2002 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-24-2002

GEAC Computer Sys v. Grace Consul Inc

Precedential or Non-Precedential: Precedential

Docket No. 00-2772

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Recommended Citation

"GEAC Computer Sys v. Grace Consul Inc" (2002). 2002 Decisions. Paper 603.

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PRECEDENTIAL 

 Filed September 24, 2002 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

Nos. 00-2772 and 00-2932 

DUN & BRADSTREET SOFTWARE SERVICES, 

INC.; GEAC COMPUTER SYSTEMS, INC. 

v. 

GRACE CONSULTING, INC.; GRACE MAINTENANCE 

INT.; ANTHONY ILUTZI 

 GEAC ENTERPRISE SOLUTIONS, INC. 

 f/k/a 

 GEAC COMPUTER SYSTEMS, INC., 

Appellant No. 00-2772 

DUN & BRADSTREET SOFTWARE SERVICES, 

INC.; GEAC COMPUTER SYSTEMS 

v. 

GRACE CONSULTING, INC.; GRACE MAINTENANCE; 

ANTHONY ILUTZI 

Appellants No. 00-2932 

Appeal from the United States District Court 

For the District of New Jersey 

D.C. No.: 94-cv-01090 

District Judge: Honorable Katharine S. Hayden 

Argued January 17, 2002 

 

Before: SCIRICA, ROSENN, Circuit Judges, 

and KANE,* District Judge 

(Filed: September 24, 2002) 

 Wayne C. Matus (Argued) 

 LeBoeuf, Lamb, Greene & MacRae 

 125 West 55th Street 

 New York, NY 10019 

 Harvey C. Kaish 

 McCarter & English 

 100 Mulberry Street 

 Four Gateway Center 

 Newark, NJ 07107-0652 

 Peter J. Gallagher 
 Salans, Hertzfeld, Heilbronn, 

 Christy & Viener 

 620 Fifth Avenue 

 New York, NY 10020 

 Counsel for Appellant 

 Geac Computer Systems 

 Andrew J. Kyreakakis (Argued) 

 Ambrosio, Kyreakakis, DiLorenzo, 

 Moraff & McKenna 

 317 Belleville Avenue 

 Bloomfield, NJ 07003 

 Counsel for Appellees 

 Grace Consulting, Inc. and Grace 

 Maintenance 

 Leonard T. Nuara (Argued) 

 Thacher, Proffitt & Wood 

 1 Exchange Place, Suite 600 

 Jersey City, NJ 07302 

 Counsel for Appellee 

 Anthony Ilutzi 

_________________________________________________________________ 

* Honorable Yvette Kane, United States District Court for the Middle 

District of Pennsylvania, Sitting by Designation. 

 2 

 

 Ronald S. Katz 

 Coudert Brothers 

 600 Beach, 3rd Floor 

 San Francisco, CA 94109 

 Counsel for Amicus for 

 Appellee Service Industry 

 Association 

OPINION OF THE COURT 

ROSENN, Circuit Judge. 

This appeal presents serious problems of alleged 

copyright infringement in an evolving and highly 

competitive world of computer technology that challenges 

the effectiveness of our well-established copyright laws. 

Formerly known as Dun & Bradstreet Software Services, 

Inc. (DBS), Geac Computer Systems, Inc. (collectively Geac) 

is the undisputed owner of certain proprietary, copyrighted 

software, including a system known as Millennium. The 

system is designed to provide valuable services to the 

business community at large. 

Millennium contains highly confidential information and 

trade secrets that were designed and developed by Geac at 

great effort and expense. Geac complains that Grace 
Consulting, Inc., its founder, president, and chief executive 

officer Anthony Ilutzi, and a related enterprise, Grace 

Maintenance, Int. (collectively Grace) deliberately have 

infringed on Geac’s copyrighted software while in the 

course of providing consulting and maintenance services to 

companies licensed by Geac to use its software. 

Geac brought suit against Grace in March 1994 in the 

United States District Court for the District of New Jersey.1 

Grace filed an answer together with counterclaims for 

_________________________________________________________________ 

1. The District Court had subject matter jurisdiction pursuant to 28 

U.S.C. SS 1331, 1338 and 1367 because the plaintiffs’ complaint alleges 

claims under the federal Copyright Act and related state law claims. This 

court has appellate jurisdiction of the timely appeals from the final 

judgment of the District Court pursuant to 28 U.S.C.S 1291. 

 3 

 

breach of contract and tortious interference. The District 

Court struck Grace’s counterclaims and six of its defenses 

after the close of testimony. The court, however, entered 

summary judgment in favor of the defendants on Geac’s 

claim for misappropriation of trade secrets. On the 

remaining issues, the case was tried to a jury which 

returned a verdict in favor of the defendants. The Court 

denied Geac’s motions for a judgment as a matter of law 

after trial and for a new trial. Geac timely appealed. The 

Court also rejected Grace’s claim for attorneys’ fees. Grace 

timely cross-appealed. We affirm in part and reverse in 

part. 

I. 

BACKGROUND 

A. GEAC’S MILLENNIUM SOFTWARE 

Among the United States copyrighted products owned by 

Geac are twelve different software business applications, 

collectively known as Millennium. These applications keep 

track of a host of business information, such as accounts 

payable, taxes payable, accounts receivable, fixed assets, 

and others. Trade secrets and highly confidential 

information are found in a wide variety of materials relating 

to Millennium, including but not limited to: (a) source and 

object codes for applications and operating software; (b) 

software documentation; (c) software upgrades; (d) manuals 

and materials for training, installation, service and 

maintenance; and (e) customer lists and other information 

about the specific needs of its licensees. Geac faces 

substantial competition for all of its Millennium products, 

and its confidential information and trade secrets allow it to 

compete effectively and advantageously. 

Geac authorizes its customers to use its Millennium 

software under licensing agreements that contain protective 

provisions for its trade secrets and copyrighted properties. 
The licensing agreements provide, inter alia, that if a 

customer engages a third party consultant to install or 

configure the software to the customer’s needs or for 

 4 

 

maintenance, the consultant must execute a non-disclosure 

agreement acceptable to Geac. Geac also offers 

maintenance service to its customers for its Millennium 

software which includes, among other things, telephone 

support, repairs, fixing program errors ("bugs"), and 

updated versions of Millennium. Millennium runs on a 

large mainframe computer that is typically licensed to large 

corporations and institutions, with the customers electing 

which of Millennium’s twelve copyrighted software 

applications it wants to license. 

At issue here is the Human Resources application known 

as HR:M. This application enables licensees to perform 

various payroll, benefits, and other employee-related 

functions in any jurisdiction in the United States. HR:M 

consists of numerous individual programs, each of which 

are self-contained units of code. Each of the programs 

performs one or more of the many individual tasks 

comprising the application. One of such programs is Geac’s 

W-2 PAYTXABR. This W-2 program enables employers to 

prepare employee W-2s and related year-end reports 

required by federal and state taxing authorities. 

B. GRACE’S OPERATIONS 

Grace Consulting, Inc. is a New Jersey corporation with 

its principal place of business in Verona, New Jersey, and 

is engaged in the business of computers and software 

consulting. Anthony Ilutzi, a New Jersey resident, formed 

the company to provide consulting services to Geac 

licensees. This company also does business as Grace 

Maintenance, Int., which was formed in 1993 to provide a 

program of maintenance support services for Millennium. 

We refer to them collectively as Grace. Grace’s activities in 

implementing their services apparently triggered this suit 

by Geac. 

Commencing in 1993, Grace offered and performed 

services for Geac’s licensees, including customizing 

Millennium software for their specific needs, fixing"bugs" 

in Millennium software, providing tax and regulatory 

updates, and modifying Geac’s programming language code.2 

_________________________________________________________________ 

2. Instructions for a computer program may be written in any of three 

different levels of computer language. 

 5 

 

Grace began offering Millennium licensees Grace’s"Remain 

on Release" program, which provides Geac customers with 

Grace’s own version of Geac’s W-2 program. Grace 
represented that this software maintenance program 

"allows customers to stay on their present release without 

having to accept expensive upgrades from the vendor." 

Under this program, Grace purported to save Geac 

customers considerable money they presumably would pay 

Geac under its maintenance program. 

Grace’s W-2 software was initially developed by Cook & 

Reynolds Services, Inc. (CNR), a company formed by two 

former Geac employees, Stan Cook and Rick Reynolds. In 

1996, Grace purchased the rights to CNR’s W-2 program, 

revised it, and renamed the individual programs to begin 

with a "GMI" prefix instead of "CNR." The CNR W-2 then 

became known as "GMITXABR." 

_________________________________________________________________ 

 Computers can "understand" (that is, execute) only programs in 

 "machine language" -- the lowest level. A machine language is a 

 cluster of "0" and "1" symbols called"bits," which are the only 

 symbols recognized by digital computers. A program consisting of a 

 sequence of machine language instructions is referred to as "object 

 code." 

