TruLogic, Inc. v. Gen. Elec. Co. , 2021 Ohio 2860 ( 2021 )

[Cite as TruLogic, Inc. v. Gen. Elec. Co., 2021-Ohio-2860.]
IN THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DISTRICT
GREENE COUNTY
TRULOGIC, INC. :
:
Plaintiff-Appellant : Appellate Case No. 2021-CA-3
:
v. : Trial Court Case No. 2020-CV-464
:
GENERAL ELECTRIC COMPANY : (Civil Appeal from
through its GEA DIVISION : Common Pleas Court)
:
Defendant-Appellee :
...........
OPINION
Rendered on the 20th day of August, 2021.
...........
D. JEFFREY IRELAND, Atty. Reg. No. 0010443, BRIAN D. WRIGHT, Atty. Reg. No.
0075359 and DONALD E. BURTON, Atty. Reg. No. 0040553, 110 North Main Street,
Suite 1600, Dayton, Ohio 45402
Attorneys for Plaintiff-Appellant
APRIL L. BESL, Atty. Reg. No. 0082542 and JACI L. OVERMANN, Atty. Reg. No.
0089306, 255 East Fifth Street, Suite 1900, Cincinnati, Ohio 45202
Attorneys for Defendant-Appellee
.............
WELBAUM, J.
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{¶ 1} Plaintiff-Appellant, TruLogic, Inc., appeals from a judgment granting a Civ.R.
12(B)(6) motion filed by Defendant-Appellee, General Electric Company through its GEA
Division (“GEA”). According to TruLogic, the trial court erred in concluding that its claims
for breach of contract and unjust enrichment were preempted by federal copyright law.
{¶ 2} We conclude that TruLogic’s claim for breach of contract was not preempted
by federal copyright law. A software licensing agreement may involve the required extra
element (instead of or in addition to the acts of reproduction, performance, distribution, or
display) that changes the action’s nature so that it is qualitatively different from a copyright
infringement claim. Under the allegations of the complaint, accepted as true, TruLogic’s
restriction of the use of its software and other restrictions in the software licensing
agreement provided the extra element required to avoid preemption.
{¶ 3} However, the trial court did not err in dismissing TruLogic’s claim for unjust
enrichment. Unjust enrichment involves a contract implied in law. Where an express
agreement exists, there can be no implied agreement. Further, while parties are
permitted to plead alternative claims, the allegations in the complaint and the attached
software licensing agreement provided that the written agreement was the entire
agreement of GEA and TruLogic and superseded all prior or contemporaneous oral or
written communications, proposals, and representations with respect to TruLogic’s
software or any other subject matter covered by the software agreement. As a result,
regardless of preemption, there could be no claim for unjust enrichment.
{¶ 4} Finally, even if we needed to address preemption of the unjust enrichment
claim, TruLogic’s minimal defense of the claim did not address the reasons why
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preemption law distinguishes between contracts implied in law and those based on either
an express contract or one implied in fact. Specifically, contracts implied in law do not
involve allegations of actual promises between the parties. Such promises can provide
the required extra element to avoid preemption.
{¶ 5} Accordingly, TruLogic’s first assignment of error will be sustained and its
second assignment of error will be overruled. The judgment, therefore, will be reversed
in part and affirmed in part, and this cause will be remanded for further proceedings.
I. Facts and Course of Proceedings
{¶ 6} Before we discuss the factual background, we note that this case is before
us following a Civ.R. 12(B)(6) dismissal. As a result, we will accept the facts alleged in
the complaint as true. Mitchell v. Lawson Milk Co., 40 Ohio St.3d 190, 192, 532 N.E.2d
753 (1988).
{¶ 7} According to the complaint, TruLogic was founded in 1998 and provides
electronic data solutions to the United States and foreign military services, as well as to
automotive systems manufacturing facilities. TruLogic specializes in products and
services supporting “technical writing, illustrating, data management, and publishing.”
Complaint at ¶ 4.
{¶ 8} In 2000-2001, TruLogic used its proprietary publishing platform, TruView™,
to develop Interactive Electronic Technical Manuals (“IETMs”) for the United States Navy.
Id. at ¶ 5. Shortly thereafter, in 2002, GEA expressed an interest in having TruLogic
replace its current supplier of IETMs for engine-related technical services to the United
States Air Force (“USAF”). Id. at ¶ 6. After TruLogic demonstrated its product and bid
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on the work, GEA awarded TruLogic a four-year contract to supply IETMs. These IETMs
incorporated GEA data for the USAF’s use in connection with its use of GEA products.
Id. at ¶ 7. In addition, as GEA’s service supplier, TruLogic performed the routine update
service of Standardized Generalized Markup Language (SGML)-based aircraft engine
technical manuals and “provided modified, GE-branded Interactive Electronic Technical
Manual (IETM) products from 2002 to 2012 utilizing TruLogic’s pre-existing commercial
software products.” Id. at ¶ 8.
{¶ 9} TruLogic again bid on the GEA IETM contract in 2006 and won the bid, thus
continuing contractual relations with GEA on the USAF contract until 2012. Id. at ¶ 9-10.
In order to fulfill the contract for IETM deliverables, TruLogic licensed the use of the IETMs
that it had developed to GEA and its customer, USAF. Id. at ¶ 11. Although GEA
supplied the technical content, TruLogic developed the style and format, and it produced
the IETMs using its proprietary, copyrighted publishing platform, TruView™. Id.TruView™ pre-existed TruLogic’s contractual relationship with GEA and was not
developed as part of that relationship. Id. at ¶ 12. “TruLogic has never given GEA or
anyone else the right or option to reverse-engineer or to reuse components of its
software.” Id. at ¶ 14.
{¶ 10} Beginning in 2008, TruLogic licensed IETMs to GEA under an end user
license agreement (“EULA”), which let GEA use the IETM in its deliverables to GEA
customers. Complaint at ¶ 15. However, the EULA restricted any other uses, “including
specifically prohibiting any repurposing or creation of derivatives of the TruView™ IETM.”
Id. TruLogic attached a copy of the 2008 EULA to the Complaint, and while it has been
updated from time to time, the terms have essentially remained the same. Id. at ¶ 16-17-5-
and Ex. A (“2008 EULA”).
{¶ 11} The EULA was a “click-thru” agreement, and GEA and USAF could not have
used TruLogic’s software without accepting it; the license terms appeared at the time of
installation of TruView™, and users could not install the software if they did not click on
the button accepting the EULA. Id. at ¶ 18. In pertinent part, the EULA stated:
SOFTWARE LICENSE AGREEMENT
FOR GE AVIATION INTERACTIVE ELECTRONIC TECHNICAL MANUAL
(IETM) SYSTEM.
PLEASE READ THIS SOFTWARE LICENSING AGREEMENT
CAREFULLY BEFORE INSTALLING OR USING THE SOFTWARE.
BY CLICKING ON THE “ACCEPT” BUTTON DURING THE
INSTALLATION PROCESS, OR BY USING THIS SOFTWARE, YOU ARE
CONSENTING TO BE BOUND BY THIS AGREEMENT. IF YOU DO NOT
AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, CLICK THE “DO
NOT ACCEPT” BUTTON AND THE INSTALLATION PROCESS WILL
TERMINATE.
