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April 3, 2001


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 granted.


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. 1992)); 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. 1983).

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.

1. Preemption

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 non-removal actions.

This court is not aware of any federal court decision holding that, absent claims involving removal, a party's preempted state law claim or counterclaim may not be converted into a copyright infringement claim. Accordingly, I find no legitimate reason why the conversion principle should not apply to non-removal cases, including the present matter. Conversion is predicated on the theory of complete preemption, which provides that an area of state law may be so completely preempted by Congress that any claim based on the preempted state law is considered a federal claim. In this matter, both parties acknowledge that Defendants' Counterclaim falls within the subject matter of copyrights and is therefore completely preempted by the Copyright Act.*fn3 The grant of exclusive jurisdiction to federal district courts over civil actions arising under the Copyright Act, coupled with the complete preemption of Defendants' Counterclaim by the Copyright Act, compels the conclusion that Defendants' Counterclaim — as it relates to the allegations of misappropriation, ...

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