General Universal Systems, Inc. v. Lee ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
July 20, 2004
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 01-21114
GENERAL UNIVERSAL SYSTEMS, INC.;
WORLD TRADE SYSTEMS, INC.;
Plaintiffs - Appellants,
JOSE S. LOPEZ;
Plaintiff - Intervenor Defendant - Appellant,
ELI NASSAR,
Third Party Defendant - Appellant,
versus
LARRY MASON LEE;
LARRY MASON LEE & ASSOCIATES;
Intervenor Plaintiffs - Appellees,
versus
HAL, INC.; ET AL
Defendants,
HAL, INC.; JOE R. HERRIN;
ERNEST ALLEN PARKIN,
Defendants - Third Party Plaintiffs - Appellees,
PANALPINA, INC.; FRITZ COMPANIES, INC.;
US CRATING, INC.; TRANSWORLD LOGISTICS, INC.,
Defendants - Appellees.
_________________________________________________________________
Consolidated with No. 02-20312
GENERAL UNIVERSAL SYSTEMS, INC.,
Plaintiff - Appellant,
versus
BOAZ EXPORT CRATING COMPANY;
CARGO CRATING COMPANY;
DIXIE BOX AND CRATING OF TEXAS, INC.,
Defendants - Appellees.
_________________________________________________________________
Consolidated With No. 02-21002
GENERAL UNIVERSAL SYSTEMS, INC.;
WORLD TRADE SYSTEMS, INC.;
JOSE S. LOPEZ,
Plaintiffs - Counter Defendants - Appellants,
versus
HAL, INC.; JOE R. HERRIN;
ERNEST ALLEN PARKIN,
Defendants - Counter Claimants -
Third Party Plaintiffs - Appellees,
versus
ELI NASSAR,
Third Party Defendant - Appellant.
_________________________________________________________________
Consolidated With No. 02-21311
GENERAL UNIVERSAL SYSTEMS, INC.,
Plaintiff - Appellant,
versus
BOAZ EXPERT CRATING COMPANY;
CARGO CRATING COMPANY;
DIXIE BOX AND CRATING OF TEXAS, INC.,
Defendants - Appellees.
_________________________________________________________________
Consolidated with No. 03-20076
GENERAL UNIVERSAL SYSTEMS, INC.;
WORLD TRADE SYSTEMS, INC.;
JOSE S. LOPEZ,
2
Plaintiffs - Appellants,
ELI NASSAR,
Third Party Defendant - Appellant,
versus
HAL, INC.; ET AL
Defendants,
HAL, INC.; JOSE R. HERRIN;
ERNEST ALLEN PARKIN,
Defendants - Third Party Plaintiffs - Appellees,
PANALPINA, INC.; FRITZ COMPANIES, INC.;
US CRATING, INC.; TRANSWORLD LOGISTICS, INC.,
Defendant - Appellee.
_________________________________________________________________
Consolidated with No. 03-20092
GENERAL UNIVERSAL SYSTEMS, INC.;
WORLD TRADE SYSTEMS, INC,
Plaintiffs - Appellants,
JOSE S. LOPEZ,
Plaintiff - Intervenor Defendant - Appellant,
ELI NASSAR,
Third Party Defendant - Appellant,
versus
HAL, INC.; ET AL,
Defendants,
HAL, INC.; JOE R. HERRIN;
ERNEST ALLEN PARKIN,
Defendants - Third Party Plaintiffs - Appellees,
PANALPINA, INC.; FRITZ COMPANIES, INC.;
US CRATING, INC.; TRANSWORLD LOGISTICS, INC.,
Defendants - Appellees.
3
Appeals from the United States District Court
For the Southern District of Texas
Before HIGGINBOTHAM, STEWART, and PRADO, Circuit Judges.
PER CURIAM:
These consolidated cases arise from a copyright dispute
between General Universal Systems, Inc. (“GUS”) and HAL, Inc. GUS
sued HAL, two of its officers, and several of HAL’s customers
claiming that HAL infringed its copyright in a freight packaging
software system, misappropriated related trade secrets, violated
the Lanham Act, and breached a contract with Joe Lopez. The
district court dismissed GUS’s copyright, Lanham Act, and trade
secret claims on summary judgment and, following a jury trial,
granted HAL judgment as a matter of law on the contract claim. GUS
subsequently filed a second suit against several of HAL’s
customers, which the district court dismissed on the basis of
collateral estoppel. The district court also awarded costs and
attorneys’ fees to HAL as the prevailing party on the copyright
claim. GUS has appealed each of the district court’s
determinations.
For the reasons we will explain, we AFFIRM in part, REVERSE in
part, and REMAND to the district court for proceedings consistent
with this opinion.
I
4
The facts and procedural history of this nine-year-old dispute
are long and, in some instances, in sharp dispute. With the
exception of the contract claim, the underlying claims were each
dismissed on summary judgment, and we view those facts in the light
most favorable to GUS, the non-movant.1 GUS’s contract claim comes
to us in a slightly different posture -- HAL was awarded judgment
as a matter of law after GUS prevailed in a jury trial -- and we
present the facts related to the contract issue in the light most
favorable to GUS.2
A
In 1979, GUS developed a software system -– the CHAMPION
PACKER Computer Software Program -– for one of its clients, Joe
Lopez. The CHAMPION PACKER program was a tracking system designed
for use in the freight forwarding and shipping industry. GUS
licensed the software to Lopez, retaining all rights to any
improvements to the program, and eventually obtained a copyright
registration in 1981.
Sometime later, Lopez created a derivative version of CHAMPION
PACKER by converting it from the BASIC 4 programming language to
the COBOL language, and began selling his version, LOPEZ COBOL, as
1
United States Steel Corp. v. Darby, 516 F.2d 961, 962-63
(5th Cir. 1975).
2
Liberty Mut. Ins. Co. v. Falgoust, 386 F.2d 248, 253 (5th
Cir. 1967).
5
a replacement for CHAMPION PACKER.3 In 1992, he formed a venture
called HAL, Inc. with Ernest Parkin and Joe Herrin to develop and
market a new freight software system that incorporated bar coding
technology. Under their agreement, Lopez was to contribute LOPEZ
COBOL for use in developing the new system; Parkin was to provide
the system design and programming expertise; and Herrin was to
supply industry expertise. Lopez, however, was detained in a
Mexican jail for seven months during the initial stages of the
software development project, and he was ousted from the company
without recompense in March 1993. HAL continued to work on the
software system and eventually began selling a freight tracking
software system called “MEPAW.”
Lopez claimed that MEPAW was an unauthorized copy of LOPEZ
COBOL and that Parkin and Herrin had breached their obligation to
compensate him for providing the LOPEZ COBOL system. Under threat
of litigation from GUS, Lopez assigned his contract claim to GUS
and agreed to assist GUS with a copyright infringement suit against
HAL, Parkin, and Herrin. GUS filed its first suit against HAL on
May 23, 1995 (“GUS 1”), raising various claims under federal and
state law. The focus of the case, however, was GUS’s claim that
HAL had infringed its copyright in the CHAMPION PACKER system by
3
Jose M. Lopez, the son of Joe Lopez, was the programmer who
actually wrote LOPEZ COBOL. In his affidavit, submitted to the
court by GUS, Jose M. Lopez stated that he wrote the LOPEZ COBOL
system “from scratch, utilizing the data entry screens, record
layouts and reports of the General Universal Systems, Inc., BASIC
software as [his] guide.”
6
copying the LOPEZ COBOL system. GUS sought damages, injunctive
relief, and attorneys’ fees.
On November 17, 1997, HAL filed a motion for partial summary
judgment on the issue of copyright infringement, arguing that GUS
could not establish that MEPAW copied the nonliteral elements of
either LOPEZ COBOL or CHAMPION PACKER. In particular, HAL faulted
GUS for failing to conduct an Altai analysis, the methodology used
to analyze claims of nonliteral copying of software, asserting that
without this analysis, GUS could not show that the MEPAW source
code copied protectable elements of either CHAMPION PACKER or LOPEZ
COBOL. In response, GUS argued that Altai did not apply to all of
its infringement claims, such as its claims that HAL copied source
code. GUS asserted that Altai applied only to claims that
nonliteral elements of the software were copied. HAL in turn
challenged GUS’s source code infringement claim, arguing both that
GUS had agreed that Altai analysis would be used to analyze the
infringement claims and that GUS had never before put forth a
theory of literal infringement.
A few months later, on February 13, 1998, HAL filed a second
motion for partial summary judgment, this time focusing on the
issue of copyrightability. HAL argued that GUS could not prove
that it owned a valid copyright in the software because its
copyright registration covered only data entry screens and record
layout samples and not the software as a whole. HAL also noted
7
that GUS had produced no evidence describing their software system
as it existed in 1983, the date when Lopez allegedly copied it,
because there was no extant copy of the 1983 version of GUS’s
CHAMPION PACKER software.4 Without such evidence, GUS could not
prove that MEPAW copied its software system. GUS responded by
pointing to its copyright registration for the freight forwarding
software, which, it asserted, was prima facie evidence of its
ownership of a copyright in the software. GUS also reminded the
court that it owned LOPEZ COBOL, the system that HAL’s MEPAW
software copied.
