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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