New Derivative Sovereign Immunity Defense Hit as Lost – Copyright

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The United States Court of Appeals for the Sixth Circuit upheld a district court ruling implementing a preliminary injunction and striking down a new defense first asserted in an amended complaint as inappropriate and frivolous. ACT, Inc. v. Worldwide Interactive Network, Inc., Case No. 21-5889; -5907; -6155 (6th Cir. Aug. 23, 2022) (WhiteBush, reader, JJ.)

ACT publishes WorkKeys, a product designed to assess work performance skills. Three of the product’s assessments (Applied Mathematics, Locating Information, and Reading for Information) were at issue in this case, and all of them included various “Skill Definitions” that describe the skills tested by the assessments. ACT and Worldwide Interactive Network (WIN) worked together from 1997 to 2011. During this time, WIN had the power to develop and sell WorkKeys. After the end of the business relationship, WIN began to develop and promote its own benchmark tests.

In 2018, competing bids between ACT and WIN to supply educational materials to the state of South Carolina showed that WIN’s “learning objectives” were virtually indistinguishable from ACT’s skill definitions. ACT sued WIN asserting claims, including copyright infringement, based on WIN’s alleged copying of ACT’s learning objectives. The district court granted partial summary judgment to ACT in March 2020 with additional requests to go to trial, but the trial was seriously delayed by COVID-19. During this time, WIN revised his learning objectives and asserted that they were no longer in violation. The district court ordered ACT to amend its complaint to include new allegations regarding the reviews. The ACT complied. WIN then asserted a new derivative sovereign immunity defense in its amended response, which ACT opposed. The district court agreed and declared the defense inappropriate and frivolous. The District Court issued a preliminary injunction in August 2021 restraining WIN from distributing the original and revised learning objectives and assessments. WIN appealed, challenging the preliminary injunction and disbarment of the defense.

After explaining its jurisdiction, the Sixth Circuit considered whether the district court abused its discretion by imposing an overly broad preliminary injunction. The District Court and the Sixth Circuit agreed that the ACT was likely to succeed in its copyright claim. WIN’s argument on this issue was primarily based on his belief that the skill definitions were not creative or original to ACT and therefore were not copyrighted. The Court said that while ACT’s skill selection was likely not copyrightable, the skill descriptions and arrangement were likely copyrightable. The Sixth Circuit also determined that the District Court did not improperly presume irreparable harm because it did not rely on a presumption but independently found irreparable harm. The Sixth Circuit also said the District Court properly weighed the competing interests of the parties in the preliminary injunction and found a minimal legitimate interest for WIN based on WIN’s business model consisting essentially of infringement of property. intellectual property of ACT.

The Sixth Circuit went on to explain why the District Court properly struck down the derived defense of sovereign immunity. While states generally enjoy sovereign immunity from lawsuits, private contractors can sometimes obtain some immunity in connection with work performed under contracts with state governments. WIN’s theory was that it could assert this sovereign immunity because it contracts with various states for these materials. While the district court found the defense inappropriate and frivolous, the Sixth Circuit determined that WIN’s significant delay in arguing the defense resulted in forfeiture and therefore did not consider whether the defense was also frivolous. The Court considered when the defense might have first been raised and whether WIN offered a reasonable explanation for its delay in raising the defense to determine whether it was raised so late that it should be overturned.

The parties did not dispute the unavailability of the defense when ACT filed its First Complaint in May 2018, when WIN filed its Response in July 2018, and when WIN filed an Amended Response in July 2019, as the law of the he era did not provide states with the immunity that WIN sought to assert. Thirteen days after the district court granted a partial summary judgment, the Supreme Court clarified in Allen v. Cooper (2020) that states could assert sovereign immunity defenses against claims of copyright infringement. WIN asked the district court to reconsider its partial summary judgment in April 2020, but did not do so on the basis of derivative sovereign immunity. WIN only raised its derivative sovereign immunity defense after responding to the amended complaint about a year and a half after it was issued. The Court determined that WIN had no “reasonable explanation” for its delay because (contrary to WIN’s assertion) the defense was available before the amended complaint. The Court explained that WIN should have raised the defense in a motion to reconsider the partial summary judgment order because such orders are subject to review until final judgment and because circuit precedent permits new arguments based on supervisory authority changes in reconsideration requests. WIN did not sufficiently explain why he did not raise the defense at that time. The Court also explained that filing the Amended Complaint did not “clean the slate clean” and that the Amended Complaint did not permit the allegation of new defenses as it was merely an expansion of existing allegations. which had not “transformed the dispute”. “

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