874 F.Supp. 837 (N.D.Ill. 1994), 94 C 2577, Althin CD Medical, Inc. v. West Suburban Kidney Center, South Carolina

Docket Nº:94 C 2577.
Citation:874 F.Supp. 837
Party Name:ALTHIN CD MEDICAL, INC., Plaintiff, v. WEST SUBURBAN KIDNEY CENTER, S.C., d/b/a WSKC Dialysis Services and Sherman Levine, M.D., Defendants.
Case Date:November 23, 1994
Court:United States District Courts, 7th Circuit, Northern District of Illinois
 
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Page 837

874 F.Supp. 837 (N.D.Ill. 1994)

ALTHIN CD MEDICAL, INC., Plaintiff,

v.

WEST SUBURBAN KIDNEY CENTER, S.C., d/b/a WSKC Dialysis Services and Sherman Levine, M.D., Defendants.

No. 94 C 2577.

United States District Court, N.D. Illinois, Eastern Division.

Nov. 23, 1994

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Michelle C. Burke, David B. Bayless, Kevin T. Conroy, McDermott, Will & Emery, Chicago, IL, for plaintiff.

Michael E. Barry, Richard William Young, John P. Feldman, Gardner, Carton & Douglas, Chicago, IL, for West Suburban Kidney Center.

Mark A. Brand, Dan J. Hofmeister, Jr., Brand & Novak, Ltd., Chicago, IL, for Dr. Levine.

MEMORANDUM OPINION AND ORDER

ALESIA, District Judge.

Plaintiff, Althin CD Medical, Inc., filed a two count amended complaint against defendants West Suburban Kidney Center, S.C. and Sherman Levine, M.D. Count I alleges a federal cause of action for copyright infringement. Count II alleges that the defendants misappropriated trade secrets in violation of the Illinois Trade Secrets Act. Now before the court are defendants' motions to dismiss the plaintiff's first amended complaint for lack of standing.

I. BACKGROUND

From 1987 through 1989, Sherman Levine, M.D. ("Dr. Levine") was a professor at the Albert Einstein College of Medicine ("Albert Einstein"). During that time, Dr. Levine authored and created computer software useful in analyzing and billing for kidney dialysis services. The software is called "Hyperchart."

On November 9, 1989, Dr. Levine executed an assignment of his rights in the Hyperchart software to Albert Einstein. Albert Einstein thereafter obtained a Certificate of Registration for Hyperchart in accordance with the Copyright Act of 1976, 17 U.S.C. § 101 et seq.

On February 1, 1990, Albert Einstein entered into an agreement with Archon Data Systems, Inc. ("Archon"). Albert Einstein granted Archon an "exclusive" worldwide license to manufacture and sell the software, as well as sub-license it to others. In Part 5 of the agreement, the parties outlined each party's rights with respect to the copyright and future infringement actions. The text of this part of the agreement is as follows:

5. Copyrighted Work Protection and Other

5.1 Licensor, at its sole cost and expense, has applied for and will use its best efforts to obtain United States copyright registrations for the Licensed Work.

5.2 Licensee agrees to assist Licensor at Licensor's sole cost and expense, to the extent such assistance is reasonably necessary, in the procurement of any protection or to protect any of Licensor's rights in and to the Licensed Work. Licensor, if it so desires, may procure protection for the Licensed Work and may prosecute any claims or suits to protect the Licensed Work in Licensor's own name, and may join Licensee as a party thereto, if necessary.

5.3 Licensee shall promptly notify Licensor in writing of any uses which may come to Licensee's attention which may constitute infringements by others of the Licensed Work or

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Licensed Products. Licensor shall have the sole right to determine whether or not any action shall be taken on or against any such infringements and Licensee shall not institute any suit or take any action on account of such infringements without first obtaining Licensor's written consent. Upon receipt of such consent, Licensee shall have the right, in its sole discretion and at its expense, to initiate such legal proceedings. Any settlement or recovery received from any such proceeding and remaining after reimbursement of Licensee for all of its reasonable expenses incurred in connection with such proceeding shall be divided sixty-five percent (65%) to Licensee and thirty-five (35%) to Licensor.

On June 9, 1992, Archon executed a distributor contract with Althin CD Medical, Inc. ("Althin"). In the agreement, Archon granted Althin "an exclusive, worldwide right and license to develop, manufacture, market, sell, develop and enhance the [Hyperchart software]." The parties agreed in the contract that "[Albert Einstein], including Dr. Levine, shall retain the right to make and use [the Hyperchart software] for scientific purposes and for continued research." In addition, Section 13 of the agreement set out the parties' rights with respect to trademark and copyright infringement. The third paragraph of that section states:

Althin shall give Archon prompt written notice of any infringement by others of copyrights or trademarks licensed hereunder which comes to the attention of Althin. If commercially reasonable, Althin shall, at its expense, take appropriate action against copyrights and trademarks infringers. Archon may act to defend Althin's rights hereunder where it deems such action to be reasonably necessary or appropriate, and Althin agrees to aid in enforcement of Archon's trademark rights or copyrights, including but not limited to authority to sue in Althin's name, with Althin's prior written consent, as reasonably required, at the expense of Althin.

