Free Amended Answer to Complaint - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-cv-01362 LTB-MJW QUALMARK CORPORATION, Plaintiff,
v.

GREGG K. HOBBS, and HOBBS ENGINEERING CORPORATION, Defendants. FIRST AMENDED ANSWER AND JURY DEMAND

Defendants, by and through their undersigned counsel, hereby submit their First Amended Answer to Plaintiff's Complaint for Damages Profits and Injunctive Relief for Copyright Infringement and Jury Demand and continues to request a trial by jury on all issues so triable: I. 1. 2. JURISDICTION AND VENUE

The allegations in paragraph 1 are admitted. The allegations in paragraph 2 are admitted. II. PARTIES

3. 4.

The allegations in paragraph 3 are admitted. Defendants admit that Gregg K. Hobbs is an individual residing in

Westminster, Colorado. Defendants admit that Dr. Hobbs has been recognized by numerous parties, including QualMark Corporation, as the inventor of HALT and 1

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HASS. To the extent that the remaining allegations of paragraph 4 state or imply otherwise, those allegations are denied. 5. The allegations in paragraph 5 are admitted. III. 6. FACTUAL ALLEGATIONS

Defendants admit that Dr. Hobbs formed HEC in 1978 and was its sole

shareholder for certain times. It is not clear from the allegations what Plaintiff is referring to as "certain relevant times described in this Complaint". To the extent that that allegation refers to time periods in which Dr. Hobbs was not the sole shareholder of HEC, that allegation is denied. 7. 8. The allegations in paragraph 7 are admitted. Defendants admit the allegations as to the meaning of the acronyms

HALT and HASS. To the extent that the descriptions of these methods are inaccurate or incomplete, Defendants deny the remaining allegations of paragraph 8. 9. Defendants admit that Dr. Hobbs developed similar programs and

materials in the 1980s. To the extent that the remaining allegations of paragraph 9 do not accurately and completely describe those seminar programs and materials, those allegations are denied. 10. To the extent that the allegations in paragraph 10 do not accurately and

completely describe the employment situation of Dr. Hobbs "at all relevant times," the allegations of paragraph 10 are denied. 11. To the extent that the allegations in paragraph 11 do not accurately and

completely describe the seminar materials developed by Dr. Hobbs, those 2

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allegations are denied. 12. 13. 14. The allegations of paragraph 12 are admitted. The allegations of paragraph 13 are admitted. Defendants admit that Dr. Hobbs started QualMark. To the extent that the

remaining allegations of paragraph 14 do not accurately and completely state Dr. Hobbs' status with QualMark "during all relevant times described in this Complaint", those allegations are denied. 15. To the extent that the allegations of paragraph 15 do not accurately and

completely state the status of QualMark at all times relevant to the Complaint filed in this action, that allegation is denied. 16. 17. The allegations of paragraph 16 are admitted. Defendants are without sufficient knowledge and information to determine

the identity of the "investors" referred to in paragraph 17 or to determine what those investors may have been thinking or planning in regard to the allegations made in paragraph 17. Therefore, Defendants deny those allegations. In addition, there were no specific discussions of intellectual property. 18. To the extent that the allegations of paragraph 18 do not accurately and

completely state the status of Dr. Hobbs at HEC during the time period referred to, the allegations are denied. 19. To the extent that the allegations of paragraph 19 do not accurately and

completely state the facts relevant to the events referred to in those allegations, those

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allegations are denied. 20. Defendants admit that at one point a document entitled "Asset Purchase

Agreement" was executed between HEC and QualMark but denies that the Agreement attached to the Complaint as Exhibit A is a "draft" Agreement or that that Agreement is a complete copy of the Agreement that was executed. 21. Defendants admit that HEC had its attorneys review certain drafts of the

Asset Purchase Agreement. To the extent that the allegations of paragraph 21 state or imply any different or additional facts, those allegations are denied. 22. The Asset Purchase Agreement speaks for itself. To the extent that the

allegations of paragraph 22 do not accurately and completely state the terms of that Agreement, those allegations are denied. Defendants state affirmatively that the purchase price for the assets transferred by this Agreement was stated in the body of the Agreement (Section 1.6). See, Exhibit A to Complaint, p. 2. Defendants further affirmatively state that HEC and QualMark executed a letter agreement attached hereto1 as Exhibit 1 which was dated as effective January 1, 1994 and which provided in regard to the Asset Purchase Agreement dated January 1, 1994 that "by this letter agreement, the Purchase Agreement and the transactions contemplated therein are rescinded, and shall be of no further force or effect." 23. Defendants admit that certain assets were excluded from the

"sale" referred to. The remaining allegations of paragraph 23 are denied.

