Savage, District Judge.
William Raucci ("Raucci") has sued The Candy and Toy Factory ("TCTF") and Pablo Fernandez Atela ("Atela"), who manufactured and sold interactive candy products designed by him. Raucci's claims arise from an alleged oral agreement to pay Raucci royalties from the sales of those products. In his complaint, he alleges causes of action for breach of contract, violations of the Copyright Act and the Lanham Act, unjust enrichment, accounting, and conversion. He seeks damages and injunctive relief.
After removing the case from state court, the defendants have moved to dismiss the complaint. First, they argue that all causes of action are time-barred by the statutes of limitations. Second, they invoke Pennsylvania's gist of the action doctrine to bar the conversion claim. Third, they contend an unjust enrichment claim cannot coexist with a contract claim. Fourth, they argue that injunctive relief under the Copyright Act is not available because Raucci did not attach copyright registrations to his complaint. Fifth, they assert that Raucci has failed to state a cause of action under the Lanham Act because he was not a producer of the goods. Sixth, they maintain that Raucci's state law claims for conversion and unjust enrichment are preempted by the Copyright Act. Finally, they contend Raucci has failed to plead specifically the history of the assignment of rights under the royalty agreement from CRE8 Design and Development, Inc. ("CRE8"), the company through with Raucci operates.
We shall grant the motion as to Raucci's Lanham Act claims because he is not the producer of the products TCTF manufactured. In addition, the Copyright Act preempts his unjust enrichment claim and his conversion claim, to the extent it seeks relief for conversion of royalty payments.
We shall deny the motion in all other respects. Because there is a factual dispute about when the causes of action accrued, we are unable to determine whether the statutes of limitations were tolled. As the defendants have conceded, the gist of the action doctrine does not apply at this stage because they deny the existence of a contract. Raucci adequately pleaded the assignment of rights from CRE8 to him, and he was not required to attach copyright registrations to his complaint.
Raucci is an industrial engineer and creator of various "interactive candy products."
As agreed, Raucci designed numerous products for TCTF.
TCTF made the agreed-upon royalty payments to Raucci until 2007.
Raucci, individually and as assignee of CRE8, filed his complaint in the Philadelphia Court of Common Pleas on May 13, 2015. The defendants timely removed the action.
When considering a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), all well-pleaded allegations in the complaint are accepted as true and viewed in the light most favorable to the plaintiff. Holk v. Snapple Beverage Corp., 575 F.3d 329, 334 (3d Cir.2009) (quoting Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008)). A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), giving the defendant "fair notice of what the ... claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Although this standard "does not require `detailed factual allegations' ... it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
A complaint is subject to dismissal if the plaintiff fails to plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). The plaintiff must allege facts that indicate "more than a sheer possibility that a defendant has acted unlawfully." Id. Pleading only "facts that are `merely consistent with' a defendant's liability" is insufficient and cannot survive a motion to dismiss. Id. (citing Twombly, 550 U.S. at 557, 127 S.Ct. 1955). With these standards in mind, we shall accept as true the facts as they appear in Raucci's complaint and draw all possible inferences from those facts in his favor.
The statute of limitations for a state law cause of action is governed by the applicable state limitations period. Mest v. Cabot Corp., 449 F.3d 502, 510 (3d Cir.2006). For federal causes of action, the federal statute provides the statute of limitations. See, e.g., Kingvision Pay-Per-View, Corp. v. 898 Belmont, Inc., 366 F.3d 217, 220 (3d Cir.2004). When the federal statute is silent on the limitation period, the analogous state statute generally supplies it. Id.
The discovery rule tolls the running of the statute of limitations during the time that the plaintiff did not know or could not have known that he had been injured and the defendant caused the injury. Morgan, 92 A.3d at 828. It is no excuse that the plaintiff simply did not know of the injury. The plaintiff has an obligation to exercise reasonable diligence to inform himself of the facts and circumstances giving rise to his cause of action and to initiate suit within the limitations period. Crouse v. Cyclops Indus., 560 Pa. 394, 745 A.2d 606, 611 (2000) (citing Hayward v. Med. Ctr. of Beaver Cnty., 530 Pa. 320, 608 A.2d 1040, 1042 (1992)). The application of the discovery rule is a question of fact. Id. (quoting White v. Owens-Corning Fiberglas, Corp., 447 Pa.Super. 5, 668 A.2d 136, 144 (1995)). "[O]nly where the facts are so clear that reasonable minds cannot differ may the commencement of the limitations period be determined as a matter of law." Id. (citing Hayward, 608 A.2d at 1043). Thus, when Raucci discovered or should have discovered that the defendants breached the contract is for the jury to decide.
