Computer Mgmt Asst v. Robert F deCastro ( 2000 )

REVISED - September 18, 2000
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-30513
COMPUTER MANAGEMENT ASSISTANCE COMPANY,
Plaintiff-Appellant,
v.
ROBERT F. DeCASTRO, INC., et al.
Defendants,
INFORMATION MANAGEMENT CONSULTANTS & ASSOCIATES, INC.,
Defendant-Appellee.
Appeal from the United States District Court
For the Eastern District of Louisiana
July 25, 2000
Before GARWOOD, DeMOSS and PARKER, Circuit Judges.
ROBERT M. PARKER, Circuit Judge:
Plaintiff-Appellant appeals the district court's entry of
judgment for Defendant-Appellee after a bench trial on claims of
copyright infringement, trade secret misappropriation and unfair
trade practices. We affirm the district court's ruling on these
claims. Plaintiff also appeals the district court's award of
attorney's fees pursuant to a fee-shifting statute. We express
no judgment on the validity of this fee determination and dismiss
this portion of the appeal for lack of jurisdiction.
FACTUAL HISTORY AND PROCEEDINGS BELOW
Computer Management Assistance Company (“CMAC”) developed a
computer program for the picture framing industry named ACCESS.
ACCESS is a front-end pricing program that assists distributors
in managing sales and facilitating transactions with customers.
In 1983, CMAC licensed ACCESS to Robert F. de Castro, Inc.,
(“deCastro”) a major wholesale distributor of picture frames, and
trained deCastro's information systems manager, Luis Escalona,
(“Escalona”) to use ACCESS. Under this license agreement, CMAC
placed confidentiality restrictions on deCastro's right to use
and disclose ACCESS.1
CMAC's package to deCastro included a sublicense of an
interpreter, licensed by CMAC to run ACCESS on deCastro's
computer. An interpreter translates instructions in a specific
program language, in which a programmer has written a program
(its “source code”), into a specific numerical language (its
“object code”) that the computer is built to run on. BUSS also
depended on the CMAC licensed interpreter to run on deCastro's
computer.
In 1992, Information Management Consultants (“IMC”), a
value-added reseller of FACTS, a comprehensive software package
for wholesale distributors in general (i.e., not industry
1
In addition to ACCESS, deCastro used a “Backup Stock
System” (BUSS) program that was written by Escalona in the same
business basic language that ACCESS used. BUSS is a back-end
inventory that assists distributors in managing stock. This
program kept track of 25,000 boxes of framing and molding in
deCastro's inventory. It specified identity, quality and bin
location of each item from receipt until sale. BUSS enabled
employees to know what was in the warehouse and where to find it.
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specific) contacted deCastro. The next year, IMC presented a
proposal to install and modify FACTS to fit deCastro's needs.
This was IMC's inaugural foray into the picture framing industry.
A document referred to as “Appendix A” proposed modifications to
incorporate deCastro's internal BUSS and interface with
deCastro's pricing regime.
In August of 1993, deCastro decided to enter into a new
contract with CMAC. CMAC agreed to try to modify ACCESS to
provide direct order entry and for that purpose got from IMC a
FACTS demonstration package including that feature. CMAC was
unable to modify ACCESS to satisfy deCastro's need for direct
order capability. DeCastro renewed discussions with IMC and
eventually entered into a contract for FACTS that included items
from Appendix A. The uncomplicated modifications were made by
adding files (approximately 750 lines of code) to generic FACTS
(containing over 600,000 lines of code). IMC installed the
modified FACTS and deCastro began using it in June of 1996.
Because FACTS was written in a different language (BBX basic)
than ACCESS, IMC also installed another interpreter. The CMAC
software was still installed and the CMAC interpreter was still
utilized to run BUSS.
In February of 1997, CMAC filed suit against deCastro,
Escalona and IMC2 alleging copyright infringement, trade secret
2
Defendants deCastro and Escalona are no longer parties to
this appeal. All claims against deCastro and Escalona were
settled by agreement between the parties. Their cross appeal
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misappropriation, unfair and deceptive trade practices and breach
of contract. After a two-week bench trial, the district court
entered judgment against CMAC on all claims. In addition, the
district court awarded attorney's fees against CMAC pursuant to
the Copyright Act's fee-shifting provision. CMAC appeals the
district court's dismissal of its claims as against IMC and the
award of attorney's fees.
