Vanderbilt Univ. v. Scholastic, Inc.

• Decision Date: 28 May 2019
• Docket Number: NO. 3:18-cv-00046,3:18-cv-00046
• Citation: 382 F.Supp.3d 734
• Parties: VANDERBILT UNIVERSITY, Plaintiff, v. SCHOLASTIC, INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Tennessee

382 F.Supp.3d 734

VANDERBILT UNIVERSITY, Plaintiff,

v.SCHOLASTIC, INC., et al., Defendants.

NO. 3:18-cv-00046

United States District Court, M.D. Tennessee, Nashville Division.

Filed May 28, 2019

Ashleigh D. Karnell, Mary Leigh Pirtle, Paige Waldrop Mills, Robert E. Cooper, Jr., Bass, Berry & Sims (Nashville Office), Nashville, TN, for Plaintiff.

Caren Decter, Edward H. Rosenthal, Matt Woleske, Frankfurt, Kurnit, Klein & Selz, P.C., Benjamin E. Marks, Jessica Falk, David J. Lender, Pro Hac Vice, Weil, Gotshal & Manges (NY Office), New York, NY, Maia T. Woodhouse, Philip Michael Kirkpatrick, Adams and Reese LLP (Nashville-Church Street), Aubrey B. Harwell, Jr., Erik C. Lybeck, Thomas H. Dundon, Neal & Harwell, PLC, Michael G. Abelow, Sherrard Roe Voight & Harbison, PLC, Nashville, TN, for Defendants.

MEMORANDUM OPINION

WAVERLY D. CRENSHAW, JR., CHIEF UNITED STATES DISTRICT JUDGE

"Money tends to make people suspicious, if there's any money floating around."¹ This case arises from just such a suspicion. By means of a License Agreement executed in 1997 ("License"), Vanderbilt University ("Vanderbilt") and Defendant Scholastic, Inc. ("Scholastic") joined forces to develop, market, and distribute an educational literacy program called Read 180 based on the cutting-edge work of Vanderbilt Professor Ted S. Hasselbring. Pursuant to the License, Scholastic used certain copyrightable software and related instructional materials, along with other materials it both obtained and created, to develop the "Read 180" program. It was wildly successful. Scholastic distributed Read 180 and paid Vanderbilt royalties under the License until 2015, when Scholastic sold that part of its business and assigned the License to Defendant Houghton Mifflin Harcourt Publishing Company ("HMH"). However, Defendants' public exuberance about their success with Read 180 in connection with this sale led Vanderbilt to became suspicious that it was being exploited by Defendants. Vanderbilt conducted an investigation and now claims that it was deceived by the Defendants and has not been properly compensated for (1) components of Read 180 that are royalty-bearing under the License; (2) programs other than Read 180 that may be royalty-bearing because they are based on Vanderbilt-owned materials ("Derivative Products"); and (3) additional learning products that may have been surreptitiously developed by Hasselbring and Scholastic in violation of the License and Hasselbring's duties to Vanderbilt ("Ancillary Products").

Vanderbilt brings claims for trademark infringement in violation of § 32(1) of the United States Trademark Act, 15 U.S.C. § 1114(1) ; unfair competition, in violation of § 43(a) of the United States Trademark Act, 15 U.S.C. § 1125(a) ; declaratory judgment under the Declaratory Judgment Act, 28 U.S.C. § 2201 ; as well as numerous Tennessee state law claims. Before the Court are (1) Scholastic and HMH's Motion to Dismiss the Second Through Fourth and Seventh Through Eleventh Counts of the Complaint (Doc. No. 87); and (2) Hasselbring's Motion to Dismiss Counts Nine and Ten of the Complaint (Doc. No. 89).² Vanderbilt has filed responses in opposition (Doc. Nos. 96; 97), and Defendants have filed replies (Doc. Nos. 100; 101.) For the following reasons, both motions will be granted in part and denied in part.

I. Factual Allegations ³

A. Vanderbilt, Faculty Research, and Professor Hasselbring

Vanderbilt is a private, non-profit Tennessee university known in part for bringing research innovations into the world marketplace. (Doc. No. 85 at ¶¶ 1, 7.) Tenure-track faculty are expected and encouraged to research, write, and create, and these activities fall within the scope and purpose of their employment. (Id. at ¶ 8.) Vanderbilt contends that the technology and other creative works that its faculty create in their areas of study and research are "works for hire" under Tennessee law and federal copyright law. (Id. ) Accordingly, as part of their employment, Vanderbilt faculty are subject to a written policy ("Technology Policy"), that provides, among other things, that almost all innovations in technology as defined by Vanderbilt ("Vanderbilt Technology") created by faculty members are assigned to and owned by Vanderbilt. (Id. at ¶ 9.) Under the Technology Policy in effect until 2016, "[a]ll rights in non-scholarly Literary and Artistic Works created with the use of University funds or facilities, or that capitalize on an affiliation with the University, are granted to the University, and income distribution shall be handled in the same manner as technology. Commercial use of the University's name and marks requires prior University approval." (Doc. No. 85-2 at 10.) A superseding Technology Policy further explains that "Vanderbilt Technology" is broader than patentable intellectual property, and "includes tangible or intangible inventions, in the patent sense, whether or not reduced to practice, and research results whether or not patentable or copyrightable. These research results include, for example, computer programs, integrated circuit designs, industrial designs, databases, technical drawings, biogenic materials, and other technical creations." (Doc. No. 85-1 at 4.)