 To make it easier for humans to read and write programs, two 

 "higher" levels of languages exist. The first level is "assembly 

 language." Assembly language instructions consist of alphanumeric 

 labels rather than bits. To be executed by the computer, the 

 alphanumeric instructions must be translated into their 

 corresponding clusters of bits by another computer program known 

 as an "assembler." At the next level are "high-level" computer 

 languages, such as FORTRAN or COBOL, that employ English-like 

 words and syntax and are therefore easier to use and understand 

 than assembly or machine language. Each high-level instruction is 

 the equivalent of several assembly or machine language 

 instructions. A computer program known as a "compiler" translates 

 high-level programs into the corresponding object code. Programs 

 written in assembly or high-level languages are referred to as 

 "source programs" or "source code." 

Copyright Protection of Computer Program Object Code , 96 HARV. L. REV. 

1723, 1725 (footnotes omitted). 

 6 

 

C. GEAC’S LICENSING AGREEMENTS 

Geac has two standard Millennium licensing agreements 

that are at issue here: the DBS and the McCormack and 

Dodge (M&D) agreements (collectively, the License 

Agreements). The DBS License Agreement prohibits anyone 

from modifying Geac’s Millennium software without Geac’s 

authorization. The M&D License Agreements permit a third 

party consultant, in limited instances, to modify the Geac 

code, provided it satisfies the Agreement’s non-disclosure 

and work-for-hire prerequisites for accessing the code. 

Both of Geac’s License Agreements prohibit the removal 

of the Geac code from the licensee’s site. The M&D License 

Agreement authorizes and limits the licensee to use the 
system solely for its own internal operation on any central 

processor within Customer’s data center at the location 

designated on the "Customer and Product Information 

Schedule" or, with the prior approval of Geac, at a 

designated replacement site or service bureau. This 

Agreement defines use as "copying any portion of a 

Licensed Program . . . or transmitting [it] to a computer for 

processing of the instructions or statements contained in 

the Licensed Program." The Agreement expressly provides 

that "customer[s] shall not copy the System, in whole or in 

part, except as expressly provided in the [M&D] license 

agreement." The DBS License Agreement also restricts the 

use, including copying, of the Geac source code, solely for 

"purposes on the Hardware and Operating System Software 

at the Site." Both License Agreements bar the distribution 

of modified versions of the code. It is undisputed that 

approximately 35% of Grace customers are subject to the 

DBS license agreement and 65% are subject to the M&D 

license agreement. 

In relevant part, the M&D License Agreement specifically 

provides: 

 - Customer may also disclose M&D confidential 

 information to Customer’s consultants who have 

 been retained to perform work for hire in connection 

 with Customer’s use of the System. All Customer 

 consultants having access to M&D confidential 

 information will be required to execute a non- 

 7 

 

 disclosure agreement acceptable to M&D prior to 

 disclosure. 

 - Customer shall not copy the System, in whole or in 

 part, except as expressly provided in this section. 

 The System may be copied, in whole or in part, in 

 printed or machine readable form, for use by 

 Customer at the designated site, for archive or 

 emergency restart purposes, to replace a worn copy, 

 to understand the contents of such machine- 

 readable materials . . . ." 

At trial, Geac’s counsel conceded that "under the M&D 

license, we allowed customers and consultants that 

qualified, to modify the source code for that customer only." 

In relevant part, the DBS Software License Agreement 

specifically provides: 

 - Customer may make a reasonable number of copies 

 of the Program exclusively for testing, disaster 

 recovery, inactive back-up or archival purposes. 

 - Each party shall hold Confidential Information of 

 the other in confidence . . . . All Confidential 

 Information shall remain the sole property of the 

 disclosing party. 
 - Upon execution of a satisfactory nondisclosure 

 agreement, third parties may have access to 

 Confidential information. 

 - All programs and Documentation, and any 

 modification or copies thereof are proprietary and 

 protected by copyright and/or trade secret law and 

 no ownership rights are transferred by this 

 Agreement. 

 - Customer shall not modify, reverse engineer, reverse 

 assemble or reverse compile any Program or part 

 thereof . . . . 

In addition, all third party consultants engaged to work 

on software products licensed by Geac to its customers are 

required to execute a consultant’s non-disclosure 

agreement.3 It provides, in relevant part, for an 

_________________________________________________________________ 

3. The consultant non-disclosure agreement allows Consultant access to 

certain proprietary and confidential information about the Program, 

 8 

 

acknowledgment by the Consultant of the secret trade 

status of the source code, program and system design 

specifics and all related items or materials developed by or 

licensed to the licensee. It also requires an agreement to 

abide by all of the terms of these provisions, using items 

only in accordance with the license agreements and making 

no duplicates of any items except with the written consent 

of the vendor as necessary in the course of any 

employment. 

_________________________________________________________________ 

modifications thereto and derivative works thereof, upon the following 

conditions: 

 - Consultant may use the Confidential Information, including 

 adapting, modifying and crating derivative works of the Program, 

 solely for purposes of assisting Customer in evaluating the 

 Program and/or implementing or modifying the Program at 

 Customer’s facility to meet Customer’s particular requirements. 

 Consultant may not use the Confidential Information to perform 

 maintenance services for Customer or for any other purposes, 

 and may not in any event distribute the Confidential Information 

 to any third party including other DBS licensees. 

 - All adaptations and modifications to the Confidential Information, 

 and all derivative works thereof shall be deemed to be the sole 

 property of [Geac], whether prepared by [Geac], Customer, 

 Consultant or any other party. Consultant agrees that any such 

 adaptations, modifications and derivative works prepared by 

 Consultant for Customer shall be deemed to be work for hire as 

 defined under the U.S. copyright law. 

 - Consultant shall have no right to use, copy or disclose the 
 Confidential Information, in whole or in part, except as 

 authorized herein. Consultant may disclose the Confidential 

 Information only to DBS’s or Customer’s employees in the scope 

 of their employment who have a need to know and to obtain 

 access thereto for the purposes described above and who are 

 bound by a written agreement with Consultant to maintain the 

 confidentiality of such Confidential Information in a manner 

 consistent with this Agreement. 

 - All tangible Confidential Information and any copies thereof, shall 

 be promptly returned to DBS or destroyed at DBS’s option upon 

 request of DBS or upon termination of this Agreement. 

 9 

 

D. INFRINGEMENT CLAIMS 

Geac claims that one of its most important software 

products is its Millennium package, including the twelve 

separate programs which compose it. It alleges that it has 

never authorized defendants to market or license 

Millennium software or upgrades, either to the general 

public or to specific business clients. The defendants, 

however, it asserts, have induced one or more of Geac’s 

customers to provide them with Millennium software, 

upgrade programs, documentation, and customer lists, all 

of which constitute confidential information of Geac. Geac 

further alleges that Ilutzi and Grace have illegally and 

without Geac’s permission copied these proprietary 

materials and used the confidential information to solicit 

directly in competition with Geac existing Geac licensees 

and provide them with software and maintenance service 

for Geac software. By improperly taking this confidential 

information and software programs, Geac alleges that Grace 

has avoided a substantial investment in time and money 

that Geac found necessary to develop the Millennium 

confidential package. Grace, therefore, has been able to 

offer their services at prices significantly lower than those 

charged by Geac. Further, Geac asserts that Grace has 

improperly used Geac’s confidential information and 

materials to upgrade and alter Millennium software. 

In a systematic attempt to lure away Geac’s software 

maintenance customers, it alleges that Grace has 

disseminated advertising and marketing materials 4 to 

existing Geac licensees using Geac customer lists to which 

Grace had no right to access, as well as confidential and 

proprietary information and materials which they had no 

right to possess or use. 

Geac claims of copyright infringement may be divided 

into three general categories. First, Geac claims that the 

_________________________________________________________________ 

4. An excerpt of the nature of the marketing materials states: "GMI has 

its own proprietary Year End processing software for HR:M. This 

software was developed by Rick Reynolds and Stan Cook, both former 

developers of the M&D HR:M package and is in use at our maintenance 

clients as well as clients who are continuing on DBS maintenance but 
have found our W-2 process to be superior to the vendor’s process." 

 10 

 

defendants have infringed upon the aforesaid copyrights 

not only by copying and obtaining unauthorized copies of 

Millennium programs and documentation but loading such 

copies into computer memory and delivering unlawful 

copies to Grace’s customers, and amending the Millennium 

software. These acts of infringement, it asserts, were 

committed for the purpose of marketing, maintaining, and 

upgrading Millennium software without Geac’s authority. 

Second, it claims that Grace’s W-2 program contains literal 

copying of Geac’s PAYTXABR package. Third, it also asserts 

that Grace’s use of the Copy and Call commands to access 

Geac’s software infringes. 

In its answer to Geac’s complaint, Grace states that it 

has entered into one or more Consultant’s Confidentiality 

Agreements with Geac, but denies generally all other 

allegations of infringement alleged in the complaint. It 

claims that the consulting services it performed did not 

infringe because: (1) no copying was performed; (2) no 

derivative works were created; (3) any copying, if performed, 

was inadvertent and de minimis; (4) the "call and copy" 

commands used in providing services were non-infringing; 

(5) Geac licensing agreements authorized its customers to 

use maintenance services like Grace; and (6) the services 

that Grace performed comported with "standard industry 

practice" and Geac’s licensing agreements. 

