Hiller, LLC v. Success Group International Learning Alliance, LLC et alMEMORANDUM in Support of 108 MOTION for Summary Judgment against Clockwork IPM.D. Tenn.September 14, 20184577701v2/32219-0001 UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION HILLER, LLC., ) ) Plaintiff/Counter-Defendant, ) ) v. ) CIVIL NO. 3:17-CV-743 ) SUCCESS GROUP, ) JUDGE John Phipps McCalla INTERNATIONAL LEARNING ) MAGISTRATE JUDGE Jeffery S. Frensley ALLIANCE and REBECCA ) CASSEL, ) ) Defendant/Counter-Plaintiff, ) ) and ) ) Clockwork IP, LLC, ) ) Intervenor/Counter-Plaintiff. ) HILLER, LLC’S MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT AGAINST CLOCKWORK IP Plaintiff, Hiller, LLC (“Hiller”), hereby submits its Memorandum in Support of its Motion for Summary Judgment. I. INTRODUCTION The questions at issue in this case are whether Clockwork, IP LLC (“Clockwork”), can receive copyright protection for a “system” of training, and if so, does Clockwork’s copyright in its system invalidate the copyright registrations in the Hiller training manuals (“Hiller Works”). The case law on this issue is clear. Clockwork cannot obtain a copyright in a system, and Clockwork’s system does not invalidate the Hiller Works’ copyright registrations. Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 1 of 12 PageID #: 4484 4577701v2/32219-0001 II. FACTUAL BACKGROUND Clockwork is a home services company located in Houston, Texas, that is owned by Direct Energy. SOF 1. Clockwork offers franchises in the plumbing, HVAC and electrical industries under the names One Hour Heating and Cooling, Mister Sparky and Benjamin Franklin Plumbing. SOF 2. In addition, Clockwork provides training and education programs to residential contractors at Clockwork’s Success Academy facility in St. Louis, MO. SOF 3. In April 2016, Clockwork licensed the use of Clockwork’s intellectual property to Aquila Investment Group, which owns Success Group International and Success Group International Learning Alliance. SOF 4. Beyond the license between Clockwork and Aquila, Clockwork has no interest in either party in this case. SOF 5. In their counterclaim, Clockwork has asserted that the copyrights in the Hiller Works are invalid because the Hiller Works are “unauthorized compilations and/or derivative works” of Clockwork’s intellectual property. SOF 26. Clockwork has specifically argued: “Plaintiff’s claims are barred in whole or in part because Clockwork owns all of the intellectual property Plaintiff claims has been infringed, and any copyright claimed by Plaintiff is therefore invalid. At most, Hiller did nothing more than rearrange existing Clockwork intellectual property without Clockwork’s authorization.” SOF 27. Clockwork identifies their intellectual property as a copyright in a “system” of training. SOF 18. Hiller, LLC is the owner of “Hiller Service Excellence - Learners Guide,” “Tech Service Training” and “Hiller Services Fundamentals” collectively (“the Hiller Works”). SOF 6. In 2014, Defendant Rebecca Cassel approached Jimmy Hiller and asked him to assist her in purchasing Success Group International (“SGI”) from Clockwork. SOF 7. Mr. Hiller reluctantly invested in Aquila Investment Group which then purchased SGI from Clockwork. SOF 8. At about this time, Hiller engaged The Bob Pike Group to develop training manuals for use by Hiller, LLC. SOF 8. Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 2 of 12 PageID #: 4485 4577701v2/32219-0001 As part of the investment in SGI, Hiller agreed to provide manuals for SGI’s exclusive use. SOF 9. After the completion of the Hiller Works, Hiller provided training to SGI on the use of the manuals, with the assistance of The Bob Pike Group, and allowed SGI to use the manuals in their training classes. SOF 11. Hiller was not involved in the day to day operations of SGI, but did provide assistance in setting up training programs for SGI. SOF 12. In 2016, unbeknownst to Hiller, Defendants began operating under Success Group International Learning Alliance (“SGILA”) and began offering training sessions using the manuals incorporating Clockwork’s content that had been licensed for exclusive use by Hiller to SGI. SOF 13. The Hiller