Xtomic, LLC v. Active Release Techniques, LLC
Xtomic, LLC v. Active Release Techniques, LLC
Opinion of the Court
The parties' cross-motions for summary judgment ask the Court to determine two issues arising under the Copyright Act of 1976,
For the reasons discussed below, the Court GRANTS Plaintiff's motion for partial summary judgment. The Court DENIES Defendants' motion for summary judgment.
I. BACKGROUND
The following are the undisputed and material facts taken from the parties' statements of undisputed facts and accompanying exhibits.
A. Plaintiff and Defendants' Relationship
Plaintiff is a computer software and development company. (ECF No. 118-1, Pl.'s Sep. Statement of Undisputed Mat. Facts ("Pl.'s SUMF"), Pl.'s SUMF ¶ 2.) Plaintiff creates, develops, and maintains a variety of computer software, software applications, data management applications, and practice management applications. (Id. ) Defendants
The parties' businesses overlapped as Plaintiff provided software development and other IT services to Defendants from 2002 to 2013. (Id. , Defs.' SUMF ¶ 5.) Defendants terminated the business relationship with Plaintiff in 2013-which is also when the parties' conflicting copyright ownership claims over the programs began. (Id. , Defs.' SUMF ¶ 25.) The disputes revolve around four programs referred to by the parties as follows: the (1) Admin Program; (2) EPN Program; (3) EHR Service Application; and (4) PMS Program. (Id. , Defs.' SUMF ¶ 6.) There are no written agreements between Plaintiff and Defendants regarding any of the programs. (Id. , Defs.' SUMF ¶ 24.)
Although Defendants refer to the programs "collectively," the factual assertions surrounding the Admin and EPN Programs are very different than those surrounding the EHR and PMS Programs. As such, the Court will discuss the Admin and EPN Programs together and the EHR and PMS Programs together.
B. The Programs
1. The Admin Program and EPN Program
The parties do not dispute that the Admin Program and EPN Program were developed at Defendants' request to assist in managing its data. (ECF No. 121-1, Defs.' SUMF ¶¶ 8, 11.) Plaintiff provided both programs on a monthly basis for which it charged in arrears. (Id. , Defs.' SUMF ¶¶ 10, 13.) Plaintiff adds that it only invoiced Active Release Techniques, LLC for use of the Admin Program whereas it only invoiced ART Corporate Solutions, Inc. for use of the EPN Program. (Id. , Defs.' SUMF, AF
The parties also do not dispute that the Admin Program and EPN Program *1096were hosted on servers owned by Plaintiff. (Id. , Defs.' SUMF ¶ 20.) It is uncontested that, throughout the parties' business relationship, Defendants' employees and providers could access and use both programs. (Id. , Defs.' SUMF ¶ 19.) But Plaintiff asserts that Defendants did not have access to the source code
Defendants reply that Plaintiff provided the source code for the Admin Program and EPN Program in 2008 and again in 2013. (Id. , Defs.' SUMF, Reply to AF ¶ 19.)
In May 2013, Defendants terminated the business relationship with Plaintiff. (Id. , Defs.' SUMF ¶ 25.) According to Defendants, it was at that time Plaintiff voluntarily turned over the source code and related files for the Admin Program and EPN Program for a second time. (Id. , Defs.' SUMF ¶ 26.) Defendants cite testimony from one of Plaintiff's principals to further claim that the source code was turned over without any restrictions on Defendants' access to, or use of, it. (Id. , Defs.' SUMF, Reply to AF ¶ 26.)
