The opinion of the court was delivered by: Green, Senior District Judge.
Presently before the court are Plaintiffs' Motion for Summary
Judgment as to Defendants' Counterclaim, Defendants' Motion for
Leave to Amend the Pleadings and the parties' responses thereto.
For the reasons stated below, Plaintiffs' motion will be granted
in part and denied in part and Defendants' motion will be
Plaintiffs, Technology Based Solutions, Inc. ("TBS") and its
President and owner, James Roberts ("Roberts"), seek a
declaratory judgment that neither TBS nor Roberts infringed any
copyrights or other rights held by Defendants, Electronic
College, Inc. ("ECI") and its President, A. Norton McKnight
("McKnight"). In or around 1975, Edu-Systems, Inc. ("ESI"), a
company owned by Roberts, contracted with the Department of
Education of the State of Maryland to produce a set of materials
to test students on their awareness of employer's expectations
in relation to a defined set of attitudes. (See Roberts Aff. ¶
2.) ESI produced and submitted the materials to the Department
of Education. (See Roberts Aff. ¶ 4.) ESI then formatted the
materials, which allegedly became a copyrighted product of ESI.
(See Roberts Aff. ¶ 5.)
On January 1, 1992, Education Technologies, Inc. ("ETI"),
another company owned by Roberts, contracted with ECI to develop
a new product called PAVE (the "Joint Development Contract").
(See Pls.' Mem. Supp. Summ. J., Ex. M.) The materials
originally produced by Roberts in 1975 were also used to develop
PAVE. (See Roberts Aff. ¶ 6.) In 1993, Centec Learning Center
("Centec") purchased ETI and allegedly assumed its rights and
obligations under the Joint Development Contract. (See Roberts
Aff. ¶ 7.) In addition, Roberts became Vice-President of Centec.
(See Roberts Aff. ¶ 7.) In February 1995, ECI filed an
arbitration claim against Centec for alleged breach of the Joint
Development Contract. An arbitration award was issued in favor
of ECI on December 15,1995. (See Pls.' Mem. Supp. Summ. J.,
Ex.s D, N.) Centec then entered into a settlement agreement with
both ECI and McKnight dated January 11, 1996 ("Settlement
Agreement"). (See Pls.' Mem. Supp. Summ. J., Ex. N.)
Roberts subsequently left Centec and created a new company,
TBS (as stated earlier, both Roberts and TBS are Plaintiffs
herein). Using the original scripts developed in 1975, Roberts
created a product called "Employability Attitudes." In July
1999, ECI, through its attorney, informed TBS that it was
prepared to take legal action against TBS for copyright
infringement and breach of the Settlement Agreement. (See
Pls.' Mem. Supp. Summ. J., Ex. D.) In the alternative, ECI was
willing to accept a settlement of $500,000.00 in damages. (See
id.) TBS denied all allegations and demanded ECI provide facts
to support its claims. (See Pls.' Mem. Supp. Summ. J., Ex. E.)
ECI allegedly failed to respond to TBS' request. (See Pls.'
Mem. Supp. Summ. J., Ex. F.)
On or about September 28, 1999, Plaintiffs commenced this
action seeking a declaratory judgment of non-infringement of
Defendants' copyrights pursuant to the. Declaratory Judgment
Act, 28 U.S.C. ¶¶ 2201, 2202. Jurisdiction is premised on
diversity of citizenship.*fn1 Defendants filed an Answer and
Counterclaim. Plaintiffs now move for summary judgment against
Defendants' Counterclaim. Defendants filed a response and also
seek to amend its Counterclaim.
Summary judgment shall be awarded "if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
A dispute regarding a material fact is genuine "if the evidence
is such that a reasonable jury could return a verdict for the
nonmoving party." Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Once the moving
party has carried the initial burden of showing that no genuine
issue of material fact exists, the nonmoving party cannot rely
on conclusory allegations in its pleadings or in memoranda and
briefs to establish a genuine issue of material fact. See
Pastore v. Bell Telephone Co. of Pa., 24 F.3d 508, 511 (3d Cir.
1994). The nonmoving party, instead, must establish the
existence of every element essential to his case, based on the
affidavits or by the depositions and admissions on file. See
id. (citing Harter v. GAF Corp., 967 F.2d 846, 852 (3d Cir.
see also Fed.R.Civ.P. 56(e). The evidence presented must be
viewed in the light most favorable to the non-moving party. See
Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir.
In the present matter, Plaintiffs move for summary judgment
against Defendants' Counterclaim on three grounds. Plaintiffs
argue that Defendants' Counterclaim should be dismissed in its
entirety, because the allegations are preempted by the Copyright
Act and barred by Pennsylvania's two-year statute of
limitations. In addition, Plaintiffs argue that Defendants'
allegations that Plaintiffs breached the Settlement Agreement
are without merit, because there is no privity of contract
between Plaintiffs and Defendants. Defendants' Counterclaim
alleges that Plaintiffs breached the Settlement Agreement by
improperly retaining and copying Defendants' PAVE product.
Defendants also allege that Plaintiffs' conduct resulted in
unfair competition and unjust enrichment.
Federal district courts have exclusive original jurisdiction
over civil cases which arise under congressional acts relating
to copyrights. See 28 U.S.C. § 1338(a). Under the Copyright
Act, state law claims which fall within the subject matter of
copyrights are preempted. See 17 U.S.C. § 301(a).*fn2
However, state law claims that are completely preempted by §
301(a) of the Copyright Act may be converted into federal
claims. See, e.g., Rosciszewski v. Arete Associates,
1 F.3d 225, 232 (4th Cir. 1993). Conversion is supported by the
rationale that "Congress may so completely pre-empt a particular
area that any civil complaint raising this select group of
claims is necessarily federal in character." Metropolitan Life
Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 95
L.Ed.2d 55 (1987) (discussing complete preemption in the ERISA
context). The practice of converting preempted state law claims
into federal claims has occurred in removal actions. See
Rosciszewski, 1 F.3d at 233; Metropolitan Life Ins. Co., 481
U.S. at 66, 107 S.Ct. 1542.
In the present matter, both parties concede that Defendants'
Counterclaim is preempted by the Copyright Act, but disagree
whether preemption entitles Plaintiffs to summary judgment or
merely a conversion of Defendants' claims into copyright
infringement claims. Plaintiffs contend that the allegations
asserted in the Counterclaim fall within the subject matter of
copyright and should be dismissed. Defendants argue against
dismissal on the ground that the allegations asserted in the
Counterclaim are automatically converted into copyright
infringement claims. Although Defendants acknowledge that
complete conversion has been permitted only in removal actions,
they find no reason why the principle should not extend to