2008 EULA, p. 1.
{¶ 12} According to the EULA, the GEA system consisted of three individually
copyrighted components. Id. at p. 1. The relevant component here is Component 1,
which was described as “TruView™ Interactive Electronic Technical Manual (IETM)
System SOFTWARE – a LICENSED BY-PRODUCT of the TruView™ Publisher (the
IETM CORE SOFTWARE) developed and owned by TruLogic, Incorporated.” Id.Concerning Component 1, the EULA stated, in relevant part, as follows:
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SOFTWARE END-USER LICENSE AGREEMENT FOR COMPONENT 1 -
TRUVIEW INTERACTIVE ELECTRONIC TECHNICAL MANUAL (IETM)
SYSTEM SOFTWARE (the BYPRODUCT) (BRANDED – GE AVIATION
IETM*)
THIS IS A NONEXCLUSIVE LICENSE FOR COMMERCIAL COMPUTER
SOFTWARE – RESTRICTED RIGHTS
IMPORTANT – READ CAREFULLY. This TruLogic End-User License
Agreement (“EULA”) is a legal agreement between you (either an individual
or a single entity) and TruLogic, Incorporated for the TruView SOFTWARE
identified above, which may include computer SOFTWARE, associated
media, printed materials, and “online” or electronic documentation
(“SOFTWARE”). By downloading, installing, copying, or otherwise using
the SOFTWARE, you agree to be bound by the terms of this EULA. The
originating acquiring entity will be reimbursed the direct labor cost (the
service) associated with TruLogic’s IETM build process for the specific
IETM system affected upon return or certified destruction of the rejected
original master copies delivered and all copies reproduced or installed.
The SOFTWARE is protected by copyright laws and international copyright
treaties, as well as other intellectual property laws and treaties. TruLogic
or its suppliers own the title, copyright, and other intellectual property rights
in the SOFTWARE. The SOFTWARE is licensed, not sold.
GRANT OF NONEXCLUSIVE LICENSE. TruLogic, Inc., and its suppliers
grant you (“the Customer”) a nonexclusive, perpetual, fully paid-up license
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to use the TruView Interactive Electronic Technical Manual (IETM) System
SOFTWARE as provided.
GENERAL. You may reproduce the SOFTWARE (in its entirety), install
and use any number of copies of the SOFTWARE on any number of
computers, including workstations, terminals, or other digital electronic
devices, for the intended use.
CONTROL. The SOFTWARE shall be DISCLOSED, DISTRIBUTED,
CONTROLLED, HANDLED AND DESTROYED in an official capacity
commensurate with the statements provided on the title pages of the
documents contained within the accompanying customer-provided
TECHNICAL DATA. The expired SOFTWARE, including TruLogic’s set up
and all resulting installations shall be properly disposed of in a method that
prevents disclosure, unauthorized use and reassembly.
REDISTRIBUTION. If you reproduce and redistribute the SOFTWARE
your copy must be a true and complete copy of the SOFTWARE, including
TruLogic’s set up and all copyright notices, logos, end-user license
agreement and/or trademarks that appear in the SOFTWARE as received
from TruLogic. This SOFTWARE may be redistributed to support the IETM
distribution requirements of GE Aviation, its customers, authorized
suppliers and team members; the U.S. Air Force and authorized recipients
of the TECHNICAL DATA; other U.S. Government Agencies; U.S. State
Governments and authorized Foreign Governments only.
INTENDED USE. The SOFTWARE is licensed specifically to be used in
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an OFFICIAL USE ONLY capacity. The SOFTWARE is licensed for the
purposes of installing, hosting, navigating, displaying and recording
customer-provided technical data in an official capacity. You shall not use,
copy, disassemble, display, distribute or demonstrate the SOFTWARE or
its likeness for the purposes of soliciting, guiding, developing, defining or
improving competing products or services.
UNAUTHORIZED RELEASE. The SOFTWARE is Commercial Computer
SOFTWARE and as such is copyrighted by TruLogic under the Copyright
Act of 1976 (17 U.S.C. 106) and is licensed with restricted rights. The
SOFTWARE SHALL NOT be released or sold to the public nor shall it be
released under the Freedom of Information Act (DoD 5400.7-R).
INTELLECTUAL PROPERTY RIGHTS – SOFTWARE. All rights and
intellectual property rights in and to the SOFTWARE (including but not
limited to any upgrades, modifications, images, photographs, animations,
video, audio, text and “applets” or other mechanisms incorporated into the
SOFTWARE), and any copies you are permitted to make herein are owned
by TruLogic or its suppliers.
INTELLECTUAL PROPERTY RIGHTS – CONTENT. All title and
intellectual property rights in and to the TECHNICAL DATA/TECHNICAL
CONTENT which may be accessed or recorded through use of the
SOFTWARE is the property of the respective content owner and may be
protected by applicable copyright or other intellectual property laws and
treatises. This EULA grants you no rights to use, copy or modify such
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content.
U.S. GOVERNMENT LICENSE RIGHTS. For U.S. Government users of
this SOFTWARE, the SOFTWARE shall be identified as having been
developed at private expense and as “restricted computer software”
submitted with restricted rights in accordance with subparagraphs (a)
through (c) of the Commercial Computer Software – Restricted Rights
clause of FAR 52.227-19 and its successors. For all units of the
Department of Defense, the SOFTWARE shall be identified as “commercial
computer software” or “commercial computer software documentation”
under the Rights in Computer Software and Computer Software
Documentation Clause of DFAR 252.227-7202-3(a) and its successors,
with all use, duplication or disclosure of same being subject to the license
and restrictions set forth in this EULA. The U.S. Government’s use of the
SOFTWARE constitutes acknowledgement of TruLogic’s proprietary rights
in them. Manufacturer is TruLogic, Inc., 1430 Oak Court, STE 311,
Beavercreek, Ohio 45430.
EXCEPT AS EXPRESSLY AUTHORIZED ABOVE, CUSTOMERS SHALL
NOT COPY, IN WHOLE OR IN PART, SOFTWARE OR
DOCUMENTATION; MODIFY THE SOFTWARE; REVERSE COMPILE OR
REVERSE ASSEMBLE ALL OR ANY PORTION OF THE SOFTWARE; OR
RENT, LEASE, DISTRIBUTE, SELL, OR CREATE DERIVATIVE WORKS
OF THE SOFTWARE.
PROTECTION OF TRADE SECRETS. Customer agrees that aspects of
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the licensed materials, including the specific design and structure of
individual programs, constitute trade secrets and/or copyrighted material of
TruLogic. Customer agrees not to disclose, provide, or otherwise make
available such trade secrets or copyrighted material in any form to any party
whose role is outside an Official Use Only capacity without the prior written
consent of TruLogic. Customer agrees to implement reasonable security
measures to protect such trade secrets and copyrighted material. Title to
the SOFTWARE shall remain solely with TruLogic.
2008 EULA at p. 2-4.
{¶ 13} After discussing various matters like warranties and indemnification, the
EULA further stated that:
BENCHMARK TESTING. You may not disclose the results of any
benchmark test using the SOFTWARE to any third party without TruLogic’s
prior written approval.
RESERVATION OF RIGHTS. TruLogic reserves all rights not expressly
granted herein.
LIMITATIONS ON REVERSE ENGINEERING, DECOMPILATION, AND
DISASSEMBLY. You may not reverse engineer, decompile, or
disassemble the SOFTWARE, except and only to the extent that such
activity is expressly permitted by applicable law notwithstanding this
limitation.
***
NO RENTAL. You may not rent, lease, or lend the SOFTWARE.
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COPYRIGHT STATEMENT.
This SOFTWARE is protected by United States copyright laws and
international treaties.
TruLogic, Inc. retains all right, title and interest in and to the SOFTWARE,
including the physical layout, fictional operation, graphic art and any other
information, manuals or data relating to the SOFTWARE and all rights under
any applicable copyrights, patents, trademarks, trade secrets, and other
“Proprietary Material” and to all copies you make. Proprietary Material
excludes information, technical data, or other viewable content that was
rightfully in your possession prior to receipt from us.
Customer-furnished information, technical data, and other viewable content
displayed in this product are the property of their respective owners.
You shall not: i) reverse compile, reverse engineer, disassemble or modify
the SOFTWARE; ii) use the SOFTWARE to develop, modify or improve a
SOFTWARE product; iii) disclose, publish, display or otherwise make
available to any persons the Proprietary Material.
