Filed: May 29, 2014
Latest Update: Mar. 02, 2020
Summary: Case: 12-20388 Document: 00512645066 Page: 1 Date Filed: 05/29/2014 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED No. 12-20388 May 29, 2014 cons. with No. 13-20268 Lyle W. Cayce Clerk ASPEN TECHNOLOGY, INCORPORATED, Plaintiff–Appellee, v. M3 TECHNOLOGY, INCORPORATED, Defendant–Appellant. Appeals from the United States District Court for the Southern District of Texas USDC No. 4:10-CV-1127 Before OWEN and HAYNES, Circuit Judges, and
Summary: Case: 12-20388 Document: 00512645066 Page: 1 Date Filed: 05/29/2014 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED No. 12-20388 May 29, 2014 cons. with No. 13-20268 Lyle W. Cayce Clerk ASPEN TECHNOLOGY, INCORPORATED, Plaintiff–Appellee, v. M3 TECHNOLOGY, INCORPORATED, Defendant–Appellant. Appeals from the United States District Court for the Southern District of Texas USDC No. 4:10-CV-1127 Before OWEN and HAYNES, Circuit Judges, and ..
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Case: 12-20388 Document: 00512645066 Page: 1 Date Filed: 05/29/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 12-20388 May 29, 2014
cons. with No. 13-20268
Lyle W. Cayce
Clerk
ASPEN TECHNOLOGY, INCORPORATED,
Plaintiff–Appellee,
v.
M3 TECHNOLOGY, INCORPORATED,
Defendant–Appellant.
Appeals from the United States District Court
for the Southern District of Texas
USDC No. 4:10-CV-1127
Before OWEN and HAYNES, Circuit Judges, and LEMELLE,* District Judge.
PER CURIAM:**
Aspen Technology (Aspen) sued Tekin Kunt, a former employee, for
violating a noncompete clause in his employment contract. It subsequently
added Kunt’s new employer, M3 Technology (M3), as a defendant and brought
claims for tortious interference with contract, trade secret misappropriation, and
copyright infringement. A jury found in favor of Aspen and the district court
*
District Judge of the Eastern District of Louisiana, sitting by designation.
**
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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issued a permanent injunction. M3 appeals the district court’s denial of its
motion for judgment as a matter of law as to Aspen’s misappropriation and
infringement claims and further appeals the damages award and the grant of a
permanent injunction. We affirm the district court’s rulings on M3’s motion and
the grant of a permanent injunction. However, we vacate the award of
attorney’s fees and remand for the issuance of an adjusted damages award.
I
Aspen and M3 both develop, sell, and service specialized software for
chemical and petrochemical companies. They compete directly in three areas:
(1) scheduling (Aspen’s Orion vs. M3’s SIMTO Scheduling);
(2) blending (Aspen’s MBO vs. M3’s SIMTO M-Blend); and
(3) distribution (Aspen’s DPO vs. M3’s SIMTO Distribution).
Aspen is the older of the two companies. M3 was founded in 2002 by Dong
Dong, Lei Wu, and Lawrence Pan, all of whom are former Aspen employees. In
2005, David Jasper, also a former Aspen employee, became the fourth employee
and shareholder of M3. In 2008 and 2009 respectively, Robert Hutchings and
Craig Acuff—also former Aspen employees—joined M3.
Initially, M3 developed and sold terminal software, a product not sold by
Aspen, because Dong’s employment agreement with Aspen included a two-year
noncompetition clause. Following this two-year period, M3 began selling its
scheduling product, which competes with Aspen’s Orion. M3 developed its
blending software, M-Blend, which competes with Aspen’s MBO, shortly
thereafter. At least by 2011, all three of M3’s products that compete with
Aspen’s products were on the market.
In January 2010, Kunt, Aspen’s director of technology and research,
resigned and joined M3. Kunt had previously signed a noncompete agreement
with Aspen, which required Kunt to refrain from competitive employment and
from soliciting Aspen customers with whom he had worked for one year after
leaving Aspen. In April 2010, Aspen initiated this suit against Kunt to enforce
2
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its contract. In June and July 2010, Aspen filed copyright registrations for
versions of its software beginning in 2006 through 2010. In July 2010, Aspen
amended its complaint to assert claims against M3 for trade-secret
misappropriation, copyright infringement, and tortious interference with its
contract with Kunt. Aspen and Kunt eventually settled their dispute, leaving
only Aspen’s claims against M3.
During discovery, M3 employees engaged in an array of misconduct. Kunt
admitted to having concealed Aspen property at a friend’s home, including a
laptop with Aspen documents, an external hard drive containing Aspen’s source
code, and technical notes Kunt had made while working on Aspen’s software.
Acuff revealed that he had removed an external hard drive containing Aspen’s
confidential pricing calculators from Aspen. Furthermore, Acuff admitted to
initiating a defragmentation of his laptop—a process that makes the subsequent
recovery of a deleted file “nearly impossible”— before it could be imaged during
discovery. On advice from counsel, Acuff invoked the Fifth Amendment during
his deposition and at trial. Hutchings also initiated a defragmentation of his
laptop before it could be imaged.
