R.C. Olmstead, Inc. v. CU Interface, LLC

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 10a0148p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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R.C. OLMSTEAD, INC.,
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Plaintiff-Appellant,
v. -
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No. 09-3428
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CU INTERFACE, LLC; THOMAS BURKHART;
Defendants-Appellees. -
SOFTWARE PROPERTIES, LLC,
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Appeal from the United States District Court
for the Northern District of Ohio at Akron.
No. 08-00234—Sara E. Lioi, District Judge.
Argued: April 28, 2010
Decided and Filed: May 19, 2010
Before: GIBBONS, ROGERS, and KETHLEDGE, Circuit Judges.
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COUNSEL
ARGUED: David A. Campbell, III, VORYS, SATER, SEYMOUR AND PEASE LLP,
Cleveland, Ohio, for Appellant. Andrew Mills Holford, ANELLI HOLFORD, LTD.,
Dublin, Ohio, for Appellees. ON BRIEF: David A. Campbell, III, VORYS, SATER,
SEYMOUR AND PEASE LLP, Cleveland, Ohio, Daniel J. Clark, VORYS, SATER,
SEYMOUR AND PEASE LLP, Columbus, Ohio, for Appellant. Andrew Mills Holford,
ANELLI HOLFORD, LTD., Dublin, Ohio, for Appellees.
ROGERS, J., delivered the opinion of the court, in which GIBBONS, J., joined.
KETHLEDGE, J. (p. 21), delivered a separate concurring opinion.
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OPINION
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ROGERS, Circuit Judge. R.C. Olmstead appeals the district court’s grant of
summary judgment to defendants in this copyright and trade secret infringement case
brought by one provider of credit union software against the developer of a competing credit
1
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 2
union software. Olmstead challenges several of the district court’s discovery rulings, which
Olmstead argues unfairly inhibited its ability to prove its claims. Among other things, the
district court rejected plaintiff’s inadequate expert report under F.R.C.P. 26, and refused to
draw adverse inferences based on a third party’s destruction of evidence. The district court
granted summary judgment for defendant CUI after determining that Olmstead had failed to
raise a genuine issue of material fact as to whether CUI created its software by copying
Olmstead’s software, and that Olmstead’s end use product was not a trade secret. Because
the district court did not abuse its discretion with respect to its subsidiary rulings, and
because Olmstead did not create a genuine issue of material fact with respect to either the
copyright claim or the trade secret claim, the district court properly granted summary
judgment.
I.
R.C. Olmstead, Inc., (“Olmstead”) develops and sells data processing software,
hardware, and related services to credit unions. One of the credit unions to which Olmstead
sold its software was Canton School Employees Federal Credit Union (“the CSE Credit
Union”). In 1999, Olmstead and the CSE Credit Union entered into a data processing
agreement whereby Olmstead licensed the use of its hardware and RCO-1 credit union
processing software to the CSE Credit Union for a term of five years. Under the terms of
the agreement, Olmstead provided several pieces of hardware, including the server upon
which the RCO-1 software was to run. The server contained the executable version of the
Olmstead code, which used emulators to run the software through “dumb terminals,” which
could be emulated by personal computers connected to the server. The agreement did not
expressly limit access to the software or the emulators on which it would run, but the
agreement did state that Olmstead would maintain ownership of all software and hardware.
On the subject of support, the agreement stated: “Personal computers may be integrated with
the R.C. Olmstead system through the use of terminal emulation software. It is the Credit
Union’s responsibility to acquire a local Personal Computer support firm to perform
maintenance, and support of all personal computers.”
As permitted by the agreement, the CSE Credit Union hired CU Interface, LLC, and
its independent contractor, Thomas Burkhardt (collectively “CUI”), a developer, marketer
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 3
and seller of credit union data processing software, to provide its maintenance and support.
Among other things, CUI had developed a terminal emulation program that enabled older
dumb terminal applications, such as RCO-1, to run on personal computers using Windows.
In 2003, CUI and the CSE Credit Union entered into a Software Development Agreement
to develop a credit union data software processing system. Under the terms of the
development agreement, the CSE Credit Union identified certain software programs that CUI
was to develop according to a schedule contained in the agreement. The CSE Credit Union
was to pay CUI a development fee, retain a perpetual license to use the software programs
that were developed, and have an option to purchase a 30% ownership interest in the
software catalog.
As part of the development process, CUI programmer Jason Akin interviewed
several CSE Credit Union employees regarding their needs in developing credit union
software. Neither CUI nor the CSE Credit Union placed limits on what Akin could discuss
during these interviews, and Akin asked at least one teller, Tracie Rodriguez, about her
experiences with the Olmstead software. During this time, Akin was provided with a teller-
level username and password to the Olmstead software at the CSE Credit Union facility.
This allowed him to access the RCO-1 interface, but not its source code. Akin testified at
his deposition that he accessed the Olmstead software several times per week over the course
of the development project.
