IP Law Daily, COPYRIGHT—S.D.N.Y.: IBM can proceed with claim that developer infringed software by exceeding license, (Jun 9, 2023)

By Robert Margolis, J.D.

However, IBM’s breach of contract claim against the PartnerWorld program partner was dismissed as preempted by Copyright Act.

IBM Corporation has pleaded all elements of its claim that software developer Micro Focus (US), Inc., infringed IBM’s copyrights in certain software that Micro Focus accessed through its participation in IBM’s collaborative PartnerWorld program by allegedly copying and reverse engineering parts of the software, the federal district court in Manhattan has held. The court denied Micro Focus’s motion to dismiss IBM’s copyright infringement claim, while granting Micro Focus’s motion as to a supplemental breach of contract claim, finding the common law claim was preempted by the Copyright Act (IBM Corp. v. Micro Focus (US), Inc., June 8, 2023, Briccetti, V.).

PartnerWorld program. IBM provides mainframe computer systems to its clients, including “proprietary” software, called the CICS Transition Server for z/OS software (“CICS TS”). IBM alleges that it holds registered copyrights for CICS TS, and attached copies of copyright registration certificates for nine versions of the CICS TS.

IBM has a program whereby it collaborates with third-party software developers to “improve, promote, and expand” digital products and services IBM and the developers make available to their mutual clients (the “PartnerWorld program”). Participants in the PartnerWorld program must execute several agreements, which provide the developers with discounted access to IBM software, but provides limits on the developers’ use of that software. Among other things, developers promise to solely develop or enhance software that runs on IGM’s mainframe platform, and not to use any IBM software separately from the PartnerWorld program, or reverse engineer any IBM software.

IBM alleges that Micro Focus participated in the PartnerWorld program, agreed to the above-described contract terms, accessed the CIC TS software through the program, but nonetheless has allegedly copied and reverse engineered parts of that software to create competing products. IBM thus sued Micro Focus, bringing claims for copyright infringement and breach of the PartnerWorld agreements. Micro Focus moved to dismiss the claims.

Infringement. Micro Focus made two arguments in support of its motion to dismiss the copyright infringement claim: (1) IBM failed to allege that the particular files allegedly copied were covered by its registrations; and (2) IBM failed to plead its entitlement to statutory damages and attorney fees because IBM’s complaint does not state when the allegedly infringing conduct commenced. The court rejected both arguments.

The first element of a copyright infringement claim is that the plaintiff owns a valid copyright, and a certificate of registration is prima facie evidence of ownership. As noted, IBM attached to its complaint registration certificates for nine versions of the CICS TS program, which includes the component of that program it alleges Micro Focus copied. While IBM may later need to prove that the registrations actually cover the specific software in question, but at the pleading stage it suffices to include the certificates with the complaint and make an allegation that those registrations pertain to the software in question, according to the court.

The court also found that IBM adequately alleged that Micro Focus copied the CICS TS program, which is substantially similar to the allegedly infringing product. The complaint alleges that Micro Focus had access to the program for several years as a member of the PartnerWorld program, and it identifies specific similarities between the CICS TS software and Micro Focus’s own allegedly infringing software. IBM also alleged that there is no way that the similarities could result from independent efforts to achieve similar functional requirements or by coincidence. Thus, these allegations sufficed to allege the requisite copying and similarity, the court held.

Statutory damages. The court also rejected Micro Focus’s argument that IBM filed to plead its entitlement to statutory damages and attorney fees. The Copyright Act permits those remedies when infringement of a published work is alleged, unless the infringement “commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work.” 17 U.S. § 412. IBM did not allege when the infringement commenced, but that did not provide grounds for dismissal of the claim for statutory damages or attorney fees, the court held.

For eight of the nine registrations that IBM attached, the certificates indicated that IBM registered the versions of the software within three months of publication. The ninth work at issue was registered nearly six months after first publication. Therefore, if Micro Focus began infringing the version covered by that registration before the registration date, IBM would not be entitled to these remedies for that infringement. While IBM did not precisely allege when the infringement commenced, it alleged that Micro Focus “had access to IBM software for nearly the last two decades” and copied the software sometime within that access period. Drawing reasonable inferences in IBM’s favor, the court found it plausible that the infringement occurred on or after registration.

Preempted claim. The court did dismiss IBM’s breach of contract claim finding it to be preempted by the Copyright Act. The software at issue clearly comes within the subject matter of copyright, as software is a protected literary work under the Copyright Act. In addition, the breach of contract claim asserted rights equivalent to those protected by the Copyright Act, in that the gravamen of the contract claim was that Micro Focus copied, reverse engineered, and distributed a product that is similar to the CICS TS software.

The case is No. 7:22-cv-09910-VB.

Attorneys: Dale Margaret Cendali (Kirkland & Ellis LLP) for IBM Corp. Marcella Ballard (Venable LLP) for Micro Focus [US], Inc.

Companies: IBM Corp.; Micro Focus (US), Inc.

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