At trial, the jury heard evidence of additional misconduct, namely that
Pan, the chief developer of M3’s M-Blend software, was in possession of a
confidential manual for Aspen’s MBO blending software, and that Jasper had a
customer list on his computer, the metadata of which suggested that it had been
created while Jasper was still in Aspen’s employ.
At the close of Aspen’s case, M3 moved for judgment as a matter of law
pursuant to Federal Rule of Civil Procedure 50(a) on the grounds that Aspen’s
misappropriation and infringement claims were barred by statutes of limitations
and, alternatively, that Aspen had failed to present sufficient evidence on its
claims. This motion was denied. The case was tried before a jury, which found,
in relevant part, that none of Aspen’s claims was time-barred; that M3 had
3
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misappropriated eight of Aspen’s trade secrets; that M3 had infringed all of
Aspen’s asserted copyrights; and that M3 had interfered with Aspen’s contract
with Kunt.
The jury also awarded the following damages to Aspen in the following
categories:
A. Tortious interference:
1. Damages (including attorney’s fees): $896,332
2. Exemplary damages: $100,000
B. Trade-secret misappropriation:
1. Aspen’s lost profits: $2,000,000
2. M3’s profits: $2,800,000
3. Exemplary damages: $1,000,000
C. Copyright infringement:
1. Aspen’s lost profits: $2,000,000
2. M3’s profits: $2,900,000
TOTAL: $ 11,696,332
Pursuant to Aspen’s request, the district court reduced the tortious
interference damages to $546,329 to reflect only Aspen’s requested attorney’s
fees. The district court awarded the adjusted total of $11,346,329, which reflects
the remainder of the jury verdict in its entirety. The district court also issued
a permanent injunction prohibiting M3 from selling any presently existing or
future derivative versions of those products that use or contain any information
substantially derived from Aspen’s protected material. M3 renewed its motion
for judgment as a matter of law under Rule 50(b), which the court also denied.
This appeal followed.
4
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II
“This court reviews a district court’s denial of a motion for judgment as a
matter of law de novo.”1 Such motions “in an action tried by jury [are] a
challenge to the legal sufficiency of the evidence supporting the jury’s verdict.”2
In reviewing a jury verdict, this court considers “all of the evidence—not just
that evidence which supports the non-mover’s case—but in the light and with all
reasonable inferences most favorable to the party opposed to the motion,” that
is, Aspen.3 “If the facts and inferences point so strongly and overwhelmingly in
favor of one party that the Court believes that reasonable men could not arrive
at a contrary verdict, granting [judgment as a matter of law] is proper.”4
III
We first address M3’s contention that the statutes of limitations barred
Aspen’s misappropriation and infringement claims.5 Causes of action for trade-
secret misappropriation and copyright infringement both have a three-year
1
Rubinstein v. Adm’rs of Tulane Educ. Fund, 218 F.3d 392, 401 (5th Cir. 2000).
2
Id. (quoting Harrington v. Harris,
118 F.3d 359, 367 (5th Cir. 1997)) (internal
quotation marks omitted).
3
Id. (quoting Boeing Co. v. Shipman,
411 F.2d 365, 374 (5th Cir. 1969) (en banc),
overruled on other grounds by Gautreaux v. Scurlock Marine, Inc.,
107 F.3d 331, 336 (5th Cir.
1997) (en banc)) (internal quotation marks omitted).
4
Id. (alteration in original) (internal quotation marks and citation omitted).
5
M3 initially argues that because the district court granted summary judgment on
limitations grounds on one of Aspen’s infringement claims, it should have granted summary
judgment on all the infringement claims, and relatedly, that Aspen presented insufficient
evidence of fraudulent concealment to survive summary judgment. This argument generally
asserts that the district court erred in the disposition of M3’s summary judgment motion
below; accordingly, we are unable to review it on appeal. Black v. J.I. Case Co., 22 F.3d 568,
571 (5th Cir. 1994) (“Once trial began, the summary judgment motions effectively became
moot.”) (internal quotation marks omitted).
5
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limitations period.6 While causes of action generally accrue “when a wrongful
act causes some legal injury, even if the fact of the injury is not discovered until
later, and even if all resulting damages have not yet occurred,”7 several equitable
tolling doctrines may defer the accrual of a claim. Specifically, the discovery rule
and the doctrine of fraudulent concealment apply to both misappropriation and
infringement claims.8
Here, the jury had sufficient evidence to find that Aspen did not discover
and in the exercise of reasonable diligence should not have discovered the
asserted misappropriation until after Aspen filed suit against Kunt. First, M3’s
marketing of competing products alone did not constitute “discovery of the
injury.” Aspen must have known or have been reasonably able to discover that
M3 had used Aspen’s proprietary information to create competing products, and
M3 points to no such conclusive evidence.9 Furthermore, the jury could have
found that M3 had fraudulently concealed its misconduct. In a letter to Aspen,
6
17 U.S.C. § 507(b); TEX. CIV. PRAC. & REM. CODE ANN. § 16.010(a) (West 2002).
7
Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 365 (5th Cir. 2000).