Copyright 2000-2008 TruLogic, Incorporated.
TERMINATION. This license is effective until terminated. Customer may
terminate this license at any time by destroying all copies of SOFTWARE
including any documentation. This license may be terminated by TruLogic
for breach of a material term herein if Customer fails to cure such breach
after 90 days written notice to the Customer. Upon termination, Customer
must destroy all copies of SOFTWARE.
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***
ENTIRE AGREEMENT. This EULA (including any addendum or
amendment to this EULA which is included with the SOFTWARE) is the
entire agreement between you and TruLogic relating to the SOFTWARE
and the support services (if any) and it supersedes all prior or
contemporaneous oral or written communications, proposals and
representations with respect to the SOFTWARE or any other subject matter
covered by this EULA. To the extent the terms of any TruLogic or
programs for support services conflict with the terms of this EULA, the terms
of this EULA shall control.
2008 EULA at p. 5-7.
{¶ 14} In 2012, the relationship between TruLogic and GEA for the provision of
IETMs ended when GEA instituted a competitive bidding process and engaged another
supplier. Complaint at ¶ 22. TruLogic did retain a direct supplier relationship with the
USAF, but it incurred substantially diminished revenue from IETM services and products.
Id. at ¶ 23. Subsequently, in 2018, GEA sent potential suppliers (but not TruLogic) a
“Request for Rough Order of Magnitude (“ROM”) due to technical flaws in IETM materials
being delivered to GEA and its customers, and one of these potential suppliers asked
TruLogic for a quote for subcontracted assistance. Id. at ¶ 24-25.
{¶ 15} As part of the quote, TruLogic was asked to perform a technical evaluation
of the current IETM. During this process, TruLogic learned that GEA was using
TruLogic’s proprietary mark-up and scripting components in the IETM products, contrary
to the terms of the Software Licensing Agreement. Id. at ¶ 26-27. In particular, GEA
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had distributed the product without the required TruLogic Software Licensing Agreement;
had repurposed and reused TruLogic’s IETM in a derivative manner; had stripped out
TruLogic’s copyright notices and company name, while leaving in recognizable
thumbprints linked to TruLogic’s software; had used TruLogic’s artwork; and had used
TruLogic’s original navigation art, causing the defective GEA derivatives to be mistakenly
identified as TruLogic products. Id. at ¶ 28-32.
{¶ 16} According to the Complaint, GEA’s improper use had allowed it to acquire
sole-source contract awards from the U.S. Government for the USAF and Foreign Military
Sales Programs, had caused TruLogic’s products to be distributed as “freeware” to GEA’s
customers as well as TruLogic’s direct competitors, and had caused TruLogic to lose
contracts.
{¶ 17} On September 15, 2020, TruLogic filed a complaint in the Greene County
Common Pleas Court against GEA, alleging the above facts and asserting claims for
breach of the Software Licensing Agreement and unjust enrichment. GEA then filed a
motion to dismiss in November 2020, contending that TruLogic’s claims were preempted
by the U.S. Copyright Act, 17 U.S.C. 301. In addition, GEA contended that TruLogic had
failed to state a claim for either breach of contract or unjust enrichment. See Motion to
Dismiss (Nov. 16, 2020).
{¶ 18} After TruLogic responded to the motion, GEA filed a reply in support of its
motion to dismiss. On February 11, 2021, the trial court granted the motion to dismiss,
based on a finding that both of TruLogic’s claims were preempted by the Copyright Act.
TruLogic then timely appealed from the court’s decision.
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II. Breach of Contract Claim
{¶ 19} TruLogic’s first assignment of error states that:
The Greene County Court of Common Pleas Erred When, in Its
February 11, 2021 Judgment Entry Granting Motion to Dismiss, It Granted
Defendant’s Civ.R. 12(B)(6) Motion to Dismiss Plaintiff’s Claim for Breach
of Contract on the Ground of Preemption by Federal Copyright Law.
{¶ 20} Under this assignment of error, TruLogic contends that its breach of contract
claim should not been deemed to be preempted because a state law breach of contract
claim requires extra elements and extra proof beyond what is required for mere copying.
TruLogic further argues that the authority the trial court cited represented a minority view
and should not have been adopted. See TruLogic’s Brief, p. 10, discussing Wrench LLC
v. Taco Bell Corp., 256 F.3d 446 (6th Cir.2001). According to TruLogic, the trial court
should have instead followed the “majority approach” exemplified by ProCD, Inc. v.
Zeidenberg, 86 F.3d 1447 (7th Cir.1996).
{¶ 21} In response, GEA contends that the Supreme Court of Ohio has already
considered this issue, and it requires that the “extra element” in state law claims for breach
of contract “ ‘must change the state law so that it is qualitatively different from a copyright
infringement claim.’ ” (Emphasis sic.) GEA’s Brief, p. 8, quoting State v. Perry, 83 Ohio
St.3d 41, 42, 697 N.E.2d 624 (1998). In addition, GEA argues that ProCD is not the
majority view and that, instead, the majority approach uses a fact-based analysis much
like what was done in Wrench and Perry. Id. at p. 14.
{¶ 22} Before addressing these matters, we will briefly discuss our standard of
review.
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A. Standard of Review
{¶ 23} The law is well-established that orders granting Civ.R. 12(B)(6) motions to
dismiss are subject to de novo review. Perrysburg Twp. v. Rossford, 103 Ohio St.3d 79,
2004-Ohio-4362, 814 N.E.2d 44, ¶ 5. De novo review “means that we apply the same
standards as the trial court.” (Citations omitted.) GNFH, Inc. v. W. Am. Ins. Co., 172
Ohio App.3d 127, 2007-Ohio-2722, 873 N.E.2d 345, ¶ 16 (2d Dist.)
{¶ 24} In the context of motions to dismiss, this means that “[i]n construing a
complaint upon a motion to dismiss for failure to state a claim, we must presume that all
factual allegations of the complaint are true and make all reasonable inferences in favor
of the non-moving party.” Mitchell, 40 Ohio St.3d at 192, 532 N.E.2d 753. “Then, before
we may dismiss the complaint, it must appear beyond doubt that plaintiff can prove no
set of facts warranting a recovery.” Id., citing O'Brien v. Univ. Community Tenants Union,
42 Ohio St.2d 242, 327 N.E.2d 753 (1975), syllabus. Where, as here, documents are
attached to or are incorporated into a complaint, we may also consider the documents.
State ex rel. Washington v. D'Apolito, 156 Ohio St.3d 77, 2018-Ohio-5135, 123 N.E.3d
947, ¶ 10.
{¶ 25} With these points in mind, we will consider the parties’ arguments about
preemption.
B. Law Pertaining to Federal Copyright Preemption
{¶ 26} There is no real dispute in the law regarding how to initially analyze
preemption claims. “The federal copyright laws expressly preempt any state law actions
which govern ‘legal or equitable rights that are equivalent to any of the exclusive rights
within the general scope of copyright as specified by section 106 in works of authorship
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that are fixed in a tangible medium of expression and come within the subject matter of
copyright as specified by sections 102 and 103 * * *.’ ” Perry, 83 Ohio St.3d at 42, 697
N.E.2d 624, quoting 17 U.S.C. 301(a). “The statute thus creates a two-part inquiry: (1)
whether a work fixed in a tangible medium of expression is within the subject matter of
copyright and (2) whether the rights addressed are equivalent to the exclusive copyright
rights set out in Section 106, Title 17, U.S.Code.” Id.{¶ 27} Perry involved a defendant’s appeal of a conviction “based solely upon the
unauthorized uploading, downloading, and posting of computer software on a computer
bulletin board.” Id. Concerning the first part of the inquiry, the court noted that under
1980 amendments to the Copyright Act, “computer software is to be treated as a literary
work for purposes of the Copyright Act.” Id. at 45, fn. 2. Therefore, the matter was
within the subject matter of copyright. Similarly, the case before us also involves
computer software.