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All references herein to Exhibits "attached hereto" are to Exhibits with the same numbers attached to Defendants' original Answer and Jury Demand filed in this action.

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24.

The Asset Purchase Agreement speaks for itself. To the extent that the

allegations of paragraph 24 do not accurately and completely state the terms of that Asset Purchase Agreement, those allegations are denied. 25. The Assignment and Waiver Agreement speaks for itself. To the

extent that the allegations of paragraph 25 do not accurately and completely state the terms of that Agreement, those allegations are denied. Defendants affirmatively state that any reference to "copyrights" in the Assignment and Waiver Agreement were only to copyrights expressly limited to those relating to the "Screening Systems Technology" as that term is defined in those Agreements and those copyrights do not include the copyrights to any seminar materials. 26. The parenthetical statement of paragraph 26 appears to be argument of

counsel that does not warrant a response. To the extent that a response is required, Defendants admit that Dr. Hobbs has taken the position and that Defendants continue to take the position that the copyrights relating to the seminar materials were not transferred by HEC to QualMark in 1994. 27. To the extent that the allegations of paragraph 27 do not accurately and

completely describe the events that occurred on or about April 25, 1994, those allegations are denied. Specifically, Defendants deny that Dr. Hobbs "received the remainder of the $250,000 purchase price from QualMark for the sale of HEC assets" at that time. Defendants affirmatively state that on or about April 25, 1994, Dr. Hobbs and QualMark executed his employment agreement which provided in paragraph 2(b) thereof that: "Upon execution of this Agreement, the Company shall pay to 5

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Employee [Dr. Hobbs], as bonus compensation, the sum of $248,403.10." See, Employment Agreement attached hereto as Exhibit 2, p. 2. Defendants deny that the "purchase price" for the sale of certain HEC assets was $250,000. 28. The documents referenced in the allegations contained in paragraph 28

speak for themselves. To the extent that the allegations of paragraph 28 do not accurately and completely state the terms of those Agreements or the duties of Dr. Hobbs at the time referenced, the allegations are denied. 29. To the extent that the allegations of paragraph 29 do not accurately and

completely state the events referred to as occurring "during the summer of 1995", the allegations are denied. Defendants affirmatively state that as evidenced by the Minutes of a Board of Directors meeting of QualMark dated July 28, 1995 and attached hereto as Exhibit 3, QualMark accurately memorialized its decision to sell the entire HEC business back to Dr. Hobbs so that Dr. Hobbs and QualMark would work "in their pre-1994 arrangement" and that QualMark has admitted that prior to 1994, Dr. Hobbs and HEC owned all of the copyrights to the relevant seminar materials. See, Exhibit 3, p. 2. 30. To the extent that the allegations of paragraph 30 do not accurately and

completely state the agreements reached in the referenced negotiations between QualMark and Dr. Hobbs, those allegations are denied. 31. The September 30, 1995 Agreement speaks for itself. To the extent that

the allegations of paragraph 31 do not accurately and completely state the terms of that Agreement, those allegations are denied. Defendants affirmatively state that QualMark 6

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represented through its President at the time, Preston Wilson, that an accurate and exhaustive description of the terms of the agreement negotiated with Dr. Hobbs at that time and approved by QualMark's Board of Directors provided that the only intellectual property to be reserved by QualMark were certain "inventions" and not any copyrights and that QualMark had agreed with Dr. Hobbs to transfer back to him "all rights and tangible assets" acquired by QualMark in the "Company/CVM/Roser Partnership Agreement dated April 25, 1994." See, Exhibit 4, attached, p. 2, para. 1 and p. 4, para.
7.

32.

The September 30, 1995 Agreement speaks for itself. To the extent that

the allegations of paragraph 32 do not accurately and completely state the terms of that Agreement, those allegations are denied. Specifically, Defendants deny that the only assets transferred to Dr. Hobbs were the assets identified on Exhibit C to that Agreement. Defendants further state affirmatively that QualMark has argued in prior litigation and its past president, Charles D. Johnston, stated under oath in his deposition in prior litigation that QualMark granted Dr. Hobbs at least an "implied right" to use all of the relevant copyrighted seminar materials and that this right has not been revoked by QualMark. See, relevant portions of Deposition of Charles D. Johnston taken on December 19, 2003, and attached hereto as Exhibit 5, p. 70, l. 1 to p. 71, l. 1. Mr. Johnston also admitted that QualMark owned no copyrights in 1998, three years after it allegedly retained those rights in the September 30, 1995 Agreement. See, Exhibit 5, p. 66, l. 24 to p. 67, l. 5. 33. The allegations of paragraph 33 are denied to the extent that they do not