One of CUI’s other main programmers, Jay Lash, was a former CSE Credit Union
teller with some educational background in computer programming. Lash began to do small
projects for CUI in early 2004, while he was still employed by the CSE Credit Union, and
he joined CUI officially in 2005. Lash testified that, while employed at CUI as an
independent contractor (and later as an employee of CUI), he wrote most of the interface for
the CUI software—the visual representation of the program on the computer screen that the
customers and tellers would see. Lash was familiar with the Olmstead interface from his
time as a teller, but he also testified that he had worked with a few different systems. Lash
testified that all of the software systems with which he had worked had the same basic
functions, but that Olmstead’s software was an account-based system, whereas CUI’s
software was a person-based system. While he was employed at CUI, Lash retained his CSE
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 4
Credit Union username and password, and he also interviewed several CSE Credit Union
employees about their needs regarding credit union software.
As CUI developed portions of its software, the CSE Credit Union ran those programs
alongside the Olmstead software. One CSE Credit Union employee, Tracie Rodriguez,
testified as follows about the final transition from Olmstead to CUI software:
A. What I remember is that one day we were using R.C. Olmstead and
the next day we were not.
Q. Okay, so by taking that answer, am I correct that you don’t
remember any formal training as to hey, here it is, it’s just a
seamless transition?
A. That I can recall, yes.
Q. Okay. Do you recall it being a seamless transition?
A. There was work involved. I mean, there was [sic] problems at first.
Rodriguez also testified that she received training on the CUI interface software, but that she
could not recall when she received that training. Lash testified that there was “a lot” of
support for employees when the conversion from Olmstead to CUI software took place, and
that there was “quite a bit” of training on the new system, although Lash could not recall
exactly how much. Lash testified that overall, there were “a couple weeks” dedicated to
explaining the new software to CSE Credit Union employees.
Olmstead and the CSE Credit Union extended their original license agreement, but
Olmstead exercised its option to terminate the agreement when it discovered that the CSE
Credit Union was developing its own software. Olmstead informed the CSE Credit Union
that it would be collecting the hardware and software leased to the CSE Credit Union under
the terms of the agreement. When the CSE Credit Union learned that the representative sent
by Olmstead to collect the hardware was accompanied by a third-party computer forensic
analyst, the CSE Credit Union refused to allow Olmstead to remove the software because
of concerns over the customer financial information stored on the server. Olmstead wanted
to have the server examined by a computer forensic expert because it believed those experts
could determine whether and when CUI employees had access to the literal elements of the
Olmstead software, the Olmstead source code. The CSE Credit Union’s CEO, Stanley
Barnes, eventually destroyed the servers by drilling holes through them.
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 5
Olmstead brought suit against CUI, the CSE Credit Union, and Burkhardt, alleging
misappropriation of trade secrets, tortious interference with contractual and business
relationships, copyright infringement, violations of the Digital Millennium Copyright Act
(DMCA), unjust enrichment, breach of contract, and spoliation. During discovery, the
parties agreed to a protective order, under which discovery material was classified as “highly
confidential,” which only experts and attorneys could view; and “confidential,” which the
parties could view in addition to experts, counsel and their staff. Defendant CUI stated that
no Olmstead employee would be able to view the CUI end use product—its software
interface—and Olmstead filed a motion to compel discovery, stating that it needed access
to CUI’s interface to show that the two software products were substantially similar. The
district court determined that CUI’s end use product should be classified as highly
confidential material under the protective order and could only be viewed by experts and
counsel.
Olmstead retained Robert Reid as its only expert witness, and CUI provided Reid
with access to its software in controlled conditions. Reid filed a two-page expert report and
attached nearly two-hundred pages of exhibits showing various screenshots of the Olmstead
and CUI interfaces. CUI moved to bar the use of Reid’s report for failure to comply with
Federal Rule of Civil Procedure 26(a), which requires that expert reports be detailed and
complete, and for failing to meet the requirements of Federal Rules of Evidence 402 and 702.
Olmstead argued in response that “Reid’s report plainly complies with Rule 26(a)(2)(B),”
and submitted a more detailed declaration from Reid that identified specific similarities
between the interfaces of the Olmstead and CUI software and contained some of the specific
information required by Rule 26(a), such as Reid’s compensation and his history as an expert
witness.
The district court granted CUI’s motion to bar the use of Reid’s testimony after
determining that the report failed to comply with Federal Rule of Civil Procedure
26(a)(2)(B). The court reasoned that Reid’s report failed to satisfy five of the six
requirements listed in Rule 26(a)(2)(B) and thus could not be used under Federal Rule of
Civil Procedure 37(c)(1). The court stated that “Reid woefully fails to provide any reasoning
or logical support for his conclusions. Reid vaguely lists a sampling of ‘similarities’ between
the [Olmstead] and CU Interface softwares, but he never explains why the alleged
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 6
similarities indicate actual copying of Plaintiff’s software rather than that the softwares
simply perform similar functions (and thus would be expected to function similarly).”
Because the court barred the use of Reid’s report for failing to comply with Rule 26(a), the
court did not address CUI’s argument that the court should exclude the report under the
Federal Rules of Evidence.