In addition, Grace pled counterclaims for breach of 

contract and tortious interference. At the close of 

testimony, the District Court struck the following defenses: 

(1) copyright misuse defense; (2) de minimis defense; (3) 

waiver defense; (4) estoppel defense; (5) 17 U.S.C.S 117 

defense; and (6) fair use defense. One of the struck 

defenses that Grace has cross-appealed only for is the 

copyright misuse defense. On appeal, Grace contends that 

as required by Section 15 of the License Agreement, it 

entered into non-disclosure agreements with each licensed 

customer it served in which each consultant agreed to 

protect the confidentiality of the software. It further argues 

that Geac’s course of conduct demonstrated that 

consultants like Grace "were expressly permitted" to provide 

"maintenance to licensees." If there was some copying, it 

was de minimis and, therefore, not infringing. 

 11 

 

II. 

THE MOTION FOR JUDGMENT AS A MATTER OF LAW 

Geac presented two motions for judgment as a matter of 

law during a complex and difficult trial and one after the 

jury returned its verdict for the defendants. The trial court 

denied each of them. A trial court’s denial of motions for 
judgment as a matter of law during the trial and after the 

verdict by the jury must be affirmed where the evidence 

viewed in a light most favorable to the non-moving party 

contains a "minimum quantum of evidence" reasonably to 

support the jury’s verdict. Kuth v. Truck Stops of Am., 909 

F.2d 743, 745 (3d Cir. 1990). Our review of a District 

Court’s action in each of these instances is plenary. Id. In 

denying plaintiff ’s motion for judgment as a matter of law, 

the trial judge stated that she believed there was ample 

evidence on which the jury could have decided that the 

defendants were not liable for copyright infringement. She 

offered no explanation on what evidence she relied for her 

conclusion. 

A motion for judgment as a matter of law should be 

granted only if, viewing the evidence in the light most 

favorable to the non-movant and giving it the benefit of 

every favorable and reasonable inference, there is 

insufficient evidence from which a jury reasonably could 

find liability. In assessing whether the evidence is sufficient 

to sustain liability, the court may not weigh the evidence, 

determine the credibility of the witnesses, or substitute its 

version of the facts for the jury’s version. Although 

judgment as a matter of law should be granted sparingly, a 

scintilla of evidence is insufficient to sustain a verdict of 

liability. Lightning Lube, Inc. v. Metro Corp. , 4 F.3d 1153, 

1166 (3d Cir. 1993). Thus, although the court draws all 

reasonable and logical inferences in the non-movant’s favor, 

we must reverse an order denying judgment as a matter of 

law if, upon review of the record, it is apparent that the 

verdict is not supported by legally sufficient evidence. 

Although we do not set aside a jury verdict lightly or 

without careful review of the complete record, we must 

grant judgment here in this case as a matter of law because 

 12 

 

there is plain evidence of copyright infringement. When the 

record is distilled, filtered, and shaken down, 5 it becomes 

apparent that there is no legal basis for such infringement. 

A. COPYRIGHT LAW 

We commence our analysis with the relevant provisions 

of the copyright law. Beginning with the federal 

Constitution, copyright protection has enjoyed a revered 

place in our national legal system and in the development 

of the arts, sciences, the economy, and industrialization of 

our nation. Under Constitutional mandate, Congress is 

specifically empowered "To promote the Progress of Science 

and useful Arts, by securing for limited Time to Authors 

and Inventors the exclusive Right to their respective 

Writings and Discoveries." U.S. CONST. ART. I, S 8. Congress 

enacted the first copyright statute as early as 1790. The 

existing copyright laws are codified in the Copyright Act of 

1976 (the Act). This Act contains a complete revision of 

copyright law in response to far reaching new developments 

made in technology and the sciences. Congress amended 
the Act in 1980 expressly to extend copyright protection to 

computer programs and derivatives. 17 U.S.C. SS 101 et 

seq. 

The Copyright Act as amended provides, in relevant part, 

that: 

 (a) Copyright protection subsists, in accordance with 

 this title, in original works of authorship fixed in any 

 tangible medium of expression, now known or later 

 developed, from which they can be perceived, 

 reproduced, or otherwise communicated, either directly 

 or with the aid of machine or device. Works of 

 authorship include the following categories: (1) literary 

 works: 

_________________________________________________________________ 

5. Counsel for the parties were not of much assistance to the court with 

respect to the contents of the record. The joint appendix consisted of 

many volumes and supplemental appendices but the index to them does 

not identify or refer to a single witness by name. Typical references to 

the testimony are: "Excerpts of transcript trial" and date. This is 

meaningless and frustrating to the court. Moreover, the transcript of 

testimony also fails to identify the witness under examination. 

 13 

 

17 U.S.C. S 102(a). Computer programs are entitled to 

copyright protection as "literary works." Whelan Assoc. v. 

Jaslow Dental Lab., 797 F.2d 1222, 1234 (3d Cir. 1986). 

To establish a claim of copyright infringement, a plaintiff 

must establish: (1) ownership of a valid copyright; and (2) 

unauthorized copying of original elements of the plaintiff ’s 

work. Whelan, 797 F.2d at 1231; Gator Rubber Co. v. Bondo 

Chem. Indus., 9 F.3d 823, 831 (10th Cir. 1993). Copying is 

a "shorthand reference to the act of infringing any of the 

copyright owner’s five exclusive rights set forth at 17 U.S.C. 

S 106." Ford Motor Co. v. Summit Motor Products, Inc., 930 

F.2d 277, 291 (3d Cir. 1991). Of relevance here, 17 U.S.C. 

S 106 provides: 

 Subject to sections 107 through 121, the owner of 

 copyright . . . has the exclusive rights to do and to 

 authorize any of the following: 

 (1) to reproduce the copyrighted work in copies or 

 phonorecords; 

 (2) to prepare derivative works based upon the 

 copyrighted work; 

 (3) to distribute copies or phonorecords of the 

 copyrighted work to the public by sale or other transfer 

 of ownership, or by rental, lease, or lending; 

In the instant case, the ownership of the copyrighted 

property is undisputed, as is its validity. The United States 

Copyright Office issued to Geac certificates of registration 
for all programs contained in its Millennium software 

package. What remains at issue is the copying, and much 

of the evidence in support of the plaintiffs’ claim comes 

from the lips of Grace’s president and its other witnesses. 

As we previously noted, supra, we divide Geac’s claim into 

three parts. First, Geac claims that the defendants 

infringed upon their copyright by copying their software in 

the course of providing consultant and maintenance 

services to Geac’s licensees. Second, Geac claims that 

Grace’s W-2 programs contain literal copies of PAYTXABR. 

Third, Geac also asserts that Grace’s W-2 program contains 

Copy and Call commands to Geac’s source and object 

codes. 

 14 

 

B. PAYTXABR AND DE MINIMIS 

Initially, Grace performed maintenance work for Geac’s 

licensees as to which Geac made no complaint. However, 

commencing in 1993, Grace expanded its activities beyond 

maintenance service to provide Geac’s customers with 

software, particularly a program it called the "Remain on 

Release." Geac viewed the expanded activities beyond mere 

maintenance, and especially the sale of Grace software, as 

a violation of its exclusive rights under the Copyright Act to 

make and distribute derivative works of its Millennium 

programs. 

Grace offered and sold a program that it obtained by 

copying and modifying Geac’s copyrighted Millennium 

product known as PAYTXABR. Grace distributed and sold it 

as its CNRTXABR program. It acquired this program from 

Cook and Reynolds, and immediately renamed it the 

GMITXABR program. 

Reynolds testified categorically on direct examination that 

his W-2 program was in no way similar to HR:M’s (DBS 

Millennium) program. This unexplained statement, 

however, lacks substance and verity because it is wholly 

inconsistent with his testimony concerning the origin of his 

program. He testified that when he was installing programs 

presumably on behalf of Dun & Bradstreet’s licensee Super 

Foods in Ohio, their local school district "wasn’t showing up 

on the W-2." Reynolds, thereupon, asked for a copy of the 

PAYTXABR program. Then "I made a copy and renamed it 

CNRTXABR," and then made a fix for Super Foods to pick 

up the local school tax. He acknowledged that CNRTXABR 

"should have stayed at Super Foods and shouldn’t have 

been distributed with the other code - a bad idea." This is 

a plain statement of the root of his infringement. 

On cross-examination, he testified: 

 Q: Could you have written the CNR W-2 program 

 without making either copies or calls to Dun & 

 Bradstreet copy members or source code? 

 A: No. 
Reynolds’s denial of infringement is also inconsistent 

with earlier testimony given by Ilutzi under cross- 

 15 

 

examination wherein he admitted unequivocally that CNR 

W-2 "makes copies and calls to Geac codes" and that CNR’s 

W-2 contains CNRTXABR. Ilutzi also admitted that Grace 

initially distributed CNRTXABR as part of its W-2 software, 

later renamed and replaced it as part of its W-2 software 

with GMITXABR, and distributed it as part of its W-2 

software. Ilutzi testified: 

 Q: Do you admit that CNR W-2 makes copies and 

 calls to Geac codes? 

