Summary
dismissing state law claims and counterclaims under 28 U.S.C. § 1367
Summary of this case from Minton v. Buckeye Rural Electric Cooperative, Inc.Opinion
Case No. 1:00-CV-230
May 21, 2001
OPINION
Plaintiff, J.B. Gilleland ("Gilleland"), has sued Defendants, Richard D. Schanhals ("Schanhals"), Douglas O. Carson ("Carson"), MedTrak Systems, Inc. ("MedTrak"), and Micom Systems, Inc. ("Micom"), alleging a claim under the Copyright Act, 17 U.S.C. § 101 to 1101, and pendent state law claims for corporate oppression and breach of duty. Now before the Court is MedTrak's motion for summary judgment. For the reasons set forth below, the Court will grant the motion and dismiss Count I. Counts II and III will be dismissed without prejudice pursuant to 28 U.S.C. § 1367(c).
Defendants Micom, Schanhals, and Carson have joined in MedTrak's motion for summary judgment.
Facts
Sometime prior to 1991, Gilleland, a practicing clinical physician, developed a system for recording and tracking a patient's treatment rendered during a visit at a medical facility. On October 7, 1991, Gilleland, Schanhals, and Carson, who were casual acquaintances, formed MedTrak for the purpose of developing and marketing Gilleland's idea as a computer program called "MedTrak" (the "Program"). Gilleland, Schanhals, and Carson were each issued a one-third interest in MedTrak in exchange for initial capital contributions of $75,000 each. The three shareholders were also elected to serve as directors and officers of MedTrak.
Prior to the formation of MedTrak, Schanhals and Carson licensed accounting and billing software to law firms through Micom, a corporation in which they each owned a fifty percent interest. Gilleland, Schanhals, and Carson initially decided to develop and license the program through Micom, with Gilleland providing the medical expertise for the program and Schanhals and Carson providing the technical and business expertise to develop and market the Program. Later, the parties agreed that Micom would license the Program to MedTrak.
On January 7, 1994, Gilleland and Micom entered into a written agreement regarding the sharing of net proceeds from the sale of the Program (the "Sharing Agreement"). The Sharing Agreement, signed by Gilleland, individually, and Schanhals and Carson, on behalf of Micom, referenced a license agreement (the "1994 License Agreement") of the same date between Micom and MedTrak. (Sharing Agreement, Def.'s Mem. Supp. Ex. A.) The 1994 License Agreement, signed contemporaneously with the Sharing Agreement, was signed by Schanhals, Gilleland, and Carson on behalf of MedTrak and by Schanhals and Carson on behalf of Micom. Pursuant to the 1994 License Agreement, Micom granted MedTrak an exclusive license to use the Program for a period of five years. (1994 License Agreement ¶ 1, Def.'s Mem. Supp. Ex. B.) Under "Recitals," the 1994 License Agreement stated that "Micom and Dr. J.B. Gilleland have developed the MedTrak software system." (Id.) In addition, the 1994 License Agreement stated:
The license granted hereby transfers neither title nor any proprietary rights to the Software. Title to all intellectual property rights, including patent, trademark, copyright and trade secret rights, in and title to all ownership rights in all copies of all media bearing the Licensed Software support materials, and all program concepts, system design, program structure, system logic flow, file content, video and report formats, coding techniques and routines, file handling, search and retrieval techniques, video screen and data entry handling and report and/or forms generation (collectively, "proprietary Information") is, and shall remain, in Micom until such time, if ever, that the Software is sold as provided herein.
(Id. ¶ 3.)
On August 8, 1997, Micom and MedTrak entered into a second license agreement for the Program (the "1997 License Agreement"). The 1997 License Agreement, signed by Gilleland individually, by Schanhals and Carson on behalf of Micom, and by Schanhals, Gilleland, and Carson on behalf of MedTrak, stated that "Micom and J.B. Gilleland" granted MedTrak an exclusive license to use the Program for a period of fifteen years. (1997 License Agreement 11, Def.'s Supplemental Br. Ex. A.) The 1997 License Agreement also stated that "Micom agrees to not assign, sell, or otherwise transfer rights to a third party in or to the Software." In addition, the 1997 License Agreement, like the 1994 License Agreement, contained the following language:
The license granted hereby transfers neither title nor any proprietary rights to the Software. Title to all intellectual property rights, including patent, trademark, copyright and trade secret rights, in and title to all ownership rights in all copies of all media bearing the Licensed Software support materials, and all program concepts, system design, program structure, system logic flow, file content, video and report formats, coding techniques and routines, file handling, search and retrieval techniques, video screen and data entry handling and report and/or forms generation (collectively, "proprietary Information") is, and shall remain, in Micom until such time, if ever, that the Software is sold as provided herein.
(1997 License Agreement ¶ 3.)
