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  • MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A INJUNCTION document preview
  • MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A INJUNCTION document preview
  • MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A INJUNCTION document preview
  • MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A INJUNCTION document preview
  • MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A INJUNCTION document preview
  • MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A INJUNCTION document preview
  • MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A INJUNCTION document preview
  • MICROCHECK SYSTEMS INC (TEXAS CORPORATION) vs. ZIGROSSI & MURPHY L L C (TEXAS CORPORATION) (IND A INJUNCTION document preview
						
                                

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pio CAUSE NO. 2004-59790 IN THE DISTRICT COURT OF MICROCHECK SYSTEMS, INC. and MICROCHECK SOLUTIONS, INC., Plaintiffs, HARRIS COUNTY, TEXAS vs. ZIGROSSI & MURPHY, L.L.C., Individually and d/b/a EDUCATED FIL ED SOLUTIONS; CHRIS ZIGROSSI, District Clerk SCOTT MURPHY; MIKE SMITH, DEC 17 2007 Individually and d/b/a CMS Time: TECHNOLOGY a/k/a CMS Farris County, Texas TECHNOLOGIES; MICHOICE By___ ag TECHNOLOGY SYSTEMS, INC.; JIM HAYDEN; ALEX CAMPBELL and JASON JABLECKI, Defendants. eT SS OS Sawer 125™ JUDICIAL DISTRICT DEFENDANT MIKE SMITH’S REPLY TO PLAINTIFFS’ RESPONSE TO DEFENDANTS’ MOTION TO DISMISS TO THE HONORABLE JUDGE OF SAID COURT: COMES NOW Mike Smith, a Defendant in the above-styled case, and on behalf of himself and all Defendants, files this Reply to Plaintiffs’ Response to Defendants’ Motion to Dismiss. In support thereof, Defendants would. respectfully show the Court as follows: RECORDER'S MEMORANDUM This instrument is of poor quality at the time of imagingSUMMARY OF ARGUMENT Federal copyright law preempts all state law claims that regulate the use and dissemination of copyrighted materials. In other words, if a claim alleges theft of copyrighted material through the reproduction, use or dissemination of that material, it is preempted. Applying this principle to the present case, Plaintiffs’ causes of action for conversion (Count III), misappropriation (Count V), theft (Count VI) and unfair competition (Count VIII, and their claim for conspiracy as it relates to those counts (Count XI), are necessarily preempted because they are clearly dependent upon Defendants’ alleged theft of copyrighted material. Because Plaintiffs’ claims for conversion and misappropriation are preempted, so too is Plaintiffs application for injunctive relief, which is based on those claims. Thus, at a minimum, dismissal is required as to these six counts of Plaintiffs’ Petition. ARGUMENT AND AUTHORITIES In their Response to the Motion to Dismiss, Plaintiffs do not dispute the basic standard for Copyright Act preemption that has been adopted by the Fifth Circuit and the Texas appellate courts — namely, if the act of infringement also creates liability under state Jaw, then the state law claim is preempted. Butler v. Continental Airlines, 31 $.W.3d 642, 646 (Tex. App.—Houston [1* Dist.] 2000, no pet.). This was the standard applied by the Houston appellate court in Butler, as well as by the U.S. district court in the same case as it was refiled in federal court. See Butler v. Continental Airlines, Inc., 2001 WL 1509545 (S.D. Tex., Nov. 19, 2001). As the federal court noted in Butler, “A state law cause of action is ‘equivalent’ to the rights granted in the Copyright Act if ‘themere act of reproduction, distribution, or display infringes on it.” Butler, 2001 WL 1509545 at *2, quoting Taguino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5" Cir. 1999). Thus, the preemption analysis necessarily centers on whether the claim at issue implicates a right that is protected by federal copyright law. Using this standard, courts routinely hold that a plaintiff's claims under state law for “conversion,” misappropriation” or “trade secret protection” of copyrighted materials are preempted by the Copyright Act. See, e.g., Dun & Bradstreet Software Servs., Inc. v. Grace Consulting, Inc., 307 F.3d 197, 218 (3rd Cir. 2002)(“Claims of misappropriation of trade secrets that are based solely upon copying are qualitatively equivalent to copyright infringement, and are preempted.”); Sun Micro Med. Techs. Corp. v. Passport Health Communs., Inc., 2006 U.S. Dist. LEXIS 87772 (S.D.N.Y. 2006)(“[T]he gravamen of SMT's claim is that ‘Passport wrongfully converted the SMT Information without adequate compensation to Plaintiff.’