CSS, Inc. v. Herrington et al
Filing
256
MEMORANDUM OPINION AND ORDER granting in part and denying in part Defendants' 123 MOTION for Summary Judgment; granting said motion with respect to Count I (Copyright Infringement), Count II (Breach of Contract), Count V (Unjust Enrichme nt), Count VI (Misappropriation of Trade Secrets), and Count VIII (Declaratory Judgment) of the First Amended Complaint; denying said motion with respect to Count III (Duty of Loyalty), Count IV (Tortious Interference), and Count VII (Injunctive Relief) of the First Amended Complaint. Signed by Judge Joseph R. Goodwin on 1/29/2018. (cc: counsel of record; any unrepresented party) (taq)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION
CSS, INC.,
Plaintiff,
v.
CIVIL ACTION NO. 2:16-cv-01762
CHRISTOPHER HERRINGTON, et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending before the court is the Defendants’ Motion for Summary Judgment
[ECF No. 123]. For the following reasons, the Defendants’ Motion is GRANTED in
part and DENIED in part.
I.
Background
On February 23, 2016, CSS, Inc. (“CSS”) filed a Complaint [ECF No. 1] against
Christopher Herrington, Gene Yoho, and Compiled Technologies, LLC (collectively,
“Defendants”). On September 16, 2016, CSS filed its First Amended Complaint [ECF
No. 59] against the Defendants, alleging copyright infringement, breach of contract,
violation of the duty of loyalty, tortious interference with business relationships,
unjust enrichment, and misappropriation of trade secrets.
CSS is a company that provides software and related support services to county
clerks’ offices in West Virginia. See Hr’g Tr., Jan. 25, 2017, Auburn Direct, 28:1–9.
For over twenty years, CSS has provided software solutions that include a land
records indexing package, an estate management package, utility billing, and
sheriff’s tax collection applications, among others. See id. at 28:1–4.
Christopher Herrington began his employment with CSS in October 1991. See
Hr’g Tr., Feb. 23, 2017, C. Herrington Direct, 157:8–12, 190:14–15. Herrington
worked in the computer software, applications, and programming business related to
county government information and document management systems. See id. at
157:8–12. For the majority of his employment with CSS, Herrington worked as a
programmer/developer. See Hr’g Tr., Jan. 25, 2017, Auburn Direct, 14:14–23, 16:22–
17:5. Herrington’s work consisted of the development of CSS’s software, bug fixes,
modifications, and providing support services for CSS’s software packages. Id. at
14:14–23, 15:13–23, 16:22–17:5. Specifically, his duties included programming and
support responsibilities for both the land indexing software and the estate
management software. Id. at 16:2–9.
Christopher Herrington resigned as an employee of CSS on August 23, 2014.
See Hr’g Tr., Feb. 23, 2017, C. Herrington Direct, 190:14–15. On September 6, 2014,
Herrington returned to CSS. See id. at 203:22–24. On September 12, 2014, CSS
required Christopher Herrington to sign a Confidentiality Agreement. See Hr’g Tr.,
Jan. 25, 2017, Auburn Direct, 44:14–45:2. Prior to September 12, 2014, CSS had
never required Herrington to sign a confidentiality agreement. See Hr’g Tr., Feb. 23,
2017, McCasker Redirect, 97:6–17. CSS employed Christopher Herrington until June
5, 2015. See Hr’g Tr., Feb. 23, 2017, C. Herrington Direct, 203:22–24.
2
Gene Yoho formed Compiled Technologies, LLC (“CT”), on August 12, 2015.
See Hr’g Tr., Feb. 24, 2017, C. Herrington Direct, 43:19–44:5. Gene Yoho and
Christopher Herrington operate CT. See id. CT provides licensing for custom
computer software applications, including one program for land records recording and
indexing and one program for estate management. See id. at 44:3–5. CT also provides
support services to county clerks’ offices related to these applications. See Hr’g Tr.,
Feb. 24, 2017, C. Herrington Cross, 242:9–11. CT competes with CSS for contracts
with West Virginia county clerks. See Hr’g Tr., Feb. 24, 2017, C. Herrington Direct,
43:19–44:5.
In its First Amended Complaint, CSS alleges that the Defendants infringed
various copyrights relating to its computer software code for the land indexing and
estate management applications. First Am. Compl. ¶¶ 32–39. Specifically, CSS
alleges that CT’s software programs, which were developed by Christopher
Herrington, are substantially similar to CSS’s copyrighted programs. CSS also
alleges that Christopher Herrington breached the Confidentiality Agreement by
using confidential information to create, market, and sell software and support
services to CSS’s customers. Id. at ¶ 43. CSS alleges that Herrington violated the
duty of loyalty by creating competing products, and soliciting CSS’s customers to use
those competing products, while still employed by CSS. Id. at ¶¶ 47–50. In addition,
CSS alleges that the Defendants tortiously interfered with CSS’s business
relationships
with
actual
and
potential
customers,
that
the
Defendants
misappropriated CSS’s trade secrets, and that the Defendants were unjustly enriched
3
by their unlawful use and disclosure of confidential information. Id. at ¶¶ 52–65.
Finally, CSS seeks a declaratory judgment that, under the “works for hire” doctrine,
CSS is the author of any computer programs developed by Christopher Herrington
during his employment with CSS. Id. at ¶ 75.
On November 23, 2016, CSS filed Plaintiff’s Motion for Preliminary Injunction
[ECF No. 65], wherein it asserted that it was likely to succeed on the merits of its
copyright infringement, misappropriation of trade secrets, and breach of contract
claims. The court conducted a hearing on the Plaintiff’s Motion on January 25,
February 23, and February 24, 2017. On August 1, 2017, the court issued a
Memorandum Opinion and Order [ECF No. 209] denying the Plaintiff’s Motion. On
August 4, 2017, the court issued an Amended Memorandum Opinion and Order
(“Prelim. Inj. Op.”) [ECF No. 213] that corrected clerical errors in the earlier Opinion.
In denying the Plaintiff’s Motion, the court found that CSS was not likely to succeed
on its claims for copyright infringement, misappropriation of trade secrets, or breach
of contract.
On April 27, 2017, the Defendants filed a Motion for Summary Judgment [ECF
No. 123] and a Memorandum in Support of the motion [ECF No. 124]. On May 11,
2017, CSS filed a Response to Defendants’ Motion for Summary Judgment [ECF No.
130]. On May 18, 2017, the Defendants filed their Reply [ECF No. 134]. Thus, the
Defendants’ Motion is ripe for adjudication.
4
II.
Legal Standard
To obtain summary judgment, the moving party must show that there is no
genuine dispute as to any material fact and that the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(a). In considering a motion for
summary judgment, the court will not “weigh the evidence and determine the truth
of the matter.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Instead, the
court will draw any permissible inference from the underlying facts in the light most
favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587–88 (1986).
Although the court will view all underlying facts and inferences in the light
most favorable to the nonmoving party, the nonmoving party nonetheless must offer
some “concrete evidence from which a reasonable juror could return a verdict” in his
or her favor. Anderson, 477 U.S. at 256. Summary judgment is appropriate when the
nonmoving party has the burden of proof on an essential element of his or her case
and does not make, after adequate time for discovery, a showing sufficient to establish
that element. Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). The nonmoving
party must satisfy this burden of proof by offering more than a mere “scintilla of
evidence” in support of his or her position. Anderson, 477 U.S. at 252. Likewise,
conclusory allegations or unsupported speculation, without more, are insufficient to
preclude the granting of a summary judgment motion. See Dash v. Mayweather, 731
F.3d 303, 311 (4th Cir. 2013); Stone v. Liberty Mut. Ins. Co., 105 F.3d 188, 191 (4th
Cir. 1997).
