ACT, Inc. v. Worldwide Interactive Network, Inc.

• Decision Date: 23 August 2022
• Docket Number: s. 21-5889/5907/6155
• Citation: 46 F.4th 489
• Parties: ACT, INC., Plaintiff-Appellee, v. WORLDWIDE INTERACTIVE NETWORK, INC.; Teresa Chasteen, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

46 F.4th 489

ACT, INC., Plaintiff-Appellee,
v.
WORLDWIDE INTERACTIVE NETWORK, INC.; Teresa Chasteen, Defendants-Appellants.

Nos. 21-5889/5907/6155

United States Court of Appeals, Sixth Circuit.

Argued: June 9, 2022
Decided and Filed: August 23, 2022

ARGUED: Lorin J. Lapidus, NELSON MULLINS RILEY & SCARBOROUGH LLP, Winston-Salem, North Carolina, for Appellants. Laura L. Chapman, SHEPPARD, MULLIN, RICHTER & HAMPTON LLP, San Francisco, California, for Appellee. ON BRIEF: Lorin J. Lapidus, NELSON MULLINS RILEY & SCARBOROUGH LLP, Winston-Salem, North Carolina, A. Mattison Bogan, NELSON MULLINS RILEY & SCARBOROUGH LLP, Columbia, South Carolina, W. Kyle Carpenter, WOOLF, MCCLANE, BRIGHT, ALLEN & CARPENTER, Knoxville, Tennessee, for Appellants. Laura L. Chapman, Yasamin Parsafar, SHEPPARD, MULLIN, RICHTER & HAMPTON LLP, San Francisco, California, Matthew G. Halgren, SHEPPARD, MULLIN, RICHTER & HAMPTON LLP, San Diego, California, for Appellee.

Before: WHITE, BUSH, and READLER, Circuit Judges.

JOHN K. BUSH, Circuit Judge.

46 F.4th 494

Before us are two appeals that arise from the same intellectual-property dispute. Relevant to both, the testing company ACT, Inc. ("ACT") asserts that its former-partner-turned-competitor, Worldwide Interactive Network, Inc. ("WIN"), infringed ACT's copyright in its "Skill Definitions." Skill Definitions are, in essence, descriptions of the various workplace skills that ACT intends to test with its career-readiness assessments. ACT markets those assessments to schools, workplaces, and state departments of education.

After the parties’ relationship soured, WIN began to market its own career-readiness assessments that purported to test various "Learning Objectives"—descriptions of workplace skills suspiciously similar to ACT's Skill Definitions. In response, ACT filed suit. The district court awarded partial summary judgment to ACT on its copyright-infringement claims and later preliminarily enjoined WIN from continued infringement. WIN's first appeal concerns the imposition (and scope) of that preliminary injunction. Finding WIN's objections unpersuasive, however, we affirm.

We then turn to WIN's second appeal, which concerns a distinct but related issue. After WIN began to infringe ACT's Skill Definitions once again with a set of "revised" Learning Objectives, the district court ordered ACT to amend its complaint with new allegations that the revised Learning Objectives are likewise infringing. In response to the amended complaint, WIN filed an amended answer asserting a never-before-offered defense: that because WIN designed the Learning Objectives to bid on various state contracts, it was entitled to assert those states’ sovereign immunity from the copyright claims—so-called "derivative sovereign immunity." See Am. Answer ¶¶242–44, R. 551. But the district court struck the new defense as both untimely and "frivolous." Relying on the timeliness ground alone, we affirm that decision as well.¹

I.

ACT has long published a product called "WorkKeys"—"a system of workforce-development assessments that measure skills affecting job performance." Op. at 2, R. 316. "Three of those assessments are relevant to this case: Applied Mathematics, Locating Information, and Reading for Information." Id. Also relevant—indeed, the crux of this dispute—are the various "Skill Definitions" corresponding to those assessments. "Skill Definitions"—published by ACT in technical manuals accompanying the assessments—are essentially descriptions of the skills tested by each respective assessment.

For many years, ACT collaborated with WIN to promulgate those assessments. The parties had an "ongoing business relationship" from 1997 to 2011, Am. Answer ¶147, R. 120, and specifically entered a "WorkKeys Publisher Agreement" in 2006, Op. at 5, R. 316. Under that agreement, ACT designated WIN a "Preferred Content Provider" "with authority to develop and sell WorkKeys curricula in exchange for the payment of annual fees and royalties to ACT." Id. As part of that agreement, WIN also stipulated that ACT had the exclusive right to distribute WorkKeys materials and to prepare derivative works

46 F.4th 495

based on the same. ACT thus provided WIN "much information related to WorkKeys," including its tables of Skill Definitions from its technical manuals. Id. ACT "periodically reviewed" WIN's curricula "to ensure alignment between [WIN's] product[s] and ACT's WorkKeys." Id.

