Healthestate, LLC v. United States ( 2021 )

IN THE UNITED STATES COURT OF FEDERAL CLAIMS
)
HEALTHESTATE LLC, )
)
Plaintiff, )
) No. 1:18-cv-34C
v. ) (Judge Davis)
)
THE UNITED STATES, ) Filed: October 7, 2021
)
Defendant, ) Reissued: October 27, 2021
)
and )
)
ASM RESEARCH LLC, )
)
Third-Party Defendant. )
)
MEMORANDUM OPINION AND ORDER
On August 3, 2021, Third-Party Defendant ASM Research LLC (“ASM”) filed a Motion
for Leave to File an Amended Answer pursuant to Rule 15(a)(2) of the Rules of the United States
Court of Federal Claims (“RCFC”), seeking to add an affirmative defense under 17 U.S.C § 117(a).
Plaintiff HEALTHeSTATE, LLC (“HeS”) opposes, arguing that the amendment would, among
other things, be unduly prejudicial and futile. For the reasons discussed below, ASM’s motion is
GRANTED.
I. BACKGROUND
HeS filed this action in January 2018, asserting a copyright infringement claim related to
the alleged unlicensed use of its software code by the Government and ASM. See Pl.’s Compl.,
ECF No. 1. It filed an Amended Complaint in March 2018. See ECF No. 6. After the Government
unsuccessfully moved to dismiss the Amended Complaint, the Court granted the Government’s
motion to notify ASM of its interest in this action. See Order, ECF No. 27; Def.’s Unopposed
Mot. for R. 14(b) Notice to ASM, ECF No. 28; Order, ECF No. 30. The Government served ASM
with a Rule 14 Notice in August 2019, and ASM filed its responsive pleading—a motion to dismiss
the Amended Complaint—in October 2019. See Def.’s Return of Service of R. 14(b) Notice to
ASM, ECF No. 33; Mot. to Dismiss Filed by ASM, ECF No. 37. The Court stayed discovery
pending resolution of ASM’s motion. Order at 4, ECF No. 43. On January 31, 2020, the Court
denied that motion. Mem. Op. and Order at 2, ECF No. 51. ASM filed its Answer on February
14, 2020. See ECF No. 52. The Court continued the stay of discovery while Defendants jointly
sought reconsideration of the order denying ASM’s motion to dismiss and, thereafter, while ASM
pursued an interlocutory appeal. Order at 1, ECF No. 60; Order, ECF No. 75. ASM’s appeal was
denied in September 2020, and the Court subsequently entered a discovery scheduling order in
October 2020. Joint Status Report at 1, ECF No. 76; see Order, ECF No. 83. Per the scheduling
order, fact discovery was set to close on June 21, 2021. ECF No. 83 at 1. On May 6, 2021, the
Court granted HeS’s and the Government’s unopposed joint motion to extend fact discovery by an
additional 16 weeks. Order at 1, ECF No. 105. The Court recently further extended that deadline,
at HeS’s request, to December 1, 2021. Order at 2, ECF No. 118.
On October 30, 2020, ASM served HeS with its first set of interrogatories. See ASM’s
Opposed Mot. for Leave to File Am. Answer at 7, ECF No. 106. Interrogatory No. 1 asked HeS,
“[f]or each HeS Software, [to] [i]dentify and describe the HeS Software in detail,” including
information regarding specification, functionality, versions, differences, and whether the software
is the “HeS baseline software” at issue in this case. Pl.’s Second Suppl. Objs. and Answers to
ASM’s First Set of Interrogs. to Pl. at 5, ECF No. 106-2. HeS’s original response was essentially
non-responsive. See id. Its first supplemental response, provided in January 2021, stated that the
“Source Code produced to ASM on January 15, 2021 . . . is the baseline code,” and it referred
ASM to documents produced on a Google Drive. Id. After ASM moved to compel more specific
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interrogatory responses, the Court directed the parties to meet and confer to resolve outstanding
disputes. See ASM’s Mot. to Compel, ECF No. 86; Order, ECF No. 94. As a result of those
efforts, HeS provided a second supplemental response to Interrogatory No. 1 in April 2021, stating
that “‘HeS’s underlying source code’ . . . is HEALTHeSTATE EHR Release 5.2 Iteration 11.”