8
Prather v. Neva Paperbacks, Inc., 446 F.2d 338, 341 (5th Cir. 1971) (copyright claim
does not accrue until the “plaintiff is on inquiry that it has a potential claim”) (internal
quotation marks omitted); TEX. CIV. PRAC. & REM. CODE ANN. § 16.010(a) (West 2002) (setting
commencement of statute of limitations period at time when “the misappropriation is
discovered or by the exercise of reasonable diligence should have been discovered”); see also
Seatrax, 200 F.3d at 366-67 (analyzing the doctrine of fraudulent concealment in
misappropriation case).
9
M3 argues that Aspen knew that M3 had employed ex-Aspen employees and that M3
was competing with and taking clients from Aspen. However, the limitations period does not
begin to run until a plaintiff knew or should have known “that it was wrongfully injured,” and
there is nothing “wrongful in and of itself” for employees to “leave their employ and compete
with their former employers.” Pressure Sys. Int’l, Inc. v. Sw. Research Inst., 350 S.W.3d 212,
217 (Tex. App.—San Antonio 2011, pet. denied) (emphasis in original) (regarding trade-secret
misappropriation claim); see also William A. Graham Co. v. Haughey,
568 F.3d 425, 440 (3d
Cir. 2009) (“[I]nquiry notice [for a copyright infringement claim] demands more than evidence
that a person is a bad actor in some general sense before a court can conclude that a storm
warning exists as to a specific cause of action.”).
6
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M3 denied all allegations of misappropriation and infringement. The denial of
wrongdoing “may constitute concealment . . . [if] the circumstances indicate that
it was reasonable for [Aspen] to rely on [M3’s] denial.”10 Given that the jury
found that M3 had misappropriated and infringed Aspen’s protected
information, it could have also reasonably concluded that M3’s denial was
intended to conceal its wrongdoing. Therefore, M3 was not entitled to judgment
as a matter of law on its limitations defense.
IV
M3 next argues that the jury’s verdict, which found that M3 had
misappropriated eight of Aspen’s trade secrets, was not supported by legally
sufficient evidence. These eight trade secrets are as follows: (1) DPO source
code, (2) MBO source code, (3) Orion and MBO V7 Roadmap, (4) Scheduling &
Blending V8 & Beyond, (5) MBO 1.3.1 User’s Manual, (6) SDPIMS code,
(7) Customer list, and (8) Pricing calculators. “A trade secret is any formula,
pattern, device or compilation of information which is used in one’s business and
presents an opportunity to obtain an advantage over competitors who do not
know or use it.”11 Trade-secret misappropriation in Texas requires (1) the
existence of a trade secret, (2) improper acquisition of that secret, and (3) use of
the trade secret without authorization.12 “The word ‘use’ . . . has been equated
with ‘commercial use,’ and has been liberally defined to include both the sale of
the trade secrets themselves, as well as the ‘commercial operation’ of those trade
10
Texas v. Allan Constr. Co., 851 F.2d 1526, 1532-33 (5th Cir. 1988); see also Santanna
Natural Gas Corp. v. Hamon Operating Co.,
954 S.W.2d 885, 891 (Tex. App.—Austin 1997, pet.
denied) (“[A]ffirmative misrepresentations can support a fraudulent concealment defense to
a statute of limitations bar even in the absence of a duty to disclose.”).
11
Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996).
12
Phillips v. Frey, 20 F.3d 623, 627 (5th Cir. 1994).
7
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secrets within profit-seeking endeavors.”13 This court has recently acknowledged
the even more liberal construction of the term “use” contained in the Restatement
(Third) of Unfair Competition, which states that “[a]s a general matter, any
exploitation of the trade secret that is likely to result in injury to the trade secret
owner or enrichment to the defendant is a ‘use’ under this Section.”14
Of these eight violations, we first address the four unrelated to Aspen’s
source code and then turn to those related to its source code.
A
The first four materials refer to the customer list in Jasper’s possession,
the pricing calculators in Acuff’s possession, and two product development road
maps.15 M3 argues that Aspen never presented any evidence that M3 actually
used the confidential information found in its possession.
M3 is incorrect that no evidence of use was presented. Jasper admitted to
having used the customer list after joining M3. Jasper’s explanations that
support a finding of non-use are not so “overwhelming” that reasonable jurors
could not have concluded that the customer list was in existence while Jasper
was employed at Aspen and therefore, that its use by M3 constituted
misappropriation.
13
Wellogix, Inc. v. Accenture, LLP, 788 F. Supp. 2d 523, 540 (S.D. Tex. 2011) (citing
Metallurgical Indus. Inc. v. Fourtek, Inc.,
790 F.2d 1195, 1205 (5th Cir. 1986) and Global
Water Grp., Inc. v. Atchley,
244 S.W.3d 924, 930 (Tex. App.—Dallas 2008, pet. denied)).
14
Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444, 451 (5th Cir. 2007) (quoting
RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 40 cmt. c (1995)) (internal quotation marks
omitted); see also Twister B.V. v. Newton Research Partners, LP,
364 S.W.3d 428, 438-39 (Tex.
App.—Dallas 2012, no pet.) (“Although it is unclear whether Texas expressly follows the
Restatement (Third) of Unfair Competition, we observe the Texas Supreme Court has
acknowledged section 40 and other sections of this Restatement as defining trade secrets and
remedies available for their protection.”).
