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Inspection Management Systems, Inc. v. Open Door Inspections

July 8, 2009

INSPECTION MANAGEMENT SYSTEMS, INC., PLAINTIFF,
v.
OPEN DOOR INSPECTIONS, INC., MICHAEL R. SCHEIDERICH; KEVIN SCHEIDERICH; BOB FISHER; RUN TANGENT, LLC, DEFENDANTS.



The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

MEMORANDUM AND ORDER

Through the present lawsuit, Plaintiff Inspection Management Systems, Inc. ("Plaintiff" or "IMS") seeks to prevent Defendants from marketing their software program for managing home inspections, on grounds that said program is unlawfully derived from software previously developed by IMS. Plaintiff claims that Defendant Michael Scheiderich subscribed to the IMS software and violated the contractual conditions of its use by making the software available to engineers in India for purposes of developing a competing product.

Presently before the Court are Defendants' Motion for Partial Summary Judgment and Motion to Dismiss/Motion to Strike, which, taken together, attack Plaintiff's Complaint in its entirety. For the following reasons, Defendants' Motions are granted in part and denied in part.*fn1

BACKGROUND

According to Plaintiff's First Amended Complaint, IMS has developed unique scheduling, management, and business automation software that allows home inspectors to automate key business processes. First Amended Complaint ("FAC"), ¶ 5. In February of 2007, Michael Scheiderich registered as a user of the IMS software, and according to the FAC, he simultaneously executed an electronic End User Licensing Agreement ("EULA") as part of his user registration process.*fn2 Under the terms of the EULA (a copy of which is attached to the FAC as Exhibit "A"), a non-transferable license to use the IMS software was granted. The user also acknowledged IMS' exclusive proprietary rights in the system and agreed not to disclose any information, for a period of three years after accepting the EULA, to any person who has not also accepted the EULA. See EULA, Ex. "A" to Pl.'s FAC, ¶¶ 13, 18, 21. Paragraph 21(b) of the EULA contains the following stipulation:

You agree that the information being provided by IMS, Inc. is confidential and derives its value, in part, from its confidential nonpublic nature. You further agree that in the event you breach this agreement, IMS, Inc., will suffer irreparable harm.

Id., ¶ 21(b).

The FAC goes on to allege that on October 1, 2008, individuals both using Michael Scheiderich's IMS logon simultaneously accessed the IMS software from Georgia (where Scheiderich allegedly resided) and from India. Both users thereafter remained online utilizing the IMS program for approximately one hour. FAC, ¶¶ 14-15.

IMS contends that the simultaneous logon was orchestrated so that software engineers in India could emulate its software. IMS bases its contention in this regard on the fact that in November of 2008, IMS' President, Russell Colliau, attended a sales demonstration made by Michael Scheiderich to market new home inspection software called "Inspector Accelerator". That software was developed under the auspices of a new company established for that purpose, Defendant Run Tangent, LLC. During Scheiderich's sales demonstration, Colliau allegedly observed visual elements similar to those contained within the IMS software. This caused him to conclude that Defendants had both illegally copied portions of the IMS code and incorporated those copied portions into their own server code. See January 13, 2009, Colliau Decl., ¶¶ 31-32.

In support of that inference, Colliau cited both the similarities he observed in the software and the close relationship in time between the simultaneous logons to the IMS program, as delineated above, and the demonstration of Defendants' software thereafter. Id. In a subsequent February 12, 2009, Declaration, Colliau elaborated further on just what similarities he observed:

Many elements of the Inspector Accelerator program, including visual elements, specialized business processes and the handling of the relationships between the realtors, clients and home inspector were extremely similar to unique elements of the IMS system.

February 12, 2009 Colliau Decl., ¶ 11.

Based on the initial evidence provided by IMS, along with its claim that Defendants intended a launch of their new, allegedly infringing software, at a national home inspectors trade show to be held in Florida between January 21, 2009, and January 25, 2009, the Court granted IMS' initial request for a temporary restraining order on January 16, 2009 in order to protect against the threat of irreparable harm pending a more thorough review of the claims made by IMS.

Factually, Defendants deny that they copied the IMS software in any way in developing their own home inspection software. Defendants point to the fact that because the IMS software is web based, a user like Scheiderich lacked access to either the source or object codes underlying the IMS system. April 6, 2009, Michael Scheiderich Decl., ¶ 3.

Given the fact that Plaintiff's copyright application is still pending, Plaintiff's FAC deletes the copyright and trademark infringement claims included within the original complaint. IMS continues to assert a claim for breach of contract, given IMS' claim that Schederich breached the terms of his EULA in emulating the IMS software. Moreover, the FAC also asserts counts alleging misappropriation of trade secrets and claims for unfair business practices and false advertising under California law.

ANALYSIS

I. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Defendants move for summary judgment as to Plaintiff's First and Second Causes of Action arguing: 1) the end user agreement on which Plaintiff bases its claims was not operative during the alleged breaches; and 2) Defendants could not, as a matter of law, have acquired Plaintiff's trade secrets through the web-based platform.

The Federal Rules of Civil Procedure provide for summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). One of the principal purposes of Rule 56 is to dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-324 (1986).

Rule 56 also allows a court to grant summary adjudication on part of a claim or defense. See Fed. R. Civ. P. 56(a) ("A party seeking to recover upon a claim ... may ... move ... for a summary judgment in the party's favor upon all or any part thereof."); see also Allstate Ins. Co. v. Madan, 889 F. Supp. 374, 378-79 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter Township of Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992).

The standard that applies to a motion for summary adjudication is the same as that which applies to a motion for summary judgment. See Fed. R. Civ. P. 56(a), 56(c); Mora v. ...


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