Prof'l Portable X-Ray, Inc. v. Brad Nelson, Ken Kern, & Webinterstate, Inc., Case No. 17–cv–2469 (WMW/KMM)
| Decision Date | 07 March 2018 |
| Docket Number | Case No. 17–cv–2469 (WMW/KMM) |
| Citation | 301 F.Supp.3d 943 |
| Parties | PROFESSIONAL PORTABLE X–RAY, INC., and Evolve, Inc., Plaintiffs, v. Brad NELSON, Ken Kern, and WebInterstate, Inc., Defendants. |
| Court | U.S. District Court — District of Minnesota |
Matthew C. Murphy, Stanley E. Siegel, Jr., Nilan Johnson Lewis, PA, Minneapolis, MN, for Plaintiffs.
Bruce H. Little, Barnes & Thornburg LLP, Sarah Pruett, Ballard Spahr LLP, Minneapolis, MN, Clarence J. Kuhn, The Kuhn Law Firm, PLLC, Edina, MN, for Defendants.
Wilhelmina M. Wright, United States District JudgePlaintiffs Professional Portable X–Ray, Inc. (PPX), and Evolve, Inc., seek, among other things, a declaratory judgment that PPX owns the copyright in certain computer software and that Defendants' registered copyright in that software is invalid. Defendants move to dismiss this aspect of Plaintiffs' complaint. For the reasons addressed below, the Court grants Defendants' motion.
PPX provides portable digital diagnostic imaging services to correctional facilities, nursing homes, and other long-term care facilities. In September 1999, PPX requested a proposal from Defendant Brad Nelson for the development of computer software that would allow PPX customers to transmit certain information over the Internet. On September 14, 1999, Orion Services LTD and Kern Consulting Inc., which are companies respectively owned at the time by Nelson and Defendant Ken Kern, submitted a proposal to PPX to develop "Business Nursing Home Services" software. The 1999 Proposal outlined a two-step development process and provided that the developed software "shall be the property of PPX once the [$25,000] development costs are paid," and that "[a]ny proceeds of the resale of the custom developed software ... shall go to PPX after paying Orion Services LTD, and Kern Consulting a 25% royalty fee." The 1999 Proposal expired after 60 days.
Nelson and Kern founded Defendant WebInterstate in June 2000 "for the purpose of developing PPX's custom software." PPX thereafter "worked closely" with WebInterstate to "define and design ... software specifications." On April 4, 2002, PPX signed a "Web Application Proposal" submitted by WebInterstate. The 2002 Proposal details PPX's interest in the creation of a web-based application, outlines the core features of the application, includes a timeline for its development, and establishes a development cost of $35,250. The 2002 Proposal is not signed by Nelson, Kern, or WebInterstate. PPX paid WebInterstate; and the custom software, MediMatrix, was released in or about July 2002. PPX thereafter paid WebInterstate to host and manage the software.
In December 2002, PPX asked WebInterstate to "update the MediMatrix software" and subsequently "worked closely" with WebInterstate to develop the update. WebInterstate completed MediMatrixII on or about April 1, 2004, but WebInterstate returned PPX's payment for the software update without explanation. In January 2005, WebInterstate advised PPX that the monthly hosting fee had been discounted because PPX was "a good customer for [MediMatrixII]." WebInterstate stated that the discounts would continue until PPX received $25,000. PPX objected, fearing that WebInterstate was attempting to acquire ownership of MediMatrix.1 WebInterstate subsequently requested that PPX sign a "MediMatrix Software Services Agreement" and "MediMatrix2 sales commission agreement." PPX declined.
On March 21, 2005, without PPX's knowledge or permission, Nelson and Kern registered a copyright in MediMatrixII—Registration Number TX0006175487. Nelson and Kern identified themselves as the sole authors of the copyright, registered the entire source code for MediMatrix, and did not designate MediMatrixII as either a derivative of or an adaptation of MediMatrix.
PPX commissioned a separate developer in 2008 to create Lattice Pro, a software replacement of MediMatrix. Lattice Pro does not use any of MediMatrix's source code. Plaintiff Evolve, Inc., was incorporated on or about March 10, 2009, for the purpose of owning and marketing Lattice Pro. In November 2009, WebInterstate threatened to stop hosting MediMatrix unless PPX signed a service agreement. PPX "acquiesced," and both PPX and WebInterstate signed the MediMatrix Software Services Agreement on November 23, 2009. This agreement classifies WebInterstate as an independent contractor, provides PPX a license to use MediMatrix, and acknowledges that MediMatrix is a "valuable trade secret[ ] of WebInterstate."
