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ACT, Inc. v. Worldwide Interactive Network
Citation: Not availableDocket: 21-6155
Court: Court of Appeals for the Sixth Circuit; August 23, 2022; Federal Appellate Court
Original Court Document: View Document
ACT, Inc. is involved in an intellectual property dispute with Worldwide Interactive Network, Inc. (WIN) regarding copyright infringement of ACT’s "Skill Definitions," which describe workplace skills tested in ACT's career-readiness assessments. These assessments are marketed to educational institutions and employers. Following a deterioration of their partnership, WIN began offering competing assessments that included "Learning Objectives," which closely resembled ACT's Skill Definitions. ACT filed a lawsuit, resulting in the district court granting partial summary judgment for ACT and issuing a preliminary injunction against WIN for copyright infringement. WIN's first appeal challenged the injunction's scope, but the court affirmed the decision, finding WIN's objections unconvincing. In a second appeal, WIN attempted to introduce a new defense—claiming sovereign immunity based on its design of Learning Objectives for state contracts—after ACT amended its complaint to include allegations of further infringement. The district court deemed this defense untimely and "frivolous," affirming the decision to strike it. Additionally, ACT's motion to supplement the appellate record was denied. The relevant assessments from ACT's workforce-development product, "WorkKeys," include Applied Mathematics, Locating Information, and Reading for Information, with corresponding Skill Definitions central to the case. The parties maintained an ongoing business relationship from 1997 to 2011, formalized by the “WorkKeys Publisher Agreement” in 2006, which designated WIN as a “Preferred Content Provider” for WorkKeys curricula. WIN was to pay annual fees and royalties to ACT, while ACT retained exclusive distribution rights and the ability to create derivative works from WorkKeys materials. ACT also provided WIN with critical information, including Skill Definitions, and periodically reviewed WIN's curricula for alignment with ACT’s standards. However, after disagreements, their contractual relationship ended in 2011, after which WIN began developing its own career-readiness assessment materials. In mid-2018, tensions resurfaced over a South Carolina contract, where ACT had been providing WorkKeys assessments. The state sought proposals for new assessments, and after both ACT and WIN submitted bids, the contract was awarded to WIN. However, ACT alleged that WIN’s “Learning Objectives” closely mirrored ACT’s Skill Definitions. In March 2020, the district court granted partial summary judgment to ACT on copyright infringement claims against WIN, linked to the alleged copying of Learning Objectives. As the trial was delayed due to COVID-19, WIN attempted to revise its Learning Objectives with the help of consultant Amy Burkam, asserting that these revisions did not infringe ACT’s Skill Definitions. ACT contested this, leading the district court to order an amendment to ACT's complaint to include allegations about the revised Learning Objectives, despite ACT’s belief that the existing complaint already addressed these issues. WIN then introduced a defense of derivative sovereign immunity related to its state contract bids, which the district court deemed untimely and frivolous, striking it down. Subsequently, ACT sought an injunction against WIN’s copyright infringement, resulting in a preliminary injunction in August 2021. This injunction restricts WIN from infringing upon ACT’s copyrights concerning Skill Definitions, including any actions deemed infringing under 17 U.S.C. § 106. The district court issued a preliminary injunction prohibiting Worldwide Interactive Network, Inc. (WIN) from distributing both the original and revised Learning Objectives, as well as related assessments. WIN and Chasteen have filed interlocutory appeals challenging this injunction. They argue the district court misapplied the four factors for granting a preliminary injunction, specifically claiming that it incorrectly classified their Learning Objectives as infringing and improperly assumed irreparable harm to ACT without proper evidence. Additionally, WIN and Chasteen contest the court's decision to strike their newly introduced derivative-sovereign-immunity defense, which they assert was timely raised following the Supreme Court's ruling in Allen v. Cooper, which addressed state sovereign immunity in copyright contexts. They further contend that this defense does not fall under the categories that can be struck under Rule 12(f) of the Federal Rules of Civil Procedure. The appellate court has jurisdiction over these appeals under 28 U.S.C. 1292(a) for the preliminary injunction orders and under 28 U.S.C. 1291 and the collateral-order doctrine for the immunity defense. The court