Court Opinion

ID: 4124905
Source: CourtListenerOpinion
Date Created: 2017-02-10 01:30:21.840838+00
Date Added: 2024-06-11T07:46:20.039095
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

DESIGN DATA CORPORATION, a              No. 14-16701
Nebraska corporation,
                Plaintiff-Appellant,       D.C. No.
                                        3:12-cv-04131-
                 v.                         WHO

UNIGATE ENTERPRISE, INC., DBA
Unigate Steel Detailing, a California
corporation; UNIGATE GRAPHIC,
INC., DBA Unigate Steel Detailing, a
California corporation; UNIGATE
INVESTMENT, INC., DBA Unigate
Steel Detailing, a California
corporation; LOUIS LIU, an
individual; HELEN ZHANG, an
individual; JIANJUN LIU, an
individual,
               Defendants-Appellees.
2       DESIGN DATA CORP. V. UNIGATE ENTERPRISE

DESIGN DATA CORPORATION, a                   No. 14-17317
Nebraska corporation,
                  Plaintiff-Appellee,           D.C. No.
                                             3:12-cv-04131-
                    v.                           WHO

UNIGATE ENTERPRISE, INC., DBA
Unigate Steel Detailing, a California          OPINION
corporation; UNIGATE GRAPHIC,
INC., DBA Unigate Steel Detailing, a
California corporation; LOUIS LIU,
an individual; HELEN ZHANG, an
individual,
              Defendants-Appellants.

        Appeal from the United States District Court
            for the Northern District of California
     William Horsley Orrick III, District Judge, Presiding

           Argued and Submitted October 17, 2016
                 San Francisco, California

                    Filed February 9, 2017

    Before: Michael Daly Hawkins, Consuelo M. Callahan,
           and Andrew D. Hurwitz, Circuit Judges.

                 Opinion by Judge Hawkins
        DESIGN DATA CORP. V. UNIGATE ENTERPRISE                         3

                            SUMMARY*

                              Copyright

    The panel affirmed in part and reversed in part the district
court’s summary judgment in favor of the defendants in an
action under the Copyright Act.

    Design Data Corporation alleged that Unigate Enterprise,
Inc., infringed the copyright on Design Data’s computer aided
design program by downloading an unauthorized copy of the
program and importing and distributing within the United
States program output generated by a Chinese contractor
using an unauthorized copy of the program.

    The panel reversed the district court’s summary judgment
on the downloading claim. The panel held that there was a
material question of fact whether Unigate’s download was
more than an insignificant violation of Design Data’s
copyright.

    The panel affirmed the district court’s summary judgment
on the importation-and-distribution claim. The panel held
that the copyright in the program did not extend to the
program’s output of images and files. The panel also
affirmed the district court’s decision to refuse Design Data a
further opportunity to amend its complaint.

    *
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4      DESIGN DATA CORP. V. UNIGATE ENTERPRISE

                        COUNSEL

Kymberleigh N. Korpus (argued) and Yano Rubinstein,
Rubinstein Law, San Francisco, California, for Plaintiff-
Appellant/Cross-Appellee.

J. James Li, Ph.D. (argued), LiLaw Inc., Los Altos,
California, for Defendants-Appellees/Cross-Appellants.

                        OPINION

HAWKINS, Circuit Judge:

                       Introduction

    We address issues concerning the scope and reach of
copyright protection. Design Data Corporation (“Design
Data”) brought the underlying action against Unigate
Enterprise, Inc. (“UE”), alleging that UE infringed the
copyright on Design Data’s computer aided design (“CAD”)
program by downloading an unauthorized copy of the
program and importing and distributing within the United
States program output generated by a Chinese contractor
using an unauthorized copy of the program. We have
jurisdiction pursuant to 28 U.S.C. § 1291. Determining that
a genuine issue of material fact exists with respect to the
downloading claim, we reverse the district court’s grant of
summary judgment in part and remand for proceedings
consistent with this opinion. At the same time, we affirm the
district court’s summary judgment on the importation-and-
distribution claim and the denial of Design Data’s motion for
leave to file a second amended complaint.
       DESIGN DATA CORP. V. UNIGATE ENTERPRISE               5

          Factual and Procedural Background

    Design Data created and owns a copyrighted CAD
software program called SDS/2. Based on data input by the
user, SDS/2 uses building and engineering codes to produce
two- and three-dimensional drawings and models of steel
structural components. These drawings and models enable
the fabrication of steel components and assist with the
building of structures. When SDS/2 is used to design steel
components, SDS/2 also creates “job files,” which contain all
information and files related to the project.