Vanderbilt relies upon its Center for Technology, Transfer and Commercialization ("CTTC") to protect and commercialize, as appropriate, the intellectual property developed at the University. (Doc. No. 85 at ¶ 10.) The CTTC is responsible for negotiating, on behalf of Vanderbilt, license agreements with commercial entities that are positioned to develop and commercialize the intellectual property advancements that Vanderbilt's faculty and staff create in the course and scope of their intellectual pursuits at the University. (Id. ) Faculty members receive a significant share – between 40 and 50 percent – of royalties received by Vanderbilt. (Id. at ¶ 11.) The remainder is invested in the university. (Id. )

To facilitate this process and safeguard Vanderbilt's rights, faculty are subject to Vanderbilt's Conflict of Interest Policy ("COI Policy"). (Doc. No. 85-4.) Under the COI Policy, Vanderbilt faculty are required, prior to undertaking consulting or any other activity or commitment that may create a potential conflict of interest, to disclose the activity or commitment in writing to the appropriate dean (and department chair), in sufficient detail and with appropriate documentation such that the dean and the department chair can determine whether a potential conflict exists. (Doc. No. 85 at ¶¶ 20, 51.) In addition, faculty members are required to file annual reports disclosing consulting and other outside business relationships that they engage in during the year, including the number of days devoted to the activities. (Id. at ¶¶ 21, 52.)

Hasselbring, a Tennessee resident, is currently an Emeritus Professor of Special Education in the Department of Special Education at Vanderbilt.⁴ (Id. at ¶ 2.) The Letter Agreement ("Hasselbring Employment Agreement") between Hasselbring and Vanderbilt dated December 27, 2005 concerning his employment specifies that the above "[p]olicies set forth in the Faculty Manual constitute part of the contractual relationship between [Hasselbring] and the University." (Id. at ¶ 19; Doc. No. 85-3.) Accordingly, Vanderbilt alleges that at all times during his employment, Hasselbring was subject to Vanderbilt's Faculty Manual, COI Policy, and Technology Policy. (Id. at ¶¶ 19-22.)

B. Hasselbring's Development of Read 180 and Vanderbilt's License to Scholastic

Hasselbring's area of research and study at Vanderbilt was, among other things, the use of technology to enhance learning for students with disabilities. (Id. at ¶ 23.) Beginning in 1985, Hasselbring and members of the Learning and Technology Center at Vanderbilt developed software that used student performance data to individualize and differentiate the path of computerized reading instruction in order to identify and help elementary and middle school students reading below grade level. (Id. at ¶ 24.) According to the Complaint, this software, which became the prototype for Read 180, was owned by Vanderbilt pursuant to the Technology Policy. (Id. )

Between 1994 and 1998, Hasselbring and his Vanderbilt team tested their work in Orange County, Florida. (Id. at ¶ 25.) The Orange County Literacy Project successfully used the Read 180 prototype with more than 10,000 struggling students. (Id. ) Vanderbilt alleges that, at that time, the Read 180 intellectual property consisted of (1) a software-based multimedia instructional program designed to provide daily computer-based compensatory instruction for middle school aged students (the "Software"); (2) an interactive multimedia CD-ROM containing instruction materials in middle school literacy consisting of software, a library of terms and sentences, video, text, and graphics, all of which were designed to be used in conjunction with the software (the "Literacy Unit"); and (3) certain confidential key academic concepts and techniques that formed the pedagogical basis for the Literacy Unit (all collectively, the "Read 180 Materials"). (Id. at ¶ 26.) Because the Read 180 Materials were created within the course and scope of Hasselbring and his Vanderbilt team's employment, Vanderbilt considered all of the components to be works for hire assigned to Vanderbilt pursuant to the Technology Policy. (Id. at ¶ 27.)

Scholastic is a for-profit New York corporation that describes itself as the world's largest publisher and distributor of children's books and a leading provider of children's print and digital instruction materials sold throughout the United States. (Id. at ¶ 3.) The positive results with Read 180 in Orange County, Florida, led Scholastic to partner with Vanderbilt to license the software and launch Read 180 as a commercial product. (Id. at ¶ 25.) Accordingly, Vanderbilt and Scholastic entered into the License effective January 1, 1997. (Id. at ¶ 28.) Vanderbilt...