 A: Yes. 

 Q: Do you admit that CNR W-2 contains CNRTXABR? 

 A: Yes. 

 Q: Do you admit that GMI W-2 makes copies and 

 calls to Geac code? 

 A: Yes. 

 Q: Do you admit that GMI W-2 contains GMITXABR? 

 A: Yes. 

Ilutzi further admitted that CNRTXABR was created by 

copying and modifying Geac’s program PAYTXABR and that 

Grace’s "CNRTXABR was used in the making of 

GMITXABR," both of which supplied the same tax program. 

Grace’s counsel conceded at trial that Grace was not 

contesting its use of Geac’s PAYTXABR. "It is there and 

that’s literal copying." Ilutzi conceded under crossexamination that CNRTXABR should not have been in the 

CNR W-2 program because it was copied from PAYTXABR. 

He directed at the end of 1996 that Grace discontinue 

distributing CNRTXABR. Grace’s expert, Dewar, 

acknowledged that Grace’s distribution of CNRTXABR and 

GMITXABR was contrary to "standard industry practice." 

However, he did not consider the distribution a copyright 

infringement because, in his opinion, it was de minimis. 

In supporting its de minimis defense, Grace asserts that 

the quantitative infringement amounted to only twentyseven lines out of 525,000 lines. This argument is 

irrelevant as a matter of law and we therefore will not tarry 

on the disputed factual element. The unrefuted trial 

 16 

 

testimony was that if one considers Grace’s use of Copy 
and Call commands to gain access to PAYTXABR and the 

Geac code, the CNR W-2 program actually consists of 62% 

Geac code, and the GMI W-2 program possesses 

approximately 43% of Geac’s code. Much more significant, 

however, than the quantity of copy is the quality of the 

material purloined. 

A de minimis defense does not apply where the 

qualitative value of the copying is material. Kremin, Geac’s 

technical expert, and Dr. Dewar, Grace’s expert, both agree 

that Geac’s software would not work if PAYTXABR were 

removed from it and that Grace’s infringing W-2 software 

would not work without its copies of PAYTXABR. Thus, the 

information Grace copied was highly critical. In Harper & 

Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 

564-66, (1985), the Supreme Court rejected a claim that 

copying 300 to 400 words of a copyrighted book was 

insubstantial and constituted fair use of the material. The 

Court looked to the "qualitative value of the copied 

material, both to the originator and to the plagiarist." Id. at 

565; see also Educational Testing Serv. v. Katzman, 793 

F.2d 533, 542 (3d Cir. 1986). The trial judge appropriately 

struck the de minimis defense with respect to PAYTXABR 

from her jury charge and Grace does not contest this 

ruling. For the foregoing reasons, Grace’s de minimis 

argument made on appeal also must be rejected. 

C. GRACE CONSULTING AND MAINTENANCE 

ACTIVITIES 

We turn to Geac’s second claim of infringement arising 

out of Grace’s consulting and maintenance activities. In 

support of its infringement claims, Geac contends that 

Grace’s witnesses admitted also copying Geac’s copyrighted 

source code while fixing bugs, creating tax updates, 

customizing Millennium, modifying the program language 

code, and compiling, link editing and testing Millennium. 

Ilutzi admitted to modifying many of Geac’s programs in all 

twelve Millennium applications. This modification was 

"large scale," and included compilation, link editing,6 and 

_________________________________________________________________ 

6. Dr. Dewar, Grace’s expert, explained that"compiling" is a program 

that converts source code, which can be read by humans, into object 

 17 

 

testing of GMI W-2 software with the DBS code at customer 

sites, and modifying the Geac program language code. He 

further stated unequivocally that in fixing bugs and in 

adding features, Grace consultants have modified DBS’s 

source code. When asked whether he would admit that his 

consultants would find it easier to copy and modify Geac’s 

source code and cheaper for his customers rather than 

create a program from scratch, Ilutzi replied "absolutely." 

He also responded affirmatively when asked whether his 

consultants would take Geac’s software if one of his 

customers "wants software to perform a particular 

function." 
We address Grace’s contention that notwithstanding all 

of the foregoing evidence of infringement, none occurred. It 

asserts that both the terms of the License Agreements and 

Geac’s course of conduct confirm that Geac expressly 

permitted computer consultants to provide maintenance to 

its licensees. Grace’s position in general at trial and on 

appeal is that the License Agreements raise factual issues 

of interpretation. 

We examine the M&D License Agreement wherein Grace 

claims authorization to copy Geac’s programs. Grace refers 

to Paragraph 16 of the License Agreement that permits the 

consultant to copy a limited number of copies to be made 

or remain in existence at any one time "for use by the 

customer." However, Grace omits reference to a significant 

portion of Paragraph 16 which provides: 

 Customer shall not copy the System, in whole or in 

 part, except as expressly provided in this section. The 

 System may be copied . . . for use by Customer at the 

 designated site, for archive or emergency restart 

 purposes, to replace a worn copy, to understand the 

 contents of such machine-readable materials, or to 

 store at the off-premises location which Customer uses 

 for security storage purposes, provided, however, that 

 no more than 10 printed copies and 10 machine- 

_________________________________________________________________ 

code, which is binary, consisting of ones and zeroes that computers can 

read. Link editing further processes the object code into "executable 

files," which can then be run on the computer. 

 18 

 

 readable copies will be in existence under this license 

 at any one time without prior written consent from 

 M&D. 

(Emphasis added). 

Grace, however, asserts that its consulting and 

maintenance activities complied with the custom and 

industry practice. Paragraph 15 of the License Agreement 

does permit licensees to provide access to consultants they 

have hired to Geac’s confidential information provided the 

consultants have executed a non-disclosure agreement 

acceptable to the licensor prior to disclosure. 7 Grace also 

contends that as required by Section 15 of the License 

Agreement, it entered into non-disclosure agreement with 

each licensed customer it served in which each consultant 

agreed to protect the confidentiality of the software. 

The License Agreement between Geac and its licensees 

was crucial in the trial of this case. The record supports 

plaintiffs’ arguments that many of the defendant’s 

witnesses admitted to conduct which, in the absence of 

authorization from Geac, amounted to infringement of 

Geac’s copyrights. These acts included copying its code, 
creating and distributing derivative works, and the 

extensive sale and marketing of Grace’s W-2 program. 

Unless authorized by Geac, its right to create derivative 

works has been usurped by Grace, whose product instructs 

the computer to incorporate Geac copyrighted material with 

its W-2 program. This derivative work exists in a concrete 

or permanent form and substantially incorporated 

protected material from the pre-existing work. See Micro 

Star v. Formgen, Inc., 154 F.3d 1107, 1110 (9th Cir. 1998).8 

_________________________________________________________________ 

7. Customer may also disclose M&D confidential information to 

Customer’s consultants who have been retained to perform work for hire 

in connection with Customer’s use of the System. All Customer 

consultants having access to M&D confidential information will be 

required to execute a non-disclosure agreement acceptable to M&D prior 

to disclosure. 

8. The Copyright Act defines a derivative work as: 

 a work based upon one or more preexisting works, such as a 

 translation . . . condensation, or any other form in which a work 

 19 

 

Grace also copied Geac’s copyrighted software code in 

creating bug fixes for Millennium, creating tax updates and 

customizing Millennium, making Millennium "year 2000 

compliant," modifying the program language code, and 

compiling, link editing and testing Millennium. Ilutzi 

acknowledged that he has written enhancements for his 

clients for Geac’s HR:M program and readily agreed that he 

used Call or Copy for their programs. 

John Rasnic, a Grace computer consultant, testified 

when deposed that he worked on Millennium software; that 

he made a copy of a portion of the Millennium source code 

disks; that clients (naming some) have sent Grace floppy 

disks with Millennium downloaded to Grace at offsite 

locations. Rasnic also admitted to physically downloading 

pieces of Millennium’s source code from customers’ 

mainframes at the customers’ premises and then taking 

with him the floppy disks containing downloaded 

Millennium source code when he left the premises. He also 

acknowledged transferring those disks loaded with 

Millennium source code onto a personal computer at his 

Illinois offices, which are not physically located on the 

customer premises. The computer, Rasnic testified, can 

then make, at his direction, copies on the hard drive of 

what was on the floppy disk. 

During his service with Grace, Rasnic performed this 

operation at this office "once a quarter to twice a week." A 

copy of the Millennium source code has remained in his 

personal computer on its hard drive for four to five weeks. 

At the time he was deposed, he stated that he had copies 

of the Millennium source code on his hard drive for the 

purpose of "doing a modification for Food Line[a customer] 
of that program." He also stated that he has modified the 

source code at his Illinois office for other "Grace clients 

only." Generally, the kinds of work he performed for the 

_________________________________________________________________ 

 may be recast, transformed, or adapted. A work consisting of 

 editorial revisions, annotations, elaborations, or other modification 

 which, as a whole, represent an original work of authorship, is a 

 "derivative work." 

