Paysys International, Inc. v. Atos Se et al
Filing
232
OPINION & ORDER re: 201 MOTION for Summary Judgment REGARDING THE SCOPE OF INTELLECTUAL PROPERTY AT ISSUE filed by Sema SA, Atos IT Services Ltd., Atos Se, Worldline SA. For the reasons set forth above, the Court GRANTS defenda nts' motion for partial summary judgment on the scope of plaintiff's intellectual property claims. (ECF No. 201). The Clerk of Court is directed to terminate the motion at ECF No. 201. (Signed by Judge Katherine B. Forrest on 12/8/2016) (cla)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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PAYSYS INTERNATIONAL, INC.,
:
:
Plaintiff,
:
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-v:
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ATOS SE, WORLDLINE SA, ATOS IT
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SERVICES LTD.,
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Defendants.
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:
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ATOS SE, WORLDLINE SA, ATOS IT
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SERVICES LTD.,
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Counterclaim :
Plaintiffs,
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-v:
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PAYSYS INTERNATIONAL, INC. and FIRST :
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DATA CORPORATION,
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Counterclaim :
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Defendants.
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: December 8, 2016
14-cv-10105 (KBF)
OPINION & ORDER
KATHERINE B. FORREST, District Judge:
This is a copyright infringement dispute between PaySys International, Inc.
(“PaySys”) and defendants Atos Se, Worldline SA (“Worldline”) and Atos IT Services
Ltd. (“Atos IT”) regarding CardPac, a computer program owned by PaySys. Now
before the Court is defendants’ motion for partial summary judgment. (ECF No.
201.) Defendants assert that PaySys’s infringement claims under French, Thai,
Belgian and Chinese law set forth in the Fourth, Fifth, Sixth and Seventh Causes of
Action of the Second Verified Amended Complaint (the “SVAC”, ECF No. 103) must
be dismissed for two separate reasons: (1) because PaySys lacks valid copyright
registrations, and (2) because PaySys is precluded from suing its licensees Atos Se
and Atos IT for infringement.1 (ECF No. 205 at 7-8.) While the first argument fails,
the second succeeds.
The principal question regarding plaintiff’s copyright registration is whether
an invalid supplementary registration invalidates an initial registration; it does not.
Thus, while the Court is persuaded that the supplementary registration is invalid,
PaySys continues to hold valid registrations in the portions of the work (“CardPac”)
it initially registered. Nevertheless, PaySys’s infringement claims based on these
registrations must be dismissed because the allegedly infringing conduct is
authorized by the license. Therefore, as further set forth below, defendants’ motion
is GRANTED.
I.
FACTUAL BACKGROUND2
A.
The Software Agreement
On October 31, 1988, PaySys’s predecessor, Credit Card Software Inc.
(“CCSI”), entered into a software acquisition agreement (the “Software Acquisition
Agreement” or “October 1988 Agreement”) with Sema Group SA (“Sema”).
1
Defendants do not assert that PaySys is precluded from suing Worldline on this basis.
The facts set forth herein are undisputed unless otherwise noted. The facts of this case have
previously been set forth in the Opinion & Order by the Honorable Shira A. Scheindlin dated July
24, 2015, PaySys Int’l, Inc. v. Atos Se et al., No. 14-cv-10105 (SAS), 2015 WL 4533141 (S.D.N.Y. July
24, 2015), this Court’s Opinion & Order dated July 14, 2016 (ECF No. 183) and this Court’s Opinion
& Order issued on December 5, 2016 dismissing PaySys’s trade secret claims (ECF No. 231). The
Court here only details those facts necessary for resolution of the instant motion.
2
2
(Pl.’s Local R. 56.1 Stmt. of Undisputed Facts Opp. Trade Secrets Mot. (“Pl.’s Trade
Secrets 56.1”, ECF No. 213) ¶¶ 9-10; see also Declaration of Leon Medzhibovsky,
dated June 20, 2016 (“Medzhibovksy Decl.”, ECF No. 165) Ex. 1.)3 The Software
Acquisition Agreement is governed by and construed in accordance with New York
law. (Id., Ex. 1 § 17(a).)
Pursuant to the Software Acquisition Agreement, CCSI licensed Sema
certain rights in a computer program known as “CardPac”.4 (Id., Ex. 1 § 2.) These
rights are delineated in Section 2 of the Agreement, entitled “Sale of Rights”. (Id.)
For an initial period of ten years, Sema obtained an “exclusive, royalty-free right to
use, and to grant Licenses to use” CardPac within a defined international territory.
(Id., Ex. 1 § 2(a); see also id. § 1(m) (defining “Territory”).) The right to license the
use of CardPac included the right to “market, supply, install and support the
[CardPac] Products as SEMA in its sole discretion shall determine and to appoint
Distributors to do the same.” (Id. § 2(a).) The Software Acquisition Agreement
defines “Distributor” as “a third party who pursuant to any agreement with SEMA
In setting forth their argument concerning the Software Acquisition Agreement, defendants cite the
factual record in support of their motion for summary judgment on PaySys’s trade secret claims
(ECF No. 163) and PaySys’s allegations in the SVAC. (See ECF No. 205 at 7-11, 20-25.) Given that
PaySys has either stipulated to these facts for purposes of the other motion or asserted them in the
SVAC, and that PaySys has not taken issue with them in opposing this motion, the Court assumes
they are part of the undisputed factual record governing the instant motion.
3
The Software Acquisition Agreement refers to certain CardPac “Products”, defined, in relevant part
as “the standard IBM version of the computer software programs supplied by CCSI known as
Cardpac Transaction Management System, including, without limitation, Cardpac Customer
Account Management System, On-Line Collections (“OLC”), On-Line Authorizations (“OLA”), Memo
Tickler System (“MTS”), Interchange Tracking System (“ITS”), Transaction Management System 1
(“TMS 1”) and Transaction Management System 2 (“TMS 2”); all Enhancements and Special
Enhancements thereto; and all programs and system documentation, reference manuals , user
manuals and flow charts associated therewith.” (Id. § 1(i).)
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has the further right to grant Licenses or sublicenses to use the [CardPac]
Products.” (Id. § 1(c).) It defines “License” as:
[A]ny license granted by SEMA (or any of its Licensees) to use the [CardPac]
Products soley [sic] within the Territory. As such, any sublicense shall itself
be deemed to be a License within the meaning of this definition.
(Id. § 1(g).)
After the initial ten-year period, Sema would have a “perpetual non-exclusive
right” to:
incorporate all or any portion of the [CardPac] Products (including the ideas,
concepts, structure, sequence, organization, look or feel contained therein)
into program products developed, marketed, supplied, installed and/or
supported by or for SEMA within the Territory.
(Id. § 2(b).)
The Software Acquisition Agreement also conferred certain rights on any
“Affiliate” of the parties, defined as “any corporation or other business entity which
controls, is controlled by or is under common control with a party to this
Agreement.” (Pl.’s Trade Secrets 56.1 ¶ 21; Medzhibovsky Decl., Ex. 1 § 1(a).) The
Agreement provides that “an Affiliate of SEMA may exercise and enjoy any and all
of the benefits or rights conferred upon SEMA under this Agreement and, provided,
further, than [sic] SEMA may assign all or any portion of this Agreement to any
such Affiliate.” (Medzhibovsky Decl., Ex. 1 § 17(b).) It additionally states that “[t]o
the extent an Affiliate of either party exercises any rights or privileges under this
Agreement, such Affiliate shall be deemed to be a party to this Agreement and shall
be bound by all the terms and conditions hereof.” (Id. § 17(m).)
4
The Software Acquisition Agreement was amended by letter agreement dated
December 28, 1988, an amendment dated February 19, 1990 and a memorandum
agreement dated October 24, 1990. (Medzhibovsky Decl., Ex. 3 at 1.) The Software
Acquisition Agreement and its various amendments are known collectively as the
“Software Agreement”. (Id.)
