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Physic
Court	United States Court of Appeals for the Ninth Circuit
Full case name	Asset Marketing Systems, Inc. v. Kevin Gagnon, d/b/a Mister Computer
Decided	September 10, 2008
Case history
Prior actions	Judge Rudi M. Brewster concluded Gagnon had granted AMS an unlimited license to use, modify, and retain the source code of the programs that defeated his copyright infringement and trade secret misappropriation claims
Court membership
Judges sitting	Barry G. Silverman, Johnnie B. Rawlinson, and Milan D. Smith, Jr.
Case opinions
Judge Milan D. Smith held that contractor impliedly granted organization an unlimited license, organization could not have misappropriated contractor's trade secret, and non-competition agreements were invalid.

Asset Marketing Systems, Inc. v. Kevin Gagnon, d/b/a Mister Computer was a case in the United States Court of Appeals for the Ninth Circuit regarding implied licenses to use, modify, and retain the source code of computer programs, and the enforceability of non-competition agreements. The court affirmed the ruling from the United States District Court for the Southern District of California that Kevin Gagnon, a software contractor, had impliedly granted Asset Marketing Systems (AMS) an unlimited license to use, modify, and retain the source code of the programs that Gagnon created. The case is noteable, as the Court held that an implied software license is granted when the licensee requests the creation of a work, the licensor creates and delivers the work, and the licensor intends that the licensee to copy and distribute the work.

Background

Factual Background

AMS is a field marketing organization offering sales and marketing support to insurance marketing entities. From May 1999 to September 2003, Gagnon was an at-will, independent contractor for AMS, hired to develop custom software to assist with its information technology needs. AMS was Gagnon’s largest client, accounting for $2 million of revenue, and 98% of his business. AMS and Gagnon entered a Technical Services Agreement from May 2000 through April 2001, but nothing about a license was mentioned.

AMS claims that on June 12, 2002, Gagnon signed a Vendor Non-disclosure agreement (NDA) that would have given AMS ownership of all intellectual property developed for AMS by Gagnon. Gagnon claims the document is a forgery.

June 2003: Gagnon proposes that AMS execute an Outside Vendor Agreement (OVA) that states all information produced by the contractor will remain property of the contractor, and be licensed to the client on a non-exclusive basis. AMS declined to execute the OVA, instead countering with a redlined version to read that all information produced by the contractor will be the sole property of the client. The parties never executed the OVA. AMS decides to terminate Gagnon's services. AMS extended an employment offer to Gagnon, which he declined. The two parties set a target exit date of Sept. 15, 2003.

Sept. 18, 2003: Gagnon demands $1.75 million for AMS to have the right to continue using the programs, and $2 million for Gagnon's agreement not to sell or disclose the programs to AMS's competitors.

Sept. 23, 2003: AMS terminates relationship to Gagnon. A consultant identifies numerous problems with Gagnon's work, and AMS demands Gagnon to hand over all copies of the source code immediately, as AMS's trade secrets are embedded in the software, and precludes its use by Gagnon.

Seven of Gagnon's 12 employees resigned and were hired by AMS to provide directly to AMS the same services they previously provided to AMS through Gagnon. Gagnon contends that each employee had signed a Non-compete clause and agreed not to engage in employment with AMS for 24 monhs without written consent from Gagnon.

Oct. 2003: Gagnon sends AMS a cease and desist letter, asserting that use of the programs was unauthorized, and demands AMS remove "all original and derivative source code" from AMS computers. AMS responded by asserting that Gagnon could not unilaterally stop AMS from continuing to use and update the programs because it had an irrevocable license to use, copy, and modify the programs based on the course of conduct of the parties over the past two-and-a-half years. AMS also asserted that Gagnon could not use the programs because it contained AMS’s trade secrets. AMS also declined to pay Gagnon the $1.75 to $2 million he had requested in September.

Procedural Background

The case began when AMS filed a complaint in California Superior Court against Kevin Gagnon, d/b/a Mister Computer, two of his employees and Gagnon’s new company, National Marketing Technologies alleging, among other things, misappropriation of trade secrets and conversion. Gagnon removed the case to federal court. Gagnon then filed counterclaims, alleging copyright infringement, unfair competition under California law, misappropriation of trade secrets, interference with contractual relations, intentional interference with prospective business advantage, negligent interference with prospective business advantage, and sought accounting and declaratory relief declaring Gagnon the copyright owner of the programs.