Following the exclusion of Reid’s report, CUI filed a motion for modification of the
case management order. CUI stated that it did not intend to use any expert testimony for
summary judgment practice, and therefore requested that the court not require the defendants
to identify experts and provide reports until 45 days after ruling on the parties’ motions for
summary judgment. Olmstead protested, arguing that CUI should be required to comply
with the case management order. Olmstead stated that it had already assembled a
workstation for Craig Minch, one of CUI’s experts, to view and compare the software
programs, and that dismantling and rebuilding the workstation after summary judgment
would create a burdensome expense. The court and the parties agreed to modify the case
management order as requested by CUI, but the parties also agreed that CUI would provide
an expert report from Minch by the original deadline. Shortly after CUI provided Olmstead
with Minch’s report, Olmstead attempted to subpoena Minch for deposition, but CUI
objected and argued that Olmstead could not depose Minch until after the court had ruled on
the pending summary judgment motions. The court requested briefing on the matter, and
CUI submitted a brief stating that it had re-classified Minch as a non-testifying expert and
that Minch was therefore not subject to deposition.
The district court held that because Minch was a non-testifying expert, Olmstead was
not entitled to depose him. The court examined the case law on whether a party could shield
an expert from deposition by re-classifying that expert as a non-testifying expert and
determined that the majority rule that such a move did shield an expert from deposition was
consistent with the purposes of the Federal Rules of Civil Procedure governing discovery of
expert witnesses. The court determined that “[Olmstead] may not depose Minch unless and
until Minch is designated as a testifying expert witness,” and that “[i]n the event Minch is
redesignated as a testifying witness but [Olmstead] is not given an adequate opportunity to
depose him before trial, the Court will consider an appropriate motion at that time.”
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 7
The parties filed cross motions for summary judgment, but before the district court
ruled on those motions, the CSE Credit Union and Olmstead reached a settlement agreement
and the CSE Credit Union was dismissed as a party to the case. The district court then
granted summary judgment for CUI on all of Olmstead’s remaining claims. The court
determined that Olmstead was not entitled to any adverse evidentiary inference against CUI
for the CSE Credit Union’s alleged spoliation of evidence because Olmstead had not alleged
any fault on the part of CUI. The court also determined that there was no evidence in the
record to indicate that CUI had accessed Olmstead’s source code, and that although CUI had
access to Olmstead’s end use product based on the teller-level access to the CSE Credit
Union’s programs, the RCO-1 interface was not a trade secret protected under Ohio law and
CUI had not engaged in any misappropriation as defined by Ohio law. Finally, the district
court determined that Olmstead had not produced any direct evidence of copying to sustain
a copyright infringement claim, and its indirect evidence was insufficient to create a question
1
of fact as to whether copying occurred. Olmstead filed this timely appeal.
II.
A. Discovery Issues
1. The Protective Order
The district court did not abuse its discretion in denying Olmstead employees
access to the CUI end use product (the CUI software interface) because the district
court’s decision to grant Olmstead’s experts access to the software properly balanced the
need for Olmstead to have access to relevant and necessary information with CUI’s
interest in preventing a potential competitor from having access to its software.
In response to discovery requests for access to the CUI software, CUI asserted
that its end use product—the “Circa 2005 CUPD” software—contained trade secrets and
that the disclosure of that software to a competitor could cause CUI considerable harm.
Olmstead contended that its employees were in the best position to evaluate the software
1
The court also granted summary judgment for CUI on Olmstead’s DMCA claim, Olmstead’s
tortious interference with contractual and business relationships claim, and Olmstead’s unjust enrichment
claim. Olmstead has not challenged those decisions on this appeal.
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 8
because those employees are also familiar with Olmstead’s software. The district court
resolved the issue by allowing Olmstead’s expert to review and run the CUI software in
the presence of counsel at a location mutually agreeable to both parties. The court
reasoned that the parties had reached an agreement that information designated “Highly
Confidential Material” could only be viewed by counsel and experts, and noted that
Olmstead had not challenged CUI’s position that its end use product contained trade
secrets. Federal Rule of Civil Procedure 26(c)(1)(G) permits a district court to require
that “a trade secret or other confidential research, development, or commercial
information not be revealed or be revealed only a specified way.” “It is within the sound
discretion of the trial court to decide whether trade secrets are relevant and whether the
need outweighs the harm of disclosure. Likewise, if the trade secrets are deemed
relevant and necessary, the appropriate safeguards that should attend their disclosure by
means of a protective order are also a matter within the trial court’s discretion.”
Centurion Indus., Inc. v. Warren Steurer & Assocs., 665 F.2d 323, 326 (10th Cir. 1981).
Balancing the competing interests, the district court decided that the CUI interface would
be treated in the manner that the parties had agreed would be appropriate for highly
confidential material. As the district court stated, “Limiting the review of CU Interface’s
software to Olmstead’s experts and counsel will assist Olmstead in defining the nature
of its copyright infringement claims while protecting CU Interface’s trade secrets and
proprietary information.” While the court limited access to CUI’s software to
Olmstead’s expert and counsel, Olmstead also had opportunities to depose CUI
employees who had worked with both Olmstead and CUI software.