5
III.
Discussion
A. Copyright Infringement
“Copyright protection subsists . . . in original works of authorship fixed in any
tangible medium of expression . . . from which they can be perceived, reproduced, or
otherwise communicated, either directly or with the aid of a machine or device.” 17
U.S.C. § 102(a). Computer programs can be protected as “literary works.” See H.R.
Rep. No. 1476, 94th Cong., 2d Sess. 54 (1976), reprinted in 1976 U.S.C.C.A.N. 5659,
5667 (“The term ‘literary works’ does not connote any criterion of literary merit or
qualitative value: it includes . . . computer data bases, and computer programs to the
extent that they incorporate authorship in the programmer’s expression of original
ideas, as distinguished from the ideas themselves.”). Indeed, “copyright protection
can extend to both literal and non-literal elements of a computer program.” Oracle
Am., Inc. v. Google Inc., 750 F.3d 1339, 1355 (Fed. Cir. 2014). “The literal elements
of a computer program are the source code and object code.” Id. “The non-literal
components of a computer program include, among other things, the program’s
sequence, structure, and organization, as well as the program’s user interface.” Id. at
1355–56.
However, “[t]he mere fact that a work is copyrighted does not mean that every
element of the work may be protected.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499
U.S. 340, 348 (1991). “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,
6
explained, illustrated, or embodied in such work.” 17 U.S.C. § 102(b). In the case of
computer programs, this limitation “is intended, among other things, to make clear
that the expression adopted by the programmer is the copyrightable element in a
computer program, and that the actual processes or methods embodied in the
program are not within the scope of the copyright law.” H.R. Rep. No. 1476, 94th
Cong., 2d Sess. 54 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5670.
“Originality remains the sine qua non of copyright; accordingly, copyright
protection may extend only to those components of a work that are original to the
author.” Feist, 499 U.S. at 348. “[H]owever, the originality requirement is not
particularly stringent.” Id. at 358. “Original, as the term is used in copyright, means
only that the work was independently created by the author (as opposed to copied
from other works), and that it possesses at least some minimal degree of creativity.”
Id. at 345.
1. CSS’s and CT’s Computer Programs
CSS’s claims of copyright infringement pertain to three of its computer
programs: CSS-Index, CSS-Estate, and CSS-Search. Each of these programs
corresponds, in terms of function, to one of CT’s programs: CT-Index, CT-Estate, and
CT-Search, respectively. The Index programs create and maintain indexes for
recorded documents. Mot. by Defs. for Leave to File Under Seal Ex. 1, at 3 [ECF No.
70-1] (“McCasker Expert Report”). The Estate programs process information related
to decedents. Id. The Search programs allow the public to search for indexed
documents online. Id.
7
Both CSS’s and CT’s programs use a client/server architecture. Client/server
describes “a program relationship in which one program (the client) requests a service
or resource from another program (the server).” Mot. by Defs. for Leave to File Under
Seal Ex. 2 (“Zeidman Expert Report”), Ex. J at 1 [ECF No. 70-2]. The “client side” is
also called the “front end,” while the “server side” is also called the “back end.”
The parties’ programs use three programming languages: COBOL, Microsoft
Visual Basic Version 6 (“VB6”), and C#. COBOL is an early programming language,
introduced in 1959, that was widely used in the 1970s and 1980s. See Zeidman Expert
Report 3; McCasker Expert Report 25. COBOL is “exclusively owned, developed and
maintained by Micro Focus,” and thus is not the intellectual property of any of the
parties in this case. Defs.’ Mem. Opp. Pl.’s Mot. Prelim. Inj. Ex. 9, at 2 [ECF No. 689] (“Letter from Courtney Wood, Associate General Counsel for Micro Focus”). The
server sides of both CSS’s and CT’s programs are written in COBOL. Specifically,
CSS uses RM/COBOL version 11, and CT uses RM/COBOL version 12. CSS’s clientside applications are written in VB6, while CT’s client-side applications are written
in C#.
CSS-Index contains the following architecture components:
CSS-Index Client Application: presents the screens and other user interface
components; accepts user inputs; displays responses back to the user.
CSS-Search Client Application: launches when a user clicks “Inquiry” from
within the CSS-Index Client Application.
8
CSS Network Communication Interface (VanGUI): bridges communication
between the client application and the back-end COBOL programs; runs over
Transmission Control Protocol (“TCP”) sockets; built using VanGUI interface.
CSS-Index Application Server: reads, writes, updates, and deletes records in
the permanent COBOL data files; writes records to temporary COBOL data
files.
CSS-Index Persistent Data Repository: comprises the permanent COBOL data
files. When a user enters information in the CSS-Index Client Application and
clicks “save,” the information is sent to a COBOL program that manipulates
the information and saves it into one or more permanent data files.
CSS Report Engine (Crystal Reports): uses report definition files to execute
reports, which in turn access data using an Open Database Connectivity
(“ODBC”) interface.
CSS Data Bridge (Relativity Server): provides an application with access to
COBOL data files via an ODBC interface.
CSS-Index Reporting Data Repository: temporary data files that contain the
data that will be used in a report requested by the user.
McCasker Expert Report 7–9.
CT-Index contains the following architecture components: CT-Index Client
Application; CT-Search Client Application; CT Network Communication Interface
(Louis); CT-Index Application Server; CT-Index Persistent Data Repository; CT
Report Engine (Crystal Reports); CT Data Bridge (Relativity Server); CT-Index
9
Reporting Data Repository. Id. at 9–11. The description of each of these components
is essentially the same as that of the corresponding component of CSS-Index
described above. See id. One notable difference is that the CSS Network
Communication Interface uses the communication middleware VanGUI, while the
CT Network Communication Interface uses Louis.
VanGUI is a communication middleware that allows back-end applications
written in COBOL to communicate with graphical user interface (“GUI”) front-end
applications written in programming languages that support VB6. Letter from
Courtney Wood, Associate General Counsel for Micro Focus 6–7. VanGUI is a thirdparty component that is not the intellectual property of any of the parties in this case.
Louis is an interface builder that works in conjunction with COBOL platforms and
GUIs. Louis is “exclusively owned, developed and maintained by Micro Focus,” and
therefore is not the intellectual property of any of the parties in this case. Id. at 2.
The other third-party components used by both of these programs are
Relativity and Crystal Reports. Relativity is a data access middleware product that
improves access to data stored in COBOL applications. Id. at 4–5. Specifically,
Relativity is an ODBC-accessible relational database management system. Id. It is a
COBOL-specific database engine/driver that is “exclusively owned, developed and
maintained by Micro Focus.” Id. at 2. Crystal Reports is a business intelligence
application that helps generate reports, and is not the intellectual property of any of
the parties in this case. Zeidman Expert Report, Ex. H at 2.
10
The CSS-Search program can either be launched from within the CSS-Index
program, or it can run independently. McCasker Expert Report 13. The same is true
of the CT-Search program. Id. The architecture components of these two programs
have already been described within the description of the CSS-Index and CT-Index
programs. See id. The architecture components of the CSS-Estate and CT-Estate
programs are very similar to those of the CSS-Index and CT-Index programs, as
described above, so I will not repeat them here. Id. at 14–15.
