Empire Medical Review Services Inc v. CompuClaim Inc

Filing 228

DECISION AND ORDER signed by Magistrate Judge William E Duffin on 9/25/2018 DENYING 219 Plaintiff's Motion for Clarification and Reconsideration. (cc: all counsel) (lz)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
EMPIRE MEDICAL REVIEW SERVICES, INC.,
Plaintiff,
v.

Case No. 13-CV-1283

COMPUCLAIM, INC.,
Defendant.
DECISION AND ORDER
1. Background
On June 26, 2018, the court issued a Decision and Order (ECF No. 217) resolving
the parties’ motions for summary judgment. The court granted in part and denied in
part the motion filed by plaintiff Empire Medical Review Services, Inc. Empire Med.
Review Servs. v. CompuClaim, Inc., No. 13-CV-1283, 2018 U.S. Dist. LEXIS 106474, 2018
WL 3130651 (E.D. Wis. June 26, 2018). The court denied defendant CompuClaim, Inc.’s
motion for summary judgment. Id.
On July 20, 2018, Empire filed a “Motion for Clarification and Reconsideration.”
(ECF No. 219.) The briefing regarding this motion is complete and it is ready for
resolution.

The facts underlying the disputes between the parties are outlined in much
greater detail in the court’s prior decision. See Empire Med. Review Servs., 2018 U.S. Dist.
LEXIS 106474. For present purposes it is sufficient to note that CompuClaim entered
into an agreement with Empire regarding Empire’s “ClearingMagic” software. In a
subsequent agreement, “Addendum B,” Empire agreed to do certain custom
programming to ultimately create a website through which CompuClaim’s customers
would submit Medicaid claims. As is relevant to the present motion, Empire alleges that
CompuClaim infringed on Empire’s copyright when CompuClaim used parts of that
custom programming in later software.
2. Applicable Law
“[T]his Court’s opinions are not intended as mere first drafts, subject to revision
and reconsideration at a litigant’s pleasure.” Cehovic-Dixneuf v. Wong, 895 F.3d 927, 932
(7th Cir. 2018) (quoting Quaker Alloy Casting Co. v. Gulfco Industries, Inc., 123 F.R.D. 282,
288 (N.D. Ill. 1988)). “Motions for reconsideration serve a limited function: to correct
manifest errors of law or fact or to present newly discovered evidence.” Caisse Nationale
de Credit Agricole v. CBI Industries, Inc., 90 F.3d 1264, 1269 (7th Cir. 1996) (quoting Keene
Corp. v. Int'l Fidelity Ins. Co., 561 F. Supp. 656, 665 (N.D. Ill. 1982)). Consequently, “[a]
party may not use a motion for reconsideration to introduce new evidence that could
have been presented earlier.” Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir. 2000)
(citing Caisse Nationale de Credit Agricole, 90 F.3d at 1269). Nor is reconsideration an

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“appropriate forum for rehashing previously rejected arguments or arguing matters
that could have been heard during the pendency of the previous motion.” Caisse
Nationale de Credit Agricole, 90 F.3d at 1269. “[D]eveloping an argument for the first time
in a motion to reconsider is too late.” Bloch v. Frischholz, 587 F.3d 771, 784 n.9 (7th Cir.
2009) (citing Brooks v. City of Chicago, 564 F.3d 830, 833 (7th Cir. 2009) (“[A]ny arguments
… raised for the first time in [a] motion to reconsider are waived.”)).
3. Analysis
3.1. Implied License as an Affirmative Defense
Empire sought summary judgment with respect to its claim that CompuClaim
infringed Empire’s copyright by re-using source code Empire provided to
CompuClaim. CompuClaim responded, in part, that it had an implied license as to the
code. (ECF No. 196 at 6-7.) CompuClaim also made this implied license argument in
support of its own motion for summary judgment. (ECF No. 166 at 32-38.) Empire
addressed these arguments at length in its response (ECF No. 190 at 24-35) and reply
(ECF No. 204 at 5-7), arguing both that CompuClaim waived the argument by not
asserting it as an affirmative defense and that it fails on its merits.
The court agreed with Empire that CompuClaim should have raised its implied
license argument as an affirmative defense in its answer. Empire Med. Review Servs., 2018
U.S. Dist. LEXIS 106474, at *28. But finding that Empire had failed to demonstrate it was
prejudiced as a result, the court rejected Empire’s waiver arguments. See id. at *29 (citing

