Merchant Transaction v. Nelcela Incorporated, et al

Filing 607

ORDER re: analytical dissection. Status Hearing set for 4/14/2009 at 01:30 PM in Courtroom 505, 401 West Washington Street, Phoenix, AZ 85003 before Judge Mary H Murguia. Signed by Judge Mary H Murguia on 3/17/09. (KSP)

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WO

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

) ) ) ) Plaintiff, ) ) vs. ) ) NELCELA, INC., an Arizona ) Corporation; LEN CAMPAGNA, an ) Arizona resident; ALEC ) DOLLARHIDE, an Arizona resident; ) EBOCOM, INC., a Delaware Corporation; POST INTEGRATIONS, ) ) INC., an Illinois Corporation, ) ) Defendants. ) ) And Related Counterclaims, Cross-Claims,) and Third-Party Claims. ) ) MERCHANT TRANSACTION SYSTEMS, INC.,

Case No. CV 02-1954-PHX-MHM ORDER

Currently before the Court is the parties' briefing and proposed orders and objections on the issue of analytical dissection (Dkt. #s 560, 565, 572, 600, 601, 602, 603). After reviewing the pleadings and holding oral argument on March 11, 2008, the Court issues the following order. I. THE PARTIES On October 3, 2002, Plaintiff Merchant Transaction Systems, Inc. ("MTSI") instigated a civil action relating to copyright infringement. (Dkt. #1). MTSI's Complaint alleged that Defendant Alex Dollarhide breached his fiduciary duty and duty of

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confidentiality when he, along with Defendant Leonard Campagna and their corporation Nelcela, Inc. (collectively, "Nelcela"), sold MTSI's software to Defendants Ebocom, Inc. and Post Integrations, Inc. (Id.). MTSI also asserted a declaratory judgment and quiet title claim with respect to its ownership rights in its software ("MTSI software"), which was allegedly converted by Nelcela. (Id.). Nelcela answered MTSI's claims and counterclaimed against MTSI, asserting various claims including copyright infringement and declaratory relief as to its ownership rights in its software (the "Nelcela software"). (Dkt. #50). Nelcela also asserted cross-claims and third-party claims against Ebocom, Inc., Post Integrations, Inc., Mary Gerdts, and Douglas McKinney (collectively,"Post"). (Id.). In response, Post cross-claimed and asserted third-party claims against Nelcela, including a claim that Nelcela breached their contractual obligation to Post pursuant to an August 2, 2000 agreement in which Nelcela was to provide its Nelcela System source code to Post. (Dkt. #51). Post also asserted a declaratory claim regarding its ownership rights in the Nelcela software. (Id.). In addition, on June 13, 2005, Lexcel Solutions, Inc. ("Lexcel") moved to intervene as a plaintiff in this litigation. (Dkt. #169). The Court granted Lexcel permission to intervene (Dkt. #209), and on July 29, 2005, Lexcel filed an Intervening Complaint, alleging that Nelcela engaged in copyright infringement of Lexcel's software by unlawfully converting Lexcel's software. (Dkt. #212). II. THE ISSUES This litigation primarily involves claims of copyright infringement of computer software. To establish copyright infringement, a plaintiff must prove (1) ownership of a valid copyright and (2) unauthorized copying of protected elements of the copyrighted work. See Rice v. Fox Broadcasting Co., 330 F.3d 1170, 1174 (9th Cir. 2003) ("In order `[t]o establish infringement, two elements must be proven: (1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original.'") (citing Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991)). Here, the parties stipulated to bifurcate the action into two phases tracking the elements of copyright -2-

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infringement: (1) ownership and (2) infringement/damages. (Dkt. #87). The stipulation provided that the "issue of ownership shall be bifurcated and tried expeditiously. In the Ownership phase, discovery shall be limited to Ownership." (Id., p.1). Phase I, the ownership phase, is complete: on September 30, 2006, the Court held on summary judgment that "based upon the undisputed similarities between the Lexcel 2001 software, MTSI software and Nelcela software . . . they are substantially similar beyond the possibility of random chance and that copying took place" (Dkt. #383, p.28); trial was then held to determine who owned that software (i.e., the authorization and merchant systems), and on April 24, 2007, the jury found that Lexcel was the owner (Dkt. # 501). The jury also found that Lexcel possessed a valid copyright over the "database component or system" of the Lexcel software. (Id., p.2). Therefore, Lexcel has proven the first element of infringement. As a result of the bifurcation, the Court was to then proceed to Phase II, the infringement phase, at which time the Court would consider, among other things, whether Nelcela copied any protected elements of the Lexcel software without authorization. However, the transition to Phase II of this action became complicated when Nelcela raised the issue of analytical dissection in its Motion for Judgement as a Matter of Law during the Phase I trial on ownership. (Dkt. #486). For the first time in this action, Nelcela argued that the Court's September 30, 2006 ruling that the various software at issue were substantially similar was erroneous because "the Court was required to engage in analytic dissection in order to identify the software that was eligible for copyright protection" (Dkt. #600, p.2). The Court denied that motion as untimely, to be reurged after the Phase I trial; Nelcela then reeurged the analytical dissection issue in its Renewed Motion for Judgment as a Matter of Law and/or Motion for Judgment Notwithstanding the Verdict or, in the alternative, Motion for a New Trial. (Dkt. #505, pp. 5-10). Although the Court denied that motion as well, the Court held that the jury's "ownership determination [must] face scrutiny based upon the requisite `analytical dissection.'" (Dkt. #547, p.15). This order addresses the issue of analytical dissection. -3-

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A.

Waiver

The Joint Parties argue that Nelcela waived its challenge to the Court's summary judgment ruling and the jury's verdict by "fail[ing] to raise its analytic dissection defense in opposition to the Joint Parties' motion for summary judgment." (Dkt. #601, pp. 1315). Nelcela, on the other hand, argues that it cannot have waived the issue of analytical dissection because the Joint Parties carry "the burden to show that [the copied unlicensed, protected] elements constitute protectable expression." (Dkt. #603, p.2). The Court notes that the issue of waiver is entangled in the parties' present conceptions of what was and was not decided in Phase I. Unfortunately, the stipulated bifurcation has caused much confusion and led the parties to repeatedly squabble over whether, and to what extent, certain issues were involved in Phase I, and what was to be reserved or remained for Phase II. Looking back, the parties stipulated to bifurcate the issues of ownership and infringement/damages in this action on March 11, 2005. (Dkt. #87). However, due to Post Integrations' subsequent statement that "MTSI is not entitled to have a jury determine ownership with respect to its request for declaratory relief settling the question of ownership between it and POST" (Dkt. #88), Nelcela requested that the Court clarify the issues to be considered in Phases I and II. (Dkt. #93). Although the Court held a hearing on March 31, 2005 on the request for clarification, the Court was required "to hold off on the ownership dispute because [the parties] ha[d] not been able to determine what it is that [they] need[ed] to turn over." (Dkt. #126, p.41). Nonetheless, the parties agreed at that time that the questions to be resolved in Phase I, the ownership phase, was the following: "[W]ho owns the software that Nelcela [claims it owns]? Who owns the software that MTSI claims it owns? And who owns the software that Nelcela claims POST is infringing upon?" (Id., p.33). However, disagreement concerning the bifurcation was evident again when Nelcela sought summary judgment in Phase I on MTSI's unfair competition, misappropriation, conversion, and intentional interference with economic relations claims and Lexcel's copyright, misappropriation, unfair competition, breach of contract, and -4-

