Fraud Claim Against McDougal Littell Must Stay, Tennessee District Court Holds

Holding:

The U.S. District Court for the Eastern District of Tennessee denied defendant textbook publisher‘s motion to dismiss a fraud claim. Plaintiff copyright holder accused defendant of entering into a relationship allegedly under false pretenses designed to lower the cost of obtaining the copyrighted paintings. Even though this stated fraud could not have existed without the alleged copyright infringement, the fraud accusation was “more than just copyright infringement.” The state law claim of fraud was “qualitatively different” from the claim of copyright infringement. In so holding, the court concluded that the Copyright Act did not preempt the fraud claim.

Detailed Summary:

Plaintiff Phyllis Shuptrine (“plaintiff”) is the holder of copyrights to paintings made by her late husband, Hubert Shuptrine (“Shuptrine”).  Defendant is a textbook publisher. Prior to his death, and as copyright holder, her husband granted licenses to defendant, in exchange for payment, to print his paintings for “expressly limited runs.”  However, plaintiff alleged those limits were “misrepresentations” by defendant intended to obtain access to the paintings “at a lower cost than had it been honest” with Shuptrine.

Particularly, plaintiff stated defendant requested a license to print 40,000 copies of a painting in a textbook, even though it knew at the time it would need to print hundreds of thousands copies, and it eventually printed over 1.2 million copies. By licensing copyrighted work for low numbers of reproductions while allegedly “surreptitiously making far more copies, defendant lulled Shuptrine into a false sense of trust, giving no reason to suspect it was making excessive copies.”

The first ten counts of plaintiff’s complaint accused defendant of copyright infringement. Count XI accused defendant of fraud in violation of Tennessee common law. Plaintiff asked the court for an injunction, actual damages, statutory damages, punitive damages, attorney’s fees and court costs. Defendant filed motion to dismiss the fraud count on the ground it was preempted by the Copyright Act. Defendant also wanted to bar plaintiff’s claim for punitive damages on the ground they were not permitted by the Copyright Act.

In resolving this motion, the district court applied the provisions of the Copyright Act and the ruling laid down in the case of Stromback v. New Line Cinema, 384 F.3d 283, 293 (6th Cir.2004). The Copyright Act does not preempt state laws respecting “activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright.” § 301(b)(3). In Stromback, the Sixth Circuit held there are two requirements for state law claims to be preempted under § 301. “First, the work must come within the scope of the subject matter of copyright ... Second, the rights granted under state law must be equivalent to any of the exclusive rights within the scope of federal copyright protection.” Stromback, 384 F.3d at 300.The parties agreed the paintings at issue were within the subject matter of copyright. They disputed the second element, known as the “equivalency requirement.”

Under this requirement’s functional test, a state law claim is not preempted by the Copyright Act “if the state law claim contains an extra element, which is not illusory, and provided the extra element changes the nature of the action so that it is qualitatively different from a copyright infringement claim.” Ritchie v. Williams, 395 F.3d 283, 288 (6th Cir.2005); Stromback, 384 F.3d at 301.

Defendant entered into a relationship with Shuptrine allegedly under false pretenses designed to lower the cost of obtaining Shuptrine’s paintings. Applying this test, the court found that plaintiff’s fraud allegation was “a qualitatively different offense than merely exceeding the licensing agreement.” Although damages were an essential element of both claims, “the test is not whether an element overlaps but whether there is an extra element that changes the nature of the action so it is qualitatively different.” Even though the alleged fraud in this case could not have existed without the alleged copyright infringement, the fraud accusation was “more than just copyright infringement.” Concluding that the Copyright Act did not preempt the fraud claim, the district court denied the motion to dismiss.

With regard to defendant’s motion to dismiss punitive damages on the ground that such claim was barred by the Copyright Act, the court held that since it declined to dismiss plaintiff’s fraud claim, the claim for punitive damages was not likewise barred.

Also See:

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