EDGENET, INC. v. HOME DEPOT U.S.A. (September 2, 2011)

When Home Depot wanted a classification system for its inventory database, it went to Edgenet. Home Depot and Edgenet entered into a contract for the creation of the taxonomy. The contract provided that Edgenet owned the intellectual property and that Home People had a no-cost license as long as Edgenet continued to provide services. If Home Depot terminated its service contract with Edgenet, the license terminated and Home Depot had to either purchase a $100,000 perpetual license or stop using the taxonomy. In early 2009, Home Depot gave notice that it would no longer be needing Edgenet’s services and tendered $100,000 for the perpetual license. Edgenet filed suit alleging that Home Depot infringed its copyright on the taxonomy. Judge Stadtmueller (E.D. Wis.) dismissed the claim, concluding that Home Depot had a right to use the taxonomy under the contract. Edgenet appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Sykes and Tinder affirmed. The Court first addresses its jurisdiction and satisfied itself that the case really arose under the copyright law and was not merely a breach of contract case. On the merits, the Court criticized the lower court for relying on Rule 12(b)(6) instead of Rule 56 when it relied on matters outside the pleadings but nevertheless affirmed its result. The Court concluded that: a) Home Depot never used the taxonomy in any prohibited way, b) Home Depot had the perpetual license option on the taxonomy's current version, not just the original one, and c) Home Depot exercised its option while its license was still in effect.