Design Data v. Unigate Enterprise

Citation
'''Design Data Corp. v. Unigate Enterprise, Inc., 2013 WL 360542, 2013 U.S. Dist. LEXIS 12060 (N.D. Cal. Jan. 29, 2013) (full-text).

Factual Background
Plaintiff produces structural steel detailing software which is copyrighted. It brought suit against Unigate Enterprise, Inc.; Unigate Graphic; and Unigate Investment, Inc. – each doing business as Unigate Steel Detailing – alleging copyright infringement and unjust enrichment.

District Court Proceedings
Defendant moved to dismiss for the second cause of action alleging no basis for cognizable cause of action for unjust enrichment. Design Data replaced that claim with one for breach of contract implied in law, with recovery based on quantum meruit. The court cited the Copyright Act (17 U.S.C. § 301) and explained that the Copyright Act preempts state law claims for works that fall within the subject matter of copyright and “the state law grants legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright.” Further, it held that state law cause of action must assert rights that are qualitatively different from the rights protected under the copyright law. Contract claims survive preemption because they require an “extra element” which changes the cause of action.

Unigate again moved to dismiss Design Data’s claim, arguing that every fact alleged by Design Data in support of its claim falls under the subject matter of copyright law and no fact in the compliant established the required “extra element” thus it was preempted by the Copyright Act. Unigate cited the Northern District’s prior ruling in Lewis v. Activision Blizzard, holding that the Copyright Act preempted a claim for quantum meruit when the claim was based entirely on seeking compensation for unauthorized use of a voice recording. Design Data argued that Lewis is not similar to its claim because its claim hinged on defendant’s willful unauthorized use of it’s software which resulted in implied contract to pay for that use. It asserted, “because [Unigate] ‘knew’ their use of the copyrighted software created an implied obligation to pay for licensing fees and a maintenance agreement, the ‘extra element’ test is satisfied.” The court disagreed.

The court held that Design Data’s claim failed under either of the implied contracts recognized by California law – implied-in-fact contract and implied-in-law. First, it noted that plaintiff failed to state an implied-in-fact contract claim because it failed to allege facts showing neither that the parties entered into a binding contract nor parties’ intent to enter into a binding contract. Further, the court noticed that California courts have held that privity between parties is a necessary element of implied-in-fact contracts. Had plaintiff’s claim had these present, its claim would have been a Desny-type claim, which the Ninth Circuit held previously is not preempted by the Copyright Act. Desny was a claim for implied-in-fact contract that required plaintiff to show that he has made and disclosed it work to the offeree for sale and the latter voluntarily accepted it knowing the terms on which it was rendered and the value of the work. Id. Moreover, the court found that plaintiff asserted only a claim for breach of an implied-in-law contract, with recovery under a theory of quantum meruit, which is “not the same as contarct implied in fact.”

Second, the court reasoned implied-in-law contract claim was simply a classic copyright infringement claim because allegations in the complaint only established ownership of a copyrighted work used without authorization. Design Data alleged no “extra element” that would make its claim not “equivalent to the rights protected by the Copyright Act.” The court stated: “A claim based on an implied-on-fact contract includes no extra element in addition to defendant’s unauthorized use of the copyrighted work, and it is therefore equivalent to the rights protected by the Copyright Act.” Thus, the court held that the implied-in-law contract claim was preempted by the Copyright Act.

For the following reasons, the court granted defendant’s motion to dismiss the second cause of action and granted plaintiff leave to amend to attempt to state a claim for quantum meruit.