On February 18, 1998, GUS filed its own motion for partial
summary judgment in which it argued that it could prove as a matter
of law that HAL had infringed its copyright in the freight
forwarding software. Specifically, GUS claimed that it could prove
that HAL had directly or literally copied portions of LOPEZ COBOL,
noting in particular that the MEPAW system used fields, record
layouts, and actual executable code taken directly from LOPEZ
COBOL. As proof, GUS attached four exhibits which it asserted were
examples of direct copying: (1) a database layout listing the
layout of fields used by the MEPAW and LOPEZ COBOL systems; (2) a
4
GUS claimed in filings to the district court that it
submitted a copy of the software source code as well as copies of
data entry screens, reports, and record layouts to the Copyright
Office when it obtained a copyright registration for the system.
The Copyright Office, however, apparently misplaced the source code
print-outs and GUS did not retain a copy of the code as it existed
in 1983.
8
directory list comparing data entry fields used by the two software
systems; (3) a print-out of a program from the MEPAW system
indicating that it was created on October 25, 1983, by Lopez; and
(4) invoices generated by the two systems. HAL challenged each of
these exhibits, arguing that none established improper copying, and
renewed its claim that GUS could not prevail under the Altai
analysis.
A Magistrate Judge recommended granting HAL’s first motion and
dismissing the claims of nonliteral copyright infringement, but
recommended denying HAL’s second motion on copyrightability. The
Magistrate Judge also recommended denying GUS’s motion on literal
copying, concluding that there were genuine issues of material fact
precluding summary disposition.
The district court reviewed the record de novo, concluded that
there was no plain error in the Magistrate Judge’s Memorandum and
Recommendation (M&R), and adopted it as its own. The court
departed from the Magistrate Judge’s recommendation with regard to
GUS’s summary judgment motion on literal copyright infringement.
The court concluded that GUS had failed to raise a genuine issue of
material fact on the issue and granted HAL summary judgment on the
claim.
Having concluded that there was no copyright infringement, the
court soon dismissed GUS’s related Lanham Act, conversion,
misappropriation, and trade secret claims. The sole remaining
9
claim -- Lopez’s breach of contract claim against Parkin and Herrin
-- was tried to a jury in September 2000. After a three day trial,
the jury found that Parkin and Herrin had breached their agreement
with Lopez and awarded him $250,000 in damages plus $106,000 in
attorneys’ fees. However, the court also awarded HAL, Herrin, and
Parkin a total of $448,928.73 in costs, attorneys’ fees, and
expenses incurred in successfully defending the copyright cause of
action.
Approximately one year later, in September 2001, the court
modified this judgment. First, the court concluded that Larry Lee,
GUS’s first attorney who withdrew as counsel-of-record in late
1997, was entitled to receive one-third of Lopez’s judgment as
attorneys’ fees for work performed prior to his withdrawal as
counsel. Lee had filed a complaint-in-intervention in January
1998, but GUS had failed to respond or deny the allegations in that
complaint. Second, on September 26, 2001, the court set aside the
jury verdict altogether and granted HAL, Herrin, and Parkin
judgment as a matter of law on the contract claim. The court
concluded that the evidence presented was legally insufficient to
support the jury’s verdict because Lopez had admitted, in a prior
bankruptcy proceeding, that he did not own any interest in HAL.
HAL, Herrin, and Parkin filed motions seeking to enforce their
judgment, including a motion for turnover relief and a motion to
require GUS to post a $65,000 bond for appellate attorneys’ fees.
In June 2002, the district court granted HAL’s motion requiring the
10
posting of a $65,000 bond. The court later granted HAL’s motion
for turnover and sale of GUS’s Lopez COBOL software, and we denied
GUS’s motion for an emergency stay.
B
In April 2001, nearly two years after the district court
dismissed GUS’s copyright claims on summary judgment, GUS filed a
second, parallel suit against three of HAL’s customers: Boaz Export
Crating Co., Cargo Crating Co., and Dixie Box & Crating of Texas,
Inc.5 GUS argued that, as purchasers of HAL’s infringing software,
Boaz had violated GUS’s copyright in LOPEZ COBOL. In response,
Boaz argued that GUS was collaterally estopped by the decision in
the first suit from relitigating the copyright claim and moved to
dismiss.
While this motion was pending, Parkin allegedly admitted in a
hearing that HAL copied portions of LOPEZ COBOL. Without bringing
this information to the court’s attention, GUS responded to Boaz’s
motion, arguing that LOPEZ COBOL was not at issue in the prior suit
and that collateral estoppel could not apply. The district court
disagreed and granted Boaz’s motion to dismiss.
Shortly thereafter, GUS filed a Rule 60(b) motion in the
original suit against HAL. Pointing to Parkin’s admission of
copying, GUS argued that the judgment was procured through
misconduct. The district court rejected this argument, finding
5
We refer collectively to these parties as “Boaz.”
11
neither perjury nor misconduct on Parkin’s part. GUS appeals the
court’s rejection of its Rule 60(b) motion, and also argues that
Parkin’s alleged perjury should bar the application of collateral
estoppel in the Boaz suit.
C
GUS’s primary focus on appeal is the court’s grant of summary
judgment on the copyright issue. GUS also protests the dismissal
of its trade secret, misappropriation, and Lanham Act claims; the
award of fees to HAL and Boaz based on their successful defense
against GUS’s copyright charges; the court’s grant of judgment as
a matter of law on the contract claim; the order requiring the
posting of a bond, and the turnover order.
We will address each of these issues in turn.
II
At the heart of GUS’s appeal is its claim that the district
court erred in granting HAL summary judgment on the issue of
copyright infringement. GUS protests the court’s decision on a
number of grounds. First, GUS disputes the court’s dismissal of
its copyright claims under Altai, arguing that this doctrine does
not apply to claims of source code copying. Second, GUS argues
that the court impermissibly granted summary judgment on the issue
of literal source code copying even though the Magistrate Judge
admitted that there were genuine issues of material fact on this
issue. Third, GUS contends that the court imposed an improper
12
legal standard by holding that literal infringement requires that
the two computer programs be virtually identical. Finally, GUS
protests several other related decisions, such as the court’s award
of fees to HAL and its turnover order.
A
We review the district court’s grant of summary judgment de
novo.6 Summary judgment should be granted only if there is “no
genuine issue as to any material fact” and the moving party is
entitled to judgment as a matter of law.7 In determining whether
there is a genuine issue of material fact, we review the evidence
and the inferences to be drawn therefrom in the light most
favorable to the non-moving party.8 The moving party bears the
initial burden of demonstrating that summary judgment is
appropriate. If the moving party meets this burden, then the
“nonmovant must go beyond the pleadings and designate specific
facts showing that there is a genuine issue for trial.”9 In
conducting our review of the summary judgment grant, however, we
6
Johnson v. Louisiana, 351 F.3d 616, 621 (5th Cir. 2003);
Olabisiomotosho v. City of Houston, 185 F.3d 521, 525 (5th Cir.
1999).
7
FED. R. CIV. P. 56(c); see also Hunt v. Cromartie, 526 U.S.
541, 552 (1999).
8
Daniels v. City of Arlington, Tex., 246 F.3d 500, 502 (5th
Cir. 2001).
9
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.
1994) (en banc).
13
examine only the judgment of the district court and are not bound
by its rationale. We may affirm on any grounds argued below and
supported by the record.10
To establish a prima facie case of copyright infringement, a
copyright owner must prove “(1) ownership of a valid copyright, and
(2) copying [by the defendant] of constituent elements of the work
that are original.”11 A certificate of registration, if timely
obtained, is prima facie evidence both that a copyright is valid
and that the registrant owns the copyright. There is no contention
that GUS does not own a valid copyright in CHAMPION PACKER and
LOPEZ COBOL. Rather, the issue is whether GUS provided sufficient
evidence of copying to survive summary judgment under the second
part of the infringement test.
To prove actionable copying under the second prong, a
plaintiff must make two showings. First, the plaintiff must, as a
factual matter, prove that the defendant “actually used the
copyrighted material to create his own work.”12 A plaintiff may
make this showing either with proof of direct evidence of copying
10
See Howard v. Fidelity & Deposit Co. of Maryland (In Matter
of Royale Airlines, Inc.), 98 F.3d 852, 856 (5th Cir. 1996);
Forsyth v. Barr, 19 F.3d 1527, 1534 n.12 (5th Cir. 1994).
11
Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S.
340, 361 (1991); see also Alcatel USA, Inc. v. DGI Technologies,
Inc., 166 F.3d 772, 790 (5th Cir. 1999).
12
See, e.g., Engineering Dynamics, Inc. v. Structural
Software, Inc., 26 F.3d 1335, 1340 (5th Cir. 1994).
14
or through circumstantial evidence demonstrating both (1) that the
defendant had access to the copyrighted work and (2) that the two
works are “probatively” similar.13 The access element is satisfied
if the person who created the allegedly infringing work had a
reasonable opportunity to view the copyrighted work.14 The second
element -- probative similarity -- requires a showing that the
works, “when compared as a whole, are adequately similar to
establish appropriation.”15 In some cases, factual copying may be
proven without a showing of access “[i]f the two works are so
strikingly similar as to preclude the possibility of independent
creation.”16
If the plaintiff demonstrates factual copying, he must next
demonstrate that the copying is legally actionable by showing that
the allegedly infringing work is substantially similar to
protectable elements of the infringed work. “[A] side-by-side
comparison must be made between the original and the copy to
determine whether a layman would view the two works as
13
See Peel & Co., Inc. v. The Rug Market, 238 F.3d 391, 394
(5th Cir. 2001); see also Computer Assoc. Int’l, Inc. v. Altai,
Inc., 982 F.2d 693, 701 (2d Cir. 1992).
