A recent case out of the U.S. District Court for the Middle District of Florida highlights some interesting issue at the intersection of non-compete and copyright law. Here are the details:
AppSoft, a software company based in Jacksonville, Florida, designed and licensed specialized software for automobile dealerships’ websites. AppSoft contracted separately with defendant dealerships around the country to install the software on their websites. Under each contract, AppSoft retained the exclusive right to reproduce any work product created with defendants, and AppSoft prohibited defendants from accessing the software’s source code.
At some point, several employees resigned from AppSoft and formed their own software company called Remora. Thereafter, defendant dealerships transferred control of their websites from AppSoft to Remora.
AppSoft brought suit against its former employees, as well as Remora, for breaches of non-compete agreements and misappropriation of trade secrets.
In addition, AppSoft also sued six dealerships that transferred control of their websites to Remora. The complaints alleged that defendant dealerships worked with Remora to knowingly and intentionally use the AppSoft software to develop unauthorized derivative versions of it. More specifically, plaintiff alleged copyright infringement, destruction of copyright management information and breach of contract. For instance, the complaint alleged that three central sections of the source code used to create defendants’ current websites were identical to AppSoft’s software code and that defendants’ websites failed to credit AppSoft as the author of the code.
The defendant dealerships sought dismissal of the complaints on several grounds.
Personal Jurisdiction
Some defendant dealerships sought dismissal for lack of personal jurisdiction. They argued that they had no presence in Florida because they had no customers or employees in Florida, and were not registered as Florida corporations.
Referring to Florida’s long-arm statute, the District Court found that it had personal jurisdiction over the defendant dealerships because they all had signed contracts with AppSoft, a Florida corporation. Moreover, those contracts included Florida choice-of-law provisions and Florida forum selection clauses. Defendants had also allegedly participated with Remora, a Florida corporation, to obtain copyrighted software from AppSoft computers located in Florida. All of these facts supported the conclusion that defendant dealerships had established “minimum contacts” with Florida under the Burger King Corp. v. Rudzewicz[1] standard.
Copyright Infringement Claims
Defendants also sought dismissal of the complaint for failure to state a claim because they argued that any misconduct was actually committed by Remora alone. Analyzing the complaints, the District Court noted that AppSoft had made only general allegations (often tracking the exact language of the statute), and failed to state sufficient facts alleging a plausible claim for direct copyright infringement. The District Court also found AppSoft’s vicarious infringement allegations to be insufficient, as the complaint failed to state that defendants had any control over what software Remora used to create defendants’ websites.
Destruction of Copyright Management Information
AppSoft’s complaints alleged that defendant dealerships had intentionally removed or changed AppSoft’s copyright management information to conceal a copyright infringement. Again, the District Court found that AppSoft had failed to allege with particularity how defendants, instead of just Remora, had intentionally altered such copyright information.
Breach of Contract
In a weak attempt to have the breach of contract claims dismissed, defendants argued that the contracts were either invalid or had already terminated before the alleged breach occurred. The District Court rejected this argument because it was not apparent from the face of the contract whether it was valid or whether it had terminated.
Implied Non-Exclusive License
In another attempt to dismiss the complaint, defendants asserted that they had an implied non-exclusive license in the copyrighted material, entitling them to destroy any copyright management information. Their argument was that possession of a non-exclusive license is an affirmative defense to a copyright infringement claim. In order to show the existence of a non-exclusive license, the alleged infringer must show that creator of the work intended for the alleged infringer to copy and distribute the work.[2] Here, defendants claimed that an implied license existed because AppSoft created websites for them with the intent that they would copy and distribute their websites worldwide.
The District Court refused to dismiss AppSoft’s claim on this ground, indicating that the complaint did not allege that defendants were authorized to copy and distribute the copyrighted software at issue.
Whether AppSoft Registered a Valid, Original Work
In another attempt to have AppSoft’s complaint dismissed, defendants asserted that AppSoft’s work was comprised of open source code (not an original work), and therefore it was not entitled to copyright protection. Defendants also argued that alleged inadequacies in AppSoft’s certificate of registration left its copyright registration facially invalid.
The District Court rejected these arguments, stating that defendant’s assertion that AppSoft’s software was not original was not sufficient to warrant dismissal at that stage in the case. Likewise, the District Court emphasized that a valid certificate of registration is prima facie evidence that the copyright registration is valid so long as it is filed within five years of the work’s first publication.
Conclusion
In sum, the District Court agreed with defendants’ argument that the complaint failed to allege with specificity any facts tending to show that copyright infringement was committed by defendant dealerships, and not solely by Remora. Thus, the Court granted AppSoft leave to amend its complaint to state a plausible claim for direct copyright infringement against defendant dealerships.
This case is AppSoft Development, Inc. v. Diers, Inc., 2014 WL 3893316 (M.D. Fla. Aug. 8, 2014)
[1] Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477, 105 S. Ct. 2174, 85 L.Ed.2d 528 (1985).
[2] Wilchombe v. TeeVee Toons, Inc. 555F.3d 949, 956 (11th Cir.2009)