According to Plaintiff, Defendants requested the source code to the Admin Program and EPN Program to run the programs on Defendants' servers so that Plaintiff would not have access to Defendants' data. (Id. , Defs.' SUMF, AF ¶ 26.) Plaintiff admits that it provided Defendants the source code to the Admin Program and EPN Program. (ECF No. 113-3, Resps. to RFA Nos. 9 ant 11 at 25-26.) But Plaintiff contends that after being "harassed" by third-party vendors, it "finally acquiesced to [Defendants' demands] with the promise from [Plaintiff] that [Plaintiff], *1097within a few months, cease using the Admin Program and the EPN Program." (ECF No. 121-1, Defs.' SUMF, AF ¶ 26.) And Plaintiff states that it did not give permission to modify or create derivative works with respect to the Admin Program and EPN Program. (Id. ) Despite Defendants' promise, Plaintiff asserts that Defendants continue to use the programs to this day. (Id. )
Finally, Defendants state that they paid Plaintiff approximately $2 million between 2002 and 2013. (Id. , Defs.' SUMF, ¶ 23.) Plaintiff responds that Defendants only paid $1,747,531.09 over that time period, of which "less than 30%" was for use of the Admin Program and EPN Program. (Id. , Defs.' SUMF, AF ¶ 23.)
2. The EHR Service Application and PMS Program
According to Plaintiff, it created and developed the EHR Service Application, without any input or assistance from Defendants, to be marketed to the healthcare industry for record management-it was not developed for or at the request of Defendants. (Id. , Defs.' SUMF, AF ¶ 6.) Plaintiff maintains that the PMS Program is merely a version of its EHR Service Application that has been branded for use by the Defendants' providers, not by Defendants. (Id. ) Plaintiff insists that the branded version was created for Defendants pursuant to the following verbal agreement: (a) an initial payment of $60,000 from Defendants; and (b) Plaintiff would give ART Business Solutions, LLC 50% of any sales proceeds from the branded version. (Id. ; Defs.' SUMF, AF ¶ 33.) Defendants, relying on allegations in Plaintiff's Complaint, contend that Plaintiff agreed to create and develop the PMS Program at Defendants' behest. (ECF No. 121-1, Defs.' SUMF, ¶ 6 and Reply to AF ¶ 6.)
After the PMS Program had been developed, the parties agree that Plaintiff did not voluntarily provide the source code and related files to Defendants. (ECF No. 121-1, Defs.' SUMF, ¶ 28.) Plaintiff only provided the source code after being ordered to do so by a preliminary injunction that Defendants obtained in state court. (Id. ) The parties further agree that the state court vacated its preliminary injunction after Plaintiff (as the defendant in the state court action) prevailed at trial on all thirty-two (32) causes of action asserted against it. (Id. )
Next, Defendants direct the Court's attention to a copyright notice contained in the PMS Program's source code and several invoices from Plaintiff. (Id. , Defs.' SUMF, ¶¶ 17, 18.) With regard to invoices sent by Plaintiff, Defendants point to the following statement at the bottom of the documents: "All source code and Images created by [Plaintiff] and used by the client become the client's property when Invoice is paid in full." (Id. , Defs.' SUMF, ¶ 18.) Plaintiff counters that the copyright notice contained in the source code was intended to cover Defendants' logo. (Id. , Defs.' SUMF, AF ¶ 17.) Plaintiff asserts that the invoices were not related to the programs at issue and that, in any event, various invoices were never paid. (Id. , Defs.' SUMF, AF ¶ 18.)
C. This Lawsuit
Plaintiff's Complaint alleges two causes of action related to the programs. First, Plaintiff seeks a declaratory judgment that it owns the copyright in the Admin Program, EPN Program, EHR Service Application, and PMS Program. (ECF No. 60, Compl. ¶¶ 74, 103-114.) Second, Plaintiff alleges that Defendants are liable for copyright infringement as to each of the programs. (Id. at ¶¶ 115-126.) Plaintiff moves the Court for partial summary judgment and a declaration that it owns the copyright in the Admin Program, EPN Program, *1098EHR Service Application, and PMS Program. (See ECF No. 110.) Defendants concede Plaintiff's motion to the extent of the claims of copyright ownership. (ECF No. 116 at 3.)
Defendants seek summary judgment that Plaintiff granted an implied license to use the programs. (ECF No. 113.) An implied license serves as a complete defense to Plaintiff's copyright infringement claims. (Id. ) Additionally, Defendants request a declaration from the Court that Plaintiff has granted an unlimited, nonexclusive license to retain, use, and modify each of the programs for its own purposes. (Id. at 12.) Plaintiff responds that material issues of fact preclude summary judgment on the implied license issue. (ECF No. 117.)