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conversion claims (which Nelcela claims are barred by the statute of limitations). (Dkt. #s 323-25). In Response to Nelcela's motions, the Joint Parties1 reasserted its position that "Phase I was limited to the issue of software ownership" (Dkt. #351, p.23), and that Nelcela's motions on the aforementioned claims were "Phase II claims" (id., p.24). But in Reply, Nelcela opined that the Court "understood that `Phase I' has involved extensive questions regarding copyright infringement" and that "there were issues of both Phases involved at this time." (Dkt. #361, p.8). The Court understood no such thing; on September 30, 2006, the Court found that "the Parties, especially Nelcela, ha[d] asserted argument [sic] that address[ed] issues outside the scope of the ownership phase of this litigation," and as such, "the Court [would] not entertain the merits of [those] arguments that [fell] outside the scope of the ownership phase" (Dkt. #383, p.3), which included the merits of Nelcela's statute of limitations argument against Lexcel (id., pp. 16-17). The Court was forced to again address the issue of bifurcation at the Final Pretrial Conference proceedings held on April 3 and 4, 2007, when Nelcela sought to have its experts "come in and testify [during the Phase I trial] in accordance with their reports and their disclosed testimony about where there are any similarities, where there are not similarities, and the nature of the similarities amongst all of the codes." (Dkt. #474, p.10). However, the Court reiterated the fact that on Phase I summary judgment it "found copying between the Lexcel CD, the Nelcela code, and the MTSI code. And at this point, this includes both the Authorization and the Merchant code." (Dkt. #474, p.11). As such, the Court limited the expert testimony on copying in the Phase I trial to "the relationship

On February 15, 2006, Post and MTSI filed a Stipulation for Partial Dismissal of Certain Claims Pursuant to Settlement. (Dkt. #322). The Stipulation stated that "the Lexcel Parties, MTSI Parties, and the POST Parties have mutually released each other from all claims related to the circumstances alleged in the present lawsuit. The Settlement Agreement and Mutual Release does not release any claims asserted by the parties to that agreement against any of the Nelcela Defendants." (Id., p.2) (emphasis in original). As such, the Lexcel, MTSI, and POST Parties, are now referred to in this litigation as the "Joint Parties." -5-

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between the `94/'95 Lexcel software and the 2001 Lexcel CD, but not with respect to whether copying took place in 2001." (Id., pp. 18, 25). In addition, the Court again emphasized that due to the parties' stipulation to bifurcate the litigation, the Phase I trial was to determine ownership, and nothing more. (Id., p.89). Still, the Court's pronouncements were apparently not clear enough, as Nelcela further inquired into whether its statute of limitations argument against Lexcel's claims would be addressed during the Phase I trial. (Dkt. #462, p.14). Once more, the Court stated that "[t]he issue for trial as to ownership is somewhat narrow now due to the Court's prior determination that copying occurred between the relevant software versions." (Id., p.37). Further, the Court stated that "[i]t seems in phase II of this litigation, if Lexcel is deemed to be the owner by the jury in phase I, Nelcela clearly will be afforded the opportunity to challenge Lexcel's claim for copyright infringement against Nelcela based upon the applicable statute of limitations and when Lexcel's infringement claims accrued."2 (Id., p.21). As such, the Court concluded that "the issue as to ownership over the relevant software between the joint parties and Nelcela, would

On October 15, 2007, Nelcela filed a Post Trial Memorandum on Statute of Limitations, reasserting its position that Lexcel's copyright claims are barred by the statute of limitations. (Dkt. #575). The Court addressed the statutes of limitations issue at the Motions Hearing on March 11, 2008, stating that "[t]he question here, . . . is whether Nelcela's assurances that it would not and was not using Lexcel's source code is sufficient conduct to toll the statute of limitations and allow Lexcel to obtain damages for any infringement that occurred prior to June 13, 2002." (Dkt. #597, pp. 21-22). The Court went on: "it's unclear . . . whether Nelcela's acts were calculated to mislead Lexcel as to have reasonably caused Lexcel's failure to file suit at that time and thus whether equitable estoppel applies to bar Lexcel's claim of infringement prior to June of 2002. And it seems like where the facts are undisputed, and only one inference may be drawn from them, the question of estoppel is one of law. But otherwise, it is one of fact." (Id., pp. 21-22); see, e.g., Atkins v. Union Pacific Railroad Co., 753 F.2d 776, 777 (9th Cir. 1985); Weber v. Geffen Records, Inc., 63 F.Supp.2d 458, 466 (S.D.N.Y. 1999). As such, the Court found that "[i]t appears inappropriate for the Court to foreclose discovery or [sic] this issue [during discovery in Phase II] or issue an order stating that Lexcel is foreclosed from seeking to establish an [sic] equitable estoppel exists to allow it to recover for acts of infringement by Nelcela prior to June 13 of 2002." (Dkt. #597, pp. 22). -6-

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not . . . become an open question again. . . . regardless of whether Lexcel is deemed to own or be the creator of the relevant software, and this Court subsequently invalidates Lexcel's legal ownership rights during phase II." (Id., pp. 21-22; Dkt. #457, pp. 12-13). Then, as previously mentioned, during the trial on ownership, Nelcela raised the issue of analytical dissection, arguing that the Court's September 30, 2006 ruling that the various software at issue were substantially similar was erroneous because the Court had not engaged in analytic dissection in order to identify the software that was eligible for copyright protection. (Dkt. #486). That argument was incorrect and premature; analytical dissection is an examination into whether a party infringed a valid copyright by copying constituent elements of the work that are original, and as such it is an issue solely for Phase II, the infringement/damages phase. The Court's September 30, 2006 finding that the Lexcel 2001 software, MTSI software, and Nelcela software were "substantially similar beyond the possibility of random chance and that copying took place" (Dkt. #383, p.28), and the jury's subsequent determination that Lexcel owned that software, neither addresses nor prevents an analysis into whether Nelcela copied any protected elements of the Lexcel software without authorization. The September 30, 2006 ruling merely found, as a factual proposition, that copying occurred. In other words, although the Court used the term "substantially similar," which may have led to some confusion,3 the Court's finding related only to the probative similarity of the Lexcel, MTSI, and Nelcela software. The Court's finding with respect to probative similarity between the software at issue was a necessary part of the Phase I ownership issue. Analytic dissection and substantial similarity, on the other hand, are creatures of infringement, and their relevance is limited to determining whether Nelcela's copying is actionable (i.e., whether the particular features/elements of the Lexcel software that Nelcela allegedly copied are