Following a dispute regarding various rights and obligations under the
Software Agreement, PaySys, Sema Group SA and Sema’s parent entered into a
Confidential Settlement Agreement on April 27, 2001 in which they confirmed and
ratified the terms of the Software Agreement and agreed to certain additional
amendments. (Id.) One recital clause at the outset of the Confidential Settlement
Agreement states, “[T]he parties wish to clarify and amend the Software Agreement
in certain respects in order to minimize the possibility of future disputes”. (Id. at
ATOS007747.)
Section 5(b) of the Confidential Settlement Agreement states, in relevant
part:
PaySys hereby confirms and ratifies . . . all licenses or other authorizations to
Use the [CardPac] Products or derivatives thereof (including without
limitation CardLink) granted by Sema or its Affiliates to third parties on or
before the date of this Agreement[.]
(Id. § 5(b).)
Section 5(d) states, in relevant part:
PaySys acknowledges and agrees that the perpetual, non-exclusive rights
granted to Sema under Paragraph 2(b) of the Software Acquisition
Agreement include, without limitation, the rights to . . . grant licenses to Use
all or a portion of the Products . . . or derivatives thereof . . . within the
Territory[.]
5
(Id. § 5(d).)
Section 5(i) provides, in relevant part:
Sema acknowledges and agrees that PaySys shall have no further obligations
to provide maintenance, support, enhancements, development or other
services or software to Sema or its licensees, distributors or third parties who
use, sell, license or distribute the [CardPac] Products or derivatives thereof.
(Id. § 5(i).)
Defendants Atos IT and Atos Se are undisputed licensees of the Software
Agreement. When the Software Acquisition Agreement was signed, the signatory
Sema Group SA was a subsidiary of Sema Group PLC. (Pl.’s Trade Secrets 56.1 ¶¶
10-11.) Through a series of name changes, Sema Group PLC became known as
Sema Ltd., and later, Atos IT, one of the three defendants in this action. (Id. ¶ 16.)
Atos IT is a wholly owned subsidiary of Atos Se, another of the three defendants in
this action. (Id. ¶¶ 12, 14-16.) The third defendant in this matter, Wordline, is the
successor to Atos Origin, an entity that acquired Sema Ltd. in 2004. (Id. ¶¶ 14-15.)
As explained below, Worldline is an “Affiliate” of Sema Group SA.
B.
PaySys’s Initial CardPac Registrations
CardPac is a software program originally licensed by a predecessor of PaySys
to Sema Group SA, an entity affiliated with defendants. (See id. ¶¶ 9-10; see also
Medzhibovksy Decl., Ex. 1.) CardPac consists of millions of lines of code organized
into eight modules or application systems; each application itself consists of
thousands component files. (Pl.’s Local R. 56.1 Stmt. of Undisputed Facts Opp.
Intellectual Prop. Mot. (“Pl.’s 56.1”, ECF No. 221) ¶¶ 18-19; Declaration of Larry
6
Phillips, dated August 23, 2016 (“Phillips Decl.”, ECF No. 219) ¶ 5; Declaration of
Ivan Zatkovich, dated August 10, 20165 (“Zatkovich Decl.”, ECF No. 204) ¶ 7 n.1.)
Each component file performs a discrete, specific function. (Zatkovich Decl. ¶ 9.)
On November 17, 2014—five weeks before commencing this litigation—
PaySys registered copyrights in the following eight CardPac-related works
(collectively, the “Initial CardPac Registrations” or “Initial Registrations”): CardPac
– OLA 606:OAS100 (Reg. No. TXu 1-913-381); CardPac – SSC140:SSU900 (Reg. No.
TXu 1-913-382); CardPac – CSM700:KSD200 (Reg. No. TXu 1-913-410); CardPac –
OLC 400:OCD200 (Reg. No. TXu 1-913-412); CardPac – APS400:APD200 (Reg. No.
TXu 1-913-414); CardPac – IMP420:CCSUT1 (Reg. No. TXu 1-913-415); CardPac –
ITS700:ITD120 (Reg. No. TXu 1-913-416) and CardPac – CPS612:CPD110 (Reg. No.
TXu 1-913-417). (Pl.’s 56.1 ¶ 1; Zatkovich Decl., Exs. 1-8.) The titles of the works
covered by the Initial Registrations all follow the naming convention “[Software
Package] – [Module][Version]:[Component File]” (Zatkovich Decl. ¶ 7; see also Pl.’s
56.1 ¶ 13), and refer to specific component files (Zatkovich Decl. ¶ 7; see also Pl.’s
56.1 ¶ 9).
Defendants have proffered Ivan Zatkovich as an expert in computer sciences. (See Zatkovich Decl.
¶¶ 1-5.) Zatkovich holds a degree in Computer Science from the University of Pittsburgh and is a
principal consultant with eComp Consultants, a technology consulting firm. (Id. ¶ 5.) Zatkovich was
asked “to review certain publicly-available materials, including PaySys’s copyright registration
certificates and source code deposits, and [to] opine on the content of each.” (Id. at ¶ 3.) Although
plaintiff submitted declarations of two PaySys employees with purported knowledge of the CardPac
software, these declarations do not rebut the vast majority of the facts and opinions set forth in Mr.
Zatkovich’s declaration. As a result, these facts and opinions are unrebutted for purposes of
resolving summary judgment. See, e.g., Kelly-Brown v. Winfrey, No. 15-697-cv, __ Fed. App’x __,
2016 WL 4945415, at *3 (2d Cir. Sept. 16, 2016) (affirming grant of summary judgment based in part
on unrebutted expert testimony).
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In support of each of the Initial Registrations, PaySys submitted to the
Copyright Office deposit copies of all or some portion of the source code for the eight
component files. (Pl.’s 56.1 ¶ 9; Zatkovich Decl. ¶¶ 9-10; see also Zatkovich Decl.,
Exs. 1-8.)6 The Copyright Office has certified that each of the photocopied deposits
produced in connection with this litigation are “true representation[s]” of the works
named in each Initial Registration. (Zatkovich Decl., Exs. 1-8.) That is, each Initial
Registration references the same component file that PaySys deposited in support of
that registration. (See Zatkovich Decl. ¶¶ 13-60; SVAC, Ex. A at 63-80.) For
example, with respect to the work entitled “CardPac – OLA 606:OAS100”, PaySys
deposited an excerpt from a component file named “OAS100” and the Copyright
Office certified that the reproduction of this deposit is “a true representation of the
work entitled CARDPAC – OLA 606; OAS100 deposited in the Copyright Office
with claim of copyright registered under TXu 1-913-381.” (Zatkovich Decl., Ex. 1 at
2-3; see also SVAC, Ex. A at 65 (certificate of registration listing “Title of Work” as
“CardPac – OLA 606: OAS100”.) The other seven Initial Registrations follow a
similar pattern.
C.
PaySys’s Supplementary CardPac Registrations
On July 28, 2016, PaySys submitted eight Form CA Supplementary
Registrations (the “Supplementary CardPac Registrations” or “Supplementary
Although the parties have stipulated that all deposits consist of the first and last ten pages of
source code of eight different component files (Pl.’s 56.1 ¶ 9), Mr. Zatkovich opines that the deposit
for one component file, CardPac – SC140;SSU900, consists of the full file (Zatkovich Decl. ¶ 10).
This discrepancy is not material to the Court’s reasoning. Since it appears to the Court that the
deposit for CardPac – SC140; SSU900 is a full document, not an excerpt, and plaintiff has failed to
proffer facts suggesting otherwise, the Court proceeds on this basis. (See Zatkovich Decl., Ex. 2.)