Two particular features of these programs require further explanation. First,
both companies’ programs contain a name search algorithm that allows a user to
search for records stored on the server using an individual’s name. Id. at 23. Both
programs store an individual’s name in the permanent COBOL data files in two
different ways: exactly as entered by the user (e.g., first, middle, and last names), and
with all spaces and punctuation removed (“letters-only”). Id. When a user initiates a
search using the individual’s first, middle, and/or last name, the server converts the
name into the letters-only version to conduct the search through the data files. Id.
Second, both companies’ programs contain a single entry point to perform both
login validation and password change. Id. at 24. In both cases, the client application
requests the following information from the user: username, password, new
password, confirm new password. Id. at 23–24. The server then validates the login by
comparing the username and password against records in a COBOL data file. Id. at
24. If the login is validated, the program looks to see if a new password was entered.
Id. If so, the program compares the “new password” entry with the “confirm new
11
password” entry. Id. If the entries match, the server updates the password in the
COBOL data files with the new password and then exits. Id.
2. CSS’s Copyright Ownership and the Defendants’ Access
“To establish a claim for copyright infringement, a plaintiff must prove that it
owned a valid copyright and that the defendant copied the original elements of that
copyright.” Humphreys & Partners Architects, L.P. v. Lessard Design, Inc., 790 F.3d
532, 537 (4th Cir. 2015) (quoting Lyons P’ship, L.P. v. Morris Costumes, Inc., 243
F.3d 789, 801 (4th Cir. 2001)). A certificate of copyright registration is prima facie
evidence of the validity of the copyright. 17 U.S.C. § 410(c).
CSS is the registered owner of three copyrights relating to its computer
programs: Document Indexing and Imaging for Counties 2015 (TX 8-230-758) (i.e.,
CSS-Index), Estate Management 2015 (TX 8-230-809) (i.e., CSS-Estate), and Web
Inquiry 2013 (TX 8-230-816) (i.e., CSS-Search). The Defendants do not dispute the
validity of these copyrights in their Motion for Summary Judgment or Memorandum
in Support. Therefore, I FIND that CSS owns valid copyrights in its computer
programs, and I turn to the issue of copying.
CSS alleges that the Defendants committed copyright infringement by copying
the non-literal elements of its computer software.1 To establish copying through
circumstantial evidence, CSS must prove that the Defendants “had access to the work
and that the supposed copy is substantially similar to [CSS’s] original work.”
Humphreys, 790 F.3d at 537 (quoting Bouchat v. Balt. Ravens, Inc., 241 F.3d 350,
1
CSS concedes that the Defendants did not literally copy CSS’s source code.
12
353–54 (4th Cir. 2001)). The Defendants do not dispute that they had access to CSS’s
software code, and the evidence of such access is clear. Christopher Herrington
worked for CSS as a programmer/developer for almost twenty-four years. He was
responsible for developing computer programs, programming software solutions, and
servicing the software for CSS’s clients. In the course of his employment with CSS,
Christopher Herrington worked directly with CSS’s copyrighted computer programs.
Accordingly, I FIND that the Defendants had access to CSS’s copyrighted works. I
now must determine whether the Defendants’ computer programs are substantially
similar to CSS’s original works.
3. Substantial Similarity and the AFC Test
CSS argues that CT’s software programs copy the structure, architecture, and
transactional flow of CSS’s software programs. In his report, CSS’s expert, Andrew
McCasker, found that the two Index programs use the same architecture, the two
Estate programs use the same architecture, and the two Search programs use the
same architecture. Id. at 26. In addition, CSS notes that both companies’ programs
contain the following elements: use of the COBOL programming language on the back
end, COBOL data files, temporary data files, Crystal Reports, Relativity, “the same
or nearly identical network interface used to communicate with the back end,” “the
same grouping for its business logic and reporting logic,” “the same unique back-end
structure to [their] log-in and password change functions,” “and a unique name
stripping search algorithm.” Pl.’s Resp. Defs.’ Mot. Summ. J. 16.
13
I will begin by noting “that the application of copyright law in the computer
context is often a difficult task.” Oracle Am., 750 F.3d at 1354. The Fourth Circuit
has not yet established a test for determining substantial similarity of the non-literal
elements of computer programs.2 Many jurisdictions endorse the Second Circuit’s
abstraction-filtration-comparison test (“AFC Test”) to address this issue. See
Comput. Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693, 706–11 (2d Cir. 1992) (outlining
the AFC test). The Fifth, Ninth, Tenth, and Eleventh Circuits apply the AFC Test.
See Gen. Universal Sys., Inc. v. Lee, 379 F.3d 131, 142 (5th Cir. 2004); MiTek
Holdings, Inc. v. Arce Eng’g Co., 89 F.3d 1548, 1559 (11th Cir. 1996); Gates Rubber
Co. v. Bandon Chem. Indus., Ltd., 9 F.3d 823, 833 (10th Cir. 1993); Sega Enters. Ltd.
V. Accolade, Inc., 977 F.2d 1510, 1525 (9th Cir. 1992). The Sixth Circuit also uses a
similar test. See Lexmark Int’l, Inc. v. Static Control Components, Inc., 387 F.3d 522,
534 (6th Cir. 2004). The First Circuit, in a case of first impression, viewed the AFC
Test favorably, but ultimately did not rely on it because the case involved literal
(rather than non-literal) infringement of computer software. See Lotus Dev. Corp. v.
Borland Int’l Inc., 49 F.3d 807, 814–15 (1st Cir. 1995).
The Second Circuit designed the AFC Test to address the complexities of
determining substantial similarity that “result[] from the hybrid nature of a
computer program, which, while it is literary expression, is also a highly functional,
In Comprehensive Techs. Int’l, Inc. v. Software Artisans, Inc., 3 F.3d 730, 734–35 (4th Cir. 1993), the
appellant argued that the district court erred in failing to apply the abstraction-filtration-comparison
test. However, the Fourth Circuit affirmed the district court’s decision without addressing this issue.
Id. at 735.
2
14
utilitarian component in the larger process of computing.” Comput. Assocs. Int’l, 982
F.2d at 712. Essentially, the test is applied as follows:
In ascertaining substantial similarity under this
approach, a court would first break down the allegedly
infringed program into its constituent structural parts.
Then, by examining each of these parts for such things as
incorporated ideas, expression that is necessarily
incidental to those ideas, and elements that are taken from
the public domain, a court would then be able to sift out all
non-protectable material. Left with a kernel, or possible
kernels, of creative expression after following this process
of elimination, the court’s last step would be to compare
this material with the structure of an allegedly infringing
program. The result of this comparison will determine
whether the protectable elements of the programs at issue
are substantially similar so as to warrant a finding of
infringement.
Id. at 706.3
As the Second Circuit recognized, “[t]his approach breaks no new ground;
rather, it draws on such familiar copyright doctrines as merger, scenes a faire, and
public domain.” Id. Indeed, the AFC Test “has the major advantage of being entirely
consistent with the infringement calculus used for infringement issues concerning
other types of works. In effect, it is an adaptation of the traditional infringement test
to the medium of computer programs.” Howard B. Abrams, Copying of Protected
3
Importantly, this full analysis only applies where a copyright
owner alleges infringement of the non-literal aspects of its work. Where
“admitted literal copying of a discrete, easily-conceptualized portion of
a work” is at issue . . . a court “need not perform a complete abstractionfiltration-comparison analysis” and may focus the protectability
analysis on the filtration stage, with attendant reference to standard
copyright principles.
Oracle Am., 750 F.3d at 1357 n.4 (quoting Mitel, Inc. v. Iqtel, Inc., 124 F.3d 1366, 1372–73 (10th Cir.
1997)).