See 4 NIMMER ON COPYRIGHT § 13.03[A] ("Although the term `substantial similarity' often is invoked as a proxy to prove copying as a factual proposition, we have seen that the term `probative similarity' is to be preferred in that context and the question of `substantial similarity' arises analytically only thereafter."). -7-

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protected by copyright).4 As such, pursuant to the parties' stipulation on bifurcation, those issues are the subject of Phase II. Further, as the Court stated in its August 21, 2007 order, "should it be determined that Lexcel's claims for copyright infringement are based upon overlapping software versions that are common in nature and not protectable, Lexcel's claims based upon copyright ownership and infringement may be invalided." (Dkt. #547, p.15). See, e.g., Feist Publ'ns,499 U.S. at 361 ("Not all copying, however, is copyright infringement."); 4 NIMMER ON COPYRIGHT § 13.03[A] ("[E]ven where the fact of copying is conceded [or established], no legal consequences will follow from that fact unless the copying is substantial."). Accordingly, despite the Joint Parties' contention to the contrary, as well as the fact that Nelcela prematurely raised the issue of analytical dissection and incorrectly argued that it applied to the Court's finding of probative similarity and the jury's verdict on ownership,5 Nelcela's failure to raise the issue of analytical dissection in opposition to the Joint Parties' Motion for summary judgment does not constitute a wavier of Nelcela's challenges to infringement based on analytical dissection in Phase II. B. Phase II - Infringement6

But see Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1476 (9th Cir. 1992) ("Analytic dissection is relevant not only to the copying element of a copyright infringement claim, but also to the claim's ownership element."). However, as the Brown Bag court went on to state, analytical dissection is only relevant to the issue of ownership to the extent that it may limit the scope of the copyright depending on the extent the copyright owner's work is unprotected or unprotectable under copyright. Id. In other words, analytical dissection merely determines whether a copyright is actionable; while it may render certain constituent parts of a copyright unenforceable, it does not necessarily divest the copyright-holder of ownership. In its latest briefing, Nelcela states that it "does not challenge" the Court's ruling on probative similarity, i.e. that copying occurred. (Dkt. #603, p.2). Clearly, that has not always been Nelcela's position. See Dkt. #505, pp. 5-11 (arguing that the Court's summary judgment ruling was erroneous due to the Court's failure to perform analytical dissection). Although the parties continue to argue over aspects of Phase I of this litigation, there is no question that this case is now in Phase II. Despite Nelcela's assertions to the contrary -86 5

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The issue before the Court is whether Nelcela copied protected elements of Lexcel's software. See Newton v. Diamond, 204 F.Supp.2d 1244, 1253 (C.D. Cal. 2002) (citing Feist Publ'ns, 499 U.S. at 348-51) ("The protectability of elements of a copyrighted work is a question of law for the court."); 4 Nimmer on Copyright § 13.03[F] ("Infringement is shown by a substantial similarity of protectible [sic] expression, not just an overall similarity between the works."). To establish infringement, Lexcel must "show[] that the works in question `are substantially similar in their protected elements.'" Id. (citing Metcalf v. Bochco, 294 F.3d 1069, 1072 (9th. Cir. 2002)). The Ninth Circuit utilizes "a two-part test to determine whether two works are substantially similar: an extrinsic test and an intrinsic test." Jada Toys, Inc. v. Mattel, Inc., 518 F.3d 628, 637 (9th Cir. 2008); Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1442 (9th Cir. 1994) ("We have traditionally determined whether copying sufficient to constitute infringement has taken place under a two-part test having `extrinsic' and `intrinsic' components."). "At summary judgment, courts apply only the extrinsic test; the intrinsic test, which examines an ordinary person's subjective impressions of the similarities between the two works, is exclusively the province of the jury." Funky Films, Inc. v. Time Warner Entertainment Co., L.P., 462 F.3d 1072, 1077 (9th Cir. 2006); Smith v. Jackson, 84 F.3d 1213, 1218 (9th Cir. 1996) ("If [a] plaintiff satisfies the extrinsic test, the intrinsic test's subjective inquiry must be left to the jury and summary judgment must be denied.").

(Dkt. #540), the Court allowed Phase II discovery to commence: the parties conducted discovery on the issue of equitable estoppel and the statute of limitations (Dkt. #554), the Court has ruled on that issue, and the parties have submitted numerous briefing on the issue of analytical dissection (on which neither party sought additional discovery) (Dkt. #s 550, 551). As such, although technically not presented with motions for summary judgment on the parties' respective infringement claims, the briefing submitted addresses the same, and thus this Order will constitute the Court's definitive ruling on the issue of analytical dissection. Further, to the extent that the parties contemplate that additional fact discovery is necessary or additional issues must be presented to the Court with respect to any remaining Phase II issues, the Court will take up those issues at the next status hearing. -9-

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A plaintiff may satisfy the extrinsic test by providing "`indicia of a sufficient disagreement concerning the substantial similarity of [the] two works.'" Swirsky v. Carey, 376 F.3d 841, 846 (9th Cir. 2004) (quoting Brown Bag, 960 F.2d at 1472). However, "a plaintiff who cannot satisfy the extrinsic test necessarily loses on summary judgment, because a jury may not find substantial similarity without evidence on both the extrinsic and intrinsic test." Kouf v. Walt Disney Pictures & Television, 16 F.3d 1042, 1045 (9th Cir. 1994). Thus, "[s]ummary judgment for a defendant accused of copyright infringement is appropriate when the plaintiff fails to show a genuine issue regarding whether the ideas and expressive elements of the works are substantially similar." Brown Bag, 960 F.2d at 1472. "The extrinsic test considers whether two works share a similarity of ideas and expression as measured by external, objective criteria." Swirsky v. Carey, 376 F.3d 841, 845 (9th Cir. 2004); Apple Computer, 35 F.3d at 1442 ("The extrinsic test [ ] objectively considers whether there are substantial similarities in both ideas and expression . . ."). However, "it must be kept in mind that ideas by themselves are not subject to copyright protection; only the expression of ideas is." Swirksy, 376 F.3d at 845 n. 4 (citation omitted); see, e.g., Rice, 330 F.3d at 1174 ("Ideas generally do not receive protection, only the expression of such ideas do.") (citing Metcalf, 294 F.3d at 1074); Brown Bag, 960 F.2d at 1475 ("The extrinsic test [is] an `objective . . . analys[is] of expression.'") (quoting Shaw v. Lindheim, 919 F.2d 1353, 1357 (9th Cir. 1990)) (emphasis in original). The extrinsic test involves three basic steps: (1) The plaintiff must identify the source(s) of the alleged similarity between his work and the defendant's work. (2) Using analytic dissection, and, if necessary, expert testimony, the court must determine whether any of the allegedly similar features are protected by copyright. . . . unprotectable ideas must be separated from potentially protectable expression; to that expression, the court must then apply the relevant limiting doctrines in the context of the particular medium involved, through the eyes of the ordinary consumer of that product. (3) Having dissected the alleged similarities and considered the range of possible expression, the court must define the scope of the plaintiff's copyright ­ that is, decide whether the work is entitled to "broad" or "thin" protection. Depending on the degree of protection, the court must set the appropriate standard for a - 10 -