II. LEGAL STANDARD FOR SUMMARY JUDGMENT
Summary judgment is appropriate only if there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) ; Celotex Corp. v. Catrett ,
The Court will consider statements of fact, or rebuttals thereto, which are material and supported by competent evidence. Fed. R. Civ. P. 56(c)(1)(A), 56(e)(2), 56(e)(3). Summary judgment evidence need not be submitted in a form that would be admissible at trial, but the content or substance of the evidence must be admissible. Johnson v. Weld Cty. ,
"Where, as here, we are presented with cross-motions for summary judgment, we must view each motion separately, in the light most favorable to the non-moving party, and draw all reasonable inferences in that party's favor." United States v. Supreme Court of New Mexico ,
*1099III. ANALYSIS
A. Plaintiff's Motion for Partial Summary Judgment
Plaintiff moves for partial summary judgment to establish copyright ownership in the Admin Program, EPN Program, EHR Service Application, and PMS Program. (See ECF No. 110.) Although Defendants initially sought copyright ownership rights in the Programs, it now confesses Plaintiff's claim of copyright ownership. (Compare ECF No. 77 at ¶ 20 with ECF No. 116 at 3.) Notwithstanding the Defendants' confession of the motion, the "party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact." Celotex , 477 U.S. at 323,
Computer software is subject to copyright protection. See
Here, Plaintiff presents evidence, which Defendants' do not dispute, to establish that Mr. Varney, as an employee of Plaintiff created and authored all of the source code for the Admin Program, EPN Program, EHR Service Application, and PMS Program. (ECF No. 118-1, Pl.'s SUMF ¶¶ 10, 19, 39, 50.) And both parties agree there is no written agreement between them related to the four programs. (Id. , Pl.'s SUMF ¶¶ 12, 20, 52; ECF No. 121-1, Def.'s SUMF ¶ 24.) Therefore, the Court concludes that pursuant to
B. Defendants' Motion for Summary Judgment
Section 204(a) of the Copyright Act provides that "[a] transfer of copyright *1100ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent."
Although the Tenth Circuit has not addressed the issue of implied licenses in copyright, the preeminent treatise on copyright, and other circuits, agree that a "nonexclusive license may be granted orally, or may even be implied from conduct."
In Gagnon , the software developer, Gagnon, was hired as an independent contractor to develop custom software for AMS, a field marketing company.
Gagnon had to express an intent to retain control over the programs and limit AMS's license if he intended to do so. A belated statement that the programs could not be used after Gagnon's departure, made after the termination decision and well after the creation and delivery of the programs for which substantial sums were paid, was not sufficient to negate all other objective manifestations *1101of intent to grant AMS an unlimited license.
1. The Admin Program and EPN Program
a. Request
The parties do not dispute that the Admin Program and EPN Program were developed at Defendants' request to assist in managing its data.
b. Delivery
Defendants argue that Plaintiff delivered the Admin Program and EPN Program in two ways. First, Plaintiff provided electronic access to the programs even though the programs were hosted on Plaintiff's servers. (ECF No. 113 at 11.) Second, in 2013, Plaintiff provided Defendants with the source code and related files for use of the Admin and EPN Programs. (Id. ) Plaintiff says, "not so fast." First, Defendants did not specifically pay for hosting the programs on Plaintiff's servers-plus, the hosting decision was made by Plaintiff so it could control Defendants' electronic access to the programs. (ECF No. 117 at 8.) Second, the source code was only turned over after Defendants', and their vendors, demanded the source code and harassed Plaintiff. (Id. at 8.) Moreover, the source code was turned over with Defendants' promise that it would only be used for "a few months." (Id. ) The Court finds that Plaintiff created the software for Defendants and delivered the two programs.
