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Tegg Corp. v. Beckstrom Electric Co.

November 26, 2008

TEGG CORPORATION, PLAINTIFF,
v.
BECKSTROM ELECTRIC CO., AND EXTENSIA TECHNOLOGIES, INC., DEFENDANTS.



The opinion of the court was delivered by: Judge Nora Barry Fischer

MEMORANDUM OPINION

I. INTRODUCTION

Before this Court are challenges by Defendants Beckstrom Electric Co. ("Beckstrom") and Extensia Technologies ("Extensia") that certain causes of action asserted by Plaintiff TEGG Corporation ("Plaintiff") in its Second Amended Complaint (Docket No. 56)*fn1 are preempted by the Copyright Act of 1976, 17 U.S.C. § 101 et seq. ("the Copyright Act"). Underlying this action is the sale of competing computer software by rival businesses. Plaintiff has brought claims of copyright infringement, tortious interference, and civil conspiracy against both Defendants, breach of contract against Beckstrom, only; and, conversion against Extensia, only. (Docket No. 56). The following motions are currently pending before the Court: (1) Defendant Beckstrom's motion to dismiss Plaintiff's claims of tortious interference and civil conspiracy (Docket No. 60); and, (2) Defendant Extensia's motion to dismiss Plaintiff's claims of conversion, tortious interference, and civil conspiracy (Docket No. 63). Based on the following, Extensia's Motion to Dismiss [63] is GRANTED, Plaintiff's civil conspiracy claim against Beckstrom is DISMISSED and Beckstrom's Motion to Dismiss [60] is GRANTED IN PART AND DENIED IN PART.

II. FACTUAL BACKGROUND*fn2

In response to this Court's Memorandum Opinion and Order issued July 1, 2008 (Docket No. 51), TEGG amended its previous complaint by adding detailed claims stating that all versions of the TEGGTask software applications and databases have registered copyrights. (Docket No.56 at ¶¶ 18-27). TEGG also added a more detailed description about how the EMX software is allegedly similar to the TEGG software. (Id. at ¶¶ 77-84). For example, TEGG avers that its software is structured into three modules: TEGGTask Central, which manages a franchisee's inspection and maintenance programs, TEGGTask Remote, which is the data collection component and is tailored for use by technicians while at customer sites, and TEGGTask View, which interfaces with the computers of a franchisee's customers and allows the customers to access live inspection and maintenance data. (Id. at ¶ 78). TEGG claims that the EMX software is also structured into three modules with similar functionality. (Id. at ¶80).

In addition, TEGG supplemented all of its claims with the following allegations:

49. On or about October 22, 2002, TEGG and Beckstrom entered into a TEGG Franchise Agreement (the "Beckstrom Agreement"). ...

54. TEGG provided Beckstrom with non-transferable licenses to operate on Beckstrom's computers the TEGGTask 5 Software Application and the TEGGTask 6 Software Application, as well as the TEGGTask 5 Database and the TEGGTask 6 Database.

55. In the Beckstrom Agreement, Beckstrom agreed that the materials that TEGG provided to Beckstrom concerning the TEGG System, including the TEGGTask 5 Software Application and the TEGGTask 6 Software Application and the TEGGTask 5 Database and the TEGGTask 6 Database: (a) were confidential and proprietary to TEGG; (b) remained the sole property of TEGG; (c) would be used solely for the operation of Beckstrom's franchise; (d) would not be copied; and (e) would not be disclosed to third parties and/or be made accessible to third parties.

56. The Beckstrom Agreement expressly prohibits Beckstrom from making copies of any materials concerning the TEGG System, including the TEGGTask 5 Software Application, TEGGTask 6 Software Application, TEGGTask 5 Database, and TEGGTask 6 Database, and/or disclosing those materials to others without the prior written consent of TEGG.

57. The Beckstrom Agreement provides that, upon any breach of its confidentiality and termination obligations, Beckstrom shall pay all costs and expenses, including reasonable attorneys' fees incurred by TEGG.

58. On or about December 16, 2005, TEGG and Beckstrom mutually agreed in writing to terminate the Beckstrom Agreement (the "Termination Agreement").

59. The Termination Agreement terminated the Beckstrom Agreement effective February 1, 2006.

60. Pursuant to the Termination Agreement, Beckstrom affirmatively agreed to discontinue use of TEGG's confidential and proprietary materials, specifically including the TEGG System and all software that TEGG had provided to Beckstrom, which included the TEGGTask 5 Software Application, TEGGTask 6 Software Application, TEGGTask 5 Database, and TEGGTask 6 Database.