A federal claim accrues "when a plaintiff has a complete and present cause of action." Petrella v. Metro-Goldwyn-Mayer, Inc., ___ U.S. ___, 134 S.Ct. 1962, 1969, 188 L.Ed.2d 979 (2014) (quoting Bay Area Laundry & Dry Cleaning Pension Trust Fund v. Ferbar Corp. of Cal., 522 U.S. 192, 201, 118 S.Ct. 542, 139 L.Ed.2d 553 (1997)). The statute of limitations may be equitably tolled where the defendant has actively misled the plaintiff respecting the plaintiff's cause of action. Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1387 (3d Cir.1994) (citing Sch. Dist. of City of Allentown v. Marshall, 657 F.2d 16, 19-20 (3d Cir.1981)). Equitable tolling is available in all types of cases, including contract, copyright and conversion. Gunn v. First Am. Fin. Corp., 549 Fed.Appx. 79, 82 (3d Cir.2013) (contract); William A. Graham Co. v. Haughey, 568 F.3d 425, 436 (3d Cir.2009) (copyright); St. John's University, N.Y. v. Bolton, 757 F.Supp.2d 144, 187 (E.D.N.Y.2010) (contract, conversion, and unjust enrichment). Like the discovery rule, equitable tolling requires the plaintiff to exercise reasonable diligence to discover the injury. Oshiver, 38 F.3d at 1390. Whether the defendant concealed or withheld information, or provided false information creates an issue of fact that cannot be resolved at the motion to dismiss stage.
Here, Raucci's federal and state causes of action are not time-barred if the discovery rule or equitable tolling applies. Raucci alleges that he did not discover that the defendants were continuing to market, distribute and/or manufacture products he designed until 2014.
The applicable federal limitations periods are three years for injunctive relief under the Copyright Act and six years for violations of the Lanham Act. See 17 U.S.C. § 507(b) (Copyright Act); Santana
Raucci filed this action on May 13, 2015. If he did not learn until 2014 that he was entitled to royalties because the defendants had misled him into believing that they had not sold products he had designed since 2007, he instituted this action within two years of the accrual of his causes of action. It is for the jury to determine when he learned or should have learned that the defendants owed him royalties.
The four-year statute of limitations applicable to claims for failure to make payments due under a contract does not start to run until the payment is due. Where a contract calls for periodic or installment payments, each failure to make payments when due constitutes a separate and distinct cause of action. Total Control, Inc. v. Danaher Corp., 359 F.Supp.2d 387, 391 (E.D.Pa.2005). Consequently, a separate cause of action accrues each time the defendant fails to make timely payment.
Defendants contend that the royalty payments are not periodic payments. Although the defendants are correct that Raucci does not specifically claim that the royalties were to be paid periodically, it is apparent from a fair reading of the complaint that they were. Payments were not due until the products had been sold. Each time a product was sold, a royalty became due. When the royalty was not paid when due, a cause of action accrued.
Raucci asserts that the royalties were to be "calculated on the sales price of eachunit/item."
A cause of action for a copyright violation must be brought within three years of the violation. 17 U.S.C. § 507(b). The separate-accrual rule provides that in the case of successive violations of the Copyright Act, the limitations period runs separately from the date of each violation. Petrella, 134 S.Ct. at 1969. In other words, a separate copyright claim accrues upon the occurrence of each infringing act. Id. Accordingly, where the infringing acts occurred before and after the three-year limitation period, only those discrete acts occurring within three years of the filing of suit are timely. Id. at 1970.