Motion Standard
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. The rule requires that the disputed facts be material. Material facts are facts which are defined by substantive law and are necessary to apply the law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). A dispute over trivial facts which are not necessary in order to apply the substantive law does not prevent the granting of a motion for summary judgment. Id. at 248, 106 S.Ct. at 2510. The rule also requires the dispute to be genuine. A dispute is genuine if a reasonable jury could return judgment for the non-moving party. Id. This standard requires the non-moving party to present more than a scintilla of evidence to defeat the motion. Id. at 251, 106 S.Ct. at 2511 (citing Improvement Co. v. Munson, 14 Wall. 442, 448, 20 L.Ed. 867 (1872)).
A moving party who does not have the burden of proof at trial may properly support a motion for summary judgment by showing the court that there is no evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S.Ct. 2548, 2553-54 (1986). If the motion is so supported, the party opposing the motion must then demonstrate with "concrete evidence" that there is a genuine issue of material fact for trial. Id.; Frank v. D'Ambrosi, 4 F.3d 1378, 1384 (6th Cir. 1993). The court must draw all inferences in a light most favorable to the nonmoving party, but may grant summary judgment when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Agristor Financial Corp. v. Van Sickle, 967 F.2d 233, 236 (6th Cir. 1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Coru., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986)).
Discussion
In Count I of his complaint, Gilleland seeks a declaratory judgment that Gilleland is a co-author and, thus, an owner, of the Program entitled to commercially exploit it. The Copyright Act provides that" [t]he authors of a joint work are co-owners of a copyright in the work." 17 U.S.C. § 201(a). A joint work is defined as "a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole." 17 U.S.C. § 101. An owner of a copyright may transfer his interest "in whole or in part by any means of conveyance or by operation of law . . . [or] by will or as personal property by the applicable laws of intestate succession." 17 U.S.C. § 201(d)(1). A transfer of an ownership interest in a copyright is not valid, other than by operation of law, "unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent." 17 U.S.C. § 204(a).
MedTrak argues that, assuming for purposes of the instant motion that Gilleland had an ownership interest in the Program, the Sharing Agreement, the 1994 License Agreement, and the 1997 License Agreement conclusively establish that Gilleland transferred his interest to Micom. In particular, MedTrak notes that under the Sharing Agreement, the parties acknowledged that Micom was licensing the Program to MedTrak and that under the 1994 License Agreement, Gilleland acknowledged by his signature that Micom is the sole owner of the program. In addition, MedTrak points out that by signing the 1997 License Agreement in his individual capacity, Gilleland unequivocally acknowledged that he does not have an ownership interest in the Program.
Before reaching the substantive part of its discussion, the Court will first address Gilleland's argument that summary judgment would be improper because discovery has just commenced and there are numerous questions of material fact that remain. The Court must reject such a contention because Fed.R.Civ.P. 56(f) provides the means for a non-moving party to demonstrate why summary judgment should be denied on the basis of incomplete discovery. Specifically, the rule requires a party opposing a motion for summary judgment on that ground to submit an affidavit detailing what further discovery would show. See Plott v. General Motors Corn., 71 F.3d 1190, 1196 (6th Cir. 1995). As mentioned above, in response to a properly supported motion for summary judgment, a nonmoving party is obligated to come forward with evidence showing that a genuine issue of material fact remains. Rule 56(f) allows a non-moving party to defer its obligation to present evidence by identifying what evidence could be presented to defeat the motion if discovery is allowed. Because Gilleland has not complied with Rule 56(f), the Court rejects the assertion that the motion is premature.
In resolving MedTrak's motion, the Court is not required to address the issue of whether Gilleland actually had an interest in the Program because MedTrak's argument is that even if Gilleland had an interest in the Program, the agreements before the Court show that Gilleland transferred his interest to Micom based upon his acknowledgment that Micom owned the Program along with all rights in connection with the Program. Thus, the question before the Court is whether the agreements, or any of them, are sufficient to fulfill the requirement of a writing under 17 U.S.C. § 204(a). The purpose of the requirement of a writing signed by the owner of the copyright is to protect copyright holders from persons mistakenly or fraudulently claiming ownership of a copyright. Eden Toys. Inc. v. Florelee Undergarment Co., 697 F.2d 27, 36 (2d Cir. 1982). In other words, "Section 204 ensures that the creator of a work will not give away his copyright inadvertently and forces a party who wants to use the copyrighted work to negotiate with the creator to determine precisely what rights are being transferred and at what price."Effects Assoc., Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990). Other than a writing signed by the owner, there are no specific requirements for a valid transfer document. "No magic words must be included in a document to satisfy § 204(a). Rather, the parties' intent as evidenced by the writing must demonstrate a transfer of the copyright."Radio Television Espanola v. New World Entm't, Ltd., 183 F.3d 922, 927 (9th Cir. 1999). The signed writing requirement of § 204(a) applies to transfers between joint authors as well as transfers by authors to third parties. Papa's-June Music, Inc. v. McLean, 921 F. Supp. 1154, 1158 (S.D.N.Y. 1996).