emphasizes that the review of the preliminary injunction is intertwined with the earlier partial-summary-judgment order on ACT's copyright claims, as the district court's analysis in both orders is linked. If the copyright analysis in the summary-judgment order is flawed, then the preliminary injunction order is also compromised. The court notes that the immediate appealability of the denial of WIN's derivative sovereign immunity depends on whether the immunity claim is a true immunity or merely a defense to liability, which would affect its reviewability under the collateral-order doctrine. The district court's denial of WIN's asserted immunity is deemed immediately appealable because WIN claims this immunity is an immunity from suit, not just a defense against liability. Delaying an appeal could result in WIN losing its claimed immunity through further litigation. The nature of derivative sovereign immunity remains ambiguous among circuit precedents, with some courts recognizing it as an appealable immunity from suit, while others do not. The text references several cases that illustrate differing views on the appealability of immunity denials, particularly concerning federal contractors. Ultimately, the conclusion supports WIN's position that the immunity denial is immediately appealable, based on the principle that government contractors inherit the same immunities as the government in similar situations. Furthermore, no waivers of immunity have been identified from the relevant states (South Carolina, Kentucky, Arizona, and Florida), which have enacted laws affirming their own immunities from suit in federal court. Thus, the court asserts that the denial of contractor immunity is immediately appealable in this context. To obtain a preliminary injunction, a plaintiff must demonstrate: (1) a likelihood of success on the merits; (2) likely irreparable harm without relief; (3) a favorable balance of equities; and (4) that the injunction serves the public interest (Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). The decision to grant an injunction is reviewed for abuse of discretion (S. Glazer’s Distribs. of Ohio, LLC v. Great Lakes Brewing Co., 860 F.3d 844, 849 (6th Cir. 2017)), while legal questions are examined de novo, and factual findings for clear error (Enchant Christmas Light Maze Mkt. Ltd. v. Glowco, LLC, 958 F.3d 532, 536 (6th Cir. 2020)). Copyrightability is treated as a mixed question of law and fact, warranting de novo review (Oracle Am. Inc. v. Google Inc., 750 F.3d 1339, 1353 n.3 (Fed. Cir. 2014)). Conversely, access to an original work is a factual question subject to clear error review (Guzman v. Hacienda Recs. Recording Studio, Inc., 808 F.3d 1031, 1036 (5th Cir. 2015)). In the current case, the parties agree on the content of ACT's Skill Definitions and WIN's Learning Objectives, with the key issue being the legal question of copyright protection eligibility. The appeal does not require a definitive ruling on the standard of review for all copyrightability disputes (Varsity Brands, Inc. v. Star Athletica, LLC, 799 F.3d 468, 480–81 (6th Cir. 2015)). Regarding the immunity defense, Rule 12(f) allows courts to strike insufficient defenses but such motions are rarely granted and are typically not suitable for resolving substantial legal issues without further discovery (Operating Eng’rs Loc. 324 Health Care Plan v. G. W Constr. Co., 783 F.3d 1045, 1050 (6th Cir. 2015)). The review of a motion to strike is for abuse of discretion, while legal determinations within it are subject to de novo review (Operating Eng’rs Loc. 324 Health Care Plan, 783 F.3d at 1050). The court will first assess whether there was an abuse of discretion in the preliminary injunction and then evaluate the appropriateness of striking the derivative-sovereign-immunity defense. To establish copyright infringement, a plaintiff must prove ownership of the copyrighted work and that the defendant copied it (Kohus v. Mariol, 328 F.3d 848, 853 (6th Cir. 2003)). Copying is not always actionable under copyright law. Copyright protection is limited to original components of a work that are independently created and demonstrate minimal creativity, as established in Feist Publications, Inc. v. Rural Telephone Service Co. Courts must distinguish and exclude unoriginal elements when determining if copying is actionable. In this case, substantial similarity analysis is irrelevant because there is direct evidence of copying, which negates the need for inferences based on similarity. WIN does not dispute ACT's copyright registration for the Skill Definitions and acknowledges direct access to these definitions through a prior contract. WIN admits to copying the Skill Definitions when developing the Learning Objectives but argues that the Skill Definitions' description, selection, and arrangement lack originality and thus are not copyrightable. WIN contends that the expression of these definitions merges with the underlying