Recursion Software v. Interactive Intelligence

• Decision Date: 27 February 2006
• Docket Number: No. CIV.A. 3:03-CV-2711-.,CIV.A. 3:03-CV-2711-.
• Citation: 425 F.Supp.2d 756
• Parties: RECURSION SOFTWARE, INC., Plaintiff, v. INTERACTIVE INTELLIGENCE, INC., Defendant.
• Court: U.S. District Court — Northern District of Texas

425 F.Supp.2d 756

RECURSION SOFTWARE, INC., Plaintiff, v. INTERACTIVE INTELLIGENCE, INC., Defendant.

No. CIV.A. 3:03-CV-2711-.

United States District Court, N.D. Texas, Dallas Division.

February 27, 2006.

Order Denying Reconsideration, March 13, 2006.

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Andrew R. Korn, David M. Diaz, John W. Bowdich, II, Korn Bowdich & Diaz, Dallas, TX, for Plaintiff.

Constance R. Lindman, Paul B. Overhauser, Overhauser Law Offices, Greenfield, IN, Derek D. Rollins, Michael D. McKinley, Shackelford Melton & McKinley, Dallas, TX, for Defendant.

MEMORANDUM ORDER

BOYLE, District Judge.

The following papers are before the Court: 1) Defendant Interactive Intelligence, Inc.'s ("Interactive") Motion for Summary Judgment (doc. 81); 2) Plaintiff Recursion Software's ("Recursion") Motion for Summary Judgment (doc.85); 3) Plaintiff's Motion to Strike the Statement of Scott Ganyo (doc. 104); 4) Plaintiffs Objections to Defendant's Summary Judgment Evidence (doc. 126); and 5) Defendant's Motion to Strike Portions of Plaintiff's Supplemental Appendix (doc. 129). For the reasons that follow, the Court GRANTS Interactive's Motion for Summary Judgment in part and DENIES it in part; GRANTS Recursion's Motion for Summary Judgment in part and DENIES it in part; and, to the extent not stated otherwise in this order, OVERRULES the parties' objections to evidence and DENIES their motions to strike certain items of summary judgment evidence.

I. Factual and Procedural Background

Recursion and Interactive are both software companies. This lawsuit arises out of Recursion's charge that Interactive made improper use of a Recursion software program—Voyager¹—that Recursion had purchased from the program's developer, Objectspace, Inc. (Pl.'s App. in Supp. Mot. Summ. J. ["Pl.App."] 1-2, 6-40). According to Interactive, well before Recursion acquired any interest in the Voyager software, certain Objectspace representatives told Scott Ganyo, an Interactive software developer, that Interactive could use Voyager in its own products free of charge provided that the software was not "embedded" in "devices" or "hardware". (Def.'s App. in Supp. Mot. Summ. J. ["Def.App."] 5-7, 13, 16, 30). Various public pronouncements by Objectspace also indicated that use of the Voyager technology would be free for most commercial uses. (See e.g. Def.App. 5, 13-15, 16-20, 33-44).

Interactive asserts that, according to company policy, it does not use software development tools in its own software programs if the use of such tools would require it to pay royalties on the software it sells. (Def.App.44). Interactive claims that it relied on Objectspace's representations that it could include Voyager in its software programs free of charge in deciding to incorporate components of the Voyager program into one of its products called "Interaction Recorder"², which Interactive sold to the public. (Def.App.8, 43-44). While Interactive contends that only a fractionally small part of Voyager is incorporated in Interaction Recorder, and that Voyager plays only a small role in the functioning of the program, Ganyo has testified that the operability of the system would be "seriously degraded" without Voyager. (Def.App. 8, 41; Pl.App. 147).

Although it is unclear exactly which versions of Voyager were included in Interaction Recorder, and when each version was included (Pl.App.148, 200)³, it is undisputed that Interaction Recorder at some point incorporated elements of Voyager 2.0.1. (Pl.App.200). The license agreement to that version of Voyager prohibits the licensee from embedding Voyager in "hardware" and in software programs that are marketed and sold. (Pl.App.86-87). The license agreement further imposed an obligation upon the licensee to "take all necessary steps" to ensure that those under its "control" and in its "service" do not violate the terms of the license agreement. (Id.).