STANDARD OF REVIEW
“We review the district court's findings of fact for clear
error and decide issues of law de novo.” Malchi v. Thaler, 211
F.3d 953, 956 (5th Cir. 2000).
DISCUSSION
I. Copyright Infringement.
A plaintiff must prove the following elements to succeed on
a claim of copyright infringement: (1) ownership of the
copyrighted material and (2) copying by the defendant. See
Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772, 790
(5th Cir. 1999). “Copyright ownership is shown by proof of
originality and copyrightability in the work as a whole and by
compliance with applicable statutory formalities.” Engineering
Dynamics, Inc. v. Structural Software, Inc., 26 F.3d 1335, 1340
(5th Cir. 1994) (citing Plains Cotton Coop. Ass'n v. Goodpasture
Computer Serv., Inc., 807 F.2d 1256, 1260 (5th Cir. 1987)),
against CMAC is no longer before us.
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opinion supplemented on denial of rehearing by 46 F.3d 408 (5th
Cir. 1995). It is undisputed that CMAC obtained a copyright for
ACCESS.
Not all copying by a defendant is actionable as copyright
infringement. “A copy is legally actionable if (1) the alleged
infringer actually used the copyrighted material to create his
own work, and (2) substantial similarity exists between the two
works.” Alcatel, 166 F.3d at 790. The factual question of
whether the defendant actually used the copyrighted material can
be inferred by showing proof of access to the copyrighted work
and probative similarity between the defendant's work and the
copyrighted work. See Engineering Dynamics, 26 F.3d at 1340-41
(citations omitted). The second question is whether the copying
is legally actionable. The inquiry here is whether there is
substantial similarity between the two works. See id.
Computer programs are entitled to copyright protection. See
id. at 1341; see also Vault Corp. v. Quaid Software Ltd., 847
F.2d 255, 259 (5th Cir. 1988) (noting that the Copyright Act was
amended in 1976 “to include computer programs in the definition
of protectable literary works”). The Copyright Act defines a
computer program as “a set of statements or instructions to be
used directly or indirectly in a computer in order to bring about
a certain result.” 17 U.S.C. § 101 (1994). “[C]opyright
protection for an original work of authorship [does not] extend
to any idea, procedure, process, system, method of operation,
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concept, principle, or discovery, regardless of the form in which
it is described, explained, illustrated, or embodied in such
work.” 17 U.S.C. § 102(b) (1994). In other words, copyright
protection does not extend to ideas, per se, but to the
particular expression of those ideas.
The law in this Circuit lends copyright protection to the
non-literal as well as the literal elements of computer programs.
See, e.g., Kepner-Tregoe, Inc., v. Leadership Software, Inc., 12
F.3d 527, 536 n.20 (5th Cir. 1994) (embracing the
“noncontroversial proposition that non-literal aspects of
copyrighted works--like structure, sequence, and organization--
may be protected under copyright law”) (citing Feist
Publications, Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340
(1991)).
CMAC argues that copyright protection extends to the terms
of its literal lines of code and its non-literal elements of
architecture, design and coding methodology. Notwithstanding the
fact that there is no literal similarity between the code lines
of FACTS and ACCESS, CMAC argues that copyright protection was
infringed on the non-literal design and organizational elements.
We use the “abstraction-filtration” method to determine
copyright protection. See Engineering Dynamics, 26 F.3d at 1343.
The approach was taken from the Tenth Circuit's analysis in Gates
Rubber Co. v. Bando Chemical Indus., Ltd., 9 F.3d 823 (10th Cir.
1993). That court's thoughtful explanation guides our analysis
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on this issue:
First, in order to provide a framework for
analysis, we conclude that a court should dissect the
program according to its varying levels of generality
as provided in the abstractions test. Second, poised
with this framework, the court should examine each
level of abstraction in order to filter out those
elements of the program which are unprotectable.