6
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Registrations”). PaySys asserts that these “Supplementary Registrations”
“amplified” the titles of the works registered in the Initial CardPac Registrations by
deleting the reference to the deposited component file and inserting a description of
the module as a whole. (Pl.’s 56.1 ¶¶ 12-13; Declaration of Marc E. Miller, dated
August 10, 2016 (“Miller Decl.”, ECF No. 203), Ex. 1.) For example, PaySys asserts
that it “amplified” the title of the work initially registered as “CardPac –
OLA:606:OAS100” to “CardPac – Online Authorization (OLA) Application System
(Rel. 6.06).” (Pl.’s 56.1 ¶ 13; Miller Decl., Ex. 1 at 5.) On each of its Supplementary
Registrations, PaySys offered the following “Explanation of Information”: “Title of
work in original registration chosen based on programing excerpt from work
selected for deposit per Circular 61.7 Revised title denotes entire work more
clearly.” (Pl.’s 56.1 ¶ 13; Miller Decl., Ex. 1 at 5.) Whether the Supplementary
Registrations are in fact “amplifications” or are instead an attempt to register
additional works or portions of works is a key question to be answered on this
motion.
II.
PROCEDURAL HISTORY
PaySys commenced this action against defendants on December 23, 2014,
alleging, through a variety of claims, that Atos Se’s acquisition of Sema violated
PaySys’s contractual rights under the Software Acquisition Agreement and also
violated other intellectual and personal property rights. (ECF No. 1.) The case was
As described in greater detail infra, Circular 61 is a guidance produced by the Copyright Office
entitled “Copyright Registration for Computer Programs”, available at
http://www.copyright.gov/circs/circ61.pdf (last visited December 8, 2016).
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initially assigned to Judge Scheindlin. On March 31, 2015, PaySys filed the
Verified Amended Complaint, which added Atos IT as a defendant. (ECF No. 24.)
On July 24, 2015, Judge Scheindlin dismissed PaySys’s domestic copyright claims
for failure to state a claim. See PaySys Int’l, Inc., 2015 WL 4533141, at *5.
On December 10, 2015, PaySys filed the SVAC—the operative complaint in
this action—alleging ten claims: (1) breach of contract, (2) trade secret
misappropriation under New York law, (3) trade secret misappropriation under
Florida law, (4) copyright infringement under French law, (5) copyright
infringement under Thai law, (6) copyright infringement under Belgian law, (7)
copyright infringement under Chinese law, (8) conversion under New York law, (9)
unfair competition under New York law, and (10) replevin under New York law.
(ECF No. 103.) Defendants answered and counterclaimed seeking declaratory
judgment as to certain of PaySys’s claims. (ECF No. 108.)
Most pertinent to the instant motion are the copyright infringement claims
asserted under foreign law. Although PaySys’s domestic infringement claims were
dismissed by Judge Scheindlin, see PaySys Int’l, Inc., 2015 WL 4533141, at *5,
PaySys’s domestic copyright registrations form the basis for its foreign copyright
claims under the Berne Convention and the TRIPS Agreement of the World Trade
Organization (see SVAC ¶ 123; see also ECF No. 205 at 12 (discussing, without
disputing, this allegation)). As a result, PaySys’s domestic copyright registrations
determine the scope of its foreign copyright claims.
10
In support of its claims, PaySys alleges that it obtained “eight copyright
registrations” in the “CardPac software”, which PaySys defines as:
the CardPac software created by PaySys, including object code, source code
and related documentation, any complete or partial copy thereof contained in
any other work or medium, and the confidential information embodied in or
associated with that software.
(SVAC ¶¶ 121-22.) PaySys alleges that defendants infringed its copyrights and
breached the Software Acquisition Agreement by (1) assigning rights and
obligations to various Atos affiliates without PaySys’s consent (id. ¶ 138); (2)
assigning rights and obligations to Worldline without imposing the requisite
prohibitions on the use of PaySys’s intellectual property (id. ¶ 139); (3) granting a
distributorship to Accellence and its successor, NTT Data (Thailand) Co. Ltd. (“NTT
Data”) after its right to do so expired in 1998 (id. ¶ 140); (4) providing Equens, a
merger partner of defendants, with access to PaySys’s intellectual property
(id. ¶ 141); (5) selling a software known as “APS” without following certain
provisions in a license agreement signed by CCSI and Sema (the “APS Agreement”)
(id. ¶¶ 142-43); (6) failing to document licenses granted to defendants’ customers
(id. ¶ 144); and (7) transferring rights and obligations without imposing requisite
restrictions on remote access from outside the defined territory (id. ¶¶ 145-48).
On April 12, 2016, this action was transferred to the undersigned. Since
then, defendants have filed three motions for partial summary judgment (ECF Nos.
127, 163, 201), the last of which is now before the Court. On May 26, 2016, the
Court granted the first of these motions (ECF No. 127), dismissing PaySys’s tort
claims (for unfair competition, conversion and replevin) as time-barred under New
11
York law. (ECF No. 183.) In a separate Opinion & Order issued on December 5,
2016, the Court has also resolved the second motion, dismissing PaySys’s trade
secret claims. (ECF No. 231.)
In this motion, filed on August 10, 2016,8 defendants argue that PaySys lacks
valid copyright registrations in CardPac, requiring dismissal of its foreign copyright
claims that depend on those registrations. (ECF No. 205 at 7-8.) In addition,
defendants argue that Atos Se and Atos IT cannot be sued for infringement because
their allegedly infringing conduct is authorized by the Software Agreement, of
which they are licensees. (Id.)
III. LEGAL STANDARDS
A.
Summary Judgment Standard
Summary judgment may not be granted unless a movant shows, based on
admissible evidence in the record, “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). The moving party bears the initial burden of demonstrating “the
absence of a genuine issue of material fact”. Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986). When the moving party does not bear the ultimate burden on a
particular claim or issue, it need only make a showing that the non-moving party
Defendants previewed their intent to file this motion during a July 19, 2016 status conference.
(See ECF No. 181 (setting briefing schedule for motion following conference).) PaySys filed the
Supplementary CardPac Registrations on July 28, 2016—nine days following the July 19, 2016
status conference and a week before the original deadline set by the Court for defendants to file the
instant motion. (See id., ECF No. 196.)
8
12
lacks evidence from which a reasonable jury could find in the non-moving party's
favor at trial. Id. at 322-23.
In making a determination on summary judgment, the court must “construe
all evidence in the light most favorable to the nonmoving party, drawing all
inferences and resolving all ambiguities in its favor”. Dickerson v. Napolitano, 604
F.3d 732, 740 (2d Cir. 2010) (citing LaSalle Bank Nat’l Ass’n v. Nomura Asset
Capital Corp., 424 F.3d 195, 205 (2d Cir. 2005)). Once the moving party has
discharged its burden, the opposing party must set out specific facts showing a
genuine issue of material fact for trial. Wright v. Goord, 554 F.3d 255, 266 (2d Cir.
2009). “A party may not rely on mere speculation or conjecture as to the true
nature of the facts to overcome a motion for summary judgment,” as “mere
conclusory allegations or denials cannot by themselves create a genuine issue of
material fact where none would otherwise exist”. Hicks v. Baines, 593 F.3d 159,
166 (2d Cir. 2010) (internal quotation marks, citations and alterations omitted). In
addition, “only admissible evidence need be considered by the trial court in ruling
on a motion for summary judgment”. Porter v. Quarantillo, 722 F.3d 94, 97 (2d Cir.
2013) (internal quotation marks, citation and alterations omitted).
B.
Copyright Law
1.
Copyright Infringement Actions
“Subject to certain exceptions, [Section 411(a) of] the Copyright Act []
requires copyright holders to register their works before suing for copyright
infringement.” Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010) (citing 17
13
U.S.C. § 411(a)). “To prove a claim of copyright infringement, a plaintiff must show
(1) ownership of a valid copyright and (2) copying of constituent elements of the
work that are original.” Urbont v. Sony Music Entm't, 831 F.3d 80, 88 (2d Cir.
2016) (citing Boisson v. Banian, Ltd., 273 F.3d 262, 267 (2d Cir. 2001)); see also
Feist Publ’ns., Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 361 (1991) (citation
omitted).
