Case 4:19-cv-00031-SDJ-KPJ Document 48 Filed 03/02/20 Page 1 of 17 PageID #: 469
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`United States District Court
`EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
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` §
`§
`§
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`CIVIL ACTION NO. 4:19-CV-31-SDJ
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`§§§
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`KAZEE, INC.
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`v.
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`DR. DAVID L. CALLENDER, in his
`official capacity as President of the
`University of Texas Medical Branch,
`and TODD LEACH, in his official
`capacity as Chief Information Officer of
`the University of Texas Medical Branch
`
`
`§
`§
`§
`§
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`MEMORANDUM OPINION & ORDER ADOPTING THE FACTUAL FINDINGS AND
`LEGAL CONCLUSIONS OF MAGISTRATE’S REPORT AND RECOMMENDATION
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`Before the Court is Defendants Dr. David L. Callender and Todd Leach’s Motion to
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`Dismiss. (Dkt. #10). The Magistrate Judge entered a report and recommendation that the motion
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`be denied. (Dkt. #37). The Defendants filed objections, (Dkt. #38), to which KaZee responded in
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`support, (Dkt. #39). The Court, having conducted a de novo review of the motion and the record,
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`adopts the factual findings and legal conclusions of the report under the reasoning set forth herein.
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`I. FACTUAL & PROCEDURAL BACKGROUND
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`KaZee, Inc., provides information-technology products and services to the healthcare
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`industry, including its “PEARL” system, an electronic medical records software program. KaZee
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`agreed to license PEARL to the University of Texas Medical Branch at Galveston (“UTMB”) for
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`use at member sites within its Correctional Managed Health Care Program (“CMHCP”). The
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`parties entered into a “Master License” agreement (the “Agreement”) that set out, among other
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`things, the type of license, scope of use allowed under the license, and methods of terminating the
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`license.1
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`After implementing PEARL at the agreed-upon CMHCP sites, KaZee became aware of
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`alleged use of PEARL at other sites not within the CMHCP. In response to KaZee’s inquiry about
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`such use, UTMB acknowledged that its legal department initially agreed that the “current license
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`can only be used for [the] UTMB/TDCJ/TT project [at the CMHCP sites] unless there is another
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`agreement in place” and provided a list of sites that had used PEARL. KaZee asserted that UTMB’s
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`use of PEARL at certain sites was unauthorized, that such use constituted a material breach of the
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`Agreement, and that the breach could be cured by paying $20 million in licensing fees.
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`KaZee negotiated with UTMB to resolve the dispute while allowing UTMB to continue
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`using PEARL for several years. Unable to come to an agreement, KaZee filed suit against UTMB
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`for breach of contract under state law and copyright infringement under 17 U.S.C. § 501.2 In a
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`motion to dismiss, UTMB asserted sovereign immunity against both claims and failure to exhaust
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`administrative remedies in the State Office of Administrative Hearings (“SOAH”) as to the breach
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`of contract claim. Shortly thereafter, the parties entered into a Tolling Agreement dismissing the
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`lawsuit without prejudice and tolling KaZee’s claims until 30 days after the completion of
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`administrative proceedings in SOAH.
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`Without filing a notice of claim in SOAH, KaZee resumed its efforts to negotiate payment
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`for the allegedly unauthorized use of PEARL. When negotiations between KaZee and UTMB
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`1 UTMB entered into the Agreement with Medical Information Management Systems, Inc.
`(“MIMS”). UTMB later entered into a Maintenance Agreement and a Source Code Agreement with
`Business Computer Applications, Inc. (“BCA”). KaZee is the successor-in-interest of both MIMS and BCA.
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` 2
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` KaZee, Inc. v. University of Texas Medical Branch at Galveston, Civil Action No. 4:18-CV-53
`(E.D. Tex. Jan. 19, 2018).
