Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 1 of 12
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`AUSTIN DIVISION
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`r
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`H at'
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`2Ot'NAR H AMIO:38
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`WES1E: HT OF TEXAS
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`CT
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`VERSATA SOFTWARE, INC., f/k/a Trilogy
`Software, Inc.; and VERSATA DEVELOPMENT
`GROUP, INC., f/k/a Trilogy Development Group,
`Inc.,
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`Plaintiffs,
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`-vs-
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`Case No. A-14-CA-12-SS
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`AMERIPRISE FINANCIAL, INC.; AMERIPRISE
`FINANCIAL SERVICES INC.; and AMERICAN
`ENTERPRISE INVESTMENT SERVICES, INC.,
`Defendants.
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`ORDER
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`BE IT REMEMBERED on March 7, 2014, the Court called a hearing in the above-styled
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`cause, and the parties appeared by and through counsel. Before the Court are Plaintiff Versata
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`Software, Inc. and Versata Development Group, Inc.'s Motion to Remand [#5], Defendants
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`Ameriprise Financial, Inc., Ameriprise Financial Services Inc., and American Enterprise Investment
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`Services, Inc.'s Response [#13], and Versata's Reply [#14]; Versata's Motion for Partial Summary
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`Judgment [#9], and Ameriprise's Response [#17]; Ameriprise's Motion for Summary Judgment
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`[#17], Versata's Response [#21], and Ameriprise's Reply [#26]; and Versata's Motion to
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`Consolidate Cases [#20], and Ameriprise's Response [#25]. Having reviewed the documents, the
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`governing law, the arguments of counsel at the hearing, and the file as a whole, the Court now enters
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`the following opinion and orders resolving the summary judgment motions and REMANDING the
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`case to state court.
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`

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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 2 of 12
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`Background
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`This lawsuit involves two contractual agreements between three different companies, only
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`two of which are named as parties in the pleadings. The first agreement is the "Master License
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`Agreement" between Versata and Ameriprise. Created and signed by the parties in 1999, the MLA
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`governs Ameriprise's use of Versata's "Distribution Channel Management" software. The MLA
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`grants Ameriprise a nonexclusive, nontransferable, perpetual license to use the DCM software,
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`though Ameriprise's license is contingent upon its fulfillment of various obligations. Specifically,
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`the MLA requires Ameriprise to limit access to the highly confidential DCM software to Ameriprise
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`employees and certain "Permitted Contractors," which are non-competitors of Versata who have
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`signed non-disclosure agreements regarding their work on the software. Versata sued Ameriprise in
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`Texas state court alleging Ameriprise allowed non-permitted contractors to access and work on the
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`DCM software in violation of the MLA. Versata then purported to terminate the MLA in response
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`to Ameriprise's breach, and demanded Ameriprise stop using and return the DCM software to
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`Versata.
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`The second agreement is the "GNU General Public License," a software license granted to
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`Versata by non-party Ximple Ware Corporation. The GPL governs Versata's use of Ximple Ware's
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`"VTD-XML" software, an open-source product. "Open source" software is software whose code is
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`made freely available to all users, allowing the public to access and modify the code on the theory
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`a crowd-sourced product will be superior to a privately developed one. In keeping with this open
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`source ethos, the GPL allows for free use and redistribution of VTD-XML, including in other
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`software (i.e., the creation of a derivative work), on the condition the original licensor continues the
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`open source trend and makes the source code freely available. In other words, the GPL is a "viral"
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`-2-
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 3 of 12
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`license in the sense the incorporation of a GPL-covered software program into a new program
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`"infects" the new program and requires it to become open source, too. Versata allegedly incorporated
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`VTD-XML into its DCM software at some point. As a result, Ameriprise counterclaimed in this suit
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`and alleges Versata was required by the GPL to make the DCM source code freely available to all
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`users, including Ameriprise and its contractors.