    UE is a California corporation that outsources steel
detailing services by selling steel detailing CAD files created
by contractors in China. At least one of UE’s Chinese
contractors created CAD images and files using an
unauthorized copy of SDS/2 and sent the output to UE. UE,
in turn, sold those images and files to clients in the United
States. Design Data contends that UE was aware its Chinese
contractor was using an unauthorized copy of SDS/2, UE
denies such knowledge.

      Despite advertising on its website that “We use the SDS/2
. . . if required,” UE never purchased a license to use SDS/2
and claims it never actually used the program. UE has
admitted, however, to downloading a copy of SDS/2 from a
website to a UE external hard drive. UE claims it was
curious about “what the software was all about” and
abandoned its efforts after reading the program’s
“complicated explanations.” UE maintains that it merely
downloaded a “free demo” of SDS/2 and was unaware it was
actually a “cracked” (or hacked) copy. Design Data,
however, contends it does not offer free trials of SDS/2 over
the internet.
6       DESIGN DATA CORP. V. UNIGATE ENTERPRISE

    Suspecting that UE was using SDS/2 without a license,
Design Data visited UE’s offices. Design Data found
installation files on UE’s computers for two versions of
SDS/2 and three patch files, whose purpose is to allow a user
to work around the code protection for SDS/2. Relying on
UE’s technical expert, the district court concluded there was
no evidence that UE had actually installed SDS/2 on the
computers that Design Data was allowed to inspect.1 UE’s
computers did, however, contain SDS/2-generated images
and job files, suggesting the CAD program had actually been
used in some fashion.

    Design Data brought the action below against UE,
alleging copyright infringement based on UE’s use of SDS/2
and its importation and distribution of SDS/2-generated
images and files created outside the United States. The
district court granted UE’s motion for summary judgment,
finding that its download of SDS/2 was de minimis copyright
infringement, that any infringement by UE’s Chinese
contractor was beyond the reach of U.S. copyright law, and
that Design Data failed to show that SDS/2’s copyright
protected the SDS/2-generated images and files at issue.

    The district court also denied Design Data’s request for
leave to file a second amended complaint and UE’s motion
for attorney’s fees. These timely appeals followed.

    1
     An external hard drive, of course, cannot operate on its own, and
when attached to a computer system becomes operationally part of the
computer itself.     Michael Graves, COMPUTER TECHNOLOGY
ENCYCLOPEDIA: QUICK REFERENCE FOR STUDENTS AND PROFESSIONALS
126–27 (2009).
       DESIGN DATA CORP. V. UNIGATE ENTERPRISE                  7

                          Discussion

                     Standard of Review

    We review the district court’s grant of summary judgment
de novo. Smith v. Clark Cnty. Sch. Dist., 727 F.3d 950, 954
(9th Cir. 2013). Denial of leave to amend is reviewed for
abuse of discretion. In re Daisy Sys. Corp., 97 F.3d 1171,
1175 (9th Cir. 1996).

                   Copyright Infringement

    Design Data argues that UE infringed the SDS/2
copyright by: (1) downloading the SDS/2 program without
Design Data’s authorization; and (2) importing SDS/2-
generated images and job files into the United States and
distributing them to its U.S. customers.

                 A. UE’s Download of SDS/2

    Although the unauthorized use of a copyrighted work is
not actionable unless it is “significant enough to constitute
infringement,” Newton v. Diamond, 388 F.3d 1189, 1192–93
(9th Cir. 2003), the facts surrounding UE’s download of
SDS/2 are disputed. UE claims it downloaded a “free demo,”
was unaware the copy of SDS/2 it downloaded was
unauthorized, and made no further use of SDS/2. Design
Data, for its part, insists it does not offer free trials of SDS/2
online and that the presence of SDS/2-generated files on UE’s
computers suggests the program was in fact put to use.

