The Edge in College Preparation, LLC v. Peterson's Nelnet, LLC
MEMORANDUM AND ORDER granting the 12 Motion to Dismiss for Failure to State a Claim. ECP's unfair competition and UDTPA claims are dismissed. This matter is referred to the Magistrate Judge for case progression. Ordered by Judge John M. Gerrard. (KMG)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
THE EDGE IN COLLEGE
PREPARATION, LLC, a New York
limited liability company,
MEMORANDUM AND ORDER
PETERSON'S NELNET, LLC, a
Nebraska limited liability company,
This matter is before the Court on the defendant's motion to dismiss
(filing 12) two of the plaintiff's claims for relief. That motion will be granted.
The plaintiff, The Edge in College Preparation (ECP), specializes in
helping high school students prepare for college entrance examinations.
Filing 1 at 2. Peterson's is an educational services company. Filing 1 at 2. The
parties entered into a publishing contract in 2015. Filing 1-1. ECP agreed to
prepare a manuscript to be published by Peterson's as "Peterson's ACT 2016,"
in exchange for $180,000. Filing 1 at 1; filing 1-1 at 1, 4.
ECP completed the initial portions of the manuscript and submitted
them to Peterson's, which accepted them with minor revisions. Filing 1 at 3.
But Part III of the manuscript was, according to ECP, deficient. Filing 1 at 3.
Peterson's proposed amending the publishing contract so that ECP would
author a different publication, and Peterson's would retain the rights to use
ECP's work on the ACT publication. Filing 1 at 3. ECP refused, and
Peterson's terminated the contract. Filing 1 at 3-4. A balance of $120,000
remained due at the time of the termination. Filing 1 at 4.
ECP alleges that Peterson's subsequently published two ACT
preparation books: "Peterson's ACT Prep Guide" and "Peterson's ACT Prep
Guide Plus." Filing 1 at 4. According to ECP, the publications are
substantially similar to the work ECP performed for Peterson's, and ECP
alleges that "[g]iven the substantial similarity between the two works, it is
inconceivable that Peterson's prepared the Infringing Publications without
referring to the Work, for which ECP retained the intellectual property
rights." Filing 1 at 5. ECP alleges that Peterson's referred to ECP's work and
copied parts of it. Filing 1 at 5.
ECP sued Peterson's, asserting four claims for relief: breach of contract,
copyright infringement, unfair competition, and violation of the Nebraska
Uniform Deceptive Trade Practices Act (UDTPA), Neb. Rev. Stat. § 87-301 et
seq. Filing 1 at 5-7. Peterson's moves to dismiss two of those claims. Filing 12.
STANDARD OF REVIEW
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a
complaint must contain sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id. While the Court must
accept as true all facts pleaded by the nonmoving party and grant all
reasonable inferences from the pleadings in favor of the nonmoving party,
Gallagher v. City of Clayton, 699 F.3d 1013, 1016 (8th Cir. 2012), a pleading
that offers labels and conclusions or a formulaic recitation of the elements of
a cause of action will not do. Iqbal, 556 U.S. at 678. Determining whether a
complaint states a plausible claim for relief will require the reviewing court
to draw on its judicial experience and common sense. Id. at 679.
Peterson's moves to dismiss ECP's unfair competition and UDTPA
claims. Filing 12.
Peterson's contends that ECP's unfair competition claim is preempted
by the federal Copyright Act, 17 U.S.C. § 101 et seq. ECP grounds its claim in
both Nebraska common law and the Nebraska Consumer Protection Act,
Neb. Rev. Stat. § 59-1602 et seq. Filing 19 at 5, 10. The Court will begin with
the common-law claim.