To show the district court abused it discretion in allowing only Olmstead’s
counsel and expert access to the CUI software, Olmstead points to this court’s
unpublished opinion in Bell Data Network Communications, Inc. v. Symbol
Technologies, Inc., 114 F.3d 1186 (6th Cir. 1997) (table), but that case is inapposite. In
Bell, this court held that a district court abused its discretion by not allowing the
plaintiffs adequate time for discovery when the district court disregarded its own
continuance allowing the plaintiffs to depose witnesses whose affidavits the defendants
used in their motion for summary judgment. Id. at *2. We also noted that the district
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 9
court had stated that the plaintiffs were given six-and-one-half months for discovery
when discovery had only been open for five-and-one-half months and the parties were
preoccupied with legal motions during three of those months. Id. Olmstead can point
to no similar errors of fact or law in the district court’s decision to deny Olmstead
employees access to CUI’s software; therefore the district court did not abuse its broad
discretion in refusing to compel additional discovery.
2. Robert Reid’s Expert Report
The district court did not abuse its discretion in barring the use of Robert Reid’s
expert report because the report failed to comply with the requirements of Federal Rule
of Civil Procedure 26(a)(2)(B). Reid’s two-page report did not meet Rule
26(a)(2)(B)(i)’s requirement that an expert report be “a complete statement of all
opinions the witness will express and the basis and reasons for them.” Federal Rule of
Civil Procedure 37(c)(1) states that “[i]f a party fails to provide information or identify
a witness as required by Rule 26(a) or (e), the party is not allowed to use that
information or witness to supply evidence on a motion, at a hearing, or at a trial, unless
the failure was substantially justified or is harmless.” Although Olmstead argues before
this court that any deficiencies in Reid’s report were harmless and remedied by the
submission of an affidavit further explaining Reid’s report, Olmstead did not argue
harmlessness before the district court. Instead, Olmstead argued only that Reid’s expert
report met the requirements of Rule 26(a). Because Reid’s expert report did not satisfy
Rule 26(a)(2)(B) and Olmstead did not meet its burden of showing that the error was
justified or harmless, the district court did not abuse its discretion in excluding the
report.
Rule 26(a)(2)(B) requires all expert reports to contain the following:
(i) a complete statement of all opinions the witness will express and the
basis and reasons for them;
(ii) the data or other information considered by the witness in forming
them;
(iii) any exhibits that will be used to summarize or support them;
(iv) the witness’s qualifications, including a list of all publications
authored in the previous 10 years;
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(v) a list of all other cases in which, during the previous four years, the
witness testified as an expert at trial or by deposition; and
(vi) a statement of the compensation to be paid for the study and
testimony in the case.
The district court clearly outlined the deficiencies in Reid’s report. Most troubling of
the violations that the district court described is Reid’s failure, in violation of Rule
26(a)(2)(B)(i), to give “a complete statement of all opinions the witness will express and
the basis and reasons for them.” Reid provided only cursory support for his conclusion
that the “CU[I] software was developed by copying the Olmstead software.” Reid did
identify four examples of similarities between the CUI and Olmstead software and stated
that he could identify other similarities, but he failed to discuss the basis of his
conclusion that the alleged similarities were the result of copying of the Olmstead
software by CUI. “[A]n expert opinion must ‘set forth facts’ and, in doing so, outline
a line of reasoning arising from a logical foundation.” Brainard v. Am. Skandia Life
Assur. Corp., 432 F.3d 655, 657 (6th Cir. 2005). After reading Reid’s report, CUI was
only slightly more informed about the basis of Olmstead’s argument that CUI had copied
Olmstead than CUI would have been by merely reading Olmstead’s complaint. The lack
of reasoning describing why any alleged similarities indicated copying, Reid’s statement
that he could identify other similarities, and Reid’s failure to tie any alleged similarities
between the CUI and Olmstead software to the screenshot exhibits in the appendix
together show that the report failed to meet the requirements of the rule. Under Rule
26(a), a “report must be complete such that opposing counsel is not forced to depose an
expert in order to avoid an ambush at trial; and moreover the report must be sufficiently
complete so as to shorten or decrease the need for expert depositions and thus to
conserve resources.” Salgado v. Gen. Motors Corp., 150 F.3d 735, 742 n.6 (7th Cir.
1998) (citing Sylla-Sawdon v. Uniroyal Goodrich Tire Co., 47 F.3d 277, 284 (8th Cir.
1995)). “Expert reports must include ‘how’ and ‘why’ the expert reached a particular
result, not merely the expert’s conclusory opinions.” Id. Reid’s report plainly failed to
clear this hurdle.