15
These two materials refer to “Orion and MBO V7 Roadmap” and “Scheduling &
Beyond V8 & Beyond.”
8
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There was also sufficient evidence of use as to the pricing calculators.
These confidential pricing calculators were discovered on Acuff’s external hard
drive and when he was questioned as to their use, Acuff invoked his Fifth
Amendment right and refused to answer. The district court permitted an
adverse-inference jury instruction, directing that the jury could “infer by []
Acuff’s refusal to answer that his answers to the questions posed to him would
have been adverse to M3’s interests” so long as the jury did “not base [its] verdict
solely on that adverse inference.” The record demonstrates that Aspen also
presented circumstantial evidence of use by eliciting testimony that pricing is
a highly individualized, confidential process; that Acuff was one of the primary
negotiators for M3; that M3 directly competed against Aspen in almost all its
projects; and that between 2009 and at least through early 2010—i.e., the time
period Acuff worked at M3—M3 lost only one of its bids against Aspen.
Furthermore, because Acuff defragmented his laptop hard drive, the district
court permitted the jury to “infer that the content of those deleted . . . documents
or information would have been unfavorable to M3.” Given the circumstantial
evidence presented and the two adverse-inference instructions, the jury had a
legally sufficient basis from which to determine that M3 had misappropriated
Aspen’s pricing calculators.
Finally, Aspen presented sufficient evidence on the use of the two road
maps. Though evidence of possession itself cannot support an inference of actual
use,16 Aspen presented testimony on three specific ways M3 could have used
these road maps to “tremendous advantage”: (1) permitting M3 to create a
competing product, (2) showing M3 where it need not waste its time and
resources, and (3) revealing the needs that would not be met by Aspen’s
anticipated design.
16
See Propulsion Techs., Inc. v. Attwood Corp., 369 F.3d 896, 905 (5th Cir. 2004).
9
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Aspen also presented evidence to suggest that Dong and Hutchings had
personally solicited information about Aspen’s road maps from other companies.
As Aspen’s expert testified, road maps are sometimes shared with Aspen’s
customer community to obtain feedback, and M3 had contacts with customers.17
The jury could have reasonably inferred from this calculated attempt to acquire
confidential information that M3 used the road maps in its possession.
Moreover, because Hutchings also violated instructions regarding discovery by
initiating a defragmentation of his hard drive, the jury was once again entitled
to infer that the deleted or altered information would have been unfavorable to
M3.
As before, M3 presented contrary testimony that it had completed its own
product plans years before Aspen’s road maps were created. However, the jury
was entitled to make credibility determinations, and it found Aspen’s version to
be more compelling.
B
The remaining trade-secret violations—MBO User’s Manual, MBO source
code, DPO source code, and SDPIMS code—all concern Aspen’s source code.
M3’s argument consists of isolating each of the similarities presented at trial
between its source code and that of Aspen’s to assert that none of the common
terms are trade secrets. However, Aspen never contended that these common
terms in and of themselves were trade secrets, but rather that the jury could
infer from these commonalities that M3 had misappropriated Aspen’s source
code—the actual trade secrets at issue. We hold that there was sufficient
evidence as to all four source code violations.
First, there was evidence as to the misappropriation of Aspen’s MBO
User’s Manual and MBO source code. As discussed above, trade-secret
17
Because these customers sign license agreements, the road maps remain confidential,
protected information.
10
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misappropriation requires a showing that a trade secret existed, that it was
improperly acquired, and that it was used without authorization.18 It is
undisputed that the MBO User’s Manual and MBO source code were trade
secrets and that Pan improperly acquired them. As to their unauthorized use,
Aspen’s expert testified that M3 could have used the manual “to create source
code” and to generally gain a competitive advantage by determining how the
program operated and creating competing source code. Furthermore, “[e]vidence
of a similar product may give rise to an inference of actual use under certain
circumstances,” such as when the defendant’s product was quickly developed by
someone who had recently resigned from the plaintiff-company.19 Here, Pan was
the primary developer of M3’s competing M-Blend product, and he developed
this software in six months. As a point of comparison, Aspen’s expert testified
that Aspen’s MBO took multiple people years to develop. Therefore, the jury had
a legally sufficient basis to find that M3 had misappropriated these trade
secrets.
Next, the jury’s verdict as to Aspen’s DPO source code was also supported
by sufficient evidence. Again, it is undisputed that this source code was a trade
secret and that it was improperly acquired. As to M3’s unauthorized use,
Aspen’s expert presented evidence that several unusually identical structures
appeared in both Aspen’s DPO source code and in M3’s competing distribution
product. This expert explained that there are “innumerable ways” to design
source code since it involves a number of choices, left entirely to the
programmer’s discretion, as to the structure, organization, and naming of lines
of code. There were various instances where Aspen’s DPO source code appears
18
See supra note 12.
19
Engenium Solutions, Inc. v. Symphonic Techs., Inc., 924 F. Supp. 2d 757, 795-96 (S.D.