Pursuant to § 301(a) of the Copyright Act, federal copyright law
preempts "all legal or equitable rights that are equivalent to any of the
exclusive rights within the general scope of copyright . . . in works of
authorship that are fixed in a tangible medium of expression and come within
the subject matter of copyright." See Dryer v. Nat'l Football League, 814 F.3d
938, 942 (8th Cir. 2016). In determining whether federal copyright law
preempts a cause of action under state law, the Court asks (1) whether the
work at issue is within the subject matter of copyright and (2) whether the
state law created right is equivalent to any of the exclusive rights within the
general scope of copyright as specified in § 106. Dryer, 814 F.3d at 942. If a
plaintiff's state-law claim meets both of those criteria, copyright law will
preempt that claim as a matter of law. Id. And it is not disputed, in this case,
that the work produced by ECP comes within the general scope of copyright.
Filing 19 at 5.
So, the question is whether the common-law right ECP is asserting is
equivalent to an exclusive right within the general scope of copyright. See
Dryer, 814 F.3d at 942. The purpose of copyright protection is to supply the
economic incentive to create and disseminate ideas. Id. Copyright law
achieves that objective by establishing a marketable right to the use of one's
expression. Id. at 943. Specifically, the Copyright Act gives copyright owners
exclusive rights to do and to authorize, among other things, the reproduction
of the copyrighted work, the distribution of copies of the copyrighted work to
the public by sale, and the display of copyrighted work publicly. See Ray v.
ESPN, Inc., 783 F.3d 1140, 1144 (8th Cir. 2015) (citing § 106).
In this case, it is precisely such a right that ECP is attempting to assert
under state law: the wrongful act alleged by ECP as unfair competition is the
reproduction and distribution of ECP's copyrighted work. And a state-law
right in a work is equivalent to the right conferred by copyright if the statelaw right is infringed merely by publication of the work. See id. (citing
Baltimore Orioles, Inc. v. Major League Baseball Players Ass'n, 805 F.2d 663,
667 (7th Cir. 1986)); compare Nat'l Car Rental Sys., Inc. v. Computer Assocs.
Int'l, Inc., 991 F.2d 426, 430 (8th Cir. 1993).
ECP argues, however, that its unfair competition claim requires an
element in addition to publication. If an extra element is required in order to
constitute a state-created cause of action, instead of or in addition to the acts
of reproduction, performance, distribution, or display, then the right does not
lie within the general scope of copyright and there is no preemption. Nat'l
Car Rental, 991 F.2d at 431. But ECP's complaint is silent, and its brief is
also far from clear, on what exactly that additional element might be. ECP
grounds its argument on "the nebulous nature of unfair competition and the
admittedly thin case law defining common law unfair competition claims in
Nebraska." Filing 19 at 6. But the caselaw isn't really "thin": it's just not very
helpful to ECP.
The common-law definition of unfair competition involves "palming off"
one's goods as the goods of another. John Markel Ford, Inc. v. Auto-Owners
Ins. Co., 543 N.W.2d 173, 178 (Neb. 1996); see, Kirsch Fabric Corp. v.
Brookstein Enters., Inc., 309 N.W.2d 328, 330 (Neb. 1981); Ransdell v. Sixth
St. Food Store of Lexington, Inc., 120 N.W.2d 290, 293-94 (Neb. 1963); Pers.
Fin. Co. of Lincoln v. Pers. Loan Serv., 275 N.W. 324, 326-27 (Neb. 1937);
Riggs Optical Co. v. Riggs, 270 N.W. 667, 669 (Neb. 1937).
The courts say that unfair competition means any conduct in a
trade or business whereby one party, by deceptive means,
transacts his business with the public in such a manner as to
leave the public with the impression that they are actually
dealing with another. The doctrine involves misrepresentation,
either express or implied.
Pers. Fin. Co., 275 N.W. at 326. In order to invoke this rule, some deception
must be practiced upon the public that is likely to mislead or confuse persons
of ordinary intelligence. Id.
Either actual or probable deception, or confusion, must be shown
to entitle the plaintiff to the protection of the rule. This is usually
accomplished by showing circumstances from which courts might
justly conclude that persons are likely to transact business with
one party under the belief they are dealing with another. Where
there is no probability of deception, there can be no unfair
Id. at 327; accord Ransdell, 120 N.W.2d at 294.