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 11
In arguing that Reid’s report satisfied Rule 26(a), Olmstead asserts that much of
the information not contained in the report was already known to the opposing parties
and the court. Specifically, Olmstead points to the production of Reid’s resume prior to
the production of the report, and the fact that the district court and CUI determined the
manner of Reid’s review of the software. However, these arguments do not remedy the
critical error in the report—its failure to explain the basis for Reid’s conclusion. On this
critical point, Olmstead states only that “Reid viewed the features of the two software
products and concluded that the similarities between them were such that copying was
obvious.” Without more explanation of how Reid came to this conclusion, the report
does not satisfy the requirements of Rule 26(a).
Federal Rule of Civil Procedure 37(c)(1) states that “[i]f a party fails to provide
information or identify a witness as required by Rule 26(a) or (e), the party is not
allowed to use that information or witness to supply evidence on a motion, at a hearing,
or at a trial, unless the failure was substantially justified or is harmless.” Because Reid’s
report failed to meet the requirements of Rule 26(a), the district court did not abuse its
discretion in barring Olmstead from using the report under Rule 37(c)(1). “Federal Rule
of Civil Procedure 37(c)(1) requires absolute compliance with Rule 26(a), that is, it
‘mandates that a trial court punish a party for discovery violations in connection with
Rule 26 unless the violation was harmless or is substantially justified.’” Roberts v.
Galen of Virginia, Inc., 325 F.3d 776, 782 (6th Cir. 2003) (quoting Vance v. United
States, No. 98-5488, 1999 WL 455435, at *3 (6th Cir. June 25, 1999)). The burden is
on the potentially sanctioned party to prove harmlessness. Id. Because Olmstead argued
before the district court only that Reid’s report plainly satisfied Rule 26(a) and did not
argue that any deficiencies were justified or harmless, the district court did not abuse its
discretion in excluding the report.
Olmstead argues, for the first time on appeal, that “[r]egardless of whether Reid’s
report strictly complied with Rule 26, the exclusion of his testimony was unwarranted.”
The thrust of Olmstead’s argument is that because CUI was not required to identify its
own expert until several months after the production of Reid’s initial report and because
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 12
any deficiencies in Reid’s report were cured by Reid’s supplemental declaration, which
was produced two months before the deadline for CUI to identify its expert, CUI
suffered no harm as a result of the report’s shortcomings. At first blush, the exclusion
of Reid’s report seems particularly damaging to Olmstead when combined with the
district court’s holding that only experts and counsel would be able to view the CUI
software. It is true, also, that “Rule 37(c)(1) does not compel the district judge to
exclude testimony in its entirety.” Roberts, 325 F.3d at 784. However, as discussed
below in relation to Olmstead’s copyright claim, even Reid’s supplemental declaration
fell woefully short of the rigorous abstraction-filtration-comparison analysis required to
find substantial similarity in copyright claims. Neither Reid’s report nor his additional
declaration makes any attempt to identify those elements of the Olmstead software that
are unique and original, rather than necessary to the function of any credit union
software. Therefore, Olmstead has not met its burden of showing that its Rule 26 errors
were harmless or justified.
3. The Deposition of Craig Minch
Olmstead was not entitled to take the deposition of Craig Minch because CUI re-
designated Minch as a non-testifying expert. Federal Rule of Civil Procedure
26(b)(4)(A) states that a “party may depose any person who has been identified as an
expert witness whose opinions may be presented at trial.” In the case of a non-testifying
expert, a party is only entitled to take the deposition of another party’s expert upon a
showing of special circumstances. Fed. R. Civ. P. 26(b)(4)(B).
The district court correctly determined that Olmstead was not entitled to depose
Minch before the court ruled on the pending motions for summary judgment, even
though CUI originally designated Minch as a testifying expert. As the district court
stated, “the overwhelming majority of courts hold that a party may re-designate an
expert as non-testifying, and that this insulates the expert from deposition by other
parties absent a showing of ‘exceptional circumstances.’” See, e.g., In re Shell Oil
Refinery, 132 F.R.D. 437, 440 (E.D. La. 1990). This position is consistent with the
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 13
purpose of Rule 26(b), which is to help lawyers prepare to cross-examine expert
witnesses who will testify at trial. Fed. R. Civ. P. 26, advisory committee’s note (1970).
Olmstead argues that CUI’s re-designation of Minch was an unfair attempt to
prevent CUI from deposing Minch and a violation of Rule 26(b)(4)(A). However, Rule
26(b)(4)(A) says nothing about the timing of the deposition of an expert witness, except
that if the expert witness is required to file a report, the deposition may only occur after
the report is provided. Olmstead has not pointed to any case or rule stating that a district
court abuses its discretion in not allowing an opposing party to take an expert witness’s
deposition before ruling on summary judgment motions. Olmstead seeks to use Minch’s
deposition testimony to survive summary judgment, hoping that Minch will testify that
there were enough similarities between Olmstead’s software and CUI’s software to
create a genuine issue of material fact. Such use of an opponent’s experts is what the
revisers of Rule 26 sought to avoid:
Past judicial restrictions of discovery on an adversary’s expert,
particularly as to his opinions, reflect the fear that one side will benefit
unduly from the other’s better preparation. The procedure established in
subsection (b)(4)(A) holds the risk to a minimum. Discovery is limited
to trial witnesses, and may be obtained only at a time when the parties
know who their expert witnesses will be. A party must as a practical
matter prepare his own case in advance of [the time when the parties
designate their expert witnesses], for he can hardly hope to build his case
out of his opponent’s experts.