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`The case proceeded in state court and was set for trial by agreement of the parties in February
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`2014. On January 7, 2014, Ameriprise removed the case to this Court. According to Ameriprise,
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`Versata' s late-December invocation of copyright preemption as an affirmative defense to
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`Ameriprise's GPL counterclaim injected a federal issue into the case. Since removal, both sides have
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`now sought summary judgment based on copyright preemption: Versata contends the breach-of-the-
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`GPL claim is preempted, while Ameriprise contends the breach-of-the-MLA claim is preempted.
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`Versata has also moved to remand. In the alternative, Versata has asked the Courtassuming the
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`case is not remandedto consolidate this case with Versata's separate lawsuit against Infosys
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`Technologies (one of the allegedly non-permitted Ameriprise contractors), which was filed in 2010
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`and is set for trial in this Court on April 21, 2014.
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`Analysis
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`I.
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`A.
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`Summary Judgment Motions
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`Legal Standard
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`Summary judgment shall be rendered when the pleadings, the discovery and disclosure
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`materials on file, and any affidavits show that there is no genuine dispute as to any material fact and
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`that the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(a); Celotex Corp.
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`v. Catrett, 477 U.S. 317, 323-25 (1986); Washburn v. Harvey, 504 F.3d 505, 508 (5th Cir. 2007).
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`-3-
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 4 of 12
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`A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could
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`return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,248
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`(1986). When ruling on a motion for summary judgment, the court is required to view all inferences
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`drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec.
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`Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Washburn, 504 F.3d at 508. Further, a court
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`"may not make credibility determinations or weigh the evidence" in ruling on a motion for summary
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`judgment. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477
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`U.S. at 254-55.
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`Once the moving party has made an initial showing that there is no evidence to support the
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`nonmoving party's case, the party opposing the motion must come forward with competent summary
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`judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere
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`conclusory allegations are not competent summary judgment evidence, and thus are insufficient to
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`defeat a motion for summary judgment Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343
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`(5th Cir. 2007). Unsubstantiated assertions, improbable inferences, and unsupported speculation are
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`not competent summary judgment evidence. Id. The party opposing summary judgment is required
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`to identifi specific evidence in the record and to articulate the precise manner in which that evidence
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`supports his claim. Adams v. Travelers Indem. Co. of Conn., 465 F.3d 156, 164 (5th Cir. 2006).
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`Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to
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`support the nonmovant's opposition to the motion for summary judgment. Id. "Only disputes over
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`facts that might affect the outcome of the suit under the governing laws will properly preclude the
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`entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues that are "irrelevant
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`and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If
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`El
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 5 of 12
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`the nonmoving party fails to make a showing sufficient to establish the existence of an element
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`essential to its case and on which it will bear the burden of proof at trial, summary judgment must
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`be granted. Celotex, 477 U.S. at 322-23.
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`B.
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`Ameriprise's Summary Judgment Motion
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`Ameriprise has moved for summary judgment on Versata's breach of contract claim based
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`on the MLA, arguing that claim is preempted by copyright law.
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`The Fifth Circuit employs a two-prong test "to determine whether a state-law claim is
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`preempted by federal copyright law." Carson v. Dynegy, Inc., 344 F.3d 446, 456 (5th Cir. 2003).
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`"First, the claim is examined to determine whether it falls within the subject matter of copyright as
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`defined by 17 U.S.C. § 102." Id. (internal quotation marks omitted). Second, "the cause of action is
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`examined to determine if it protects rights that are equivalent to any of the exclusive rights of a
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`federal copyright, as provided in 17 U.S.C. § 106." Id. (internal quotation marks omitted). This
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`second prong "is commonly referred to as the 'extra element' test," because it asks whether the
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`asserted cause of action requires proof of "one or more qualitatively different elements" than a
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`copyright infringement claim. Id. (quoting Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 787
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`(5th Cir. 1999)).!