The problem for ECP is twofold. The first is that the complaint does not
actually state a claim for unfair competition, because nothing in the
complaint supports an inference that ECP and Peterson's are competitors in
the marketplace, and "there cannot be unfair competition where there is no
competition in fact." Riggs, 270 N.W. at 669. The second problem is that,
however incomplete ECP's allegations might be, what it has alleged is
coextensive with copyright.
It was based on precisely that reasoning that the Nebraska Supreme
Court concluded, in Richdale Dev. Co. v. McNeil Co., Inc., that a plaintiff's
unfair competition claim was preempted by the Copyright Act. 508 N.W.2d
853, 858-59 (Neb. 1993). That case involved misappropriated architectural
plans, but the defendant had not built or marketed a building from the
plaintiff's plans. Id. at 858-59. So, the Court found, there was "no element of
consumer confusion in this case which would qualitatively distinguish an
unfair competition claim from a claim within the scope of the copyright act."
Id. at 859. In the instant case, it is the plaintiff, not the defendant, who has
not marketed its work, but the end result is the same: there is no element of
consumer confusion to distinguish ECP's unfair competition claim from a
copyright claim. See id.; see also Issaenko v. Univ. of Minn., 57 F. Supp. 3d
985, 1023-24 (D. Minn. 2014).
ECP "contends that its allegations are sufficient at the pleading stage
to suggest consumer confusion." Filing 19 at 10. But the gravamen of "unfair
competition," as the name of the tort suggests, isn't simply whether a
consumer was misled: it is whether the defendant made a representation
relating to its own goods or services "that is likely to deceive or mislead
prospective purchasers to the likely commercial detriment of another . . . ."
John Markel Ford, 543 N.W.2d at 178 (emphasis supplied) (quoting
Restatement (Third) of Unfair Competition § 2)). And ECP does not allege
any misrepresentation in Peterson's marketing of its publications other than
Peterson's using ECP's alleged work as if Peterson's owned it. See Issaenko,
57 F. Supp. 3d at 1023.
ECP also suggests that it has "pleaded sufficient facts to suggest that
Peterson's entered into the Agreement in bad faith and breached a
relationship of trust, which is sufficient to make the unfair competition claim
qualitatively different from, and not preempted by, ECP's accompanying
copyright infringement claim." Filing 19 at 8. And perhaps ECP has alleged
facts suggesting bad faith or breach of duty—but Peterson's is not arguing
that ECP's breach of contract claim is preempted. Neither bad faith nor
breach of duty are essential to, or support, an unfair competition claim under
Nebraska law. ECP "fails to allege an element necessary to establish a claim
outside the scope of copyright protection[,]" and "[p]laintiffs may not by
miscasting their causes of action secure the equivalent of copyright protection
under the guise of state law." Richdale, 508 N.W.2d at 860.
ECP also asserts a statutory unfair competition claim based on § 591602 of the Consumer Protection Act, which provides that "[u]nfair methods
of competition and unfair or deceptive acts or practices in the conduct of any
trade or commerce shall be unlawful." But that presents ECP with a different
problem, because while a claim under the Consumer Protection Act has a
requirement that a copyright claim does not, it is a requirement that ECP
does not meet. The ambit of the Consumer Protection Act is limited to "unfair
or deceptive acts or practices that affect the public interest." Nelson v.
Lusterstone Surfacing Co., 605 N.W.2d 136, 141 (Neb. 2000); see also, Eicher
v. Mid Am. Fin. Inv. Corp., 748 N.W.2d 1, 12 (Neb. 2008); Arthur v. Microsoft
Corp., 676 N.W.2d 29, 36 (Neb. 2004). It is not available to address a private
wrong where the public interest is unaffected. Nelson, 605 N.W.2d at 142; see,
Eicher, 748 N.W.2d at 12; Arthur, 676 N.W.2d at 37. Specifically, the conduct
at issue must directly or indirectly affect the people of Nebraska. Arthur, 676
N.W.2d at 37-38.