With respect to the first prong, under 17 U.S.C. § 410(c), “[a] certificate of
registration from the United States Register of Copyrights constitutes prima facie
evidence of the valid ownership of a copyright”. Hamil Am. Inc. v. GFI, 193 F.3d 92,
98 (2d Cir. 1999) (citations omitted); see also Folio Impressions, Inc. v. Byer
California, 937 F.2d 759, 763 (2d Cir. 1991) (same); Fonar Corp. v. Domenick, 105
F.3d 99, 104 (2d Cir. 1997) (same). This presumption of validity is rebutted,
however, “where other evidence in the record casts doubt on the question”, Urbont,
831 F.3d at 88 (quoting Estate of Burne Hogarth v. Edgar Rice Burroughs, Inc., 342
F.3d 149, 166 (2d Cir. 2003)); Fonar Corp., 105 F.3d at 104 (quoting Durham Indus.,
Inc. v. Tomy Corp., 630 F.2d 905, 908 (2d Cir.1980)) (alterations omitted), such as
“proof of deliberate misrepresentation”, Medforms, Inc. v. Healthcare Mgmt. Sols.,
Inc., 290 F.3d 98, 114 (2d Cir. 2002) (citing Whimsicality, Inc. v. Rubie’s Costume
Co., 891 F.2d 452, 455 (2d Cir. 1989)); see also Eckes v. Card Prices Update, 736
F.2d 859, 861-62 (2d Cir. 1984) (“Only the knowing failure to advise the Copyright
Office of facts which might have occasioned a rejection of the application constitutes
reason for holding the registration invalid and thus incapable of supporting of an
14
infringement action.”) (internal quotation marks, citations and alterations omitted);
Tradescape.com v. Shivaram, 77 F. Supp. 2d 408, 414-15 (2d Cir. 1999) (labeling the
“deliberate misstatement” standard a “scienter” requirement). The party
challenging the validity of the copyright registration bears the burden of rebutting
the presumption. Urbont, 831 F.3d at 89 (quoting Hamil Am., Inc., 193 F.3d at 98).
With respect to the second prong, ordinarily “[a] copyright owner who grants
a nonexclusive license to use his copyright material waives his right to sue the
licensee for copyright infringement.” Graham v. James, 144 F.3d 229, 236 (2d Cir.
1998) (citations omitted); Chapman v. N.Y. State Div. for Youth, 546 F.3d 230, 23536 (2d Cir. 2008) (quoting Graham, 144 F.3d at 236); Davis v. Blige, 505 F.3d 90,
100 (2d Cir. 2007) (same). “However, the fact that a party has licensed certain
rights to its copyright to another party does not prohibit the licensor from bringing
an infringement action where it believes the license is exceeded or the agreement
breached.” Tasini v. N.Y. Times Co., 206 F.3d 161, 170-71 (2d Cir. 2000), aff’d, 533
U.S. 483 (2001). The Second Circuit has recognized that a licensor may recover
against a licensee for copyright infringement where (1) the licensee’s alleged
infringement is outside the scope of the license; (2) the licensee failed to satisfy a
condition precedent to the license, such that the license is invalid; or (3) the licensor
rescinded the license after the licensee materially breached one of its covenants.
See Graham, 144 F.3d at 235-38. “[W]hen the contested issue is the scope of a
license, rather than the existence of one, the copyright owner bears the burden of
proving that the defendant's copying was unauthorized under the license”. Id., 144
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F.3d at 236 (emphasis in original); see also Smith v. Barnesandnoble.com, LLC, 839
F.3d 163, 166-67 (2d Cir. 2016); Bourne v. Walt Disney Co., 68 F.3d 621, 631 (2d
Cir. 1995); Tasini, 206 F.3d at 171 (quoting Bourne, 68 F.3d at 631).
2.
Copyright Registration of Computer Programs
It is well-established that the written code underlying computer programs is
entitled to protection under the Copyright Act.9 Computer Assocs. Int’l, Inc., 982
F.2d at 702 (collecting cases); see also Member Servs., Inc. v. Sec. Mut. Life Ins. Co.
of N.Y., No. 3:06-cv-1164, 2010 WL 3907489, at *17 n.33. (N.D.N.Y. Sept. 30, 2010)
(“Computer programs are works of authorship entitled to protection under the
Copyright Act.”) (citing 17 U.S.C. §§ 101, 102). In order to register a copyright—the
prerequisite for filing an infringement action, see Reed Elsevier, 559 U.S. at 157
(citing 17 U.S.C. § 411(a))—a copyright holder must submit to the Copyright Office
a “deposit” of the work to be registered, an application and a filing fee. 17 U.S.C. §
408(a); see also U.S. Copyright Office, Circular 61, Copyright Registration for
Computer Programs (2012), available at http://www.copyright.gov/circs/circ61.pdf
(last visited December 8, 2016) (“Circular 61”) (“An application for copyright
registration contains three essential elements: a completed application form, a
nonrefundable filing fee, and a nonreturnable deposit—that is, a copy or copies of
The Copyright Act defines a “computer program” as “a set of statements or instructions to be used
directly or indirectly in a computer in order to bring about a certain result.” 17 U.S.C. § 101; see also
Computer Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693, 697-98 (2d Cir. 1992) (discussing
architecture of “computer programs” and defining “source code” and “object code”). The parties do
not dispute that PaySys’s copyrighted eight “computer programs”; rather, the dispute centers on the
scope of those eight computer programs.
9
16
the work being registered and ‘deposited’ with the Copyright Office.”). “[A] key
purpose of the Section 408(b) deposit requirement is to prevent confusion about
which work the author is attempting to register.” Data Gen. Corp. v. Grumman
Sys. Support Corp., 36 F.3d 1147, 1162 (1st Cir. 1994) abrogated on different
grounds by Reeds Elsevier, Inc., 559 U.S. 154. The application itself has a similar
objective. Id.
The requirements for the deposit vary with the type of work being registered.
Computer programs require a deposit of “one copy of identifying portions of the
program”. 37 C.F.R. § 202.20(c)(2)(vii)(A). What qualifies as an “identifying
portion” of the program depends, in turn, on whether the registrant asserts that the
program contains trade secrets material. See id. 37 C.F.R. § 202.20(c)(2)(vii)(A)
provides that:
“identifying portions” shall mean one of the following:
(1) The first and last 25 pages or equivalent units of the source code if
reproduced on paper, or at least the first and last 25 pages or
equivalent units of the source code if reproduced in microform,
together with the page or equivalent unit containing the copyright
notice, if any. If the program is 50 pages or less, the required deposit
will be the entire source code. . . .; or
(2) Where the program contains trade secret material, the page or
equivalent unit containing the copyright notice, if any, plus one of the
following: the first and last 25 pages or equivalent units of source code
with portions of the source code containing trade secrets blocked-out,
provided that the blocked-out portions are proportionately less than
the material remaining, and the deposit reveals an appreciable amount
of original computer code; or the first and last 10 pages or equivalent
units of source code alone with no blocked-out portions; or the first and
last 25 pages of object code, together with any 10 or more consecutive
pages of source code with no blocked-out portions; or for programs
consisting of, or less than, 50 pages or equivalent units, entire source
17
code with the trade secret portions blocked-out, provided that the
blocked-out portions are proportionately less than the material
remaining, and the remaining portion reveals an appreciable amount
of original computer code. . . . Whatever method is used to block out
trade secret material, at least an appreciable amount of original
computer code must remain visible.
3.