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accurately and completely state the events referred to in those allegations. Defendants affirmatively state that the royalty payments made under the September 30, 1995 Agreement were not paid for conducting the seminar business. Defendants further state that for some time prior to and after September 30, 1995 Dr. Hobbs did not have voting control of all of the shares he owned in QualMark at the insistence of the venture capitalists who did not want him to control more than 50% of the shares outstanding at that time. 34. To the extent that the allegations in paragraph 34 do not

accurately describe the events referred to, the allegations are denied. Defendants affirmatively state that Dr. Hobbs was assured both by the then president of QualMark, Preston Wilson, and by its legal counsel, Phillip Gordon, that the "other intellectual property" referred to on page 35 of that Registration Statement included only patents, patents pending and patentable ideas. Defendants further affirmatively state that on page 26 of that Registration Statement, a copy of which is attached hereto as Exhibit 6, QualMark, as required by applicable securities laws and regulations, accurately and completely described all of the "intellectual property" which it owned at the time of that Registration Statement and that QualMark's description of its intellectual property did not include any reference to copyrights. 35. Defendants deny the allegations of paragraph 35 to the extent that those

allegations state or imply that Dr. Hobbs, individually, executed the Registration Statement or that the Registration Statement constitutes an agreement by Dr. Hobbs with QualMark. Defendants affirmatively state that that Registration Statement 8

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cannot alter or amend the terms of existing contracts and to the extent that a Registration Statement does not accurately and completely state the terms of those contracts, those contracts prevail. Defendants further state that Dr. Hobbs signed the Registration Statement only in the capacity of a director of QualMark on behalf of QualMark and only in reliance on the representations made by Mr. Wilson and Mr. Gordon as referred to in paragraph 34, above. Dr. Hobbs also executed the Registration Statement under the threat of litigation from QualMark if he did not sign the Registration Statement without any revisions. 36. Defendants admit the allegations in paragraph 36 to the extent that those

allegations state that QualMark began to conduct seminars regarding HALT and HASS after December 31, 1999 but deny the allegations to the extent that they state or imply that QualMark owned any of the copyrighted materials used in those seminars. 37. 38. 39. The allegations of paragraph 37 are admitted. The allegations of paragraph 38 are denied. The allegations of paragraph 39 are denied to the extent that they do not

accurately and completely describe the "2003 Litigation". 40. The motions for summary judgment filed by QualMark and Dr. Hobbs in

the "2003 Litigation" speak for themselves. To the extent that the allegations of paragraph 40 do not accurately and completely state the basis for those motions or the arguments made in those motions, the allegations are denied. 41. To the extent that the allegations of paragraph 41 do not accurately and

completely describe the Court's Order of June 18, 2004, referenced in those allegations, 9

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those allegations are denied. 42. The allegations in paragraph 42 are denied to the extent that they do not

accurately and completely describe the Court Order referred to in those allegations. 43. Defendants are without sufficient knowledge or information to determine if

the copyright registration referred to in these allegations is to seminar materials which are the subject of this action and therefore those allegations must be denied. 44. The Defendants are without sufficient knowledge or information

to determine whether QualMark has met the "underlying statutory requirements of 17 U.S.C. § 501 et seq. with respect to initiation of an action regarding the seminar materials" and therefore must deny those allegations. 45. The correspondence referred to in paragraph 45 speaks for itself and

to the extent that the allegations in paragraph 45 do not accurately and completely describe the contents of that correspondence, the allegations are denied. 46. The correspondence referred to in paragraph 46 speaks for itself and

to the extent that the allegations in paragraph 46 do not accurately and completely describe the contents of that correspondence, the allegations are denied. 47. IV. 48. The allegations of paragraph 47 are denied. FIRST CLAIM FOR RELIEF ­ INJUNCTION (17 U.S.C. § 502) Defendants incorporate by reference in response to paragraph 48 their

answers and responses to the allegations in paragraphs 1-47 above as though fully set forth herein. 49. The Defendants are without sufficient knowledge or information 10

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to determine whether they had access to QualMark's copyrighted seminar materials and therefore must deny the allegations of paragraph 49. 50. 51. 52. V. 53. The allegations of paragraph 50 are denied. The allegations of paragraph 51 are denied. The allegations of paragraph 52 are denied. SECOND CLAIM FOR RELIEF ­ DAMAGES (17 U.S.C. § 504(a)) Defendants incorporate by reference in response to paragraph 53 their

answers and responses to the allegations in paragraphs 1-52 above as though fully set forth herein. 54. 55. 56. 57. VI. 58. The allegations of paragraph 54 are denied. The allegations of paragraph 55 are denied. The allegations of paragraph 56 are denied. The allegations of paragraph 57 are denied. THIRD CLAIM FOR RELIEF ­ DISGORGEMENT (17 U.S.C. § 504(b)) Defendants incorporate by reference in response to paragraph 48 their

answers and responses to the allegations in paragraphs 1-57 above as though fully set forth herein. 59. 60. 61. The allegations of paragraph 59 are denied. The allegations of paragraph 60 are denied. To the extent not expressly admitted, all of the allegations in

the Complaint are hereby denied. AFFIRMATIVE DEFENSES Defendants hereby assert the following affirmative defenses: 11

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1. 2.

