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

Background

Automated Management Systems, Inc. (AMSI) licensed its Landlord Tenant Legal System software to Rappaport Hertz Cherson Rosenthal, P.C. (RHCR) under a Software Subscription Agreement beginning in 2007. The agreement limited copying and use of the software, prohibited modification and creation of derivative works, and required RHCR to keep the software’s proprietary information confidential.

The agreement remained in effect through 2015, when the software began crashing and freezing. RHCR then hired Branko Rakamaric to develop replacement software, and Rakamaric retained Ben Wachter to help. During development, data and at least some additional files associated with AMSI’s software were copied to another server on RHCR’s network. The parties disputed the number and nature of the copied files and whether RHCR directed or authorized copying beyond the extraction of client data.

AMSI also claimed that RHCR and others replicated the functionality of its software, that RHCR reinstalled and continued using the software after AMSI terminated the agreement on June 9, 2016, and that RHCR later used the replacement software to obtain the functionality of AMSI’s software without paying license fees. RHCR and the other defendants disputed those allegations. AMSI sought approximately $290,174 in continuing license-fee damages, plus interest, based on a reasonable-royalty theory.

AMSI’s Summary-Judgment Motion

AMSI and RHCR filed cross-motions for partial summary judgment on the breach-of-contract claim. Under New York law, AMSI had to establish a contract, its own performance, RHCR’s nonperformance, and damages attributable to the breach.

The court denied AMSI’s motion because genuine disputes of material fact remained concerning damages, the fourth element of the claim. AMSI’s first damages theory depended on disputed evidence about whether RHCR had reinstalled and continued to use an operational version of the software. The parties also disagreed about the meaning and reliability of a login file and related screenshots. The court held that resolving those conflicting accounts would require credibility decisions for a jury, not the court on summary judgment.

AMSI’s second damages theory depended on whether the replacement software was derived from AMSI’s software and was so similar that RHCR’s use of the replacement software effectively amounted to unpaid use of AMSI’s software. The parties presented conflicting screenshots and disputed whether the programs differed significantly or were effectively indistinguishable to users. The court held that these disputes also prevented summary judgment.

RHCR’s Cross-Motion

RHCR sought partial summary judgment on AMSI’s contract theories based on unauthorized copying, creation of derivative works, and reinstallation of the software. RHCR argued that the Copyright Act preempted those theories. Copyright preemption means that federal copyright law displaces a state-law claim when the claim concerns copyright-protected material and seeks rights equivalent to the exclusive rights protected by copyright law.

The court denied RHCR’s motion. It held that AMSI’s contract claim included an additional element: RHCR’s contractual promise to pay for its license to use the software. Because AMSI sought to enforce rights arising from explicit provisions of the agreement, including the promise to pay, the claim was not preempted by the Copyright Act. The court noted that a prior appellate decision narrowed the relevant rule when a contract claim is based on copyright rights rather than rights expressly created by the contract, but concluded that this case involved explicit contractual provisions.

Rakamaric’s Motion

Rakamaric filed a motion for review while representing himself. Although the filing referred to Magistrate Judge Jennifer Willis’s order setting the amount of attorney-fee sanctions, the court concluded that it substantively challenged an earlier sanctions determination by Magistrate Judge Kevin Fox. The court therefore construed the filing as a motion for reconsideration.

Reconsideration was available only for an intervening change in controlling law, newly available evidence, or a need to correct clear error or prevent serious injustice. The court found none of those circumstances and denied Rakamaric’s motion.

Disposition

The court denied AMSI’s motion for summary judgment, denied RHCR’s motion for summary judgment, and denied Rakamaric’s motion for review. The opinion stated that the case remained referred to Magistrate Judge Jennifer Willis for general pretrial management and directed the parties to address settlement and remaining pretrial matters.