Id. S 101. 

 20 

 

customers were telephone support, problem resolution, 

upgrades and modifications, and interfaces. 

The License Agreements provide that third parties, 

including customer consultants, may have access to 

confidential information, including the Millennium program, 

upon execution of a non-disclosure agreement acceptable to 

[Geac] prior to disclosure. Although Grace asserts that 

every one of its consultants signed a non-disclosure 

agreement when they worked on DBS software, we can find 

none of record except the Hutto document. Grace fails to 

point to any evidence of non-disclosure agreements signed 

by it or its employees with any of its customers; it claims 

a blanket authorization under the "Hutto-VA" agreement 

permitting access to Millennium. 

Hutto, a vice-president of Dun and Bradstreet, executed 

a non-disclosure document in 1993. The document fails to 

state the name of any customer for whom the services were 

to be performed. It is silent as to the duration of the period 

of service. Geac claims that this "Hutto" agreement applied 

only to the University of Virginia for whom Grace proposed 

to do maintenance work and was not a general 

authorization. Grace argues that "Hutto testified that the 

agreement was not limited to any one licensee and was 

satisfactory for any licensee." This argument, however, is a 

distortion of what Hutto stated. He testified that the 

agreement was satisfactory "as it related to the[University 

of Virginia]." The trial court ruled against Grace’s claim of 

blanket authorization stating that "there is not a sufficient 

quantum of proof to establish that we have a contract . . . 

understood by both sides, and the same way." The court, 

therefore, would not permit this document to go to the jury. 

Grace has appealed this ruling. 

Hutto testified the agreement was only intended"for the 

particular customer" with whom they were dealing at the 

time, the University of Virginia. He never intended it to be 

a blank non-disclosure agreement with third-party 

consultants. Moreover, there was no discussion by him 

with Grace’s representative that the agreement include 

others than the University of Virginia. In addition, it is 

unrefuted that he had "no authority" to enter into a blanket 

non-disclosure agreement. Although he further testified 
 21 

 

that an agreement containing similar language would have 

been satisfactory with respect to other customers, he did 

not testify, as Grace would have this Court believe, that 

"the agreement was not limited to any one licensee." The 

other evidence, particularly the use of the plural in the 

word "licensees" and the letter of Grace’s counsel to Hutto, 

is of very little probative value. Reference to the plural in 

"licensees" in the agreement is indeed a slender reed on 

which to cling. We see no error in the District Court’s 

conclusion that "there’s not a requisite quantum of 

evidence that the contract entered into between the parties 

had a meeting of the mind." 

The defendants offer an additional pellet in defense of 

their consulting and maintenance operation. They claim 

that their offsite activities in copying the source code and 

other elements of the program were justified by industry 

custom and practice. 

Grace emphasizes that it was industry practice to allow 

programs off-site and that customers required such off-site 

work, especially in emergency situations. Furthermore, it 

asserts that Section 16 of the License Agreement allows offsite activities, and that the provisions of the License 

Agreement "demonstrate that it does not preclude off site 

work." It maintains that its off-site activities are limited to 

reviewing the program to understand it so that necessary 

fixes can be made to the software in the customer’s 

mainframe computer. It contends that this section"makes 

clear that such activities are allowed." A defense of industry 

custom and practice in the face of the protective provisions 

of the Copyright Act could undermine the purposes and 

objectives of the statute and reduce it to rubble. 

Grace may not stultify itself by seeking shelter within 

selected terms of the License Agreements at one time and 

then, when it serves its convenience, disregard the 

conditions and other pertinent terms of the Agreements. 

Custom and practice in the computer industry, and the 

evidence of it in this record is vague and conclusory, is no 

authority to disregard or trump the specific terms of a valid 

license agreement or the provisions of the Copyright Act. 

"Custom and usage may not be invoked to relieve defendant 

of the clear cut obligations imposed by the application of 

 22 

 

the statute." Famous Music Corp. v. Seeco Records, Inc., 201 

F. Supp. 560, 566 (S. D. N.Y. 1961) Extrinsic evidence may 

not be used to nullify or modify the terms of a valid, 

unambiguous license agreement. See Atlantic Northern 

Airlines v. Schwimmer, 96 A.2d 652, 656 (N.J. 1953). 

"Extrinsic evidence . . . may not be used to create an 

ambiguity where none exists." International Union v. Skinner 

Engine Co., 188 F.3d 130, 145 (3d Cir. 1999). 
As previously noted, the Copyright Act gives the copyright 

owner the exclusive right to prepare derivative works based 

on the copyrighted work. 17 U.S. S 106. The District Court 

correctly defined a derivative work to the jury as"a new 

created work based on the original copyright work."9 

Grace’s W-2 program using Copy and Call commands 

copies Geac’s computer copyrighted code. Thus, it is a 

derivative work; the inclusion of the Copy and Call 

commands makes Grace’s W-2 programs infringing, 

derivative works of Geac’s copyrighted software. 

Grace attempts to brace its argument of industry practice 

to use these commands to retrieve data for maintenance 

work by arguing that the copy command does not modify 

the code. It also argues that the Copy and Call commands 

are used to access customer’s data, which belongs to the 

customer and is not protected. 

Section 2 of the M&D License Agreement provides in 

relevant part that the customer is authorized to use"the 

system solely for its own internal operation . . . within 

Customer’s data center at the location designated on the 

Customer and Product Information Schedule, at any other 

site which may replace it as provided in this section, or 

through a service bureau upon written prior approval of 

M&D." Paragraph 3 of that section permits use of the 

system in a remote job entry mode for the benefit of the 

customer and its subsidiaries provided that all processing 

involving use of any Licensed Program takes place only at 

the designated site or its temporary replacement." 

_________________________________________________________________ 

9. Under the Copyright Code, 17 U.S.C. S 101, a derivative work is work 

"based upon one or more preexisting works" and includes any recasting, 

transforming or adopting of the original work. Whelan, 797 F.2d at 1239. 

 23 

 

The limitation of the license authorization to the 

customer’s site and for its own internal operation is plain; 

use elsewhere may be permissible but with written prior 

approval of the licensor. Neither License Agreement 

permitted customer off-site use of the Geac code except 

with its prior approval. The License Agreement also forbade 

the distribution of modified versions of the Geac code. 

Section 16 of the agreement relied on by Grace is not 

inconsistent. It allows system copying, in whole or in part 

"for use by Customer at the designated site" and then 

under specific conditions and purposes set forth in that 

section. Such copying as is permitted at the site is only for 

purposes of "understand[ing] the contents of such machine 

readable materials." The interpretation of a written 

unambiguous agreement traditionally is a matter of law, 

not a question of fact for a jury. Church v. General Motors 

Corp., 74 F.3d 795, 799 (7th Cir. 1996); see also Winter v. 

Minnesota Mut. Life Ins. Co., 199 F.3d 399, 406 (7th Cir. 

1999). We therefore hold that the terms and conditions of 

the License Agreements may not be altered or modified by 

extrinsic incidence of purported industry custom and 
usage. 

D. GRACE’S W-2 PROGRAM 

We turn now to Geac’s third claim -- Grace’s use of Copy 

and Call commands to Geac’s W-2 program. Grace 

contends that the Call and Copy commands are used to 

access customer’s data, that such data belongs to the 

customer, and is not protectable. It asserts the Copy 

command does not modify the code and that industry 

practice uses the commands "to interoperate two systems;"10 

the Copy command does not insert text from one program 

into another; their program remains separate in memory. 

Grace admitted that the installation, testing, compiling and 

link editing of its W-2 programs required copying Geac’s 

software and link editing the Geac code. Geac therefore 

_________________________________________________________________ 

10. Defendant Grace asserts in Geac’s brief filed at trial dated April 19, 

2000, it conceded "that whether the call and copy" commands infringe is 

an issue to be decided by the jury. We can find no such concession in 

the record to which it refers. 

 24 

 

argues that these trial admissions compel the conclusion 

that, "as a matter of Law," Grace’s W-2 programs are 

infringing because they contain copies of Geac’s copyright 

code and are derivative works of Millennium. We agree. 

Citing to Walker v. University Books, 602 F.2d 589, 564 

(9th Cir. 1979), Geac further asserts that the Copyright Act 

does not allow an infringer to avoid liability by distributing 

instructions which result in copying. The Act gives a 

copyright owner the exclusive right to "prepare derivative 

works based upon the copyrighted work." 17 U.S.C.S 106. 

The Act also defines a "derivative work" as"a work based 

upon one or more pre-existing works [including] any other 

form in which a work may be recast, transformed or 

adapted." 17 U.S.C. S 101. Furthermore, the DBS License 

Agreement prohibits anyone from modifying the Millennium 

software code without Geac’s authorization. The M&D 

License Agreement permits a third party consultant, in 

certain instances, to modify the Geac code, but only if it 

satisfies the agreement’s non-disclosure and work-for-hire 

requirements for accessing the Geac code. Grace did not 

meet the License Agreements and non-disclosure 

requirements. Thus, Geac posits that this results in literal 

copy and modification of Geac’s W-2 program that 

constitutes a derivative work of the copied and called 

programs and code. 

