Haddley v. Next Chapter Technology, Inc.

Background

Neil Leonard Haddley created and owned the copyright in Scanning Enabler, software that lets users scan paper documents into electronic form. The software required a valid license key to download it and operated on a server that workstations could 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. Clay County shared a server environment with Becker, Otter Tail, and later Isanti Counties. Steele County shared a server environment with Waseca, Mower, and Dodge Counties.

The parties disputed whether NCT bought the licenses for itself or obtained them as Haddley’s reseller for the counties. They also disputed whether the licenses were unrestricted and allowed the additional counties to connect to the Clay and Steele County servers. Haddley said he did not authorize unrestricted, multi-county use and objected to unauthorized use. The defendants said Haddley participated in setting up the shared-server arrangements, knew how the software was being used, and either authorized the use or implicitly accepted it.

Claims and Motion

Haddley asserted three claims. Count I alleged copyright infringement based on defendants’ permitting eight counties, rather than only Clay and Steele Counties, to use Scanning Enabler through the shared servers. Count II alleged copyright infringement based on NCT, Vaughn Mulcrone, and dataBridge, LLC creating an infringing derivative work. Count III alleged violations of the Digital Millennium Copyright Act (DMCA), including bypassing the license-key system and altering copyright-management information.

The defendants moved for partial summary judgment only on Counts I and III. Summary judgment is a decision without a trial that is appropriate when no important factual dispute exists and the moving party is entitled to judgment under the law.

Count I: Copyright Infringement

The defendants argued that an express license defeated Haddley’s infringement claim. They relied on invoices and license keys describing the licenses as “unrestricted” for “one front-end server.” They also argued that Haddley had granted an implied license through his conduct or should be prevented from denying such a license because he helped install the software, knew about the shared access, remained silent, and issued additional licenses.

Haddley disputed those arguments. He pointed to evidence that the licenses were limited to particular customers or servers, that the agreement posted on the Dark Blue Duck Solutions website prohibited duplication, licensing, or sublicensing, and that he expected additional counties to obtain their own licenses. He also presented evidence that he objected to the shared configuration and unauthorized use.

The court concluded that numerous factual disputes prevented summary judgment. A fact-finder would have to determine whether NCT acquired the licenses, which agreements governed, whether the licenses allowed multiple counties to share the software, and whether Haddley impliedly consented to that use or should be prevented from challenging it. The court therefore denied summary judgment on Count I.

Count III: DMCA Claim

Haddley alleged that defendants bypassed the license-key system so that unauthorized copies of Scanning Enabler could be distributed and used. The defendants argued that the county users were authorized through NCT’s licenses, that Haddley had helped connect the systems, and that using the ActiveX controller was not bypassing a technological protection because it provided access rather than prevented it.

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. The court found factual disputes about both whether defendants had authority under the licenses and whether any defendant bypassed a technological measure controlling access to Scanning Enabler. The court stated that, without license authority, a reasonable juror could find that defendants bypassed such a measure by using the license-key system. It therefore denied summary judgment on Count III.

County Defendants

The defendants separately argued that the County Defendants were entitled to summary judgment because they did not act voluntarily and were unaware that Scanning Enabler existed separately from CaseWorks. Haddley responded that Clay and Steele Counties knew what software was on their systems and allowed other counties to share it, while the other counties made additional copies on their own systems.

The court found it premature to dismiss the County Defendants. Factual questions remained about whether their use was licensed and, if it was not, whether their use occurred outside their knowledge or control.

Order

The court ordered that the defendants’ Motion for Partial Summary Judgment was DENIED. The opinion did not rule on Count II because the defendants did not move for summary judgment on that claim.