Plaintiff's claims fail to state claims for which relief can be granted. At least some portions of Plaintiff's copyrighted seminar materials are

uncopyrightable facts, uncopyrightable ideas or other uncopyrightable elements (scenes a faire) that flow necessarily from the ideas represented by such elements. 3. Defendants' use, if any, of any portion of Plaintiff's seminar

materials constitutes "fair use" under 17 U.S.C. §107. 4. If Defendants are found to have infringed any of Plaintiff's copyrights, the

infringement was innocent, done without knowledge or reason to know that the seminar materials published by the Defendants were not independently authored and created by Defendants or that the relevant copyrights were not owned by Defendants. 5. Plaintiff's claims are barred by the doctrines of laches, waiver

and estoppel. 6. Plaintiff's claims are barred to the extent that QualMark is found to have

granted Defendants an "implied right" to copy, use, publish, distribute and sell the relevant seminar materials. 7. Plaintiff's claims are barred by the doctrines of acquiescence,

ratification and accord and satisfaction. 8. 9. 10. 11. Plaintiff's claims are barred by the doctrine of unclean hands. Plaintiff has failed to mitigate its damages, if any. Plaintiff's claims are barred by applicable statutes of limitations. Plaintiff's claims are subject to penalties and sanctions for frivolous and

groundless allegations and Defendants reserve the right to seek any relevant remedy 12

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provided by applicable law including but not limited to Fed.R.Civ.P. 11 and C.R.S. §1317-102. 12. Plaintiff's claims are barred, in whole or in part, by the fact that Plaintiff

failed to register any copyright for the relevant seminar materials until after the alleged infringement by Defendants began. 13. Defendants were authorized by Plaintiff to engage in the allegedly

infringing conduct. 14. Plaintiff engaged in fraud on the U.S. Copyright Office in that on or about

October 21, 2003 it intentionally made the false representation in its application for registration of its seminar materials that it authored the subject work, and its misrepresentation was material in that, in its absence, registration would not have issued. 15. 16. Plaintiff has abandoned any copyright on the relevant seminar materials. Plaintiff's claims are barred, in whole or in part, by forfeiture of any

copyright on the relevant seminar material. FIRST SET-OFF 1. In the event Plaintiff is entitled to recovery of any damages upon any one

or more of its claims, the Defendants are entitled to a set-off against or a reduction of those damages equal to the value of any benefits conferred upon Plaintiff by Defendants as a result, directly or indirectly, of any conduct of Defendants including, but not limited to, conduct which is the subject of this action. 13

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WHEREFORE, the Defendants having fully answered the Complaint of the Plaintiff in this action and asserted their Affirmative Defenses and First Set-Off, pray for relief from this Court to: (1) (2) (3) Enter judgment in favor of Defendants and against Plaintiff; Dismiss Plaintiff's claims against Defendants with prejudice; Award Defendants all of their attorneys' fees and costs including, but not

limited to, any and all expert witness fees and costs; and (4) and proper. DEFENDANTS CONTINUE TO REQUEST A TRIAL BY JURY ON ALL ISSUES SO TRIABLE. Grant Defendants such other and further relief as the Court may deem just

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Dated this 28th day December, 2007. Respectfully submitted, By: s/ Jack M. Merritts Jack M. Merritts Lathrop & Gage LC 370 Seventeenth Street, Suite 4650 Denver, CO 80202 Telephone: (720) 931-3200 Facsimile: (720) 931-3201 Email: [email protected] James R. Benson, Jr. 303 East 17th Avenue, Suite 800 Post Office Box 18948 Denver, CO 80218-0948 Telephone: (303) 832-5931 Facsimile: (303) 832-2337 Email: [email protected] Attorneys for Defendant Gregg K. Hobbs and Hobbs Engineering Corporation CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on December 28, 2007, I electronically filed the foregoing document, titled FIRST AMENDED ANSWER AND JURY DEMAND, with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email addresses: [email protected] [Stephen D. Bell] [email protected] [James R. Benson, Jr.] s/ Jack M. Merritts Jack M. Merritts Lathrop & Gage LC 370 Seventeenth Street, Suite 4650 Denver, CO 80202 Telephone: (720) 931-3200 Facsimile: (720) 931-3201 Email: [email protected]

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