Opinion ID: 787823
Heading Depth: 4
Heading Rank: 2

Heading: Equivalency Requirement

Text: 48 Courts analyze equivalency by applying a functional test to determine whether the state law right at issue is equivalent to any of the exclusive rights under Section 106 of the Copyright Act. Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1164 (1st Cir.1994). In Wrench, we stated: 49 Equivalency exists if the right defined by state law may be abridged by an act which in and of itself would infringe one of the exclusive rights. Conversely, if an extra element is required instead of or in addition to the acts of reproduction, performance, distribution or display in order to constitute a state-created cause of action, there is no preemption, provided that the extra element changes the nature of the action so that it is qualitatively different from a copyright infringement claim. 50 256 F.3d at 456 (citation omitted). See also Summit Mach. Tool Mfg. Corp. v. Victor CNC Sys., Inc., 7 F.3d 1434, 1440 (9th Cir.1993). The existence of an extra element precludes preemption only where the element changes the nature, rather than the scope, of the action. Data Gen., 36 F.3d at 1164-65. 51
52 Stromback alleges in his commercial misappropriation claim that Stromback expended significant time, effort, and money to create The Keeper screenplay with the expectation that he would reap the benefits of the production of the screenplay into a film for commercial sale and that NLC misappropriated the poem and screenplay, including its characters, scenes and events and will reap the benefits that Stromback was expecting. (1st Am. Compl. ¶¶ 48-49, J.A. at 242.) The essence of this claim is that NLC copied portions of The Keeper poem and screenplay. Courts faced with similar misappropriation claims have held them to be preempted by the Copyright Act because they allege an act that infringes upon one of the exclusive rights set forth in Section 106. See, e.g., Daboub v. Gibbons, 42 F.3d 285, 289 (5th Cir.1995) (concluding that the plaintiffs' claims, including misappropriation, were preempted because they merely alleged wrongful copying, distribution and performance of lyrics without alleging an extra element rendering the claim different from a copyright infringement claim); Ehat v. Tanner, 780 F.2d 876, 878 (10th Cir.1985) (finding no distinction between the state law right asserted in the misappropriation claim and the exclusive rights granted under the Copyright Act); Artie Fields Prods., Inc. v. Channel 7 of Detroit, Inc., No. 94-CV-70730-DT, 1994 WL 559331, at -3 (E.D.Mich. June 10, 1994) (holding that the plaintiff's misappropriation and unfair competition claims grounded solely in the copying of the plaintiff's protected expression were preempted); 1 Nimmer § 1.01[B][1][f][iii] (Except for a few stray rulings, legions of cases ... have held preempted claims for misappropriation) (citations omitted). Of course, a misappropriation claim will survive preemption if it alleges an extra element, such as a confidential or fiduciary relationship. Computer Assocs. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 717 (2d Cir.1992). However, Stromback's assertion that his claim is based upon the time, effort, and money that he expended in developing the screenplay is not an extra element that saves his claim from preemption. See Del Madera Props. v. Rhodes & Gardner, Inc., 820 F.2d 973, 976-77 (9th Cir.1987) (finding the plaintiff's misappropriation claim preempted because the [e]ffort expended to create a Tentative Map and supporting documents is effort expended to create tangible works of authorship and [a]s such, this effort is within the scope of copyright protection); Mayer v. Josiah Wedgwood & Sons, Ltd., 601 F.Supp. 1523, 1535 (S.D.N.Y.1985) (rejecting as preempted the plaintiff's unfair competition/misappropriation claim alleging misappropriation of the plaintiff's time, effort, and talent). Therefore, this claim is preempted. 53
54 Count VI of Stromback's first amended complaint alleged a claim for misappropriation of trade secrets under the Michigan Uniform Trade Secrets Act (MUTSA), M.C.L. § § 445.1901-.1910, and under Michigan and California common law. 7 Under Michigan law, the elements of a common law claim for misappropriation of trade secrets are: (1) the existence of a trade secret; (2) the defendant's acquisition of the trade secret in confidence; and (3) the defendant's unauthorized use of it. Aerospace Am., Inc. v. Abatement Techs., Inc., 738 F.Supp. 1061, 1069 (E.D.Mich.1990) (citing Kearns v. Ford Motor Co., 203 U.S.P.Q. 884, 888 (E.D.Mich.1978)). MUTSA displaces common law trade secret misappropriation claims arising after October 1, 1998 — the effective date of MUTSA. M.C.L. § 445.1910. Stromback alleged in his complaint that Defendants had a duty not to disclose or exploit confidential information acquired from [Stromback]; that Defendants were aware that the information obtained by [sic] Stromback was confidential information and/or trade secrets; that Defendants disclosed and exploited the confidential information they received from [Stromback], without Stromback's permission; and that Stromback has been damaged as a result of [Defendants'] breaches of their duty of confidentiality. (1st Am. Compl. ¶¶ 64-67, J.A. at 246.) 