{¶ 28} “The second prong of the preemption analysis – the so-called ‘equivalency’
or ‘general scope’ requirement – augments the subject matter inquiry by asking whether
the state common law or statutory action at issue asserts rights that are the same as
those protected under § 106 of the Copyright Act. Under § 301(a), even if appellants'
state law claims concern works within the subject matter of copyright, such claims will
only be preempted if they assert rights that are ‘equivalent to any of the exclusive rights
within the general scope of copyright as specified by section 106[.]’ ” (Footnote omitted.)
Wrench, 256 F.3d at 455-456, quoting 17 U.S.C. 301(a).
{¶ 29} The exclusive rights under Section 106 include authors’ “exclusive rights to
reproduce, prepare derivatives, perform, distribute, and display their work. Thus, ‘a right
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is equivalent to one of the rights comprised by a copyright if it “is infringed by the mere
act of reproduction, performance, distribution or display.” ’ ” Perry at 42-43, quoting
Baltimore Orioles, Inc. v. Major League Baseball Players Assn., 805 F.2d 663, 677 (7th
Cir.1986). (Other citations omitted.)
{¶ 30} “Equivalency exists if the right defined by state law may be abridged by an
act which in and of itself would infringe one of the exclusive rights. * * * Conversely, if an
extra element is required instead of or in addition to the acts of reproduction, performance,
distribution or display in order to constitute a state-created cause of action, there is no
preemption, provided that the extra element changes the nature of the action so that it is
qualitatively different from a copyright infringement claim.” (Emphasis sic.) Wrench at
456. See also Perry at 43, quoting United States ex rel. Berge v. Bd. of Trustees of Univ.
of Alabama, 104 F.3d 1453, 1463 (4th Cir.1997). (Other citation omitted.)
{¶ 31} In Wrench, the court found that the plaintiffs’ implied contract claim was not
preempted because it required an “extra element.” In this regard, the court observed
that:
The gist of appellants' state law implied-in-fact contract claim is
breach of an actual promise to pay for appellants' creative work. It is not
the use of the work alone but the failure to pay for it that violates the contract
and gives rise to the right to recover damages. Thus, the state law right is
not abridged by an act which in and of itself would infringe one of the
exclusive rights granted by § 106, since the right to be paid for the use of
the work is not one of those rights.
An extra element is required instead of or in addition to the acts of
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reproduction, performance, distribution or display, in order to constitute the
state-created cause of action. The extra element is the promise to pay.
This extra element does change the nature of the action so that it is
qualitatively different from a copyright infringement claim. The qualitative
difference includes the requirement of proof of an enforceable promise and
a breach thereof which requires, inter alia, proof of mutual assent and
consideration, as well as proof of the value of the work and appellee's use
thereof.
(Emphasis added.) Wrench at 456.
{¶ 32} The court went on to note that:
This qualitative difference is further reflected by the difference in the
remedy afforded by the state law claim. Under Michigan law, a plaintiff's
remedy for breach of an implied-in-fact contract includes recovery of the
reasonable value of the services rendered, considering factors such as the
general practice of the industry. * * *
Under the Copyright Act, remedies for infringement are limited to
injunctions; impounding and destruction of infringing articles; recovery of
the copyright owner's actual damages and any additional profits of the
infringer or statutory damages; and costs and attorneys fees. See 17
U.S.C. §§ 502, 503, 504 and 505. The remedies available under copyright
law do not include damages for the reasonable value of the defendants' use
of the work.
(Footnotes and citations omitted.) Id. at 456-457.
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{¶ 33} As noted, the trial court primarily relied on Wrench and Perry in concluding
that GEA’s alleged breach of the Software Licensing Agreement was not qualitatively
different from a copyright claim. Judgment at p. 6. The court’s decision was based on
its conclusion that GEA’s acts in modifying or creating a derivative of the TruView software
and passing it off as its own did not contain the required “extra element.” Id.
{¶ 34} Ohio does not have a substantial body of law pertaining to copyright
preemption. As the briefs indicate, there are a few Ohio cases. However, before
discussing those matters, we will first consider the decision of the Seventh Circuit Court
of Appeals in ProCD and its status as an alleged majority viewpoint.
C. ProCD
{¶ 35} As a preliminary observation, ProCD was decided in 1996, i.e., 25 years
ago. See ProCD, 86 F.3d at 1447. Quite a few cases have been decided since then,
both in the Seventh Circuit and elsewhere.
{¶ 36} ProCD involved two issues: (1) whether software purchasers were bound
by “shrinkwrap” agreements, which limited the use of the software application and its
listings to non-commercial purposes; and (2) whether federal copyright law prohibited
enforcement even if the agreements were contracts. Id. at 1450. “A shrinkwrap license
typically involves (1) notice of a license agreement on product packaging (i.e., the
shrinkwrap), (2) presentation of the full license on documents inside the package, and (3)
prohibited access to the product without an express indication of acceptance.”
Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 428 (2d Cir.2004).
{¶ 37} In ProCD, the shrinkwrap agreement was contained inside the software box
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rather than on the outside, and the purchaser had no choice “because the software
splashed the license on the screen and would not let him proceed without indicating
acceptance.” ProCD at 1452. After reviewing the common law and the Uniform
Commercial Code, the court held that such agreements were contracts and were
enforceable.
{¶ 38} Shrinkwrap is similar to the term being used here, i.e., “clickwrap” or “click
thru.” “Clickwrap is a commonly used term for agreements requiring a computer user to
‘consent to any terms or conditions by clicking on a dialog box on the screen in order to
proceed with [a] ... transaction.’ ” Hancock v. Am. Tel. & Tel. Co., 701 F.3d 1248, 1255
(10th Cir.2012), quoting Feldman v. Google, Inc., 513 F.Supp.2d 229, 236 (E.D.Pa.2007).
Generally, courts have upheld clickwrap agreements. Id.{¶ 39} In discussing the second issue in ProCD, i.e., preemption, the Seventh
Circuit Court of Appeals first noted that three courts of appeal had said that rights created
by contract are not “ ‘equivalent to any of the exclusive rights within the general scope of
copyright.’ ” ProCD at 1454, quoting 17 U.S.C. 301(a), and citing National Car Rental
Sys., Inc. v. Computer Assocs. Internatl., Inc., 991 F.2d 426, 433 (8th Cir.1993), Taquino
v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir.1990), and Acorn Structures,
Inc. v. Swantz, 846 F.2d 923, 926 (4th Cir.1988). The Seventh Circuit found these
decisions sound, stressing that:
Rights “equivalent to any of the exclusive rights within the general scope of
copyright” are rights established by law – rights that restrict the options of
persons who are strangers to the author. Copyright law forbids duplication,
public performance, and so on, unless the person wishing to copy or
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perform the work gets permission; silence means a ban on copying. A
copyright is a right against the world. Contracts, by contrast, generally
affect only their parties; strangers may do as they please, so contracts do
not create “exclusive rights.”
ProCD at 1454.
{¶ 40} The Seventh Circuit Court of Appeals then commented that “[a]lthough
Congress possesses power to preempt even the enforcement of contracts about
intellectual property * * * – courts usually read preemption clauses to leave private
contracts unaffected.” Id. at 1454. The court also analogized Section 301(a) to a
federal statute dealing with transportation, stating that:
* * * American Airlines, Inc. v. Wolens, 513 U.S. 219, 115 S.Ct. 817,
130 L.Ed.2d 715 (1995), provides a nice illustration. A federal statute
preempts any state “law, rule, regulation, standard, or other provision ...
relating to rates, routes, or services of any air carrier.” 49 U.S.C.App.