Supplementary Copyright Registration
Section 408(d) of the Copyright Act and the regulations promulgated
thereunder permit supplementary copyright registrations only “to correct an error
in a copyright registration or to amplify the information given in a registration.” 17
U.S.C. § 408(d); 37 C.F.R. § 201.5(b)(2) (“Supplementary registration may be made
either to correct or to amplify the information in a basic registration.”); see also
Maxwood Music Ltd. v. Malakian, 713 F. Supp. 2d 327, 346 (S.D.N.Y. 2010)
(quoting 37 C.F.R. § 201.5(b)(2)). “A correction is appropriate if information in the
basic registration was incorrect at the time that basic registration was made, and
the error is not one that the Copyright Office itself should have recognized.” Id. §
201.5(b)(2)(i). An “amplification” is appropriate:
(A) To supplement or clarify the information that was required by the
application for the basic registration and should have been provided, such as
the identity of a co-author or co-claimant, but was omitted at the time the
basic registration was made, or
(B) To reflect changes in facts, other than those relating to transfer, license,
or ownership of rights in the work, that have occurred since the basic
registration was made.
Id. § 201.5(b)(2)(ii). “The information contained in a supplementary registration
augments but does not supersede that contained in an earlier registration.” 17
U.S.C. § 408(d). In other words, filing a supplementary registration does not
18
“expunge[]” or “cancel[]” the initial registration, 37 C.F.R. § 201.5(d)(2); the initial
registration remains valid and may continue to support an infringement action.
Kenbrooke Fabrics, Inc. v. Holland Fabrics, Inc., 602 F. Supp. 151, 153 n.1
(S.D.N.Y. 1984) (citing 17 U.S.C. § 408(d)).
A “[s]upplementary registration can be made only if a basic copyright
registration for the same work has already been completed.” 37 C.F.R. § 201.5(b)(1)
(emphasis added). The converse is also true. A supplementary registration “is not
appropriate”, inter alia, “to reflect changes in the content of a work”. Id. §
201.5(b)(2)(iii)(B); see also Jones v. Virgin Records, Ltd., 643 F. Supp. 1153, 1159
(S.D.N.Y. 1986) (citing 37 C.F.R. § 201.5(b)(2)(iii)(B)). Courts in this Circuit have
disfavored attempts to supplement registrations that are the subject of pending
copyright infringement actions. See, e.g., Family Dollar Stores, Inc. v. United
Fabrics Int’l, Inc., 896 F. Supp. 2d 223, 234 (S.D.N.Y. 2012) (“UFI's delay in
‘amending’ its registration is, giving all benefit of the doubt to UFI, extremely poor
lawyering, and, at worst, a deliberate attempt to impose costs on its adversary; it
has wasted the Court's time, and it has wasted the FD Defendants' time and
money.”); R.F.M.A.S., Inc. v. Mimi SO, 619 F. Supp. 2d 39, 54 (S.D.N.Y. 2009) (“By
waiting until after the close of fact discovery to correct the Registration, despite
being aware [of] its supposed inaccuracies for several months, RFMAS forfeited any
presumption as to the accuracy of the statements contained in the Supplementary
Registration.”).
19
IV. DISCUSSION
A.
The Validity of PaySys’s Copyright Registrations
Defendants argue they are entitled to summary judgment on PaySys’s
copyright claims because PaySys’s copyright registrations are invalid. (See ECF
No. 205 at 17-26.) In the alternative, Defendants submit that PaySys’s copyright
claims should “be limited to the eight narrow component files PaySys originally
registered and deposited.” (Id. at 26.) These arguments turn on the resolution of
three related questions: (1) do PaySys’s Initial Registrations cover the CardPac
software as a whole, or merely some part?; (2) are PaySys’s Supplementary
Registrations valid?; and (3) if the Supplementary Registrations fail, do the Initial
Registrations remain valid? Having analyzed these questions, the Court finds that
dismissal of the copyright claims is not warranted on this basis (as discussed below
the claims are dismissed on a separate basis), but that, in all events, PaySys’s
copyrights are limited in scope to the Initial Registrations, and that those
Registrations cover limited material.
1.
The Scope of PaySys’s Initial CardPac Registrations
PaySys initially registered copyrights in eight CardPac-related “computer
programs”. (SVAC, Ex. A at 63-80 (“Author Created” field on certificates of Initial
Registrations states “computer program”)). While the CardPac software is
undisputedly a “computer program” within the meaning of the Copyright Act, see
Computer Assocs. Int’l., Inc., 982 F.2d at 697 (defining “computer program” by
quoting 17 U.S.C. § 101), CardPac’s many constituent parts—the eight modules or
20
application systems and the thousands of component files—are also undisputedly
“computer programs” in their own right. This raises a technical question as to
which level of “computer program” within the overall CardPac software PaySys
initially registered. See Fonar Corp., 105 F.3d at 105 (observing that “[a] single
computer program” will “necessarily be composed of various modules, subroutines,
and sub-subroutines, which through their intra-program interactions accomplish
the ultimate function or purpose of the program.”) (citing Computer Assocs. Int’l.,
Inc., 982 F.2d at 697-68). While PaySys submits it registered the entirety of
CardPac’s eight modules or application systems (that is, the broader registration),
defendants argue PaySys merely registered eight of CardPac’s thousands of
component files. The undisputed evidence is that PaySys’s applications and
deposits relate to the eight particular component files, not the eight broader
modules or application systems that form the entire software. As a matter of law,
the Registrations are therefore limited to those works alone. The Court’s
conclusions in this regard are based upon the following points.
The titles of the work on PaySys’s applications all consist of a string of
identifiers with the format “[Software Package] – [Module][Version]:[Component
File]”. (Zatkovich Decl. ¶ 7; see also Pl.’s 56.1 ¶ 13.) As PaySys points out, these
titles name both a particular component file and the module or application system
in which that file resides. (See ECF No. 217 at 17-18.) Nevertheless, there is no
genuine dispute that the titles identify specific component files as the works being
registered. Defendants’ unrebutted computer software expert, Mr. Zatkovich, has
21
interpreted these titles to refer to specific component files. (Zatkovich Decl. ¶ 7.)
More tellingly, PaySys admitted to the Court on July 18, 2016—and again, in the
context of admitting facts as undisputed for purposes of resolving this motion—
that “[t]he filenames listed in PaySys’s copyright applications . . . refer to [] specific
component files”. (Pl.’s 56.1 ¶ 9 (quoting ECF No. 180 at 3).)
PaySys’s deposits make even clearer that PaySys’s Initial Registrations cover
only select component files, not all eight of CardPac’s modules or application
systems. A deposit submitted to the Copyright Office is intended to reflect and
avoid confusion as to the “work” being registered. See 17 U.S.C. § 408(a) (setting
forth deposit requirement for all works); Circular 61 at 1 (defining “deposit” as “a
copy or copies of the work being registered and ‘deposited’ with the Copyright
Office.”); Data Gen. Corp., 36 F.3d at 1162 (“[A] key purpose of the Section 408(b)
deposit requirement is to prevent confusion about which work the author is
attempting to register.”). In the case of computer programs containing trade
secrets, the copyright laws require registrants to deposit one of three types of
“identifying portions” of the program: (1) the first and last 25 pages of the
program’s source code with portions of the source code containing trade secrets
blocked-out; (2) the first and last 10 pages of the program’s source code with no
blocked-out portions; or (3) if the program is 50 pages or less, the program’s “entire
source code with the trade secret portions blocked-out”. 37 C.F.R. §
202.20(c)(2)(vii)(A).
22
Here, PaySys availed itself of the last two of the above options, depositing the
first and last 10 pages of the component file and, in one instance, a full copy of a
component file that is less than 50 pages. (Zatkovich Decl. ¶¶ 9-10; see also Pl.’s
56.1 ¶ 9.) For all Initial Registrations, the deposited component file is the very
same component file labeled as the title of work on PaySys’s corresponding
application. (Zatkovich Decl. ¶¶ 13-60; SVAC, Ex. A at 63-80.) This is exactly what
is required to register copyrights in the component files themselves.
Furthermore, assuming arguendo that PaySys sought to register copyrights
in the CardPac modules and application systems, PaySys’s deposits would not
suffice to register these larger chunks of CardPac software. Under 37 C.F.R. §
202.20(c)(2)(vii)(A), the only way PaySys could have registered copyrights in
CardPac’s modules and application systems would have been to deposit the first and
last 10 or 25 pages of the entire module or application system, or a full copy thereof
if less than 50 pages. These are the only three options permitted by the copyright
law, and PaySys did not follow any of them.