55 In concluding that the misappropriation of trade secrets claim was preempted, the district court lumped it together with Stromback's commercial misappropriation claim, stating that it was substantively no different than [the] commercial misappropriation claim. In doing so, however, the district court failed to recognize that a considerable number of cases have held that misappropriation of trade secrets claims are not preempted because they require proof of a confidential relationship, which provides the extra element required to survive preemption. For example, in Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir.1992), the Second Circuit stated: 56 [M]any state law rights that can arise in connection with instances of copyright infringement satisfy the extra element test, and thus are not preempted by section 301. These include unfair competition claims based upon breaches of confidential relationships, breaches of fiduciary duties and trade secrets. 57 .... 58 Trade secret claims often are grounded upon a defendant's breach of a duty of trust or confidence to the plaintiff through improper disclosure of confidential material. The defendant's breach of duty is the gravamen of such trade secret claims, and supplies the extra element that qualitatively distinguishes such trade secret causes of action from claims for copyright infringement that are based solely upon copying. 59 Id. at 717 (citations omitted). See also Dun & Bradstreet Software Servs., Inc. v. Grace Consulting, Inc., 307 F.3d 197, 218 (3d Cir.2002) (We agree with Geac that if their misappropriation of trade secrets claim was based on such breach of duty of trust and confidentiality, it would survive preemption in this case.); Ez-Tixz, Inc. v. Hit-Tix, Inc., 919 F.Supp. 728, 737-38 (S.D.N.Y.1996) (holding that because plaintiff's claim for trade secret misappropriation require[d] proof of a breach of confidence, it [was] not preempted by federal law); 1 Nimmer § 1.01[B][1][h] (Actions for disclosure and exploitation of trade secrets require a status of secrecy, not required for copyright, and hence, are not preempted.) (footnotes omitted). Several courts have held that claims brought under state trade secret statutes modeled on the Uniform Trade Secrets Act, such as MUTSA, survive preemption because the required proof of the existence and breach of a confidential relationship provides the extra element necessary to survive preemption. See Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1165 (1st Cir.1994) (holding that a claim under Massachusetts trade secret law was not preempted because participation in the breach of a duty of confidentiality — an element that forms no part of a copyright infringement claim — represents unfair competitive conduct qualitatively different from mere unauthorized copying); Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 660 (4th Cir.1993) (holding that a claim under the Maryland Uniform Trade Secrets Act was not preempted because it require[d] proof of a breach of trust or confidence); S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1090 n. 13 (9th Cir.1989) (noting that a claim under the California Uniform Trade Secrets Act would not involve a legal or equitable right equivalent to an exclusive right of a copyright owner under the Copyright Act); Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 847-48 (10th Cir.1993) (Because Gates' claim for trade secret misappropriation under the Colorado Uniform Trade Secrets Act requires proof of a breach of trust or confidence — proof that is not required under the Copyright Act — Gates' state law claims are not preempted by federal law.); Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1549 (11th Cir.1996) (expressing no doubt that the Florida trade secret statute at issue satisfies the `extra element' test generally employed by courts in performing copyright preemption analysis). Because proof of a confidential relationship is a necessary element in a trade secret misappropriation claim under both the common law and uniform trade secrets laws such as MUTSA, we hold that Stromback's trade secrets misappropriation claim is not preempted by Section 301; proof of a confidential relationship and its breach provide an extra element. 60 In noting that Stromback did not argue that there was an extra element, such as a fiduciary relationship, the district court failed to undertake the proper inquiry in an equivalency analysis. 