ideas, reducing them to an uncopyrightable system of skills testing. The term "Skill," as used by ACT, encompasses three relevant skills: Locating Information, Reading for Information, and Applied Mathematics, each defined by various subskills organized by difficulty levels. The analysis of copyrightability requires careful consideration of each of these aspects. While copyright registration can create a presumption of validity and is generally necessary for suing over infringement, the district court did not rely on this presumption in determining copyrightability. Notably, the district court sometimes defined "Skill" differently, referring to specific tasks like arithmetic operations, while the analysis distinguishes these tasks as distinct subskills. The selection of the three Skills by ACT—Locating Information, Reading for Information, and Applied Mathematics—is likely not copyrightable as it constitutes mere selection without originality. ACT's argument about the effort involved in choosing these skills is irrelevant under copyright law, which emphasizes originality over labor. Copyright protects the expression of an idea, not the idea itself, as established in key cases like Feist Publications and Baker v. Selden. The short phrases labeling ACT's skills are also considered non-creative, allowing others, such as WIN, to independently design assessments testing these skills. In contrast, ACT's detailed description of the Skills, which includes various subskills, is likely copyrightable. This compilation reflects a level of creativity deemed sufficient for protection under copyright law, as the Supreme Court recognizes that even minimal creativity can qualify for copyright. However, WIN argues that ACT cannot claim copyright over the expression of individual subskills, particularly in Applied Mathematics, where expressions may lack creativity and merge fact with expression. Thus, while ACT might establish copyright for the overall compilation of subskills, it faces challenges in protecting the specific phrasing of each subskill, particularly when such expressions are straightforward descriptions of mathematical operations. Some courts have previously recognized the copyrightability of simple, declarative sentences in testing contexts. ACT’s claim for copyright protection centers on its compilation of subskills into a coherent Skill Definition rather than the individual expressions of those subskills. The central question is whether the arrangement of these subskills demonstrates creativity, a standard that the Supreme Court has established as having a low threshold. The court concluded that ACT's creative choices in compiling the subskills warrant protection, indicating that even minimal creativity suffices for copyright eligibility. Specifically, ACT's arrangement of subskills across different skill levels was deemed sufficiently creative. For example, the decision to categorize a particular subskill in Level 4 instead of Level 5 was identified as non-obvious and indicative of creative arrangement. ACT's method of organization did not follow a straightforward or obvious scheme, which further supports its claim for a compilation copyright. The original Learning Objectives created by WIN were found to be nearly identical to ACT's Skill Definitions, while the revised Learning Objectives maintained much of the same structure but with slight rewording. Such minor alterations do not exempt them from claims of infringement, as they do not constitute sufficiently significant changes to avoid copyright violation. WIN's assertion that the revised Learning Objectives are not infringing due to a lack of direct evidence of copying and claims of substantial dissimilarity were rejected, affirming that there is evidence of direct copying. The original Learning Objectives were directly copied from ACT, and the revised versions are merely reworded adaptations of these originals. After the district court granted partial summary judgment to ACT regarding copyright infringement, WIN hired education consultant Amy Burkam to modify the original Learning Objectives. However, her revisions did not eliminate the fact that the revised Learning Objectives were still based on ACT’s Skill Definitions, as WIN itself acknowledged in its prior submissions. The district court concluded that ACT is likely to succeed in its copyright claim against the revised Learning Objectives, which are essentially altered copies. WIN contends that the district court incorrectly presumed irreparable harm instead of proving it, citing Supreme Court cases Winter and eBay. However, the district court explicitly recognized the possible abrogation of the presumption but independently determined that irreparable harm exists. The court referenced that, in copyright infringement cases, a likelihood of success creates a rebuttable presumption of irreparable harm, noting that while this presumption may be waning, it still applies. The district