We turn to Grace’s defense that its CNR W-2 program 

and the DBS Millennium W-2 programs are not similar and 

Grace, therefore, does not infringe on Geac’s copyright. 

Grace makes much of the government form that both 

generate for their customers and that this is a government 

form unprotected under copyright law. Of course, it is 

unprotected, and is not an issue. However, there is no 
claim that the other material in the PAYTXABR package is 

not copyrighted property. 

Grace also leans on Dr. Dewar’s testimony to support its 

argument that the two programs are dissimilar. Dr. Dewar 

found similarities in the two programs at the upper level 

but found them different at the lower levels.11 No further 

explanation is offered by Dr. Dewar as to what are the 

_________________________________________________________________ 

11. For descriptions of "upper" and "lower" levels, see p.6, n.2, supra. 

 25 

 

differences, except for a vague reference to Grace’s 

"extraction program." 

The source code which speaks in human language, and 

is critical, is at the upper level. This infringement may not 

be justified on the ground that not all elements of the 

system were copied or that there were some dissimilarities. 

Grace may have rearranged some of the words in the 

plagiarizing program or altered or replaced one or more 

components in its program, but these efforts to distinguish 

its program from Geac’s system does not erase the literal 

copying of Geac’s source code; it does not surmount 

Reynolds’ acknowledgment that "I could not have written 

the W-2 program without making either copies or calls to 

Dun & Bradstreet copy members or source code." 

We had occasion in one of our early cases dealing with 

substantial similarity wherein the defendant’s premise was 

that one cannot prove substantial similarity without 

comparing the entirety or a greater part of the work. We 

concluded that not in every area of copyright infringement 

is there a general requirement "that most of each of two 

works be compared before a court can conclude that they 

are substantially similar." Whelan, 797 F.2d at 1245. The 

source code and the object code are the literal elements of 

a computer program and are protected by copyright law. 

Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 

1240, 1249 (3d Cir. 1993); Cognotec Services v. Morgan 

Guar. of New York, 862 F. Supp. 45, (S.D. N.Y. 1994). 

Dr. Dewar conceded that Grace made copies of Geac’s 

code by its Call commands to Geac’s software when Grace 

compiled it W-2 program. He testified that so long as Geac’s 

licenses used Grace’s program, the coping through the 

Copy and Call commands is non-infringing because the 

licensee had authority to access. This is sophistry with 

which we do not agree. Authority to the licensee to access 

both programs does not give Grace the right to copy and 

call Geac’s copyrighted property for its own commercial and 

competitive purposes. As we have already explained, this 

infringement cannot be excused by purported industry 

practice. Having copied the critical source code, it is no 

defense to infringement that more of the system was not 

 26 
 

copied or that the plagiarist’s system may have some 

dissimilarities from the original system. 

Turning to its last defense, Grace relies on Computer 

Associates International, Inc. v. Altai, Inc., 982 F.2d 693 (2d 

Cir. 1992) and Mitel, Inc. v. Iqtel, Inc., 124 F.3d 1366 (10th 

Cir. 1997). This defense to the use of the Copy and Call 

command in Grace’s W-2 program is predicated on the 

doctrine of externalities, often referred to in a noncomputer literary setting as scenes a faire. 

The Court of Appeals explained in Gates Rubber Co. that 

under this doctrine, copyright protection is denied"to those 

expressions that are standard, stock, or common to a 

particular topic or that necessarily follow from a common 

theme or setting." Bando Chemical Industries, Ltd., 9 F.3d 

at 838. As related to computer programs, the Court of 

Appeals for the Second Circuit in Altai recognized that "in 

many instances it is virtually impossible to write a program 

to perform particular functions in a specific computing 

environment without employing standard techniques." 982 

F.2d at 709 (quoting 3 Nimmer S 13.03[F][3], at 13-65). 

That is because "a programer’s freedom of design choice is 

often circumscribed by extrinsic considerations such as (1) 

the mechanical specifications of the computer on which a 

particular program is intended to run; (2) compatibility 

requirements of other programs with which a program is 

designed to operate in conjunction; (3) computer 

manufacturers’ design standards; (4) demands of the 

industry being serviced; and (5) widely accepted 

programming practices within the computer industry." Id. 

at 709-10; see also Mitel, 124 F.3d at 1375. Thus, for these 

reasons certain content of the allegedly infringed program 

that might have been dictated by external factors may not 

be subject to copyright protection. Altai, 982 F.2d at 710; 

Gates Rubber, 9 F.3d at 838. 

The Court in Mitel agreed, stating that the"traditional 

copyright doctrine [of scenes a faire has been extended] to 

exclude from protection against infringement those 

elements of a work that necessarily results from external 

factors inherent in the subject matter of the work." Mitel, 

124 F.3d at 1375. The rationale is rather straightforward: 

Because those external factors dictated the creation of the 

 27 

 

allegedly infringed work, "it is lacking the originality that is 

the sine qua non for copyright protection. Gates Rubber, 9 

F.3d at 838 (citing Publ’n, Inc. v. Rural Tel. Serv. Co., 499 

U.S. 340, 348 (1991). 

Both Altai and Mitel clearly held that in determining 

aspects of the program not entitled to protection because of 

external factors, we examine the program from the 

viewpoint of the creator. Altai, 982 F.2d at 714; Mitel, 124 

F.3d at 1375. The Mitel court pointedly noted that the focus 
is on the factual circumstances and the external factors 

surrounding the author of the infringed program. Mitel, 124 

F.3d at 1375; see also Control Data Sys., Inc. v. Infoware, 

Inc., 903 F. Supp. 1316, 1323 (D. Minn. 1995) ("The 

question to be examined is whether external factors limited 

the choices available to the [allegedly infringed] 

programmers, not whether external factors may somehow 

limit the choices of [the alleged infringing work’s] 

programmers."). 

Dr. Dewar made it clear that he was advancing his own 

theory, explaining: "So my understanding of the process of 

determining for myself whether I consider something 

infringement, is that if something is dictated by the 

requirement of intraoperability, then that is an external 

factor that is not protectable." Explaining further, he 

testified: 

 [I]n modern computing, the notion of intraoperability is 

 fundamental. And the idea of writing programs which 

 are designed to work with licensed copies of other 

 programs, a fundamental part of computing, one of 

 which everyone has a PC, . . . taking advantage of. 

 And consequently it is exactly expected to, according to 

 industry standard and practice relating to 

 intraoperability, you will find two programs to design, 

 to work and to interoperate, and in the same manner 

 will have the same calls. 

Dewar’s testimony regarding external factors, including 

interoperability, is wholly misplaced. As Dewar admitted on 

cross-examination, he focused on externality from the 

viewpoint of Grace’s W-2 program, not Geac’s. He looked at 

externalities from the eyes of the plagiarist, not the eyes of 

 28 

 

the program’s creator. As explained, in determining whether 

certain aspects of an allegedly infringed software are not 

protected by copyright law, the focus is on external factors 

that influenced the choice of the creator of the infringed 

product. Altai, 982 F.2d at 714; Mitel , 124 F.3d at 1375. 

What is telling is that Grace makes no effort to explain this 

fundamental error on the part of Dewar except to urge that 

"external factors" and "interoperability" "are important 

concepts in proving that no infringement occurred." 

Furthermore, Dewar here simply offered no testimony 

regarding what parts of Geac’s program were dictated by 

external factors and therefore not protected. 

He therefore concluded: "My opinion, there’s no 

infringement." His explanation ignores completely that 

Geac’s Millennium program was designed and developed 

not for the purpose of working with personal computers but 

solely for business customers’ specific human resource 

problems. Under his theory, the Copyright Act is 

superfluous and the License Agreements become a bundle 

of straw. 
Dewar’s explanation of the need to interoperate two 

programs, and industry practice and custom, do not justify 

unauthorized accessing and copying Geac’s copyrighted 

code. The Court in Mitel specifically rejected the analysis of 

the district court in that case which focused on whether 

external factors such as market forces and efficiency 

considerations justified the copying. Mitel, 124 F.3d at 

1375; see also Apple Computer, Inc. v. Franklin Computer 

Corp., 714 F.2d 1240, 1253 (3d Cir. 1983) (stating that 

achieving total computability with independently developed 

application program . . . is a commercial and competitive 

objective which does not enter into the somewhat 

metaphysical issue of whether particular ideas and 

expressions have merged). We also reject the doctrine of 

externalities, including interoperability, as justification for 

using the Copy and Call commands to access Geac’s 

copyrighted software in violation of the License Agreements 

and the Copyright Code. 

E. CONCLUSION 

In conclusion, the interpretation of the License 

Agreements was a question of law and not of fact. The 

 29 

 

defenses raised by the defendants were unacceptable as a 

matter of law. Drawing all reasonable and logical inferences 

in the non-movant’s favor, we nevertheless must reverse 

the Order of the District Court denying Geac judgment as 

a matter of law on its copyright infringement claims. Upon 

our review of the record, it is evident that the verdict is not 

supported by legally sufficient evidence. In light of our 

decision on the motion for judgment as a matter of law, we 

do not reach the alternative issues relating to the motion 

for a new trial. 

