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Joint Commission Resources Inc. v. Siskin Technologies Inc.

United States District Court, N.D. Illinois, Eastern Division

September 29, 2016

Joint Commission Resources, Inc., Plaintiff,
v.
Siskin Technologies, Inc., Defendant.

          MEMORANDUM OPINION AND ORDER

          Manish S. Shah United States District Judge.

         Siskin Technologies, Inc. wrote software for and gave technical support to Joint Commission Resources, Inc., a non-profit corporation engaged in accrediting healthcare organizations. For ten years, the parties worked together without a written agreement, but their relationship soured. JCR sued Siskin in state court, bringing several contract and misappropriation-related claims, and obtained a temporary restraining order to compel Siskin to turn over to JCR software code it needed to run its business. Siskin delivered the code, and then removed the case to federal court, arguing that the code was subject to copyright protection. After removal, Siskin counterclaimed for copyright infringement and trade secret misappropriation. JCR now seeks summary judgment on both of Siskin's counterclaims.

         For the following reasons, JCR's motion for summary judgment is denied.

         I. Legal Standards

         Summary judgment is appropriate if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A genuine dispute as to any material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Justifiable inferences are drawn in the nonmovant's favor, id. at 255, and the party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         II. Background

         JCR, a not-for-profit corporation providing certification and accreditation services to healthcare organizations, conducted annual surveys to evaluate hospitals and the like. [92] ¶¶ 1-2.[1] It used automated systems and tools to operate effectively. [92] ¶ 4. Starting in 2004, Siskin provided software development, support, and maintenance services to JCR as an independent contractor. [92] ¶¶ 5- 6; [94] ¶¶ 22-24. Siskin “created software tools, and performed constant data manipulation and report generation activities” for JCR. [94] ¶ 22. Siskin also compiled expense reports for JCR personnel and assisted in troubleshooting user issues. [94] ¶ 23. Every week, Siskin used an Expense Report Generation System to populate an Expense Report Workbook for around 200 JCR employees and contractors. [94] ¶ 27. Siskin created a Survey Implementation Process (SIP) and a Quality Survey Workbench (also referred to as IDBA). [94] ¶ 24. Siskin wrote the source code for these tools and for the entire Expense Reporting System. Id.[2]

         During the parties' working relationship, Siskin never provided JCR with the source code for the Quality Survey Workbench, Survey Implementation Process, or the Expense Report Generation System (part of the Expense Reporting System), and JCR never asked for the source code. [94] ¶¶ 25, 28. Siskin never provided JCR with, and JCR never asked for, the object code or executable program for the Expense Report Generation System either-without it, the entire Expense Reporting System could not properly function. [94] ¶¶ 26-27, 29. Siskin did provide the source code and executable program for the Expense Report Workbook VBA and Expense Report Workflow System. [94] ¶ 27. JCR never requested a license to use the source code written by Siskin for the Quality Survey Workbench, Survey Implementation Process, or Expense Report Generator. [94] ¶ 35. Siskin owns copyrighted works consisting of source code registered under U.S. copyright numbers: TXu 1-905-526 (Expense Report Workbook VBA Code); TXu 1-905-564 (Expense Report Workflow System); TXu 1-905-561 (Expense Report Generation System); TXu 1-905-459 (Survey Implementation Process or SIP); TXu 1-905-289 (Quality Survey Workbench or IDBA). [94] ¶ 20.[3] Each of these copyrights has an effective registration date of March 2014. [92-20].