Here, the objective facts are that Plaintiff gave access to use the programs and even transferred the source code for the Admin and EPN Program. Gagnon ,
c. Intent as Manifested by Plaintiff's Conduct
The heart of the dispute centers on intent. Defendants argue that the creation and delivery of the source code for the Admin Program and EPN Program, without any express restrictions or limitations of use, manifested an objective intent to grant Defendants an implied license to use the programs. (ECF No. 113 at 12.) Plaintiff sets forth three contentions to *1102support its argument that there are material factual issues regarding intent, and the scope of any license, that preclude summary judgment on Defendants' implied license defense. (ECF No. 117 at 10-13.) First, Defendants did not pay for perpetual use and access to the Admin Program and EPN Program. (Id. at 10.) Second, Plaintiff retained the source code on its servers so it could limit Defendants' use of the programs in the event Defendants failed to pay the monthly access fee. (Id. ) Finally, even though Plaintiff gave Defendants the source code, it was done "with the express, verbal limitation that [Defendants] would only use those programs for a few months."
The First, Fourth, and Ninth Circuits consider the following factors to determine intent: (1) whether the parties were engaged in a short-term discrete transaction versus an ongoing relationship; (2) whether the creator utilized written contracts providing that copyrighted materials could only be used with the creator's future involvement or express permission; and (3) whether the creator's conduct during the creation or delivery of the copyrighted material indicated that use of the material without the creator's involvement or consent was permissible. John G. Danielson, Inc. v. Winchester-Conant Props., Inc. ,
Here, in 2013, it is undisputed that the parties' business relationship was strained. Defendants demanded the Admin Program and EPN Program so that Plaintiff did not have access to its data. Then, Defendants ultimately terminated the business relationship. Against this backdrop, Plaintiff gave Defendants the source code to the Admin Program and EPN Program. The fact that Plaintiff voluntarily transferred the source code directly undermines its arguments that it sought to restrict or control access to the two programs. By voluntarily transferring the source code, Plaintiff relinquished its ability to control access to, use of, or modification of the programs. Plaintiff obviously knew this because, as discussed below, it refused to provide the source code to the EHR Service Application and PMS Program until a court ordered it to do so.
Although Plaintiff argues that Defendants did not pay for perpetual use and access to the programs, Plaintiff admits that it has been paid "less than 30%" of $1,747,531.09 for Defendants' use of the Admin Program and EPN Program. Plaintiff fails to specify how much less than 30% was paid. But, if 25% was paid for use of the Admin Program and EPN Program, that amounts to $436,882, which is a substantial *1103sum. Moreover, there is no writing to suggest that the programs could only be used with Plaintiff's future involvement or express permission. Like the special effects creator in Effects and the software developer in Gagnon , Plaintiff "was well paid for [its] services. Under the circumstances, it defies logic that [Defendants] would have paid [Plaintiff] for [its] programming services if [Defendants] could not have used the programs without further payment pursuant to a separate licensing arrangement that was never mentioned[.]" Gagnon ,
But the Court must stop short of granting summary judgment in favor of "the Defendants." Because Defendants frequently refer to themselves collectively, the foregoing contains an assumption that the analysis applies equally to each defendant. In other words, the nature of the evidentiary presentation asks the Court to conclude each corporate entity requested each program, received delivery of that program, and that Plaintiff's conduct was directed at, and the same, with respect to each of the three separate legal entities. However, summary judgment must not be premised on assumptions-in this instance, the moving party must present competent evidence to establish a complete defense to the claims of copyright infringement. This Defendants, individually, have failed to do. Apart from identifying the specific legal entity that requested the Admin Program and EPN Program, all that has been presented is general evidence that the programs were "provided to Defendants" (ECF No. 121, Defs.' SUMF ¶¶ 10, 13), and that "Defendants paid" $2 million to Plaintiff (Id. , Defs.' SUMF ¶ 23). Based on this record, the Court cannot decipher on summary judgment, and as a matter of law, to which (perhaps none, one, or more) of the three named defendants Plaintiff has granted the implied license. The named defendants are separate legal entities, despite Defendants' argument that they are commonly owned by the same individual. (ECF No. 121 at 8.) Accordingly, summary judgment must be denied on the present record.