§ 1305(a)(1). Does such a law preempt the law of contracts – so that, for
example, an air carrier need not honor a quoted price (or a contract to
reduce the price by the value of frequent flyer miles)? The Court allowed
that it is possible to read the statute that broadly but thought such an
interpretation would make little sense. Terms and conditions offered by
contract reflect private ordering, essential to the efficient functioning of
markets. 513 U.S. at [219], 115 S.Ct. at 824-25. Although some
principles that carry the name of contract law are designed to defeat rather
than implement consensual transactions, id. at –– n. 8, 115 S.Ct. at 826 n.
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8, the rules that respect private choice are not preempted by a clause such
as § 1305(a)(1). Section 301(a) plays a role similar to § 1301(a)(1): it
prevents states from substituting their own regulatory systems for those of
the national government. Just as § 301(a) does not itself interfere with
private transactions in intellectual property, so it does not prevent states
from respecting those transactions. Like the Supreme Court in Wolens, we
think it prudent to refrain from adopting a rule that anything with the label
“contract” is necessarily outside the preemption clause: the variations and
possibilities are too numerous to foresee. National Car Rental [, 991 F.2d
426,] likewise recognizes the possibility that some applications of the law of
contract could interfere with the attainment of national objectives and
therefore come within the domain of § 301(a). But general enforcement of
shrinkwrap licenses of the kind before us does not create such interference.
ProCD at 1454-1455.
{¶ 41} Finally, ProCD also discussed Aronson v. Quick Point Pencil Co., 440 U.S.
257, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979), which had held that “promises to pay for
intellectual property may be enforced even though federal law (in Aronson, the patent
law) offers no protection against third-party uses of that property.” ProCD at 1454.
Concerning that case, the court noted that:
Aronson emphasized that enforcement of the contract between
Aronson and Quick Point Pencil Company would not withdraw any
information from the public domain. That is equally true of the contract
between ProCD and Zeidenberg. Everyone remains free to copy and
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disseminate all 3,000 telephone books that have been incorporated into
ProCD's database. Anyone can add SIC codes and zip codes. ProCD's
rivals have done so. Enforcement of the shrinkwrap license may even
make information more readily available, by reducing the price ProCD
charges to consumer buyers. To the extent licenses facilitate distribution
of object code while concealing the source code (the point of a clause
forbidding disassembly), they serve the same procompetitive functions as
does the law of trade secrets. Rockwell Graphic Systems, Inc. v. DEV
Industries, Inc., 925 F.2d 174, 180 (7th Cir.1991). Licenses may have
other benefits for consumers: many licenses permit users to make extra
copies, to use the software on multiple computers, even to incorporate the
software into the user's products. But whether a particular license is
generous or restrictive, a simple two-party contract is not “equivalent to any
of the exclusive rights within the general scope of copyright” and therefore
may be enforced.
ProCD at 1455.
D. Further Interpretations of ProCD
{¶ 42} As to subsequent interpretation of ProCD, TruLogic is correct in that a
majority of federal courts, even Wrench, accept its basic premise, although some
reservations do exist. E.g., Bowers v. Baystate Techs., Inc., 320 F.3d 1317, 1324-1325
(Fed. Cir.2003) (applying what it believes would be the First Circuit’s view and rejecting
preemption); Forest Park Pictures v. Universal Television Network, Inc., 683 F.3d 424,
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430-433 (2d Cir.2012) (rejecting preemption where contract was implied in fact and there
was a promise to pay); Acorn Structures, 846 F.2d at 923 [4th Cir.] (action was based on
implicit provision in contract and did not arise out of copyright subject matter); Taquino,
893 F.2d at 1501 [5th Cir.]; Real Estate Innovations, Inc. v. Houston Assn. of Realtors,
Inc., 422 Fed.Appx. 344, 349 (5th Cir.2011); Natl. Car Rental Sys., Inc., 991 F.2d at 432-
434 [8th Cir.]; Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1089-1090 (9th Cir.2005)
(“[a] state law tort claim concerning the unauthorized use of the software's end-product is
not within the rights protected by the federal Copyright Act”); Lipscher v. LRP
Publications, Inc., 266 F.3d 1305, 1318-1319 (11th Cir.2001) (“courts generally read
preemption clauses to leave private contracts unaffected”); Utopia Provider Systems, Inc.
v. Pro-Med Clinical Systems, L.L.C., 596 F.3d 1313, 1326-1327 (11th Cir.2010) (software
license agreement is “extra element” in breach of contract case, thereby avoiding
preemption).
{¶ 43} To the extent that ProCD has “been taken by some to hold that any contract
supplies the necessary ‘extra element,’ * * * [other] courts * * * have rejected the view that
ProCD stands for the universal proposition ‘that no breach of contract action would ever
be barred by § 301 [of the Copyright Act].’ ” Green v. Hendrickson Publishers, Inc., 770
N.E.2d 784, 789 (Ind.2002), citing Ballas v. Tedesco, 41 F.Supp.2d 531, 536-37, n. 14
(D.N.J.1999) (agreeing with courts rejecting the broad view).
{¶ 44} In Green, the Indiana Supreme Court also stressed that “to the extent
ProCD suggests that no state contract claim is preempted, that decision has met with
harsh criticism. As one leading commentator on copyright has noted, ProCD relied on
three other cases, each involving contract rights significantly broader than the simple
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promise not to reproduce. Accordingly, ‘none supports the broad conclusion that the
Seventh Circuit ascribes to them.’ ” Id. at 789-790, quoting 1 Nimmer, Nimmer on
Copyright, Section 1.01[B] [1][a], at 1-20. Thus, “ ‘pre-emption should continue to strike
down claims that, though denominated “contract,” nonetheless complain directly about
the reproduction of expressive materials.’ ” Id. at 790, quoting Nimmer at 1-22. See
also Canal+ Image UK Ltd. v. Lutvak, 773 F.Supp.2d 419, 445 (S.D.N.Y.2011)
(commenting that “the ProCD decision does not go nearly as far as courts in this district
have taken it. For one, the Seventh Circuit found ‘it prudent to refrain from adopting a
rule that anything with the label “contract” is necessarily outside the preemption clause:
the variations and possibilities are too numerous to foresee’ ”).
{¶ 45} Similarly, while the Sixth Circuit Court of Appeals agrees with the general
premise about contract claims, it has rejected the idea that "all state law contract claims
survive preemption simply because they involve the additional element of promise."
Wrench, 256 F.3d at 457, citing ProCD, 86 F.3d at 1454 and Taquino, 893 F.2d at 1501.
In this vein, the court stressed that “[u]nder that rationale, a contract which consisted only
of a promise not to reproduce the copyrighted work would survive preemption even
though it was limited to one of the exclusive rights enumerated in 17 U.S.C. § 106. If the
promise amounts only to a promise to refrain from reproducing, performing, distributing
or displaying the work, then the contract claim is preempted. * * * As the authors note in
1 Nimmer on Copyright § 1.01[B][1][a] at 1-22: ‘Although the vast majority of contract
claims will presumably survive scrutiny ... nonetheless pre-emption should continue to
strike down claims that, though denominated “contract,” nonetheless complain directly
about the reproduction of expressive materials.’ ” Wrench at 457-58.
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{¶ 46} The Second Circuit Court of Appeals has also stressed its recognition that
“ ‘preemption cannot be avoided simply by labeling a claim “breach of contract.” ’ ”
Universal Instruments Corp. v. Micro Systems Eng., Inc., 924 F.3d 32, 48-49 (2d Cir.
2019), quoting Forest Park, 683 F.3d at 432. (Other citation omitted.) In this regard,
the court commented that it had previously rejected preemption in Forest Park because
the contract included “an ‘extra element’ of a promise to pay, and plaintiff sought contract
damages when defendant used plaintiff's copyrighted work without paying for the
privilege.” Id. at 49, citing Forest Park at 428. In contrast, in the case before it, there
was no dispute about payment, and the plaintiff did not argue that the defendants violated
an equipment purchase agreement by failing to pay for using the intellectual property.