Filtration should eliminate from comparison the
unprotectable elements of ideas, processes, facts,
public domain information, merger material, scenes a
faire material, and other unprotectable elements
suggested by the particular facts of the program under
examination. Third, the court should then compare the
remaining protectable elements with the allegedly
infringing program to determine whether the defendants
have misappropriated substantial elements of the
plaintiff's program.
Gates Rubber, 9 F.3d at 834, quoted in Engineering Dynamics, 26
F.3d at 1342-43.
The scenes a faire doctrine excludes from copyright
protection work serving functional purposes or work that is
dictated by external factors such as particular business
practices. The Gates Rubber Court articulated the application of
this doctrine to copyright issues involving computer programs.
In the area of computer programs these external factors
may include: hardware standards and mechanical
specifications, software standards and compatibility
requirements, computer manufacturer design standards,
target industry practices and demands, and computer
industry programming practices.
9 F.3d at 838 (citations omitted), quoted in Engineering
Dynamics, 46 F.3d at 410 n.2.
A. Abstraction.
We must first divide the ACCESS program segments into layers
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of abstraction and determine “whether the contents of that
segment depict an idea, process or method, which, inseparable
from its expression or incapable of expression by any other
means” and are therefore not copyrightable. Engineering
Dynamics, 26 F.3d at 1343.
Appendix A3 discusses how the generic FACTS system would be
modified to incorporate deCastro's method of doing business. CMAC
asserts that Appendix A provides ample evidence of a copyright
violation. It alleges that Appendix A contains numerous
copyrightable design specifications, not just general business
practices, which were copied from its program. Specifically,
Section Two of Appendix A details the most significant
modifications to generic FACTS: those necessary to accommodate
deCastro's pricing matrices. The pricing system includes group
pricing,4 customer special pricing5 and price calculations.6
Section Four of Appendix A covers corner samples and chop
3
This document is an appended portion of a larger document
that constituted IMC's proposal to deCastro.
4
Discount pricing based on the volume purchased within a
user-defined group of items, rather than on the volume of each
item itself.
5
Each customer may have its own pricing of discount
schedule.
6
The pricing hierarchy is the order of precedence of the
manually entered price, the customer special price, the group
price, the item discount price and the item base price.
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handling7 aspects of deCastro's business.
After a thorough examination of Appendix A and the remainder
of the record, we agree with the district court on the initial
level of abstraction analysis. The ACCESS program contains
several features that qualify as an “expression” of a detailed
design specification developed by CMAC in its source code and
object code, as well as the non-literal elements of its program,
to meet the requirements of the framing industry. Accordingly,
the district court properly proceeded to the next stage of the
analysis: “filtration.”
B. Filtration.
“The filtration component of the analysis seeks to isolate
noncopyrightable elements from each particular level of a
program.” Engineering Dynamics, 26 F.3d at 1344. Ideas,
information, methods, scientific discoveries, facts, information
in the public domain and scenes a faire are not protected. See
id. The district court found that the modifications to generic
FACTS performed by IMC were dictated by the business practices
and demands of deCastro and, therefore, fell within the scenes a
faire exception.
Section Two of Appendix A discusses what modifications to
FACTS were necessary to meet deCastro's needs for maintaining
7
Corners might be used as samples in a frame shop. The
chop service refers to the whole frame, which is cut to size to
the customer's request to a sixteenth of an inch, as is standard
in the framing industry.
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files of its pricing elements: price groups (with price affected
by feet purchased), product types (pricing by both type and class
of product) and group/product (group discounting for combinations
of different items). Pricing was also unique for certain
customers, adjusted by both dollar amount and percentage.
Section Four of Appendix A addresses calculation both of the
total material used to make a “chop” or corner, and of the lineal
length of framing material that remained.
The district court found that Appendix A represents the
specific needs of deCastro's business as well as practices that
are standard in the picture framing industry. We agree with this
reading and the district court's conclusion that Appendix A is
the expression of a theme common in an industry that takes phone
orders, prices a product with special rates for particular
customers and tracks the inventory available to fill the orders.
These elements are dictated by the business practices of the
industry in which deCastro engages. Under the doctrine of scenes
a faire, those expressions contained in Sections Two and Four of
Appendix A that are dictated by these external factors are not
subject to copyright protection and are eliminated from
consideration in comparing the ACCESS and FACTS programs.