Fed. R. Civ. P. 26, advisory committee’s note (1970). Olmstead sought to do what the
procedure mandated by Rule 26 sought to proscribe—build a case on the basis of an
opponent’s expert. Therefore, the district court did not abuse its discretion in refusing
to compel the deposition of Craig Minch.
B. Spoliation
The district court did not abuse its discretion in declining to sanction CUI for the
CSE Credit Union’s destruction of Olmstead’s hard drives, which prevented Olmstead’s
forensic experts from determining whether CUI programmers had accessed the Olmstead
software source code, because the district court’s decision balanced the lack of any
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 14
assertion of wrongdoing by CUI with the harm caused to Olmstead’s claims, and
because Ohio law provides a remedy for a party injured by another party’s spoliation of
evidence.
That the CSE Credit Union’s destruction of the hard drives may have constituted
spoliation of evidence does not require a different result. “[A] federal court’s inherent
powers include broad discretion to craft proper sanctions for spoliated evidence.”
Adkins v. Wolever, 554 F.3d 650, 651 (6th Cir. 2009) (en banc). This power “arises not
from substantive law, but, rather, ‘from a court’s inherent power to control the judicial
process.’” Id. at 652 (quoting Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th
Cir. 2001)). As this court and its “sister circuits have recognized, a proper spoliation
sanction should serve both fairness and punitive functions.” Id. The district court based
its decision not to sanction CUI for the CSE Credit Union’s destruction of evidence on
CUI’s lack of fault, thereby addressing the punitive aspect of the sanctions inquiry.
Olmstead argues that the court erred in failing to consider the fairness aspect, stating that
“CUI should not be permitted to benefit from the act of spoliation committed by its joint
venturer, CSE.” But this fairness aspect cuts both ways, as the potential for unfairness
exists if CUI were sanctioned for conduct in which it was not involved. Several
jurisdictions have addressed these fairness concerns raised by third-party spoliation by
recognizing an independent tort of spoliation. See Phoebe L. McGlynn, Note, Spoliation
in the Product Liability Context, 27 U. Mem. L. Rev. 663, 691-92 (1997). As the district
court discussed, Ohio recognizes intentional spoliation of evidence as an independent
cause of action that may be brought against either the primary defendant to an action or
the third party to the action. See Smith v. Howard Johnson Co., 615 N.E.2d 1037, 1038
(Ohio 1993). Olmstead brought an independent claim of intentional spoliation against
the CSE Credit Union under Ohio law, and Olmstead eventually settled all claims with
the CSE Credit Union. Thus, Olmstead was not left without a remedy for any harm
caused by the CSE Credit Union’s spoliation, and the district court did not abuse its
discretion in declining to impose a sanction on CUI.
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 15
C. Copyright Infringement
On the merits, CUI was entitled to summary judgment with respect to Olmstead’s
copyright infringement claims because Olmstead has not produced any direct evidence
of copying and Olmstead’s indirect evidence of copying was not sufficient to create a
fact question as to whether copying occurred. To prevail in an action for copyright
infringement, “a plaintiff must establish that he or she owns the copyright creation, and
that the defendant copied it.” Kohus v. Mariol, 328 F.3d 848, 853 (6th Cir. 2003). A
plaintiff can show copying in two ways, either through direct evidence of copying, or by
indirect evidence. Id. at 853-54. When there is no direct evidence of copying, “a
plaintiff may establish ‘an inference of copying by showing (1) access to the allegedly-
infringed work by the defendant(s) and (2) a substantial similarity between the two
works at issue.’” Id. (quoting Ellis. v. Diffie, 177 F.3d 503, 506 (6th Cir. 1999)).
Because Olmstead has no direct evidence of copying and was not able to create a triable
question of fact through indirect evidence, CUI was entitled to summary judgment on
Olmstead’s copyright infringement claim.
The district court correctly determined that Olmstead presented no direct
evidence of copyright infringement. All of the facts Olmstead listed as direct evidence
of copying require a factfinder to infer that copying occurred based on circumstantial
evidence. According to Olmstead, “CUI’s programmers accessed the Olmstead software
multiple times per week while engaged in their development work”; CUI’s programmers
met with CSE Credit Union employees who had worked as tellers and had experience
with the Olmstead system; a former CSE Credit Union employee who was familiar with
the Olmstead software was responsible for designing the CUI interface; and one CSE
Credit Union teller stated that although she eventually received training on the CUI
system, she did not receive any training on the day that the CSE Credit Union transferred
from the Olmstead software to the CUI system. Even construed in the light most
favorable to Olmstead for summary judgment, all of this evidence still requires a
factfinder to infer that copying occurred; therefore the district court correctly
determined that Olmstead did not produce any direct evidence of copying.
