Xtomic, LLC v. Active Release Techniques, LLC

          MEMORANDUM OPINION AND ORDER

          RAYMOND P. MOORE UNITED STATES DISTRICT JUDGE.

         The parties' cross-motions for summary judgment ask the Court to determine two issues arising under the Copyright Act of 1976, 17 U.S.C. § 101 et seq. First, Plaintiff's motion seeks a declaratory judgment that it owns the copyright in the code to four computer programs. Second, Defendants' motion asks the Court to find that Plaintiff, based on its conduct, granted an implied, unlimited, nonexclusive license to retain, use, and modify the software programs, which is a complete defense to Plaintiff's second cause of action for copyright infringement.

         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^[1] provide healthcare services directly to patients and through a network of providers who have been trained in Defendants' “soft-tissue manipulation techniques.” (ECF No. 121-1, Defs.' Sep. Statement of Undisputed Mat. Facts (“Defs.' SUMF”), Defs.' SUMF ¶¶ 1, 2.)

         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^[2] ¶¶ 10, 13.)

         The parties also do not dispute that the Admin Program and EPN Program were 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^[3] for the Admin Program or EPN Program; did not have the ability to modify the programs; and the programs were never installed on a computer or server owned or controlled by Defendants. (Id., Defs.' SUMF, AF ¶ 19.) Similarly, Plaintiff contends that only its employees had access to its servers. (Id., Defs.' SUMF, AF ¶ 20.) Plaintiff claims that it, and it alone, made the conscious decision to limit Defendants' electronic access to the programs and Defendants' physical access to its servers. (Id.)

         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.)^[4] Furthermore, Defendants assert that the Plaintiff provided them the source code and placed no restrictions on their access to, or use of, the source code. (Id.) With regard to hosting the programs on Plaintiff's servers, Defendants state that it was a decision the parties mutually agreed upon. (Id., Defs.' SUMF, Reply to AF ¶ 20.) Then, Defendants note that Plaintiff helped transition the source code to a new vendor and did not “put any limits on that[, ]” in 2008. (Id.) Although it is unclear from the parties' filings, it appears that the preceding factual contentions are limited to the state of affairs before May of 2013.

         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], within 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, EHR Service ...