PaySys concedes it did not utilize these three options, but argues that its
deposits suffice because it took the “conservative approach” of selecting and
depositing “an important component file for each application system” as an
“identifying portion” of that application system or module. (ECF No. 217 at 16; see
also Phillips Decl. ¶ 7; Declaration of Karen Hrkach, dated August 24, 2016
(“Hrkach Decl.”, ECF No. 218) ¶ 4.) PaySys’s position rises and falls on a false
assumption that the copyright holder gets to choose which “identifying portion” of a
23
“computer program” it will deposit. It is hard to imagine a rule that creates more
confusion over the nature of the work being registered, thereby gutting the purpose
of the deposit requirement. See Data Gen. Corp., 36 F.3d at 1162. Moreover, the
plain text of 37 C.F.R. § 202.20(c)(2)(vii)(A) unambiguously forecloses PaySys’s
interpretation; it defines the term “identifying portion” to mean, with respect to
computer programs containing trade secrets, the three forms of deposit outlined
above—and only these three types. See 37 C.F.R. § 202.20(c)(2)(vii)(A).
Neither of the two authorities PaySys cites proves its point. PaySys first
submits that Circular 61 modifies the deposit rules for computer programs with no
obvious beginning or end, and that CardPac is such a program. (See ECF No. 217
at 14-15 (“[A] CardPac application system does not consist of components structured
to be read or heard from beginning to end or having an obvious linear sequence.”);
Phillips Decl. ¶ 7 (stating that CardPac is a program that has “no identifiable
beginning or end”).) Circular 61 does state, in a section entitled “Computer
Programs without Trade Secrets” (emphasis added), and in seeming modification to
the deposit requirement set forth in 37 C.F.R. § 202.20(c)(2)(vii)(A):
In any case where the program is so structured that it has no identifiable
beginning or end, the applicant should make a determination as to which
pages may reasonably represent the first 25 and last 25 pages.
(Circular 61 at 2.) However, there is no corresponding instruction in Circular
61’s section on “Computer Programs Containing Trade Secrets”. (See id. at 3.) This
Court generally defers to an agency’s interpretation of its own regulations, see, e.g.,
Ramos v. Baldor Specialty Foods, 687 F.3d 554, 559 (2d Cir. 2012) (stating “‘we will
24
generally defer to an agency’s interpretation of its own regulations so long as the
interpretation is not plainly erroneous or inconsistent with the law’”) (alterations
omitted) (quoting Cordiano v. Metacon Gun Club, Inc., 575 F.3d 199, 207 (2d Cir.
2009)), and accordingly finds no basis to read-in language to an agency’s guidance
that would create parallelism across the deposit requirements for two different
types of works (computer programs with and without trade secrets).
The Second Circuit’s decision in Fonar Corp. likewise does not support
PaySys’s position. Fonar Corp. involved a situation opposite to that presently
before the Court. Unlike PaySys, the plaintiff in Fonar Corp. sought to register
copyrights in computer software by filing a portion of the first and last pages of the
entire program’s source code. See 105 F.3d at 105. The defendant raised a
challenge akin to what PaySys argues here, namely that the plaintiff was required
to deposit source code for each of the 78 subprograms within the software. See id.
Invoking the presumption of validity afforded copyright registrations, the Court
deferred to the Copyright Office’s determination that the plaintiff’s submission of
portions of the entire software program satisfied the deposit requirement for the
entire program. Id. PaySys’s citation to this case is puzzling, as the Second Circuit
validated the registration approach PaySys failed to follow here (depositing a set of
first and last pages of the whole software program). See id. (“Whether Fonar had to
submit source code for each of the many subprograms (and possibly subsubprograms) is a question we are content to leave to the judgment, expertise, and
practices of the Copyright Office”, as the “alternative . . . would impose burdens on
25
Fonar and the resources of the Copyright Office that the Copyright Office may deem
unnecessary or excessive.”) Accordingly, the Court finds that PaySys’s Initial
Registrations cover only the component files from which it deposited source code,
not the entirety of the software package.
2.
The Validity of PaySys’s Supplementary CardPac Registrations
PaySys’s Supplementary Registrations are invalid because they
impermissibly attempt to expand the scope of the registered work. Supplementary
registrations may only be used to either “correct an error” or to “amplify”
information in an initial registration. 17 U.S.C. § 408(d); 37 C.F.R. §§ 201.5(a)(1),
(b)(2). The supplementary registration must correct or amplify the “same work”
registered in the initial registration, see id. § 201.5(b)(1), as a supplementary
registration may not be used to “reflect changes in the content of the work”, id. §
201.5(b)(2)(iii)(B); see also Jones, 643 F. Supp. at 1159 (citing id.).
Here, PaySys submitted Supplementary Registrations purporting to rename
the registered works. In each instance, PaySys changed the title from a string of
identifiers ending with the deposited component file (see Zatkovich Decl. ¶ 7) to a
descriptive title referencing only the name “CardPac” and the relevant application
system (e.g., “CardPac – Online Authorization (OLA) Application System”).
(Compare SVAC, Ex. A at 63-80 (Initial Registrations) with Miller Decl., Ex. 1
(Supplementary Registrations).) PaySys has attempted—both in its submissions to
the Copyright Office and to this Court—to cast these Supplementary Registrations
as permissible amplifications to the titles of registered works, not their scope. (See
26
Pl.’s 56.1 ¶ 13 (“In its July 28, 2016 Form CA Supplementary Registrations, PaySys
‘amplified’ the title of each registered work”, explaining that the “[r]evised title[s]
denote[] [the] entire work more clearly.”); ECF No. 217 at 17 (“PaySys further
contends that its supplemental registration was intended to clarify the scope of
those registrations, not expand it”).) However, these changes amount to far more
than cosmetic adjustments to various titles; they would, if valid, affect both the
titles and the content of the registered works— introducing thousands of additional
CardPac component files not registered in PaySys’s Initial Registrations and
impermissibly expanding the scope of the Initial Registrations from eight discrete
component files to the entire CardPac software package.
Courts have consistently rejected such attempts to squeeze additional works
into a registered copyright through the supplementary registration process. See,
e.g., Muench Photography, Inc. v. Houghton Mifflin Harcourt Publ’g Co., No. 09-cv2669 (LAP), 2012 WL 1021535, at *4 (S.D.N.Y. Mar. 26, 2012) (holding that
supplementing a registration by adding new works impermissibly changes the
content of the originally registered work in violation of 17 U.S.C. § 408(d) and 37
C.F.R. § 201.5(b)(2)) (citations omitted); Schiffer Publ’g, Ltd. v. Chronicle Books,
L.L.C., No. 03-cv-4962, 2005 WL 67077, at **3-4 (E.D. Pa. Jan. 11, 2005) (same); see
also Mahavisno v. Compendia Bioscience, Inc., No. 13–12207, 2015 WL 248798, at
**11-12 (E.D. Mich. Jan. 20, 2015) (discussing distinction between permissible
amplification and impermissible change to content of a work); Kluber Skahan &
Assocs., Inc. v. Cordogen, Clark & Assoc., Inc., No. 08-cv-1529, 2009 WL 466812, at
27
*6 (N.D. Ill. Feb. 25, 2009) (same). The concerns are magnified where, as here, a
plaintiff files a supplementary registration after litigation has commenced and fact
discovery is underway. See R.F.M.A.S., Inc., 619 F. Supp. 2d at 54 (finding that
supplementary registration filed “over a year and a half after initiating this action”,
“more than three months after the close of fact discovery”, and “more than five
months after having been made aware of inconsistencies” in the initial registration
could not be presumed accurate); Family Dollar Stores, Inc., 896 F. Supp. 2d at 234
(finding supplementary registration filed after fact discovery closed “extremely poor
lawyering, and, at worst, a deliberate attempt to impose costs on its adversary”).