8 In Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655 (4th Cir.1993), the Fourth Circuit stated that in determining equivalency, a court should compare the elements of the causes of action ..., not the facts pled to prove them. Id. at 659. See also Gates Rubber Co., 9 F.3d at 847 (examining elements of the state cause of action for misappropriation of trade secrets to determine whether the extra element requirement was met); Harolds Stores, Inc. v. Dillard Dep't Stores, Inc., 82 F.3d 1533, 1543 (10th Cir.1996) (following Trandes Corp. ). We believe that Trandes Corp. provides an accurate statement of the law generally, where the state law claim itself furnishes the extra element needed to avoid equivalency. In this case, for example, the district court could have determined the preemption issue solely by examining the elements for a trade secrets misappropriation claim under Michigan law. Because a plaintiff alleging such a claim must prove the existence and breach of a confidential relationship, the claim itself is not preempted. Whether the plaintiff has actually alleged the proper elements of the claim goes to the question of whether the claim could survive a Rule 12(b)(6) motion to dismiss, not whether the claim is preempted. See Firoozye v. Earthlink Network, 153 F.Supp.2d 1115, 1131 (N.D.Cal.2001) (The defendants' contention that the plaintiff has failed to allege a confidential relationship and their citation to Design Art address the merits of the plaintiff's trade secret claim, not whether that claim is preempted by the Copyright Act.). Nonetheless, a court may be required to review the facts as pled by the plaintiff in order to determine whether the acts giving rise to the state law claim are merely acts of copyright infringement. See Sturdza, 281 F.3d at 1304 (To determine whether a state law claim is qualitatively different from a copyright claim — that is, whether the state claim has an `extra element' — courts generally examine both the elements of the state law cause of action and the way the plaintiff has actually pled that cause of action.). For example, a conversion claim will usually survive preemption because the tort relates to the unauthorized exercise of dominion and control, or interference with, another's personal property. See, e.g., Carson v. Dynegy, Inc., 344 F.3d 446, 456-57 (5th Cir.2003) (holding that conversion claim under Texas law survived preemption); United States ex rel. Berge v. Bd. of Trustees of the Univ. of Ala., 104 F.3d 1453, 1463 (4th Cir.1997) (It is hornbook law that a state law action for conversion will not be preempted if the plaintiff can prove the extra element that the defendant unlawfully retained the physical object embodying its work.) (internal quotations and citations omitted). Where the conversion claim involves intangible property, a court should examine the plaintiff's allegations to determine whether the state law right is equivalent to one of the exclusive rights under Section 106. See Daboub, 42 F.3d at 289-90 (holding that the conversion claim was preempted where the plaintiffs alleged that the defendants improperly copied, distributed, and performed their song); Berge, 104 F.3d at 1463 (holding conversion claim preempted because what is crucial is that Berge makes no claim that appellants converted any tangible objects embodying her intellectual property). Likewise, a promise in a breach of contract claim may suffice as an extra element, but this determination must be based upon a review of the plaintiff's allegations. Higher Gear Group, Inc. v. Rockenbach Chevrolet Sales, Inc., 223 F.Supp.2d 953, 958 (N.D.Ill.2002). We followed this approach in Wrench. Although we examined Michigan law regarding contracts implied in fact and contracts implied in law, it was necessary to also examine the plaintiffs' breach of contract allegations to determine whether the promise was a promise to pay for the use of the work, which would not have been preempted, or merely a promise to refrain from reproducing, performing, distributing or displaying the work, which would have been preempted. Wrench, 256 F.3d at 457. Similarly, in Murray Hill Publications, Inc. v. ABC Communications, Inc., 264 F.3d 622 (6th Cir.2001), we set forth the law in Michigan regarding conversion and then determined from the plaintiffs' allegations that the claim was preempted because it met the equivalency requirement. Id. at 636-37. 61 Although the district court incorrectly determined that the misappropriation of trade secrets claim was preempted, this panel may affirm if the decision was correct for any reason, including one the district court did not consider. United States Postal Serv. v. Nat'l Ass'n of Letter Carriers, 330 F.3d 747, 750 (6th Cir.2003). We conclude that dismissal was proper because, as a matter of law, The Keeper poem and screenplay were not trade secrets and, even if they were, there was no misappropriation. In order to constitute a trade secret under MUTSA, information alleged to be a trade secret must [d]erive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. M.C.L. § 445.1902(d)(i). Thus, the essence of a trade secret is that it derives its value from secrecy. Here, Stromback could not possibly argue that his poem and screenplay had independent economic value because he kept them secret. Those works would have independent economic value only if they were exploited publicly through broad dissemination. Furthermore, even if Stromback's poem and screenplay had some independent economic value from being held in secrecy, Stromback could not prove misappropriation. As set forth above, The Keeper poem and screenplay and Little Nicky are not at all similar. The only similarities arise from common and well-known themes, plots, and character traits that are readily ascertainable by other means, id., and therefore cannot constitute trade secrets. Because we have concluded that the two works are not substantially similar, no reasonable juror could conclude that NLC misappropriated any trade secrets from Stromback's works. 62
