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Virtual Chart Solutions I, Inc. v. Meredith

United States District Court, E.D. Texas, Sherman Division

August 20, 2019

VIRTUAL CHART SOLUTIONS I, INC., Plaintiff,
v.
BRIAN LEE MEREDITH, et al., Defendants.

          ORDER ADOPTING REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE

         The above-entitled and numbered civil action was heretofore referred to United States Magistrate Judge Caroline M. Craven pursuant to 28 U.S.C. § 636. On June 17, 2019, the Magistrate Judge issued a Report and Recommendation (“R&R”), recommending Defendant MRI Centers of Texas, LLC's Motion for Summary Judgment (Dkt. #136-1) be granted and that Plaintiff's copyright infringement claims against Defendant be dismissed with prejudice[1] (Dkt. #203). Virtual Chart Solutions I, Inc. (“Plaintiff” or “VCSI”) filed objections to the R&R (Dkt. #205). MRI Centers of Texas, LLC (“Defendant” or “MCT”) filed a response to the objections (Dkt. #206). The Court conducts a de novo review of the Magistrate Judge's findings and conclusions. Plaintiff's request for a hearing is denied.

         FACTUAL BACKGROUND

         This is an action for copyright infringement, inducement to infringe copyright, contributory copyright infringement, vicarious copyright infringement, breach of fiduciary duty, breach of contract, misappropriation of trade secrets, unfair competition, and accounting filed by Plaintiff against the following defendants: (1) Brian Lee Meredith; Tracie Dawn Davis; Virtual Chart Network, LLC; virtualasc.com (d.b.a. myPIcase.com); Virtual Chart Solutions, LLC; and Lone Star VCS, LLC (the “Meredith Defendants”); (2) Surgical Notes, Inc.; Surgical Notes MDP, LP; Surgical Notes GP, LLC; and Surgical Notes RCM, LLC (the “Surgical Notes Defendants”); and (3) MCT (Dkt. #92). MCT is the only remaining defendant in this case.

         According to Plaintiff, VCSI employed Brian Meredith (“Meredith”) from May 2013 until February 19, 2015 (Dkt. #92 ¶¶ 19, 21, 64). On August 30, 2013, Meredith entered into a Proprietary Information and Inventions Agreement and a Technology Assignment Agreement (“TAA”) with Plaintiff (Dkt. #92 ¶¶ 19, 21, 64). In these agreements, Meredith assigned all existing intellectual property rights he possessed to VCSI, including his rights to software and all related methods (Dkt. #92 ¶¶ 24, 37, 49). In the Second Amended Complaint (“SAC”), Plaintiff alleges all “such copyrights that VCSI owns all rights and interest in, and title to - including the literal sources code underlying the Billing, vImage, VCS Images, VCN, VCS, vChiro, and VCS Web modules - as recorded with the United States Copyright Office in Registration Nos. TXu 2-038-670, et seq. (‘VCSI Copyright Materials')” (Dkt. #92 ¶ 51).

         Plaintiff alleges that during Meredith's employment with VCSI, he gave Defendant access to and use of Plaintiff's proprietary information and copyrighted materials (Dkt. #92 ¶¶ 60-62, 75, 179-191). Specifically, Plaintiff argues Meredith provided Defendant source code in violation of Meredith's agreements with VCSI (Dkt. #92 ¶¶ 60-62, 75, 179-191). According to Plaintiff, upon information and belief, Defendant “reproduced, reproduces, adapted, adapts, offered, offers, installed, installs, distributed and distributes unauthorized copies of VCSI Copyright Materials;” “used, uses, operated, operates, offered, offers, installed, installs, distributed and distributes unauthorized copies of VCSI Copyright Materials through MCT's operations;” and “[t]he user interface and database structures of the MCT operations actually utilize(d) infringing copies of VCSI Copyright Materials.” (Dkt. #92 ¶¶ 182-84). Plaintiff seeks injunctive relief and monetary damages for the alleged infringement (Dkt. #92 at pp. 43-45).

         PROCEDURAL BACKGROUND

         In its SAC, Plaintiff sued Defendant for (1) trade secret misappropriation, (2) unfair competition, and (3) copyright infringement (Dkt. #92). On July 16, 2018, Defendant filed its first motion for summary judgment, arguing Plaintiff's claims for trade secret misappropriation, unfair competition, and for statutory damages or attorney's fees in its copyright claims should be dismissed (Dkt. #114). In its response in opposition, Plaintiff dismissed without prejudice the unfair competition claims and claims for statutory damages and attorneys' fees under the Copyright Act (Dkt. #121 at p. 3), leaving only the trade secret misappropriation claim the subject of Defendant's first motion for summary judgment.