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subjective comparison of the works to determine whether, as a whole, they are sufficiently similar to support a finding of illicit copying. Apple Computer, 35 F.3d at 1443 (emphasis in original). In other words, the test involves properly identifying the sources of similarity in the works, distinguishing ideas from expression, applying relevant limiting doctrines, and deciding the scope of the copyright by dissecting the unauthorized expression and filtering out unprotectable elements. See id. at 1443-47. III. APPLICATION OF THE EXTRINSIC TEST A. Burden of Proof

It is well settled that "the plaintiff bears the burden of proof on the prima facie case, and the defendant bears the burden as to defenses." 3 NIMMER ON COPYRIGHT § 12.11. However, copyright registration is presumptive evidence of copyrightability. See Swirsky, 376 F.3d at 851 ("Because [the work] has a valid certificate of registration with the copyright office . . . [the plaintiff] is entitled to a presumption of originality.") (citing 17 U.S.C. § 410(c) (2003) (presumption extends five years from date of registration)); 3 NIMMER ON COPYRIGHT § 12.11[B][1] ("[A] certificate of registration, properly obtained within the prescribed five-year period, constitutes prima facie evidence of the author's originality."). In addition, in order to establish a prima facie case of copying, a plaintiff must prove both access and probative similarity. Id. at § 12.11[D] ("[W]here the plaintiff has made a strong prima facie case of copying by proving both access and a convincing number of similarities so that there is a high probability that copying, whether intentional or unintentional, has in fact occurred, at that point, the burden of going forward . . . shifts to the defendant, who must [ ] negative the probability of copying by evidence of independent creation, or common sources . . . ."); but see Swirsky, 376 F.3d at 844 ("Where a high degree of access is shown, we require a lower standard of proof of substantial similarity.").7 Here, during Phase I, the Court found that probative similarity In Swirsky, the plaintiff possessed a valid certificate of registration, and thus the Court held that the plaintiff was entitled to a presumption of originality. 376 F.3d at 851. - 11 7

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existed between the Lexcel and Nelcela software, and the jury determined that Lexcel possessed a valid copyright in the Lexcel software; Nelcela does not contest that the Lexcel software is not copyrightable. See Dkt. #600, p.6. Therefore, Lexcel has satisfied its prima facie burden and is entitled to a presumption of copyrightability. That presumption extends to the Court's use of analytic dissection under the extrinsic test to determine whether any of the allegedly similar features are protected by copyright. See Apple Computer, 35 F.3d at 1443. Because Lexcel satisfied its prima facie burden and was determined to possess a valid copyright, Lexcel is entitled to a presumption that the common features and elements in the Lexcel and Nelcela software are copyrightable. See Swirsky, 376 F.3d at 851. As such, contrary to Nelcela's assertion that "it is Lexcel's burden to prove the significance of the elements copied" (Dkt. #603, p.4), the burden in fact shifts to Nelcela to demonstrate why those common features and elements are not protected by copyright. See Bibbero Sys., Inc. v. Coldwell Sys., Inc., 893 F.2d 1104, 1106 (9th Cir. 1990) ("[A] certificate of registration constitutes prima

However, the Ninth Circuit also stated that "[w]here a high degree of access is shown, [the Ninth Circuit] require[s] a lower standard of proof of substantial similarity" (emphasis added), implying that the plaintiff carries the burden of proof under the extrinsic test despite possessing a valid certificate of registration. Id. at 844. But apart from identifying the sources of the similarities in the works (which a plaintiff must do to establish probative similarity), the extrinsic test primarily involves analytic dissection and application of the relevant limiting doctrines (the second element). And analytic dissection or "filtration" involves analyzing, among other things, the originality of the work, which is presumed (for a period of five years) by virtue of possessing a valid copyright. Further, as stated below, a defendant in the Ninth Circuit carries the burden under the extrinsic test of proving that limiting doctrines apply. As such, it would make little sense, when a valid copyright exists, to force a plaintiff to carry the burden of proof on the remaining issues of analytic dissection. Therefore, this Court will not interpret Swirsky's reference to proof of substantial similarity to imply that a plaintiff, despite possessing a valid copyright, must shoulder the burden of proof as to parts of the second element (analytic dissection and application of the relevant limiting doctrines) of the extrinsic test. There is nothing in Swirsky to convince this Court that to establish a prima facie case of copying, a plaintiff must do more than prove the existence of a valid certificate of registration, access, and probative similarity (element one). - 12 -

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facie evidence of copyrightability and shifts the burden to the defendant to demonstrate why the copyright is not valid."); see also 3 NIMMER ON COPYRIGHT § 12.11[D] (above). Nelcela also argues that Lexcel should carry the burden of proving that the relevant limiting doctrines ­ here, merger and scènes à faire ­ do not apply to prevent the copyrightability of the alleged common features and elements between the Lexcel and Nelcela software. See Dkt. #600, pp. 6-7 (citing, e.g., Maddog Software, Inc. v. Sklader, 382 F.Supp.2d 268, 282 (D. N.H. 2005) ("[Plaintiff] has the burden to show that these elements constitute protectable expression with reference to the various doctrines just discussed."). However, it is clear that in the Ninth Circuit, "[the doctrines of merger and scènes à faire] are defenses to infringement." Ets-Hokin v. Skyy Spirits, Inc., 225 F.3d 1068, 1082 (9th Cir. 2000); see Satava v. Lowry, 323 F.3d 805, 810 n. 3 (9th Cir. 2003) ("The Ninth Circuit treats scènes à faire as a defense to infringement rather than as a barrier to copyrightability."). Thus, despite Nelcela's assertion to the contrary, "[Nelcela] must go forward at trial with appropriate evidence as to those doctrines." 4 NIMMER ON COPYRIGHT § 13.03[F][3]. B. Computer Software

"It is settled that computer programs are entitled to copyright protection. General Universal Systems, Inc. v. Lee, 379 F.3d 131, 142 (5th Cir. 2004); see Hutchins v. Zoll Medical Corp., 492 F.3d 1377, 1383 (Fed. Cir. 2007) ("The Copyright Act provides protection against unauthorized copying of computer programs, defined in 17 U.S.C. § 101 as `a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.'"). "A computer program is made up of several different components, including the source and object code, the structure, sequence and/or organization of the program, the user interface, and the function, or purpose, of the program. Whether a particular component of a program is protected by a copyright depends on whether it qualifies as an `expression' of an idea, rather than the idea itself." Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173, 1175 (9th Cir. 1989) (citing Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 547 - 13 -