15
Expression—Technology,
Functionality and the
Ordinary
Observer
Test—
Commentary, 2 The Law of Copyright § 14:33 (2016). Accordingly, I will apply the
AFC Test to determine whether CT’s software programs are substantially similar to
the protectable elements of CSS’s software programs.
i. Step One: Abstraction
The first step in determining whether the non-literal elements of the computer
programs are substantially similar is abstraction.
Initially, in a manner that resembles reverse engineering
on a theoretical plane, a court should dissect the allegedly
copied program’s structure and isolate each level of
abstraction contained within it. This process begins with
the code and ends with an articulation of the program’s
ultimate function. Along the way, it is necessary
essentially to retrace and map each of the designer’s
steps—in the opposite order in which they were taken
during the program’s creation.
Comput. Assocs. Int’l, 982 F.2d at 707.
At the lowest level of abstraction, a computer program may
be thought of in its entirety as a set of individual
instructions organized into a hierarchy of modules. At a
higher level of abstraction, the instructions in the lowestlevel modules may be replaced conceptually by the
functions of those modules. At progressively higher levels
of abstraction, the functions of higher-level modules
conceptually replace the implementations of those modules
in terms of lower-level modules and instructions, until
finally, one is left with nothing but the ultimate function of
the program. . . . A program has structure at every level of
abstraction at which it is viewed. At low levels of
abstraction, a program’s structure may be quite complex;
at the highest level it is trivial.
16
Id. (ellipsis in original) (quoting Steven R. Englund, Note, Idea, Process, or Protected
Expression?: Determining the Scope of Copyright Protection of the Structure of
Computer Programs, 88 Mich. L. Rev. 866, 897–98 (1990)).
At the highest level of abstraction, each of the allegedly copied programs and
their corresponding alleged copies can be described in terms of their functions: The
Index programs create and maintain indexes for recorded documents; the Estate
programs process information related to a decedent; and the Search programs allow
the public to search for indexed documents online. McCasker Expert Report 3. At the
next lower level of abstraction, each of the programs can be described in terms of their
architecture: Each program uses client/server architecture, with the back end written
in COBOL and the front end written in either VB6 (CSS) or C# (CT).
At the next lower level of abstraction, both the front end and back end of each
program can be distilled into its component parts, which I have described in detail
above. Using the CSS-Index program as an example, the front end is comprised of the
following components: CSS-Index Client Application, CSS-Search Client Application,
CSS Network Communication Interface (VanGUI), CSS Report Engine (Crystal
Reports), and the ODBC Interface. The back end of CSS-Index is comprised of the
following components: CSS Network Communication Interface (VanGUI), CSS-Index
Application Server, CSS-Index Persistent Data Repository, CSS Data Bridge
(Relativity), and CSS-Index Reporting Data Repository. The front end communicates
with the back end using the CSS Network Communication Interface (VanGUI) which
runs over TCP sockets. The front and back ends of the CT-Index program are
17
comprised of essentially the same components as the front and back ends of the CSSIndex program, with the exception that CT uses Louis as its Network Communication
Interface, rather than VanGUI.
Each of these component parts can be broken down into lower levels of
abstraction, based on the various functions they perform. At the lowest level of
abstraction, the court would be left with a set of discrete instructions each comprised
of lines of source code. Because CSS’s allegations of copyright infringement focus on
structure, architecture, and transactional flow, I will discuss these lower levels of
abstraction only to the extent necessary in the subsections that follow.
ii. Step Two: Filtration
The second step in determining substantial similarity is filtration, which
“serves ‘the purpose of defining the scope of plaintiff’s copyright.’” Comput. Assocs.
Int’l, 982 F.2d at 707 (quoting Brown Bag Software v. Symantec Corp., 960 F.2d 1465,
1475 (9th Cir. 1992)).
This process entails examining the structural components
at each level of abstraction to determine whether their
particular inclusion at that level was “idea” or was dictated
by considerations of efficiency, so as to be necessarily
incidental to that idea; required by factors external to the
program itself; or taken from the public domain and hence
is nonprotectable expression.
Id. The filtration process draws on familiar considerations of traditional copyright
analysis.
“It is a fundamental principle of copyright law that a copyright does not protect
an idea, but only the expression of the idea.” Id. at 703; see also 17 U.S.C. § 102(b).
Furthermore, “those aspects of a work, which ‘must necessarily be used as incident
18
to’ the idea, system or process that the work describes, are also not copyrightable.”
Comput. Assocs. Int’l, 982 F.2d at 704 (quoting Baker v. Selden, 101 U.S. 99, 104
(1879)). Applying this principle to software, “those elements of a computer program
that are necessarily incidental to its function are similarly unprotectable.” Id. at 705.
“The merger doctrine functions as an exception to the idea/expression
dichotomy. It provides that, when there are a limited number of ways to express an
idea, the idea is said to ‘merge’ with its expression, and the expression becomes
unprotected.” Oracle Am., 750 F.3d at 1359 (citing Comput. Assocs. Int’l, 982 F.2d at
707–08).
In the context of computer program design, the concept of
efficiency is akin to deriving the most concise logical proof
or formulating the most succinct mathematical
computation. Thus, the more efficient a set of modules are,
the more closely they approximate the idea or process
embodied in that particular aspect of the program’s
structure.
While, hypothetically, there might be a myriad of
ways in which a programmer may effectuate certain
functions within a program,—i.e., express the idea
embodied in a given subroutine—efficiency concerns may
so narrow the practical range of choice as to make only one
or two forms of expression workable options.
Comput. Assocs. Int’l, 982 F.2d at 708. Thus,
in order to determine whether the merger doctrine
precludes copyright protection to an aspect of a program’s
structure that is so oriented, a court must inquire “whether
the use of this particular set of modules is necessary
efficiently to implement that part of the program’s process”
being implemented. If the answer is yes, then the
expression represented by the programmer’s choice of a
specific module or group of modules has merged with their
underlying idea and is unprotected.
19
Id. (citations omitted) (citing Englund, supra at 902–03); see also Oracle Am., 750
F.3d at 1360 (“[T]he ‘unique arrangement of computer program expression . . . does
not merge with the process so long as alternate expressions are available.’” (ellipsis
in original) (quoting Atari Games Corp. v. Nintendo of Am. Inc., 975 F.2d 832, 840
(Fed. Cir. 1992))).
Another familiar principle of traditional copyright law is the scenes a faire
doctrine. This doctrine “provides that ‘expressive elements of a work of authorship
are not entitled to protection against infringement if they are standard, stock, or
common to a topic, or if they necessarily follow from a common theme or setting.’”
Oracle Am., 750 F.3d at 1363 (quoting Mitel, Inc. v. Iqtel, Inc., 124 F.3d 1366, 1374
(10th Cir. 1997)). “In the computer context, the scene[s] a faire doctrine denies
protection to program elements that are dictated by external factors such as the
mechanical specifications of the computer on which a particular program is intended
to run or widely accepted programming practices within the computer industry.” Id.
(internal quotation marks omitted) (quoting Softel, Inc. v. Dragon Med. & Sci.
Commc’ns, Inc., 118 F.3d 955, 963 (2d Cir. 1997)).
Finally, it is well established in copyright law that material found in the public
domain “is free for the taking and cannot be appropriated by a single author even
though it is included in a copyrighted work.” Comput. Assocs. Int’l, 982 F.2d at 710.