14
Ferguson v. Nat’l Broadcasting Co., 584 F.2d 111, 113 (5th
Cir. 1978).
15
Peel, 238 F.3d at 397.
16
Id.
15
‘substantially similar.’”17 Typically, the question whether two
works are substantially similar should be left to the ultimate
factfinder, but “summary judgment may be appropriate if the court
can conclude, after viewing the evidence and drawing inferences in
a manner most favorable to the nonmoving party, that no reasonable
juror could find substantial similarity of ideas and expression.”18
It is settled that computer programs are entitled to copyright
protection.19 This protection extends not only to the “literal”
elements of computer software -- the source code and object code20
-- but also to a program’s nonliteral elements, including its
structure, sequence, organization, user interface, screen displays,
and menu structures.21 To assess a claim of software infringement,
17
Creations Unlimited v. McCain, 112 F.3d 814, 816 (5th Cir.
1997) (per curiam).
18
Peel, 238 F.3d at 395; see also Herzog v. Castle Rock
Entertainment, 193 F.3d 1241, 1247 (11th Cir. 1999) ("Summary
judgment historically has been withheld in copyright cases because
courts have been reluctant to make subjective determinations
regarding the similarity between two works. However,
non-infringement may be determined as a matter of law on a motion
for summary judgment, either because the similarity between two
works concerns only non-copyrightable elements of the plaintiff's
work, or because no reasonable jury, properly instructed, could
find that the two works are substantially similar.") (citations
omitted).
19
See Engineering Dynamics, 26 F.3d at 1341.
20
Source code is a textual computer language that human
programmers can read. This source code is translated by a program
called a compiler into object code, the binary language that can be
executed directly by a computer.
21
See, e.g., Kepner-Tregoe, Inc., v. Leadership Software,
Inc., 12 F.3d 527, 536 n.20 (5th Cir. 1994); see also MiTek
16
we have generally endorsed the “abstraction-filtration-comparison”
test first outlined by the Second Circuit in Altai and refined by
the Tenth Circuit in Gates Rubber Co. v. Bando Chemical Industries,
Ltd.22 The Altai test deploys a three-step procedure to assess
whether protectable expression has been improperly copied. First,
at the abstraction stage, the court “dissect[s] the allegedly
copied program’s structure and isolate[s] each level of abstraction
contained within it.” Second, the court filters out unprotectable
expression by examining the structural components at each level of
abstraction to determine whether they can be protected by
copyright. Copyright protection does not extend to ideas,
processes, facts, elements dictated by considerations of
efficiency, elements required by factors external to the program
itself, or items taken from the public domain.23 With these
nonprotectable elements filtered out, there remains a “core of
protectable expression,”24 and we must then “determine whether the
Holdings, Inc. v. Arce Engineering Co., Inc., 89 F.3d 1548, 1556 n.
15 (11th Cir. 1996).
22
See Engineering Dynamics, 26 F.3d at 1342 (5th Cir. 1994)
(citing Computer Assocs. Int'l, Inc. v. Altai, Inc., 982 F.2d 693
(2d Cir. 1992), and Gates Rubber Co. v. Bando Chemical Indus.,
Ltd., 9 F.3d 823 (10th Cir. 1993)).
23
See Engineering Dynamics, 26 F.3d at 1341 n.6; Computer
Management Assistance Co. v. Robert F. DeCastro, Inc., 220 F.3d
396, 401 (5th Cir. 2000).
24
Gates Rubber Co. v. Bando Chemical Industries, Ltd., 9 F.3d
823, 841 (10th Cir. 1993) (quoting Altai, 982 F.2d at 710-711).
17
defendant’s program misappropriated substantial portions of the
plaintiff’s program.”25
B
GUS’s first argument on appeal focuses on the district court’s
use of the Altai test. GUS asserts that Altai applies only to
claims that an infringer has copied a computer program’s nonliteral
elements, like its structure, sequence, organization, and user
interface, and not to claims that source code was copied.26 GUS
urges, therefore, that the court erred in relying on Altai to
dismiss its source code copying claims.
25
Id. at 841.
26
At oral argument, GUS also argued in the alternative that,
even if Altai was the proper test, the district court misapplied
the Altai test. In making this argument, GUS focused primarily on
the allocation of the burden of proof: GUS complained that the
court improperly placed the burden on GUS to prove that copied
elements were protectable expression. According to GUS, all courts
acknowledge that once copying is proven, the burden shifts to the
defendant to prove that the material taken was not copyrightable.
GUS argued that, having proven factual copying through a showing of
access plus probative similarity, the burden should have been
placed on HAL to prove that the material taken was unprotectable.
Because GUS failed to brief this issue, however, we will not
consider it here. See Comsat Corp. v. FCC, 250 F.3d 931, 936 n.5
(5th Cir. 2001) (“Arguments presented for the first time at oral
argument are waived.”). We note, however, that at least one
appellate court disagrees with GUS’s argument. See MiTek Holdings,
Inc. v. Arce Engineering Co., Inc., 89 F.3d 1548, 1555 (11th Cir.
1996) (“Perhaps the best approach for a district court in any
computer program infringement case, whether involving literal or
nonliteral elements, is for it to require the copyright owner to
inform the court as to what aspects or elements of its computer
program it considers to be protectable. This will serve as the
starting point for the court’s copyright infringement analysis.”).
18
Although we have generally endorsed the Altai test to evaluate
claims that nonliteral software elements were copied, we have not
explicitly addressed whether that test should be used to evaluate
charges that a program’s source or object code was copied. We need
not answer this question today, however, because contrary to GUS’s
claim, the district court did not use the Altai test to decide any
source code copying claims. Rather, the court used Altai only in
its decision to dismiss claims that nonliteral elements were
copied. As the court stated in its order, “[a]bsent a valid Altai
analysis to establish unlawful copying of the non-literal aspects
of the computer programs, Defendants are entitled to summary
judgment.”27
Nor did the district court err in dismissing these claims of
nonliteral copying. On filing this suit, GUS alleged that HAL
copied nonliteral aspects of CHAMPION PACKER and LOPEZ COBOL. When
HAL filed a summary judgment motion on this issue, arguing
essentially that GUS could not prove that MEPAW copied any
nonliteral elements, GUS responded by claiming that source code was
copied. However, nowhere in its response did GUS present evidence
disputing HAL’s assertion that summary judgment was appropriate on
the issue of the copying of nonliteral program elements. More to
the point, nowhere in its submission did GUS complete the Altai
27
Opinion and Order, No. H-95-1582, at 2 (S.D.Tex. June 4,
1998) (order granting partial summary judgment) (emphasis added).
19
analysis necessary to evaluate claims that a program’s nonliteral
elements were copied. Without this analysis, there was no evidence
in the record to support GUS’s claims that nonliteral elements were
copied, and the district court properly dismissed those claims.
We find no error in the district court’s use of Altai or in
its decision granting HAL summary judgment on the issue of
nonliteral infringement.
C
Turning from Altai, we next address GUS’s arguments that the
court applied an overly restrictive test for evaluating its claim
that source code was copied. GUS presents two distinct arguments.
First, GUS urges that there were genuine issues of material fact.
Second, GUS argues that the court imposed an overly rigid standard
for literal copying by requiring that the infringed program be
virtually identical, rather than substantially similar, to the
copyrighted program.
We reject GUS’s arguments and conclude that summary judgment
was appropriate.
1
To evaluate GUS’s claim, some background is necessary.
Shortly after HAL filed its summary judgment motion on the
nonliteral copying issue, GUS filed its own motion for summary
judgment on the issue of source code copying. In this motion, GUS
argued for the first time that HAL “directly” copied LOPEZ COBOL’s
20
source code. GUS attached four exhibits as evidence of this
copying: (1) a printout that purported to be a “database layout”
listing the names of fields used by the MEPAW and LOPEZ COBOL
systems; (2) a directory list giving the names of data entry fields
used by the two software systems; (3) a print-out of a program
contained in MEPAW that was created on October 25, 1983, by Jose
Lopez; and (4) print-outs of invoices generated by the LOPEZ COBOL
and MEPAW systems. GUS argued that the first three of these
exhibits constituted evidence of “direct, line by line copying.”
For the fourth exhibit, GUS argued that the layouts of the MEPAW
and LOPEZ COBOL invoices were almost exactly the same, suggesting
that the source code which generated them must also be strikingly
similar.
HAL filed a lengthy response to GUS’s motion, challenging each
of these exhibits and accusing GUS of misrepresenting the facts.
Specifically, HAL attached an affidavit from Parkin indicating that
the first exhibit was a database layout that Lopez gave to
Defendant Al Parkin to enhance; the second exhibit was not used in
MEPAW; the third exhibit was a program Parkin obtained while he
worked for the General Services Administration and was not authored
by Lopez; and the fourth exhibit was a generic invoice of a type
found in every packing system. HAL also attached several
affidavits from other parties, some of which attested to the
substantial differences between the two software packages while
others disputed GUS’s contention that HAL had access to the
21
CHAMPION and LOPEZ COBOL programs. HAL ended its response with a
charge that there was no evidence supporting GUS’s infringement
claims and with a request that the court dismiss the action in its
entirety. GUS did not reply to HAL’s motion.