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(1985)). "[Copyright] protection extends not only to the `literal' elements of computer software ­ the source code and object code8 ­ but also to a program's nonliteral elements, including its structure, sequence, organization, user interface, screen displays, and menu structures." Gen. Universal Sys., 379 F.3d at 142; see O.P. Solutions, Inc. v. Intellectual Property Network, Ltd., 1999 WL 47191, at *6 (S.D.N.Y. 1999) ("[L]iability will attach where the `fundamental essence or structure' of one work is duplicated in another, even if the so-called `literal' elements of the work are not similar.") (quoting Computer Associates Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 701 (2d Cir. 1992)). It is important to note that "[t]he `non-literal components' of a computer program, including its user interface, are protectable if, `on the particular facts of each case, the component in question qualifies as an expression of an idea [not] an idea itself.'" Apple Computer v. Microsoft Corporation, 799 F.Supp. 1006, 1020 (N.D. Cal. 1992) (quotation omitted)). "Copyrighted software ordinarily contains both copyrighted and unprotected or functional elements." Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596, 599 (9th Cir. 2000). However, copyright protection may be afforded to unprotected elements that constitute "compilations": the "collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in a way that the resulting work as a whole constitutes an original work of authorship." 17 U.S.C. § 101. Thus, "even if the constituent elements of a work are not protected, protection may extend to the `selection, coordination, or arrangement' of such elements in the work as a whole." O.P. Solutions, 1999 WL 47191, at *9; see Satava, 323 F.3d at 811 ("[A] combination of unprotectable elements may qualify for copyright protection."); Metcalf, 294 F.3d at 1074 ("[A] particular sequence in which an author strings a significant number of unprotectable Computer software contains two types of code: source code and object code. Source code is a textual computer language that is written and readable by human programmers. Source code is then translated by a program called a compiler into object code, the binary language that is executed / readable directly by a computer. See Universal City Studios, Inc. v. Reimerdes, 111 F.Supp.2d 294, 305-06 (S.D.N.Y. 2000) (giving a detailed description of object and source code). - 14 8

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elements can itself be a protectable element. Each note in a scale, for example, is not protectable, but a pattern of notes in a tune may earn copyright protection."). As for computer software, "if constituent elements of a screen display or user interface lack requisite originality, or are outside the scope of copyrightable material under 102(b), or are otherwise unprotectable, the selection, coordination, and arrangement of such elements may be protectable, even though those individual elements are not." O.P. Solutions, 1999 WL 47191, at *9 (citing Apple, 799 F.Supp. at 1023). However, it is important to keep in mind that "a combination of unprotectable elements is eligible for copyright protection only if those elements are numerous enough and their selection and arrangement original enough that their combination constitutes an original work of authorship." Satava, 323 F.3d at 811 (citing Feist, 499 U.S. at 358 ("[T]he principle focus should be on whether the selection, coordination, and arrangement are sufficiently original to merit protection.")). C. Identification / Abstraction

On August 31, 2007, the Joint Parties submitted a List of Common Features and Elements Between the Lexcel Software and the Nelcela Software, alleging that Nelcela copied both non-literal and literal elements from the Lexcel software. (Dkt. #555). The Joint Parties allege that Nelcela copied numerous non-literal elements of the Lexcel software, including "[t]he tasks performed by the Lexcel system . . . . [which] include authorizing, processing, and storing credit card transactions and date," "[t]he computer platform on which the Lexcel System is designed to operate," "[t]he design and layout of the Lexcel System" and the "database used by the Lexcel System," including table and column names and data types." (Id., p.2). The Joint Parties also allege that Nelcela copied the following literal elements: program structure, file names, file structures, variable names, definition, and data structures, procedures and functions, formatting, commenting, database structures and definitions (including table and column names and data types), and "[s]ections of source code (including formatting, naming, and

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commenting) copied verbatim from the Lexcel System, including source code from [12] files." (Id., pp. 2-3).9 10 First, however, program structure, file names, file structures, variable names, definition, and data structures, procedures and functions, formatting, commenting, database structures and definitions (including table and column names and data types), are not, by themselves, literal elements of computer software. "Literal elements consist of actual computer programming codes." O.P. Solutions, Inc., 1999 WL 47191, at *6. As such, the only literal elements of the Lexcel software that are specifically mentioned in the Joint Parties' List are 12 sections of source code. To the extent that the remaining alleged common features and elements are independently asserted, they are non-literal elements of the Lexcel software. "[A] computer's `non-literal' elements consist of elements other than the code, and may generally be described as the `structure, sequence, and organization' of the underlying program." Id. These elements include "general flow charts, as well as the more specific organization of inter-modular relationships, parameter lists, and macros," Altai, 982 F.2d at 702, in addition to features such as screen displays and user interfaces, menus, and "command tree" structures contained on the screens, Mitek Holdings, Inc. v. Arce Eng'g Co., 89 F.3d 1548, 1555 n.15. See Apple Computer, 35 F.3d at 1445. Second, although Nelcela does not directly contend that the Joint Parties' List of Common Features and Elements is inadequate, Nelcela does state that "[t]he Joint Parties have not identified in their list of common features (Docket No. 555) or anywhere else in

The 12 sections of source code are: ACCOUNT.SQL, AUTHDAEM.C, BANK.SQL, CARD.SQL, CMDEXEC.C, CMDEXEC.H, IDR.SQL, INTERCHANGE.H, ISO8583.C, ISO8583STRUCT.H, SELECT.SQL, and TABLES. (Dkt. #555, p.3). The Joint Parties' List of Common Features and Elements also includes various sections of source code from the MTSI software. See Dkt. #555, p.3. However, as the only issue presently before the Court is whether Nelcela copied protected elements of the Lexcel software, the Joint Parties' reference to various sections of the MTSI source code is inapposite. - 16 10