Thus, at the filtration step of the AFC Test, I must examine CSS’s copyrighted
programs and filter out ideas, expression dictated by efficiency, elements dictated by
external factors, and material found in the public domain. In this way, copyright
20
protection for the non-literal elements of a computer program can be considered
analogous to that for compilations. As explained by the Supreme Court in Feist, “This
inevitably means that the copyright in a factual compilation is thin. Notwithstanding
a valid copyright, a subsequent compiler remains free to use the facts contained in
another’s publication to aid in preparing a competing work, so long as the work does
not feature the same selection and arrangement.” Feist, 499 U.S. at 349. Similarly,
in the case of computer programs, a subsequent programmer remains free to use the
ideas and industry-standard practices contained in a copyrighted software program
to prepare a competing program, as long as the competing program does not copy the
copyrighted work’s original expression of those ideas or standard practices. See
Oracle Am., 750 F.3d at 1367 (“Oracle does not—and concedes that it cannot—claim
copyright in the idea of organizing functions of a computer program or in the
‘package-class-method’ organizational structure in the abstract. Instead, Oracle
claims copyright protection only in its particular way of naming and organizing each
of the 37 Java API packages.”).
Turning to CSS’s software programs, at the highest level of abstraction, I must
filter out the function that each program performs, because these are the “ideas” of
the programs, not their expression. At the next level of abstraction, I must filter out
the client/server architecture used by each of the programs, because this is an
industry-standard practice, and thus is not original. See Zeidman Expert Report, Ex.
J at 2 (“Computer transactions in which the server fulfills a request made by a client
21
are very common and the client/server model has become one of the central ideas of
network computing.”).
At the next level of abstraction, I must filter out all of the third-party
components in CSS’s programs: the COBOL programming language, VanGUI,
Relativity, and Crystal Reports. As elements in the public domain, these components
are “free for the taking and cannot be appropriated by a single author even though
[they are] included in a copyrighted work.” Comput. Assocs. Int’l, 982 F.2d at 710.
While CSS concedes that it cannot assert a claim of copyright infringement
with respect to these third-party components, it argues that “[t]he selection and
arrangement of the components, however, can be a portion of the copyright claim. . . .
In creating the structure and flow of its software program[s], CSS made numerous
decisions which demonstrate creativity.” Pl.’s Resp. Defs.’ Mot. Summ. J. 15. CSS is
correct, of course, that it may receive copyright protection for an original selection
and arrangement of components that, individually, are unprotectable. However, I
disagree with CSS that its particular selection and arrangement of third-party
components contains “the modicum of creativity necessary to transform mere
selection into copyrightable expression.” Feist, 499 U.S. at 362.
Mr. McCasker testified that “the choice of the [programming] language
dictated . . . the choice of components in between[, which] in turn drive design
decisions . . . where the design ends up being the same.” Hr’g Tr., Jan. 25, 2017,
McCasker Direct, 125:2–5. Similarly, the Defendants’ expert, Robert Zeidman, notes
in his report that “[t]hese third-party programs require connections to the rest of the
22
program in certain ways that limit the number of ways that such a program can be
structured.” Zeidman Expert Report 14. Therefore, just like arranging names
alphabetically in a white pages directory (as was the case in Feist), I FIND that CSS’s
selection and arrangement of third-party components in its software programs “is not
only unoriginal, it is practically inevitable.” Feist, 499 U.S. at 363. Accordingly,
neither the third-party components themselves, nor their particular arrangement
within CSS’s programs, are entitled to copyright protection.
Finally, I will address the name search algorithm and login validation/
password change features that CSS’s and CT’s programs share. In the name search
algorithm, the use of a “letters-only” style search is an idea, not copyrightable
expression. Moreover, this type of search algorithm is unoriginal. See Zeidman
Expert Report 32 (“This method of searching for names by letters only is well known
in the field.”). Therefore, the method of searching data files by removing spaces and
punctuation is not copyrightable.
Similarly, in the case of the login validation/password change algorithm, the
decision to combine the login validation and the password change features into a
single entry point or “action” is an idea, not copyrightable expression. And again, this
combination of features is unoriginal. Mr. McCasker testified at the hearing that
“Windows XP actually has the same kind of user interface.” Hr’g Tr., Jan. 25, 2017,
McCasker Direct, 138:3–4. Mr. Zeidman noted in his report that “[t]his is evidence
that this technique is well-known in the industry.” Zeidman Expert Report 33.
23
Therefore, the combination of the login validation and password change features into
a single entry point is not copyrightable.
iii. Step Three: Comparison
The final step in determining substantial similarity is comparison.
Once a court has sifted out all elements of the allegedly
infringed program which are “ideas” or are dictated by
efficiency or external factors, or taken from the public
domain, there may remain a core of protectable expression.
. . . At this point, the court’s substantial similarity inquiry
focuses on whether the defendant copied any aspect of this
protected expression, as well as an assessment of the
copied portion’s relative importance with respect to the
plaintiff’s overall program.
Comput. Assocs., 982 F.2d at 710.
Now that I have “sifted out” all of the unprotected elements of CSS’s programs,
I am left with the “core of protected expression,” and I must compare this protected
expression to CT’s allegedly infringing programs to determine whether they are
substantially similar. However, CSS has not produced any evidence of substantial
similarity beyond the unprotected ideas that I have already filtered out. Nor does Mr.
McCasker’s report identify any similarities between CSS’s and CT’s programs that
could qualify as protected expression. Therefore, I FIND that, with respect to the
protected expression contained within CSS’s three software programs, CT’s programs
are not substantially similar.
4. Conclusion
“While the question of substantial similarity ‘typically should be left to the
factfinder, summary judgment may be appropriate if the court can conclude, after
viewing the evidence and drawing inferences in a manner most favorable to the
24
nonmoving party, that no reasonable juror could find substantial similarity.’” Nola
Spice Designs, LLC v. Haydel Enters., Inc., 783 F.3d 527, 550 (5th Cir. 2015) (quoting
Peel & Co. v. Rug Mkt., 238 F.3d 391, 395 (5th Cir. 2001)). Given the complete lack
of evidence of any similarity regarding the protected elements of CSS’s and CT’s
computer programs, I FIND that no reasonable jury could conclude that CSS’s and
CT’s programs are substantially similar in protectable expression. I also FIND that
there is no genuine dispute of any material fact and that the Defendants are entitled
to judgment as a matter of law on the copyright infringement claim. Accordingly, the
Defendants’ Motion for Summary Judgment is GRANTED with respect to Count I
(Copyright Infringement) of the First Amended Complaint.
B. Misappropriation of Trade Secrets
CSS alleges that the Defendants misappropriated certain trade secrets in
creating and selling their competing software. In order to determine whether
misappropriation occurred, I must first determine whether there was a trade secret
to be protected and then, if one exists, determine whether it was misappropriated.
McGough v. Nalco Co., 496 F. Supp. 2d 729, 739 (N.D. W. Va. 2007) (citing Servo
Corp. v. Gen. Elec. Co., 393 F.2d 551, 555 (4th Cir. 1968)).
The West Virginia Uniform Trade Secrets Act (“WVUTSA”) defines a trade
secret as
information, including, but not limited to, a formula,
pattern, compilation, program, device, method, technique
or process, that:
(1) Derives independent economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons
25
who can obtain economic value from its disclosure or use;
and
(2) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
W. Va. Code § 47-22-1(d). In State ex rel. Johnson v. Tsapis, 419 S.E.2d 1, 1 (W. Va.
1992), the Supreme Court of Appeals of West Virginia adopted the six-factor test
found in § 757 of the Restatement (First) of Torts to determine whether there was
good cause to issue a protective order to prevent the disclosure of the defendant’s
alleged trade secrets. In an unpublished opinion, the Fourth Circuit expressed its
belief that the West Virginia Supreme Court of Appeals would also apply that sixfactor test to determine the existence of a trade secret. IVS Hydro, Inc. v. Robinson,
93 F. App’x 521, 527 (4th Cir. 2004).
The Tsapis factors are as follows:
(1) the extent to which the information is known outside of
the [plaintiff’s] business;
(2) the extent to which it is known by employees and others
involved in the [plaintiff’s] business;
(3) the extent of the measures taken by the [plaintiff] to
guard the secrecy of the information;
(4) the value of the information to the [plaintiff] and
competitors;
(5) the amount of effort or money expended by the
[plaintiff] in developing the information; and
(6) the ease or difficulty with which the information could
be properly acquired or duplicated by others.