....The SMT Information is the same information SMT claims copyright ownership of and alleges the Defendants misappropriated in its copyright infringement claim.... Since the conversion claim comprises the same materials for which SMT seeks copyright protection ... its claim for conversion is preempted.”); Gemel Precision Tool Co. v. Pharma Tool Corp., 1995 U.S. Dist. LEXIS 2093 (E.D. Pa. 1995)(plaintiff's state law conversion claim was preempted by federal copyright law even though plaintiff alleged defendants had deprived it physically of its property; plaintiff alleged that defendants unlawfully "removed from plaintiff's premises copies of plaintiffs copyrighted works, blueprints, computer files, drawings, material specifications, customer and pricing information, [and] trade secret designs" and copiedsuch materials. The court found that plaintiff's claim for conversion, "as it related to the copyrighted blueprints and databases, [was] substantively similar to plaintiff's claim for copyright infringement."); Videotronics, Inc. v. Bend Electronics, Inc., 564 F.Supp. 1471 (@. Nev. 1983) (“Because the court has found that the plaintiff's property interest in the computer programs contained in this electronic video device is covered by the Copyright Act, relief under the state common law doctrines of misappropriation and trade secret cannot be obtained here.”) Consistent with these authorities, no matter how Plaintiffs attempt to disguise them, their claims for misappropriation, theft, conversion, unfair competition, and conspiracy to do such things are preempted by the federal Copyright Act, because they all center upon the alleged taking of copyrighted materials such as computer source codes. While not disputing the basic standard, Plaintiffs attempt to stretch a very narrow limitation on the general tule of preemption that was articulated in BPI Systems, Inc. v. Leith, 542 F.Supp. 207 (W.D. Tex. 1981) and Southern Miss. Planning and Dev. Dist., Inc. v. Robertson, 660 F.Supp. 1057 (S.D. Miss. 1986), to cover all of their claims. However, those cases clearly do not apply to Plaintiffs’ claims for conversion, misappropriation, theft and unfair competition, all of which are necessarily dependent upon a showing that Defendants have stolen copyrightable material. 1. Conversion.. Conversion, as pleaded by Plaintiffs in Count III (paragraphs 43 and 44) of their Petition, requires proof that Defendants have unlawfully assumed dominion or control over Plaintiffs’ assets. Where copyrighted material is concerned, conversion is effected by reproducing, using or disseminating protected writings inviolation of the Copyright Act. There is no “extra element” in conversion that would produce a qualitatively different claim; both the Copyright Act and the law of conversion prohibit the copying of protected works. Thus, Plaintiffs’ conversion claim is precisely the type of “equivalent” allegation the Houston First Court of Appeals held was preempted in Butler. See also Alliance for Telcoms. Indus. Solutions, Inc. v. Hall, 2007 U.S. Dist. LEXIS 79934 (D. Md. 2007)(“Thus a conversion claim based solely on the reproduction of a work within the scope of the Copyright Act, or the creation of a derivative work based on the original work, or the distribution of the work would be preempted.”) In an effort to deflect attention from this controlling law, Plaintiffs embark on a slippery slope that runs as follows: (a) breach of fiduciary duty claims are not preempted, and (b) a fiduciary holds a “confidential relationship,” so therefore (c) the Copyright Act does not preempt things that deal with confidential relationships, which (d) include matters of protecting privacy. Pltfs’ Resp. at 9 (“e.g., “the right to privacy and protection of fiduciary and other confidential relationships”). From there, Plaintiffs vaguely suggest that claims for conversion and theft “are also intended to protect MicroCheck’s privacy.” Response, at J 10. Thus, Plaintiffs conclude, their conversion claim is not preempted by the Copyright Act. The fallacies in this argument are self- evident. Butler cuts through this sophistry and simply holds that conversion claims are preempted, strained notions of “privacy interests” notwithstanding. 