Frontline Test Equipment v. Greenleaf Software

• Decision Date: 03 June 1998
• Docket Number: No. Civ.A. 97-00139-C.,Civ.A. 97-00139-C.
• Citation: 10 F.Supp.2d 583
• Court: U.S. District Court — Western District of Virginia
• Parties: FRONTLINE TEST EQUIPMENT, INC., Plaintiff, v. GREENLEAF SOFTWARE, INC., Defendant.

10 F.Supp.2d 583

FRONTLINE TEST EQUIPMENT, INC., Plaintiff, v. GREENLEAF SOFTWARE, INC., Defendant.

No. Civ.A. 97-00139-C.

United States District Court, W.D. Virginia, Charlottesville Division.

June 3, 1998.

COPYRIGHT MATERIAL OMITTED

Paul H. Schwartz, Charlottesville, VA, for Frontline Test Equipment, Inc., plaintiff.

Sheldon H. Parker, Parker & Destefano, Charlottesville, VA, for Greenleaf Software, Inc., defendant.

MEMORANDUM OPINION

MICHAEL, Senior District Judge.

Factual and Procedural Background

This case arises out of a software distribution contract. In 1988, Greenleaf (a Texas corporation) and Advanced Computer Consulting, Inc., Frontline's predecessor in interest (both Virginia corporations),¹ entered into a five-year private label license agreement ("Agreement"). The agreement authorized Greenleaf to distribute Advanced Computer Consulting's serial data analyzer software product (known as "Serialtest") under Greenleaf's trademark, "Viewcomm."² For each copy distributed, Greenleaf was to pay Advance Computer Consulting a royalty. In the contract, Advanced Computer Consulting bound itself to deliver a floppy diskette containing the object code form of the program and user instructions ("Documentation") for use as a master diskette for the distribution of the program and instructions to Greenleaf customers. Advanced Computer Consulting also agreed to include a hard copy (paper print-out, non-diskette) of the source code form of the program for internal use only (although Greenleaf asserts that no hard copy of the source code was ever delivered). The contract grants to Greenleaf:

a non-exclusive, non-transferable worldwide license to sublicense the Software and Documentation and all enhancements, upgrades, additions, new versions and/or modifications to the Software and/or Documentation made by ACCI during the term of this Agreement, solely in the form of the Greenleaf Product and solely for use as a stand-alone serial data analyzer, and not for use as a part of, or merger with, any other software.... The foregoing non-exclusive license grant is subject ... to the condition that Greenleaf will not merge the Software into any other computer software or sublicense or attempt to sublicense third parties to merge the Software with other computer software.

The contract prohibits Greenleaf from "modify[ing] or translat[ing] the Software or Documentation or any portion thereof or prepar[ing] derivative works therefrom without the prior written consent of ACCU." The contract states an expiration date of December 31, 1993 and provides that the laws of Virginia govern the agreement. Moreover, the contract expressly states, "Greenleaf hereby submits to the jurisdiction of the courts of Virginia for the resolution of any dispute arising out of or in connection with this Agreement."

After the contract terminated in 1993, the parties continued their relationship. They did not renew the original contract, nor did they draw up a new contract. On January 10, 1994, Tammie K. Williams, then-Vice President of Greenleaf wrote to Paul Govert of Frontline, "As we have agreed, the original contract signed November 2, 1988 and expiring December 31, 1993 is the contract we are currently using to resell ViewComm. It will continue to be the legal instrument until we have reached an agreement in writing which states otherwise." No other communication regarding a contract appears in the record.

Conflict arose a few years later. In 1995, Greenleaf attempted to license the source code for Serialtest. Frontline refused to license the source code. In late 1996, Frontline became aware of a demonstration of a new Greenleaf product, "ViewComm for Windows," which product Frontline alleges is a derivative work from the original Serialtest in violation of the parties' contract.³ Frontline alleges that when Frontline contacted Greenleaf's president Mr. Don Killen, Mr. Killen stated that Greenleaf's Windows product aimed to reproduce the look and feel of the original Serialtest. Mr. Killen denies making this statement. Greenleaf's ViewComm for Windows, version 1.1 shipped in September 1997.⁴

In order to create ViewComm for Windows, Greenleaf either modified the existing serial data analyzer program or created from whole cloth a new, but remarkably similar, serial data analyzer program for Windows. Frontline alleges that Greenleaf derived its ViewComm for Windows from Serialtest. Derivative software is software created from existing programs. The contract between Greenleaf and ACCI/Frontline forbade Greenleaf to create such derivative software from Serialtest. Typically, a derivative program would be created by amending the source code (non-machine language program) and then compiling it anew to create a new object code (machine language).