C. Substantial Similarity.
Next we must examine whether the defendant copied any
remaining protected aspects of ACCESS, unrelated to the
functional purposes excluded from protection by the scenes a
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faire doctrine--i.e., the source code and file layouts for the
program, including all designs revealed by the source code and
file layouts. See Engineering Dynamics, Inc., 26 F.3d at 1347.
Generic FACTS is a comprehensive program that required few
modifications to conform to deCastro's needs, and there is no
allegation that generic FACTS incorporates CMAC's proprietary
information. The district court found substantial differences
when it compared the modified FACTS program with ACCESS. For
example, it noted that the two programs are written in different
basic languages and have different sequences.
IMC adapted FACTS to fit deCastro's needs by adding simple
file maintenance programs, keys and data to the generic FACTS
program. The modifications represent a fraction of the generic
FACTS source code and are dictated by the structure of generic
FACTS. We agree with the district court's finding that the
logical way to modify generic FACTS was to add files to
accommodate deCastro's particular business practices.
D. Misappropriation of Copyrighted Material.
The district court found that the evidence did not establish
that IMC programmers copied the ACCESS program. Testimony at
trial revealed that, when IMC installed FACTS on deCastro's
computer hardware, CMAC's code was still on the hardware. The
district court found that the IMC installer did not see CMAC's
code and that he was not attempting to duplicate the methodology
because FACTS had its own file layouts. Another witness, who
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performed most of the work for IMC in modifying the FACTS
software, testified that he followed Appendix A and developed the
file layouts as he wrote the program without using CMAC's file
layouts. He stated that he began with the existing FACTS code
and upgraded according to deCastro's business needs when
necessary. The district court found, that this witness did not
see CMAC's source code, file layouts, file documentation or
contracts. We find no clear error in these findings.
We agree with the district court's analysis of CMAC's
copyright claim against IMC.8 Generic FACTS and ACCESS are
similar only in that they both serve deCastro's needs when
modified to reflect the particular practices of the framing
industry and deCastro's business. Accordingly, CMAC has not
demonstrated that FACTS is substantially similar to ACCESS or
that the defendants have misappropriated substantial elements of
the ACCESS program.
II. Misappropriation of Trade Secrets.
CMAC asserts that the complete source code and file layouts
for ACCESS and all their revealed designs are trade secrets and
that IMC misappropriated those trade secrets in violation of
Louisiana law. In order to recover damages under the Louisiana
8
Because IMC is the only defendant left on appeal, we
speak only to CMAC's claims as they relate to IMC. This opinion
does not examine the district court's findings with respect to
any of the other defendants with whom CMAC's has settled.
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Uniform Trade Secrets Act,9 “a complainant must prove (a) the
existence of a trade secret, (b) a misappropriation of the trade
secret by another, and (c) the actual loss caused by the
misappropriation.” Reingold v. Swiftships, Inc., 126 F.3d 645,
648 (5th Cir. 1997) (citations omitted). For purposes of this
appeal, the following definitions from the statute are relevant:
"Trade secret" means information, including a formula,
pattern, compilation, program, device, method,
technique, or process, that:
(a) derives independent economic value, actual or
potential, from not being generally known to and
not being readily ascertainable by proper means by
other persons who can obtain economic value from
its disclosure or use, and
(b) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
LA. REV. STAT. ANN. § 51:1431(4) (West 1987)
"Misappropriation" means acquisition of a trade secret
of another by a person who knows or has reason to know
that the trade secret was acquired by improper means .
. . by a person who:
(i) used improper means to acquire knowledge of
the trade secret; or
(ii) at the time of disclosure or use, knew or had
reason to know that his knowledge of the trade
secret was:
* * *
(bb) acquired under circumstances giving rise
to a duty to maintain its secrecy or limit
its use; or
LA. REV. STAT. ANN. § 51:1431(2)(b) (West 1987).
We agree with the district court that CMAC's trade secret
9
See LA. REV. STAT. ANN. §§ 51:1431-39 (West 1987).