On this basis, Gilleland's contention that summary judgment is improper because genuine issues of material fact remain about whether Gilleland was a co-author of the Program must be rejected.
Gilleland argues that summary judgment cannot be granted based upon the agreements because they are ambiguous, inconsistent, and do not satisfy the requirements of § 204(a). Gilleland contends that the Sharing Agreement does not support MedTrak's motion because the purpose of that agreement was to apportion any net proceeds received from the sale of the Program rather than to transfer Gilleland's rights. In addition, Gilleland contends that the Sharing Agreement actually supports his claim of joint authorship because it states that Micom and Gilleland developed the Program. With regard to the 1994 License Agreement, Gilleland argues that he did not sign the document in his individual capacity; there is no statement in the agreement regarding a transfer of Gilleland's rights; the language in paragraph 3 stating that Micom retains title to the Program is consistent with a joint ownership between Micom and Gilleland; and, like the Sharing Agreement, the 1994 License Agreement states that Micom and Gilleland developed the Program. Finally, Gilleland argues that the 1997 License Agreement is even more ambiguous than the 1994 License Agreement because Gilleland was added to that agreement individually as one of the parties granting the license to MedTrak.
Based upon the language of the Sharing Agreement and the circumstances surrounding the execution of that agreement and the 1994 License Agreement, the Court finds it proper to consider both of those agreements together in determining the intent of the parties. The Court finds support for this reasoning in the fact that the Sharing Agreement specifically references the 1994 License Agreement and the purpose of the Sharing Agreement, which is to allocate the net sale proceeds if Micom sells the Program to a third party rather than selling it to MedTrak under the 1994 License Agreement. Moreover, both agreements were executed simultaneously, and the Sharing Agreement states that it will be null and void if MedTrak purchases the Program from Micom under the 1994 License Agreement. (Sharing Agreement ¶ l.) Thus, the Sharing Agreement is largely dependent upon the 1994 License Agreement.
While it is true, as Gilleland points out, that the Sharing Agreement and the 1994 License Agreement state that Micom and Gilleland developed the Program and there is no language specifically referencing a transfer by Gilleland to Micom of any interest that he may have had in the Program, it is evident from both agreements that the parties understood that Micom was the sole owner of the Program. For example, the Sharing Agreement recognizes that if Micom elected to purchase the Program under the 1994 License Agreement, it would do so from Micom, not Micom and Gilleland. This is consistent with the statement in paragraph 3 of the 1994 License Agreement that title to the Program "is, and shall remain, in Micom until such time, if ever, that the Software is sold as provided herein." (1994 License Agreement ¶ 3.) Gilleland dismisses the language in paragraph 3 as irrelevant because, he argues, while it may be true that Micom retained all rights to the Program as between itself and MedTrak, nothing in that agreement affects the joint ownership rights of Gilleland and Micom. Gilleland correctly notes that joint owners are free to license the work to whomever they please, with or without the permission of the other joint owner. See Erickson v. Trinity Theatre, Inc., 13 F.3d 1061, 1068 (7th Cir. 1994). Gilleland's argument might carry some weight if the license granted to MedTrak was a nonexclusive license. However, the license was exclusive, which shows that all parties believed that Micom alone owned the program, because common sense and the law dictate that if two persons have an undivided right to use or license a work, both persons must act to convey an exclusive license. Cf.Blackledge v. Weir Craig Mfg. Co., 108 F. 71, 76 (7th Cir. 1901) ("The use of an invention by one of [its] co-owners or by his licenses [sic] is not the exercise of the entire monopoly conferred by the patent. That can be effected only by the joint or concurrent action of all owners. The separate action of any one owner or of his licensees can be an exercise or use only of his individual right, which, though exclusive of all besides, is not exclusive of the other patentees, their assignees or licensees"). These observations lead to the conclusion that, whether acting as an individual under the Sharing Agreement or as an officer of MedTrak under the 1994 License Agreement, Gilleland must have been aware that MedTrak possessed sole ownership rights in the Program. Thus, the Sharing Agreement and the 1994 License Agreement meet the intent requirement of § 204(a) because they show that Gilleland never had an interest in the Program or, if he did, he conveyed his interest either orally at a previous time or through his execution of those agreements.