Greenleaf alleges, as noted above, that it never received the hard copy of the source code of the Serialtest program and, thus, could not have created derivative software from said code. However, it is also possible to create derivative software with only object code through a process known as reverse engineering. This process involves taking apart the application program to discover how it works with the goal of imitating all or part of the program. This process can be accomplished with only the object code. Thus, Greenleaf could have reverse engineered the object code version of Serialtest, written essentially the same program, and then created the derivative ViewComm for Windows from that program. Such a process could still violate the terms of the contract.⁵

In November 1997, Frontline filed a complaint against Greenleaf alleging Breach of Contract (Count I), Federal Copyright Infringement (Count II), Virginia Common Law Trademark Infringement (Count III), and Federal Unfair Competition (Count IV). On January 23, 1998, Defendant filed a motion to dismiss for lack of personal jurisdiction, improper venue, failure to state a claim, or to transfer the case to the Northern District of Texas. Plaintiff filed a memorandum in opposition on March 6, 1998.

On March 27, 1998, Magistrate Judge B. Waugh Crigler held a hearing on the defendant's motion to dismiss or, alternatively, to transfer to the Northern District of Texas. The magistrate judge recommended that this court deny the motion to dismiss. He found that the 1988 contract between the parties continued through the time period relevant to the instant action. Because he found that the contract continued to govern the parties' relationship, he found that the defendant had submitted to jurisdiction in Virginia. Finding no other facts required transfer to the Northern District of Texas, the magistrate judge recommended that the court deny the motion to transfer as well.

On May 8, 1998, the defendant objected to the report and recommendation, and plaintiff responded to the objections. The defendant asserts that the magistrate judge incorrectly weighed the factors in analyzing the motion to transfer (giving insufficient weight to the illness of Greenleaf's president) and improperly relied on the contract and its forum selection clause. Moreover, the defendant asserts that the magistrate judge erred in failing to recommend a finding that the Federal Copyright Act preempts the breach of contract claim. The plaintiff's response focuses on the forum selection clause of the contract and the defendant's contacts with Virginia to support jurisdiction in this court. As to preemption, the plaintiff argues that the magistrate judge correctly found that the contract regulated the conduct of the parties to a degree beyond that regulation provided by the Federal Copyright Act.

The court has considered carefully the file, the pleadings, and the law. It has conducted a de novo review of the analysis and conclusions of the magistrate judge. Orpiano v. Johnson, 687 F.2d 44, 48 (4th Cir.1982). For the reasons set out below, the court adopts the report and recommendation of the magistrate judge in full, denies the defendant's motion to dismiss, and denies the defendant's motion to transfer.

Personal Jurisdiction

Personal jurisdiction is the power of the court to require a defendant to come into the state to defend a lawsuit in that state. Generally, the court evaluates the existence of personal jurisdiction first with reference to the appropriate state long-arm statute, within the limits of the United States Constitution. In Virginia, long-arm jurisdiction is consistent with the constitutional limits of personal jurisdiction. Section 8.01-328.1 of the Virginia Code provides, in pertinent part, that, "[a] court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a cause of action arising from the person's ... [t]ransacting any business in this State." "The Virginia Supreme Court has indicated that § 8.01-328.1 permits the assertion of in personam jurisdiction to the full extent permissible under the due process clause of the Fourteenth Amendment." General Electric Co. v. Rose International, Inc., 475 F.Supp. 602, 605 (W.D.Va.1979), citing, John G. Kolbe, Inc. v. Chromodern Chair Co., 211 Va. 736, 180 S.E.2d 664, 667 (1971).

There are a number of bases for personal jurisdiction under the Constitution, including consent and minimum contacts. International Shoe v. Washington requires that a court exercise personal jurisdiction over a defendant only if that defendant has such minimum contacts that it would be fair to require the defendant to come to the state to defend the suit. 326 U.S. 310, 319, 66 S.Ct. 154, 90 L.Ed. 95 (1945). The minimum contacts analysis requires the court to consider: the defendant's burden in defending the suit in the forum state, the forum state's interest in the suit, the plaintiff's interest in convenient and effective relief, and the state's interest in furthering fundamental social policies. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). Continuous...