Tsapis, 419 S.E.2d at 3; see also IVS Hydro, 93 F. App’x at 526–27; McGough, 496 F.
Supp. 2d at 739. “[T]he absence of evidence as to any one factor does not necessarily
26
preclude a finding that a trade secret exists. The factors should be viewed as
instructive guidelines, weighed together in making that determination.” McGough,
496 F. Supp. 2d at 740 (citation omitted) (citing Learning Curve Toys, Inc. v.
PlayWood Toys, Inc., 342 F.3d 714, 722 (7th Cir. 2003)).
“[T]he hallmark of a trade secret is not its novelty but its secrecy.” Avtec Sys.,
Inc. v. Peiffer, 21 F.3d 568, 575 (4th Cir. 1994). “Absolute secrecy is not essential” to
finding that a trade secret existed, and limited disclosure does not destroy secrecy.
Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 664 (4th Cir. 1993). The
Restatement (First) of Torts advises that to be a trade secret, “a substantial element
of secrecy must exist, so that, except by the use of improper means, there would be
difficulty in acquiring the information.” Restatement (First) of Torts § 757 cmt. b.
Misappropriation occurs when a trade secret is acquired by improper means,
or when it is disclosed or used by someone who knows or has reason to know that the
trade secret was “[a]cquired under circumstances giving rise to a duty to maintain its
secrecy or limit its use.” W. Va. Code § 47-22-1(b).
1. CSS’s Source Code and Related Claims
CSS alleges that the Defendants misappropriated a variety of trade secrets
related to its software programs by using the information to create CT’s competing
software, as well as provide support services for clients that use CSS’s software.
Specifically, CSS alleges that the following are trade secrets: the source code for its
software programs, “a detailed knowledge of the workings of the program[s],” “what
27
county clerks need[,] and how the software operates to meet their needs.” Pl.’s Resp.
Defs.’ Mot. Summ. J. 11–12.
CSS initially provided its source code to county clerks’ offices by installing the
source code files on the clients’ servers so that, in the event that CSS went out of
business, the clients’ work would not be disrupted. Hr’g Tr., Jan. 25, 2017, Auburn
Direct, 35:12–25. CSS provided its source code to clients in a way that the files “were
pretty much editable in Notepad or however else you needed to view them.” Test. &
Ex. Submission by CSS, Inc. Ex. 1, at 182:20–24 [ECF No. 105-1] (“Lowers Dep.”). At
some point after May 2014, this “bad business practice” was discontinued, and all of
CSS’s source code has since been removed from the county servers. Mot. by Defs. for
Leave to File Under Seal Ex. 4, at 60:13–18 [ECF No. 70-4] (“Auburn Dep.”); Hr’g Tr.,
Jan. 25, 2017, Auburn Direct, 39:18–19.
All West Virginia county servers are connected through WVNet, “the virtual
private network that allows vendors to access clients [and] state-run computers.”
Defs.’ Mem. Opp’n Pl.’s Mot. Prelim. Inj. Ex. 3, at 267:7–15. Any company with a
contract with any West Virginia county is given access to all county servers. Hr’g Tr.,
Jan. 25, 2017, Auburn Direct, 31:1–9, 35:15–18. CSS’s source code was neither
password protected nor encrypted when it was on the county servers. See Hr’g Tr.,
Feb. 23, 2017, D. Herrington Direct, 120:21–23. In addition, CSS did not uniformly
mandate any confidentiality requirements when it provided the county clients with
its software and source code. See Hr’g Tr., Jan. 25, 2017, Auburn Direct, 32:12–24.
CSS left decisions regarding who could access its source code on the county servers
28
entirely up to the clients themselves. See id. at 31:21–24. Thus, a competitor of CSS
with access to WVNet may have been able to access CSS’s source code. See Hr’g Tr.,
Jan. 25, 2017, Auburn Direct, 31:1–20.
For approximately twenty-five years, CSS maintained the password “top gun”
for users to access its software programs. Hr’g Tr., Feb. 23, 2017, D. Herrington Cross,
135:3–136:14. CSS did not enter into confidentiality agreements with the clerks’
offices that had the “top gun” password. See id. at 136:20–23. CSS disclosed the
password to any county employees who attended a training session, and did not
require the employees to keep the password confidential. See id. at 136:6–19.
Applying the Tsapis factors to these facts, “the extent of the measures taken
by the [plaintiff] to guard the secrecy of” its source code weighs against finding that
the source code constitutes a trade secret. CSS installed the source code files on
county servers using its software for approximately twenty years. CSS did not encrypt
or password protect the source code, nor did it label the source code as confidential.
Finally, CSS did not mandate any confidentiality requirements when it provided its
clients with the source code.
Additionally, considering “the ease . . . with which the information could be
properly acquired or duplicated by others” also weighs against finding that the source
code constitutes a trade secret. Any company with a contract with a West Virginia
county, including competitors of CSS, could have accessed the source code through
WVNet.
29
This shows that the source code was not “the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.” W. Va. Code § 47-221(d)(2). Certainly, placing the source code on the county servers without any
requirement that it be kept confidential cannot be considered reasonable efforts at
maintaining secrecy. Therefore, I FIND that CSS’s source code is not a trade secret.
Turning to CSS’s more abstract claims of trade secrets related to its source
code—i.e., “a detailed knowledge of the workings of the program[s],” “what county
clerks need[,] and how the software operates to meet their needs,”—I find that these
also do not qualify as trade secrets under the WVUTSA. Given that a competitor of
CSS could access the source code through proper means (i.e., through WVNet), a
competitor with programming knowledge could then study the programs to obtain “a
detailed knowledge of the workings of the program[s]” through proper means and
without extraordinary effort.
As to “what county clerks need,” this cannot be a trade secret because of the
extreme “ease . . . with which the information could be properly acquired or duplicated
by others.” Tsapis, 419 S.E.2d at 3. Namely, any competitor who wished to acquire
such information could simply call the county clerks’ offices and inquire about their
software needs. Finally, combining this information with a knowledge of the software,
a competitor could easily learn “how the software operates to meet [the county clerks’]
needs.”
Thus, none of these types of information constitute trade secrets in this case
because they do not satisfy the statutory requirement of “not being readily
30
ascertainable by proper means by other persons who can obtain economic value from
their disclosure or use.” W. Va. Code § 47-22-1(d)(1). Therefore, I FIND that these are
not trade secrets.
2. CSS’s Business Practices
The Defendants argue that they are entitled to summary judgment with
respect to CSS’s trade secret claims concerning certain business practices.
Specifically, the Defendants argue that the following types of information do not
constitute trade secrets in this case: CSS’s plan to expand its business into Ohio;
client lists and customer preferences; and CSS’s pricing methodology. Defs.’ Mem.
Supp. Mot. Summ. J. 9–11. CSS has not responded to these arguments in its briefing,
and I previously found that none of this information qualifies as a trade secret under
the WVUTSA. See Prelim. Inj. Op. 36–40. Accordingly, I again FIND that CSS’s
business-practices-related information does not constitute a trade secret.