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the record, any alleged substantial similarities other than those in [Phase I Trial] Exhibits 504 and 509." (Dkt. #603, p.4). The Joint Parties counter that "Exhibits 504 and 509 [we]re [merely] examples offered at trial of some of the verbatim copying of the Nelcela Software from the Lexcel Software," whereas the List of Common Features and Elements constitutes a "comprehensive list of the similarities between the Lexcel Software and the Nelcela Software." (Dkt. #602, pp.6-7). The Joint Parties' List of Common Features and Elements represents the identification of the sources of the alleged similarity between the Lexcel software and the Nelcela software under the first step of the extrinsic test. (Dkt. #601, p.18); see O.P. Solutions, 1999 WL 47191, at *6 ("[I]n cases where `the copyright holder presents the court with a list of features that it believes to be protectable . . . the court need not abstract further such features."). Thus, to the extent that the List contains more alleged similarities than those contained in Phase I's Trial Exhibits 504 and 509, the Court must consider those similarities. However, although the Joint Parties' present a list of features and elements that they maintain are (1) protectable, and (2) were illegally copied by Nelcela, the Joint Parties fail to specifically identify the extent to which Nelcela allegedly copied the Lexcel software's non-literal elements (i.e., the Lexcel software's design and layout, program structure, file names, file structures, variable names and data structures, procedures and functions, formatting, commenting, database structures and definitions). Except for the specific references to the 12 sections of source code that Nelcela allegedly copied from the Lexcel software, the List of Common Features and Elements contains only general allegations of copying. Nonetheless, the Court will conduct the extrinsic test based on a presumption that the Joint Parties contend that Nelcela copied all of the Lexcel software's non-literal elements. See Dkt. #602, p.10 ("[T]he Joint Parties claim that Nelcela copied the entire copyrighted Lexcel database schema.") (emphasis in original).11

A database schema "is the organization and names that the programmer uses to establish a computer database and to reference data stored in the database." (Dkt. #565, - 17 -

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 p.16).

D.

Analytical Dissection

As noted above, "[b]ecause only those elements of a work that are protectable . . . can be compared when it comes to the ultimate question of illicit copying, [the Court must] use analytic dissection to determine the scope of copyright protection before works are considered `as a whole.'" Apple Computer, 35 F.3d at 1443; Thomas v. Walt Disney Co., 2008 WL 425647, at *2 (N.D. Cal. 2008) ("Under the extrinsic test, the Court defines the scope of copyright protection by `analytically dissecting' the alleged similarities between the works and separating protected elements of expression from unprotected ideas."); see O.P. Solutions, 1999 WL 47191, at *7 (the abstraction-filtrationcomparison test "instructs courts to do what all courts do when evaluating infringement claims: compare the protectable elements of each work to determine whether they are so `substantially similar' as to justify a finding of infringement."). To conduct analytic dissection, the Court must "filter out as unprotectable the ideas, expression necessarily incident to the idea, expression already in the public domain, expression dictated by external factors (like the computer's mechanical specifications, compatibility with other programs, and demands of the industry served by the program), and expression not original to the programmer or author." Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832, 839 (Fed. Cir. 1992) (citations omitted); see also Apple Computer, 35 F.3d at 1446 ("[T]he unprotectable elements have to be identified, or filtered, before the works can be considered as a whole."). Analytic dissection, also referred to in other circuits as "filtration," merely "appl[ies] well developed doctrines of copyright law" and may "leave behind a `core of protectable material.'" Altai, 982 F.2d at 707 (quoting 3 NIMMER ON COPYRIGHT § 13.03[F][5] at 13-72). 1. Originality & the Idea/Expression Dichotomy As an initial matter, copyright protection extends only to "those elements [of a work] [that] are `original,' which is to say they are the product of `independent creation,

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not novelty.'" Jada Toys, 518 F.3d at 636 (citation omitted); see Feist, 499 U.S. at 345 (noting that the "sine qua non of copyright is originality," and that "originality is a constitutional requirement"). However, it is important to note that "the definition of originality is broad, and originality means `little more than a prohibition of actual copying'"; "the author [need only] contribute `something more than a `merely trivial' variation.'" Swirsky, 376 F.3d at 851 (quoting Three Boys Music Corp. v. Bolton, 212 F.3d 477, 485 (9th Cir. 2000)); see Feist, 499 U.S. at 345 (noting that copyright protection is available to those constituent elements of a work that possess more than a de minimis quantum of creativity). However, while "[c]opyright assures authors the right to their original expression, [it] encourages others to build freely upon the ideas and information conveyed by a work." Feist, 499 U.S. at 348. This is referred to as the idea/expression dichotomy; it is codified in 17 U.S.C. § 102(b), and provides that: In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work. 17 U.S.C. § 102(b); see also Gen. Universal Sys., 379 F.3d at 142-43 ("Copyright protection does not extend to ideas, processes, facts, elements dictated by considerations of efficiency, elements required by factors external to the program itself, or items taken from the public domain."). Section 102(b) distinguishes between ideas and functional items (which are not protected) and creative, expressive works (which are protected). 2. The Limiting Doctrines The Court must also apply the relevant limiting doctrines in the context of the particular medium involved ­ here, computer software ­ through the eyes of the ordinary consumer. See Apple Computer, 35 F.3d at 1443. The relevant limiting doctrines at issue are the merger doctrine and the "scènes à faire" doctrine. The merger doctrine restricts what otherwise constitutes protectable material by recognizing that although the expression of an idea is entitled to protection, "even - 19 -

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expression is not protected in those instances where there is only one or so few ways of expressing an idea that protection of the expression would effectively accord protection to the idea itself." Gennessee Brewing Co. v. Stroh Brewing Co., 124 F.3d 137, 146 (2d Cir. 1997); Ets-Hokin, 225 F.3d at 1082 ("Under the merger doctrine, courts will not protect a copyrighted work from infringement if the idea underlying the copyrighted work can be expressed in only one way, lest there be a monopoly on the underlying idea. In such an instance, it is said that the work's idea and expression `merge.'") (citing CDN Inc. v. Kapes, 197 F.3d 1256, 1261 (9th Cir. 1999); see also Apple Computer, 35 F.3d at 1444 ("[W]hen an idea and its expression are indistinguishable, or `merged,' the expression will only be protected against nearly identical copying."). "Merger means there is practically only one way to express an idea." Apple, 799 F.Supp. at 1021; see Krofft, 562 F.2d at 1168 n. 10 (merger occurs "[i]f, in describing how a work is expressed, the description differs little from a simple description of what the work is."). "Under the related doctrine of scènes à faire, courts will not protect a copyrighted work from infringement if the expression embodied in the work necessarily flows from a commonplace idea; like merger, the rationale is that there should be no monopoly on the underlying unprotectable idea." Ets-Hokin, 225 F.3d at 1082 (citation omitted); see Apple Computer, 35 F.3d at 1443 ("[S]imilarities derived from the use of common ideas cannot be protected; otherwise, the first to come up with an idea will corner the market."). In particular, with respect to computer software, the scènes à faire doctrine "strips protection from expression made in the form of stock features required by specifications of the computer itself and supported software, or by industry standards and customary programming practices." O.P. Solutions, 1999 WL 47191, at *8 (quotation omitted); see Apple, 799 F.Supp. at 1021 ("[I]f technical or conceptual constraints limit the available ways to express an idea, even though there is more than one avenue of expression available, copyright law will abhor only a virtually-identical copy of the original."). As such, "[i]f `market factors play a significant factor in determining the sequence and organization' of a computer program, then those patterns may well be termed ideas - 20 -