III. 

MISAPPROPRIATION OF TRADE SECRETS 

Geac also pled a state claim for misappropriation of trade 

secrets claim with respect to Grace’s use of Millennium 

software. Geac argued that Grace breached multiple duties 

of confidentiality in creating and distributing its W-2 

program and other derivative works. The District Court 

granted Grace’s motion for summary judgment because it 

held that Geac’s claim was preempted by S 301 of the 

Copyright Act, 17 U.S.C. S 301. 

Our review of the District Court’s grant of summary 

judgment is plenary; we apply the same test as the District 

Court should have applied initially. Olson v. General Elec. 

Astrospace, 101 F.3d 947, 951 (3d Cir. 1996). Our review is 

de novo as to the question of law whether S 301 preempts 

a state cause of action for misappropriation of trade 

secrets. Trandes Corp. v. Guy F. Atkinson Co. , 996 F.2d 

655, 658 (4th Cir. 1993). 
Section 301(a) of the Copyright Act provides that: 

 all legal or equitable rights that are equivalent to any 

 of the exclusive rights within the general scope of 

 copyright as specified by section 106 in works of 

 authorship that are fixed in a tangible medium of 

 expression and come within the subject matter of 

 copyright as specified by sections 102 and 103 . . . are 

 governed exclusively by this title. Thereafter, no person 

 is entitled to any such right or equivalent right in any 

 30 

 

 such work under the common law or statutes of any 

 State. 

17 U.S.C. S 301(a). However, subsection b(1) makes explicit 

what is implicit in subsection (a) that the preemption 

provision does not apply if the "subject matter[ ] does not 

come within the subject matter of copyright as specified by 

sections 102 and 103." 17 U.S.C. S 301(b)(1). 

Subsection 301(b)(3) imposes another limitation that is 

principally at issue here. It provides that "[n]othing in this 

title annuls or limits any rights or remedies under the 

common law or statutes of any State with respect to 

activities violating legal or equitable rights that are not 

equivalent to any of the exclusive rights within the general 

scope of copyright as specified by section 106." 17 U.S.C. 

S 301(b)(3). As already noted previously, section 106 gives, 

subject to certain limitations, the owner of a copyright the 

exclusive rights to do and to authorize among other things 

the reproduction of the copyrighted material, the 

preparation of derivative works, and the distribution of 

copies. 17 U.S.C. S 106. 

As the District Court acknowledged, this Circuit has not 

yet addressed the effect of S 301 on the preemption of state 

misappropriation of trade secrets claims. Although we have 

not addressed the issue, we are not without guidance or a 

framework. The Congressional House Judiciary Committee 

Note accompanying S 301 clearly states that the intent of 

S 301 "is to preempt and abolish any rights under the 

common law or statutes of a State that are equivalent to 

copyright." House Report No. 94-1476. The note stated, 

however, that certain common law rights "would remain 

unaffected as long as the causes of action contain elements, 

such as invasion of personal rights or a breach of trust or 

confidentiality, that are different in kind from copyright 

infringement." Id. More specifically and most relevant to our 

issue, the Committee noted that misappropriation type 

claims are not necessarily synonymous with copyright 

infringements. Id. Therefore, misappropriation causes of 

action are not preempted if they are based on claims not 

equivalent to the exclusive rights within the general scope 

of the Copyright Act. Id. 

 31 
 

Less clear is what types of misappropriation claims are 

not preempted and are not within the general scope of the 

Act. The House version of S 301, which Congress adopted, 

deleted the Senate version of S 301(b)(3) that had 

enumerated certain types of misappropriation claims that 

would not be preempted. Conference Comm. Notes , House 

Conference Report No. 94-1733. However, as the District 

Court acknowledged, because any direct reference was 

deleted to acts of misappropriation, federal courts have 

grappled with whether a particular cause of action and, 

more specifically, a particular type of misappropriation is 

preempted under "any of the exclusive rights within the 

general scope of copyright as specified by S 106." 

Courts, as the Court of Appeals for the First Circuit 

acknowledged, have developed a "functional test" to 

determine the question of equivalence. Data General Corp. 

v. Grumman Systems Support Corp., 36 F.3d 1147, 1164 

(1st Cir. 1994). There, the court held that "if a state cause 

of action requires an extra element, beyond mere copying, 

preparation of derivative works, performance, distribution 

or display, then the state cause of action is qualitatively 

different from, and not subsumed within, a copyright 

infringement claim and federal law will not preempt the 

state action." Data Gen. Corp., 36 F.3d at 1164 (quoting 

Gates Rubber, 9 F.3d at 846-47); see also Trandes Corp., 

996 F.2d at 659 ("To avoid preemption, a cause of action 

defined by state law must incorporate elements beyond 

those necessary to prove copyright infringement, and must 

regulate conduct qualitatively different from the conduct 

governed by copyright law."); Altai, 982 F.2d at 716 ("[i]f an 

‘extra element’ is ‘required instead of or in addition to the 

acts of reproduction, performance, distribution or display, 

in order to constitute a state-created cause of action, then 

the right does not lie ‘within the general scope of copyright,’ 

and there is no preemption.") (citation omitted). This test 

has been labeled the "extra element" test. Trandes Corp., 

996 F.2d at 659. 

Not every extra element is sufficient to establish a 

qualitative variance between rights protected by federal 

copyright law and that by state law. Data Gen. Corp., 36 

F.3d at 1164-65; Altai, 982 F.2d at 717. A state law 

 32 

 

misappropriation of trade secrets claim that requires a 

proof of breach of duty of trust or confidence to the plaintiff 

through the improper disclosure of confidential materials is 

qualitatively different because it is not an element of 

copyright infringement. The breach of duty or trust 

represents unfair competitive conduct "qualitatively 

different from mere unauthorized copying." Data Gen. Corp., 

36 F.3d at 1165. Thus, it has been held that trade secrets 

claim based upon a breach of duty provides the extra 

element avoiding preemption. Altai, 982 F.2d at 717 ("[t]he 

defendant’s breach of duty is the graveman of such trade 
secret claims, and supplies the ‘extra element’ that 

qualitatively distinguishes such trade secret causes of 

action from claims for copyright infringement that are 

based solely upon copying."); Trandes Corp. , 996 F.2d at 

660 (agreeing "that the breach of a duty of trust or 

confidentiality comprises the core of action for trade secret 

misappropriation" qualitatively distinguishing it from 

copyright infringement); see also Gates Rubber , 9 F.3d at 

847-48 (same). 

Geac argues that "the district court erroneously 

concluded that Geac’s software . . . claims were based 

simply on the use and copying of the software, rather than 

Grace’s breach of its duties to keep Geac’s software and 

client list confidential." The extra element, it argues, 

precludes preemption. We agree with Geac that if their 

misappropriation of trade secrets claim was based on such 

breach of duty of trust and confidentiality, it would survive 

preemption in this case. Thus, if an employee of Geac who, 

by virtue of a confidential position, had access to the 

source code, misappropriated it, and used it to promote his 

own interests, such breach of confidentiality would be the 

extra element to a copyright infringement claim. The claim, 

therefore, would not be preempted by the Act. See Gates 

Rubber Co. v. Bando Chem. Indus., 9 F.3d. 823, 847-48 

(10th Cir. 1993) (copyright claim for wrongful use of a 

computer program does not preempt trade secret claim for 

misappropriation where defendant gained access to the 

program through plaintiff ’s employee who breached his 

duty to maintain secrecy). 

Geac also argues that the District Court did not address 

Geac’s misappropriation of trade secrets claim with respect 

 33 

 

to its customer lists. Because customer lists are not subject 

to copyright, it argues, it cannot pursuant to S 301(b)(1) be 

preempted. Grace does not dispute that the customer lists 

are not subject to copyright and presumably escape 

preemption for that reason pursuant to S 301(b)(1). Further, 

it does not contest that customer lists could constitute 

valid trade secrets. See Lamorte Burns & Co. v. Walters, 

770 A.2d 1158, 1166 (N.J. 2001) ("In New Jersey, customer 

lists of service business have been afforded protection as 

trade secrets."). 

Under Rule 56(c) of the Federal Rules of Civil Procedure, 

summary judgment on an issue is appropriate only if the 

affidavits, depositions, and other evidence submitted in 

connection with the motion for summary judgment 

demonstrate that "there is no genuine issue as to any 

material fact and that the moving party is entitled to a 

judgment as a matter of law." See Seibert v. Nusbaum, 

Stein, Goldstein, Bronstein & Compeau, P.A., 167 F.3d 166, 

170 (3d Cir. 1999). The court must "construe the facts in 

the light most favorable to the non-moving party." 