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`Before turning to the two-part preemption analysis, the Court must determine what Versata' s
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`breach of contract claim actually is. Ameriprise initially interpreted the claim as relating to up to
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`three potential breaches: (1) breach of anti-decompiling obligations; (2) breach of non-disclosure
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`Stated slightly differently, "if an extra element is required instead of or in addition to the acts of reproduction,
`performance, distribution[,] or display, in order to constitute a state-created cause of action, then the right does not lie
`within the general scope of copyright and there is no preemption." Computer Assocs. mt '1, Inc. v. Altai Inc., 982 F.2d
`693, 716 (2d Cir. 1992).
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`-5-
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 6 of 12
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`obligations regarding non-permitted contractors; and (3) breach of post-termination, software-return
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`obligations. Versata has clarified it has not pleaded decompiling as a basis for its breach of contract
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`claim. See Versata's Resp. [#21], at 12 ("Versata does not assert in its live pleading here that
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`Ameriprise breached any contractual provision by decompiling its software or allowing another party
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`to do so."). Similarly, Versata has disclaimed any breach of contract action based on disclosure to
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`non-permitted contractors, even though Versata titled its cause of action "Breach of Contract (Non-
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`Permitted Contractor)." Id. at 13 ("Versata has not sued for this breach."). Instead, Versata clarifies
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`its claim is limited solely to the third theory: based on Ameriprise's predicate breach by disclosing
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`DCM code to non-permitted contractors, Versata terminated the MLA; Ameriprise' s alleged breach
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`is therefore its failure to honor the MLA' s requirement Ameriprise cease using and return to Versata
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`all DCM software once the MLA is terminated. Id. Though perhaps inartfully pled, the Court accepts
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`Versata's characterization of its own cause of action as consistent with the state court petition. The
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`Court further notes Versata ought to be estopped, both legally and as a matter of professional
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`courtesy, from taking a different position should the issue arise again before the state court (unless
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`Versata amends its petition to specifically assert a different breach).2
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`Turning to the Carson two-factor test, the Court finds the first factor is met because the
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`breach of contract claim plainly concerns rights to the DCM software under the MLA, and the DCM
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`2 The Court recognizes, as Ameriprise suggests in its Motion for SummaryJudgment, any breach based on a
`failure to return software will require Versata to prove a predicate breach in order to justif,' its termination of the MLA.
`But proving that predicate breach in order to recover for a distinct breach is not the same as suing to recover based on
`the predicate breach alone. Were Versata' s claim one seeking to enforce the non-permitted contractor provision, it would
`rightfully be preempted, as that provision merely obligates Ameriprise not to commit copyright infringement by
`distributing the copyright-protected software code to others without permission. But Versata' s decision not to sue for
`that predicate breach means any preemption analysis of that claim is irrelevant.
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 7 of 12
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`software falls within the scope of copyright law.3 As to the second factor, the "extra element" test,
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`Ameriprise argues there is no extra element here, and likens Versata's breach of contract claim to
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`Versata' s breach of contract claims in its lawsuit against Infosys, which this Court previously found
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`to be preempted by copyright law. See Versata Software, Inc. v. Infosys Techs. Ltd., No. 1:1 0-CV-
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`792-SS, slip op. at 6-8 (W.D. Tex. Sept. 9, 2013) (order granting in part motion for summary
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`judgment) (finding Versata' s breach of contract claim against Info sys preempted, as the contract was
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`merely a promise to not commit copyright infringement by decompiling the DCM source code).
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`Versata disagrees, likening its claim to the conversion of tangible property claim found not to be
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`preempted by the Fifth Circuit in Carson. 344 F.3d at 456-57.
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`Though the call is a close one, the Court concludes Versata's breach of contract claim is
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`preempted. The rights protected by Ameriprise' s promise to return the DCM software are the same
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`rights protected by the Copyright Act: Versata's rights to prevent others from copying and
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`distributing its protected work without permission. Because of the nature of the DCM software and
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`Ameriprise' s business, Ameriprise' s ongoing use of the software is likely to result in frequent
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`copying, reproduction, and distribution of the DCM source code to Ameriprise employees and other
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`contractors. It is Versata's right to prevent this conduct which it seeks to enforce through its
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`contractual return-to-sender provision. Unlike the conversion claim at issue in Carson, Versata' s
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`claim does not hinge on the return of specific tangible items. See id. at 457 (conversion claim turned
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`on unlawful possession of physical form embodying copyright-protected work); see also Pritikin v.