Here, Raucci alleges continuing copyright violations since 2007. Because each failure to pay royalties when due starts a new limitations period, Raucci's claims for copyright violations occurring after May 13, 2012 are not time-barred. With respect to violations before May 13, 2012, the discovery
Pennsylvania's gist of the action doctrine prevents a plaintiff from recasting a breach of contract claim as a tort claim. Erie Ins. Exch. v. Abbott Furnace Co., 972 A.2d 1232, 1238 (Pa.Super.2009); see also Jones v. ABN Amro Mortg. Gp., Inc., 606 F.3d 119, 123 (3d Cir.2010). When the parties' obligations are defined by the terms of the contract and not by duties imposed by social policies, a plaintiff may only assert a contract claim. Erie Ins. Exch., 972 A.2d at 1239 (citing eToll, Inc. v. Elias/Savion Adver., 811 A.2d 10, 14 (Pa.Super.2002)). Thus, in order to state a tort claim where there is a contract, the wrong complained of must be the gist of the action with the contract only incidental. Sunburst Paper, LLC v. Keating Fibre Int'l, Inc., No. 06-3959, 2006 WL 3097771, at *2 (E.D.Pa. Oct. 30, 2006).
The defendants deny the existence of a contract. Yet, at the same time, they argue that Raucci cannot assert a tort claim for conversion without violating the gist of the action doctrine. Indeed, if there is a contract, the conversion claim will be barred. On the other hand, if there is no contract, the tort claim of conversion will survive. At this point, without engaging in any fact finding, we cannot determine whether there was a contract that triggers the gist of the action doctrine.
Raucci also alleges that the defendants have refused to return his drawings, designs and prototypes.
The defendants correctly assert that a cause of action for unjust enrichment cannot succeed where the transaction at issue is governed by an express contract. See, e.g., Benefit Trust Life Ins. Co. v. Union Nat'l Bank of Pittsburgh, 776 F.2d 1174, 1177 (3d Cir.1985). At the end of the day, the breach of contract and the unjust enrichment counts cannot coexist. However, at this stage, Raucci can assert inconsistent theories of recovery. Fed. R. Civ. P. 8(d)(3). See Cornell Cos. v. Borough of New Morgan, 512 F.Supp.2d 238, 265 (E.D.Pa.2007). Therefore, if the unjust enrichment claim were not preempted by the Copyright Act,
As a threshold matter, Raucci must demonstrate that he owns a valid copyright to the designs and prototypes. Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991) (citation omitted). Section 411 of the Copyright Act requires that a plaintiff must have a registered copyright before filing an infringement claim based upon that copyright. Zaslow v. Coleman, No. 15-1272, 2015 WL 2069192, at *3-4 (E.D.Pa. May 5, 2015) (citing 17 U.S.C. § 411; Patrick Collins, Inc. v. Does 1-26, 843 F.Supp.2d 565, 569 (E.D.Pa.2011)).
Registration is an element of a copyright infringement action. Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 166, 130 S.Ct. 1237, 176 L.Ed.2d 18 (2010); Zaslow, 2015 WL 2069192, at *3. The registration requirement is not jurisdictional. Reed Elsevier, 559 U.S. at 169, 130 S.Ct. 1237.
In response to the defendants' motion, Raucci has provided certificates of registration for several of the designs listed in Paragraph 28 of the complaint.
There is no question that Raucci has registered copyrights for most of the designs at issue. Even if he had not produced the registrations, we could take judicial notice of them. In deciding a Rule 12(b)(6) motion, we may consider not only documents that are attached to the complaint but also matters of public record. Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir.2006). Copyright registration certificates are public records that may be properly considered on a motion to dismiss. See Brown v. S. Fla. Fishing Extreme, Inc., No. 08-20678, 2008 WL 2597938, at *1 (S.D.Fla. June 27, 2008). As to those designs for which Raucci has not produced copyright registrations, we decline to dismiss the claims related to them at this time. If he fails to prove registration before or at trial, those claims will be dismissed.
Challenging Raucci's "reverse passing off" claim brought under § 43(a) of the Lanham Act, the defendants argue that Raucci has not adequately pleaded that he is the producer of the goods in question. They also move to dismiss his false advertising claim, contending that it relates only to defendants' designation of the origin of the goods in question. They are correct.
Section 43(a) of the Lanham Act prohibits "any false designations of origin" of goods or services that likely cause confusion or mistake or deceive as to the origin of the goods or services. 15 U.S.C. § 1125(a)(1). The prohibition covers "passing off" and "reverse passing off." "`Passing off' occurs when a producer misrepresents his own goods or services as someone else's." Sweet St. Desserts, Inc. v. Better Bakery, LLC, No. 12-6115, 2013 WL 81385, at *3 (E.D.Pa. Jan. 7, 2013) (citing Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 28 n. 1, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003)). "Reverse passing off" occurs when the producer of goods misrepresents someone else's product as its own product. Id.