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`failed again, KaZee sent UTMB a letter asserting that UTMB’s unauthorized use of PEARL
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`constituted a material breach of the Agreement. The letter further stated that, unless UTMB paid
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`KaZee $20 million within 60 days for licensing fees allegedly owed to KaZee as a result of
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`UTMB’s unauthorized use of PEARL, the Agreement would be terminated. UTMB responded by
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`contesting KaZee’s assertion of a breach by unauthorized use, rejecting KaZee’s related contention
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`that it was owed licensing fees, and arguing that any claims KaZee might assert arising under the
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`Agreement must be filed with SOAH rather than in federal court pursuant to the Agreement and
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`the Tolling Agreement.
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`After 60 days passed without payment of the demanded licensing fees, KaZee filed this
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`suit against Dr. David L. Callender, in his official capacity as President of UTMB, and Todd Leach,
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`in his official capacity as Chief Information Officer of UTMB. KaZee asserts a
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`copyright-infringement claim under 17 U.S.C. § 501, and a misappropriation-of-trade-secrets
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`claim in violation of 18 U.S.C. § 1836 (the Defend Trade Secrets Act (“DTSA”)). KaZee seeks
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`preliminary and permanent injunctive relief against UTMB’s ongoing use of PEARL. Defendants
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`answered with a motion to dismiss, invoking sovereign immunity and challenging both this Court’s
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`subject-matter jurisdiction and the claims’ sufficiency. The Magistrate Judge issued a report and
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`recommendation counseling denial of the Defendants’ motion, to which Defendants objected and
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`KaZee replied in support.
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`II. DEFENDANTS’ RULE 12(b)(1) MOTION
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`KaZee asserts that UTMB’s ongoing use of PEARL constitutes copyright infringement and
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`misappropriation of trade secrets and warrants preliminary and permanent injunctive relief.
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`Defendants contest the claims and the relief sought, in part, through a Rule 12(b)(1) motion to
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`dismiss, in which Defendants present three arguments. First, Defendants urge the Court to dismiss
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`KaZee’s claims for lack of subject-matter jurisdiction because the facts alleged constitute breach
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`of contract under state law rather than federal copyright infringement or federal misappropriation
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`of trade secrets. Second, Defendants maintain that KaZee’s claims should be dismissed under the
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`forum non conveniens doctrine because the claims arise under the Agreement and thus must be
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`brought before SOAH pursuant to the dispute-resolution provision therein. And, third, irrespective
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`of how they are characterized, Defendants assert that KaZee’s claims are barred because
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`Defendants are entitled to sovereign immunity.
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`Defendants’ Rule 12(b)(1) arguments fail. KaZee asserts federal claims over which this
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`Court has subject-matter jurisdiction. Thus, there is no basis to dismiss the claims to allow filing
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`in SOAH. And the claims may proceed against the Defendants under the Ex parte Young exception
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`to sovereign immunity. Defendants’ Rule 12(b)(1) motion is DENIED.
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`A. Rule 12(b)(1) Legal Standards
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`Article III of the Constitution requires a federal court to establish its subject-matter
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`jurisdiction before exercising the judicial power of the United States. U.S. CONST. art. III (“The
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`judicial Power shall extend to all Cases . . . [and] to Controversies.”); see also, e.g., Ruhrgas AG
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`v. Marathon Oil Co., 526 U.S. 574, 583, 119 S.Ct. 1563, 143 L.Ed. 2d 760 (1999). This limit on a
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`court’s power is so essential to maintaining constitutional and statutory boundaries that it “must
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`be policed by the courts on their own initiative even at the highest level.” Ruhrgas, 526 U.S. at
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`583.
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`Federal Rule of Civil Procedure 12(b)(1) provides a procedural vehicle to challenge a
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`court’s subject-matter jurisdiction over a pending suit. A court should consider a jurisdictional
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`attack under Rule 12(b)(1) before any attack on the merits to avoid premature dismissal with
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`prejudice. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (per curiam). When doing
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`so, a court may consider the complaint, undisputed facts in the record, and disputed facts resolved
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`by the court. Id. The moving party carries the burden of proving that the plaintiff “cannot prove
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`any set of facts in support of his claim that would entitle plaintiff to relief.” Id.