ECF No. 106-2 at 6. HeS further stated that “[a]ll software contemplated in this suit are either
duplicates or derivative works of HEALTHeSTATE EHR Release 5.2 Iteration 11.” Id. at 7.
On July 15, 2021, ASM notified HeS and the Government of its intent to amend its Answer
to add an affirmative defense under 17 U.S.C. § 117(a).1 See ECF No. 106 at 9. ASM’s proposed
affirmative defense would assert that the United States is the owner of a copy of the software code
at issue, that it is entitled under § 117(a) to make or authorize the making of copies or adaptions
of such copyrighted work, and that the allegedly infringing conduct at issue meets the requirements
in § 117(a) such that there is no liability for ASM’s alleged infringement. Id. at 5. The
Government consented to ASM’s amendment request, but HeS indicated its opposition. Id. at 9.
ASM filed the instant motion to amend on August 3, 2021. See id. The motion is now fully
briefed.
II. DISCUSSION
Under RCFC 8, a defendant is obligated to set forth its affirmative defenses in its
responsive pleading. See RCFC 8(c). RCFC 15 allows a defendant to amend its responsive
pleading either by the written consent of the opposing party or by leave of the Court. See RCFC
15(a)(2). The Court should “liberally” exercise its discretion and grant leave to amend, absent a
1This provision states that “it is not an infringement for the owner of a copy of a computer
program to make or authorize the making of another copy or adaptation of that computer program
provided . . . that such a new copy or adaptation is created as an essential step in the utilization of
the computer program in conjunction with a machine and that it is used in no other manner. . . .”
17 U.S.C. § 117(a).
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showing of undue delay, bad faith or dilatory motive by the movant, repeated failures to cure
deficiencies by previous amendments, undue prejudice on the nonmovant by allowing the
amendment, or futility. Mitsui Foods, Inc. v. United States, 867 F.2d 1401, 1403–04 (Fed. Cir.
1989) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)); see RCFC 15(a)(2) (“The court should
freely give leave when justice so requires.”).
ASM argues that its motion is timely, having been filed a little over three months after HeS
served its second supplemental responses specifically identifying the facts that give rise to the
instant motion. ECF No. 106 at 11. It further argues that granting the motion will not unduly
prejudice HeS, as discovery is still open and no dispositive motions have been filed. Id. at 10–11.
It also argues that no other reason—like bad faith or delay—warrants denying the motion. Id. at
13. HeS argues, on the contrary, that ASM’s motion is untimely because ASM possessed sufficient
information to assess its defenses in January 2021—seven months before moving for leave to
amend. Pl.’s Opp’n to ASM’s Mot. for Leave at 14–15, ECF No. 107. It contends that amendment
will cause undue prejudice because it will require HeS to conduct additional discovery. Id. at 17.
HeS also asserts that amendment is futile because the Government cannot reasonably claim
ownership over the source code or any copies. Id. at 20. Having considered the parties’ arguments,
the Court finds that permitting ASM leave to amend its Answer is appropriate.
A. ASM’s Motion Is Timely.
The Court first looks to the timeliness of ASM’s proposed amendment. HeS argues that
ASM failed to act promptly because HeS’s first supplemental response to ASM’s Interrogatory
No. 1 informed ASM of the information relevant to the proposed amendment as early as January
15, 2021. ECF No. 107 at 14–15. ASM disputes this, arguing that April 14, 2021, is the relevant
date because that is when HeS identified in its second supplemental response that the software at
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issue is Release 5.2 Iteration 11. ASM’s Reply in Support of Mot. for Leave to File Am. Answer
at 10, ECF No. 108; ECF No. 106 at 8. Regardless of which date the Court uses (either January
or April 2021), the amendment request is timely.
Standard practice requires a party move to amend at the earliest opportunity or “as soon as
the necessity for altering the pleading becomes apparent.” Hanover Ins. Co. v. United States, 134
Fed. Cl. 51, 60 (2017) (internal quotation marks omitted) (quoting Alta Wind I Owner-Lessor C v.
United States, 125 Fed. Cl. 8, 11 (2016)). Ultimately, timeliness is a fact-dependent inquiry
requiring consideration of the current stage of litigation and how long the movant knew of the
underlying facts. See King v. United States, 119 Fed. Cl. 51, 55–56 (2014) (denying a motion to
amend where the Government was aware of the relevant facts in summer 2013, but did not move
to amend until May 2014, after discovery was nearly completed and a schedule for summary
judgment was already set).
