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November 27, 1991


The opinion of the court was delivered by: Haight, District Judge:


This is a private shareholder derivative suit, brought by plaintiff Frank C. Brooks, Jr. pursuant to Rule 23.1, Fed.R.Civ.P. alleging violations of federal and common law copyright and trademark laws, misappropriation of trade secrets, unfair competition, conversion, and other state law claims, including recently asserted claims for breach of contract and unjust enrichment. Subject matter jurisdiction is said to be founded upon the Copyright Act of 1976, 17 U.S.C. § 101 et seq., and § 43(a) of the Lanham Trademark Act, 15 U.S.C. § 1125(a); and with respect to the state law claims, upon principles of pendent jurisdiction and diversity of citizenship.

Defendant William E. Bates moves under Rules 12 and 56 to dismiss the first cause of action alleged in the complaint, the first through fifth affirmative defenses to defendant's counterclaims, and the counterclaims asserted by plaintiff in his reply to defendant's counterclaims.


According to the complaint, in April 1988 Brooks and Bates formed a computer software company, Knowledge Engineering Incorporated ("KEI"), the nominal defendant. The stated purpose of KEI was to develop, market and service computer software and hardware for the Apple computer. Brooks became the president, treasurer, and a director of KEI, owning 49% of the common shares of the company. Bates became a director and secretary of KEI, and the owner of 51%, of the shares. Brooks is a resident of Connecticut. Bates is a resident of New York. KEI is a Connecticut corporation, formally incorporated in that state on December 27, 1988. The complaint alleges at ¶ 7 that KEI's principal product currently in development is a color separation system or software package under the copyrighted name of ColorSystem I. KEI is also alleged to market copyrighted software systems under the trade name Just-Text.

Plaintiff attached to his complaint copies of five certificates of copyright registration. Each certificate refers to a computer program. The titles of the registered programs are: JustText; Document Manager; The Lithographer; Lithographer II; and Mac II Rip. The complaint alleges that the Document Manager program is used in conjunction with JustText; and that the Lithographer, Lithographer II and Mac II Rip programs are included in the ColorSystem I program marketed by KEI.

Each of the five copyright registrations lists William Bates as the author of the work, and KEI as the copyright claimant. The registration form requires the copyright claimant, if different from the author, to give a brief statement as to how the claimant obtained ownership of the copyright. In response to that direction, each registration contains the phrase "transfer of all rights by author." Brooks signed each of the five copyright applications on behalf of KEI on June 5 or 7, 1989. He commenced this action on June 27, 1989.

Brooks alleges in his complaint that prior to April 1988, Bates had been doing business on his own under the name "Knowledge Engineering," but had never incorporated under that name. Brooks alleges that in April 1988, Bates needed money, from a business standpoint and personally as well. Without money Bates was unable to develop the ColorSystem I computer software package. Brooks alleges in substance that he and Bates formed KEI, Brooks contributing the funds and Bates the computer expertise. Subsequently, Brooks alleges, he discovered that Bates, in violation of KEI's corporate existence and in violation of his fiduciary obligation to the company, set himself up in a separate business as "Knowledge Engineering" and began to deal directly with customers of KEI.

Accordingly Brooks commenced this action. The first cause of action, which lies at the heart of the present motion, alleges that KEI is the owner of the five copyrighted programs and that Bates is infringing those copyrights.

Bates interposed an answer consisting of a general denial, several affirmative defenses, and five counterclaims. Bates' second affirmative defense alleges that the Court lacks subject matter jurisdiction under the Copyright Act. The first counterclaim alleges fraud on the Copyright Office and prays for an order cancelling the certificates of registration in KEI's name. The other four counterclaims seek a declaration that plaintiff and the nominal corporate plaintiff have no interest in the propriety material; injunctive relief and compensatory damages; damages for abuse of process; and an accounting.

Plaintiff's reply to the counterclaims alleges, inter alia, that KEI is the registered owner of the copyrights (first affirmative defense); that Bates' rights to the programs were transferred to KEI by operation of law (second affirmative defense); that Bates' claim to trade secrets in the programs were transferred to KEI by operation of law; that Bates as author of the program transferred his copyrights to KEI "by his notice of copyright placed by him on copies of said computer programs" (fourth affirmative defense); and that Bates as author of the programs transferred his copyrights to KEI "by parol agreement . . . prior to the registration of said copyrights" (fifth affirmative defense).

Brooks also appended to his reply to Bates' counterclaims a self-styled "first counterclaim" for breach of contract and a "second counterclaim" for unjust enrichment.

Bates moves for an order of dismissal or summary judgment on Brooks' first cause of action. Because the parties have submitted material falling outside the pleadings which the Court has considered, I treat the motion as one for summary judgment under Rule 56. Bates also moves for summary judgment on Brooks' first five affirmative defenses, ...

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