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`B. Subject-Matter Jurisdiction
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`
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`KaZee asserts that the Court has subject-matter jurisdiction over the claims at issue because
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`its copyright-infringement claim under 17 U.S.C. § 501, and its misappropriation-of-trade-secrets
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`claim under 18 U.S.C. § 1836, both invoke federal-question jurisdiction.3 Defendants argue that
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`KaZee’s claims arise under the Agreement, sound in state law, and cannot support federal-question
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`jurisdiction.
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`1. Copyright infringement
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`A federal district court has subject-matter jurisdiction over actions “arising under the
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`Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. Relevant here, a district
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`court has exclusive jurisdiction over actions arising under the Copyright Act. Id. § 1338(a);
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`Goodman v. Lee, 815 F.2d 1030, 1031 (5th Cir. 1987). An action arises under the Copyright Act
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`“if and only if”:
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`(1) the complaint seeks a remedy expressly granted by the Act;
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`(2) the complaint asserts a claim requiring construction of the Act; or
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`(3) the complaint presents a case where a distinctive policy of the Act requires that federal
`principles control the disposition of the claim.
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`Goodman, 815 F.2d at 1031 (quoting T.B. Harms Co. v. Eliscu, 339 F.2d 823, 824 (2d Cir. 1964)
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`[hereinafter “T.B. Harms test”]).
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`3 KaZee does not rely upon diversity jurisdiction, nor could it. Defendants are citizens of Texas,
`and KaZee has its primary place of business in Texas.
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`The T.B. Harms test guides a court’s determination of jurisdiction “for claims of
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`infringement arising from, or in the context of, an alleged contractual breach[.]” Bassett v.
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`Mashantucket Pequot Tribe, 204 F.3d 343, 355 (2d Cir. 2000). The test “focuse[s] on whether and
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`how a complaint implicates the Copyright Act.” Id. at 348. Simply put, “[w]hen a complaint alleges
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`a claim or seeks a remedy provided by the Copyright Act, federal jurisdiction is properly invoked.”
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`Id. at 355. Although it is “well-established” that not all actions with complaints referring to the
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`Copyright Act arise under the Act, id. at 347 (citing T.B. Harms, 339 F.2d at 824), copyright
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`infringement claims do “characteristically arise where the defendant held a license to exploit the
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`plaintiff’s copyright, but is alleged to have forfeited the license by breaching the terms of the
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`licensing contract and thus to infringe in any further exploitation.” Id.
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`Applying the T.B. Harms test to this action, it is clear that KaZee’s copyright-infringement
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`claim arises under the Copyright Act. The complaint alleges an ongoing violation of the Act and
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`seeks a remedy expressly granted by the Act—an injunction against further allegedly infringing
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`use of PEARL. See 17 U.S.C. § 502(a) (authorizing a court to “grant temporary and final
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`injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a
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`copyright”). “Because the complaint alleges the defendants violated the Copyright Act and seeks
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`the injunctive remedy provided by the Act, under the rule of T.B. Harms, the action falls within
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`the jurisdictional grant of Section 1338.” Bassett, 204 F.3d at 355–56; accord 3 MELVILLE B.