         The parties worked together for ten years but never had a written contract. [92] ¶¶ 6, 8; [94] ¶ 30. JCR fully paid Siskin for all services performed, amounting to over $1.2 million over the course of the parties' dealings. [92] ¶ 7. The sums paid by JCR to Siskin were for services, not source code. [94] ¶ 33.[4] About nine years into their relationship, Siskin sent JCR a proposed written agreement, but JCR did not sign it; at some point, JCR proposed a revised agreement, but Siskin did not sign that either. [92] ¶¶ 9-10; [94] ¶ 42.A; [92-5]; [92-8]. The relationship soured after JCR requested that Siskin sign JCR's standard form agreement in order to perform any further services for JCR. [36] ¶ 23. JCR terminated Siskin's access to its computer system, and then sued Siskin in state court, alleging that Siskin retained highly confidential hospital accreditation data as well as software source code needed to operate several of JCR's crucial business systems. [94] ¶¶ 31, 40; [1-1].

         The state court granted JCR a temporary restraining order and preliminary injunction, and ordered Siskin to return to JCR all confidential data and “Necessary Software Code, ” including software code developed by Siskin that was necessary to operate several JCR internal databases, systems, and tools. [94] ¶¶ 40-41; [1-2]. This code specifically included: Quality Survey Workbench source code; Survey Implementation Process code and agents; code relating to JCR's accreditation engagement system and the surveyor expense reporting systems; ISIS interface; and extraction code for posting of new standards. [1-2] at 2. At the TRO hearing, Siskin did not represent that it had any trade secrets in the source code. [92] ¶ 15. Siskin delivered the source code to JCR the day after the TRO was entered. [92] ¶ 16; [94] ¶ 34. Although it moved to dissolve the TRO, Siskin did not move for a protective order restricting JCR's use or dissemination of the code. [92] ¶ 17;[5] [94] ¶ 43.

         About three weeks later, Siskin removed the case to federal court by invoking federal question jurisdiction, [6] arguing that the computer source code written by Siskin-and at issue in JCR's claims against Siskin-was the subject of five copyright applications and therefore JCR's claims involved issues of copyright law. [94] ¶ 44; [1]. After removal, Siskin counterclaimed for copyright infringement. [7]. JCR did not seek to have the TRO extended after it expired. [94] ¶ 44. Several months later, JCR amended its complaint, [35], and Siskin again counterclaimed for copyright infringement but also brought a counterclaim for trade secret misappropriation of the source code. [36]. JCR now seeks summary judgment on both of Siskin's counterclaims.

         III. Analysis

         JCR asserts that it had an implied license to the disputed materials, which would preclude Siskin's claims for copyright infringement or trade secret misappropriation. JCR also argues that the trade secret claim is preempted by the Copyright Act and that Siskin cannot establish the element of misappropriation.

         A. Implied License

         The existence of an implied license is an affirmative defense to a claim of copyright infringement. I.A.E., Inc. v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996). And if JCR had an implied license, it did not misappropriate any trade secret based on the copyrighted work. See, e.g., 765 ILCS 1065/2(b) (“‘Misappropriation' means: (1) acquisition of a trade secret . . . by improper means; or (2) disclosure or use of a trade secret of a person without express or implied consent.”).

         “An implied nonexclusive license has been granted when (1) the licensee requests the creation of a work; (2) the licensor creates the work and delivers it to the licensee who asked for it; and (3) the licensor intends that the licensee copy and distribute the work.” Kennedy v. Nat'l Juvenile Detention Ass'n, 187 F.3d 690, 694 (7th Cir. 1999) (citing Shaver, 74 F.3d at 776).[7] JCR argues that there is no factual dispute as to whether an implied license was granted because over the parties' ten year relationship, Siskin delivered software to JCR and only at the end of their relationship did Siskin refuse to deliver “what JCR paid for” and asserted exclusive ownership rights in the source code. Siskin asserts that there are factual disputes as to both delivery and intent, contending that while it gave JCR the use of executable programs, it did not deliver the source code (until the TRO) and never intended to grant an implied license. (Siskin does not appear to dispute that JCR requested creation of the work.)

         There are five copyrighted works at issue in this case. For three of the works, Siskin has raised a factual dispute as to whether it ever delivered the copyrighted works. For all of the works, Siskin has raised factual disputes regarding its intent to use, copy, or distribute the works. Factual ...


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