Id. The remaining part of the contract claim involved rights exclusive under the Copyright
Act, and “vindication of an exclusive right under the Copyright Act, read into a license by
negative implication” was preempted. Id.
{¶ 47} Having extensively read and analyzed federal law on this subject, we
conclude that the law pertaining to preemption of breach of contract claims is neither as
narrow as GEA claims nor as forgiving as TruLogic asserts. We agree with TruLogic that
the majority of federal circuits have generally found that breach of contract claims are not
preempted under the Copyright Act. However, we also agree with GEA that blanket
refusal of preemption is not appropriate and that attention to facts is important. We do
note that even in Wrench, the court did not preempt the claim where an extra element
(implied-in-fact contract with promise to pay) was at issue. Wrench, 256 F.3d at 456-57.
C. Ohio Law
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{¶ 48} As indicated, the Supreme Court of Ohio did discuss preemption in Perry,
83 Ohio St.3d 41, 697 N.E.2d 624. Ohio cases both before and after Perry are sparse,
both in number and discussion. We have reviewed all the Ohio cases on this subject
that the parties cited, as well as any cases we could find.
{¶ 49} The first case we will discuss is State v. Moning, 1st Dist. Hamilton No. C-
010315, 2002-Ohio-5097. Moning, like Perry, involved a criminal prosecution, and the
defendant there claimed his conviction on a charge of unauthorized use of a computer
was preempted. Id. at ¶ 3-4 and 6. Citing Perry, and without any particular analysis,
the court found that “[t]he element of obtaining access to the computer and the RCIC
database in violation of the rules and restrictions, and thus beyond the consent of the
owner or other person authorized to give consent, is sufficient to satisfy the extra element
test and except the unauthorized-use-of property charge from the express preemption
clause in the Copyright Act.” Id. at ¶ 13.
{¶ 50} Another decision of the First District Court of Appeals dealt with a dismissal
of a claim for lack of personal jurisdiction. See N. Am. Software, Inc. v. James I. Black
& Co., 1st Dist. Hamilton No. C-100696, 2011-Ohio-3376, ¶ 1 (affirming dismissal based
on lack of personal jurisdiction). Before discussing personal jurisdiction, the court briefly
considered whether the case was subject to dismissal based on preemption. The claims
in question involved a “clickwrap” software agreement and the defendant’s alleged failure
to pay after clicking on the agreement and agreeing to pay. Id. at ¶ 4-6. Again, without
much discussion of the law, the court found that some of the plaintiff’s claims “at least
insofar as they seek to enforce a promise to pay, contain an ‘extra element,’ and,
therefore, do not fall within the exclusive jurisdiction of the federal courts.” Id. at ¶ 10-28-
and fn. 6, citing Wrench, 256 F.3d at 456.
{¶ 51} In a third case from the same district, which involved an oral contract, the
court again reached its decision (this time that the claims were preempted), based on
minimal analysis. Krapp v. McCarthy, 121 Ohio App.3d 64, 67-68, 698 N.E.2d 1049 (1st
Dist.1997).
{¶ 52} In McCants v. Tolliver, 9th Dist. Summit No. 27253, 2014-Ohio-3478, the
court considered whether the plaintiff’s contract claims against a co-author and a
performer of a song were preempted. Id. at ¶ 1-6. In that case, the plaintiff and the
other parties allegedly entered into an oral agreement that if the song made money, they
would share equally in the proceeds. Id. at ¶ 13. Again, without extensive discussion
of preemption, the court held that the claim was not preempted, because “[t]he alleged
promise to split the proceeds [was] ‘qualitatively different’ than that of a copyright
infringement claim” and satisfied the “extra element” requirement. Id. at ¶ 13.
{¶ 53} The final Ohio case addressing preemption is again from the First District.
See First World Architects Studio, PSC v. McGhee, 2018-Ohio-2158, 114 N.E.3d 654 (1st
Dist.). In that case, First World alleged that the defendants had made unauthorized use
of copyrighted architectural drawings in seeking to obtain a building permit. Id. at ¶ 2.
First World also attached a copy of a contract with one defendant to the complaint, but
did not make claims against any defendant in connection with the contract. Id. Again,
after citing the pertinent tests for copyright preemption, the court simply concluded,
without analysis, that the complaint was preempted because the plaintiff did not make
any allegations concerning a breach of contract. Id. at ¶ 10-12.
{¶ 54} The few lower level decisions are of little assistance here, as they involve
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quite straightforward situations that do not require much analysis. Furthermore, to the
extent that these cases discuss an agreement to pay, that is not pertinent here, because
GEA’s EULA did not contain such a promise. To the contrary, the EULA indicated that
it was a “perpetual, fully paid-up license.” 2008 EULA at p. 2. While the reference to
past consideration might prove fatal if such a promise were the only basis of an “extra
element,” that is not true here.
{¶ 55} Our review of Perry indicates that the Supreme Court of Ohio may find a
lack of preemption where a software licensing agreement exists. As indicated, the court
held in Perry that criminal charges of unauthorized use against the defendant were
preempted because they involved uploading and downloading, and distribution, and were
not qualitatively different from matters covered by the Copyright Act. Perry, 83 Ohio
St.3d at 45-46, 697 N.E.2d 624.
{¶ 56} Although the State attempted to argue in Perry that violating a licensing
agreement involves an “extra element,” the majority refused to consider this issue
because there was no evidence of an agreement in the record. Id. Three members of
the court dissented, arguing, first, that software licenses are virtually automatic when
software is sold and that the defendant’s no contest plea was an admission that he had
“used software belonging to Microsoft and/or Clark Development Corporation without
consent of the owner or person authorized to give consent.” Id. at 51-52 (Lundberg
Stratton, J., dissenting).
{¶ 57} The dissent further argued that:
A licensing agreement deals with the relationship between parties and
defines the authorized use of a software package. See, e.g., Bourne v.
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Walt Disney Co. (C.A.2, 1995), 68 F.3d 621. Determining whether use of
computer software is authorized involves an analysis of the licensing/user
agreement rather than copyright law. Natl. Car Rental Sys., Inc. v.
Computer Assoc. Internatl., Inc. (C.A.8, 1993), 991 F.2d 426, 431.
Limitations on use must be determined from the licensing agreement, not
copyright law. Id. at 432. Therefore, enforcement of a licensing
agreement is qualitatively different so as to preclude preemption by federal
copyright law. ProCD, Inc. v. Zeidenberg (C.A.7, 1996), 86 F.3d 1447.
Perry at 52 (Lundberg Stratton, J., dissenting).
{¶ 58} In responding to these points, the majority observed that:
The dissent concedes that no licensing agreement was admitted into
evidence, yet bases its argument on a violation of this phantom agreement,
saying that “issuance of a licensing or contractual agreement with
commercially sold software is virtually automatic.” (Emphasis added.) In
essence, the dissent takes judicial notice of the likelihood that a licensing
agreement accompanied the software, and despite the state's failure to
introduce this admittedly essential piece of evidence, would find the
likelihood of its existence sufficient to prove guilt beyond a reasonable doubt
in this criminal case.
Even if the court could take judicial notice of the existence of such
an agreement for the first time, on appeal, in a criminal case, we would not
know the terms of that agreement and, therefore, would not be able to
determine whether the agreement extended beyond the scope of copyright
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protections or whether it was violated.
The dissent asserts that Perry's no contest plea establishes, as
admitted fact, that a licensing agreement existed, applied to Perry, was
violated by Perry, and included uses beyond those protected by copyright
law. This assertion is unfounded. Perry's plea is an admission to some
type of unauthorized use. However, it is not an admission that he, without
authorization, used the software in every conceivable way. The state had
every opportunity to clarify what unauthorized uses were the bases for the
indictment. Perry requested a bill of particulars setting forth the specific
and detailed conduct that was alleged to constitute the offenses described
in the indictment, but no response and no such bill of particulars appear in
the record. Reproduction, distribution, and display, uploading, posting,
and downloading are all “uses” of the software. They are the uses alleged
by the state and are all exclusively governed by copyright law.