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`NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 12.01[A][1][a] (2019) [hereinafter
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`NIMMER] (“[N]otwithstanding the existence of a contractual relationship between the parties, if
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`the defendant’s conduct is alleged to be without authority under such contract and further to
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`constitute an act of statutory copyright infringement, then federal jurisdiction will be invoked.”);
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`see also id. (“The prototypical case invoking federal jurisdiction is an action for infringement of a
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`statutory copyright.”). Therefore,
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`this Court has subject-matter
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`jurisdiction over
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`the
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`copyright-infringement claim.4
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`Defendants’ contrary arguments are unavailing. Defendants contend
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`that
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`the
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`copyright-infringement claim may not proceed until the Court first adjudicates whether UTMB
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`previously breached the Agreement and, if so, whether that breach entitled KaZee to unilaterally
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`terminate the Agreement. This argument turns on a misunderstanding of the governing law. As
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`discussed, the T.B. Harms test governs the issue of whether a claim “arises under” the Copyright
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`Act. See Bassett, 204 F.3d at 347. The Fifth Circuit has adopted that test, see Goodman, 815 F.2d
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`at 1031, and courts have repeatedly applied it, see supra note 4. Under the T.B. Harms test, the
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`adjudication of some underlying contract issues does not preclude federal jurisdiction. See Bassett,
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`204 F.3d at 350 n.4 (“As only a federal court can adjudicate a claim of infringement and award
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`copyright remedies, to deny jurisdiction because the defendant will contest only contract issues is
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`essentially to deny plaintiff’s claim.”); NIMMER, § 12.01[A][1][a] (“Because the federal courts
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`have exclusive jurisdiction to determine statutory infringement, they . . . may likewise pass on
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`4 Courts within this circuit and beyond have adopted the T.B. Harms test and applied it accordingly.
`See, e.g., Scandinavian Satellite Sys., AS v. Prime TV Ltd., 291 F.3d 839, 844 (D.C. Cir. 2002) (adopting
`the T.B. Harms test and acknowledging its reaffirmance in Bassett); Bassett, 204 F.3d at 350 n.4 (noting
`that the T.B. Harms test “require[s] federal courts to accept all cases in which the complaint seeks a remedy
`provided by the Copyright Act”); DEA Specialties Co. v. DeLeon, No. 5:14-CV-634, 2014 WL 4385967,
`at *3 (W.D. Tex. Sept. 4, 2014) (“[Plaintiff’s] allegations are sufficient to allege a claim arising under the
`Copyright Act. [Plaintiff] asserts a claim directly under the Copyright Act for copyright infringement and
`seeks a declaration of willful infringement, an injunction against continued copying and use, damages
`pursuant to 17 U.S.C. § 504, and attorney’s fees under the Copyright Act.”); Daniel Wilson Prods., Inc. v.
`Time-Life Films, Inc., 736 F. Supp. 40, 43 (S.D.N.Y. 1990) (“Where a complaint alleges a federally
`conferred right, such as a copyright, a trademark or a patent, then alleges violations of that right and requests
`remedies provided by federal statute, this should be enough to confer federal jurisdiction. The fact that such
`a claim arises in the context of a disruption of contractual arrangements and presents certain contract issues
`should not remove it from that jurisdiction.”); cf. T.B. Harms, 339 F.2d at 824 (dismissing an action for
`lack of subject-matter jurisdiction where no claim of copyright infringement was asserted and no relief
`provided by the Copyright Act was sought); Butler v. Cont’l Airlines, Inc., No. 4:01-CV-2194, 2001 WL
`1509545, at *4 (S.D. Tex. Nov. 19, 2001) (same).
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`other questions of contract law.”); see also Stross v. Redfin Corp., 730 F. App’x 198, 202–03 (5th
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`Cir. 2018) (per curiam) (“This is a copyright case, not a contracts case. The right to bring a
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`copyright infringement claim comes from federal copyright law . . . [and] does not depend on state
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`contract law. . . . The two claims are distinct.”).5
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`KaZee asserts a claim for copyright infringement and requests remedies expressly granted
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`by the Copyright Act, including injunctive relief. Under the controlling T.B. Harms test, this Court
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`has subject-matter jurisdiction over that claim.
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`2. Federal misappropriation of trade secrets
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`Relying upon the same arguments asserted as to KaZee’s copyright-infringement claim,
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`Defendants assert that the Court lacks subject-matter jurisdiction over KaZee’s misappropriation-
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`of-trade-secrets claim. Defendants’ argument is similarly unavailing.