Tex. 2013) (quoting Global Water Grp., Inc. v. Atchley,
244 S.W.3d 924, 930 (Tex. App.—Dallas
2008, pet. denied)).
11
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verbatim in M3’s distribution source code, including not only sequences of
numbers but also names of variables within the code. Additionally, both M3 and
Aspen used the same large numbers as boundaries for infinity in their source
code even though these numbers did not represent an industry convention.
Furthermore, despite appearing in M3’s code, these boundary values did not
actually serve a purpose.
Finally, the jury’s verdict that M3 had misappropriated Aspen’s SDPIMS
source code—the predecessor of Aspen’s DPO software—also must be upheld.
Aspen demonstrated that SDPIMS was undeniably source code and that it was
improperly in M3’s possession. Its expert also noted that access to this code
could harm Aspen in the same three ways it had specified in earlier
testimony—by permitting M3 to create a competing product, save time and
resources, and capitalize on gaps in the market. Although M3 elicited testimony
from this same expert suggesting that SDPIMS never actually appeared in any
Aspen product, this does not foreclose the possibility that M3 used the older
version of Aspen’s code to avoid making the same mistakes, assuming there were
any, or as a baseline for developing its own competing software, either of which
would constitute use under the Restatement.20
In sum, the jury had a legally sufficient basis for the eight
misappropriation findings; accordingly, M3 was not entitled to judgment as a
matter of law on any of Aspen’s trade-secret misappropriation claims.
V
Next, M3 challenges the jury’s verdict as to Aspen’s copyright
infringement claims. To establish an infringement claim, a copyright owner
must prove ownership of a valid copyright and copying of constituent elements
20
See supra note 14; see also RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 40 cmt. c
(1995) (stating that “relying on the trade secret to assist or accelerate research or
development” constitutes “use”).
12
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of the work that are original.21 M3 asserts that Aspen failed to provide sufficient
evidence as to either element. We address both assertions below.
A
M3 first argues that Aspen did not present sufficient evidence of its
ownership interest. “To establish ‘ownership,’ the plaintiff must prove that the
material is original, that it can be copyrighted, and that he has complied with
statutory formalities.”22 M3 contests only the last element, arguing pursuant to
Circular 61—a publication issued by the Copyright Office—that Aspen’s
registered versions of its software do not protect its prior versions.
M3’s contention fails as a matter of law. As an initial matter, circulars
may be instructive but are not authoritative.23 More significantly, however,
Circular 61 does not support M3’s position. Although M3 contends that under
Circular 61, registration of a derivative work does not protect “preexisting
material,” this Circular instructs only that derivative works must themselves be
registered in order for newer material not contained in preexisting software to
be protected.24 Thus, although Circular 61 implies that copyrighting a derivative
work affects a party’s rights as to the new material, it says nothing about the
effects on preexisting work.
21
Gen. Universal Sys., Inc. v. Lee, 379 F.3d 131, 141 (5th Cir. 2004) (per curiam).
22
Lakedreams v. Taylor, 932 F.2d 1103, 1107-08 (5th Cir. 1991).
23
Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 449 n.9 (2003)
(noting that “policy statements, agency manuals, and enforcement guidelines” may be
instructive but do not carry “the force of law”) (quoting Christensen v. Harris Cnty.,
529 U.S.
576, 587 (2000)).
24
U.S. COPYRIGHT OFFICE, CIRCULAR 61: COPYRIGHT REGISTRATION FOR COMPUTER
PROGRAMS 3 (2012), available at http://www.copyright.gov/circs/circ61.pdf.
13
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Furthermore, the case law weighs against M3’s position. In In re
Independent Service Organizations Antitrust Litigation,25 the defendant made
the same argument M3 makes here, urging that the plaintiff was “barred from
bringing its copyright infringement []claims because [the plaintiff] ha[d] not
come forward with the registrations covering the preexisting materials from
which the registered upgrades were derived.”26 The court rejected this
argument, holding that the plaintiff’s “registration of the derivative works [wa]s
sufficient to allow an infringement claim based on copying of the material, either
newly added or contained in the underlying work.”27 This position has been
recognized by at least five circuits28 and by district courts in two others.29
25
964 F. Supp. 1469 (D. Kan. 1997), modified on reconsideration on other grounds by
In re Indep. Serv. Orgs. Antitrust Litig.,
989 F. Supp. 1131 (D. Kan. 1997).
26
Independent, 964 F. Supp. at 1473.
27
Id.
28
R.W. Beck, Inc. v. E3 Consulting, LLC,
577 F.3d 1133, 1143 (10th Cir. 2009) (“[I]f the
same party owns a copyright in both a derivative work . . . and the underlying work that is
incorporated in the derivative work, registration of a copyright in the derivative work is
sufficient to permit an infringement action on [] the preexisting [] material.”); Oravec v. Sunny
Isles Luxury Ventures, L.C.,
527 F.3d 1218, 1229-30 (11th Cir. 2008) (acknowledging that
registration of derivative works supports actions on preexisting material so long as the
preexisting material was identified on the registration certificate for the derivative work); Kay
Berry, Inc. v. Taylor Gifts, Inc.,
421 F.3d 199, 206 n.2 (3d Cir. 2005) (recognizing that courts
have counseled that “registration of a collective work is sufficient to support an action for
infringement of the underlying self-contained parts”); Murray Hill Publ’ns, Inc. v. ABC
Commc’ns, Inc.,
264 F.3d 622, 631 (6th Cir. 2001), abrogated on other grounds by Reed
Elsevier, Inc. v. Muchnick,
559 U.S. 154, 166 (2010) (acknowledging “cases that permit
infringement suits to proceed on registered derivative works even though some of the
underlying foundational works were not formally registered”); Streetwise Maps, Inc. v.