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Garofalo v. Vill. of Hazel Crest, 754 F.3d 428, 436 (7th Cir. 2014) (“We will generally find
that ‘[t]he failure to plead an affirmative defense in the answer works a forfeiture only if
the plaintiff is harmed by the defendant’s delay in asserting it.’”); Myers v. Harold, 279 F.
Supp. 3d 778, 794 (N.D. Ill. 2017) (rejecting forfeiture argument, stating, “Plaintiff
responded to Defendants’ license arguments in their response to Defendants’ summary
judgment motion, and their reply in favor of their own motion. Because Plaintiff was
able to respond, the court will address this defense.”)).
A motion for reconsideration is not a do-over or a second chance for a party to
make the arguments it could or should have made earlier. Although Empire now more
thoroughly explains how it is allegedly prejudiced by CompuClaim’s failure to include
implied license as an affirmative defense in its answer, simply because a litigant makes
a better argument on a second try is not a reason to grant reconsideration. “Were such a
procedure to be countenanced, some lawsuits really might never end, rather than just
seeming endless.” Frietsch v. Refco, Inc., 56 F.3d 825, 828 (7th Cir. 1995).
Empire is correct that CompuClaim should have pled in its answer the
affirmative defense of implied license. But the law is forgiving of such an omission
absent a demonstration of prejudice by the other party. See FRCP 15(a)(2) (leave to
amend should be freely given when justice so requires). Although objecting to
CompuClaim’s assertion of the defense, Empire failed to explain how it was prejudiced

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by the belated assertion of an implied license defense. As a result, the court permitted
CompuClaim to proceed with it.
Empire similarly should have included in its summary judgment briefs the
complete prejudice argument it now proffers. The law, however, is not nearly as
forgiving of Empire’s omission. As stated above, motions for reconsideration serve a
limited function: to correct manifest errors of law or fact or to present newly discovered
evidence. Although Empire argues that the court erred in deciding to consider
CompuClaim’s implied license defense, it has not demonstrated that the court’s decision
constituted a manifest error of law, nor does it present newly discovered evidence.
Therefore, Empire’s motion is denied as to its request that the court reconsider
permitting CompuClaim to proceed with its affirmative defense of implied license.
3.2. Merits of Implied License Affirmative Defense
3.2.1. Addendum B as an Amendment to the Software License Agreement
Empire argues that CompuClaim’s implied license affirmative defense fails
because the source code related to the website is covered by the parties’ express license.
Empire seems to take a binary view of Addendum B—it is either a wholly
independent document or it is an amendment to the agreement, in which case all the
provisions of the agreement apply to the code created pursuant to Addendum B. For
example, it argued in response to CompuClaim’s motion for summary judgment, “If the
Court concludes as a matter of law that Addendum B is an amendment to the

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Agreement, that alone is fatal to CompuClaim’s motion based on its alleged ‘implied
license’ defense.” (ECF No. 190 at 29.) Empire did then and continues to overlook the
possibility that, even if Addendum B is an amendment to the agreement, the license
provisions of the agreement would not apply to the custom programming created
pursuant to Addendum B.
In the agreement Empire granted CompuClaim a non-exclusive, non-transferable
license to install and use “the Software and related documentation.” (ECF No. 168-1,
¶ 1. (a).) It defined “the Software” being licensed as “ClearingMagic.” (ECF No. 168-1,
¶ A.) Addendum A seems to say that “ClearingMagic” includes “ClearingMagic with
EligibilityMagic functionality and Header Detail to ANSI 837 Professional software.”
(ECF No. 168-1 at 22.) It also stated, “In addition to licensing the Software to Licensee,
Empire wishes to provide Licensee with software maintenance services, software
support services and custom programming and training as more fully set forth below,
in connection with Licensee’s license of the Software.” (ECF No. 168-1, § B.) Thus, it is
clear that, in the agreement, “in addition to licensing the Software” (ECF No. 168-1 § B.
(emphasis added)) to CompuClaim, Empire agreed to provide “custom programming.”
No other provision of the agreement can be read so as to include “custom programing”
within the scope of the definition of “the Software.” Nowhere does the agreement say
that Empire’s “custom programming” is subject to the same terms as the license
governing “the Software.”