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`Under the “well-pleaded complaint” rule, a suit arises under federal law when a complaint
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`shows that the cause of action is based on federal law. Vaden v. Discover Bank, 556 U.S. 49, 60,
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`129 S.Ct. 1262, 173 L.Ed.2d 206 (2009) (quoting Louisville & Nashville R.R. Co. v. Mottley, 211
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`U.S. 149, 152, 29 S.Ct. 42, 53 L.Ed. 126 (1908)). Here, KaZee brings a misappropriation-of-trade-
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`secrets claim under the DTSA. S. 1890, 114th Cong. § 2 (2016) (codified as 18 U.S.C. § 1831, et
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`5 Defendants’ contrary view is premised on the now-rejected Schoenberg test. In Schoenberg, the
`Second Circuit replaced the T.B. Harms test with a three-stage analysis of whether the infringement claim
`is merely “incidental” to a contract claim, or instead involves a breach of a condition or covenant of a
`contract licensing or assigning a copyright that is sufficient for the claim to arise under the Copyright Act.
`Schoenberg v. Shapolsky Publishers, 971 F.2d 926, 932–33 (2nd Cir. 1992) (internal citations omitted).
`The Schoenberg test was later rejected by the Second Circuit itself in Bassett, see generally 204 F.3d 343,
`and has not been accepted by circuits across the country that have adopted and continue to use the T.B.
`Harms test, see id. at 350 (collecting cases). See also Hartman v. Bago Luma Collections, Inc., Civil Action
`No. 5:03-cv-00465, 2004 WL 377523, at *2–4 (W.D. Tex. Feb. 12, 2004), report and recommendation
`adopted, No. 5:03-CV-465 (W.D. Tex. Mar. 9, 2004) (Dkt. #60) (“In the instant case, defendant[s] clearly
`predicate[] [their] motion to dismiss on the outdated Schoenberg test, urging that the essence of plaintiff’s
`complaint is a contract dispute.”)
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`seq.). The DTSA establishes a private cause of action for misappropriation of trade secrets, see 18
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`U.S.C. § 1836, and provides that “[t]he district courts of the United States shall have original
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`jurisdiction of civil actions brought under this section,” id. § 1836(c). Because KaZee brings an
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`action under this section, the Court has subject-matter jurisdiction over the claim. See, e.g.,
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`PHAZR, Inc. v. Ramakrishna, No. 3:19-CV-1188, 2019 WL 5578578, at *1 (N.D. Tex. Oct. 28,
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`2019) (“In a case that is before this Court under federal question jurisdiction, [plaintiff’s] Trade
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`Secrets Act claim is the only federal cause of action.”); SPBS, Inc. v. Mobley, No. 4:18-CV-391,
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`2018 WL 4185522, at *11 n.5 (E.D. Tex. Aug. 31, 2018) (“[T]he Court has federal question
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`jurisdiction based on [the plaintiff’s] DTSA claim.”).
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`C. Forum Non Conveniens
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`Defendants insist that KaZee’s claims “arise under” the Agreement. For that reason,
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`Defendants urge the Court to dismiss the claims pursuant to the doctrine of forum non conveniens
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`in accordance with the language of the Agreement mandating that claims “arising under” it be
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`resolved through the dispute-resolution process set forth in Texas Government Code section 2260,
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`et seq. Because the claims do not arise under the Agreement, as explained herein, the Defendants’
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`request lacks merit and is denied.
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`D. Sovereign Immunity
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`Defendants also maintain that all of KaZee’s claims are barred because Defendants are
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`entitled to sovereign immunity. Although Defendants enjoy sovereign immunity, that immunity is
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`subject to the Ex parte Young exception in this case. 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714
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`(1908).
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`It is well-established that the Eleventh Amendment immunizes nonconsenting states from
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`suit by individuals in federal court. See, e.g., Alden v. Maine, 527 U.S. 706, 748, 119 S.Ct. 2240,
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`144 L.Ed.2d 636 (1999); McCarthy ex rel. Travis v. Hawkins, 381 F.3d 407, 412 (5th Cir. 2004).
