Haddley v. Next Chapter Technology, Inc.

Background

Neil Leonard Haddley created and holds the copyright to Scanning Enabler, software that allows users to scan paper documents into electronic form. The software requires a valid license key to download it and operates on a server that workstations can access through ActiveX controllers.

Next Chapter Technology, Inc. (NCT) developed and licensed CaseWorks, an electronic document-management system, to Minnesota counties. In 2012 and 2013, CaseWorks used Scanning Enabler as its scanning component. Scanning Enabler was installed on servers associated with Clay and Steele Counties, and other counties shared those server environments.

Haddley claimed that only Clay and Steele Counties were licensed to use the software on those servers and that six additional counties used it without authorization. He also claimed that NCT and Vaughn Mulcrone contributed to the alleged infringement. The defendants asserted that the licenses were unrestricted single-server licenses and permitted the server-sharing arrangement. They also asserted that Haddley knew about, helped create, or accepted the arrangement. Haddley disputed those assertions and said he objected to the unlicensed use.

Claims and Motion

Haddley brought three claims: copyright infringement based on allegedly unauthorized use by the counties; copyright infringement against NCT, Mulcrone, and dataBridge, LLC for allegedly creating an infringing derivative work; and a claim under the Digital Millennium Copyright Act (DMCA) alleging circumvention of the license-key system. The defendants moved for partial summary judgment—judgment without a trial when no genuine dispute of material fact exists—on Counts I and III. They did not seek summary judgment on Count II.

Count I: Copyright Infringement

The defendants argued that the relevant licenses authorized the use of Scanning Enabler by multiple counties and workstations. They relied on invoices and license keys describing the licenses as “unrestricted” for “one front-end server.” They also argued that Haddley’s conduct created an implied license or prevented him from denying one through estoppel, a legal rule that can bar a party from taking a position inconsistent with its earlier conduct.

Haddley argued that the licenses were limited, that the counties needed separate licenses, and that the governing agreement could be a license agreement posted on the reseller’s website rather than the agreements identified by the defendants. He also disputed that he consented to the broader use or knowingly assisted in the alleged infringement.

The court found numerous factual disputes about whether NCT acquired the licenses, which agreements governed, and whether the licenses allowed the counties to share Scanning Enabler. The court also found factual disputes about implied consent and estoppel. Because a fact-finder could conclude that Haddley did not consent to the alleged use, the court declined to grant summary judgment on Count I.

Count III: DMCA Claim

Haddley alleged that the defendants bypassed the license-key system to allow unauthorized copies of Scanning Enabler to be distributed and used. The defendants argued that the counties had authority under NCT’s licenses, that Haddley helped connect the systems, and that using the ActiveX controller did not circumvent a technological measure controlling access to the software.

The court explained that the DMCA’s anti-circumvention provision prohibits bypassing a technological measure that effectively controls access to a copyrighted work without the copyright owner’s authority. Because factual disputes remained about whether the defendants had authorization under the licenses, and about whether they circumvented a technological measure, the court denied summary judgment on Count III.

County Defendants

The defendants separately argued that the county defendants were not liable because they did not act voluntarily or knowingly. Haddley responded that Clay and Steele Counties knew about and controlled the software on their systems, allowed other counties to share it, and that other counties created additional copies on their own systems.

The court concluded that it was premature to dismiss the county defendants. Questions remained about whether their use was licensed and, if not, whether their use was outside their knowledge or control.

Disposition

Judge Donovan W. Frank ordered that the defendants’ Motion for Partial Summary Judgment be DENIED. The order left the disputed issues for further proceedings and did not decide whether the defendants ultimately infringed Haddley’s copyright or violated the DMCA.