WebInterstate sent PPX a cease and desist letter on May 12, 2017, alleging that Lattice Pro infringes on WebInterstate's copyright in the MediMatrix software. On July 3, 2017, PPX and Evolve filed this action seeking, as relevant here, a declaratory judgment that PPX owns MediMatrix and that Nelson and Kern's copyright in MediMatrix is invalid. Defendants move to dismiss.
The Declaratory Judgment Act provides for a declaration of "the rights and other legal relations of any interested party . whether or not further relief is or could be sought." 28 U.S.C. § 2201(a). To survive a motion to dismiss, a complaint must allege sufficient facts such that, when accepted as true, a facially plausible claim for relief is stated. See Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The factual allegations need not be detailed, but they must be sufficient to "raise a right to relief above the speculative level" in order to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A district court may consider documents necessarily embraced by the pleadings so long as no party questions the authenticity of the documents. See Zean v. Fairview Health Servs. , 858 F.3d 520, 526 (8th Cir. 2017) ; Ashanti v. City of Golden Valley , 666 F.3d 1148, 1151 (8th Cir. 2012). When determining whether a complaint states a claim for relief that is plausible on its face, a district court accepts as true all factual allegations in the complaint and draws all reasonable inferences in the plaintiff's favor. Blankenship v. USA Truck, Inc. , 601 F.3d 852, 853 (8th Cir. 2010).
Plaintiffs seek a declaratory judgment that PPX owns MediMatrix and, for that reason, the copyright in MediMatrix held by Nelson and Kern is invalid. Because PPX commissioned the creation of MediMatrix as a work for hire, Plaintiffs allege, PPX's ownership interest in MediMatrix is established. Plaintiffs alternatively assert that the 1999 Proposal transferred Defendants' copyright ownership in MediMatrix to PPX. The Court addresses each argument in turn.
PPX owns MediMatrix, Plaintiffs contend, because PPX commissioned Defendants to create the software as a work for hire under the Copyright Act. Defendants counter that no written instrument establishes a work-for-hire relationship and, even if such a written instrument existed, a computer program cannot be commissioned under the Copyright Act as a work for hire.
The Copyright Act of 1976 provides that copyright ownership "vests initially in the author or authors of the work."
17 U.S.C. § 201(a) ; Cmty. for Creative Non–Violence v. Reid , 490 U.S. 730, 737, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989). Ownership of a copyright 17 U.S.C. § 202. "As a general rule, the author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression entitled to copyright protection." Cmty. for Creative Non–Violence , 490 U.S. at 737, 109 S.Ct. 2166 (citing 17 U.S.C. § 102 ).
An exception to this general rule of copyright ownership exists for a "work made for hire." 17 U.S.C. § 201(b). In a work made for hire, ownership vests in the party commissioning the work. See id. The Copyright Act provides in pertinent part that a "work made for hire" is:
17 U.S.C. § 101 (emphasis added). This statutory definition represents a "carefully worked out compromise aimed at balancing legitimate interests." Cmty. for Creative Non–Violence , 490 U.S. at 748, 109 S.Ct. 2166 (internal quotation marks omitted). PPX concedes that its claim does not rely on the existence of an employee-employer relationship, and the parties do not dispute that MediMatrix was "specially ordered or commissioned." In light of these circumstances, to state a plausible claim of ownership, PPX must allege both the existence of a written instrument signed by the parties and that MediMatrix qualifies as one of the enumerated categories that would make MediMatrix eligible to be commissioned under the Copyright Act as a work for hire.
One purpose of requiring parties to "expressly agree" to a work-for-hire relationship "in a written instrument signed by them," 17 U.S.C. § 101, is "to make the ownership of property rights in intellectual property clear and definite," Schiller & Schmidt, Inc. v. Nordisco Corp. , 969 F.2d 410, 412 (7th Cir. 1992). Unless, as relevant here, "the parties have agreed in a writing signed by both that the person who commissioned the creation of the property is the owner," the creator is the owner. Id. at 413 ; see also Playboy Enter., Inc. v. Dumas , 53 F.3d 549, 558 (2d Cir. 199...
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