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beyond the ownership of any one seller." Apple, 799 F.Supp. at 1023 (quoting Plains Cotton Co-Op v. Goodpasture Computer Serv., 807 F.2d 1256, 1262 (5th Cir. 1987)). 3. The Alleged Similarities As noted above, the Joint Parties seek protection for both literal and non-literal elements in the Lexcel software. The non-literal elements contained in the Joint Parties' List of Common Features and Elements concern the database schema of the Lexcel software, i.e., the utilization of a single database, the design and layout of the database, the accompanying database structures and definitions (table and column names and data types), file names and structures, procedures, functions, formatting, commenting and the like. See O.P. Solutions, 1999 WL 47191, at *10 (noting that non-literal elements refer to elements such as the organizational structure of the actual program, as opposed to the internal operation of the program). However, the Joint Parties' list of similarities also references 12 sections of source code (literal elements) that were allegedly copied verbatim from the Lexcel software. As such, Lexcel seeks to protect not only underlying elements of its program, but also the "unique selection and arrangement" of its features. i. Non-literal Elements The Joint Parties state that "Lexcel does not seek copyright protection for [its] non-literal elements in isolation, but rather seeks protection of the combination of the identified non-protectible elements." (Dkt. #601, p.19). In response, Nelcela states that "[a]lthough the Joint Parties' claim copying of a database schema, their own expert offered no evidence of a database schema." (Dkt. #603, p.5). But the Joint Parties clearly set forth those non-literal elements and features that they contend constitutes a protectable compilation of unprotectable elements (Dkt. #555, p.2; Dkt. #601, pp. 18-19); they do not simply argue "that the few field names that are identical in the Lexcel and Nelcela software constitute a protectable compilation" (Dkt. #603, pp. 4-5). Regardless, for some unknown reason, Nelcela merely argues that the field names in the Lexcel software do not constitute protectable expression, as they are unoriginal and also unprotectable under the

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scènes à faire doctrine as they naturally flow "from the industry custom of labeling fields to identify content and the required content dictated by the Visa Regulations." (Id., p.5). Clearly, isolated field names "are not original, are within the public domain, and are not entitled to individual protection." O.P. Solutions, 1999 WL 47191, at *15; CMM Cable Rep, Inc. v. Ocean Coast Props., 97 F.3d 1504, 1519 (1st Cir. 1996) ("It is axiomatic that copyright law denies protection to `fragmentary words and phrases' and to `forms of expression dictated solely at functional considerations' on the grounds that these materials do not exhibit the minimal level of creativity necessary to warrant copyright protection.") (citing 1 NIMMER ON COPYRIGHT (1985 ed.) § 2.01[B] at 2-13-18; 37 C.F.R. § 202.1(a)). That is relatively undisputed. See Dkt. #602, p.9 ("[C]opyright law does not protect individual, commonplace words."). In addition, the Court agrees with Nelcela's expert's testimony that the particular field names in the Lexcel software may be logically related to the names in the Visa Regulations, and primarily consist of "industry standard abbreviations of a wide variety of data elements and data fields that are used commonly throughout the industry." (Dkt. #600, p.10). Although the Joint Parties' expert posited that Lexcel's field names "could have been named differently," the Joint Parties do not necessarily disagree that programmers generally use stereotypical expressions and chose field names that express the content of the data elements (such as abbreviating "authorization" as "auth," not "Jayhawks"); they do not use arbitrary field names. This is a prime example of the merger doctrine: there are only so few ways of expressing the particular idea that protection of the expression would effectively accord protection to the idea itself. See 4 NIMMER ON COPYRIGHT § 13.03[F][e][iii] ("[A]lternative possibilities cannot, by themselves, vouchsafe copyrightability."). In addition, individual field names are unprotected under the scènes à faire doctrine as they are generally a result of customary programming practices. See O.P. Solutions, 1999 WL 47191, at *14 ("Individual fields . . . do not constitute original expression, but rather are abbreviations for commonplace terms, and as such are unoriginal and uncopyrightable.").

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However, the coordination, selection, and arrangement of these field names, as well as the fields and field types themselves, formatting, and commenting, may be entitled to protection as a compilation so long as they "are numerous enough and their selection and arrangement original enough that their combination constitutes an original work of authorship." Satava, 323 F.3d at 811. While the mere "decision to combine unprotectable elements does not render the resulting product original," Situation Management Systems v. ASP Consulting Group, 2008 WL 538808, at *7 (D. Mass. 2008), "the selection, coordination, and arrangement" of unprotectable elements may be sufficiently original to merit protection, Feist, 499 U.S. at 358. See also Apple Computer, 35 F.3d at 1445 ("[O]riginal selection and arrangement of otherwise uncopyrightable components may be protectable."). Nelcela contends that although its use of inconsistencies in the abbreviations used for terms in the Lexcel software implies that factual copying occurred, "these discrepancies do not establish that the choices made by Lexcel constitute protectable expression. There remain only a few ways to abbreviate the names in the Visa regulations, and the abbreviations chosen by Lexcel are standard and commonplace." (Dkt. #600, p.13). But in comparing just 44 lines of the Lexcel and Nelcela software, Dr. Posner, the Joint Parties' expert, found that "the definitions [in the Lexcel and Nelcela software] are identical down to the last character including order of fields, field types, names, formatting, and comments." (Dkt. #337, p.19). Dr. Posner went on: "If we make the ridiculously conservative assumption that the odds of exactly duplicating a single line by accident are 1 in 2 then the odds of getting 44 consecutive matches . . . is greater than 10 trillion to 1." (Id.). That supports the proposition that while individual field names may be limited in their expression / abbreviations, certainly when incorporated into lines of code, they may become numerous enough and their selection and arrangement original enough that their combination constitutes an original work. See Hutchins, 492 F.3d at 1384 ("Copyright does not protect individual words and `fragmentary' phrases when removed from their form of presentation and compilation. Although the compilation . . . - 23 -

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may be subject to copyright in the form in which it is presented."); Apple Computer, 35 F.3d at 1439 ("[P]rotectable substantial similarity cannot be based on the mere use of overlapping windows, although, of course, Apple's particular expression may be protected.") (emphasis in original). In addition, this is not a instance where "[t]he similarity of [ ] functional elements. . . or their arrangement in products of like kind [amounts to] standardization across competing products for functional considerations." Apple, 799 F.Supp. at 1023. There is insufficient information to suggest that Nelcela's use of the exact arrangement of the field names in Lexcel's software amounts to standardization across like software for functional considerations; nor is there anything to suggest that common sense or efficiency considerations dictated Nelcela's use of the same abbreviations in the exact order as Lexcel.12 Thus, the Court cannot conclude that no reasonable juror could not find creativity in the selection and arrangement of the Lexcel software's field names, let alone the remaining allegedly similar non-literal elements of the Lexcel software, sufficient to render the compilation original enough for protection.