Section 43 protects only the producer or manufacturer of the goods, not the designer or the creator of the idea. The Supreme Court has held that the "origin" of goods in § 43 means "the producer of the tangible product sold in the marketplace." Dastar, 539 U.S. at 31, 123 S.Ct. 2041. "Producer" refers to the manufacturer of the goods that reach the marketplace, not to the author of a concept or the creator of a prototype. Sweet St., 2013 WL 81385, at *4.
Here, Raucci alleges that he is the designer of the products and the creator of the relevant prototypes. He does not allege that he manufactured the products. To the contrary, he alleges that the defendants did.
To establish a claim for false advertising under the Lanham Act, a plaintiff must demonstrate that
Sweet St., 2013 WL 81385, at *4 (quoting Pernod Ricard USA, LLC v. Bacardi U.S.A., Inc., 653 F.3d 241, 248 (3d Cir. 2011)).
The Dastar reasoning also applies to false advertisement claims. Accordingly, for the same reasons that a "reverse passing off" claim is not actionable, claims for false advertising related to a product's origin may not be brought by the designer of the product. ZS Assocs., Inc. v. Synygy, Inc., No. 10-4274, 2011 WL 2038513, at *9 (E.D.Pa. May 23, 2011); see also Sweet St., 2013 WL 81385, at *4 (citing Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300, 1307 (Fed.Cir.2009)).
As does his "reverse passing off" claim, Raucci's false advertising claim rests on his misunderstanding that the term "origin" in § 43 includes the creator and designer of the goods. He alleges that the defendants "falsely advertis[ed] that they have designed the interactive candy products that Mr. Raucci actually designed" and that "Defendants have and currently are promoting, selling, marketing and advertising the candy products at issue without properly designating its [sic] origin."
The Copyright Act preempts state law claims if "(1) the subject matter of the state law claim falls within the subject matter of the copyright laws and (2) the asserted state law right is equivalent to the exclusive right that federal law protects." Curtin v. Star Editorial, Inc., 2 F.Supp.2d 670, 674 (E.D.Pa.1998) (quoting Sullivan Assocs., Inc. v. Dellots, Inc., No. 97-5457, 1997 WL 778976, at *2 (E.D.Pa. Dec. 17, 1997)); see 17 U.S.C. § 301(a). Preemption does not apply if the state law cause of action "requires an extra element, beyond mere copying, preparation of derivative works, performance, distribution or display," rendering it "qualitatively different" from the copyright claim. Dun & Bradstreet Software Servs., Inc. v. Grace
An unjust enrichment claim asserting that the defendant exploited the plaintiff's intellectual property without paying for it is nothing more than a copyright infringement claim. There is no "extra element." Syngy, Inc. v. ZS Assocs., Inc., No. 07-3536, 2015 WL 899408, at *40 (E.D.Pa. Mar. 3, 2015).
Raucci alleges that he "conferred upon Defendants the benefit of his creative work" and that "Defendants accepted and received said benefits without providing due compensation" to Raucci.
The conversion cause of action, on the other hand, is not preempted. A claim for conversion is preempted only to the extent it arises "from copying and misuse" of copyrighted work. It is not preempted where it relates to "`tangible, physical property, the rights to which are distinctly different from those rights involved in' [a] copyright claim." Syngy, 2015 WL 899408, at *40. In other words, a state law cause of action for conversion is not preempted where the defendant unlawfully retained the physical property embodying the plaintiff's work. Sullivan Assocs., 1997 WL 778976, at *5.
Raucci claims that "Defendants currently possess Plaintiff's intellectual property, including multiple drawings, designs and prototypes of the interactive candy products" and that they "have intentionally failed to return [them] and have unlawfully retained them and are converting them to their use without compensating Plaintiff."
Defendants argue that all of Raucci's claims are barred due to Raucci's failure to plead the history of the assignment of rights from CRE8 to Raucci. This argument is unavailing for two reasons. First, as the complaint makes clear, the oral agreement for royalties was among Raucci and the defendants, not among CRE8 and the defendants.
We shall grant in part and deny in part the motion to dismiss. We shall dismiss Raucci's claims: (1) under the Lanham Act; (2) for unjust enrichment; and (3) for conversion to the extent it seeks relief for alleged conversion of royalty payments. In all other respects, the motion will be denied.