Works were developed by Janice Horne, working as a contractor for the Bob Pike Group, and all rights to the Hiller Works have been assigned to Hiller from both the Bob Pike Group and Janice Horne. SOF 14. On March 13, 2017, Hiller registered the Hiller Works with the U.S. Copyright Office. SOF 15. On December 8, 2017, Clockwork filed a Motion to Intervene in the present case arguing that the contents in the Hiller Works were the property of Clockwork and not Hiller. SOF 24. On February 6, 2018, the Court granted Clockwork’s Motion to Intervene citing the Sixth Circuit’s instructions to treat motions to intervene liberally. SOF 25. III. LEGAL STANDARD A. Legal Standard for Summary Judgment Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Courts grant a summary judgment motion if the pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits or declarations, show there is Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 3 of 12 PageID #: 4486 4577701v2/32219-0001 no genuine issue to any material fact. Fed. R. Civ. P. 56(c). To prevail, the moving party must show the absence of a genuine issue of material fact as to an essential element of the opposing party’s claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the non-moving party fails to make an adequate showing of an essential element, the moving party is entitled to summary judgment as a matter of law. Williams v. Ford Motor Co., 187 F.3d 533, 537–38 (6th Cir. 1999) (citing Celotex, 477 U.S. at 322–23). To avoid summary judgment, the non-moving party must “go beyond the pleadings and come forward with specific facts to demonstrate that there is a genuine issue for trial.” Chao v. Hall Holding Co., 285 F.3d 415, 424 (6th Cir. 2002) (citations omitted). In that regard, the “mere existence of a scintilla of evidence in support of the [non-moving party’s] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Shah v. Racetrac Petroleum Co., 338 F.3d 557, 566 (6th Cir. 2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986)). Evidence that is “merely colorable” or “not significantly probative” will not prevent summary judgment. Anderson, 477 U.S. at 249. B. Copyright Law The Constitution gives Congress the power to grant protection for original works of authorship. U.S. Const. art. I, § 8, cl. 8. Congress established the Copyright Act that grants a bundle of rights for original works of authorship fixed in a tangible medium. 17 U.S.C. §102(a). The Copyright Act details what can be protected by a copyright, and what cannot be protected by a copyright. Specifically, 17 U.S.C. 102(b) of the Copyright Act states: “In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 4 of 12 PageID #: 4487 4577701v2/32219-0001 17 U.S.C. 102(b) serves to differentiate copyright and patent law. Golan v. Holder, 565 U.S. 302 (2012); Lexmark Intern. v. Static Control Components, 387 F. 3d 522, 534 (6th Cir 2004). In other words, the actual words and images affixed in a tangible medium are protected by copyright, the procedure, process or system conveyed by the word and images cannot be protected by copyright, and can only be protected by a patent. Lexmark Intern., 387 F. 3d 522 at 534. It is black letter copyright law that a system or process cannot be protected by copyright law. 17 U.S.C. 102(b). To secure the type of protection asserted by Clockwork would require a patent, as a copyright cannot protect a system or process as plainly stated in the U.S. Copyright Act. 17 U.S.C. 102(b). As Clockwork cannot have a copyright in their “system,” and Clockwork does not have a patent for their “system,” Clockwork’s assertion that the Hiller Works copyright registrations are invalid is baseless and not supported in the law. Lexmark Intern., 387 F. 3d 522 at 534; 17 U.S.C. §102(b). IV. ARGUMENT A. Clockwork Claims Ownership in a “System” of Training Although not protectable under the Copyright Act, 17 U.S.C. § 102(b), Clockwork claims to have copyright ownership in a “system” of training. See, SOF 18. Specifically, Clockwork has testified: “The point here is not how many fill in the blanks are on a page versus how many fill in the blanks you have. The point here is that we teach at SGI a system and