After disagreements arose, however, "[t]he contractual relationship between WIN and ACT terminated in 2011." Id. at 7. Thus, WIN and its president, Teresa Chasteen, began to develop and promote their own career-readiness-assessment materials.

Following a period of apparently peaceful coexistence, WIN and ACT found themselves at odds yet again over a contract with the state of South Carolina, this time in mid-2018. For about a year before, ACT had contracted with the South Carolina Department of Education and Workforce "to provide its WorkKeys assessments to employers within the state." Id. But the state later issued a "request for proposal" soliciting competing bids for new assessments. Id. After both ACT and WIN bid on the contract, the state awarded it to WIN. A review of the "Test Blueprint" WIN submitted during the bidding revealed that its "Learning Objectives" for the Applied Mathematics, Locating Information, and Reading for Information assessments were virtually indistinguishable from ACT's Skill Definitions.

ACT sued in response, asserting several claims against WIN. One was copyright infringement, predicated on ACT's claim that WIN directly copied its "Learning Objectives" from ACT's Skill Definitions, which ACT furnished to WIN under the parties’ former contract. Despite WIN's defenses, the district court granted partial summary judgment to ACT on the copyright claims in March 2020. The parties anticipated going to trial on the other claims soon after, but the COVID-19 pandemic caused a series of prolonged delays.

In the interim, WIN sought to salvage its original Learning Objectives by enlisting an education consultant, Amy Burkam, to make several revisions. WIN claims that Burkam's revisions—which resulted in, fittingly, the revised Learning Objectives—do "not infringe upon the description, selection, or arrangement of ACT's Skill Definitions." Appellants’ Br. [21-5889] at 10. But ACT disagreed, so it voiced its objections to the revised Learning Objectives at a pretrial conference in July 2021. Acting sua sponte , the district court ordered ACT to amend its complaint to include new allegations about the revised Learning Objectives—an amendment ACT contends was unnecessary, since the extant complaint already put WIN on notice that the revised Learning Objectives were also infringing.

ACT complied nonetheless, amending its complaint with the new allegations. But soon after, WIN tried to assert a never-before-raised defense in its amended answer: derivative sovereign immunity. According to WIN, because it had submitted bids on various state contracts, it was entitled to derivatively assert those states’ sovereign immunity from suit. ACT objected, however, and the district court struck the new defense, reasoning that it was both untimely and "frivolous." Order at 3–4, R. 605.

ACT then moved the district court to enjoin WIN's infringement. The district court entered a preliminary injunction in August 2021. Its order restrains WIN "from knowingly infringing ACT's copyrights in its Skill Definitions, including by distributing, copying, reproducing, displaying, creating derivative works from, or engaging in any other activity deemed infringing by 17 U.S.C. § 106 involving ACT's Skill Definitions." Op. & Order at

46 F.4th 496

27, R. 541. And, in a subsequent order, the district court clarified that this injunction bars WIN from distributing not only the original and revised Learning Objectives, but WIN's corresponding assessments as well.

These interlocutory appeals followed. In the first, defendants WIN and Chasteen contest the district court's grant of a preliminary injunction. They argue that the district court misapplied all four of the preliminary-injunction factors—in particular, that it erred in deeming WIN's original and revised Learning Objectives infringing and that it merely presumed rather than actually found irreparable harm to ACT.

In the second, WIN and Chasteen object to the district court's decision to strike its novel derivative-sovereign-immunity defense. The defense was timely raised, they argue, because it was unavailable before the Supreme Court's decision in Allen v. Cooper , ––– U.S. ––––, 140 S. Ct. 994, 206 L.Ed.2d 291 (2020), which held that Congress has not validly abrogated states’ sovereign immunity from copyright claims. Id. at 1007. And Allen only emerged long after defendants had filed the previous version of their answer. Likewise, they contend that the defense is not the sort of "redundant, immaterial, impertinent, or scandalous matter" that may be stricken under Rule 12(f) of the Federal Rules of Civil Procedure. Fed. R. Civ. P. 12(f).

II.

We first examine our jurisdiction and standards of review before explaining why both of WIN's appeals lack merit. As to the first, we have jurisdiction over the preliminary-injunction orders via 28 U.S.C. § 1292(a). See 28 U.S.C. § 1292(a)(1) (providing appellate-court jurisdiction over "[i]nterlocutory orders of the district courts ... granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions"). We also have pendent-appellate jurisdiction over the district court's earlier partial-summary-judgment order on ACT's copyright claims. The district court relied extensively on its infringement analysis from that order in determining whether to grant a preliminary injunction. See, e.g. , Op. & Order at 3, 13, R. 541. Indeed, if the copyright analysis is wrong in the summary-judgment order, it is necessarily wrong in the preliminary-injunction order. Thus...