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Empire Medical Review Services Inc v. Compuclaim, Inc.

United States District Court, E.D. Wisconsin

June 26, 2018

COMPUCLAIM, INC., Defendant.



         1. INTRODUCTION

         Empire Medical Review Systems, Inc. develops and licenses medical billing software, including software called “ClearingMagic” (ECF No. 197, ¶¶ 2-3), which enables medical providers to submit claims for payment (ECF No. 197, ¶ 3). CompuClaim assists school districts with getting claims submitted to state Medicaid agencies for reimbursement. (ECF No. 197, ¶ 17.)

         In 1996 Congress passed the Health Insurance Portability and Accountability Act (HIPAA). Pub.L. 104-191, 110 Stat. 1936; (ECF No. 197, ¶ 5.) Relevant here is Title II of HIPAA and its “Administrative Simplification” provisions. (Id.); see also 42 U.S.C. § 1320d - 1320d-8. Pursuant to Title II, the American National Standards Institute (ANSI) promulgated certain uniform standards for the electronic representation of certain transactions (including financial transactions) within the healthcare industry. (ECF No. 197, ¶ 5.)

         The industry was given until approximately 2003 to become compliant with the new requirements of HIPAA, including the new ANSI standards that were being developed for the electronic submission of claims for payment. (ECF No. 197, ¶ 6.) The advent of the requirement for ANSI claims submission, and the complexity of the ANSI standards, created a market and demand for translation software that would enable users to take output in their current formats and translate it into the new HIPAA required ANSI formats. (ECF No. 197, ¶ 7.)

         In late 2005 and early 2006 Empire updated and modified its software “to take into account the new formatting requirements created by HIPAA and other programs.” (ECF No. 197, ¶ 8.) In 2006 Empire began to refer to the product as ClearingMagic. (Id.) ClearingMagic is designed to work with other Empire software products, including its EligibilityMagic software, which it created in 2009 and which makes electronic queries of insurance eligibility. (ECF No. 197, ¶ 9.)

         In 2010 CompuClaim approached Empire with its plan to create a website that would enable school districts to submit claims for payment to state Medicaid agencies. (ECF No. 197, ¶ 11.) In July 2010 CompuClaim and Empire entered into a Software License and Support Maintenance Agreement (hereafter referred to as the License Agreement). (ECF No. 197, ¶ 12.) The License Agreement covered at least the ClearingMagic software; the parties dispute whether it covered other software, including EligibilityMagic. (ECF No. 197, ¶ 15.) Also in July 2010 the parties entered into an agreement entitled “CompuClaim Web Portal Discovery Proposal” whereby the parties agreed to explore what it would take to develop the sort of website CompuClaim envisioned. (ECF No. 197, ¶ 21.)

         In September 2010 CompuClaim and Empire entered into a “Web Integration Agreement” (titled and hereafter referred to as “Addendum B”). (ECF No. 197, ¶ 28.) In simplistic terms, under Addendum B Empire agreed to create the source code (referred to here as the CMWebSite source code) necessary for CompuClaim's website (referred to here as MeduClaim). (ECF No. 197, ¶¶ 28-29.) Addendum B also extended the term of the License Agreement from three to five years. (ECF No. 197, ¶ 41.) However, CompuClaim ceased paying under the License Agreement after three years. (ECF No. 197, ¶ 158.)

         To assist in the creation of the CMWebSite source code Empire hired Jeff Berg as an independent contractor. (ECF No. 191, ¶ 31.) Empire delivered the operable website to CompuClaim in early 2011. (ECF No. 197, ¶ 62.)

         Sometime between February and August 2011 Berg began working as an independent contractor for CompuClaim. (ECF No. 191, ¶ 37.) Although working for CompuClaim, Berg continued to work out of Empire's offices until February 2012. (ECF No. 197, ¶ 74.) When Berg ceased to work at Empire's offices an Empire employee, Scott Strommen, removed Empire software from Berg's computer. (ECF No. 191, ¶¶ 59-60.) However, Strommen did not remove the CMWebSite source code from Berg's computer. (ECF No. 191, ¶ 60.) Thus, Berg retained access to the CMWebSite source code and could modify it. (ECF No. 191, ¶¶ 41-42.)

         At the time MeduClaim was created it was for the ANSI 4010 format, but in 2012 electronic claim submissions had to comply with a new format, ANSI 5010. (ECF Nos. 191, ¶ 52; 197, ¶¶ 108-10.) Empire charged CompuClaim for work to update the software to comply with the ANSI 5010 format (ECF No. 191, ¶ 54) in accordance with a provision of the License Agreement regarding providing custom programming. (ECF No. 197, ¶ 111). CompuClaim paid for the work (ECF No. 197, ¶ 123) but argues the update should have been included under the License Agreement as “software maintenance, ” which the License Agreement defines to include “[c]hanges to the software which are necessary as the result of changes in implementation guides published by centers for Medicare and Medicaid, CMS.” (ECF No. 191, ¶ 53.) CompuClaim's customers began to experience problems with the software in January 2012, which CompuClaim attributes to problems in the ANSI 5010 update. (ECF No. 191, ¶ 55.)