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 16
Olmstead’s indirect evidence of copying is also not sufficient to create a fact
question as to whether copying occurred. In order to prove copying through indirect
evidence, a plaintiff must show “(1) access to the allegedly-infringed work by the
defendant(s) and (2) a substantial similarity between the two works at issue.” Kohus,
328 F.3d at 854. It is not disputed that CUI programmers were able to access the non-
literal elements of Olmstead’s software—the user interface—but it is at the substantial
similarity inquiry that Olmstead’s claim fails. The elements of the copyrighted work that
are copied must be original, and “before comparing similarities between two works a
court should first identify and eliminate those elements that are unoriginal and therefore
unprotected.” Id. at 853. In Kohus, this court applied a two-step approach for
determining whether substantial similarity exists, where the factfinder first asks what
aspects of the copyrighted work, if any, are protected, and then asks whether the second
work involves elements that are substantially similar to the protected elements of the
original work. Id. at 855. Kohus involved alleged copying of a latch designed for use
in playground equipment, and we determined that expert testimony was likely necessary
to “establish what elements, if any, are necessary to the function of any latch designed
for the upper arm of a collapsible playyard.” Id. at 856. Here, CUI has maintained
throughout the litigation that any alleged similarities arose from the fact that both
software programs were designed to serve the functions of credit unions, yet Olmstead
has not attempted to identify any original elements of its software that CUI copied.
Because Olmstead has failed to produce evidence creating a question of fact as to
whether CUI copied original elements of its software, CUI was entitled to summary
judgment on Olmstead’s copyright infringement claims.
The only indirect evidence offered by Olmstead in support of substantial
similarity is Tracie Rodriguez’s testimony regarding the transition between the CUI and
Olmstead software, but this testimony fails to create a triable question of fact. As the
district court discussed, Rodriguez stated about the transition that “[t]here was work
involved, I mean, there was problems at first.” Moreover, Lash testified that CUI
employees were provided with “a lot” of support during the transition, and that there
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 17
were “a couple weeks” dedicated to providing “quite a bit” of training to CSE Credit
Union employees on the new software.
Notably, in its brief before this court, Olmstead blames its inability to provide
any real analysis of substantial similarity on the district court’s evidentiary rulings.
However, as discussed earlier, the district court did not abuse its discretion in governing
discovery in this case. Moreover, the evidence that Olmstead did obtain, even if
considered by the district court, would not be sufficient to create a question of fact as to
whether CUI copied original elements of Olmstead’s software. Neither Reid’s report,
nor Reid’s additional declaration provided by Olmstead in an attempt to cure the
deficiencies in the report, even begins to provide the kind of abstraction-filtration-
comparison analysis we applied in Kohus, id. at 855 n.1, and that the district court found
lacking. As mentioned above, under Kohus, the factfinder determines substantial
similarity first by asking what aspects of the copyrighted work, if any, are protected, and
then by asking whether the second work involves elements that are substantially similar
to the protected elements of the copyrighted work. Id. at 855. All of the evidence
offered by Olmstead clearly lacks the abstraction and filtration elements. Olmstead has
not attempted to identify those elements of its software that are original; thus its
substantial similarity analysis does not filter elements that would be expected to be
common to any credit union software, those dictated by the particular business practices.
Although the additional Declaration of Robert Reid improves upon Reid’s initial expert
report in that it specifically identifies certain elements of CUI’s software that are similar
to Olmstead’s software, Reid does not opine on whether those elements are original
elements.2 Thus, even Reid’s additional report fails to create a question of fact as to
whether CUI copied original elements of Olmstead’s software.
2
Of the more than 25 similarities in the software specifically identified in Reid’s additional
declaration, many are still vague. For example, Reid writes, “RCO pgs 113, 114 and UC 29 are very
similar;” Reid also states, “RCO 123, 124 and UC 37, Audit trial is similar.” Moreover, the only analysis
possibly related to originality occurs when Reid lists the use of the terms “base accounts” and “sub
accounts” in both programs as “unique,” and when Reid states that both programs have the ability to keep
customer records forever and that Olmstead told Reid during his interview with Olmstead that this was a
unique feature of their system.
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 18
Because Olmstead has not created a triable question of fact as to whether CUI
copied original elements of the Olmstead software, CUI was entitled to summary
judgment on Olmstead’s copyright infringement claims.
D. Trade Secrets
The district court correctly held that Olmstead’s end user product—the RCO-1
interface—was not a trade secret because Olmstead did not take reasonable steps to
maintain its secrecy. CUI was therefore entitled to summary judgment with respect to
Olmstead’s trade secrets claim because Olmstead’s end use product was not a trade
secret and Olmstead did not produce any evidence indicating that CUI accessed the
Olmstead source code.
The summary judgment evidence showed that the RCO-1 interface was not a
trade secret. In Ohio, “trade secret” means:
information . . . that satisfies both of the following:
(1) It 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.
(2) It is the subject of efforts that are reasonable to maintain its secrecy.