Further, a consumer software licensing agreement is generally
treated as a contract between the copyright owner or “seller” of the software
and the licensee or “buyer” and is therefore governed by general contract
law and the U.C.C. See ProCD, Inc. v. Zeidenberg (C.A.7, 1996), 86 F.3d
1447; Ballon, The Emerging Law of the Internet (1997) 507; Practicing Law
Institute – Patents 1163, at 1247. There can be legal differences between
licenses and sales contracts that affect the parties' rights under the
copyright doctrine of first sale, but these differences are not implicated in
this case. Accordingly, in the context of this case, licenses are treated as
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general contracts. See ProCD; Emerging Law of the Internet, at 1247.
What is important to this discussion is the fact that third-party users, whether
authorized or unauthorized, are not parties to the licensing agreement and
generally cannot be bound by its terms. Copyrights are rights “against the
world,” but a licensing agreement affects only its parties and, as such, any
licensing agreement involving the software would be between the copyright
owner and the purchaser. As the state originally brought theft charges
against Perry, it contended that Perry did not purchase the software. Both
the plea hearing transcript and the sentencing hearing transcript also reflect
the state's theory that the software found in Perry's home was not
purchased. Therefore, any licensing terms that did exist would not apply to
Perry.
(Emphasis added.) Perry, 83 Ohio St.3d at 46-47, 697 N.E.2d 624.
{¶ 59} In light of the above statements, we conclude that the Supreme Court of
Ohio would agree that software licensing agreements may appropriately be treated as
distinct from copyrights, and enforcement may not be preempted under the Copyright Act.
In particular, the majority in Perry distinguished between situations where a third party is
not subject to the licensing terms and cases where, as here, the parties are subject to the
licensing agreement. We are not stating that preemption is unwarranted in all or even
many cases; we are simply indicating that such agreements can involve different
considerations than those that arise under the Copyright Act and that Perry is not a barrier
to finding a lack of preemption.
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C. How to Analyze the Contract Claims
{¶ 60} Another difference in opinion exists concerning how the contract claim in
question should be analyzed. Some courts hold that “the focus * * * is not on the
‘conduct’ or ‘facts pled,’ but on the ‘elements’ of the causes of action.” Tire Eng. &
Distrib., LLC v. Shandong Linglong Rubber Co., 682 F.3d 292, 309-310 (4th Cir.2012),
quoting Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 659 (4th Cir.1993). See
also Harolds Stores, Inc. v. Dillard Dept. Stores, Inc., 82 F.3d 1533, 1543 (10th Cir.1996)
(noting that the comparison is to “the elements of the causes of action, not the facts pled
to prove them”). In contrast, the Fifth Circuit Court of Appeals considers both the
elements of a particular cause of action as well as the conduct that is actually alleged.
See Carson v. Dynegy, Inc., 344 F.3d 446, 456-457 (5th Cir.2003).
{¶ 61} After reviewing Perry, we conclude that the Supreme Court of Ohio would
consider both the facts alleged and the elements of the cause of action. Specifically, in
Perry, the majority looked at the elements of the crime, the facts alleged in the indictment,
and the transcript of the plea hearing. Perry, 83 Ohio St.3d at 43-44, 48-49, 697 N.E.2d
624. This makes sense, particularly in the context of a motion to dismiss, because
otherwise a party could simply allege the elements of breach of contract and escape
preemption.
{¶ 62} In the case before us, the complaint alleged a number of breaches of the
2008 EULA, some of which related to matters covered by the Copyright Act, and others
that did not. For example, the complaint alleged, among other things, improper use of
proprietary TruLogic markup and scripting components; repurposing and reusing code
and templates; stripping out code and creating derivative products (implicating reverse
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engineering), failing to include TruLogic’s logos, end user license agreement, and
trademarks as required by the EULA, using components to develop and improve
competitive products, and creating a mistaken impression that TruLogic was involved in
a defective product, thereby damaging TruLogic’s reputation.
{¶ 63} As indicated, among the exclusive rights under 17 U.S.C. 106 is
authorization of the preparation of “derivative works based upon the copyrighted
material.” 17 U.S.C. 106(2). “Under the Copyright Code, 17 U.S.C.§ 101, a derivative
work is work ‘based upon one or more preexisting works’ and includes any recasting,
transforming or adopting of the original work.” Dun & Bradstreet Software Servs., Inc. v.
Grace Consulting, Inc., 307 F.3d 197, 212, fn. 9 (3d Cir.2002), quoting 17 U.S.C. 101,
and citing Whelan Assocs., Inc. v. Jaslow Dental Laboratory, Inc., 797 F.2d 1222, 1239
(3d Cir.1986). From that perspective, repurposing templates could be considered
creating a derivative work, but other matters included in the allegations could not. The
EULA certainly restricted the use of TruLogic’s software in a number of other ways,
including prohibiting reverse engineering.
{¶ 64} Federal courts interpreting EULAs have held that a contractual restriction
on use of software “ ‘constitutes an extra element that makes this cause of action
qualitatively different from one for copyright.’ ” Davidson & Assocs., Inc. v. Internet
Gateway, Inc., 334 F.Supp.2d 1164, 1175 (E.D.Mo.2004), aff’d, 422 F.3d 630 (8th
Cir.2005), quoting Natl. Car Rental Sys., Inc., 991 F.2d at 433. During the subsequent
appeal in Davidson, the Eighth Circuit Court of Appeals held that the lower court properly
granted summary judgment in the plaintiffs’ favor, because by signing the EULA and a
terms of use agreement, the defendants “expressly relinquished their rights to reverse
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engineer.” Davidson & Assocs. v. Jung, 422 F.3d 630, 639 (8th Cir.2005).
{¶ 65} Similarly, in Micro Focus (US), Inc. v. Genesys Software Sys., Inc., D. Mass,
Civil Action No. 14-14049-NMG, 2015 WL 1523606 (Apr.3, 2015), the district court held
that breach of contract claims based on the EULA “require the extra element of
unauthorized use of the software's end-product beyond the required elements for stating
a copyright infringement claim.” Id. at *3, citing Altera, 424 F.3d at 1089. See also
Meridian Project Sys., Inc. v. Hardin Constr. Co., LLC, 426 F.Supp.2d 1101, 1108-1109
(E.D.Cal.2006) (“[r]everse engineering is not within the scope of the exclusive rights of
copyright”); and Out of the Box Developers, LLC v. LogicBit Corp., N.C. Super. Ct. No.
10 CVS 8327, 2012 WL 5356282, *8-11 (Oct. 30, 2012) (claim of reverse engineering
contains “extra element” and is not preempted where defendant was alleged to have
copied copyrighted material into competitive product for purpose of competing with
plaintiff).
{¶ 66} Based on the preceding discussion, we conclude that the trial court erred in
granting the motion to dismiss with respect to TruLogic’s breach of contract claim. We
express no opinion on the merits of the litigation, but simply indicate that dismissal of the
breach of contract claim was erroneous. Accordingly, the first assignment of error is
sustained. The judgment on this claim will be reversed and the case will be remanded
for further hearing.
II. Unjust Enrichment
{¶ 67} TruLogic’s second assignment of error states that:
The Greene County Court of Common Pleas Erred When, in Its
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February 11, 2021 Judgment Entry Granting Motion to Dismiss, It Granted
Defendant’s Civ.R. 12(B)(6) Motion to Dismiss Plaintiff’s Claim for Unjust
Enrichment on the Grounds of Preemption by Federal Copyright Law.
