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Exceller Software Corp. v. Pearson Education

November 9, 2010

EXCELLER SOFTWARE CORPORATION, PLAINTIFF,
v.
PEARSON EDUCATION, INC. AND ADDISON-WESLEY LONGMAN, INC., DEFENDANTS.



The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.

MEMORANDUM OPINION & ORDER

Plaintiff Exceller Software Corporation entered into a written agreement with Defendant Addison-Wesley Longman, Inc. to develop an educational software program called "Focus on Grammar" ("FOG"). Exceller alleges that Addison-Wesley and Pearson Education, Inc.*fn1 breached the agreement, or, in the alternative, infringed Exceller's copyright, by developing and marketing a new software program called "Focus on Grammar Interactive" ("FOGi"). Exceller's Amended Complaint seeks a declaration that (1) FOG is a joint work of authorship, with Exceller and Addison-Wesley as joint authors; and (2) FOGi is a derivative work of FOG. Exceller seeks an accounting of profits Defendants have realized from FOGi. (Am. Cmplt., Counts I and II) The Amended Complaint also asserts claims for copyright infringement, breach of contract, and common law unfair competition. (Am. Cmplt., Counts III, IV, and V) Defendants have moved to dismiss the Amended Complaint in its entirety. For the reasons stated below, Defendants' motion will be granted as to Count V, the unfair competition claim, but will otherwise be denied.

BACKGROUND

Plaintiff Exceller develops and distributes educational software. Defendant Addison-Wesley publishes educational texts. (Am. Cmplt. ¶¶ 1, 8, 13) In 1993, the two companies began collaborating to produce a software program for instruction in English as a Second Language ("ESL"). After more than a year of work, the parties entered into a Software Development Agreement dated December 22, 1994 ("SDA"). (Id. ¶ 1) In the SDA, Exceller agreed to contribute the software design, software architecture, user interface design, programming code, and product concept for the joint project, while Defendants agreed to contribute the content, including text files, graphic files, and sound files. (Id. ¶ 2) The CD-ROM software product resulting from the parties' collaboration was sold under the FOG name and proved to be highly successful in the marketplace. (Id. ¶¶ 1, 3, 22)

The Amended Complaint alleges that both parties, in entering into the SDA, intended that the copyright in FOG would be held jointly. (Id. ¶ 19) The Amended Complaint further alleges that the parties agreed, in the SDA, that any "major enhancements" to the product would be made only "upon separate and mutually agreeable terms." (Id. ¶ 2) Exceller claims in this lawsuit, however, that Defendants have separately developed a new version of FOG -- FOGi -- that incorporates "major enhancements" to FOG and has essentially replaced FOG in the marketplace. (Id. 4) Exceller further contends that FOGi is a "derivative work[] of FOG" and seeks its share of the profits that Defendants have received from FOGi. (Id. ¶¶ 43, 49) In the alternative, Exceller brings a copyright infringement claim based on its registered copyrights in FOG (id. ¶ 56), and alleges breach of contract and unfair competition. (Id. ¶¶ 62--63, 72)

Defendants argue that, under the SDA, Exceller was hired solely to develop a software engine for the FOG CD-ROM product, while Defendants retained undivided ownership in the content of the FOG product. In support of this interpretation of the SDA, Defendants cite to its "OWNERSHIP OF RIGHTS" provision, which states:

a.) The print form of the Work is the property of the Publisher and copyright has been registered in the U.S. Copyright Office under the Publisher's name. Ownership of all content material in the software packages shall be the Publisher's.

b.) The copyright and ownership of the Software engine shall be the Developer's.

c.) Copyright in the Software product of the Work shall be jointly held and shall be registered according to 3.a. and 3.b. herein.

(SDA ¶ 3) (emphasis added) Defendants registered their copyright in the FOG CD-ROM content in 1998. These copyright registrations state that the content of the FOG CDs is derivative of the content in the corresponding Focus on Grammar course books. (Def. Ex. A at ¶ 6b)

Defendants acknowledge that Exceller registered its copyright in each of the four FOG CDs in 2002, but note that Exceller claims protection only for the "[e]ntire source code" and discloses in its registrations that "'[t]he textual data, audio and images in this work are owned by another source.'" (Def. Br. 5 (quoting Am. Cmplt., Ex. 2 at ¶¶ 6a, 6b)

DISCUSSION

I. LEGAL STANDARD

"To survive a motion to dismiss, a claim 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. ___, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "In considering a motion to dismiss... the court is to accept as true all facts alleged in the complaint," Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007) (citing Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 87 (2d Cir. 2002)), and must "draw all reasonable inferences in favor of the plaintiff." Id. (citing Fernandez v. Chertoff, 471 F.3d 45, 51 (2d Cir. 2006)).

A complaint is inadequately pled "if it tenders 'naked assertion[s]' devoid of 'further factual enhancement,'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 557), and does not provide factual allegations sufficient "to give the defendant fair notice of what the claim is and the grounds upon which it rests." Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117, 121 (2d Cir. 2007) (citing Twombly, 550 U.S. 544).

"When determining the sufficiency of plaintiffs' claim for Rule 12(b)(6) purposes, consideration is limited to the factual allegations in plaintiffs'... complaint,... to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiffs' possession or of which plaintiffs had ...


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