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`Because states must act through their officials, they too are entitled to such immunity when acting
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`in their official capacity. McCarthy, 381 F.3d at 414 (stating that “a suit against a state official in
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`his or her official capacity is not a suit against the official but rather is a suit against the official’s
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`office” and the state itself). Defendants are state officials that have been sued in their official
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`capacities. Thus, Defendants are entitled to immunity. See, e.g., Nelson v. Univ. of Tex. at Dall.,
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`491 F. Supp. 2d 672, 676 (N.D. Tex. 2007) (finding immunity for similar University of Texas at
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`Dallas officials).
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` Defendants’ immunity, however, is subject to an exception under Ex parte Young. 209
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`U.S. at 123. Ex parte Young “ensures that state officials do not employ the Eleventh Amendment
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`as a means of avoiding compliance with federal law.” P.R. Aqueduct & Sewer Auth. v. Metcalf &
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`Eddy, Inc., 506 U.S. 139, 146, 113 S.Ct. 684, 121 L.Ed.2d 605 (1993). Ex parte Young applies to
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`“a suit against a state official when that suit seeks only prospective injunctive relief in order to end
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`a continuing violation of federal law.” Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 73, 116
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`S.Ct. 1114, 134 L.Ed.2d 252 (1996) (internal quotation marks omitted). When determining
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`whether Ex parte Young applies, “a court need only conduct a straightforward inquiry into whether
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`[the] complaint alleges an ongoing violation of federal law and seeks relief properly characterized
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`as prospective.” Va. Office for Prot. & Advocacy v. Stewart, 563 U.S. 247, 255, 131 S.Ct. 1632,
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`179 L.Ed.2d 675 (2011) (quoting Verizon Md. Inc. v. Pub. Serv. Comm’n., 535 U.S. 635, 645, 122
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`S.Ct. 1753, 152 L.Ed.2d 871 (2002) (citations and internal quotation marks omitted)).
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`
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`KaZee’s complaint satisfies that inquiry. KaZee is suing state officials in their official
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`capacity, alleging ongoing violations of federal law. Specifically, KaZee alleges that Defendants
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`“continue to infringe on KaZee’s copyrighted work by improperly using PEARL and refusing to
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`return or destroy KaZee’s intellectual property,” (Dkt. #1 at 11), and that Defendants “continue to
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`misappropriate KaZee’s trade secrets by improperly using PEARL and refusing to return or destroy
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`KaZee’s intellectual property,” id. KaZee requests only injunctive relief to halt these alleged
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`ongoing violations of federal law. KaZee therefore meets the Ex parte Young exception, and its
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`claims may proceed against Defendants.
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`The Court is mindful of the need for caution in applying Ex parte Young to maintain “the
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`balance of fidelity to federal law with respect for states as sovereign entities,” Nelson, 491 F. Supp.
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`2d at 676, and to avoid upsetting “the central role autonomous States play in our federal system,”
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`Va. Office, 563 U.S. at 255. But “no such encroachment is occasioned by straightforwardly
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`applying Ex parte Young to allow this suit.” Id. at 255. Indeed, courts have regularly applied Ex
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`parte Young to such claims against state university officials. See, e.g., Mobile Active Def., Inc. v.
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`L.A. Unified Sch. Dist., No. 2:15-CV-8762, 2016 WL 7444876, at *3 (C.D. Cal. Apr. 6, 2016)
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`(citing Pennington Seed, Inc. v. Produce Exch. No 299, 457 F.3d 1334, 1342 (Fed. Cir. 2006))
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`(“Under the Ex parte Young doctrine, claims to enjoin state officials from violating copyright laws
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`are not barred by the Eleventh Amendment.”).6
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` Defendants oppose application of Ex parte Young for reasons generally related to their
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`attempt to recast KaZee’s pleadings. First, Defendants insist that KaZee cannot allege ongoing
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`6 See also InfoMath, Inc. v. Univ. of Ark., 633 F. Supp. 2d 674, 681 (E.D. Ark. 2007) (denying state
`university officials’ motion to dismiss asserting immunity against a copyright infringement claim on the
`basis of Ex parte Young); Rescue Training Assocs., Inc. v. La. State Univ. & Agric. & Mech. Coll., No. 05-
`81146-CIV, 2006 WL 8433702, at *2 (S.D. Fla. Oct. 4, 2006) (same); Hairston v. N.C. Agr. & Tech. State
`Univ., No. 1:04-CV-1203, 2005 WL 2136923, at *8 (M.D.N.C. Aug. 5, 2005), report and recommendation
`adopted, No. 1:04-CV-1203 (M.D.N.C. Jan. 17, 2006) (Dkt. #31) (“Plaintiff sufficiently alleges an ongoing
`violation of federal copyright law by Defendants [university officials], and the Ex Parte Young doctrine
`therefore applies to his copyright infringement claim seeking prospective injunctive relief from
`Defendants.”); Salerno v. City Univ. of N.Y., 191 F. Supp. 2d 352, 357 (S.D.N.Y. 2001) (“Plaintiffs in this
`suit seek a prospective injunction [under the Copyright Act] to prevent a state official from violating federal
`law, which is precisely the type of relief which the Ex Parte Young exception was created to provide.”).