Judges of the Court of Federal Claims have consistently allowed amendment within one
year of discovering the factual basis for amendment. See, e.g., Square One Armoring Servs. Co.
v. United States, 152 Fed. Cl. 536, 552–53 (2021); LW Constr. of Charleston, LLC v. United States,
139 Fed. Cl. 254 (2018) (allowing amendment nearly three years after the defendant filed its initial
answer where discovery revealed evidence of a previously-suspected fraud claim); Hanover Ins.
Co., 134 Fed. Cl. at 61 (granting motion to amend brought seven months after the movant acquired
the factual basis for amendment); Cooke v. United States, 79 Fed. Cl. 741, 742 (2007) (finding a
nine-month delay, standing alone, insufficient to deny amendment).
ASM filed its motion on August 3, 2021, less than four months after learning the specific
software iteration at issue and with two months remaining before conclusion of fact discovery.
ECF No. 106 at 11; see ECF No. 105 at 1. As discussed, this period falls well within what other
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judges of this court have found permissible. See, e.g., Cooke, 79 Fed. Cl. at 742. Even were the
Court to determine that in January 2021, ASM had knowledge sufficient to form the basis of the
amendment, this would not alter its conclusion. A seven-month period also falls within the
acceptable window for allowing amendment. See id.; Square One Armoring, 152 Fed. Cl. at 552
(“[W]here new information is discovered during the course of discovery, courts routinely have
permitted amendments even where the moving party had previous general knowledge of the basis
of the proposed amendments.”). Consequently, ASM’s motion is timely.
B. The Proposed Amendment Will Not Unduly Prejudice HeS.
HeS argues that it will be prejudiced by an inability “to use all discovery procedures
available to it” because of ASM’s alleged delay in bringing its motion. ECF No. 107 at 17. It
focuses specifically on the “extensive discovery” required to address the defense, id. at 18, the
limited remaining interrogatories at its disposal, and additional costs, id. at 17. ASM replies that
these complaints are mere inconveniences not rising to the level of undue prejudice. ECF No. 108
at 7. It contends that the need to take additional discovery does not constitute undue prejudice,
especially where the addition of the § 117(a) defense concerns copies of the same software
programs at issue in this litigation. Id. at 7, 8. As to HeS’s inability to propound further
interrogatories, ASM states that, as of the date of ASM’s reply, HeS had one more interrogatory
to propound on ASM and all 25 of its interrogatories for the Government. Id. at 8.
Generally, prejudice “take[s] the form of unfair surprise, a broadening or fundamental
change in the issues litigated, or the prompting of further discovery or a need for significant new
preparation.” Northrop Grumman Sys. Corp. v. United States, 137 Fed. Cl. 677, 681 (2018) (citing
Cencast Servs. L.P. v. United States, 729 F.3d 1352, 1363 (Fed. Cir. 2013)). Thus, HeS must
demonstrate a “severe disadvantage or inability to present facts or evidence; the necessity of
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conducting extensive research shortly before trial due to the introduction of new evidence or legal
theories; or an excessive delay that is unduly burdensome.” Hanover Ins. Co., 134 Fed. Cl. at 61–
62 (internal alterations omitted) (quoting St. Paul Fire & Marine Ins. Co. v. United States, 31 Fed.
Cl. 151, 153 (1994)); see id. at 62 (“The party invoking prejudice as a defense carries the burden
of its demonstration.”).
HeS has not met this burden. At the time ASM notified HeS of its intent to move for leave
to add a § 177(a) affirmative defense, there were approximately 12 weeks remaining for fact
discovery. See ECF No. 105 at 1; ECF No. 106 at 9 (citing July 15, 2021 Email from Greg Rubio
at 2–3, ECF No. 106-3). Since then, the Court has further extended the discovery deadlines in this
case, at HeS’s request. ECF No. 118 at 2. Currently, the proposed schedule places the close of
fact discovery nearly two months from the date of this order, giving HeS sufficient time to conduct
additional discovery. See id. HeS’s contentions regarding its lack of available interrogatories and
inability to “use every discovery avenue” are unavailing. ECF No. 107 at 17. The Court
understands that depositions have been and are currently on-going. HeS has both adequate time
and means to pursue further discovery related to the proposed amendment.