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claim against IMC fails for the same reason as its copyright
claim: lack of proof of misappropriation.10 The primary reason
deCastro changed to FACTS was the need for direct order
capability,11 which ACCESS did not have and could not provide.
CMAC's features were of nominal interest to IMC's programmers
because ACCESS and FACTS were fundamentally different--FACTS
already possessed capabilities that ACCESS did not.
Furthermore, CMAC failed to show that IMC programmers even
had an opportunity to see the ACCESS source code until four years
after the modifications were completed on generic FACTS.12
III. Unfair Trade Practices.
CMAC alleges that IMC violated the Louisiana Unfair Trade
Practices Act (“LUTPA”),13 by disregarding its intellectual
10
We assume for purposes of argument that the program
material at issue constitutes a trade secret. Even though, we
dispose of CMAC's trade secret claim for lack of proof of
misappropriation, we do not endorse the district court's
additional ruling on this issue--i.e., that ACCESS's modules do
not constitute trade secret material.
11
As noted by the district court, direct order entry
capability enabled deCastro's telephone operators to take a
customer order and quote a price over the telephone. Under the
CMAC system, the telephone operator had to write down customer
information as she moved from one screen to another while taking
an order.
12
CMAC proffers as evidence that IMC saw the ACCESS source
code, the fact that an IMC programmer did, in fact, look at the
code during a data conversion in a subsequent project for a
company called GEMNI. This occurred four years after this same
person drafted Appendix A and at least one year after IMC
completed its work for deCastro.
13
See LA. REV. STAT. ANN. §§ 51:1418-20 (West Supp. 1999).
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property rights to ACCESS when it used Escalona's privileged
knowledge of the intricacies of the software. To recover under
LUTPA, a plaintiff must prove fraud, misrepresentation or other
unethical conduct. See Schenck v. Living Centers-East, Inc., 917
F. Supp. 432, 439 (E.D. La. 1996). “A trade practice is unfair
under the statute only when it offends established public policy
and is immoral, unethical, oppressive or unscrupulous.” Schenck,
917 F. Supp. at 439 (citation omitted).
IMC argues that CMAC's unfair trade practices claim is pre-
empted in one of two ways. IMC's primary argument is that the
Copyright Act's preemption provision, 17 U.S.C. § 301 (1994),
bars CMAC's unfair trade practice claim. We have developed a
two-part test for analyzing pre-emption claims under § 301 of the
Copyright Act.
First, the cause of action is examined to determine if
it falls “within the subject matter of copyright”
Second, the cause of action is examined to determine if
it protects rights that are 'equivalent' to any of the
exclusive rights of a federal copyright, as provided in
17 U.S.C. § 106.
Daboub v. Gibbons, 42 F.3d 285, 289 (5th Cir. 1995) (citations
omitted). Since CMAC's unfair trade practices claim is based on
IMC's alleged copying of a protected computer program, our
analysis will focus on whether the cause of action provided by
Louisiana's unfair trade practices act is “equivalent” to any
exclusive rights provided for in the Copyright Act.
The test in this Circuit for evaluating the equivalency of
rights is commonly referred to as the “extra element” test. See
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Alcatel, 166 F.3d at 787.
According to this test, if the act or acts of [the
defendant] about which [the plaintiff] complains would
violate both misappropriation law and copyright law,
then the state right is deemed “equivalent to
copyright.” If, however, one or more qualitatively
different elements are required to constitute the state-
created cause of action being asserted, then the right
granted under state law does not lie “within the general
scope of copyright,” and pre-emption does not occur.
Id. (quoting 1 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT §
1.01[B][1], at 1-13 (1998)). Because a cause of action under the
Louisiana Unfair Trade Practices Act requires proof of fraud,
misrepresentation or other unethical conduct, see, e.g., Schenck,
917 F. Supp. at 439, we find that the relief it provides is not
“equivalent” to that provided in the Copyright Act and, thus, it
is not pre-empted.
IMC's alternative argument for pre-emption is based on the
pre-emptive section of the Louisiana Uniform Trade Secrets Act.
That section reads in pertinent part:
This Chapter displaces conflicting tort, restitutionary,
and other laws of this state pertaining to civil
liability for misappropriation of a trade secret.