         The Magistrate Judge entered a Report and Recommendation on Defendant's first motion for summary judgment on January 2, 2019 (Dkt. #138). This Report and Recommendation recommended the motion be granted and Plaintiff's trade secret misappropriation claim be dismissed with prejudice (Dkt. #138). The Court adopted the January 2 Report and Recommendation on February 5, 2019 (Dkt. #149). Only Plaintiff's copyright infringement claim against Defendant remained pending.

         Thereafter, Defendant filed a motion for leave to file a second motion for summary judgment, asserting Plaintiff's copyright infringement claim be dismissed (Dkt. #135). Because this motion was filed outside the dispositive motion deadline, the Magistrate Judge denied Defendant's motion (Dkt. #143). However, during the Final Pretrial Conference before the undersigned on March 8, 2019, the Court reinstated Defendant's second motion for summary judgment (Dkt. #136) for the Magistrate Judge to consider.

         MOTION FOR SUMMARY JUDGMENT

         In its reinstated motion for summary judgment, Defendant argues it is entitled to judgment on Plaintiff's copyright infringement claim because Plaintiff judicially admitted in its briefing on a prior motion that its failure to designate an expert or disclose expert testimony prohibits Plaintiff from providing any evidence on copyright infringement from which a factfinder could reasonably decide in its favor[2] (Dkt. #136 at p. 1). Defendant further asserts Plaintiff cannot prove substantial similarity between its copyrighted work and the alleged infringing copy (Dkt. #136 at p. 5).

         REPORT AND RECOMMENDATION

         On June 17, 2019, the Magistrate Judge entered the R&R on Defendant's second motion for summary judgment, recommending the Court grant summary judgment on Plaintiff's copyright infringement claim (Dkt. #203). The Magistrate Judge first concluded Plaintiff failed to present sufficient evidence regarding factual copying of its copyrighted work. R&R at pp. 19-20. In so holding, the Magistrate Judge agreed with Defendant that there is no direct evidence that establishes MCT's code is the same as that source code Plaintiff copyrighted. R&R at p. 19. Second, the Magistrate Judge found that even if Plaintiff had presented direct evidence of factual copying, it still failed to produce evidence of a substantial similarity between the copyrighted code and the code used by Plaintiff. The Magistrate Judge noted the Fifth Circuit Court of Appeals has specifically considered, and rejected, Plaintiff's argument that direct evidence eliminates the need to produce evidence of substantial similarity. R&R at p. 20. The Magistrate Judge concluded no reasonable juror could find substantial similarity. R&R at p. 23.

         OBJECTIONS

         Plaintiff filed three objections to the R&R (Dkt. #205). In the first objection, Plaintiff asserts the R&R mischaracterizes Plaintiff's direct evidence of copying and does not view those facts in the light most favorable to the Plaintiff as the non-movant (Dkt. #205 at p. 1). According to Plaintiff, Meredith testified he provided the entire code to MCT (Dkt. #205 at p. 1). Plaintiff argues a reasonable jury could find Plaintiff's entire copyrighted software was copied by Defendant based on this direct evidence (Dkt. #205 at p. 1).

         In its second objection, Plaintiff argues the R&R “misapplies the proper standard of evidence in lawsuits alleging such direct infringement and copying.” (Dkt. #205 at p. 1). Plaintiff asserts the R&R applies the standard for proving infringement circumstantially. According to Plaintiff, substantial similarity is not required in this case because factual copying was shown through direct evidence and this case also involves alleged infringement where an entire work was copied as opposed to only some of the software parts (Dkt. #205 at p. 1-2). Plaintiff maintains that if the entire work was copied, “then that should be enough to raise an inference of material infringement.” (Dkt. #205 at p. 2).

         In its related third objection, Plaintiff disagrees with the R&R's conclusion that the facts of this case are distinguishable from the case law cited by Plaintiff in its response[3] (Dkt. #205 at p. 2). Based on its objections, Plaintiff requests the Court deny Defendant's second motion for summary judgment (Dkt. #205 at p. 2).

         STANDARD OF REVIEW

         Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is properly granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine issue of material fact exists when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986).

         The moving party must initially show there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). If the movant bears the burden of proof on the claim or defense on which it is moving for summary judgment, it must provide evidence establishing all of the essential elements of the claim or defense as a matter of law. Id. at 194. If the nonmovant bears the burden of proof, the movant may ...


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