In any event, even if it were permissible to alter the content of a registered
work, PaySys’s Supplementary Registrations would still fail because the supporting
deposits only identify eight discrete component files, not the CardPac application
systems and modules named in the Supplementary Registrations.
3.
The Continued Validity of PaySys’s Initial Registrations
Defendants further argue that PaySys’s improper Supplementary
Registrations destroy the presumption of validity afforded its Initial Registrations,
and that PaySys has not otherwise carried its burden to prove their validity. (ECF
No. 205 at 18-20.) Although the presumption of validity may be rebutted “where
other evidence in the record casts doubt on” a registration’s validity, Urbont, 831
F.3d at 89 (quoting Estate of Burne Hogarth, 342 F.3d at 166); Fonar Corp., 105
F.3d at 104 (quoting Durham Indus., Inc., 630 F.2d at 908) (alterations omitted),
defendants have adduced no facts suggesting that PaySys deliberately
28
misrepresented any facts in its Initial Registrations, see Medforms, Inc., 290 F.3d at
114 (citing Whimsicality, Inc., 891 F.2d at 455); Tradescape.com, 77 F. Supp. 2d at
414-15. Instead, defendants’ allegations of misrepresentation revolve entirely
around PaySys’s Supplementary Registrations, specifically the charge that PaySys
“us[ed] the supplemental registrations to fundamentally alter the scope of its
copyrighted works.” (ECF No. 205 at 18.) In this regard, defendants’ allegations
are materially distinguishable from those in Watkins v. Chesapeake Custom
Homes, L.L.C., 330 F. Supp. 2d 563 (D. Md. 2004), the sole case defendants cite
involving both the presumption of validity and the supplementary registration
process. In Watkins, the court did not presume plaintiff’s initial registrations valid
because, in addition to submitting supplementary registrations that “reinvented
their infringement case” by re-classifying the registered work, 330 F. Supp. 2d at
572, “Plaintiffs supplied the Copyright Office with false and misleading
information” in their initial registrations, id. at 571. Unlike in Watkins, here,
defendants identify no misrepresentations in PaySys’s Initial Registrations.
An invalid supplementary registration does not, in itself, call into question an
otherwise sound initial registration. Rather, Section 408(d) of the Copyright Act
and its attendant regulation make clear that supplementary registrations can never
“supersede”, “expunge[]” or “cancel[]” the information in an earlier registration. See
17 U.S.C. § 408(d) (“The information contained in a supplementary registration
augments but does not supersede that contained in the earlier registration.”); 37
C.F.R. § 201.5(d)(2) (“[T]he information contained in a supplementary registration
29
augments but does not supersede that contained in the basic registration. The basic
registration will not be expunged or cancelled.”); see also Kenbrooke Fabrics, Inc.,
602 F. Supp. at 153 n.1 (citing 17 U.S.C. § 408(d).) Thus, absent any evidence that
PaySys intentionally misrepresented any information about its component files in
its Initial Registrations, these registrations are presumed valid despite PaySys’s
late-filed and invalid Supplementary Registrations. See R.F.M.A.S., 619 F. Supp.
2d at 53 (presuming initial registrations valid even though plaintiff filed a
supplementary registration a year and a half after filing suit and more than three
months after fact discovery closed correcting certain errors).
*
*
*
As a result of the above analysis, PaySys’s claims for copyright infringement
are restricted to claims concerning the eight discrete component files registered in
its Initial Registrations.
B.
Contractual Waiver of PaySys’s Copyright Infringement Claims
While covered by copyright registrations, PaySys’s copyright claims fail
because PaySys long ago granted defendants a license to the very works at issue
within the territory at issue.
It is well-established that a licensor generally may not sue its licensee for
copyright infringement. E.g., Graham, 144 F.3d at 236 (“A copyright owner who
grants a nonexclusive license to use his copyrighted material waives his right to sue
the licensee for copyright infringement.”); Jasper v. Sony Music Entm’t, Inc., 378 F.
Supp. 2d 334, 338 (S.D.N.Y. 2005) (“It is a hallmark principle of copyright law that
30
licensors may not sue their licensees for copyright infringement.”). However, such
claims may be brought when the licensee’s infringing conduct exceeds the scope of
the license, or when the licensee violates a condition precedent to obtaining the
license. Graham, 144 F.3d at 235-38; Tasini, 206 F.3d at 170-71.
Defendants contend that PaySys may not assert any of its seven theories of
copyright infringement against Atos IT and Atos Se, which are licensees under the
Software Agreement. (See SVAC ¶¶ 138-48.) In opposition, PaySys identifies three
instances of actionable conduct: the appointment of Accellence and NTT Data as
distributors of CardPac (id. ¶ 140), the initial assignment of intellectual property
rights to Wordline (id. ¶ 139), and defendants’ failure to fulfill certain conditions
precedent to the APS agreement (id. ¶¶ 142-43). (See ECF No. 217 at 23.) In light
of PaySys’s failure to oppose defendants’ motion as to the other four types of
infringement, the Court grants summary judgment as to the infringement claims
based on that alleged conduct. (See SVAC ¶¶ 138, 141, 144, 145-48.)10 The Court
additionally grants summary judgment with respect to the three types of
infringement PaySys identifies, as described below.
1.
Reseller Appointments of Accellence and NTT Data
At various times after defendants’ exclusive license expired in 1998, certain
entities in the Atos family entered into “Reseller Agreements” with Accellence and
Specifically, the Court grants summary judgment on PaySys’s claims that defendants infringed its
copyrights by: assigning rights and obligations to various Atos affiliates without PaySys’s consent
(id. ¶ 138); providing Equens, a merger partner of defendants, with access to PaySys’s intellectual
property (id. ¶ 141); failing to document licenses granted to defendants’ customers (id. ¶ 144); and
transferring rights and obligations without imposing requisite restrictions on remote access from
outside the territory defined in the Software Acquisition Agreement (id. ¶¶ 145-48).
10
31
NTT Data, two third parties. (See Defs.’ Local R. 56.1 Counterstmt. of Undisputed
Facts Supp. Trade Secrets Mot. (“Defs.’ Trade Secrets 56.1”, ECF No. 224 ¶¶ 17, 19,
23, 29, 33; see also Declaration of Robert D. Owen, dated August 15, 2016 (“Owen
Decl.”, ECF No. 212), Exs. 37-40, 66.) PaySys contends these agreements exceeded
the scope of the Software Agreement. (See ECF No. 217 at 26-27.) The crux of
PaySys’s argument is that CCSI only licensed the right to distribute CardPac
during the initial ten-year exclusive license period; according to PaySys, when that
period ended in 1998, so too did its right to appoint distributors. This Court
disagrees.
A licensee acts outside the scope of a license, and hence may be held liable
for copyright infringement, where it continues to use copyrighted material after the
license expires. See, e.g., Kamakazi Music Corp. v. Robbins Music Corp., 684 F.2d
228, 230 (2d Cir. 1982) (“Once the contract had expired, Robbins was liable for
infringement of Kamakazi's copyrights.”); Palmer/Kane LLC v. Rosen Book Works
LLC, __ F.3d __, 2016 WL 4534896, at *14 (S.D.N.Y. Aug. 30, 2016) (holding that
licensee’s use of photograph after license expired infringed licensor’s copyright).
Here, the parties dispute whether the right to appoint distributors expired in 1998
along with the expiration of the ten-year exclusive license. (See Medzhibovsky
Decl., Ex. 1 § 2(a)); see Defs.’ Trade Secrets 56.1 ¶ 14 (disputing fact).) The
Software Agreement unambiguously contemplates that the distribution right
persists.
32
Throughout the Software Agreement, it is clear that Sema’s business involves
licensing software—in this instance, CardPac—to distributors. Section 2 of the
Software Agreement grants Sema broad rights in this regard. That provision
provides Sema with an exclusive license for ten years (see Medzhibovsky Decl., Ex.