court found that ACT would suffer irreparable harm if WIN were not enjoined, as WIN's use of infringing materials had already harmed ACT’s competitive position and reputation in the marketplace. This ongoing damage, which includes interference with customer relationships and harm to ACT’s intellectual property value, constitutes irreparable harm that is difficult to quantify monetarily. The court upholds the district court's finding of irreparable harm to ACT, stating that this determination is not clearly erroneous. WIN's argument that the district court's assertion of harm was merely a "suggestion" rather than a likelihood is rejected. The district court explicitly stated that ACT would face irreparable harm, countering WIN's claim that harm was only possible. The evidence supported the district court's findings, particularly due to WIN's history of infringement and intention to continue its actions. WIN further contends that the district court improperly shifted the burden of proof regarding the balance of equities and public interest, arguing that ACT should have had to demonstrate the necessity of an injunction. However, the district court's analysis indicated that the balance favored ACT due to the harm it faced from WIN's infringement, which outweighed WIN's potential business losses from the injunction. The court concluded that illegal conduct like WIN's does not warrant significant equitable protection, affirming the district court's decision. The district court balanced the interests of ACT and WIN, concluding that the harm to ACT's business outweighed WIN's minimal interest in continuing its infringement. The court found that the public interest favored a preliminary injunction, emphasizing the importance of protecting copyright owners' marketable rights and the economic incentive for continued creativity. Although WIN argued that it was not required to demonstrate the public interest in its case, the court provided a detailed rationale for its decision, noting that the states affected by the injunction still had a vested interest in adhering to federal copyright law concerning educational testing. The court acknowledged the potential disruption to states using WIN's products but made provisions by delaying the injunction's effective date to allow states to find alternative suppliers, thereby reducing negative impacts. WIN contended that the injunction was overly broad, particularly in prohibiting the distribution of its assessments. However, the district court justified the injunction's scope by deeming the assessments derivative of ACT's copyrighted Skill Definitions. It argued that the assessments tested the same skills and employed a structure corresponding to ACT's skill arrangement, thus infringing ACT's rights under 17 U.S.C. § 106. While the court dismissed ACT's claim regarding the selection of skills as unprotected, it upheld the validity of ACT's compilation copyright concerning the arrangement of subskills tested. WIN’s assessments closely mimic ACT’s skill levels, leading the district court to determine that they are unauthorized derivative works. Although WIN’s assessments have distinct expressions, they substantially copy protectable elements of ACT's Skill Definitions. Consequently, the court affirmed the preliminary injunction against WIN. WIN also appealed the district court’s decision to strike its derivative sovereign immunity defense, which claimed that as a contractor providing educational materials to various states, it could assert the states' immunity from ACT’s claims. However, the court found that WIN raised this defense too late in the litigation, considering it waived, and labeled it frivolous. The court explained that sovereign immunity does not extend to contractors unless they can demonstrate adherence to the government's specific directives, which WIN failed to show. As a result, the court affirmed the decision to strike the defense solely based on its untimeliness, consistent with precedent that allows for the forfeiture of defenses due to unexplained delays in assertion. An untimely defense is generally forfeited and not considered by the court if its delay prejudices the plaintiff. A defendant's failure to provide a reasonable explanation for the tardiness of a defense may lead to a finding of waiver without abuse of discretion. The district court can strike a defense as "insufficient" if it is raised too late, even if it could have been valid. The timing of the litigation is crucial; ACT filed its copyright complaint in May 2018, with WIN responding in July 2018 and amending its answer in July 2019. A derivative-sovereign-immunity defense was practically unavailable at that time due to the Copyright Remedy Clarification Act of 1990, which was later invalidated by the Supreme Court in Allen v. Cooper on March 23, 2020, allowing states to assert such defenses. WIN did not raise this defense even after its availability post-Allen, nor did it do so