Despite Nelcela's assertion to the contrary, the determination that Lexcel's field names and abbreviations are not necessarily limited as scènes à faire is supported by the fact that Nelcela's expert, Mr. Pell, abbreviated several field names differently than the abbreviations used in the Lexcel and Nelcela software. See Dkt. #600, pp. 11-12 n. 7; Dkt. #602, p.9 n. 3. The evidence presented supports neither a finding that Lexcel's non-literal elements are merely a result of external considerations (such as software or design standards, or programming practices and techniques) nor an inference of independent creation on the part of Nelcela. - 24 -

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ii. Literal Elements The Joint Parties allege that Nelcela copied verbatim portions, including formatting, naming, and commenting, of 12 of Lexcel's source codes. (Dkt. #565, p.10; Dkt. #601, pp. 19-20). Specifically, with respect to five of Lexcel's source codes ­ ACCOUNT.SQL, CARD.SQL, IDR.SQL, SELECT.SQL, and TABLES ­ the Joint Parties allege that Nelcela copied numerous database table and column names. (Dkt. #565, pp. 10-12; Dkt. #601, pp. 20-23). With respect to AUTHDAEM.C, CMDEXEC.C, CMDEXEC.H, INTERCHANGE.H, and ISO8583STRUCT.H, Lexcel alleges that "almost the entirety of the Lexcel file[s], including variables, parameters, formatting, and the unique way in which Lexcel chose to express the functionality performed by the file[s] appear verbatim in the Nelcela file[s]." (Id.). The Joint Parties assert that "entire passages of code were copied word-for-word by Nelcela, complete with discretionary word choices, misspellings, and even blank programmer comments," and that the Lexcel code was not dictated by the programming language or VISA regulations. (Dkt. #565, p.12). Nelcela, on the other hand, refers to the similarities between the Lexcel and Nelcela source code as "fragmented literal similarity"13 (Dkt. #600, p.16), resulting from standard programming techniques and efficiency concerns (id., p.17; Dkt. #603, p.5). Specifically, Nelcela argues that "every bit of highlighted code: 1) is found in the public domain, i.e., `Sybase' manuals or `standard, common' `C' code that must be used in every `C' program ever written; 2) is standard VisaNet data that must be included in any authorization system for functionality in order to send to or receive data from VISA; and/or 3) is standard functionality to place an `asterisk' icon on the screen while the program runs. None of these items is protected by copyright." (Dkt. #560, pp. 14-15).

"Fragmented literal similarity exists where the defendant copies a portion of the plaintiff's work exactly or nearly exactly, without appropriating the work's overall essence or structure." Newton v. Diamond, 388 F.3d 1189, 1195 (9th Cir. 2004) (citing 4 NIMMER ON COPYRIGHT § 13.03[A][2], at 13-45). - 25 -

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First, as discussed in the preceding section, to the extent that the Joint Parties allege that Nelcela copied database table names and column names from the identified source code, only the selection, coordination, and arrangement of that information is subject to protection. Second, with respect to the remaining source code, it appears undisputed that the programming languages used by Lexcel afford multiple ways to express the functionality in the Lexcel source code (Dkt. #565, p.13), it is also true that copyright is not afforded to "programming practices and techniques that have become widely used and accepted in the computer software industry." 4 NIMMER ON COPYRIGHT § 13.03[F][e]. As such, it is hard to imagine that code implementing an ISO error message or displaying a spinning asterisk while the computer is functioning does not constitute an unprotectable "procedure, process, system [or] method of operation" under 17 U.S.C. § 102(b). In addition, as an example, Nelcela's expert testified that the ISO8583 include function appears in "just about every authorization system" as a common format to exchange transaction information, and other code identified by Lexcel appear to utilize standard programming techniques. (Dkt. #600, p.18). Clearly, "[t]he mere fact that similar practices or techniques are employed in two programs is tenuous evidence at best of copying." 4 NIMMER ON COPYRIGHT § 13.03[F][e][ii]; Altai, 982 F.2d at 708 ("Since . . . there may be only a limited number of efficient implementations for any given program task, it is quite possible that multiple programmers, working independently, will design the identical method employed in the allegedly infringed work. Of course, if this is the case, there is no copyright infringement") (citations omitted). However, "[c]omputer programming is a highly creative and individualistic endeavor," id., and source code is "consistently held protected by a copyright of the program," Johnson Controls, 886 F.2d at 1175. Even Nelcela's expert recognized that Lexcel exercised at least some discretion when programming its source code, including in Lexcel's comments (which does not add to the software's functionality) (Dkt. #565, p.12). Nonetheless, the Court cannot find based on the evidence presented that the Lexcel source code, while not necessarily dictated by external constraints, does not generally - 26 -

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result from standard programming techniques and/or efficiency considerations, especially in light of the software's need to comply with VISA regulations (in processing and storing data). But this case does not involve general copying of standardized elements. It involves verbatim copying of numerous parts of source code, including commenting, that are simply not by functionality, efficiency, or compliance with the VISA regulations. (Dkt. #565, pp. 12-17). Although Lexcel seems to overstate the sheer number of ways in which a programmer would develop source code to comply with the VISA regulations, the Court cannot alternatively conclude that the Lexcel source code consists only of commonly known techniques and material strung together without significant originality or skill. The Court finds it helpful here to look at what happened in Altai. There, approximately 30 percent of the defendant's software was copied directly from the plaintiff's software. Altai, 982 F.2d at 700. But once the defendant discovered that copying had taken place, it locked away the code and rewrote the 30 percent of copied code using untainted employees. Id. The result? Although the defendant's original software clearly constituted infringement of the plaintiff's software, the Second Circuit found that the similarities between the plaintiff's software and the defendant's rewritten software were merely a result of external factors, such as the software's functionality, and thus did not constitute copyright infringement. Id. at 714-15. The instant action is more akin to the unchallenged finding of infringement between the plaintiff's software and defendant's original software. Although perhaps, in some other instance, external constraints and considerations could lead programmers to independently create the Lexcel software at issue (both literal and non-literal elements), that is simply not the case here. Here, the evidence simply does not support a finding that the similarities in both literal and non-literal elements between the Lexcel and Nelcela software constitute only "functional elements and elements taken from the public domain [that] do not qualify for copyright protection." Id. at 714. The evidence supports factual copying of elements that - 27 -

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extend beyond the dictates of external constraints; there is at the very least "`indicia of a sufficient disagreement concerning the substantial similarity of [the] two works.'" Swirsky, 376 F.3d at 846 (quoting Brown Bag, 960 F.2d at 1472). Thus, the Court cannot conclude that the Lexcel source code lacks sufficient originality to not warrant protection. E. Comparison / Scope of Protection

The Court must now define the scope of Lexcel's copyright ­ that is, decide whether the Lexcel software is entitled to "broad" or "thin" protection. Th