that system is very clear and we teach it in a very interactive way. The Hiller documents clearly show that they've adopted that system. And why not? The system, frankly, has been very good to Mr. Hiller over the years.” SOF 19. “You're focusing of questions -- you need to focus on the system itself, because that's really what we're talking about here, is it's reflective of the system. You know, when I look at some of the scripting and would take a look at the scripting from Clockwork and how it's very similar, I think it will become clear that they used our document to create this technician service training. And it is our position that our system is the property of Clockwork IP.” SOF 20. Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 5 of 12 PageID #: 4488 4577701v2/32219-0001 “It's not a direct copy. What I'm asking is, is that in totality, it is part of a system that is the intellectual property of Clockwork that they have chosen to duplicate -- sure -- by changing a couple words, couple titles. But the system, when you look at this, is -- there's no question where they got it from, in my opinion.” SOF 21. As these passages demonstrate, Clockwork believes it has copyright protection for a “system” of training it developed, and that Hiller’s use of Clockwork’s “system” bars Hiller from receiving copyright protection for the Hiller Works. SOF 19-21. When examined on a page-by-page basis, Clockwork’s argument becomes clear. Exhibit A shows a chart listing Mr. Sinclair’s description of the Clockwork intellectual property along with the Clockwork intellectual property allegedly incorporated by Hiller. As the chart demonstrates, and Mr. Sinclair testified, there is little in common between the documents cited by Mr. Sinclair and the contents of the Hiller Works. Exhibit A. Mr. Sinclair repeatedly attempts to claim ownership in the “system” encapsulated in the Hiller Works opposed to identifying exact pages in the Hiller Works that directly copy Clockwork material. SOF 19-21. Mr. Sinclair goes so far as to testify that the phrase “we accept, cash, check or most major credit cards” placed on a page in the Hiller manual is owned by Clockwork as part of their “system” of training. SOF 22. As Exhibit A demonstrates, Clockwork is not claiming the Hiller Works are direct copies of Clockwork materials. Instead, Clockwork is claiming the Hiller Works encapsulate a “system” Clockwork erroneously thinks is protected by a copyright. B. Clockwork’s Claim to Copyright Ownership in a System is Invalid Under U.S. Copyright Law, Clockwork cannot hold a copyright in a system or process. 17 U.S.C. §102(b). Instead, a system or process needs to be protected as a patent and not a copyright. Lexmark Intern., 387 F. 3d at 534. Here, Clockwork argues that the Hiller Works copied the “system” Clockwork uses for training, a concept protected by patent law and not copyright law. Id. Unfortunately for Clockwork, Clockwork does not have a patent for the “system” or training, Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 6 of 12 PageID #: 4489 4577701v2/32219-0001 and therefore has not right to prevent others from using their “system” of training. Id. By Clockwork’s own admission, portions of the content in the Hiller Works are similar to Clockwork materials but few pages are exact duplicates of Clockwork’s materials. Exhibit A. Clockwork relies on its copyright in the “system” of training as the basis for its request for a declaratory judgment invalidating the copyright registrations in the Hiller Works. SOF 19-21; Exhibit A. Because Clockwork does not have an enforceable right in its “system” of training, Clockwork cannot prevail in its request to invalidate the Hiller Works registrations. C. Incorporating Clockwork Materials Into the Hiller Works is Valid Under 17 U.S.C. § 103(a), an individual can register for a copyright in a compilation. A compilation "is a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship." 17 U.S.C. § 101. Copyright protection of a compilation "extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material." 