Source: http://openjurist.org/307/f3d/197
Timestamp: 2015-07-02 23:31:22
Document Index: 178078016

Matched Legal Cases: ['§ 117', '§ 8', '§ 101', '§ 102', '§ 106', '§ 106']

307 F3d 197 Dun Bradstreet Software Services Inc | OpenJurist
307 F. 3d 197 - Dun Bradstreet Software Services Inc	Home307 f3d 197 dun bradstreet software services inc
307 F3d 197 Dun Bradstreet Software Services Inc 307 F.3d 197
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.,Dun & Bradstreet Software Services, Inc.; Geac Computer Systemsv.Grace Consulting, Inc.; Grace Maintenance; Anthony Ilutzi
No. 00-2772
No. 00-2932.
Wayne C. Matus (Argued), LeBoeuf, Lamb, Greene & MacRae, New York, NY, Harvey C. Kaish, McCarter & English, Newark, NJ, Peter J. Gallagher, Salans, Hertzfeld, Heilbronn, Christy & Viener, New York, NY, for Appellant Geac Computer Systems.
Andrew J. Kyreakakis (Argued), Ambrosio, Kyreakakis, DiLorenzo, Moraff & McKenna, Bloomfield, NJ, for Appellees Grace Consulting, Inc. and Grace Maintenance.
Leonard T. Nuara (Argued), Thacher, Proffitt & Wood, Jersey City, NJ, for Appellee Anthony Ilutzi.
Ronald S. Katz, Coudert Brothers, San Francisco, CA, for Amicus for Appellee Service Industry Association.
Before SCIRICA, ROSENN, Circuit Judges, and KANE,* District 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 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.
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 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 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."
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: &#x2022; 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.
&#x2022; 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:
&#x2022; Customer may make a reasonable number of copies of the Program exclusively for testing, disaster recovery, inactive back-up or archival purposes.
&#x2022; Each party shall hold Confidential Information of the other in confidence.... All Confidential Information shall remain the sole property of the disclosing party.
&#x2022; Upon execution of a satisfactory nondisclosure agreement, third parties may have access to Confidential information.
&#x2022; 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.
&#x2022; 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 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.
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 materials4 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's claims of copyright infringement may be divided into three general categories. First, Geac claims that the 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. § 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.
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. Keith 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. Witco 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 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.
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, § 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. §§ 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:
17 U.S.C. § 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; Gates Rubber Co. v. Bando 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. § 106." Ford Motor Co. v. Summit Motor Products, Inc., 930 F.2d 277, 291 (3d Cir.1991). Of relevance here, 17 U.S.C. § 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:
(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.
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 Millenni