Automated Management Systems, Inc. v. Rappaport Hertz Cherson Rosenthal, P.C.

Background

Automated Management Systems, Inc. (AMSI) makes and licenses software, including the Landlord Tenant Legal System. AMSI licensed that software to Rappaport Hertz Cherson Rosenthal, P.C. (RHCR) under a 2007 agreement. After problems with the software arose in 2015, RHCR retained Branko Rakamaric to develop replacement software and Rakamaric retained Ben Wachter to help install it. AMSI later alleged that the defendants copied thousands of files and proprietary features from the AMSI software while developing the replacement program.

AMSI’s operative complaint asserted copyright infringement, trade-secret misappropriation under the federal Defend Trade Secrets Act and common law, unfair competition, breach of contract against the law-firm defendants, and tortious interference with a contract against Rakamaric and Wachter. The disputed software features included automatic email alerts, maintenance screens, and a data dictionary describing the software’s database structure.

Before this order, Magistrate Judge Fox had ordered the defendants to produce operational versions of the replacement software, access to a relevant server, and supplemental communications. After finding that the defendants had not complied, Judge Fox awarded AMSI certain attorney’s fees and costs as discovery sanctions. AMSI also sought permission to file a partial summary judgment motion after the deadline, asserting that delayed discovery affected its ability to show damages on its contract claim.

Summary Judgment on the Claims

The defendants moved for summary judgment on all claims. Summary judgment is appropriate only when there is no genuine dispute about any material fact and the moving party is entitled to judgment under the law. The court denied the motion on every count.

Copyright infringement. The court held that the defendants had not shown that the disputed software features were unprotectable. Although copyright law does not protect an idea, the court explained that a particular compilation, database structure, or arrangement may contain protectable expression. The court found that AMSI had provided evidence from which a reasonable jury could find that its email-alert collection, data dictionary, database structure, and maintenance screens contained protectable expression.

The court also found sufficient evidence for a reasonable jury to find substantial similarity between the programs. The fact that the programs used different programming languages and database schemas did not by itself defeat AMSI’s claim. The court relied on evidence concerning comparable email-alert functions, similar or allegedly upgraded maintenance screens, and database tables and variable names that AMSI claimed were copied or closely reproduced.

The court rejected summary judgment based on fair use. The defendants characterized their copying as intermediate copying undertaken only to extract RHCR’s client data. The court found that AMSI had presented evidence supporting a different theory: that proprietary software elements were copied to help create a competing replacement program. The court also found factual disputes about whether copying was necessary to retrieve RHCR’s data.

The court likewise rejected summary judgment based on the computer-program essential-step exception and the maintenance-and-repair exception. The court concluded that the cited exceptions generally concerned modifying or maintaining an existing program, while the evidence here could support a finding that RHCR sought to replace the AMSI software with a competitor’s program. The defendants’ motion was therefore denied as to the copyright claim and each asserted defense.

Trade secrets and state-law claims. For the federal trade-secret claim, the court found that a reasonable jury could determine that the source code and object code underlying the AMSI software were trade secrets and that the defendants misappropriated them. The court also found a genuine factual dispute about whether the software or its trade secrets were used in, or intended for use in, interstate commerce, as required by the federal statute. The defendants’ summary judgment motion was denied on this claim.

The defendants argued that the court should dismiss the remaining state-law claims for lack of supplemental jurisdiction if the federal claims were resolved against AMSI. Because the federal claims survived summary judgment, the court denied that request as well.

Other Motions and Disposition

The court denied the defendants’ motions to seal and AMSI’s motion to seal without prejudice to renewal within 21 days. The court directed the clerk to maintain the existing sealed status temporarily and stated that the documents would be unsealed if no timely renewed motion was filed.

The court denied as moot AMSI’s motion under Federal Rule of Civil Procedure 56(d) to adjourn or deny the defendants’ summary judgment motion because the court denied the defendants’ motion on its merits. The court also denied in its entirety the defendants’ request to set aside or modify Judge Fox’s discovery-sanctions order, finding that the order was not clearly erroneous or contrary to law and that the sanctions were proportionate to the defendants’ noncompliance.

Finally, the court granted AMSI’s request for leave to file a partial summary judgment motion on its breach-of-contract claim against the law-firm defendants, despite the expired deadline. The court allowed AMSI 28 days from entry of the order to file that motion. The order did not decide liability on the claims or the merits of AMSI’s proposed contract motion.