HYPERQUEST v. N'SITE SOLUTIONS (January 19, 2011)
Safelite Group owns the copyright for a claims processing software program. Its predecessor granted a non-exclusive license to N’Site Solutions in 2001 limited to in-facility use only. A dispute arose between the parties in late 2003 regarding agreement terms and fees. Attempts to renegotiate the agreement in early 2004 were unsuccessful. At about the same time, Safelite entered into a licensing agreement with HyperQuest. The HyperQuest agreement granted significantly greater rights than the N’Site agreement did. However, Safelite retained certain rights and the agreement recognized the then-ongoing renegotiation efforts with N’Site. HyperQuest filed a Copyright Act suit against N’Site and Unitrin Direct Insurance Company. It alleged that N’Site infringed its copyright by using the software outside of its own facilities, by modifying and creating derivative works, and by selling the software or derivative works to Unitrin. Judge Shadur (N.D. Ill.) dismissed the case with prejudice, concluding that HyperQuest lacked standing to sue. The court also awarded fees and costs to N’Site. HyperQuest appeals both the merits and the fee award -- Unitrin cross-appeals the reduction of its requested fees.
In their opinion, Seventh Circuit Judges Flaum, Wood, and Evans affirmed. Under the Copyright Act, only a person with enforceable rights may bring an action. That person must be a "legal or beneficial owner of an exclusive right." The Act lists six exclusive rights - the right to: a) reproduce the work, b) prepare derivative works, c) distribute copies, d) perform the work publicly, e) display the work, and, f) perform the work digitally. The Court noted that a copyright owner could convey various rights to different parties and that HyperQuest need only show its ownership of one of the exclusive rights. HyperQuest claims to own three of the six identified rights -- the rights to reproduce, prepare derivative works, and distribute copies. The Court turned to the language of the license agreements and the rights held by each of the parties to resolve the claim. It noted that N’Site had a limited right to use the software in its own facilities and no rights to reproduce, prepare derivative works, or distribute copies. But HyperQuest's license was not only subject to N’Site actual rights but was also subject to any rights that would have been granted to N’Site in the renegotiated license. In addition, Safelite itself retained substantial rights with respect to derivative works. The Court concluded that the lines of ownership were "blurry at best" and that HyperQuest failed to meet its burden of showing ownership of an exclusive right. Turning to the fee award, the Court first addressed a jurisdictional issue. The original judgment on the fee award ran in favor of Unitrin only. Two days later, the district court on its own motion amended the judgment to add N’Site. Unitrin's notice of appeal is timely only if the amended judgment started anew the period within which to appeal. The Court concluded that the change was not a clerical error correctable under Rule 60(a) but that it was akin to a new trial order under Rule 59(d) and that the notice of appeal was timely. The Court found no abuse of discretion in either the award of fees or the reduction in the amount requested.