LA. REV. STAT. ANN. § 51:1437 (West 1987). In order to be pre-
empted, then, a remedy must “conflict” with the provisions of the
trade secret act.
We find that the remedies provided by Louisiana's unfair
trade practices statute and those provided in its uniform trade
secrets act do not conflict, but merely provide parallel remedies
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for similar conduct.14 Therefore, Louisiana's Uniform Trade
Secrets Act does not pre-empt CMAC's unfair trade practice's
claim against IMC.
The personal right of action under LUTPA applies only to
direct consumers or to business competitors. See, e.g., Delta
Truck & Tractor, Inc. v. J.I. Case Co., 975 F.2d 1192, 1205 (5th
Cir. 1992); National Gypsum Co. v. Ace Wholesale, Inc., 738 So.
2d 128, 130 (La. Ct. App. 5th Cir. 1999); Thibaut v. Thibaut, 607
So. 2d 587, 607 (La. Ct. App. 1st Cir.), writ denied by 612 So.
2d 38 (La. 1993); Gil v. Metal Serv. Corp., 412 So. 2d 706, 707
(La. Ct. App. 4th Cir. 1982), write denied by 414 So. 2d (La.
1987). CMAC has standing to assert a claim against IMC because
IMC is a direct competitor of CMAC.
We agree with the district court's finding that CMAC has not
alleged any claims of fraud or misrepresentation on the part of
IMC. We fail to see where the “record clearly shows that IMC
14
Since this is a question of state law interpretation, we
examined Louisiana cases law on this issue and found no case
exactly on point, but did find a number of cases allowing
plaintiffs to assert a cause of action under each statute. See,
e.g., Boncosky Services, Inc. v. Lampo, 751 So. 2d 278 (La. App.
1st Cir. 1999), writ denied by --- So. 2d ---, No. 2000-0322,
2000 WL 365733 (La. Mar 23, 2000); A Confidential Limousine
Service, Inc. v. London Livery, Ltd., 612 So. 2d 875 (La. App.
4th Cir. 1993), writ denied by 614 So. 2d 1263 (La. 1993), accord
Konecranes, Inc. v. Robina, No. 98-2997, 1998 WL 812447, at *2
(E.D. La. Nov. 17, 1998). Cf. Troxler Electronic Lab., Inc. v.
Palilla, No. 316518, 1995 WL 299599, at *2 (Conn. Super. Ct. May
10, 1995) (noting that “since CUTPA provides a remedy parallel to
[the] Uniform Trade Secrets Act, causes of action under both
statutes may be maintained”).
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conspired” with the other defendants to “misappropriate
proprietary information, transfer trade secrets and infringe
copyrightable elements of CMAC's software.” Finding no evidence
of a conspiracy between IMC and the other defendants, the only
question is whether INC, as a competitor of CMAC, engaged in
“other unethical conduct.”
Because the district court's finding that IMC did not copy
ACCESS in modifying FACTS was not clearly erroneous, we fail to
see any evidence of unethical conduct on the part of IMC in
modifying generic FACTS for use by deCastro that would bring it
within the unfair trade practices statute.
IV. Award of Attorney's Fees.
The defendants in this case, including IMC, moved the court
for an award of attorney's fees pursuant to the Copyright Act's
fee shifting section.15 The district court awarded the
defendants attorney's fees. Because the district court referred
the amount of award of attorney's fees to the magistrate judge,
the order awarding such fees is not final. See DeLoach v.
Delchamps, Inc., 897 F.2d 815, 826 (5th Cir. 1990) (“Because a
judgment is not final until both liability and damages are
determined, a judgment awarding an unspecified amount of
attorney's fees is interlocutory in nature.”); see also Liberty
Mut. Ins. Co. v. Wetzel, 424 U.S. 737, 743-44 (1976).
15
See 17 U.S.C. § 505 (1994).
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Therefore, we dismiss the portion of the appeal regarding
attorney's fees for want of jurisdiction.
CONCLUSION
For the foregoing reasons we affirm the judgment of the
district court save the portion on attorney's fees. We dismiss
the appeal on the issue of attorney's fees for lack of
jurisdiction.
AFFIRMED, in part, appeal DISMISSED, in part.
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