Likewise, amendment will not lead to a broadening or fundamental change of the issues in
this litigation. The proposed amendment goes to the heart of this case: alleged infringement of
HeS’s source code by the Government and ASM. See ECF No. 108 at 10. Adding an alternative
legal theory directly related to the software at issue, and related to facts already subjected to
extensive discovery, does not strike the Court as unduly prejudicial. See Square One Armoring,
152 Fed. Cl. at 550 (allowing amendment where the proposed counterclaim arose from the same
contract serving as the basis of the plaintiff’s third amended complaint); Katzin v. United States,
115 Fed. Cl. 618, 621 (2014) (rejecting undue prejudice argument where the non-moving party
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had the opportunity to conduct additional discovery between the time of the filing of the motion
to amend and the scheduled close of fact discovery). HeS has not met its burden of showing undue
prejudice.
C. The Proposed Amendment Is Not Futile.
HeS’s futility argument focuses entirely on arguing the merits of ASM’s proposed
amendment. See ECF No. 107 at 18–21. When determining whether amendment is futile,
however, courts generally avoid an extensive analysis of the merits. St. Paul Fire & Marine Ins.
Co., 31 Fed. Cl. at 155. When futility is a proposed basis for denying amendment, the Court must
discern whether the pleading is frivolous, insufficient on its face, or seeks to add information that
has already been adequately addressed in the prior answer. Alaska v. United States, 15 Cl. Ct. 276,
280 (1988). This analysis has been characterized as determining whether amendment is “facially
meritless,” St. Paul Fire & Marine Ins. Co., 31 Fed. Cl. at 155, and centers on whether an
affirmative defense is applicable to the cause of action or extra-jurisdictional, Kudu Ltd. II, Inc. v.
United States, 153 Fed. Cl. 790, 797, 798 (2021) (citations omitted).
ASM has provided sufficient information to conclude that amendment is not facially
meritless here. See St. Paul Fire & Marine Ins. Co., 31 Fed. Cl. at 155. Ownership of the source
code is foundational to this dispute and central to the proposed amendment. See Alaska, 15 Cl. Ct.
at 281. Discussion of the Government’s alleged ownership of copies of the software serves to
clarify the dispute and is both useful to the Court and the parties and non-repetitious of the
arguments contained in the original Answer. See id.; ECF No. 52 at 8–10. Moreover, HeS has not
argued that this defense is beyond the Court’s jurisdiction. Thus, HeS’s merits-based argument is
insufficient to demonstrate futility.
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D. There Is No Evidence That ASM Is Seeking Leave to Amend in Bad Faith or
for the Purpose of Delay.
HeS does not seriously contest that ASM brings its motion in good faith. It disputes only
the collateral issues of whether ASM acted promptly and without causing HeS prejudice. ECF
No. 107 at 21. Instead, HeS states that “this factor [(bad faith)] neither weighs in favor of nor
against” ASM’s motion. Id. The Court disagrees. Ample evidence supports ASM’s argument
that where “amendment will not delay or complicate the discovery schedule or resolution of the
case,” no basis for finding bad faith or dilatory motive exists. ECF No. 106 at 13. As ASM
correctly argues, HeS has provided no argument or evidence contradicting ASM’s contentions,
and the Court can find none, especially where ASM is seeking to amend for the first time. See
ECF No. 108 at 17. As such, this factor weighs in ASM’s favor. See Hanover Ins. Co., 134 Fed.
Cl. at 61.
III. CONCLUSION
For these reasons, ASM’s Motion for Leave to Amend Answer is GRANTED. ASM shall
file its Amended Answer as a separate docket entry by no later than October 12, 2021.
This memorandum opinion and order will be unsealed in its entirety after October 21, 2021,
unless the parties submit by no later than October 18, 2021, an objection specifically identifying
the protected information subject to redaction. Any objecting party must submit a proposed
redacted version of the decision and provide the reason(s) supporting the party’s request for
redaction.
SO ORDERED.
Dated: October 7, 2021 /s/ Kathryn C. Davis
KATHRYN C. DAVIS
Judge
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