. The Nimmer treatise explains the distinction between a true passing off claim and a preempted misrepresentation claim: If A claims that B is selling B's products and representing to the public that they are A's, that is passing off. If, by contrast, B is selling B's products and representing to the public that they are B's, that is not passing off. A claim that the latter activity is actionable because B's product replicates A's, even if denominated passing off, is in fact a disguised copyright infringement claim, and hence pre-empted. 1 Nimmer on Copyright, supra § 1.01[B][1][e], at 1-36. Beck's claim is not a true passing off claim because Beck is not asserting that E3 was passing off E3's reports as being Beck's reports. Rather, it is a claim preempted by the Copyright Act. As for the claim of knowing misrepresentation, the inclusion of a scienter requirement may appear to add an element to the claim, thereby protecting it from preemption. See Gates Rubber, 9 F.3d at 847 (an otherwise preempted cause of action was not preempted because it required an additional element). But the Copyright Act itself takes scienter into account in some circumstances. See 17 U.S.C. § 504(c)(2) (increasing statutory damages for copyright infringement when infringement is willful ) ; id. § 506 (providing criminal penalties for willful copyright infringement). And permitting states to, in essence, create their own copyright laws so long as the laws have their own peculiar scienter requirements would obviously circumvent, if not undermine, the preemption provision of the Copyright Act. The addition of a scienter element does not change what acts are prohibited but merely narrows the applicability of the statute. Crow v. Wainwright, 720 F.2d 1224, 1226 (11th Cir.1983) (Florida criminal statute is preempted even though it requires scienter); see 1 Nimmer on Copyright, supra § 1.01[B][1], at X-XX-X-XX (The fact that the state-created right is either broader or narrower than its federal counterpart will not save it from pre-emption. Thus, the mere fact that a state law requires scienter as a condition to liability, whereas the Copyright Act does not, cannot save the state law from pre-emption.). We conclude that Beck's state common-law claims are preempted. See Kodadek v. MTV Networks, Inc., 152 F.3d 1209, 1212 (9th Cir.1998) (plaintiff's claim that defendants published and placed on the market products bearing images copyrighted by plaintiff was preempted by Copyright Act despite plaintiff's characterization of claim as `unfair trade practices and unfair competition'). On appeal Beck asserts that its unfair-competition and unjust-enrichment claims are not preempted because E3 misappropriated ... Beck's methodologies, techniques, ... and associated goodwill. Aplt. Br. at 18. But these allegations do not appear in Beck's complaint and therefore cannot be considered in our review of the motion to dismiss. See Doyle v. Okla. Bar Ass'n, 998 F.2d 1559, 1566 (10th Cir. 1993) (on appellate review of dismissal of complaint under Fed.R.Civ.P. 12(b)(6), court will not consider allegations newly made ... on appeal). Moreover, nothing in Beck's appellate briefs suggests that this alleged misappropriation extended beyond copying Beck's language and distributing E3 reports containing that language. As we understand Beck's briefs, the methodologies and techniques allegedly misappropriated were simply the use of Beck's carefully crafted language in its reports. Such a misappropriation claim would be preempted. See 1 Nimmer on Copyright, supra § 1.01[B][1][f][iii], at X-XX-X-XX; Warner Bros. v. Am. Broadcasting Co., 720 F.2d 231, 247 (2d Cir.1983) ([S]tate law claims that rely on the misappropriation branch of unfair competition are preempted.).
Although our above discussion of preemption of Beck's common-law claims would appear to also dispose of Beck's deceptive-trade-practices claim, which is founded on the same factual allegations as the common-law claims, E3 has not argued preemption of this claim, either in district court or on appeal. We therefore address this claim separately. To prove a deceptive-trade-practices claim under the CCPA, a plaintiff must establish: (1) that the defendant engaged in an unfair or deceptive trade practice; (2) that the challenged practice occurred in the course of defendant's business, vocation, or occupation; (3) that it significantly impacts the public as actual or potential consumers of the defendant's goods, services, or property; (4) that the plaintiff suffered injury in fact to a legally protected interest; and (5) that the challenged practice caused the plaintiff's injury. Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc., 62 P.3d 142, 146-47 (Colo.2003) (internal quotation marks omitted). To determine whether a challenged practice significantly impacts the public, Colorado courts consider (1) the number of consumers directly affected by the challenged practice, (2) the relative sophistication and bargaining power of the consumers affected by the challenged practice, and (3) evidence that the challenged practice has previously impacted other consumers or has the significant potential to do so in the future. Id. at 149. We hold that E3 is entitled to summary judgment because it has not engaged in a deceptive trade practice that significantly impacts the public. To explain this holding, we begin by analyzing the nature of the alleged deceptive practice. Beck does not allege that anything in E3's Windsor Report is false. The only deceptive practice it alleges is that E3 has made itself look better than it really is by using Beck's language in the considerations-and-assumptions section of its reports. But so long as the information in E3's reports is accurate, the potential investors in the projects analyzed by the reports cannot be injured by E3's alleged misconduct; the origin of the language in the reports could not be material to them. Thus, the only persons that could be injured by the alleged deceptive practices are those who engage E3 to create consulting-engineer reports. By being misled into thinking that E3 is better than it really is, they may mistakenly decide to retain E3, rather than, say, Beck. It follows that the persons injured by E3's alleged deceptive practices must be those seeking or arranging financing for projects requiring consulting-engineer reports like those prepared by Beck and E3. We have little doubt that such entities are not the consuming public that the CCPA was designed to protect. In terms of the Rhino Lining test for significant public impact, the injured persons are too few in number, too sophisticated, and too armed with bargaining power. See Rhino Linings, 62 P.3d at 150 (conduct affected only 3 of 550 dealers worldwide in polyurethane chemical products); Martinez v. Lewis, 969 P.2d 213, 222-23 (Colo.1998) (en banc) (conduct affected only one large, sophisticated insurance provider); Alpine Bank v. Hubbell, 555 F.3d 1097 (10th Cir.2009) (conduct affected only one borrower of large sum to build a house). Indeed, one would have to be quite sophisticated to be misled by E3's alleged deception because only a rather knowledgeable person would infer from the language allegedly stolen from Beck's reports that E3 does high-quality work. We therefore affirm the district court's summary judgment in favor of E3 on the CCPA claim.