{¶ 68} Under this assignment or error, TruLogic acknowledges that federal courts
generally preempt unjust enrichment claims. TruLogic’s Brief at p. 17. Nonetheless,
TruLogic contends that the claim here goes beyond reproduction and use and involves
matters like GEA’s failure to attribute the software to TruLogic and GEA’s failure to include
a copy of TruLogic’s license with its product. The trial court did not specifically discuss
unjust enrichment, other than stating that both the contract and unjust enrichment claims
lacked an extra element that made them “qualitatively different than a copyright
infringement claim.” Judgment at p. 6.
{¶ 69} “In Ohio, unjust enrichment is a claim under quasi-contract law against a
person in receipt of benefits that he is not justly and equitably entitled to retain.”
Crawford v. Hawes, 2013-Ohio-3173, 995 N.E.2d 966, ¶ 34 (2d Dist.), citing Hummel v.
Hummel, 133 Ohio St. 520, 527, 14 N.E.2d 923 (1938). The elements of this claim are:
“ ‘(1) a benefit conferred by a plaintiff upon a defendant; (2) knowledge by the defendant
of the benefit; and (3) retention of the benefit by the defendant under circumstances where
it would be unjust to do so without payment (‘unjust enrichment’).’ ” Hambleton v. R.G.
Barry Corp., 12 Ohio St.3d 179, 183, 465 N.E.2d 1298 (1984), quoting Hambleton v. R.
G. Barry Corp., 10th Dist. Franklin No. 82AP-1021, 1983 WL 3673, *4 (Aug. 10, 1993).
{¶ 70} As a general rule, unjust enrichment claims are preempted by the Copyright
Act. E.g., Briarpatch Ltd., L.P v. Phoenix Pictures, Inc., 373 F.3d 296, 306-307 (2d Cir.
2004) (applying New York law); Natl. Car Rental Sys., Inc., 991 F.2d at 435. The
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rationale is that while implied-in-fact contracts can avoid preemption, implied-in-law
agreements based on matters like quasi-contract or unjust enrichment do not require
allegations of actual agreements between parties. Forest Park Pictures, 683 F.3d at
432. See also Murray Hill Publications, Inc. v. ABC Communications, Inc., 264 F.3d 622,
638 (6th Cir.2001), abrogated on other grounds, Reed Elsevier, Inc. v. Muchnick, 559
U.S. 154, 130 S.Ct. 1237, 176 L.Ed.2d 18 (2010).
{¶ 71} Some courts have held that “[a] claim for unjust enrichment may not be
preempted, however, if the plaintiff can show that ‘material beyond copyright protection’
formed the basis of the unjust enrichment.” WJ Global LLC v. Farrell, 941 F.Supp.2d
688, 693 (E.D.N.C.2013), quoting Microstrategy, Inc. v. Netsolve, Inc., 368 F.Supp.2d
533, 537 (E.D.Va.2005).
{¶ 72} In Natl. Car Rental Sys., Inc., the Eighth Circuit Court of Appeals also
concluded that a claim for unjust enrichment was not preempted. In reaching this
conclusion, the court stated that:
We do not read CA [Computer Associates International] to allege that
National was unjustly enriched as a result of a wrongful exercise of one of
the § 106 rights. Rather, we read this allegation of damage as a further
explanation of the damages CA intends to prove arising from the breach of
contract. CA alleges generally that it has been damaged in an amount to
be proved at trial, and it will have to prove those damages. In this context,
we read its allegations of unjust enrichment as an attempt, albeit inartful, to
allege that National received from Lend Lease and Tilden amounts that CA
would have received had National not breached their contract. Second,
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National notes that CA requested return or destruction of any copies of its
programs still in National's possession. It notes that the Copyright Act
provides precisely that remedy, see 17 U.S.C. § 504, and claims that the
request for destruction shows the claim is equivalent to a copyright claim.
We disagree. The parties' contract specifically provides for the return or
destruction of the licensed programs upon any breach of the license
agreement. This remedy would apply equally to this asserted breach
(improper use) as to an action for breach of an agreement to pay royalties
or license fees, which National admits would not be preempted.
Furthermore, the copyright remedy of return or destruction applies even
absent a preexisting relationship between the parties: it does not have to be
stated in a contract or license agreement. We cannot conclude that this
action is preempted simply because the parties' contract provides a remedy
for breach identical to a remedy provided in copyright.
(Footnote omitted.) Natl. Car Rental Sys., Inc., 991 F.2d at 435. The fact that a claim
has been poorly phrased and actually pertains to another subject is not a basis for
deviating from the general rule.
{¶ 73} In Tastefully Simple, Inc. v. Two Sisters Gourmet, L.L.C., 134 Fed.Appx. 1(6rh Cir.2005), the Sixth Circuit Court of Appeals found that while some parts of the
plaintiff’s unjust enrichment claim were not barred by preemption, the claim was still
barred because “Michigan law will not imply a contract where there is a contract covering
the same subject matter.” Id. at 6, fn. 3, citing Barber v. SMH, 202 Mich.App. 366, 509
N.W.2d 791 (1993). Ohio follows the same principle. See Hughes v. Oberholtzer, 162
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Ohio St. 330, 335, 123 N.E.2d 393 (1954) (noting the general principle that there cannot
“be an express agreement and an implied contract for the same thing existing at the same
time”).
{¶ 74} We are aware that “Civ.R. 8(E) (2) permits alternative or hypothetical
pleading, or even the use of inconsistent claims.” Iacono v. Anderson Concrete Corp.,
42 Ohio St.2d 88, 92, 326 N.E.2d 267 (1975). TruLogic, therefore, could have pled
unjust enrichment as an alternative remedy even where an express contract existed.
And, in fact, TruLogic points out in its brief that it pled unjust enrichment as an alternate
theory. TruLogic Brief at p. 17, fn. 1.
{¶ 75} We need not resolve the issue of whether TruLogic could maintain its unjust
enrichment claim despite the general preemption of such claims. As noted, TruLogic
argues that its unjust enrichment claim is based on matters like GEA’s failure to attribute
the software to TruLogic and GEA’s failure to include a copy of TruLogic’s license with its
product. However, these are precisely the same claims that have been asserted
concerning the EULA, an express written agreement. As a logical matter, there cannot
be any claim for unjust enrichment because the written contract covers the same matter.
{¶ 76} Further, TruLogic’s EULA states that it is “the entire agreement between
you [GEA] and TruLogic relating to the SOFTWARE and the support services (if any) and
it supersedes all prior of contemporaneous oral or written communications, proposals and
representations with respect to the SOFTWARE or any other subject matter covered by
this EULA.” 2008 EULA at p. 6-7. Given this statement, we cannot see how a claim for
unjust enrichment could also exist. Accordingly, while our analysis differs from that of
the trial court, we agree that the unjust enrichment claim was properly dismissed.
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{¶ 77} As a final matter, even if we had to decide the matter, we would conclude,
based on the general authority, that the unjust enrichment claim would be preempted.
TruLogic’s argument that this claim should be retained is very brief and does not discuss
the rationale for distinguishing contracts implied in law from express contract claims. As
indicated, a contract implied in law does not contain an actual promise by the side against
whom the claims are asserted. Such promises can provide the “extra element” required
for avoiding preemption.
{¶ 78} Based on the preceding discussion, the second assignment of error is
overruled.
IV. Conclusion
{¶ 79} TruLogic’s first assignment of error having been sustained and its second
assignment having been overruled, the judgment of the trial court is reversed in part and
affirmed in part. This matter is remanded to the trial court for further proceedings.
.............
TUCKER, P.J. and EPLEY, J., concur.
Copies sent to:
D. Jeffrey Ireland
Brian D. Wright
Donald E. Burton
April L. Besl
Jaci L. Overmann
Hon. Michael A. Buckwalter
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