3. Conclusion
I FIND that none of the information that CSS alleges to be a trade secret
qualifies as a trade secret under the WVUTSA. Because I have found that no trade
secret existed, I need not consider whether the Defendants “misappropriated” such
information. I FIND that there is no genuine dispute of any material fact on CSS’s
trade secret claim, and that the Defendants are entitled to judgment as a matter of
law. Accordingly, the Defendants’ Motion for Summary Judgment is GRANTED with
respect to Count VI (Misappropriation of Trade Secrets) of the First Amended
Complaint.
31
C. Breach of Contract
CSS alleges that Christopher Herrington breached the Confidentiality
Agreement that he signed when he returned to CSS in September 2014 by using
confidential information learned during his employment to 1) develop his competing
software, and 2) provide support services to customers using CSS’s software. The
Confidentiality Agreement defines “Confidential and Proprietary Information” as
any and all data and information which is: (1) disclosed to
or known by Employee as a consequence of, during, or
through Employee’s association with the Company; (2) not
generally known outside the Company; and (3) which
relates to any aspect of the Company or its business,
research or development. Confidential and Proprietary
Information includes, but is not limited to: research,
technology, strategic plans, business plans, information
relating to the Company’s operating plans and
methodologies, operations manuals, pricing and marketing
strategies, financial information, or other trade secrets, as
well as any or all information which is disclosed to
Employee or in any way acquired by Employee relating to
the Company or its employees, clients, customers,
prospective customers or clients, suppliers, or vendors.
Confidential and Proprietary Information may be written,
verbal or recorded by electronic, magnetic or other
methods, whether or not expressly identified as
“Confidential” by the Company.
Pl.’s Mot. Prelim. Inj. Ex. 2, at ¶ 1.a. [ECF No. 65-2] (“Confidentiality Agreement”).
The Agreement further provides,
During Employee’s employment with the Company and
thereafter, Employee will not copy, publish, convey,
disclose nor use, directly or indirectly, for Employee’s own
benefit or for the benefit of any other person or entity
(except the Company) any Confidential and Proprietary
Information or otherwise utilize any Confidential and
Proprietary Information for any purpose except in the
course of work for the Company.
32
Id. at ¶ 2. The Agreement also contains a provision that the “Employee represents
and warrants that Employee has not used or disclosed any Confidential Information
Employee may have obtained from Employer prior to signing” the Agreement. Id. at
¶ 4.
1. Choice of Law
Before the court can assess the enforceability of the Confidentiality Agreement,
I must determine which state’s law to apply. Because this court is sitting in diversity
in West Virginia, I will apply West Virginia’s choice-of-law principles to determine
which state’s law to apply to the contract. See Klaxon Co. v. Stentor Electric Mfg. Co.,
313 U.S. 487, 496 (1941).
The Confidentiality Agreement contains a choice-of-law provision that
identifies Texas law as controlling. Confidentiality Agreement ¶ 7. However, no
signatory to the Confidentiality Agreement resides in Texas, the parties signed the
Agreement in West Virginia, and the alleged breach took place in West Virginia.
West Virginia’s conflict-of-laws jurisprudence provides “that a choice of law
provision in a contract will not be given effect when the contract bears no substantial
relationship with the jurisdiction whose laws the parties have chosen to govern the
agreement[.]” Gen. Elec. Co. v. Keyser, 275 S.E.2d 289, 297 (W. Va. 1981). Under this
standard, the parties and the court agree that West Virginia law governs the court’s
interpretation of the Confidentiality Agreement. Therefore, I will apply West Virginia
law to the breach of contract claim.
33
2. Enforceability of the Confidentiality Agreement
In my earlier opinion denying CSS’s Motion for a Preliminary Injunction, I
found that the Confidentiality Agreement was not unreasonable on its face. However,
I found that CSS was not likely to succeed on the merits of its breach of contract claim
because there was insufficient evidence that the Defendants had breached the
Confidentiality Agreement. See Prelim. Inj. Op. 43–44. After carefully reviewing the
Confidentiality Agreement and the applicable law, it is apparent that a more
thorough analysis of the enforceability of the Agreement is necessary.4
The West Virginia Supreme Court of Appeals has not squarely addressed the
enforceability of a nondisclosure agreement. Nevertheless, I have previously held
that nondisclosure agreements should be analyzed in the same way as noncompete
agreements. See McGough, 496 F. Supp. 2d at 752 (“Restrictive covenants include
both noncompetition, nondisclosure and trade secrets covenants.”). “Covenants not to
disclose and utilize confidential business information are related to general covenants
not to compete because of the similar employer interest in maintaining competitive
advantage.” Id. at 756.
First, the court must “look at the nondisclosure covenants to determine
whether they are unreasonable on their face.” Id. at 755.
Admittedly, the court erred by not conducting a more thorough analysis of the enforceability of the
Confidentiality Agreement in its earlier opinion. At that stage of the litigation, where the plaintiff was
seeking a preliminary injunction against the Defendants, the court was more concerned with whether
CSS had produced enough evidence of breach to show that it was likely to succeed on the merits than
it was with the legal enforceability of the Agreement. Now, where the Defendants seek summary
judgment, CSS is only required to produce more than a mere “scintilla of evidence” to defeat the
motion. Anderson, 477 U.S. at 252. Thus, determining the legal enforceability of the Confidentiality
Agreement is imperative.
4
34
In deciding whether restraints on disclosure are
reasonable two factors are important: (1) whether the
employer is attempting to protect confidential information
related to the business, such as trade secrets, methods of
operation, names of customers, and personnel data even
though the information does not rise to the [status] of a
trade secret, and (2) whether the restraint is reasonably
related to the protection of the information.
Id. at 756 (citing Restatement (First) of Contracts §§ 515(a), 516). “An excessively
broad covenant with respect to time or geographic scope is unreasonable on its face.”
Id. at 752. “If the covenant is unreasonable on its face, it is utterly void and
unenforceable.” Id.
Here, the Confidentiality Agreement contains no limitation with respect to
time or geographic scope. Moreover, the Agreement purports to cover virtually all
information learned by the employee during his employment. The only limitations
are that the information is not generally known outside the company, and that the
information relates to some aspect of the company (which is hardly a limitation at
all). See id. at 756 (“By defining confidential information as essentially all of the
information provided to Mr. McGough during his employment, the nondisclosure
covenants amount to a post-employment covenant not to compete that is completely
unrestricted in duration or geographic scope.”). In terms of conduct, the
Confidentiality Agreement prohibits the employee not only from disclosing such
information, but also from using it, “directly or indirectly,” except for the benefit of
CSS. See id. (“The provisions are written so broadly as to cover everything Mr.
McGough might have learned while working at Nalco[.] [I]f he were to strictly abide
by its terms, he would be unable to ever work in a similar field again.”).
35
Given the extraordinarily broad language of the Confidentiality Agreement
and absence of any limitation with respect to time or geographic scope, I FIND that
“the restraint is [not] reasonably related to the protection of the information.” Id.
Accordingly, I FIND that the Confidentiality Agreement is unreasonable on its face
and therefore unenforceable.
3. Conclusion
I FIND that the Confidentiality Agreement, which serves as the basis of CSS’s
breach of contract claim, is unreasonable on its face and therefore unenforceable. I
FIND that there is no genuine dispute as to any material fact on CSS’s breach of
contract claim, and that the Defendants are entitled to judgment as a matter of law.
Accordingly, the Defendants’ Motion for Summary Judgment is GRANTED with
respect to Count II (Breach of Contract) of the First Amended Complaint.