The district court (then Judge Jones) remanded AMS’s claims back to the state court. AMS then filed its remanded state law claims as counter-counterclaims to Gagnon’s federal counterclaims. The district court subsequently granted AMS’s motion for summary judgment as to Gagnon’s counterclaims. The court found that Gagnon had granted AMS an implied, nonexclusive license to use, modify, and retain the source code of the programs. Consequently, Gagnon’s trade secret misappropriation claim was also defeated, and because no trade secret existed as between Gagnon and AMS with respect to the source code, Gagnon’s noncompetition agreements were deemed invalid under California law. For the same reasons, Gagnon’s remaining state law claims failed.

The court also denied Gagnon’s ex parte applications for an order denying or continuing summary judgment and to file written objections to evidence. Gagnon’s ex parte application requested a continuance to obtain the backup tapes of AMS’s computers because they might contain emails establishing AMS’s allegedly unlawful solicitation of Gagnon’s employees, and would establish the location of the source code at all relevant times.

The magistrate judge recommended that the motion be denied because it was untimely, and the district court judge adopted that recommendation. The district court first reasoned that because the non-competition clause in Gagnon’s employment agreements was unenforceable under California law, any emails evidencing solicitation were irrelevant. Second, because Gagnon had already admitted that the source code was located on AMS’s computers, computer backup tapes conclusively locating the source code on AMS computers were unnecessary. Third, the motion was untimely because Gagnon did not request the continuance until after the motion for summary judgment was fully briefed by both parties. Gagnon was able to file his opposition to summary judgment without raising any discovery objections, and several days later, counsel for both parties requested a stay of pending discovery issues until summary judgment. Gagnon filed his ex parte motion a week after the district court ordered the case submitted, causing “undue delay in the resolution of both the summary judgment motion and the discovery motion.” Gagnon next filed a motion for reconsideration, which was denied. The case was then reassigned from Judge Jones to Judge Brewster. At that point, the parties stipulated to a dismissal of all counter-counterclaims, and AMS moved for attorneys fees and costs. Gagnon appealed the grant of summary judgment. The district court then indicated that it wished to reconsider its order granting summary judgment and stayed the proceedings regarding the attorney fees. Gagnon successfully moved this court for a limited remand so that Judge Brewster could reconsider Judge Jones’s grant of summary judgment. After remand, the district court denied the motion for reconsideration, deferred resolution of attorneys fees until the resolution of the appeal, and returned the case to this court.

Claims

Gagnon claimed that AMS’s continued use of the six programs constitutes copyright infringement because the programs were used by AMS without its obtaining a license or Gagnon’s permission. AMS claimed the right to use the programs, AMS asserts three defenses to Gagnon’s copyright infringement claim: an implied license, a transfer of copyright ownership via the NDA that transfered to AMS ownership of all intellectual property Gagnon developed, and 17 U.S.C. § 117. Gagnon replied that the NDA was a forged document.

Analysis and Holdings

The Circuit Court's ruling sets the precedence that though exclusive licenses must be in writing, 17 U.S.C. § 204, grants of nonexclusive licenses need not be in writing, and may be granted orally or by implication.

The Ninth Circuit affirmed, holding that AMS had an implied unlimited, irrevocable license for the computer programs. Although 17 U.S.C. §204 requires that exclusive licenses be in writing, a court will grant an implied license when: (1) the licensee request creation of the work; and (2) the licensor makes that particular work and delivers it to the requesting licensee. Effects Assocs., Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990). Here, Gagnon conceded that he created the programs specifically for AMS and that AMS paid for the work.

The Court also held that Gagnon delivered the programs when he installed them onto the AMS computers and stored the source code on-site at AMS, and that his intent to deliver was manifested by his conduct, including the executed TSA, the OVA which he submitted, and his ongoing technical support to AMS.

The Court further affirmed denial of Gagnon’s ex parte motion, holding that Gagnon needed no additional evidence to oppose AMS’s summary judgment motion.

References

Category:Adobe Systems Category:United States copyright case law Category:Typography Category:1998 in United States case law