On the issue of substantial similarity, a Magistrate Judge
concluded that the four exhibits GUS submitted were inadequate to
sustain a finding as a matter of law that MEPAW and LOPEZ COBOL
were substantially similar. She concluded, however, that a genuine
issue of material fact existed as to whether the software systems
were substantially similar. Neither party objected to these
findings.
The district court conducted a de novo review of the record,
concluded that there was no plain error in the Magistrate Judge’s
Memorandum and Recommendation, and adopted the report as its own.
However, the court employed a different analysis of the
infringement issue. The court noted, first, that to prove literal
copying, a plaintiff must show identical or virtually identical
copying of substantial portions of a program. Second, the court
stated that such identical copying would not generally be present
when the two programs are written in a different programming
language. The court concluded that GUS had failed to present
evidence raising a genuine issue of material fact, denied GUS’s
summary judgment motion, and granted summary judgment to HAL.
2
22
We are ultimately persuaded that summary dismissal was
appropriate because of GUS’s failure to adduce evidence to support
its charges of copying and substantial similarity.28
As a preliminary matter, we reject GUS’s contention that the
district court’s decision to grant summary judgment was
procedurally improper -- that the court granted summary judgment to
HAL sua sponte, without a motion for summary judgment by HAL before
it. In response to GUS’s summary judgment motion, HAL asserted
that it was entitled to a “finding[] that the plaintiffs are unable
to prove both non-literal copying under the Altai analysis, and
direct copying.” Citing GUS’s failure to adduce any evidence
supporting its claims of source code copying, HAL charged that GUS
had no evidence of copying and urged the district court to dismiss
the entire case. While not labeled as a cross-motion for summary
dismissal, HAL sought summary judgment on the issue of literal
copying and requested the court to act accordingly. The court’s
action was not improper.29
28
Holtzclaw v. DSC Communications Corp., 255 F.3d 254, 258
(5th Cir. 2001).
29
Moreover, even if the court’s decision to grant HAL summary
judgment were somehow a sua sponte decision, it was not improper.
In general, a district court may grant summary judgment sua sponte
“so long as the losing party was on notice that she had to come
forward with all of her evidence.” Celotex v. Catrett, 477 U.S.
317, 326 (1986) (“[D]istrict courts are widely acknowledged to
possess the power to enter summary judgments sua sponte, so long as
the losing party was on notice that she had to come forward with
all of her evidence.”); Judwin Properties, Inc., v. United States
Fire Ins. Co., 973 F.2d 432, 436-37 (5th Cir. 1992); see also
23
We are persuaded that summary judgment was appropriate because
GUS presented no evidence supporting its claims of literal
copyright infringement. At trial, GUS would bear the ultimate
burden of proving that MEPAW copied LOPEZ COBOL. In response to
HAL’s charge that no evidence supported GUS’s claim, GUS was
required to come forward with some evidence supporting the
essential elements of its claim. GUS failed to do so.30 The four
isolated pieces of evidence GUS produced fail on the most basic
level. To prevail on a claim of source code copyright
infringement, GUS would have to prove that MEPAW’s source code is
CHARLES ALAN WRIGHT, ARTHUR R. MILLER, & MARY KAY KANE, 10A FEDERAL PRACTICE
AND PROCEDURE § 2720 (1998). The First Circuit has suggested that
“notice” means “that the targeted party ‘had reason to believe the
court might reach the issue and received a fair opportunity to put
its best foot forward.’” Leyva v. On the Beach, Inc., 171 F.3d 717,
720 (1st Cir. 1999) (quoting Jardines Bacata, Ltd. v. Diaz-Marquez,
878 F.2d 1555, 1561 (1st Cir. 1989)). There is no doubt in this
case that GUS had the requisite notice. It was, after all, GUS
itself that moved for summary judgment on the issue of literal
copying. GUS had discussed the issue at least one other time -- in
its response to HAL’s summary judgment motion -- and it had more
than ample opportunity to marshal its facts and “put its best foot
forward.” Cf. Nowlin v. Resolution Trust Corp., 33 F.3d 498, 504
(5th Cir. 1994). More importantly, HAL explicitly argued to the
court that there was no evidence supporting GUS’s claims and
requested that the court dismiss the newly raised literal copying
charges. Finally, the summary judgment came after the close of
discovery, after the MEPAW source code was produced, and after
expert reports had been filed. Given these circumstances, GUS
clearly had notice that summary judgment was at issue, and was not
deprived of either its ability to ascertain facts or its
opportunity to develop and present its case. The court’s decision
to consider summary dismissal of the literal claims was not
improper.
30
Celotex, 477 U.S. at 322-23.
24
substantially similar to LOPEZ COBOL’s source code. To do so, “a
side-by-side comparison must be made between the original and the
copy.”31 GUS, however, failed to attach any of its own source code
to its summary judgment motion or to compare MEPAW source code to
LOPEZ COBOL source code, despite its conclusory assertions that the
four exhibits were evidence of direct copying.32 Without providing
its own source code for comparison, GUS did not satisfy the
requirement that the infringed and infringing work be compared
side-by-side. Perhaps there was relevant LOPEZ COBOL source code
buried deep in the record somewhere,33 and perhaps the district
court could have waded through the record to find code that looked
similar to the exhibits GUS attached. But the court was not
required to do so. In response to HAL’s motion, the burden was on
GUS to prove that it could support its claims. It did not meet
this burden.
31
Creations Unlimited v. McCain, 112 F.3d 814, 816 (5th Cir.
1997) (per curiam).
32
It bears emphasis that the only infringement claims at issue
in this summary judgment motion were GUS’s claims that HAL copied
source code. As we note below, the exhibits GUS submitted may have
constituted some evidence that nonliteral aspects of CHAMPION
PACKER were copied, but not that source code was copied. GUS’s
nonliteral claims, however, were properly dismissed because of
GUS’s failure to conduct a proper Altai analysis.
33
In GUS’s summary judgment motion, GUS discussed only the
four aforementioned exhibits. In Dr. Nassar’s affidavit, which was
attached to that motion, Dr. Nassar states enticingly that these
four exhibits are but the tip of the iceberg and that there was
substantial other evidence of direct copying in the record. GUS
did not bring this other evidence to the attention of the court.
25
GUS’s difficulty stems, ultimately, from the muddled nature of
its infringement claims. As the district court noted, when GUS
first filed its infringement suit, it claimed only that HAL
misappropriated nonliteral elements of CHAMPION PACKER, like its
structure, sequence, and organization. GUS broadened its claims in
its summary judgment motion, asserting that HAL directly copied
source code from CHAMPION. The exhibits that GUS attached as
evidence of source code copying, however, did not reflect the
change in the nature of its claims. Two of the exhibits -- the
database layout and directory listing -- are at best evidence that
HAL copied nonliteral elements from LOPEZ COBOL; they do not
provide evidence of source code copying.34 Likewise, the fourth
exhibit -- a comparison of invoice layouts -- is a nonliteral
element of the software programs; GUS’s conclusory remark that the
“similarity of layout in the invoices . . . highlights the fact
that the source code which generated both invoices is strikingly
similar” is both factually questionable and legally insufficient to
state a claim of source code copying. GUS had the MEPAW and LOPEZ
COBOL source codes at its disposal; it should have supported its
assertions with tangible references to these materials rather than
34
We note, too, that GUS failed to refute HAL’s claim that Joe
Lopez provided the database layout to Parkin and that Parkin used
it with Lopez’s consent. Even if we accept GUS’s claim that the
database layout in MEPAW copies the layout in LOPEZ COBOL (and if
we also accept that the database layout relates to source code
copying, rather than nonliteral copying), we are left with an
unchallenged assertion that Parkin was entitled to use the
material.
26
with empty and conclusory statements. “[S]uch conclusory,
unsupported assertions are insufficient to defeat a motion for
summary judgment.”35
Only the third exhibit contains any source code. It is a
print-out of a software program GUS claims Lopez wrote on October
25, 1983. GUS’s expert, Dr. Nassar, asserts that he found this
program in the MEPAW system and that a “strikingly similar” copy
exists in LOPEZ COBOL. GUS, however, fails to provide the copy
from LOPEZ COBOL’s source code for comparison. Nor does GUS refute
HAL’s denial that Lopez wrote the program and that HAL obtained
properly from other channels.
In short, GUS presented insufficient evidence of source code
copying to survive summary judgment. When GUS filed its motion for
summary judgment, it did not need to marshal all its facts to
support its infringement claims. But when HAL responded with an
allegation that GUS could produce no evidence on basic elements of
its claims, GUS was required to come forward with tangible
evidence. It failed to do so, and summary judgment for HAL was
appropriate.
35
Marshall v. E. Carroll Parish Hosp. Serv. Dist., 134 F.3d
319, 324 (5th Cir. 1998).
27
3
We affirm the dismissal of GUS’s claims of source code
copying.36
D
After dismissing GUS’s copyright claims, the district court
awarded HAL attorneys’ fees as the prevailing party. GUS contests
the award of fees, arguing in particular that because it brought
and litigated its copyright claims in good faith, an award of fees
was inappropriate.
The decision to impose costs lies in the sound discretion of
the district court,37 reviewable only for an abuse of discretion.38
This circuit adheres to the practice that such fees are
“discretionary but routinely awarded.”39 Under this approach, we
cannot agree that the district court abused its discretion in
awarding HAL fees. The court carefully considered GUS’s conduct
36
Because we do so on grounds different from those expressed
by the district court, we need not address the specific rationale
asserted by the district court that literal copying requires
virtual identity.