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`Liberation Publ'ns, Inc., 83 F. Supp. 2d 920, 923 n.1 (N.D. Ill. 1999) (cited by the Fifth Circuit in
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`Carson for the proposition " 301(a) [of the Copyright Act] will preempt a conversion claim where
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`Versata does not contest the first prong in its Response.
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`-7-
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 8 of 12
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`the plaintiff alleges only the unlawful retention of its intellectual property rights and not the unlawful
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`retention of the tangible object embodying its work" (internal quotation marks omitted)).
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`Importantly, Versata has not sued for conversion, and has not alleged a right to some physical media
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`such as a hard drive or optical disc. Versata's rights are in the code itself, and it is Ameriprise's
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`"unlawful retention of [Versata's] intellectual property rights" Versata finds offensive. See Pritikin,
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`83 F. Supp. 2d at 923 n.1. Versata's breach of contract claim therefore seeks to "protect[] rights that
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`are 'equivalent' to" those granted by copyright, and its claim is therefore preempted. See Carson,
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`344 F.3d at 456.
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`C.
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`Versata's Partial Summary Judgment Motion
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`In a similar vein, Versata contends Amerprise' s breach of contract counterclaim based on
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`Versata' s alleged violations of the GPL are also preempted by copyright law. Versata argues the GPL
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`amounts to nothing more than a promise to not commit copyright infringement, and Ameriprise's
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`claim is therefore preempted. Ameriprise contends its claim is to enforce "entirely distinct,
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`essentially opposite rights" from those created by copyright, and its claim is therefore not preempted.
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`The Court agrees with Ameriprise, though not because the GPL's so-called "copyleft"
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`scheme is entirely distinct from copyright law. The GPL imposes an affirmative obligation on any
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`license holder to make the code of any derivative work freely available and open source. If the
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`license holder fails to comply, as Versata is alleged to have done, the GPL purports to terminate, and
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`the license holder is potentially liable for copyright infringement for distributing or copying the
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`software without permission. Indeed, XimpleWare currently has two copyright infringement suits
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`against Versata pending in California based on precisely this conduct.
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 9 of 12
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`The "viral" component of the GPL is separate and distinct from any copyright obligation.
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`Copyright law imposes no open source obligations, and Ameriprise has not sued Versata for
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`infringing XimpleWare's copyright by distributing VTD-XML without permission.4 Instead,
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`Ameriprise has sued based on Versata' s breach of an additional obligation: an affirmative promise
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`to make its derivative work open source because it incorporated an open source program into its
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`software. Ameriprise' s claim therefore requires an "extra element" in addition to reproduction or
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`distribution: a failure to disclose the source code of the derivative software. See Computer Assocs.
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`Int'l, 982 F.3d at 716.
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`The presence of an additional contractual promise separate and distinct from any rights
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`provided by the copyright laws means Ameriprise's claim is not preempted. Having found no basis
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`for federal jurisdiction over this claim, the Court need not determine whether Ameriprise has
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`standing to enforce the GPL as a third-party beneficiary. That argument is better addressed to a court
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`with jurisdiction over Ameriprise' s state-law claim.
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`II.
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`Versata's Motion to Remand
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`Versata provides two possible avenues for remand: (1) severing Ameriprise 'S GPL claim (if
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`found to be preempted) and remanding the rest of the case; or (2) resolving the summary judgment
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`motions and then remanding because all federal issues will have been decided.
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`The Court takes the second approach here. Having found Ameriprise's GPL claim is not
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`preempted, this Court lacks jurisdiction over that claim and must remand this case absent some
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`additional basis for federal jurisdiction. Versata's preempted copyright claim could plausibly provide
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`' Nor could it, as Ameriprise admits, because copyrights must be enforced by the copyright holder, not an
`interested third party.