    Taken in the light most favorable to Design Data, the
evidence raises a material question of fact precluding
summary judgment on the unauthorized download claim. UE
8      DESIGN DATA CORP. V. UNIGATE ENTERPRISE

intentionally downloaded a complete copy of SDS/2 and three
patch files allowing circumvention of SDS/2’s licensing
requirement. UE’s website advertised that “We use the
SDS/2 . . . if required,” and UE’s computers contained
SDS/2-generated images and job files. This evidence raises
a factual question whether UE’s download was more than an
“insignificant violation[]” of Design Data’s copyright.
Ringgold v. Black Entm’t Television, Inc., 126 F.3d 70, 74 (2d
Cir. 1997). In light of “the overwhelming thrust of
authority[, which] upholds liability even under circumstances
in which the use of the copyrighted work is of minimal
consequence,” it was error to grant summary judgment on the
basis that UE’s download of SDS/2 constituted a de minimis
infringement. 2 NIMMER ON COPYRIGHT § 8.01[G]
(collecting cases); see also BMG Music v. Perez, 952 F.2d
318, 320 (9th Cir. 1991) (rejecting argument that any conduct
short of “wholesale importation” equals de minimis
infringement).

B. UE’s Importation and Distribution of SDS/2-Generated
                   Images and Files

    To establish copyright infringement, Design Data must
prove (1) ownership of the SDS/2 copyright, and (2) copying
of protectable expression by UE. See Baxter v. MCA, Inc.,
812 F.2d 421, 423 (9th Cir. 1987). Because there is no
dispute that Design Data owns the SDS/2 copyright, UE’s
liability for importing and distributing SDS/2-generated
images and files turns on whether the SDS/2 copyright
extends to the program’s output.

   The district court, relying on an unpublished district court
decision, rejected Design Data’s argument that the SDS/2
copyright could extend to the program’s output. See Design
       DESIGN DATA CORP. V. UNIGATE ENTERPRISE              9

Data Corp. v. Unigate Enters. Inc., 63 F. Supp. 3d 1062,
1068 (N.D. Cal. 2014) (citing Atari Games Corp. v. Nintendo
of Am., Inc., No. C 88-4805 FMS, 1993 U.S. Dist. LEXIS
8183, at *11–12 (N.D. Cal. Apr. 15, 1993)). Other
authorities, however, suggest that the copyright protection
afforded a computer program may extend to the program’s
output if the program “does the lion’s share of the work” in
creating the output and the user’s role is so “marginal” that
the output reflects the program’s contents. 4 NIMMER ON
COPYRIGHT § 13.03[F] (quoting Torah Soft Ltd. v. Drosnin,
136 F. Supp. 2d 276, 283 (S.D.N.Y. 2001)).

    Assuming, without deciding, that copyright protection
does so extend, we nonetheless conclude that Design Data did
not raise a question of material fact that the imported SDS/2-
generated images and files reflected the contents of its
program. Design Data did not present evidence establishing
that SDS/2 “does the lion’s share of the work” in creating the
steel detailing files or that the user’s input is “marginal.”
Torah Soft, 136 F. Supp. 2d at 283. Thus, the district court
correctly rejected Design Data’s argument that the SDS/2
copyright protects the images and files that UE imported and
distributed.

                      Leave to Amend

   The district court did not abuse its discretion in denying
Design Data leave to file a second amended complaint.
Design Data only moved for leave to amend after the court-
ordered discovery cutoff date and three days before the
hearing on UE’s motion for summary judgment.
10       DESIGN DATA CORP. V. UNIGATE ENTERPRISE

                            Conclusion

    We affirm the district court’s determination that the
copyright protection afforded Design Data’s computer
program does not, on these facts, extend to the program’s
output. We also affirm the district court’s decision to refuse
Design Data a further opportunity to amend its complaint.
However, we reverse the district court as to its determination
on summary judgment that UE’s download of Design Data’s
SDS/2 program was a de minimis copyright violation, and we
remand for further proceedings consistent with this opinion.2

  AFFIRMED IN PART, REVERSED IN PART AND
REMANDED.

     Each party to bear its own costs on appeal.

     2
     We leave UE’s separate appeal from the denial of attorney fees (No.
14-17317) for the district court to consider upon completion of
proceedings on remand.