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`violations of federal law until the issue of past breach of contract is adjudicated. Defendants
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`misunderstand the requirements of Ex parte Young. To invoke that exception, a party must simply
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`show that the “complaint alleges an ongoing violation of federal law.” Va. Office, 563 U.S. at 255
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`(emphasis added). KaZee plainly made such allegations in the complaint as to both copyright
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`infringement and misappropriation of trade secrets, and KaZee directed those allegations toward
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`the Defendants as the state officials in charge of UTMB’s use of PEARL. Nonetheless, Defendants
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`urge the Court to withhold application of Ex parte Young until KaZee has proved some of its
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`underlying allegations. The law does not support the additional burden Defendants attempt to
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`impose upon the application of Ex parte Young.
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`Relatedly, Defendants suggest that KaZee attempts to use Ex parte Young to obtain
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`retrospective relief for past conduct—the alleged use of PEARL at unauthorized locations—rather
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`than relief against any ongoing violation of federal law. Defendants misread KaZee’s pleadings.
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`To be sure, “Young has been focused on cases in which a violation of federal law by a state official
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`is ongoing as opposed to cases in which federal law has been violated at one time or over a period
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`of time in the past.” Papasan v. Allain, 478 U.S. 265, 277–78, 106 S.Ct. 2932, 92 L.Ed.2d 209
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`(1986). Here, KaZee alleges ongoing infringement of its copyright-protected materials and
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`misappropriation of its trade secrets through UTMB’s continued use of PEARL. The illegal action
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`subject to the requested injunction, as alleged, is UTMB’s current use of PEARL without the
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`authority bestowed by a license. It is not UTMB’s alleged prior use of PEARL at unauthorized
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`locations. The mere fact that adjudication of KaZee’s claims may involve interpretation of the
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`Agreement and reference to past conduct does not mean that KaZee’s claims do not allege ongoing
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`violation of federal law. Likewise, it does not mean that the injunctive relief that KaZee seeks is
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`effectively a monetary reward for past wrongs. KaZee’s complaint makes no request for any
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`monetary relief whatsoever. It requests an injunction. That KaZee may have made monetary
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`demands for alleged prior unauthorized use of PEARL is irrelevant to this analysis because KaZee
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`makes no such demands in its complaint. For these reasons, Ex parte Young applies, and KaZee’s
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`claims may proceed against the Defendants.7
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`III. DEFENDANTS’ RULE 12(b)(6) MOTION
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`
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`Defendants also contend that KaZee fails to allege facts sufficient to state a claim for
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`copyright infringement or for misappropriation of trade secrets. Because KaZee’s pleadings
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`provide sufficient allegations, the Defendants’ arguments are without merit and their Rule 12(b)(6)
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`motion is DENIED.