in a motion for reconsideration in April 2020. It was only after ACT raised concerns about revised Learning Objectives in July 2021 that WIN asserted the derivative-sovereign-immunity defense for the first time in its answer to the amended complaint on August 27, 2021. The analysis of whether the defense was timely involves examining when it could first have been asserted and whether WIN provided a reasonable explanation for its delay. WIN delayed raising its new defense for approximately a year and a half after it became available following the Allen decision, asserting this defense just before trial. WIN contends that it could not introduce the defense until ACT amended its complaint, which it claims restored an "active copyright claim" in the case. However, the district court had previously issued a partial summary judgment finding the original Learning Objectives infringing. This judgment, being interlocutory, could have been revisited by WIN post-Allen. Despite this, WIN did not provide a reasonable explanation for its failure to seek reconsideration or to amend its answer promptly after the Allen ruling. WIN’s amended answer indicated it was a contractor “at all times” relevant to ACT’s claims, and the infringing nature of the original Learning Objectives was noted as early as 2017 in ACT's complaint. Consequently, the immunity defense should have been applicable to both the original and revised Learning Objectives, as acknowledged by WIN’s counsel during oral arguments. The filing of the amended complaint did not negate the relevance of the defense to prior claims. WIN's assertion that it can amend its answer in response to an amended complaint is incorrect. Rule 8 does not allow for an unlimited right to introduce new defenses unless the amended complaint significantly alters the litigation, such as introducing a new party or cause of action. In this case, the revised allegations regarding Learning Objectives merely extend the existing claims that WIN infringed ACT's copyrights by copying its Skill Definitions. Consequently, the district court's decision to strike WIN’s defense on timeliness grounds is upheld, as the defense was relevant to both the original and amended allegations and should have been raised earlier, especially before the trial commenced. The district court also correctly found that WIN likely infringed ACT's intellectual property, which posed a risk of irreparable harm to ACT, and that the balance of equities favored granting an injunction. The court's decision to dismiss WIN’s late immunity defense is likewise affirmed. Additionally, a side-by-side comparison illustrates that WIN’s original Learning Objectives closely mirrored ACT's Skill Definitions, reinforcing the claim of infringement. Level 5 skills focus on understanding words through context, identifying meanings of acronyms and technical jargon as defined in the document, applying instructions to similar situations, and processing complex instructions with conditionals. Level 6 skills advance to recognizing implied details, interpreting less common word meanings, and applying complicated instructions and technical terms to new situations. Additionally, it emphasizes understanding the principles behind policies and explaining procedures. Level 7 skills involve deciphering difficult words and jargon based on usage, grasping general principles behind policies, and applying these principles to diverse situations not explicitly covered in the materials. A noted error in the chart suggests a misalignment in skill description related to applying straightforward instructions. The document outlines the Learning Objectives and Skill Definitions for various levels of reading comprehension related to workplace communication, as structured by the ACT and WIN programs. **Level 3** focuses on identifying main ideas, understanding explicitly defined words and common workplace terms, summarizing directives, following step-by-step instructions, and applying given instructions to similar situations. **Level 4** emphasizes recognizing implied details, using contextual clues for unfamiliar terms, applying multi-step instructions, and responding to conditional directions based on the text. **Level 5** involves discerning meanings of words and acronyms from context, recognizing paraphrased definitions of technical jargon, and applying straightforward and complex conditional instructions to new scenarios. **Level 6** highlights the identification of implied details in complex communications, the application of general principles, and the explanation of the rationale behind workplace policies and procedures. **Level 7** entails understanding difficult vocabulary and technical terms through contextual clues and applying the underlying principles of complex policies to diverse situations. The text also notes that certain tables are omitted due to redundancy, as WIN’s revised Learning Objectives closely mirror ACT’s Skill Definitions.