VanDam, Inc.,
159 F.3d 739, 747 (2d Cir. 1998) (“[T]he registration certificate relating to the
derivative work in this circumstance will suffice to permit [the plaintiff] to maintain an action
for infringement based on defendants’ infringement of the pre-existing work.”).
29
AFL Telecomms. LLC v. SurplusEQ.com, Inc., No. CV11-1086-PHX-DGC, 2012 WL
1161607, at *3 (D. Ariz. Apr. 9, 2012) (acknowledging that “other courts have held that
registration of a derivative work permits legal action on preceding versions of the work”); O.T.
Pickell Builders, Inc. v. Witowski, No. 96 C 4233,
1998 WL 664949, at *4 (N.D. Ill. Sept. 16,
1998) (holding that if the plaintiff can prove that it owns both the preexisting material and
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Therefore, Aspen’s registration of its derivative materials permits Aspen to bring
a claim that M3 had infringed preexisting versions of its software.
B
To prove actionable copying, a plaintiff must show (1) “as a factual matter”
that the defendant “actually used the copyrighted material to create his own
work” and (2) that the copying is “legally actionable.”30 Copying is legally
actionable if “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 ‘substantially similar.’”31 The question of whether two works
are substantially similar is typically left to the ultimate factfinder.32
To aid the factfinder in this comparison, this court has “generally endorsed
the ‘abstraction-filtration-comparison’ test first outlined by the Second Circuit
in [Computer Associates International, Inc. v. Altai, Inc.33].”34 This three-step
procedure first “dissect[s] the allegedly copied program’s structure and isolate[s]
each level of abstraction contained within it.”35 The court next filters out any
derivative work, the defendant cannot argue that the plaintiff is unable to maintain an action
under the registration of the derivative work).
30
Gen. Universal Sys., Inc. v. Lee, 379 F.3d 131, 141-42 (5th Cir. 2004) (per curiam)
(internal quotation marks omitted).
31
Id. at 142 (alteration in original) (internal quotation marks omitted).
32
Id.
33
982 F.2d 693 (2d Cir. 1992).
34
Lee, 379 F.3d at 142.
35
Id. (quoting Altai, 982 F.2d at 707) (alterations in original) (internal quotation marks
omitted).
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unprotectable expression,36 which, in this context, means removing from
comparison any hardware and software standards, computer manufacturer
design standards, target industry practices and demands, and computer industry
programming practices.37 Lastly, the court compares the “remaining protectable
elements with the allegedly infringing program to determine whether the
defendants have misappropriated substantial elements of the plaintiff’s
program.”38
Here, Aspen’s expert explained that he had followed the Altai framework
and discovered three nonliteral patterns that were shared between Aspen’s and
M3’s codes: (1) both used the same three steps to process cells across different
spreadsheets; (2) both used “parsing” to execute Excel formulas without using
Excel; and (3) both used the power function device in a significant inflow/outflow
calculation. None of the similarities were filtered out, the expert explained,
since they were not dictated by technical limitations or required by petroleum
industry standards, and these similarities were essential to the operation of
Aspen’s product. Though M3 contends that this testimony was insufficient to
demonstrate proper filtration or comparison, the jury heard M3’s account as to
why the three similarities should have been removed from the comparison. The
jury, as the ultimate factfinder, was entitled to determine whether the copied
aspects of the program were entitled to copyright protection. We cannot say as
a matter of law that the expert testimony was so lacking as would cause
reasonable minds to reject the conclusion drawn by the jury in this case that
36
Id.; see also Eng’g Dynamics, Inc. v. Structural Software, Inc., 26 F.3d 1335, 1344 (5th
Cir. 1994) (citing Gates Rubber Co. v. Bando Chem. Indus., Ltd.,
9 F.3d 823, 837-38 (10th Cir.
1993)).
37
Gates Rubber, 9 F.3d at 838 (internal citations omitted).
38
Eng’g Dynamics, 26 F.3d at 1343 (quoting Gates
Rubber, 9 F.3d at 834).
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Aspen’s claims were legally actionable. Accordingly, M3 was not entitled to
judgment as a matter of law on Aspen’s copyright infringement claims.