O.R.C. § 1333.61(D). The district court held that Olmstead’s end user product was not
a trade secret because Olmstead did not take reasonable steps to maintain its secrecy.
The court stated that Olmstead’s own president had testified that the Olmstead interface
is not a trade secret, that Olmstead’s contract with the CSE Credit Union did not contain
any confidentiality provisions preventing third parties from viewing the interface, and
that the agreement expressly contemplated that the CSE Credit Union would use a third-
party personal computer support firm to assist with support and to provide the terminal
emulation software. These factors, combined with Olmstead’s inability to identify any
affirmative steps it took to maintain the secrecy of its user interface, amply support the
district court’s determination that the Olmstead user interface was not a trade secret, so
that summary judgment was proper on Olmstead’s trade secrets claim.
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 19
Olmstead argues that the district court erred in concluding that the CSE Credit
Union was permitted to issue CUI programmers passwords under the terms of the license
agreement, but that does not change the fact that Olmstead did not take sufficient steps
to maintain the secrecy of its user interface. Because the CSE Credit Union is no longer
a party to this case, the question is not whether the CSE Credit Union breached any
implied covenants in the contract not to compete (as Olmstead suggests by citing SAS
Institute, Inc. v. S&H Computer Systems, Inc., 605 F. Supp. 816, 827 (M.D. Tenn.
1985)), or whether the CSE Credit Union was, in fact, authorized to issue passwords to
anyone it wished, but whether Olmstead took reasonable steps to protect the secrecy of
its user interface. The license agreement between the CSE Credit Union and Olmstead
stated that “[p]ersonal computers may be integrated with the R.C. Olmstead system
through the use of terminal emulation software,” and that “[i]t is the Credit Union’s
responsibility to acquire a local Personal Computer support firm to perform
maintenance.” Although Olmstead disputes the degree of access that third-party
developers and support providers could have had by providing emulation software or
support services, nothing in the agreement limited the ability of those third parties to
view the software. Olmstead acknowledged that various third parties had developed
programs to work with the Olmstead software, and it was in this capacity that Burkhardt
and Akin began working with the CSE Credit Union and the Olmstead software. The
record lacks any evidence of affirmative steps that Olmstead took to protect its alleged
trade secret—its software interface.
In claiming that the RCO-1 interface is a trade secret, Olmstead relies almost
entirely on its factually incorrect claim that the district court determined that CUI’s
interface was a trade secret, based on the district court’s discovery ruling limiting
Olmstead’s access to the CUI software. As Olmstead sees it, fairness, the law-of-the-
case doctrine, and the doctrine of estoppel all mandate that the trade secret status of the
Olmstead interface is at least a question of fact, but this argument fails for two reasons.
First, a finding that CUI’s interface is a trade secret does not necessitate a finding that
the RCO-1 interface is a trade secret. The RCO-1 interface is not a trade secret, due at
least in part to Olmstead’s lack of efforts to maintain its secrecy; that factor has no
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 20
bearing on whether CUI’s end use product is a trade secret. Second, as the district court
noted, it never determined that CUI’s interface was a trade secret. In holding that only
Olmstead’s attorneys and experts could view the CUI end use product, the court stated
that it “must acknowledge that CU Interface’s end use product is proprietary in nature
and its disclosure could cause CU Interface considerable damage.” Yet Federal Rule of
Civil Procedure 26(c)(1)(G) permits a district to court to protect, in addition to trade
secrets, other types of confidential commercial information, research, or development.
Moreover, as the district court noted in its discovery ruling, Olmstead did not challenge
CUI’s position that the end user product contains trade secrets, and the protective order
to which the parties agreed mandated that only attorneys and experts could view “highly
confidential material.” The district court therefore based its order “solely upon RCO’s
concession—at no point did the Court make factual findings or hold as a matter of law
that CUDP Circa 2005 was a trade secret.”
The district court correctly determined that CUI was entitled to summary
judgment on Olmstead’s trade secrets claim.
III.
For these reasons, the order of the district court granting summary judgment to
the defendants on all remaining claims is affirmed.
No. 09-3428 R.C. Olmstead, Inc. v. CU Interface, LLC, et al. Page 21
_________________
CONCURRENCE
_________________
KETHLEDGE, Circuit Judge, concurring. I join the court’s opinion, and write
briefly to emphasize that it was not only permissible, but salutary that the district court
chose to enforce Rule 26(a)(2)(B) by striking Olmstead’s expert report. The report was
patently noncompliant with the Rule. Olmstead contends that it should have been given
another chance to comply—that, essentially, it was entitled to a free violation—but in
my view the district court was entirely right to reject that contention. The time to
comply with the Rules is when the district court’s scheduling order says to comply, not
weeks later when faced with a motion for noncompliance. Every violation of the Rules
has consequences; the question is who will bear them. Too often the consequences are
borne only by the innocent party, who must live with the violation (here, a useless
report) or else pay to brief and argue a motion to compel the offending party to do what
the Rules required it to do all along. Better instead to make the offending party pay a
price, and thereby also to remind others that they, too, should comply the first time.