37
17 U.S.C. § 505 (“In any civil action under this title, the
court in its discretion may allow the recovery of full costs by or
against any party other than the United States or an officer
thereof. Except as otherwise provided by this title, the court may
also award a reasonable attorneys’ fee to the prevailing party as
part of the costs.”).
38
See McGaughey v. Twentieth Century Fox Film Corp., 12 F.3d
62, 65 (5th Cir. 1994).
39
Hogan Systems, Inc. v. Cybresource Intern., Inc., 158 F.3d
319, 325 (5th Cir. 1998).
28
during the course of the litigation -- conduct which in some cases
bordered on the overzealous -- and noted the tremendous burden that
GUS’s zealous representation placed upon HAL. GUS provides no
persuasive reason why the award should be upset, and we therefore
affirm the award of fees.40
III
GUS next disputes the district court’s dismissal of its Lanham
Act claims. GUS argued to the district court that HAL, by copying
and marketing GUS’s software as HAL’s own, engaged in “reverse
palming off” in violation of § 43(a) of the Lanham Act.41 The
district court rejected GUS’s claim, relying heavily on its earlier
conclusion that GUS failed to present evidence of actionable
copying. GUS contends on appeal that the court’s decision was
error for two reasons: first, because there is substantial evidence
that MEPAW is a copy of LOPEZ COBOL that has only been modified
slightly, and second, because a Lanham Act claim does not require
40
Having upheld the dismissal of GUS’s copyright claims on the
merits as well as the court’s order imposing attorneys’ fees, we
find it unnecessary to address whether the court erred in ordering
the turnover of LOPEZ COBOL or in requiring GUS to post a $65,000
bond to cover HAL’s fees on appeal. Nor need we address HAL’s
contention that GUS’s claims must be dismissed because of GUS’s
failure to post that bond.
41
15 U.S.C. § 1125(a)(1). “Reverse palming off” (or “reverse
passing off,” as it is sometimes called) occurs when “[t]he
producer misrepresents someone else’s goods or services as his
own.” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S.
23, 28 n.1 (2003). “A defendant may also be guilty of reverse
palming off by selling or offering for sale another’s product that
has been modified slightly and then labeled with a different name.”
Roho, Inc. v. Marquis, 902 F.2d 356, 359 (5th Cir. 1990).
29
the Altai-type analysis that the district court used to dismiss
GUS’s copyright claims. We find neither argument persuasive.
GUS’s first argument depends entirely upon its copyright
argument, which we have rejected. The district court committed no
error in dismissing GUS’s copyright infringement claims. GUS’s
first Lanham Act argument must fail as well.
GUS’s second argument is more problematic. In just one
sentence, GUS asserts that a Lanham Act claim does not require that
a defendant prove “substantial similarity” through the type of
Altai-analysis that the district court demanded in this case. GUS
offers no argument or explanation on this point, and cites no
authority for its statement. Failing to adequately brief this
contention, GUS has waived it.42
Even were we inclined to flesh out GUS’s argument, its Lanham
Act claim would face the Supreme Court’s recent decision in Dastar
Corp. v. Twentieth Century Fox.43 Dastar revolved around a 1949
television series called “Crusader in Europe,” which was based on
General Eisenhower’s written account of the Allied campaign in
Europe. Twentieth Century Fox owned the exclusive rights in the
television series, but it failed to renew its copyright
registration, and the copyright expired in 1977, leaving the series
42
See, e.g., Cavallini v. State Farm Mut. Auto Ins. Co., 44
F.3d 256, 260 n.9 (5th Cir. 1995).
43
539 U.S. 23 (2003).
30
in the public domain. In 1995, Dastar purchased copies of the
original, public domain television series, and then copied and
edited them. In particular, Dastar substituted a new opening
sequence, credit page, and final closing, and made various other
similar changes. Fox and several licensees brought suit, alleging,
inter alia, that Dastar’s sale of its version of the series without
proper attribution to the Crusade series constituted “reverse
passing off” in violation of § 43(a) of the Lanham Act.
The Court rejected the plaintiffs’ claim, concluding that the
term “origin” in § 43(a) applies only to “the producer of the
tangible goods that are offered for sale, and not to the author of
any idea, concept, or communication embodied in those goods.”44 In
so doing, the Court carefully distinguished Lanham Act claims from
copyright claims; the former “were not designed to protect
originality or creativity,” while the latter were. The Court
concluded that claims of false authorship and reverse passing off,
when raised to protect an author’s interest in the intellectual
content of communicative products, were not actionable under §
43(a) and should instead be pursued under copyright law. “To hold
otherwise would be akin to finding that § 43(a) created a species
of perpetual patent and copyright, which Congress may not do.”45
44
Id. at 37.
45
Id.
31
While there are some differences between Dastar and the
situation at hand, we find Dastar’s reasoning controlling. GUS has
not accused HAL of taking tangible copies of its software, removing
its trademarks, and selling them as its own. Rather, GUS asserts
that HAL copied the ideas, concepts, structures, and sequences
embodied in its copyrighted work. In sum and substance, GUS’s
claim is simply a claim that HAL has infringed its copyright in
LOPEZ COBOL. Dastar makes clear that such claims are not
actionable under § 43(a).
The district court’s grant of summary judgment to HAL on GUS’s
Lanham Act claims is affirmed.
IV
GUS next contests the district court’s dismissal of its state
law claim of trade secret theft. Shortly before trial, HAL filed
a summary judgment motion on this issue, arguing that GUS could not
prove all of the essential elements of its claim. The district
court agreed, disposing of GUS’s claim on two alternative grounds.
First, the court concluded that Texas law requires that the claimed
trade secret have been discovered through improper means. The
court found no improper means in this case because the HAL
Defendants obtained access to the LOPEZ COBOL System pursuant to a
written agreement with Lopez. Second, the court observed that
Texas law requires that a person asserting a trade secret must take
reasonable precautions to protect the claimed trade secret. The
32
court found that the undisputed evidence showed that GUS had failed
to do so. Based on these two alternative grounds, the court
concluded that LOPEZ COBOL, “was not properly protected as a trade
secret.”
GUS argues that the court applied an outmoded and overly
restrictive test for trade secret misappropriation. We agree.
A
We review a district court’s interpretation of state law de
novo.46 To state a claim for trade secret misappropriation under
Texas law, a plaintiff must (1) establish that a trade secret
existed; (2) demonstrate that the trade secret was acquired by the
defendant through a breach of a confidential relationship or
discovered by improper means; and (3) show that the defendant used
the trade secret without authorization from the plaintiff.47 Only
the first and second factors of this test are at issue in this
appeal. “The existence of a trade secret is properly considered a
question of fact to be decided by the judge or jury as
fact-finder.”48
46
Salve Regina College v. Russell, 499 U.S. 225, 239 (1991).
47
Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772,
784 (5th Cir. 1999) (analyzing the cause of action for trade secret
misappropriation under Texas law); see also IBP, Inc. v. Klumpe,
101 S.W.3d 461 (Tex. App.–Amarillo 2001, writ denied) (citing Taco
Cabana Int'l v. Two Pesos, Inc., 932 F.2d 1113, 1123 (5th Cir.
1991)); Elcor Chemical Corp. v. Agri-Sul, Inc., 494 S.W.2d 204, 210
(Tex. Civ. App.–Dallas 1973, writ ref’d n.r.e.).
48
RESTATEMENT (THIRD) UNFAIR COMPETITION § 39 cmt. (1995).
33
B
The district court first concluded that GUS could not prevail
under the first prong of the trade secret theft test. The court
held that Texas law requires that a person asserting a trade secret
take reasonable precautions to protect it.49 The district court
concluded that Lopez did not take reasonable measures in this case,
and concluded that LOPEZ COBOL was not properly protected as a
trade secret.
The Texas Supreme Court recently clarified that to determine
whether there is a trade secret protected from disclosure or use,
a court must examine six relevant but nonexclusive criteria: (1)
the extent to which the information is known outside the business;
(2) the extent to which it is known by employees and others
involved in the business; (3) the extent of measures taken to
safeguard the secrecy of the information; (4) the value of the
information to him and to his competitors; (5) the amount of effort
or money expended in developing the information; and (6) the ease
or difficulty with which the information could be properly acquired
or duplicated by others.50 The court expressly held that “the party
claiming a trade secret should not be required to satisfy all six
factors because trade secrets do not fit neatly into each factor
49
For legal support, the district court cited a Fifth Circuit
opinion, E.I. duPont deNemours & Co. v. Christopher, 431 F.2d 1012,
1015 (5th Cir. 1970), which had attempted to predict the content of
Texas law. The district court did not cite any Texas cases.
50
In re Bass, 113 S.W.3d 735, 739-40 (Tex. 2003).
34
every time.”51 Determining whether any given piece of information
is entitled to trade secret protection, then, is a contextual
inquiry which must evaluate a number of factors.
The district court did not engage in this broad inquiry, but
instead focused solely on Lopez’s alleged failure to take
“reasonable precautions” to protect LOPEZ COBOL, pointing to Lopez
having allowed Parkin to copy LOPEZ COBOL onto a personal computer
and take it with him to Arizona. The court, however, overlooked
the fact that Lopez and Parkin were engaged in a joint venture to
exploit that very software. There was also uncontroverted evidence
that Lopez carefully secured his software system from parties other
than Herrin and Parkin -- that is, that Lopez took reasonable
precautions to protect LOPEZ COBOL from persons other than those
selected by Lopez to have access for limited purposes.