According to Recursion, Interactive would not have been able to download Voyager without agreeing to the terms of the license agreement. (Pl.App.90). Recursion alleges that Interactive breached those terms by including parts of Voyager in the Interaction Recorder software that it marketed and sold, and by permitting its resellers to package Interaction Recorder in "hardware". Interactive denies that it ever agreed to the terms of the license agreement to Voyager 2.0.1. Rather, Interactive claims that it was included on a "grandfathered" list of Voyager users who could download updates to the software (necessarily including Voyager 2.0.1) in perpetuity without having to comply with the corresponding license agreements to those updates.

In 2001, Recursion acquired rights to the Voyager software from Objectspace.⁴ (Pl.App.1-2). Recursion contends that it first learned of Interactive's use of the Voyager software in March 2003, when Interactive sought technical support from Recursion for a "bug" in Interaction Recorder believed to have been caused by Voyager. (Pl.App.2, 88). Recursion responded by sending a letter to Interactive on July 20, 2003, demanding the immediate return of all products containing Voyager and that Interactive stop distributing such products. (Pl.'s Supplemental App. in Supp. Resp. to Def.'s Mot. Summ. J. ["Pl. Supp.App."] 514-17). In response, Interactive told Recursion that it had been given express permission from Objectspace to use the software. (Def.'s Mot. Summ. J. Brief at 9). Recursion then filed this law-suit.

Recursion asserts claims against Interactive for copyright violations, breach of contract, unjust enrichment and quantum meruit, all arising out of Interactive's use of the Voyager software. For its part Interactive contends that Objectspace promised that it could use the program in its software free of charge so long as it was not embedded in devices or hardware. Because Recursion is now seeking payment for Interactive's use of Voyager pursuant to certain license agreements, Interactive has asserted counterclaims against Recursion, alleging that it was fraudulently induced by Objectspace to enter into those license agreements and that, additionally, the Voyager program failed to operate properly in breach of implied warranties. The parties have filed cross motions for summary judgment, as well as objections to evidence. These motions and objections are ripe for review and determination.

II. Summary Judgment Legal Standard

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994). "[T]he substantive law will identify which facts are material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Only disputes about material facts will preclude the granting of summary judgment. Id.

The burden is on the summary judgment movant to prove that no genuine issue of material fact exists. Latimer v. Smithkline & French Lab., 919 F.2d 301, 303 (5th Cir.1990). If the non-movant bears the burden of proof at trial, the summary judgment movant need not support its motion with evidence negating the non-movant's case. Rather, the movant may satisfy its burden by pointing to the absence of evidence to support the nonmovant's case. Id.; Little, 37 F.3d at 1075.

Once the movant has met its burden, the non-movant must show that summary judgment is not appropriate. Little, 37 F.3d at 1075 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). "This burden is not satisfied with `some metaphysical doubt as to material facts,' . . . by `conclusory allegations,' . . . by `unsubstantiated assertions,' or by only a `scintilla' of evidence." Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). The non-moving party must "come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587, 106 S.Ct. 1348 (emphasis in original) (quoting FED. R. CIV. P. 56(e)). To determine whether a genuine issue exists for trial, the court must view all of the evidence in the light most favorable to the non-movant, and the evidence must be sufficient such that a reasonable jury could return a verdict for the non-movant. Munoz v. Orr, 200 F.3d 291, 302 (5th Cir. 2000); Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

III. Analysis

A. Interactive's Motion for Summary Judgment

1. Copyright Preemption

Interactive first argues that Recursion's state law claims for breach of contract, unjust enrichment, and quantum meruit are preempted by the federal Copyright Act. The Copyright Act generally preempts state law claims that are equivalent to any of the exclusive rights created by the copyright law. 17 U.S.C. § 301(a). In determining whether a state law claim is preempted by federal copyright law, the Court applies a two-part test. Carson v. Dynegy, Inc., 344 F.3d 446, 456 (5th Cir.2003). First, the Court examines whether the claim falls within the subject matter of copyright. Id. A claim involving computer software clearly does. See Nat'l Car Rental v. Computer Assoc., 991 F.2d 426, 431 (8th Cir.1993); Microsource, Inc. v. Superior Signs, Inc., 1998 WL 119537, at *2 (N.D.Tex. March 9, 1998). Next, the Court looks to whether the state law cause of action protects rights that are "equivalent" to any of the exclusive rights protected by copyright, which include the right to reproduce, distribute, perform, and display the copyrighted work. Carson, 344 F.3d at 456; 17 U.S.C. § 106. A state-created right is equivalent to these rights "if the mere act of reproduction, distribution, or display infringes it." Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir.1990) (appendix)....