2. The EHR Service Application and PMS Program
a. Request
Defendants argue that Plaintiff developed the PMS Program at its request. (ECF No. 113 at 10.) Plaintiff responds that the PMS Program was not created at Defendants' request. (ECF No. 117 at 5-6.) According to Plaintiff, it developed the EHR Service Application entirely on its own and without any input or assistance from Defendants-with internal development costs of approximately $1.6 million, which was never invoiced to any customer. (Id. at 5; see also ECF No. 118-1, Pl.'s SUMF ¶¶ 26-41.) Further, Plaintiff maintains that the PMS Program is merely a "skinned" or "branded" version of the EHR Service Application. (ECF No. 117 at 5.) Neither party disputes that branding or skinning a software product only costs a fraction of the total cost to develop the software. (ECF No. 118-1, Pl.'s SUMF ¶ 45.)
The real issue is whether the branded PMS Program is sufficiently distinct from the EHR Service Application for it to be considered a separate program developed at Plaintiff's request. Defendants argue that they only seek a license to use the PMS Program, thus any discussion of the EHR Service Application is irrelevant. (ECF No. 121 at 2-3.) But Defendants' argument does not address the core dispute-Plaintiff essentially claims that the PMS Program is the EHR Service Application. And there is a material factual dispute as to this issue. Plaintiff presents evidence that it created the EHR application on its own initiative, at its own expense of $1.6 million, and then offered a *1104branded version to Defendants. Cf. Gagnon ,
b. Delivery
Black's Law Dictionary defines delivery as "[t]he formal act of voluntarily transferring something[.] Black's Law Dictionary (10th ed. 2014). In this case, the parties agree that Plaintiff did not voluntarily provide Defendants with the source code or related files. (ECF No. 121-1, Defs.' SUMF ¶ 28.) Plaintiff only provided the source code and related files after a state court entered a preliminary injunction, which is not a voluntary transfer. (Id. ) Therefore, this factor weighs against finding an implied license for Plaintiff to use the PMS Program.
c. Intent as Manifested by Plaintiff's Conduct
Apart from reiterating the points discussed above, the parties provide little additional argument as to the intent manifested by Plaintiff's conduct as it relates to the PMS Program. (See ECF No. 113 at 12; ECF No. 117 at 10; ECF No. 121 at 6-7.) Defendants raise three additional points in their reply brief: (1) in the PMS source code, Plaintiff included a copyright notice in favor of Defendants; (2) several invoices state that source code becomes the client's property upon payment of the invoice; and (3) Plaintiff refused to provide the source code and registered its copyright in the programs only after the parties ended their relationship. (ECF No. 121 at 6-7.) The Court is not persuaded by Defendants' arguments.
First, Plaintiff stated in deposition testimony that the copyright notice was intended to cover Defendants' logo, not the source code. (ECF No. 121-1, Resp. to Defs.' SUMF ¶ 17.) Plaintiff also points to the fact that the copyright notice was not included in the EHR Service Application, which the Court interprets to mean that Plaintiff was not giving away its EHR source code, but only trying to protect the "branded" portions that had been added to the source code for Defendants.
Second, the Court has reviewed the invoices that Defendants rely on. None of the invoices refer to the EHR Service Application or the PMS Program. (ECF No. 121-1, Defs.' SUMF ¶ 18.) Nonetheless, Plaintiff claims that the invoices were never paid. (ECF No. 121-1, Resp. to Defs.' SUMF ¶ 18.)
Finally, the after-the-fact registration of the copyright notice does not negate Plaintiff's objective conduct: it refused to provide Defendants the source code to the PMS Program and only provided the code after being ordered to do so by a court. The Court also notes the substantially different amounts paid for the Admin and EPN Program ($436,882) as opposed to the PMS Program ($60,000 plus 50% of any sales proceeds). When considering the evidence that Plaintiff developed the EHR Service Application on its own initiative, paid for its own development costs, refused to provide Defendants the source code, and received a fraction of the overall development cost from Defendants, it cannot be said, on summary judgment, that Plaintiff intended to grant Defendants a nonexclusive license to use the EHR Service Application or PMS Program. Therefore, Defendants' motion is denied as to the EHR Service Application and PMS Program.