VI
M3 next argues that the district court erred in denying its Rule 50(b)
motion because Aspen failed to present sufficient evidence of damages. As an
initial matter, M3’s argument that Aspen’s damages model does not account for
the infringing fraction of M3’s source code fails. Although M3 is correct that,
relatively speaking, few lines of its source code contained infringing material, it
ignores the fact that those few lines could have been integral to the development
of M3’s competing products. Aspen presented testimony that this was in fact the
case. Aspen was therefore permitted to make the same assumption in its
damages model.39
M3’s argument that Aspen did not present sufficient evidence to support
its asserted amount of damages likewise fails. With respect to its damages on
its copyright claims, Aspen was “permitted to recover [its] own actual damages,
including lost profits” and “any profits of [M3] that are attributable to the
infringement.”40 To demonstrate M3’s profits, Aspen was required to present
proof of M3’s gross revenue, i.e., the “revenue reasonably related to the
infringement,” after which M3 was required “to prove [its] deductible expenses
and the elements of profit attributable to factors other than the copyrighted
work.”41 The record reflects that Aspen’s expert presented detailed testimony
regarding both theories of damages based on Aspen’s and M3’s financial records.
39
Wellogix, Inc. v. Accenture LLP, 716 F.3d 867, 879 (5th Cir. 2013) (“[P]laintiffs are
entitled to adapt their damages theory to fit within the particular facts of the case.”) (internal
quotation marks omitted).
40
MGE UPS Sys., Inc. v. GE Consumer and Indus., Inc., 622 F.3d 361, 366 (5th Cir.
2010) (internal quotation marks and citation omitted); see also 17 U.S.C. §§ 504(a)(1), (b).
41
MGE UPS, 622 F.3d at 366-67 (emphasis in original) (internal quotation marks and
citation omitted).
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This testimony provided a legally sufficient basis for the award of damages on
Aspen’s copyright claims.
Aspen also adequately supported its misappropriation damages award.
Aspen was permitted to prove its damages on these claims in a number of ways,
including by demonstrating its lost profits or the amount by which M3 was
unjustly enriched based on its misappropriation.42 As discussed above, Aspen’s
expert testimony likewise provided sufficient evidence for this damages award.
M3’s next contention—that the district court impermissibly stacked the
damages award for Aspen’s claims—also fails. Although “[a] plaintiff seeking
compensation for the same injury under different legal theories is . . . only
entitled to one recovery,” a “jury’s award is not duplicative simply because it
allocates damages under two distinct causes of action.”43 Where there is
evidence that the plaintiff suffered the total amount of the damage award on one
of its theories, a court may rationally conclude that the jury found that the
plaintiff suffered that amount of injuries and “merely allocated that amount
between the two different causes of action.”44 In this case, Aspen’s expert
testified that M3 may have been unjustly enriched in an amount ranging from
$5.5 million to $9.7 million; the total compensatory damages award fell within
this range. Accordingly, the jury’s and, by extension, the district court’s
damages award did not grant Aspen a double recovery.
Last, M3 argues that if judgment is upheld on the trade secret theory
alone, the damages award would need to be modified since this theory permits
42
Bohnsack v. Varco, L.P., 668 F.3d 262, 280 (5th Cir. 2012).
43
Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 497 (2d Cir. 1995).
44
Id. (“The jury’s award of a net total of $3.25 million was in accordance with the
expert’s testimony. While it is possible that the jury impermissibly compensated Indu Craft
twice for the same injury, it is equally rational to believe that the jury found that Indu Craft
suffered $3.25 million worth of injuries and merely allocated that amount between the two
causes of action . . . .”).
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recovery either of lost profits or unjust enrichment, but not both.45 However, as
discussed above, there is legally sufficient evidence to uphold the jury’s verdict
on Aspen’s copyright claims, and copyright law permits the recovery of both lost
profits and unjust enrichment.
VII
M3 next argues that the tortious interference award, which allotted only
attorney’s fees, fails as a matter of law. We agree.
“In Texas, attorney’s fees may not be recovered from an opposing party
unless such recovery is provided for by statute or by contract between the
parties.”46 A number of equitable exceptions to this general rule have been
recognized, one of which provides for attorney’s fees “where a plaintiff has been
involved in litigation with a third party as a result of the tortious act of
another.”47 Certain prerequisites must be met, including that “the litigation
must have involved a third party and must not have been brought against the
defendant in the same action in which the fees are sought.”48 Particularly on
point is Brown & Brown of Texas, Inc. v. Omni Metals, Inc.,49 in which a Texas
court of appeals vacated the recovery of attorney’s fees incurred in an earlier
45
See Carbo Ceramics, Inc. v. Keefe, 166 F. App’x 714, 722 (5th Cir. 2006) (citing Univ.
Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 535-36 (5th Cir. 1974)).
46
Travelers Indem. Co. of Conn. v. Mayfield, 923 S.W.2d 590, 593 (Tex. 1996).
47
Brown & Brown of Tex., Inc. v. Omni Metals, Inc., 317 S.W.3d 361, 399 (Tex.
App.—Houston [1st Dist.] 2010, pet. denied).
48
Id.; see also Turner v. Turner, 385 S.W.2d 230, 234 (Tex. 1964), overruled on other
grounds by Bounds v. Castle,
560 S.W.2d 925, 927 (Tex. 1977) (“[W]here a plaintiff has been
involved in litigation with a third party as a result of the tortious act of another, plaintiff may
recover in a separate suit for his reasonable and necessary expenses of the prior litigation. In
order that such recovery may be had there are certain requisites prescribed, the first of which
is that the present plaintiff . . . must have incurred attorney’s fees in the prosecution or the
defense of a prior action. Another, the litigation must have involved a third party and not
against the defendant . . . in the present action.”) (emphasis added).