1 § 2(a)), and a non-exclusive license in perpetuity thereafter (see id. § 2(b)). There
is no suggestion that the parties anticipated the change in the license from
exclusive to non-exclusive would alter Sema’s business or constrict Sema’s ability to
do that which it had been otherwise licensed to do. Rather, it is clear from the
structure of Section 2, its language and the intent of the parties gleaned from their
overall contractual relationship that Sema never loses the basic licensing rights it
initially acquires (though its rights become non-exclusive). To illustrate this, the
Court turns first to Section 2, and then to the other contractual provisions in the
Software Agreement.
A key distinction between Sections 2(a) and 2(b) of the Software Acquisition
Agreement is when the license is exclusive, not—as plaintiff would argue—whether
Sema may utilize distributors after the exclusive license expires (it may always do
so). Although Section 2(a) expressly references Sema’s right “to appoint
Distributors” and Section 2(b) does not, that distinction is immaterial. (Compare
Medzhibovksy Decl., Ex. 1 § 2(a) with id. § 2.b.) Other terms relating to the scope of
rights also do not appear in Section 2(b). For instance, Section 2(b) does not contain
the term “use”—but it is nonetheless clear that Section does not alter the
fundamental rights PaySys granted to Sema in this regard, and that Sema has an
33
ongoing right to “use” the CardPac products and to “grant Licenses to use” them.
(Compare id. § 2(a) with id. § 2.b.) Section 2(b) is directed at two points: after ten
years, altering Sema’s rights to be non-exclusive and ensuring that Sema may
create derivative works (e.g., “to incorporate . . . any portion of the [CardPac]
Products . . . into program products”) and to use the entirety of the CardPac
Products (e.g., “to incorporate all . . . of the [CardPac] Products . . . into program
products”). (See id. § 2(b).)
In terms of Sema’s continued right to use “Distributors” during the nonexclusive license period, Section 2(b)’s language that Sema may market “all” or “any
portion” of the CardPac products—without temporal limitation—in the defined
territory implicitly captures distributors. (See id.) That is, Section 2(b) does not
limit or require any particular manner or method of such marketing—it allows
Sema to continue marketing the software in an unrestricted, but non-exclusive,
manner. In addition, support for the inclusion of distributors is found in the portion
of Section 2(b) that uses the words “by or for SEMA” following the phrase
“developed, marketed, supplied, installed and/or supported”. (See id. (emphasis
added).) Plainly, marketing done “for” Sema or supplying done “for” Sema
anticipates a distribution relationship. (See id. § 1(c) (defining “Distributor”).)
The definition of “License” also supports the lack of temporal limitations on
defendants’ right to appoint distributors. That definition states explicitly that “any
sublicense shall itself be deemed to be a License within the meaning of this
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definition.” (Id.) Thus, by definition, the word “License”—used throughout the
Software Agreement—includes the concept of a sublicense. (See id.)
Further, in the 2001 Confidential Settlement Agreement—an amendment to
the Software Agreement entered into three years after Sema’s exclusive license
expired (Medzhibovsky Decl., Ex. 3 at ATOS007746-47)—the parties expressly
acknowledged and agreed that CCSI (now PaySys) had no further obligations to
provide certain services to “Sema or its licensees, distributors or third parties who
use, sell, license or distribute the [CardPac] Products or derivatives thereof.” (Id. §
5(i) (emphasis added).) Additionally, the parties repeatedly affirmed that, as of the
date of the agreement, Sema had granted licenses to use CardPac to third parties.
(Id. §§ 5(b), (d).) Together, these provisions suggest defendants continued to
distribute CardPac three years after the exclusive license ended, and that plaintiff
was aware of, and did not object to, this practice.
Thus, despite explicit use of the term “Distributors” from Section 2(b) of the
Software Acquisition Agreement, no reasonable juror could conclude that
defendants’ distribution right expired in 1998, as PaySys argues. As a result,
defendants’ alleged distributions to Accellence and NTT Data are authorized by the
Software Agreement, and PaySys may not assert copyright claims based on that
alleged conduct.
2.
Assignment to Worldline
PaySys next argues that Atos IT and Atos Se improperly assigned certain
rights under the Software Agreement to Worldline, and that these defendants may
35
therefore be held vicariously liable for any infringing conduct undertaken by
Worldline. (ECF No. 217 at 25-26.) This argument ignores that Worldline is a
subsidiary of Atos Se (id., Ex. 7 at 46), and, therefore, an “Affiliate” under the
Software Agreement (id., Ex. 1 § 1(a) (defining “Affiliate” as “any corporation or
other business entity which controls, is controlled by or is under common control
with a party to this Agreement.”). As a result, Atos IT and Atos Se may “assign all
or any portion of [the Software] Agreement” to Worldline (see id. § 17(b)), and
Worldline’s conduct is deemed to comply with the Software Agreement (see id.
§ 17(m)). Nothing in the record refutes the finding that an assignment to Worldline
is authorized by the Software Agreement, thereby barring PaySys’s infringement
claims based on this alleged conduct.
3.
Conditions Precedent to the APS Agreement
On January 15, 1991, the parties entered into an agreement regarding the
licensing of the APS software (the “APS Agreement”). (Defs.’ Trade Secrets 56.1 ¶
42; Owen Decl., Ex. 30 at ATOS031124.) The APS Agreement permitted Sema to
license the APS software to CardPac customers within certain parameters. (Defs.’
Trade Secrets 56.1 ¶ 42; Owen Decl., Ex. 30 at ATOS031124.) One provision
entitled “Order” (the “Order Provision”) stated:
When SEMA receives a signed contract from a customer, SEMA will formally
notify CCSI of the contract and will place with CCSI an order for one license
copy. SEMA will also inform CCSI of the payment terms together with
anticipated implementation dates.
(Owen Decl., Ex. 30 at ATOS031124.)
PaySys argues that certain sales defendants made under the APS Agreement
36
constitute infringement because defendants made these sales without following the
Order Provision. PaySys’s ability to maintain these claims “turns—and fails—on
the distinction in contract between a condition and a covenant.” See Graham, 144
F.3d at 236.
There is no triable issue as to the nature of the Order Provision; it plainly
constitutes a covenant. Contractual terms may be characterized as either
conditions or covenants. A condition precedent is, by definition, an act or event that
must occur before a duty to perform a promise in an agreement arises. See Powlus
v. Chelsey Direct, LLC, No. 09-cv-10461 (PKC), 2011 WL 135822, at *4 (S.D.N.Y.
Jan. 10, 2011) (“A condition precedent is ‘an act or event, other than a lapse of time,
which, unless the condition is excused, must occur before a duty to perform a
promise in the agreement arises.’”) (quoting Oppenheimer Co., Inc. v. Oppenheim,
Appel, Dixon & Co., 86 N . Y.2d 685, 689 (1995)) (emphasis added); see also
Graham, 144 F.3d at 237 (defining “condition precedent” as “any fact or event which
qualifies a duty to perform”) (citations omitted). The Order Provision, however,
creates obligations that arise after the licensee “receives a signed contract from a
customer” to whom it is selling the APS software. (Owen Decl., Ex. 30 at
ATOS031124.) The fact that the Order Provision does not apply until after a sales
contract has been executed bars any argument that it is a condition precedent. This
finding comports with New York law’s “presumption that terms of a contract are
covenants rather than conditions.” Graham, 144 F.3d at 237 (citation omitted).
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Since the Order Provision is a covenant, it cannot support a claim for copyright
infringement.11
V.
CONCLUSION
For the reasons set forth above, the Court GRANTS defendants’ motion for
partial summary judgment on the scope of plaintiff’s intellectual property claims.
(ECF No. 201).
The Clerk of Court is directed to terminate the motion at ECF No. 201.
SO ORDERED.
Dated:
New York, New York
December 8, 2016
KATHERINE B. FORREST
United States District Judge
This finding does not in any way impact any breach of contract claim PaySys asserts based on this
provision.
11
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