The Court also finds that Gilleland's signature on both the Sharing Agreement, individually, and on the 1994 License Agreement, as an officer of MedTrak on the 1994 Agreement, fulfil the requirement of a signature by the owner of the copyright. As discussed above, the purpose of the requirement of a signed writing is to ensure that copyright owners do not inadvertently give away their works. Although Gilleland did not sign the 1994 License Agreement in his individual capacity, he nonetheless was aware that representations were being made in that agreement that Micom was the owner of the Program and had the right and authority to grant an exclusive license in the Program to MedTrak. If, as an officer and fiduciary of MedTrak, Gilleland believed that he was a co-owner of the Program, he was obligated to disclose that fact to ensure that MedTrak was getting that for which it bargained-an exclusive license. His failure to do so tends to refute his claim of ownership.
There are only four differences between the 1994 License Agreement and the 1997 License Agreement: (1) Gilleland is added as a grantor of the exclusive license to MedTrak; (2) the following sentence is added to the first paragraph: "Micom agrees to not assign, sell, or otherwise transfer rights to a third party in or to the Software"; (3) the term of the license is changed from five to fifteen years; and (4) Gilleland signed as an individual. The Court agrees that these changes render the 1997 License Agreement ambiguous and inconsistent, especially because the term of the 1994 License Agreement had not expired. Based upon the inclusion of Gilleland as a grantor as well as the addition of his signature, it appears that the parties understood that Gilleland had an interest in the Program. On the other hand, the language precluding Micom, but not Gilleland, from assigning, selling, or transferring the right to the Program to a third party, coupled with the representation in paragraph 3 that Micom retains title to the Program, suggests that the parties understood that Micom alone owned the Program. MedTrak has submitted an affidavit from Schanhals to explain the apparent ambiguity in the agreement. Schanhals states that the 1997 License Agreement was executed at the insistence of U.S. HealthWorks, Inc., MedTrak's largest client. (Schanhals Aff. ¶¶ 3, 4, attached to Def.'s 2d Supplemental Br.) Schanhals also states that U.S. HealthWorks also insisted that Gilleland execute the agreement individually to confirm "that he had no individual ownership interest in the software." (Id. ¶ 4.) The Schanhals affidavit provides not only an explanation of why a new license agreement was signed adding Gilleland as a signatory, but clears up any ambiguity that may exist by establishing that U.S. HealthWorks sought to prevent Gilleland from claiming that he had an interest in the Program. Although Gilleland would be in the best position to refute Schanhals' statements, Gilleland has not come forward with his own affidavit or other evidence to rebut MedTrak's evidence. Therefore, the Court concludes that there is no genuine issue of material fact with regard to Count I and MedTrak and the other Defendants are entitled to summary judgment on that claim.
Having determined that Gilleland's only federal claim should be dismissed, the Court finds it appropriate to dismiss Gilleland's remaining state law claims and MedTrak's state law counterclaims pursuant to 28 U.S.C. § 1367(c). "A district court has broad discretion in deciding whether to exercise supplemental jurisdiction over state law claims." Musson Theatrical. Inc. v. Federal Express Cork 89 F.3d 1244, 1254 (6th Cir. 1996) (citing Transcontinental Leasing, Inc. v. Michigan Nat'l Bank of Detroit, 738 F.2d 163, 166 (6th Cir. 1984)). In deciding whether to exercise its supplemental jurisdiction, "[a] district court should consider the interests of judicial economy and the avoidance of multiplicity of litigation and balance those interests against needlessly deciding state law issues." Landefeld v. Marion Gen. Hosp., Inc., 994 F.2d 1178, 1182 (6th Cir. 1993) (affirming district court's order granting summary judgment on federal claim and dismissing state law claims without prejudice). "When all federal claims are dismissed before trial, the balance of considerations usually will point to dismissing the state law claims, or remanding them to state court if the action was removed." Musson, 89 F.3d at 1254-55 (citing Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n. 7, 108 S.Ct. 614, 619 n. 7 (1988)).
The Court finds that the balance of considerations in this case weighs against the Court exercising its supplemental jurisdiction. There are no significant issues of judicial economy because the case is not so far advanced that litigation in a different court would result in a duplication or waste of judicial resources. Furthermore, discovery is in its early stages and there would be no prejudice to either party from a dismissal. Therefore, the Court will dismiss Counts II and III of Gilleland's complaint and MedTrak's state law counterclaims without reaching the merits.
Conclusion
For the foregoing reasons, the Court will grant MedTrak's motion for summary judgment and dismiss the state law claims and counterclaims without prejudice pursuant to 28 U.S.C. § 1367 (c).
An Order consistent with this Opinion will be entered.
ORDER
In accordance with the Opinion filed this date,
IT IS HEREBY ORDERED that Defendant MedTrak Systems, Inc.'s Motion for Summary Judgment on Count I of Plaintiff's Complaint (docket no. 25) is GRANTED.
IT IS FURTHER ORDERED that Counts II and III of Plaintiffs Complaint and Defendant MedTrak's Counterclaims are dismissed without prejudice pursuant to 28 U.S.C. § 1367(c).
This case is closed.