C. Defendants' Declaratory Judgment Request
Defendants ask the Court to enter summary judgment on their counterclaim for *1105declaratory judgment that Defendants have "an unlimited, nonexclusive license to retain, use, and modify the programs." (ECF No. 113 at 1-2; 12.) The quoted language in the preceding sentence represents the full extent of Defendants' legal analysis and authority. Since Defendants have not provided a fully developed analysis or legal authority to establish that it meets the elements of its counterclaim for declaratory judgment, the Court will not undertake this task for them. See, e.g. , Good v. Hamilton ,
IV. CONCLUSION
Based on the foregoing, the Court:
(1) GRANTS Plaintiff's motion for partial summary judgment (ECF No. 110);
(2) DECLARES that Plaintiff Xtomic, LLC is the author of, and owns the copyright rights in, the Admin Program, EPN Program, EHR Service Application, and PMS Program;
(3) DENIES Defendants' motion for summary judgment (ECF No. 113); and
(4) DENIES Defendants' request for entry of declaratory judgment on its counterclaim (ECF No. 113).
The three named defendants appear to provide different services and serve different functions related to the healthcare and business operations of Active Release Techniques. The Court collectively refers to all three entities as "the Defendants." However, as discussed below, the fact that there are three separate legal entities is material to the "implied license" defense at issue.
"AF" refers to Plaintiff's additional facts included in Defendants' Separate Statement of Undisputed Material Facts.
When programmers write code, they write in "source code," which is written in a programming language that humans can understand. This source code is then compiled into object code which is essentially a translation of source code into something the computer can understand and execute. Generally, when software is distributed, only the compiled object code is distributed and the programmer retains the source code. Regardless of whether the computer program is in object code or source code form, it is copyrightable and protectable. Asset Mktg. Sys., Inc. v. Gagnon ,
Plaintiff includes "Additional Relevant Facts," which are numbered consecutively, but do not correspond to Defendants' numbered facts. For example, Plaintiff provides "Additional Relevant Fact No. 5" in response to Defendants' Undisputed Material Fact No. 19. For consistency, clarity, and ease of reference, the Court cites to the number of the Defendants' Undisputed Material Fact in the far left column and uses that same number when referring to Plaintiff's additional facts (in the middle column) or Defendants' Reply to those additional facts (in the far right column).
More specifically, the Admin Program was developed at the request of Active Release Techniques, LLC (ECF No. 113-3 at 17) whereas the EPN Program was developed at the request of ART Corporate Solutions, Inc. (Id. at 18.) Both requests were made to assist with data management. (Id. at 17-18.)
As support for this purported factual dispute, Plaintiff cites to the declarations of its owners Keith Varney and Jay Ferguson. (See ECF Nos. 117-2 and 117-3.) Both declarations provide the following: "All of the statements in the second column of Xtomic's Separate Statement of Undisputed Material Facts in Opposition to ART's Second Amended Motion for Summary Judgment are true." The Court rejects this aberrant practice of suffusing truth over all statements of fact contained in a pleading filed with this Court. More importantly, Plaintiff fails to identify who made this statement, to whom the statement was made, or when the statement was made. Thus, neither the content nor the substance of such a declaration is "evidence" that would be admissible at trial. Johnson v. Weld Cty. ,
Reference
- Full Case Name
- XTOMIC, LLC, a Colorado Limited Liability Company v. ACTIVE RELEASE TECHNIQUES, LLC, a Colorado Limited Liability Company, ART Corporate Solutions, Inc., a Colorado Corporation, and ART Business Solutions, LLC, a Colorado Limited Liability Company
- Cited By
- 2 cases
- Status
- Published