In its complaint, Althin alleges that West Suburban Kidney Center ("WSKC") and Dr. Levine infringed its rights in the Hyperchart software. The following allegations make up Althin's complaint. On or about July 1, 1991, Albert Einstein granted Montifiore Medical College ("MMC") the right to use Hyperchart for a maximum period of one year, subject to certain conditions. Because WSKC either managed the dialysis center at MMC or was affiliated or otherwise associated with the persons that did so, WSKC had access to the Hyperchart software. Thereupon, WSKC retained Dr. Levine to modify Hyperchart for use in the dialysis clinics operated by WSKC located in Illinois and elsewhere. WSKC presently utilizes the software system created by Dr. Levine in one or more of its dialysis centers. As a result, plaintiff alleges two claims against both WSKC and Dr. Levine. In Count I, plaintiff frames its claim as one for copyright infringement. In Count II, plaintiff alleges that the defendants misappropriated trade secret information encompassed within Hyperchart.

Defendants WSKC and Dr. Levine have filed motions to dismiss the plaintiff's first amended complaint, pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, on the grounds that Althin lacks standing to assert the claims for infringement. The court now considers the motion.

II. STANDARD OF REVIEW

The defendants move to dismiss this case for both lack of subject matter jurisdiction (FED.R.CIV.P. 12(b)(1)) and failure to state a claim upon which relief can be granted (FED.R.CIV.P. 12(b)(6)). The court is faced with the question of which standard of review to apply. When a party raises subject matter jurisdiction as one of many grounds for dismissal, the court shall consider the Rule 12(b)(1) challenge first, as dismissal under this rule makes all other challenges moot. Freiburger v. Emery Air Charter, Inc., 795 F.Supp. 253, 256 (N.D.Ill.1992); Reason v. Heslin, 723 F.Supp. 1309, 1311 (S.D.Ind.1989); 5A Charles A. Wright & Arthur R. Miller, Federal Practice and

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Procedure: Civil 2d § 1350, pp. 209-10 (1990) .

When deciding a motion to dismiss based upon FED.R.CIV.P. 12(b)(1), the court construes the complaint liberally and is not bound to accept as true allegations of jurisdiction where a party properly raises factual questions of subject matter jurisdiction. Reason, 723 F.Supp. at 1311. Furthermore, the court may look beyond the jurisdictional allegations to examine any evidence submitted to determine if subject matter jurisdiction in fact exists. Roman v. U.S. Postal Service, 821 F.2d 382, 385 (7th Cir.1987) ( citing Grafon Corp. v. Hausermann, 602 F.2d 781, 782 (7th Cir.1979)); Sprague v. King, 825 F.Supp. 1324 (N.D.Ill.1993), aff'd, 23 F.3d 185 (7th Cir.), cert. denied, 513 U.S. 946, 115 S.Ct. 356, 130 L.Ed.2d 310 (1994). With that, the court considers the defendants' motions.

III. ANALYSIS

Article III of the Constitution confines the federal courts to adjudicating actual "cases" and "controversies." Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 3324, 82 L.Ed.2d 556 (1984). The Article III doctrine that requires a litigant to have "standing" to invoke the power of a federal court is perhaps the most important of these doctrines. Id. The issue of standing addresses the question "whether the plaintiff has alleged such a personal stake in the outcome of the controversy as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf." Warth v. Seldin, 422 U.S. 490, 498-99, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975).

Standing cannot be "inferred argumentatively from averments in the pleadings." Grace v. American Cent. Ins. Co., 109 U.S. 278, 284, 3 S.Ct. 207, 210, 27 L.Ed. 932 (1883). Rather, it "must affirmatively appear in the record." FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231, 110 S.Ct. 596, 608, 107 L.Ed.2d 603 (1990). Also the burden falls on the complainant to allege enough facts to demonstrate that he is the party with standing in the case. Warth, 422 U.S. at 518, 95 S.Ct. at 2215.

Thus, the issue for the court is whether Althin's standing to sue for infringement "affirmatively appears in the record." See FW/PBS, 493 U.S. at 231, 110 S.Ct. at 608. Althin does not allege that it is the owner of the software in question. Rather, Althin alleges that its standing to sue for infringement arises from some other source. See Pfizer Inc. v. Elan Pharmaceutical Research Corp., 812 F.Supp. 1352 (D.Del.1993). Althin argues that, as a result of two contracts, it is the holder of a sub-license for the exclusive worldwide rights to the Hyperchart software. These two contracts are central to this case. First, Althin alleges that in February, 1990, Albert Einstein and Archon entered into a license agreement (the "Einstein/Archon Agreement") in which Albert Einstein granted Archon an exclusive worldwide license to...

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