17 U.S.C. § 103(b). Therefore, a copyright to a compilation extends to the compilation, but not to the underlying work incorporated into the compilation. Id. Even assuming Clockwork’s argument concerning the incorporation its “system” of training into the Hiller Works were valid, which it is not, incorporating Clockwork material into the Hiller Works does not invalidate the registration in the Hiller Works. An author of a work that includes all third party materials can receive a copyright registration in a compilation. Stewart v. Abend, 495 US 207, 225 (1990). It is black letter law, that incorporating third party materials into a compilation does not grant the owner of the compilation any rights in the underlying works. Id. As a compilation, Hiller would own the rights in the selection of an arrangement of the material in Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 7 of 12 PageID #: 4490 4577701v2/32219-0001 the Hiller Works and Clockwork would retain ownership in the underlying materials. Id. Therefore, even if it is assumed that the contents of the Hiller Works are Clockworks, which they are not, the registrations in the Hiller Works would still be valid. D. The Hiller Works are Original Works The basis of Clockwork’s argument is that the content of the Hiller Works as a whole encapsulate a “system” that Clockwork owns and that is protectable under Copyright Law. SOF 26. Clockwork argues that by encapsulating Clockwork’s system into the Hiller Works, the copyright to the Hiller Works are invalid. SOF 27. Clockwork’s argument has no basis in the law. Clockwork cannot own the rights to a “system” of training without a patent in the system of training, and Clockwork does not have a patent to their “system.” Lexmark Intern., 387 F. 3d at 534. Further, the copyright protection Clockwork argues is being violated by the Hiller Works does not exist. Id.; 17 U.S.C. § 102(b). Clockwork cannot meet its burden of showing that “Plaintiff’s claims are barred in whole or in part because Clockwork owns all of the intellectual property Plaintiff claims has been infringed.” Exhibit A shows a representative Hiller manual from the Hiller Works alongside the Clockwork content with Mr. Sinclair’s associated testimony next to the Clockwork content. Exhibit A. As the exhibit demonstrates, while Mr. Sinclair identifies locations where he believes the Clockwork “system” is being used, he finds few pages where Clockwork materials were directly incorporated into the manual. Therefore, as the Hiller Works are not “derivative works or compilations” of Clockwork intellectual property, Clockwork cannot prevail as a matter of law. Stewart, 495 US at 225. Further, when asked under oath to identify what Clockwork materials were in the Hiller Works, Clockwork’s testified: Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 8 of 12 PageID #: 4491 4577701v2/32219-0001 “You can't look at a single page. You need to look at the entire document and look at the similarities, everything from how it's structured, design, including every section having a note section like we have note sections, et cetera. It clearly indicates that there are very strong similarities; in some sections, outright exact duplications.” SOF 23 “You're focusing of questions -- you need to focus on the system itself, because that's really what we're talking about here, is it's reflective of the system. You know, when I look at some of the scripting and would take a look at the scripting from Clockwork and how it's very similar, I think it will become clear that they used our document to create this technician service training. And it is our position that our system is the property of Clockwork IP.” SOF 23 “I think the best way to express that is to give you some examples. "Repair" versus "replace" is part of our system that we teach in all of our core classes and in our sales class. There are charts that we created which you can find in Hiller document -- to be specific, that would be the Hiller Exhibit 5, Page 115. There are other pages where there's duplications. I think when you look at our system in terms of, you know, following the Seven Super Star Strategies, relationship building, later on Presenting Club Memberships, that whole flow is part of the system. I think that