Further factual development may shed light on whether trade
secret protection is appropriate. We conclude, therefore, that a
genuine dispute of material fact precludes determination whether
LOPEZ COBOL was properly protected as a trade secret.
C
Summary judgment may yet have been appropriate if the district
court’s second basis for judgment independently bars GUS’s claim.
As an alternative basis for dismissing GUS’s trade secret claim,
the court concluded that GUS could not satisfy the second prong of
51
Id. at 740.
35
the trade secret claim. Specifically, the court concluded that HAL
did not acquire LOPEZ COBOL through improper means.
However, Texas trade secret law does not impose liability only
when improper means are used. Under Texas law, there is liability
for trade secret misappropriation if either “(a) he discovers the
secret by improper means, or (b) his disclosure or use [of the
trade secret] constitutes a breach of confidence reposed in him by
the other in disclosing the secret to him.”52 The district court
did not consider whether there was a confidential relationship
among Lopez, Perkins, and Herrin that imposed upon them a duty not
to use the trade secret. There may have been an appropriate
confidential relationship: although the facts available in the
record are unclear, it appears that Lopez, Perkins, and Herrin may
have formed a partnership to exploit the LOPEZ COBOL system.53
Under Texas law, a partnership can be considered a confidential
52
Elcor Chemical, 494 S.W.2d at 211 (emphasis added); see also
IBP, Inc., 101 S.W.3d at 472.
53
It is unclear, for example, precisely when the partnership
or joint venture was formed. In its brief, GUS argues, quite
curiously, that the parties “anticipated” signing a confidentiality
agreement, implying that they had not yet reached the stage where
fiduciary duties would be imposed. Perhaps this reflects a tacit
admission that the parties had not yet formalized their venture and
that Lopez shared the code with Perkins and Herrin before any duty
of confidentiality could reasonably be implied.
36
relationship, and participants in a joint venture are often held to
owe duties to one another.54
HAL, for its part, vigorously asserts that there was no
confidential relationship among the parties.55 HAL also contends
54
See, e.g., Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503,
508 (Tex. App.–Houston [1st Dist.] 2003, n.w.h.) (“There are two
types of fiduciary relationships; one is a formal fiduciary
relationship which arises as a matter of law and includes the
relationships between attorney and client, principal and agent,
partners, and joint venturers, while the other is an informal
fiduciary relationship which may arise from a moral, social,
domestic or purely personal relationship of trust and confidence,
generally called a confidential relationship.”); Hyde Corp. v.
Huffines, 314 S.W.2d 763, 769-70 (Tex. 1958) (“The chief example of
a confidential relationship under [the Restatement’s view of trade
secret misappropriation] is the relationship of principal and
agent. . . . Such is also the relationship between partners or
other joint adventurers. But this confidence may exist also in
other situations.”); Holman v. Dow, 467 S.W.2d 547 (Tex. Civ.
App.–Beaumont 1971, writ ref’d n.r.e.) (“We have concluded from a
study of the contract as a whole that plaintiff did not establish
as a matter of law, a partnership between the parties; and,
therefore, the trial court did not err in failing to hold a
relationship of trust and confidence existed between the parties
which was fiduciary in nature.”).
Indeed, former Section 757 of the Restatement of Torts, a
provision which the Texas courts have cited approvingly in the
past, cites a partnership as an example of the type of relationship
imposing a duty not to misuse a trade secret. See RESTATEMENT OF TORTS
§ 757, cmt. on clause (b).
55
For example, HAL argues that the lack of a formal
confidentiality agreement is evidence that there was no duty of
confidentiality among the three men, a proposition which finds some
support in Texas law. See, e.g., Daily Intern. Sales Corp. v.
Eastman Whipstock, Inc., 662 S.W.2d 60, 63 (Tex. App.–Houston [1st
Dist.] 1983, no writ) (“Although an express contractual provision
is not required to establish a duty of confidentiality, the absence
of an agreement restricting disclosure of information is a factor
the court may consider.”). Daily International, however, dealt
with a contractual arrangement among corporations; it did not
address a partnership arrangement, where partners owe one another
a duty of confidentiality. More importantly, at least one Texas
37
that the district court reviewed the entire record and found that
HAL’s use of LOPEZ COBOL was unrestricted, an assertion which finds
no support in the text of the district court’s opinion. In the
end, HAL’s argument highlights the presence of disputed material
facts.
The district court erred in not considering whether GUS might
prevail by demonstrating a breach of a confidential relationship.
On the present record, there is a genuine issue of material fact
and summary judgment was inappropriate.
C
We reverse the district court’s grant of summary judgment in
favor of HAL on GUS’s claim of trade secret theft.
V
GUS’s next set of arguments focuses on its contract claims.56
Unlike its copyright claims, GUS tried its contractual allegations
to a jury, which ruled in GUS’s favor. Over two years after the
jury returned its verdict, the district court granted HAL judgment
as a matter of law. GUS appeals this decision, and also appeals a
court has expressly rejected HAL’s argument, holding that “[w]hen
a claim of improper disclosure or use of trade secrets arises from
a confidential relationship, the injured party is not required to
rely upon an express agreement that the offending party will hold
the trade secret in confidence.” T-N-T Motorsports, Inc. v.
Hennessey Motorsports, Inc., 965 S.W.2d 18, 22 (Tex. App.–Houston
[1st Dist.] 1998, pet. dism’d).
56
Lopez assigned his rights under the breach of contract claim
to GUS. For simplicity’s sake, we will refer to these claims
throughout as GUS’s claims.
38
decision by the district court to limit the manner in which GUS
could prove contractual damages.
Finding no reversible error on either issue, we affirm.
A
GUS first contends that the court abused its discretion in
excluding evidence of HAL’s sales or the value of the market for
HAL’s software at the time of trial. Specifically, the court
refused to allow GUS to question defense witnesses regarding
statements on HAL’s website that the market for HAL’s software was
one billion dollars per year. The court also refused to allow GUS
to introduce evidence that Parkin copied LOPEZ COBOL to create
MEPAW, HAL’s primary asset. GUS also contends that the court
abused its discretion in instructing the jury that Lopez’s damages
were to be measured at the time of HAL’s breach, rather than at the
time of trial, and in refusing to charge the jury that Lopez might
be entitled to specific performance.
1
We examine first the court’s contested evidentiary rulings.
We review a district court’s exclusion of evidence for abuse of
discretion.57
As a preliminary matter, we reject GUS’s contention that the
court’s refusal to allow evidence of the value of the market for
HAL’s software was error. This evidence was irrelevant to
57
United States v. Wilson, 322 F.3d 353, 359 (5th Cir. 2003).
39
determining the value of HAL either at the time of the breach or at
trial. Similarly, we find no error in the court’s exclusion of
evidence that HAL copied LOPEZ COBOL to create MEPAW. This is
admittedly a closer question because evidence that HAL used LOPEZ
COBOL might serve as evidence of the value of his contribution to
the joint venture or possibly even the value of HAL at the
inception of the partnership. However, the issue before the court
was solely whether HAL breached its agreement with Lopez, not
whether HAL copied LOPEZ COBOL or whether Lopez was entitled to
restitution for the value of his contribution. Given the limited
focus of the trial and the nature of GUS’s breach of contract
claim, we find no abuse of discretion in the district court’s
ruling.
2
A somewhat more difficult question is raised by GUS’s twin
assertions that Lopez’s contractual damages should have been
measured as of the time of trial, rather than the time of breach,
and that Lopez should have received specific performance instead of
damages. HAL responds that GUS’s claim for damages measured as of
trial is nothing more than a request for specific performance,
which is disfavored under Texas law and not merited in this case.58
The district court rejected GUS’s request for specific performance
58
HAL also suggests that GUS did not plead specific
performance, but we find this contention without merit. GUS’s
Complaint was sufficient to place HAL on notice that GUS sought
specific performance.
40
and limited GUS’s recovery to damages calculated as of the time of
the breach. The jury, in turn, awarded Lopez $250,000, a sum which
corresponded to his testimony regarding the amount he expended to
create LOPEZ COBOL pursuant to his contract with Parkin and Herrin.
We review jury instructions for abuse of discretion.59 We ask
“‘whether the court’s charge, as a whole, is a correct statement of
the law and whether it clearly instructs jurors as to the
principles of the law applicable to the factual issues confronting
them.’”60 We review the district court’s interpretation of Texas
law de novo.61 Where a party argues on appeal that the district
court erred in refusing to give a proffered jury instruction, that
party must “show as a threshold matter that the proposed
instruction correctly stated the law.”62
We find no error in the district court’s decision rejecting
GUS’s request of specific performance. Under Texas law, specific
performance is an equitable remedy that is normally available only
when the complaining party cannot be fully compensated through the
legal remedy of damages or when damages may not be accurately
59
United States v. Daniels, 281 F.3d 168, 183 (5th Cir. 2002).
60
Id. (quoting United States v. Dien Duc Huynh, 246 F.3d 734,
738 (5th Cir. 2001)).
61
Stine v. Marathon Oil Co., 976 F.2d 254, 259 (5th Cir.
1992).