61. Beckstrom, both in the Termination Agreement and in a separate Affidavit notarized on January 30, 2006, further represented that it had returned to TEGG and/or discontinued use of all of TEGG's confidential and proprietary materials and systems, specifically including the software that TEGG had provided to Beckstrom-which included theTEGGTask 5 Software Application, TEGGTask 6 Software Application, TEGGTask 5 Database, and TEGGTask 6 Database-and that Beckstrom's use of such materials, systems, and computer programs have been discontinued.

62. The Termination Agreement specifically provides that Beckstrom has a continuing duty to comply with the confidentiality obligations of the Beckstrom Agreement.

63. In violation of both the Beckstrom Agreement and the Termination Agreement, as well as in violation of federal copyright laws, in order to assist with the development of the EMX Software, Beckstrom provided Extensia with a copy of and/or unauthorized access to the TEGGTask 5 Software Application and/or the TEGGTask 6 Software Application, including the copyrighted TEGGTask 5 Database and/or the copyrighted TEGGTask 6 Database programmed with confidential and proprietary database schema, and other confidential and proprietary information and documentation relating to TEGG software.

...

69. This unauthorized access, provided by Beckstrom in violation of the Agreement and the Termination Agreement, provided Extensia with a significant advantage in developing the EMX Software. From the blueprint of the copyrighted TEGGTask 5 Database and/or the copyrighted TEGGTask 6 Database programmed with confidential and proprietary database schema, Extensia learned the structure, organization, and sequence of the entire TEGGTask 5 Software Application and/or the TEGGTask 6 Software Application, respectively. This learning process permitted Extensia to save hundreds if not thousands of hours of software development time because it learned what to do, or not to do, when developing the EMX Software.

...

123. Extensia and Beckstrom do not have, and have not sought, TEGG's permission to sell the EMX Software, which is a derivative version of the copyrighted TEGGTask 5 Software Application and/or the copyrighted TEGGTask 6 Software Application, including the copyrighted TEGGTask 5 Database and/or the copyrighted TEGGTask 6 Database programmed with confidential and proprietary database schema.

...

129. Despite the fact that Extensia has neither sought TEGG's permission nor provided attribution, Extensia has utilized the "TEGG" registered Trademark in its marketing efforts for the EMX Software.

(Docket No. 56 at ¶¶ 49, 54-63, 69, 123, 129).

TEGG also supplemented its claims for conversion, tortious interference, and civil conspiracy. First, TEGG alleges that Extensia converted TEGG's copyrighted property for its own use, including the TEGG software, databases, and screen images. (Docket No. 56 at ¶ 159). Secondly, TEGG avers that Beckstrom, as a former franchisee, is aware of the confidentiality agreements contained in the written franchise agreements between TEGG and its franchisees. (Id. at ¶ 167). TEGG further states that by actively marketing its EMX software and/or requesting TEGG's franchisees to provide it with access to or a copy of the TEGG database, Extensia is intentionally and knowingly interfering with TEGG's existing contractual relationships with its franchisees. (Id. at ¶ 171). By assisting Extensia with the marketing of Extensia's EMX software, TEGG contends Beckstrom is also intentionally and knowingly interfering with TEGG's contractual relationships with its franchisees, including the confidentiality agreements. (Id. at ¶ 172). Thirdly, TEGG alleges that Extensia and Beckstrom formed an agreement to infringe upon TEGG's copyrights, (Id. at ¶ 177), and each Defendant then acted on the agreement through unauthorized delivery of the TEGG software and databases to Extensia, and by the marketing of the allegedly infringing EMX software. (Id. ¶¶ 179-80).

III. PROCEDURAL HISTORY*fn3

TEGG filed its Second Amended Complaint on July 30, 2008. (Docket No. 56). Beckstrom filed its Answer to Plaintiff's copyright claim and breach of contract claim in response to the Second Amended Complaint on August 18, 2008. (Docket No. 59). Simultaneously, Beckstrom filed a Motion to Dismiss the tortious interference and civil conspiracy claims contained in the Second Amended Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing that the Copyright Act of 1976 ("the Copyright Act") preempts the tortious interference claim and that both the tortious interference and civil conspiracy claims are improperly pled. (Docket No. 60). On the same day, Extensia filed its Answer to the copyright claim asserted in the Second Amended Complaint (Docket No. 62) as well ...


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