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`A. Rule 12(b)(6) Legal Standards
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`
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`Under the relaxed pleading standards of Federal Rule of Civil Procedure 8(a)(2), a
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`complaint need only contain “a short and plain statement of the claim showing that the pleader is
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`entitled to relief.” Where a defendant contends that a plaintiff has failed to meet this standard, Rule
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`12(b)(6) provides a mechanism to challenge the legal sufficiency of a claim early in litigation. To
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`survive a motion to dismiss brought under Rule 12(b)(6), a plaintiff must plead in its complaint
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`only “enough facts to state a claim for relief that is plausible on its face.” Bell Atl. Corp. v.
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`Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although a probability that
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`the defendant is liable is not required, the plausibility standard demands “more than a sheer
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`possibility.” Ashcroft v. Iqbal, 556 U.S. 662, 687, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The
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`7 Defendants further contend that KaZee’s ultra vires argument cannot be a basis for avoiding
`Defendants’ sovereign immunity. But KaZee made no such argument, rendering Defendants’ ultra vires
`discussion irrelevant.
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`facts plead are entitled to a presumption of truth and to construction in a light most favorable to
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`the plaintiff, but legal conclusions that lack factual support are not entitled to the same. Id. at 678.
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`To determine whether the plaintiff has plead enough to “nudge[] their claims across the
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`line from conceivable to plausible,” a court draws on its own “judicial experience and common
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`sense.” Twombly, 550 U.S. at 574. This threshold is surpassed when “a plaintiff pleads factual
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`content that allows the court to draw the reasonable inference that the defendant is liable for the
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`misconduct alleged.” Iqbal, 556 U.S. at 687 (citing Twombly, 550 U.S at 556). Rule 12(b)(6)
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`motions are thus “viewed with disfavor and rarely granted.” Lormand v. US Unwired, Inc., 565
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`F.3d 228, 232 (5th Cir. 2009) (quoting Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 570
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`(5th Cir. 2005)) (internal quotation marks omitted).
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`B. Copyright Infringement
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`
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`To prove a copyright infringement claim, a plaintiff must establish “(1) ownership of a
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`valid copyright; (2) factual copying; and (3) substantial similarity.” Nola Spice Designs, L.L.C. v.
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`Haydel Enters., 783 F.3d 527, 549 (5th Cir. 2015) (quoting Armour v. Knowles, 512 F.3d 147, 152
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`(5th Cir. 2007) (per curiam) (internal quotation marks omitted)). As to the first element, a
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`“certificate of registration, if timely obtained, is prima facie evidence both that a copyright is valid
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`and that the registrant owns the copyright.” Gen. Universal Sys., Inc. v. Lee, 379 F.3d 131, 141
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`(5th Cir. 2004). KaZee alleges that “PEARL was registered with the United States Copyright
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`Office in 1990 and given copyright registration number TXU568967,” and that it is the owner of
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`that valid copyright. (Dkt. #1 at 5). Defendants do not dispute KaZee’s ownership of the copyright
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`or its validity.
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`
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`The second element inquires into the issue of copying, and the third compares the similarity
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`of the copyrighted material and allegedly infringing material. It is a relatively rare case that
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`presents direct evidence of copying, so most proceed with circumstantial evidence of access to and
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`substantial similarity with the copyright-protected material. See, e.g., Kepner-Tregoe, Inc. v.
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`Leadership Software, Inc., 12 F.3d 527, 532 (5th Cir. 1994). This, however, is a case that involves
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`direct evidence of copying. It is beyond dispute that KaZee provided UTMB the source code and
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`other copyrighted materials through the Agreement and that UTMB then used those materials to
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`implement PEARL. This is sufficient evidence of direct copying to survive Defendants’ Rule
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`12(b)(6) challenge. See, e.g., Rogers v. Koons, 960 F.2d 301, 307 (2d Cir. 1992) (finding direct
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`copying where there was evidence of the alleged infringer instructing copying of the copyrighted
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`materials).
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`Even if UTMB’s actions did not constitute direct copying, the same facts clearly show
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`access to PEARL and substantial similarity between the copyrighted materials provided to UTMB
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`under the Agreement and currently being used by UTMB. See id. (finding circumstantial evidence
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`of copying under the facts supporting direct copying). Access may be shown “if the person who
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`created the allegedly infringing