62
Federal Deposit Ins. Corp. v. Mijalis, 15 F.3d 1314, 1318
(5th Cir. 1994).
41
ascertained.63 When one party breaches an agreement to provide
stock, Texas courts have consistently held that the damages remedy
is adequate, and GUS offers no argument why specific performance
was warranted under the facts of this case.64 We reject this
contention.
We also reject GUS’s claim that its damages should have been
calculated as of the time of trial rather than at the time of
breach. “[T]he rule in Texas has long been that contract damages
are measured at the time of breach, and not by the bargained-for
goods’ market gain as of the time of trial.”65 Texas courts have
applied this rule in cases involving a failure to provide stock.
In Walden v. Affiliated Computer Services, Inc., for example, the
Texas Court of Appeals held that damages in a breach of contract
claim brought by stock option holders against a corporation should
have been calculated based on the value of the corporation’s stock
on the first day after the corporation’s breach, not the value of
63
See Guzman v. Acuna, 653 S.W.2d 315, 318 (Tex. App.–San
Antonio 1983, writ dism’d) (“Specific performance is warranted
where the remedies at law are inadequate and the existence of a
valid contract is established.”); Griffin's Estate v. Sumner, 604
S.W.2d 221, 225 (Tex. Civ. App.–San Antonio 1980, writ ref’d
n.r.e.) (“The purpose of specific performance is to compel a party
who is violating a duty to perform under a valid contract to comply
with his obligations.").
64
Perhaps conceding that specific performance is not required
in this case, GUS’s brief on appeal focuses solely on its argument
concerning the proper measure of damages.
65
Miga v. Jensen, 96 S.W.3d 207, 214 (Tex. 2002).
42
the stock at the time of trial.66 The court explained that, “[i]n
a case involving a contract to deliver stock, the proper measure of
damages for breach of that contract is the same as for other
contracts: the difference between the price contracted to be paid
and the value of the article at the time when it should have been
delivered.”67
The Texas Supreme Court reinforced this rule in Miga v.
Jensen.68 Miga sought to recover damages for the value of the stock
that Jensen refused to sell him in 1994 plus his lost profits. The
only evidence of lost profits, however, was the increased market
value of the stock at the time of trial. The jury awarded him
damages based on that increase, but the Texas Supreme Court
reversed. Reiterating the rule that contract damages are measured
at the time of breach, the Court concluded that the damages Miga
was awarded under the rubric “lost profits” was actually the market
gain, to which he was not entitled. In this case, GUS is
attempting to recover precisely what Miga held is not recoverable
66
97 S.W.3d 303, 328 (Tex. App.–Houston [14th Dist.] 2003,
pet. denied).
67
Id. at 328-39; Miga, 96 S.W.3d at 213-14 (citing Randon v.
Barton, 4 Tex. 289, 293 (1849)).
68
See Miga, 96 S.W.3d at 214 (citing Heilbroner v. Douglass,
45 Tex. 402, 407 (1876) and Whiteside v. Trentman, 170 S.W.2d 195,
196 (Tex. 1943)).
43
under Texas law.69 We find no error in the district court’s
decision limiting GUS’s recovery to damages as of the time of the
breach.
B
We next review the court’s decision granting HAL judgment as
a matter of law on the contract claim. The district court based
its decision on two independent grounds. First, the court
concluded that statements made by Lopez in a prior bankruptcy
proceeding were judicial admissions that barred his contract
claim.70 The court concluded that these statements constituted
judicial admissions and revealed that Lopez had no ownership
interest in HAL, Inc. Second, the court concluded that the
evidence was legally and factually insufficient to support the
jury’s findings of breach of contract and damages.
69
See also Walden, 97 S.W.3d at 328-29 (holding that damages
in breach of contract claim brought by stock option holders against
corporation should have been calculated based on the value of the
corporation’s stock on the first day after the corporation’s breach
on which the option holders were entitled to receive their stock).
70
Specifically, in September, 1993, Lopez stated in bankruptcy
filings that he was not an officer, director, partner, or managing
executive of any corporation and did not own 5% or more of any
corporation’s voting or equity securities within the two years
immediately preceding the commencement of the bankruptcy. Lopez
further stated that he did not own any “[o]ther contingent and
unliquidated claims of every nature including tax refunds,
counterclaims of the debtor and rights to set off claims” as to
Hal, Inc. The district court concluded that these statements
revealed that he had no ownership interest in HAL, fatally
undermining his claim that Herrin and Parkin breached a contract
with him.
44
GUS presents two arguments against the district court’s
invocation of judicial estoppel: first, that HAL waived the
judicial estoppel argument by not raising it before the district
court, and second, that Lopez’s prior statements were not judicial
admissions. There is a strong argument that the court abused its
discretion in treating these statements as judicial admissions: the
jury heard the statements Lopez made in his bankruptcy filing but
accepted Lopez’s explanation at trial, and neither HAL nor the
court itself ever thought to treat these statements as judicial
admissions until over two years after trial.
We need not decide that issue, however, because GUS fails to
overcome the court’s second basis for granting JMOL -- that the
evidence was legally insufficient to support the verdict. Indeed,
GUS presents no argument on this issue at all: it focuses its
entire argument on the court’s invocation of judicial estoppel.71
By failing to advance arguments in the body of its brief supporting
its claim on appeal, GUS has abandoned this issue.72 Since the
insufficiency of the evidence provides an independent foundation
71
The only reference GUS makes to this issue is in the
statement of issues, where it states that “[t]he Court erred in
granting judgment as a matter of law . . . because substantial
evidence supported the jury’s verdict.” In the body of its brief,
it never supports this contention with argument, factual support,
or legal support. GUS seems to have assumed that judicial estoppel
was the only basis for the court’s order of JMOL.
72
Gann v. Fruehauf Corp., 52 F.3d 1320, 1328 (5th Cir. 1995);
FED. R. APP. P. 28(a).
45
for the court’s order, and GUS fails to refute it, the order must
stand.
Even were we to reach the issue, we find no error in the
district court’s conclusion on this issue. At trial, the only
evidence of damages presented was Lopez’s testimony that he spent
$250,000 in the development of LOPEZ COBOL. The jury clearly
seized upon this figure and granted him damages in that amount.
However, while this testimony may have been evidence of his
investment in the venture, it did not speak to the value of the
company itself at the time of breach, and it thus provided no basis
for the award of damages for breach of contract. To recover on its
contract claim, GUS was required to prove damages. To do so, it
had to introduce evidence showing the value of the stock that HAL
wrongfully withheld from Lopez. It could have done so in many ways
-- by proving the market value of that stock, or, since this was a
closely corporation, by proving the market value of the assets of
the company after deducting its liabilities73 -- but it did not do
so. Instead, it introduced evidence of Lopez’s investment in HAL
and in effect received restitution for that investment, a measure
of damages neither pled nor argued nor merited under the facts of
the case. This was insufficient, and JMOL was proper.
73
Pabich v. Kellar, 71 S.W.3d 500, 509 (Tex. App.-Fort Worth
2002, pet. denied).
46
C
Finding no error, we affirm the district court’s order
granting HAL judgment as a matter of law.74
VI
After losing its copyright claim against HAL, GUS filed suit
against several of HAL’s customers (collectively “Boaz”) for
copyright infringement based on their use of MEPAW. Boaz moved to
dismiss the suit, arguing that the HAL case conclusively decided
the issue of MEPAW’s infringement and that collateral estoppel
barred GUS from re-litigating the same issue. The district court
agreed and dismissed the case.
Events that occurred in that proceeding, however, form the
basis of several of GUS’s claims on appeal. According to GUS, HAL
made two admissions in the Boaz suit that MEPAW copied portions of
LOPEZ COBOL. Specifically, GUS alleges that Parkin testified
during a hearing that MEPAW copied certain elements of LOPEZ COBOL,
a claim that Professor Davis, an expert hired by HAL, essentially
reiterated in an expert report. Armed with these alleged
admissions, GUS filed a Rule 60(b) motion for relief from judgment
in the original HAL suit, seeking to overturn the original
judgment. GUS argued that the admissions were evidence that HAL
committed fraud and perjury in the first suit and that GUS was
74
This holding renders moot the dispute regarding Intervenor-
Plaintiff-Appellee’s entitlement to attorneys fees, which was based
solely on an alleged contingent-fee relationship.
47
entitled to postjudgment relief. The district court denied GUS’s
motion, and GUS appeals that decision.
For the same basic reason, GUS challenges the district court’s
use of collateral estoppel in the Boaz suit, contending that the
HAL suit does not merit collateral estoppel effect in light of
Parkin’s admission of copying. GUS also contests the court’s
decision granting Boaz attorneys’ fees, arguing that the case was
dismissed on a procedural technicality and that an award of fees is
inappropriate.
A
We first examine GUS’s arguments concerning the denial of its
Rule 60(b) motion. GUS contends that, given HAL’s misconduct,
relief is justified on two grounds: first, because HAL committed
fraud and perjury within the meaning of Rule 60(b)(3), and second,
because Parkin’s and Davis’s admissions constituted “newly
discovered evidence” under Rule 60(b)(2). We find neither basis
persuasive.
1
Rule 60(b)(3) allows a district court to relieve a party from
a final judgment if the adverse party committed fraud,
misrepresentation, or other misconduct.75 “This subsection of the
Rule is aimed at judgments which were unfairly obtained, not at
75
FED. R. CIV. P. 60(b)(3).