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 10 of 12
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`such a basis. The Fifth Circuit recently held the Copyright Act completely preempts certain state law
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`claims, and such preemption "converts an ordinary state common-law complaint into one stating a
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`federal claim for purposes of the well-pleaded complaint rule." GlobeRanger Corp. v. SoftwareAG,
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`691 F.3d 702, 705-06 (5th Cir. 2012) (internal quotation marks omitted). Though the Fifth Circuit
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`did not specifically address the issue in GlobeRanger, the operation of the legal fiction created by
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`the complete preemption doctrine could plausibly be read to mean a preempted state law cause of
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`action is converted into a federal law cause of action, therefore vesting the federal courts with
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`jurisdiction over those claims and precluding remand. This result, though logical, "is incorrect."
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`Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 309 (2d Cir. 2004); see also
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`GlobeRanger, 691 F.3d at 706 (citing Briarpatch favorably for its holding the Copyright Act
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`completely preempts certain state-law causes of action). As the Second Circuit explained:
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`Instead, once a district court determines that a state law claim has been completely
`preempted and thereby assumes jurisdiction over it, the court must then dismiss the
`claim for failing to state a cause of action. .
`. In other words, the complete
`preemption doctrine ensures that a federal forum will be available to decide that a
`plaintiff's claim is preempted; but it does not allow a federal court to decide claims
`that have not actually been pleaded.
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`.
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`Briarpatch, 373 F.3d at 309 (internal citations omitted); see also Dielsi v. Falk, 916 F. Supp. 985,
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`994 (C.D. Cal. 1996) (finding state law claim preempted by Copyright Act, but dismissing without
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`prejudice because plaintiff had not registered the copyright, thus depriving the federal court of
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`jurisdiction; "This appears paradoxical, but it is the only result that makes sense.")
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`Accordingly, the Court finds no basis for jurisdiction in this case, and remand is required.
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`The Court fully recognizes Versata may seek to amend its state court petition after the case is
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`remanded, assert copyright infringement, and thus trigger a new removal. Though procedurally
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`!EII
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 11 of 12
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`inefficient, this result is mandated because Versata has not currently pleaded copyright infringement,
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`and therefore no federal claim currently exists in this lawsuit.
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`III. Versata's Motion to Consolidate
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`Having already determined remand to be the required procedure in this case, the Court will
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`simply dismiss the motion to consolidate as moot; the Court has no authority to consolidate a federal
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`case with a state one. However, in the event this case eventually returns to this Court, the Court
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`notesas expressed at the hearingconsolidation of this case and the Infosys case for trial on April
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`21, 2014 is impossible. The cases are not sufficiently related, would present needlessly complex
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`issues to the jury, and could not be fairly tried together in the limited time this Court allotted based
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`on its busy trial schedule and the evidentiary expectations of Versata and Infosys in their case alone.
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`Accordingly,
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`Conclusion
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`IT IS ORDERED that Plaintiff Versata Software, Inc. and Versata Development
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`Group, Inc.'s Motion to Remand [#5] is GRANTED, and this case is REMANDED to the
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`53rd Judicial District Court of Travis County, Texas;
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`IT IS FURTHER ORDERED that Versata's Motion for Partial Summary Judgment
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`[#9] is DENIED;
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`IT IS FURTHER ORDERED that Ameriprise's Motion for Summary Judgment [#17]
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`is GRANTED;
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`-11-
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`Case 1:14-cv-00012-SS Document 28 Filed 03/11/14 Page 12 of 12
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`IT IS FINALLY ORDERED that Versata's Motion to Consolidate Cases [#20] is
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`DISMISSED AS MOOT.
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`SIGNED this the / day of March 2014.
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`SA12
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`UNITED STATES DISTRICT JUDGE
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`12 rnsj remand ord kkt.frm
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`12