2. Misappropriation. Just as with conversion, claims for misappropriation are preempted by the federal Copyright Act. Butler, 31 S.W.3d at 646; Butler, 2001 WL1509545 at *2. In an effort to rescue this claim, Plaintiffs cite two cases dealing with the amorphous concept of “trade secrets.” However, there are glaring problems with each. Specifically, the BPI Systems case did not apply copyright preemption because, as the opinion states, the information “was not copyrighted.” BPI Sys., 532 F. Supp. at 211. In contrast, the source codes Plaintiffs allege were copied in the instant case are clearly protected by federal copyright law. In Robertson, the other pre-Butler case cited in Plaintiffs’ Response, there was an “extra element” to the amorphous “trade secret” claims raised by that plaintiff that was not duplicated by the Copyright Act — namely, the attempted sale of the subject software. Robertson, 660 F. Supp. at 1057. In the present case, Plaintiffs do not allege in their Response that Defendants sold Plaintiffs’ copyrighted information. Thus, Robertson is inapposite, even if it represented governing Texas law (which it does not). Because the source codes Plaintiffs complain were taken are protected by copyright law, there is no question but that any misappropriation claims stemming from such a taking are preempted. See Dun & Bradstreet 307 F.3d at 218; Sun Micro Med., 2006 U.S. Dist. LEXIS 87772; Gemel Precision Tool, 1995 U.S. Dist. LEXIS 2093; Videotronics, 564 F. Supp. at 1471. 3. Theft. Plaintiffs’ allegation of theft is exactly like their claim for conversion. The only way to steal copyrighted material is to copy it, and that is what Plaintiffs have alleged in Count VI of their Petition. Because “the mere act of reproduction, distribution, or display,” Butler, 2001 WL 1509545 at *2, gives rise to a Texas Theft Liability Act claim, Count VI of Plaintiffs’ Petition is wholly preempted.A ~ 4. Unfair Competition. Significantly, in Count VIII of their Petition, Plaintiffs do not assert that Defendants actually used the allegedly stolen source codes or other copyrightable information to compete with Plaintiffs. Because use is not alleged, Count VIII must necessarily be premised upon the “mere act of reproduction or distribution” of Plaintiffs’ assets. Jd. Count VIII of Plaintiffs’ Petition is accordingly preempted for the same reason as the above-discussed misappropriation, theft and conversion claims. 5. Conspiracy. This count, as it relates to the claims in Counts III, V, VI and VIII, fails for the same reasons set forth above. 6. Injunctive Relief. This count, because it is based on Counts III and V, fails for the same reasons set forth above. CONCLUSION For the foregoing reasons, Defendant Mike Smith (on behalf of all Defendants) asks the Court to grant his Motion to Dismiss in its entirety or, at a minimum, to dismiss Counts III, V, VI, and VIII of Plaintiffs’ Petition, and to dismiss Counts I and X as it relates to the aforementioned counts. Defendant further requests such other relief to which he may be justly entitled. Respectfully submitted, ry TBA #14711000 12850 Jones Road, #201 Houston, TX 77070281.807.4400 Ph. 281.970.1664 SCHIFFER ODOM HICKS PLLC dam P. Schiffer TBA #17745763 Phoenix Tower, 3200 Southwest Fwy., Suite 2390 Houston, Texas 77027 CERTIFICATE OF SERVICE I hereby certify that, on December 17, 2007, true and correct copies of the foregoing DEFENDANT MIKE SMITH’S REPLY TO PLAINTIFFS’ RESPONSE TO DEFENDANTS’ MOTION TO DISMISS w: t to all counsel of record by fax. ce: Christopher D. DeMeo State Bar No. 00796456 Chris M. Knudsen State Bar No. 24041268 2500 Two Houston Center 909 Fannin St. Houston, Texas 77010 713/951-1000 713/951-1199 — fax J. Reid Perry, Attorney at Law 12850 Jones Road, #201 Houston, TX 77070 281.970.4175 Ph. 281.970-1664 Fax The Law Offices of David P. Petersen, P.C. David P. Petersen 8303 Southwest Freeway, Suite 810 Houston, TX 77074 713.779.8500 713.779.8648 FaxROY MURPHY & ASSOCIATES ATTORNEYS AT LAW 12850 JONES ROAD, SUITE 201 HOUSTON, TEXAS 77070 ROY MURPHY, Hl OFFICE: 281.807.4400 BOARD CERTIFIED PERSONAL INJURY TRIAL LAW FAX: 281.970.1664 ‘TEXAS BOARD OF LEGAL SPECIALIZATION METRO: 936.931.3464 LED Pe Aion a 125" Judicial District Court ee 2Attn: George DEC 17 2007 201 Caroline, 10” Floor Time: Houston; TX 77002 aris County, Texas By. Re: Cause No. 2004-59790; Microcheck SysteRe nc, et al vs. Zigrossi & Murphy, LLC, et al; In the 125th Judicial District Court of Harris County, Texas Dear George: Please file the enclosed: DEFENDANT, MIKE SMITH’S REPLY TO PLAINTIFFS’ RESPONSE TO DEFENDANTS’ MOTION TO DISMISS. (X) Please stamp the date of filing on copy of this letter & pleading to signify filing of the above and return it for my files. (X) _ All counsel has been sent a copy of same. Thank you for your prompt attention to this matter.Ce: SHEEHY, SERPE & WARE Christopher D. DeMeo 2500 Two Houston Center © 909 Fannin St. : Houston, Texas 77010 713/951-1000 713/951-1199 — fax J. Reid Perry, Attorney at Law 12850 Jones, Road, Suite 201 Houston, Texas 77070 281.970.4175 Ph. 281.955.1664 Fax David P. Petersen 8303 Southwest Freeway, Suite 810 Houston, TX 77074 713.779.8500 Ph. 713.779.8648 Fax