Seitzinger v. Reading Hosp. and Med. Ctr., 165 F.3d 236, 

238 (3d Cir. 1999). 
In entering summary judgment, the District Court failed 

to consider evidence that Geac’s customer lists were not 

copyrightable material and, therefore, that claims alleging a 

violation of state laws were not preempted. See First 

Publications, Inc. v. Rural Tel. Service Co., 499 U.S. 340, 

347 (1991) (data or facts "do not trigger copyright" because 

they are not original in the constitutional sense). Therefore, 

the claims that Grace misappropriated Geac’s client lists 

were not preempted and the District Court as a matter of 

law should not have dismissed them. 

With respect to Geac’s software claims and the evidence 

in their support, the District Court concluded that they 

were based only on the use and copying of software and the 

codes. The court failed to consider evidence of the alleged 

breach of Grace’s duties to maintain the confidentiality of 

Geac’s software and customer lists. These trade secret 

claims were qualitatively different from the rights protected 

by the Copyright Act because Grace’s evidence of breach of 

 34 

 

confidentiality constituted the extra element necessary to 

avoid preemption. 

Geac introduced evidence to the District Court that Grace 

was bound by express promises of confidentiality with 

respect to the software and customer list because, as a 

third party consultant, it had assumed an obligation of 

confidentiality under its own standard agreement with its 

customers. Furthermore, there is evidence that Grace 

employed former employees, and contracted with Reynolds, 

who owed obligations of confidentiality to Geac, to develop 

W-2 programs and provide maintenance service in behalf of 

Grace. Geac also produced evidence that Grace used 

improper means to acquire Geac’s trade secrets by inducing 

Geac’s licensees to divulge trade secrets under the false 

representation to them that the Hutto-VA agreement 

authorized Grace to act generally as a third party 

consultant; that on the basis of this false representation, 

Geac’s licensees allowed Grace to service their copies of the 

Millennium program without Geac’s knowledge or consent. 

Grace disputes that Geac produces any evidence to 

support "a true trade secret claim." Grace argues that Geac 

did not make reasonable efforts to retain the trade secrecy 

of their customer lists and that there was no evidence of 

misappropriation. Geac admits that its customer lists were 

distributed to participants at its user conferences but 

contends that parties had to sign a confidentiality 

agreement. Because of the error of law and disputed issues 

of material facts, the entry of partial summary judgment 

was improper and will be vacated. The issue of 

misappropriation of trade secrets, therefore, will be 

remanded to the District Court for further proceedings 

consistent with this opinion. 

IV. 
GRACE’S CROSS-APPEAL 

Grace and Ilutzi have cross-appealed raising numerous 

issues. We conclude that each issue has no merit and 

therefore we discuss each item only briefly. 

 35 

 

First, Grace claims that the District Court erred in 

dismissing the breach of contract counterclaim "without 

articulating any factual basis for its decision." We could not 

disagree more with Grace’s characterization of the District 

Court’s decision. The court was quite clear when it stated 

that there is not "sufficient quantum of proof to establish 

that we have a contract." The contract claim was based on 

the "Hutto-VA" Agreement. As we have discussed above, the 

District Court found this agreement invalid and that it 

contained no blanket authority for Grace to serve all of 

Geac’s customers without appropriate, individual, nondisclosure agreement. We see no error. 

Even if there was a meeting of the minds, we conclude 

that the "Hutto-VA" Agreement is still not an enforceable 

contract because of lack of adequate consideration. 

Although Grace agreed not to disclose "proprietary or 

confidential information," there is no indication of what 

Geac promised in return or what Grace bargained for in 

return of its promise. Without any reference to the record 

for evidentiary support, Grace argues that Geac promised 

"that it would have no infringement claim against Grace if 

it complied with this agreement." However, the plain 

language of the agreement is silent as to any such promise. 

For similar reasons, we reject Grace’s promissory 

estoppel claim because it has failed to identify any clear or 

definite promise to which it reasonably relied upon. We do 

not reach the merits, however, because we conclude that 

Grace waived it by not asserting it before the District Court. 

United Parcel Serv., Inc. v. International Bhd. of Teamsters, 

Chauffeurs, Warehousemen and Helpers of Am., Local Union 

No. 430, 55 F.3d 138, 140 n.5 (3d Cir. 1995) ("It is the 

general rule that issues raised for the first time at the 

appellate level will not be reviewed."). 

Second, Grace had pled a tortious interference 

counterclaim alleging that Geac’s conduct damaged it 

economically with third parties. More specifically, as the 

Magistrate Judge also noted, the essence of the claim here 

is the alleged tortious conduct of Geac’s General Counsel 

James Alberg and certain letters he sent to the licensees. 

Grace assigned two errors to the District Court in 

dismissing this claim. The District Court dismissed the 

 36 

 

claim because Grace failed to produce sufficient evidence to 

prove that any third parties acted on a letter sent by 
Alberg. This was not erroneous. FDIC v. Bathgate , 27 F.3d 

850, 871-72 (3d Cir. 1994) ("Under New Jersey law[one of] 

the five elements of a claim of tortious interference with a 

prospective or existing economic relationship [is] the 

reasonable probability that plaintiff would have received the 

anticipated economic benefit in the absence of 

interference.") (citations omitted). The basis of the District 

Court’s dismissal was therefore the failure by Grace to 

produce sufficient evidence as to causation. Thus, Grace’s 

complaint on not having been provided an opportunity to 

prove damages because the case was bifurcated is 

irrelevant. There is no need to address whether the tortious 

interference claim fails to satisfy the other elements of the 

cause of action. 

Grace’s other claim of error on the tortious interference 

claim is equally unconvincing. It complains that the 

Magistrate Judge erroneously limited discovery, prejudicing 

its ability to present this claim. Were we to reach the 

merits, we would not agree. Grace was provided access to 

Geac’s documents of seventy of its licensees to whom Grace 

provided maintenance services. If Grace needed to contact 

other licensees to determine what effect letters sent by 

Alberg had on their decision making process, they could 

have turned to their own customer list. We see no error or 

prejudice warranting reversal. Moreover, we conclude that 

Grace waived the right to complain of the Magistrate 

Judge’s alleged limited discovery order by failing to appeal 

it to the District Court. United Steelworkers of Am., AFL-CIO 

v. New Jersey Zinc Co., 828 F.2d 1001, 1006 (3d Cir. 1987) 

("Congress intended that review of a magistrate’s decision 

on a nondispositive pretrial matter must, initially, be had in 

the district court.") (quoting Siers v. Morrash, 700 F.2d 113, 

114-15 (3d Cir. 1983); id. at 1008 ("[T]his court has 

consistently held that it will not, absent extraordinary 

circumstances, address on appeal issues not originally 

presented to the district court."). 

Third, Ilutzi argues that the District Court’s refusal to 

allow the jury to consider evidence of copyright misuse as 

a defense to any possible infringing activity was erroneous. 

 37 

 

Ilutzi contends that Geac "sought to use its copyright to 

take and retain control over an entirely different market 

than that covered by copyright (in seeking) to control 

services and maintenance with respect to its software." 

Because the District Court found that this defense suffered 

from the same infirmity as the contract and tortious 

interference counterclaim, it struck the defense. This Court 

has not yet addressed the legal viability of the copyright 

misuse as a defense. We reserve consideration of this issue 

for another case. Even if we were to adopt copyright misuse 

as a defense as laid out in Lasercomb America, Inc. v. 

Reynolds, 911 F.2d 970, 972-77 (4th Cir. 1990), we agree 

with the District Court that the record is simply devoid of 

any evidence of misuse by Geac. As we have discussed at 

length in our discussion of the motion denying judgment as 
a matter of law, Geac’s Licensing Agreements with its 

clients specifically allow for third party maintenance 

provided the third party signs non-disclosure agreements 

acceptable to Geac and complies with other conditions 

contained therein. 

Finally, both Grace and Ilutzi vehemently contend that 

the District Court abused its discretion in denying them, as 

the prevailing party in the copyright infringement action, 

attorney’s fees pursuant to 17 U.S.C. S 505. In light of our 

disposition of this appeal and cross-appeal, we conclude 

that the issue is moot and do not address it. 

Lastly, Ilutzi submits that Geac has abandoned claims 

against him because he is not named or listed in Geac’s 

opening brief. We find this argument to border on the 

frivolous. In no uncertain terms, Geac noted in its opening 

brief that references to Grace include all the defendants, 

appellees, and cross-appellants. Furthermore, Geac’s notice 

of appeal was from the June 6, 2000, judgment of no action 

entered in favor of both Grace and Ilutzi. Thus, both parties 

are properly before this Court as appellees. 

V. 

CONCLUSION 

In summary, we hold that the District Court erred in 

denying Geac’s motion for judgment as a matter of law. The 

 38 

 

District Court’s judgment rejecting Geac’s claim for 

misappropriation of trade secrets will be vacated. The 

District Court’s order dismissing defendant’s counterclaims 

will be affirmed. In light of our decision on the motion for 

judgment as a matter of law, there is no need to reach 

Geac’s motion for new trial and the alleged evidentiary and 

jury instruction errors. Grace’s motion for attorney’s fees 

will be denied as moot. The case will be remanded to the 

District Court with direction to enter an order vacating the 

judgments entered in favor of the defendants and for such 

further proceedings as are consistent with this opinion. 

Costs taxed against the defendants-appellees. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 39