And ECP does not allege that any Nebraska consumers were affected
by Peterson's conduct: ECP simply asserts that "[t]he unfair competition by
Peterson's has caused and will cause irreparable injury and damage to ECP
for which ECP has no adequate remedy at law." Filing 1 at 7. ECP argues
that Peterson's alleged conduct impacted the public because it sold the
publications "to the public at large, misrepresenting the material as its own
work." Filing 19 at 16. But even if it was alleged that the publications were
sold in Nebraska, it would not suffice: it would establish no more injury to the
public than the parties themselves contemplated by performance of their
contract. That theory, if pursued, would simply be that the public was
somehow injured by Peterson's alleged violation of ECP's copyright—an
unpersuasive claim, and one that would simply swing the analysis back
around to preemption under the Copyright Act.
In sum, ECP's unfair competition claim is deficient because ECP did
not actually compete with Peterson's in the marketplace, and the theory ECP
advances in support of its claim is preempted by the Copyright Act. ECP's
unfair competition claim will be dismissed.
UNIFORM DECEPTIVE TRADE PRACTICES ACT
As relevant, the UDTPA provides that a person engages in a deceptive
trade practice "when, in the course of his or her business, vocation, or
she: . . . [c]auses
misunderstanding as to the source, sponsorship, approval, or certification of
goods or services" or, alternatively, "[u]ses any scheme or device to defraud by
means of: (i) [o]btaining money or property by knowingly false or fraudulent
pretenses, representations, or promises; or (ii) [s]elling, distributing,
supplying, furnishing, or procuring any property for the purpose of furthering
such scheme . . . ." § 87-302(a); see filing 19 at 17. The UDTPA is meant to
protect both consumers and competitors from deception. Richdale, 508
N.W.2d at 860. ECP contends that "[b]ecause Peterson’s misrepresented the
origin of the Infringing Publications and held ECP’s material out to the
public as its own, consumer protection is at issue . . . ." Filing 19 at 19.
But ECP's UDTPA claim suffers from essentially the same deficiencies
as its unfair competition claim. As the Nebraska Supreme Court recognized
in Richdale, "[w]hile the goal of consumer protection may provide the
additional element necessary to set the claim apart from the rights afforded
by the copyright act, that element is not at issue under the facts of this case,"
because the only "confusion or misunderstanding" or "scheme or device to
defraud" to which consumers are subject is triggered by Peterson's alleged
publication and sale of ECP's copyrighted material.1 508 N.W.2d at 860. "If
protection of a customer is not implicated, then the rights which the law
seeks to protect in this case are the same rights which are protected under
the copyright act, which are the competitor's rights to control reproduction
and distribution of the [materials]." Id. "Here, without the element of
preventing consumer confusion, the rights [ECP] seeks to protect under the
Uniform Deceptive Trade Practices Act are apparently coextensive with the
rights protected by the copyright act." Id. at 861.
That is, assuming that a purportedly deceptive trade practice has been committed in
whole or in part in Nebraska, see § 87-304(c), which has not been alleged at this point.
In other words, the only consumer "confusion" at issue in this case is
confusion as to who owns the copyright, meaning that ECP's alleged UDTPA
violation is wholly coextensive with its copyright claim. Under ECP's theory,
proof that copyrighted material was published for sale would, without more,
also prove a violation of the UDTPA. It is certainly not clear to the Court that
ECP has stated a claim for relief under the UDTPA. But, whatever claim it
has stated is preempted by the Copyright Act.
To the extent that ECP has stated a claim for relief for unfair
competition or under the UDTPA, such claims are preempted by the
Copyright Act. The Court will grant Peterson's motion to dismiss.
IT IS ORDERED:
Peterson's motion to dismiss (filing 12) is granted.
This matter is referred to the Magistrate Judge for case
Dated this 5th day of June, 2017.
BY THE COURT:
John M. Gerrard
United States District Judge
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