that is duplicated in the Hiller documents. When I look at "Straightforward Pricing," clearly there's another example of that being part of our system. If you would like, I can go through every single one of these. I'm going to need a little bit of time.” SOF 23 These passages from Clockwork’s testimony demonstrate the legal insufficiency of Clockwork’s declaratory judgment action seeking to invalidate the Hiller Works based on its apparent, but misguided, belief that Clockwork can own a copyright in a system, and that copyright prevents Hiller from obtaining a copyright for the Hiller Works. Fortunately, that is not the law, and summary judgment should be entered in Hiller’s favor. Lexmark Intern., 387 F. 3d at 534. V. CONCLUSION The facts of this case are simple. Hiller owns the Hiller Works and all of the content developed by the Bob Pike Group for Hiller. Clockwork asserts that Clockwork is the rightful owner of the Hiller Works because the Hiller Works incorporate an unpatented “system” of training, and that the incorporation of this “system” has transferred ownership of the Hiller Works Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 9 of 12 PageID #: 4492 4577701v2/32219-0001 to Clockwork. In their Answer to the Complaint, Clockwork goes so far as to say all the material in the Hiller Works are intellectual property of Clockwork. However, when asked to identify what Clockwork intellectual property was included in the Hiller Works on a page-by-page basis, Clockwork has repeatedly testified that Clockwork’s position on invalidity rests in the flawed belief that the Hiller Works encapsulate Clockwork’s copyright protected “system” of training. Clockwork’s argument that it owns copyrights to a system is invalid as a matter of law. Without a valid patent, Clockwork has no legal basis to continue its claim for a declaratory judgment. Therefore, Hiller respectfully requests entry of summary judgment with respect to Clockwork’s complaint in intervention (ECF No. 71). Dated this 14th day of September 2018. Respectfully submitted, /s/ Wendy V. Miller (w/permission) Wendy V. Miller, TN #023500 John G. Harrison, TN #027004 Ogletree, Deakins, Nash, Smoak & Stewart, P.C. SunTrust Plaza 401 Commerce Street, Suite 1200 Nashville, TN 37219-2446 Telephone: 615.254.1900 Facsimile: 615.254.1908 Email: Wendy.Miller@ogletree.com Email: John.Harrison@ogletree.com Local Counsel for Plaintiff/Counter- Defendant Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 10 of 12 PageID #: 4493 4577701v2/32219-0001 /s/ Timothy M. Nitsch Timothy M. Nitsch (PHV) Jennifer L. Fitzgerald (PHV) Jeffrey J. Catalano (PHV) Freeborn & Peters LLP 311 S. Wacker Dr., Suite 3000 Chicago, IL 60606 Telephone: 312.360.6000 TNitsch@freeborn.com JFitzgerald@freeborn.com JCatalano@freeborn.com Lead Counsel for Plaintiff/Counter- Defendant Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 11 of 12 PageID #: 4494 4577701v2/32219-0001 CERTIFICATE OF SERVICE I hereby certify that on this the 14th day of September 2018, the foregoing Memorandum in Support of Motion for Summary Judgment was filed electronically with the Clerk of the Court to be served by operation of the Court’s electronic filing system upon the following: Charles Malone - Charles.Malone@butlersnow.com Gayle Malone, Jr. - Gayle.Malone@butlersnow.com Gibeault C. Creson - Beau.Creson@butlersnow.com Jason W. Callen - Jason.Callen@butlersnow.com Clinton Edward Hunter Brush – Hunter.Brush@butlersnow.com Butler Snow LLP The Pinnacle at Symphony Place 150 Third Avenue, South Nashville, TN 37201 Andrea T. McKellar - amckellar@mckellarhyde.com McKellar Hyde, PLC 411 Broadway, Suite 302 Nashville, TN 37203 Brad R. Newberg - bnewberg@mcguirewoods.com McGuireWoods LLP 1750 Tysons Boulevard, Suite 1800 Tysons, Virginia 22102 John E. Joseph - jejoseph@mcguirewoods.com McGuire Woods LLP 260 Forbes Avenue, Suite 1800 Pittsburg, PA 15222 Amanda L. DeFord - adeford@mcguirewoods.com Lucy Jewett Wheatley - lwheatley@mcguirewoods.com McGuireWoods LLP Gateway Plaza 800 East Canal Street Richmond, Virginia 23219 /s/ Wendy V. Miller Wendy V. Miller Case 3:17-cv-00743 Document 109 Filed 09/14/18 Page 12 of 12 PageID #: 4495