         After leaving Empire, Berg and a CompuClaim employee began to develop a replacement version of the website-related software, which CompuClaim launched in August 2012. (ECF No. 197, ¶¶ 77-78.) This replacement version was developed using the CMWebSite source code as a starting point. (ECF No. 197, ¶ 81.) CompuClaim admits that it never stopped using the CMWebSite source code but contends that it owns that code. (ECF No. 197, ¶¶ 82, 85, 86-91.)

         Empire filed this action on November 13, 2013, alleging that CompuClaim breached the License Agreement in a number of ways, including by not paying license fees after July 2013. (ECF No. 1.) Empire also sought a declaration that CompuClaim had breached its obligations under the License Agreement and has a continuing obligation to perform until the end of the agreement. (Id.) CompuClaim filed a number of counterclaims. (ECF No. 7.) It also sought declaratory relief, requesting that the court declare that Empire had materially breached its obligations under the parties' various agreements and that the agreements were terminated and CompuClaim was relieved of its obligations under them. (Id.)

         On August 17, 2015, Empire applied for and subsequently received a copyright registration regarding the CMWebSite source code. (ECF No. 197, ¶ 68.) It then amended its complaint to add claims for copyright infringement and for violation of the Digital Millennium Copyright Act (DMCA). (ECF No. 60.) Because the five-year term of the license agreement had expired, Empire's amended complaint conceded that its request for declaratory relief was now moot. (Id.) In response, CompuClaim added more counterclaims. (ECF No. 63.)

         On November 30, 2017, both parties moved for summary judgment. (ECF Nos. 162, 165.) Empire seeks summary judgment on its claims against CompuClaim as follows:

- CompuClaim infringed Empire copyright in the CMWebSite source code; and
- The length of the License Agreement is five (rather than three) years. Empire also sought summary judgment on all of CompuClaim's counterclaims (except for the tortious interference claim) on the ground that they are barred by a release previously provided it by CompuClaim. It also sought dismissal of several of the counterclaims on other grounds. CompuClaim sought summary judgment on all three of Empire's remaining claims.

         On June 6, 2018, the parties filed a Joint Notice of Settlement of Counterclaims. (ECF No. 213.) The notice states that the settlement is of CompuClaim's counterclaims only and that Empire's claims against CompuClaim remain pending. CompuClaim's counterclaims were formally dismissed by way of stipulation filed on June 18, 2018. (ECF No. 214.)

         Briefing on the parties' motions is complete. All parties have consented to have this court enter final judgment. (ECF No. 52, 53.)


         The court shall grant summary judgment 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). “Factual disputes are ‘material' only when they ‘might affect the outcome of the suit under the governing law'” and “‘genuine' only ‘if the evidence is such that a reasonable jury could return a verdict for the [nonmovant].'” Oest v. Ill. Dep't of Corr., 240 F.3d 605, 610 (7th Cir. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). “The burden on the moving party may be discharged by demonstrating ‘that there is an absence of evidence to support the nonmoving party's case.'” Id. (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). “The controlling question is whether a reasonable trier of fact could find in favor of the non-moving party on the evidence submitted in support of and [in] opposition to the motion for summary judgment.” White v. City of Chi., 829 F.3d 837, 841 (7th Cir. 2016).

         3. ANALYSIS

         3.1 Digital Millennium Copyright Act

         The DMCA prohibits the unauthorized removal or alteration of any “copyright management information … knowing, or … having reasonable grounds to know, that it will induce, enable, facilitate, or conceal an infringement of any right under [Title 17 of the United States Code].” 17 U.S.C. § 1202(b)(1).

[T]he term “copyright management information” means any of the following information conveyed in connection with copies or phonorecords of a work or performances or displays of a work, including in digital form, except that such term does not include any personally identifying information about a user of a work or of a copy, phonorecord, performance, or display of a work:
(1) The title and other information identifying the work, including the information set forth on a notice of copyright.
(2) The name of, and other identifying information about, the author of a work.
(3) The name of, and other identifying information about, the copyright owner of the work, including the information set forth in a notice of copyright.
(4) With the exception of public performances of works by radio and television broadcast stations, the name of, and other identifying information about, a performer whose performance is fixed in a work other than an audiovisual work.
(5) With the exception of public performances of works by radio and television broadcast stations, in the case of an audiovisual work, the name of, and other identifying information about, a writer, performer, or director who is credited in the audiovisual work.
(6) Terms and conditions for use of the work.
(7) Identifying numbers or symbols referring to such information or links to such information.
(8) Such other information as the Register of Copyrights may prescribe by regulation, except that the Register of Copyrights may not require the provision of any information ...

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