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Addendum B is “a list of custom programming that will be done to
CompuClaim’s leased ClearingMagic, EligibityMagic, and translation software that will
be integrated into the meduclaim.com school Medicaid billing portal.” (ECF No. 168-1
at 23.) Thus, it may be fair to read Addendum B as an amendment to the agreement. But
that does not necessarily mean that “custom programming” is subject to all of the terms
and conditions of the license in the same way that “the Software” is. Nor did
Addendum B amend the definition of “the Software” as that term is used in the
agreement to include the custom programming regarding the website. Thus, the
existence of the explicit license between the parties does not foreclose CompuClaim’s
affirmative defense of implied license because Empire has failed to prove thus far that
the explicit license applied to the custom website programming.
3.2.2. Scope of Implied License
Empire argues that to survive summary judgment CompuClaim must show
more than simply that a reasonable finder of fact could conclude it had an implied
license. Rather, CompuClaim must be able to point to specific facts from which a
reasonable finder of fact could conclude that it had an implied license to use the work in
the manner the copyright holder alleges was an infringement of its copyright, i.e. to
create a derivative work. (ECF No. 220 at 27-32.) On this point, the court agrees.
However, the court disagrees with Empire’s argument that CompuClaim cannot
make the requisite showing because the software license agreement expressly prohibits

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the creation of derivative works. (ECF No. 220 at 29-30.) As discussed above, Empire has
not proven that custom programming is “software” as defined in the agreement such
that CompuClaim was necessarily prohibited from using that custom programming in a
subsequent work.
“When the totality of the parties’ conduct indicates an intent to grant such
permission, the result is a legal nonexclusive license.” Kay Bros. Enters. v. Parente, No. 16
C 387, 2018 U.S. Dist. LEXIS 128191, at *23 (N.D. Ill. July 31, 2018) (quoting Fox Controls,
Inc. v. Honeywell, Inc., No. 02 C 346, 2005 U.S. Dist. LEXIS 14410, 2005 WL 1705832, at *5
(N.D. Ill. July 14, 2005)). A reasonable finder of fact could conclude that Empire granted
CompuClaim an implied license to create works derivative of Empire’s custom
programming.
For example, as Empire notes (and places much emphasis upon), “the explicit
language of the Software License Agreement expressly prohibits” the creation of
derivative works. (ECF No. 220 at 30 (emphasis in original).) But if custom
programming is outside the scope of “software” as defined in the agreement, the
licensor arguably intended that the prohibition regarding the creation of derivative
works would not apply to custom programming. Moreover, CompuClaim paid Empire
for the custom programming, and there was no expressed limitation on CompuClaim’s
subsequent use of that code. Both of these facts support the conclusion that
CompuClaim had an implied license that included the creation of derivative works

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based on the custom programming. See Kay Bros. Enters., 2018 U.S. Dist. LEXIS 128191,
at *30-31; see also I.A.E., Inc. v. Shaver, 74 F.3d 768, 777 (7th Cir. 1996); Asset Mktg. Sys. v.
Gagnon, 542 F.3d 748, 755-57 (9th Cir. 2008).
3.3. Prima Facie Claim of Infringement
Empire asks for “clarification” as to whether the court concluded that Empire
had proven the elements of its infringement claim, with the only thing standing
between it and judgment in its favor is determining whether CompuClaim’s use of the
website source code was consistent with an implied license.
To be entitled to summary judgment on its claim that CompuClaim infringed
Empire’s copyright in the CMWebSite software source code, Empire would have had to
show both that there was no dispute of material fact regarding the elements a copyright
infringement claim and also that there was no dispute of material fact with respect to
any affirmative defense. A failure on any point merited denial of Empire’s motion with
respect to its copyright infringement claim.
Finding that a dispute of material of fact existed with respect to CompuClaim’s
affirmative defense of implied license, the court denied Empire’s motion as to its
copyright infringement claim. Simply because the court denied the claim on one specific
basis does not mean that the court found that Empire satisfied all other elements
necessary to its claim. There was no reason to discuss the other elements, and thus the
court did not.

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Therefore, to Empire’s question of whether the court held in its summary
judgment decision that Empire satisfied all the elements of a claim of infringement, the
answer is “No.” To the extent that Empire is now asking the court to so find, that is not
properly within the scope of Empire’s motion for reconsideration because Empire did
not seek such relief in its initial motion.
IT IS THEREFORE ORDERED that Empire’s “Motion for Clarification and
Reconsideration” is denied.
Dated at Milwaukee, Wisconsin this 25th day of September, 2018.

_________________________
WILLIAM E. DUFFIN
U.S. Magistrate Judge

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