63 Stromback's final state law claim is a claim for interference with prospective economic advantage. The elements of the claim are: (1) the existence of a valid business relationship or expectancy; (2) knowledge of the relationship or expectancy by the defendant; (3) intentional interference by the defendant which induces or causes a breach or termination of the relationship or expectancy; and (4) damage to the plaintiff. BPS Clinical Labs. v. Blue Cross & Blue Shield of Mich., 217 Mich.App. 687, 698, 552 N.W.2d 919, 925 (1996) (per curiam). Stromback's allegations in support of this claim are that he had a legitimate expectation of a future economic benefit from the development of his poetry and screenplay; that NLC knew that the use of [Stromback's] poem and screenplay would interfere with [his] reputation and [its] development ... within the film industry; and that NLC's actions in misappropriating the poem and screenplay including the characters, character interplay, scenes and events ... and passing them off as [its] own in the production of `Little Nicky' ... were made with the intent that [Stromback's] expected relationships would be disrupted. (1st Am. Compl. ¶¶ 77-79, J.A. at 248.) 64 Generally, tortious interference claims (with contract or prospective economic advantage) are held to be preempted because the rights asserted in such claims are not qualitatively different from the rights protected by copyright. See, e.g., Idema v. Dreamworks, Inc., 162 F.Supp.2d 1129, 1193 (C.D.Cal.2001) (holding that the plaintiff's claim for negligent interference with prospective economic advantage did not protect any right `qualitatively different' from those rights protected by copyright); Titan Sports, Inc. v. Turner Broadcasting Sys., Inc., 981 F.Supp. 65, 74 (D.Conn.1997) (The right that Plaintiff's contracts with Hall and Nash seeks to protect is Plaintiff's exclusive ownership right in its copyrighted material — precisely what the Copyright Act seeks to protect.); Aqua Bay Concepts, Inc. v. Grosse Point Bd. of Realtors, No. 91-CV-74819, 1992 WL 350275, at  (E.D.Mich. May 7, 1992) (There is no indication that the state allegation of contractual interference is `qualitatively different' from the copyright infringement claim.). According to Professor Nimmer, 65 Insofar as unauthorized reproduction, distribution, performance or display causes the plaintiff to lose the benefits that would flow from an actual or prospective contract whereby plaintiff would authorize any such acts, the rights created by the tort of contract interference do not appear to differ qualitatively from rights under copyright; copyright also contemplates loss of actual or prospective contract benefits by reason of such unauthorized acts. Pre-emption in this context would, then, appear to be justified. The fact that the tort, unlike copyright infringement, requires awareness of the conflicting contract and an intentional interference with it merely means that the state-created right is narrower than its copyright counterpart, not that it is qualitatively different so as to preclude pre-emption. 66 1 Nimmer § 1.01[B][1][a] (footnotes omitted). See also Harper & Row Publishers, Inc. v. Nation Enters., 723 F.2d 195, 201 (2d Cir.1983), rev'd on other grounds, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985) (finding the tortious interference claim preempted because unauthorized publication was the basis for the violation and the elements of awareness and intentional interference pled in the tortious interference claim did not render the claim different from a copyright claim). 67 Here, Stromback's tortious interference claim arises out of NLC's alleged copying, display, and distribution of The Keeper poem and screenplay — acts which also violate the exclusive rights granted by Section 106. This claim is based upon activity which constitutes copyright infringement and is preempted because it is not qualitatively different from a copyright infringement claim. We reject Stromback's argument that the development of his reputation is an extra element that somehow renders the claim different from a copyright infringement claim. The bottom line is that the foundation of Stromback's claim is NLC's violation of rights that are granted under and protected by the Copyright Act.