49
317 S.W.3d 361 (Tex. App.—Houston [1st Dist.] 2010, pet. denied).
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stage of litigation, which was initially brought against other parties and to which
the appellants were later added.50 These fees could not be awarded because the
earlier stage could “not properly be styled [as] ‘prior litigation.’”51
It is undisputed that no statute or contract provided for the recovery of
attorney’s fees incurred by Aspen in its dispute involving Kunt.52 Moreover,
since both M3 and Kunt were involved in this litigation, Aspen cannot recover
from M3 the attorney’s fees it expended to litigate against Kunt in the prior
stage of litigation. We hold, therefore, that the district court erred in awarding
Aspen its attorney’s fees under this equitable exception to the general rule.
Because Aspen requested and was awarded $546,329 in attorney’s fees, we direct
the district court to reduce the judgment by this amount on remand.
VIII
M3’s final objection is to the district court’s grant of a permanent
injunction. “According to well-established principles of equity, a plaintiff seeking
a permanent injunction must . . . demonstrate: (1) that it has suffered an
irreparable injury; (2) that remedies available at law, such as monetary
damages, are inadequate to compensate for that injury; (3) that, considering the
balances of hardships between the plaintiff and defendant, a remedy in equity
is warranted; and (4) that the public interest would not be disserved by a
permanent injunction.”53 M3 argues that the district court erroneously
presumed irreparable harm, ignored adequate alternatives, and failed to
consider the public interest.
50
Brown, 317 S.W.3d at 399-400.
51
Id. at 400.
52
Marcus, Stowell & Beye Gov’t Sec., Inc. v. Jefferson Inv. Corp., 797 F.2d 227, 234 (5th
Cir. 1986) (“We are aware of no Texas authority which has approved an award of attorney’s
fees where the plaintiff has recovered solely on a tortious interference with contract claim.”).
53
eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
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We review the grant of a permanent injunction for abuse of discretion.54
“An abuse of discretion occurs if the district court [] relie[d] on clearly erroneous
factual findings when deciding to grant or deny the permanent injunction, []
relie[d] on erroneous conclusions of law . . . , or [] misapplie[d] the factual or
legal conclusions when fashioning its injunctive relief.”55
With these principles guiding us, we turn to M3’s challenges to the
injunction. First, the district court did not abuse its discretion in finding that
Aspen would suffer irreparable harm based on evidence that M3 had been
“making use of Aspen[]’s information from the inception of its business,” and
that there was a “substantial probability that Aspen[] [would] be unable to
collect a judgment against M3” in light of M3’s initiation of bankruptcy
proceedings.56 Regarding adequate alternatives, requiring M3 to discontinue the
use or sale of its products was not unreasonable because M3’s competing
products were found to contain Aspen’s source code.57 Finally, we agree that it
was in the interest of public policy to prohibit the sale and use of M3 products
containing infringing source code and that were derived from the improper
misappropriation of trade secrets.58
54
MGE UPS Sys., Inc. v. GE Consumer and Indus., Inc., 622 F.3d 361, 370 (5th Cir.
2010).
55
Schlotzsky’s, Ltd. v. Sterling Purchasing & Nat’l Distrib. Co., 520 F.3d 393, 402 (5th
Cir. 2008) (internal quotation marks omitted).
56
E.g., Molex, Inc. v. Nolen, 759 F.2d 474, 477-78 (5th Cir. 1985) (per curiam)
(recognizing that a plaintiff’s inability to obtain monetary compensation from an insolvent
defendant satisfies the irreparable harm requirement).
57
Gen. Elec. Co. v. Sung, 843 F. Supp. 776, 779-80 (D. Mass. 1994) (“Courts have
imposed production injunctions in circumstances where . . . the misappropriated trade secrets
are ‘inextricably connected’ to the defendant’s manufacture of the product” and “the
misappropriator cannot be relied upon to ‘unlearn’ or abandon the misappropriated
technology.”) (citing Aerosonic Corp. v. Trodyne Corp.,
402 F.3d 223, 228 (5th Cir. 1968)).
58
Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1255 (3d Cir. 1983)
(“[T]he public interest can only be served by upholding copyright protections and,
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Nor was this permanent injunction “overbroad and non-specific.” The jury
made specific findings as to which trade secrets and copyrights M3 had used,
and the district court’s injunction accordingly enumerates the trade secrets and
copyrights that M3 is enjoined from using. Accordingly, the district court did not
abuse its discretion in granting the permanent injunction.
* * *
For the foregoing reasons, we AFFIRM the district court’s judgment in all
respects except the grant of attorney’s fees for Aspen’s tortious interference
claim. We direct that the district court reduce the judgment by the attorney’s
fee amount on remand.
correspondingly, preventing the misappropriation of the skills, creative energies, and
resources which are invested in the protected work.”) (internal quotation marks omitted).
22