48
those which are factually incorrect.”76 To merit relief, the
complaining party must “establish by clear and convincing evidence
(1) that the adverse party engaged in fraud or other misconduct and
(2) that this misconduct prevented the moving party from fully and
fairly presenting his case.”77 Misconduct may be shown by evidence
that the opposing party withheld information called for by
discovery78 or willfully committed perjury.79
Determining whether a party has made a sufficient showing to
warrant relief lies in the sound discretion of the district court.
We therefore review the court’s decision only for an abuse of
discretion.80 We find no error here.
GUS bases its argument on two isolated statements from the
Boaz record, but neither is sufficient to demonstrate misconduct.
First, during a hearing in the Boaz case, Parkin stated on cross-
examination that “[s]ome of the data fields in the purchase order
system was supplied by Mr. Lopez. I have never denied that.
76
Rozier v. Ford Motor Co., 573 F.2d 1332, 1339 (5th Cir.
1978); see also Johnson v. Offshore Exploration, Inc., 845 F.2d
1347, 1359 (5th Cir.), cert. denied, 488 U.S. 968 (1988).
77
Montgomery v. Hall, 592 F.2d 278, 278-79 (5th Cir. 1979);
see also Diaz v. Methodist Hosp., 46 F.3d 492, 496 (5th Cir. 1995);
Washington v. Patlis, 916 F.2d 1036, 1039 (5th Cir. 1990).
78
Rozier, 573 F.2d at 1339.
79
Diaz, 46 F.3d at 496-97.
80
In re Ginther, 791 F.2d 1151, 1153 (5th Cir. 1986); Rozier,
573 F.2d at 1341.
49
Didn’t deny it in the other case.” Second, Professor Davis stated
in an expert report that “[i]t is my understanding that as one
consequence of this agreement [between Parkin, Lopez, and Herrin],
Mr. Parkin used some components of Lopez COBOL code in the creation
of MEPAW, with the full knowledge, permission, and indeed the
active cooperation of Mr. Lopez.” GUS urges that these two
statements reveal that HAL did indeed copy LOPEZ COBOL and that
HAL’s representations to the contrary in the original suit were
false. We disagree.
First, GUS misunderstands what was at issue in the first case
and why its copyright charges were dismissed. As we explained
above, to prove copyright infringement, a plaintiff must
demonstrate factual copying -- that the defendant actually copied
the software -- and then actionable copying -- that the allegedly
infringing work is substantially similar to protected elements of
the infringed work. GUS’s copyright claims were dismissed because
it failed to adduce evidence supporting the second prong of this
test, not because GUS could not prove that HAL had actually copied
MEPAW. It was assumed, for purposes of the summary judgment
motion, that factual copying had occurred. Yet the evidence that
GUS points to now -- Parkin’s statements -- is at best evidence of
factual copying, if it is even that. It says nothing about whether
such copying was actionable. In short, it does nothing to unsettle
the reasoning behind the district court’s dismissal of GUS’s
50
copyright claims or to correct the fundamental deficiency in GUS’s
infringement argument.81 GUS had every opportunity in the prior
case to prove that MEPAW was substantially similar to LOPEZ COBOL,
but it failed to do so. It must live with that failure; it may not
use a Rule 60(b) motion as an occasion to relitigate its case.
Moreover, GUS overstates the import of Parkin’s and Davis’s
statements by taking them out of context and misrepresenting the
conflict with the position taken by HAL in the original suit. GUS,
for example, fails to report that Parkin also stated repeatedly in
that hearing that HAL did not copy LOPEZ COBOL, that it only used
information and expertise supplied by Lopez, and that Lopez
consented to this use. All of these statements were consistent
with statements made by HAL in the original litigation.82
Certainly, the district court, which had the benefit of observing
Parkin’s testimony and the testimony of other witnesses in the Boaz
trial, concluded that there was no such conflict, and we cannot say
the court abused its discretion in reaching that conclusion. To
merit relief, GUS was required to prove misconduct with clear and
convincing evidence. It failed to do so.
81
We disagree, moreover, with GUS’s assertion that Parkin’s
statement, even if it were an admission of literal source code
copying, would make an Altai analysis unnecessary.
82
Most notably, in the original litigation, HAL submitted an
affidavit in which Parkin stated that he used certain data fields
and structures from LOPEZ COBOL with Lopez’s permission. Given
this evidence, it is difficult to see how Parkin’s testimony in the
second case is either perjury or misconduct.
51
2
Under Rule 60(b)(2), a losing party may seek relief from a
judgment because of “newly discovered evidence which by due
diligence could not have been discovered in time to move for a new
trial under Rule 59(b).” As with Rule 60(b)(3) motions, the
decision whether to grant relief lies within the sound discretion
of the court.83 “To succeed on a motion for relief from judgment
based on newly discovered evidence, our law provides that a movant
must demonstrate: (1) that it exercised due diligence in obtaining
the information; and (2) that the evidence is material and
controlling and clearly would have produced a different result if
present before the original judgment.”84 Moreover, “[t]he newly
discovered evidence must be in existence at the time of trial and
not discovered until after trial.”85 GUS has not made a sufficient
showing.
First, as the district court noted, the newly discovered
evidence was not available at the time of trial: Parkin’s statement
occurred in a hearing held on November 16, 2001, and Davis’s report
was prepared on November 1, 2001. These statements, then, were
created after the entry of final judgment on September 27, 2001.
83
In re Grimland, Inc., 243 F.3d 228, 233 (5th Cir. 2001).
84
Goldstein v. MCI WorldCom, 340 F.3d 238, 257 (5th Cir. 2003)
85
Longden v. Sunderman, 979 F.2d 1095, 1102-03 (5th Cir.
1992).
52
More importantly, GUS has not shown either that the evidence
is material or that it would have produced a different result in
the original case. Indeed, the precise opposite is apparent. As
noted above, GUS’s infringement claims were dismissed because GUS
failed to provide evidence of substantial similarity. Parkin’s and
Davis’s bare statements do nothing to unsettle this holding.
3
Finding no abuse of discretion, we affirm the district court’s
rejection of GUS’s motion for relief from judgment.
B
For similar reasons, we also reject GUS’s argument that the
district court erred in invoking collateral estoppel to dismiss the
Boaz suit. GUS argues, again, that the prior HAL judgment was
procured by fraud and perjury which prevented GUS from fully and
fairly presenting its case against HAL. GUS further argues that
Parkin’s and Davis’s admissions constitute new evidence that
distinguishes the factual basis of the HAL and BOAZ suits, making
collateral estoppel inappropriate. However, GUS failed to present
any of these arguments to the district court, and it has waived its
right to present them here.86
86
FDIC v. Mijalis, 15 F.3d 1314, 1327 (5th Cir. 1994)
(holding that, to preserve error for appeal, “the litigant must
press and not merely intimate the argument during the proceedings
before the district court. If an argument is not raised to such a
degree that the district court has an opportunity to rule on it,
[the appellate court] will not address it on appeal”).
53
GUS urges that we should nonetheless consider its argument and
overrule the district court’s finding of collateral estoppel in
order to avoid a gross miscarriage of justice.87 GUS suggests --
without argument or justification -- that such an exception is
appropriate in this case. We rejected above GUS’s claim that its
new evidence tainted the original proceeding.
Finding no error, we affirm the district court’s invocation of
collateral estoppel in the Boaz suit.
C
GUS next argues that the district court abused its discretion
in awarding attorneys’ fees to Boaz on its defense of the copyright
claims. As we noted above, the decision to impose costs to the
prevailing party in a copyright infringement action lies in the
sound discretion of the district court.88 We find no abuse of
discretion in this case.
The district court carefully considered the issue in the Boaz
case and applied the factors endorsed by the Supreme Court in
87
Although appellate courts will usually not hear issues
brought for the first time on appeal, “an exception is sometimes
made . . . where the interest of substantial justice is at stake.”
In re: Novack, 639 F.2d 1274, 1276-77 (5th Cir. 1981).
88
17 U.S.C. § 505 (“In any civil action under this title, the
court in its discretion may allow the recovery of full costs by or
against any party other than the United States or an officer
thereof. Except as otherwise provided by this title, the court may
also award a reasonable attorneys’ fee to the prevailing party as
part of the costs.”).
54
Fogerty v. Fantasy.89 In Fogerty, the Supreme Court quoted with
approval certain nonexclusive factors identified by the Third
Circuit as particularly relevant to the purposes of a fee award
under the Copyright Act. These factors include the frivolousness
of the action, the party’s motivation in bringing it, the objective
unreasonableness in the factual and legal components of the case,
and the need in particular circumstances to advance considerations
of compensation and deterrence.90 All of the factors support an
award of fees in this case. After losing its copyright suit
against HAL, GUS turned around and filed suit against HAL’s
customers, raising on the same basic copying issues. To quote the
district court, GUS’s action was “little more than an
attempt . . . to get a second bite at the copyright apple.”
We affirm the court’s award of fees.
VII
For the foregoing reasons, we affirm the decisions of the
district court, reversing only the district court’s dismissal of
General Universal’s trade secret claim in Case Number 01-21114. We
remand that claim to the district court for further proceedings not
inconsistent with this opinion. All outstanding motions are
denied.
89
510 U.S. 517, 534 n.19 (1994).
90
Id. (quoting Lieb v. Topstone Indus., Inc., 788 F.2d 151,
156 (3d Cir. 1986)).
55