D. Unjust Enrichment
In the First Amended Complaint, CSS alleges that the “Defendants provided
no consideration to CSS for their unlawful use and disclosure of the Confidential
Information [and,] [a]s a result, Defendants have been unjustly enriched by their
unlawful use and disclosure of the Confidential Information.” First Am. Compl. ¶¶
57–58. CSS also alleges that the “Defendants’ unlawful and unjust use and disclosure
of the Confidential Information has proximately caused damage to CSS.” Id. at ¶ 59.
The parties did not address the unjust enrichment claim in their briefing on
the Defendants’ Motion for Summary Judgment. Nonetheless, this court has the
authority “to enter summary judgments sua sponte, so long as the losing party was
36
on notice that she had to come forward with all of her evidence.” Celotex Corp., 477
U.S. at 326. Although the Defendants did not specifically address the unjust
enrichment claim in their briefing, their Motion for Summary Judgment requests
that the court grant “Summary Judgment on all of Plaintiff’s claims.” Defs.’ Mot.
Summ. J. 1. In addition, the Defendants’ Memorandum in Support of its Motion
asserts that “this case should be dismissed in its entirety.” Defs.’ Mem. Supp. Mot.
Summ. J. 20. Therefore, CSS was on notice to come forward with all of its evidence
relevant to the unjust enrichment claim. See Penley v. McDowell Cty. Bd. of Educ.,
876 F.3d 646, 661 (4th Cir. 2017) (“Here, Gillespie moved for summary judgment on
‘all claims against him.’ . . . Accordingly, Appellant was on notice ‘to come forward
with all . . . evidence’ relevant to his tortious interference claim, satisfying Celotex.”).
“Unjust enrichment of a person occurs when he has and retains money or
benefits which in justice and equity belong to another.” Bright v. QSP, Inc., 20 F.3d
1300, 1306 (4th Cir. 1994) (quoting Dunlap v. Hinkle, 317 S.E.2d 508, 512 n.2 (W. Va.
1984)). Under West Virginia law, “[t]he elements of an unjust enrichment claim are:
(1) a benefit conferred upon the defendant, (2) an appreciation or knowledge by the
defendant of such benefit, and (3) the acceptance or retention by the defendant of the
benefit under such circumstances as to make it inequitable for the defendant to retain
the benefit without payment of its value.” Emp’r Teamsters—Local Nos. 175/505
Health & Welfare Tr. Fund v. Bristol Myers Squibb Co., 969 F. Supp. 2d 463, 471
(S.D. W. Va. 2013) (alteration and internal quotation marks omitted). “The benefit
may be an interest in money, land, chattels, or choses in action; beneficial services
37
conferred; satisfaction of debt or duty owed by him; or anything which adds to his
security or advantage.” Dunlap, 317 S.E.2d at 512 n.2. “[I]f benefits have been
received and retained under such circumstance that it would be inequitable and
unconscionable to permit the party receiving them to avoid payment therefor, the law
requires the party receiving the benefits to pay their reasonable value.” Realmark
Devs., Inc. v. Ranson, 542 S.E.2d 880, 884–85 (W. Va. 2000).
Here, CSS has failed to identify the alleged benefit conferred upon the
Defendants, the retention of which, without payment to CSS, would be inequitable or
unconscionable. Instead, CSS merely states that the “Defendants provided no
consideration to CSS for their unlawful use and disclosure of the Confidential
Information.” First Am. Compl. ¶ 57. It is unclear to the court how this “unlawful use
and disclosure of the Confidential Information” is meant to constitute the alleged
benefit conferred upon the Defendants. Furthermore, even if the unlawful use and
disclosure of confidential information could constitute a benefit, CSS has also failed
to explain why the retention of this alleged benefit without payment to CSS would be
inequitable under the circumstances. See Emp’r Teamsters, 969 F. Supp. 2d at 472
(dismissing unjust enrichment claim where plaintiff failed to “allege how Defendants’
retention of payments for a product that was effective in its ordinary purpose . . . rises
to the level of constituting unjust enrichment”).
Because CSS has failed to identify the benefit conferred upon the Defendants,
as well as the circumstances that would make the retention of any alleged benefit
inequitable without payment to CSS, I FIND that CSS has not presented even a mere
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scintilla of evidence to support its unjust enrichment claim. I also FIND that there is
no genuine dispute as to any material fact, and that the Defendants are entitled to
judgment as a matter of law. Accordingly, the Defendants’ Motion for Summary
Judgment is GRANTED with respect to Count V (Unjust Enrichment) of the First
Amended Complaint.
E. Duty of Loyalty
CSS alleges that Christopher Herrington breached his duty of loyalty by
creating his competing software and soliciting CSS’s customers while still employed
by CSS. First Am. Compl. ¶¶ 47–50. The Defendants assert that they are entitled to
summary judgment on the duty of loyalty claim because it is “unclear” whether this
is a standalone cause of action and, even if it is, it is “subsumed by” CSS’s breach of
contract and misappropriation of trade secrets claims. Defs.’ Mem. Supp. Mot. Summ.
J. 17.
The precise contours of the duty of loyalty in West Virginia are not entirely
clear, and there is very little case law discussing this tort. However, what is clear is
that West Virginia does recognize the breach of the duty of loyalty as an independent
cause of action. See Timberline Four Seasons Resort Mgmt. Co. v. Herlan, 679 S.E.2d
329, 338 (W. Va. 2009) (“[B]ecause the specific facts of this case indicate that an
agency relationship existed between the parties, we find that Ms. Herlan owed a duty
of loyalty to her principal . . . . Ms. Herlan, as an agent, cannot rightfully use her
position to engage in self-dealing at the expense of her principal[.]”).
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As the West Virginia courts often do, I will look to the Restatement for
guidance concerning the elements of this claim.
(a) Except as otherwise provided in subsections (b) and (c),
an employee breaches the duty of loyalty to the employer
if, without the employer’s express or implied consent, the
employee, while employed by the employer, works for a
competitor or otherwise competes with the employer.
(b) Competition with the employer under subsection (a)
includes solicitation of the employer’s customers to diver
their business to a competitor and recruitment of other
employees to work for a competitor, but does not include
reasonable preparation by an employee or group of
employees to compete with the employer.
Restatement of Employment Law § 8.04.
In this case, CSS alleges that Christopher Herrington used CSS’s confidential
information to create his competing software and solicit CSS’s customers while he
was still employed with CSS. The Defendants do not respond to these factual
allegations. Therefore, drawing all reasonable inferences in favor of the nonmoving
party (CSS), I FIND that there is a genuine dispute as to material facts relevant to
the duty of loyalty claim. Accordingly, the Defendants’ Motion for Summary
Judgment is DENIED with respect to Count III (Duty of Loyalty) of the First
Amended Complaint.
F. Tortious Interference
CSS alleges that the “Defendants willfully and intentionally interfered with”
its contracts and relationships with its customers by using CSS’s confidential
information to market CT’s software and services. First Am. Compl. ¶ 55. CSS further
40
alleges that the Defendants’ interference “has actually and proximately damaged
CSS.” Id.
To establish prima facie proof of tortious interference, a
plaintiff must show:
(1) existence of a contractual
relationship or expectancy;
or
business
(2) an intentional act of interference by a party
outside that relationship or expectancy;
(3) proof that the interference caused the harm
sustained; and
(4) damages.
If a plaintiff makes a prima facie case, a defendant may
prove justification or privilege, affirmative defenses.
Defendants are not liable for interference that is negligent
rather than intentional, or if they show defenses of
legitimate competition between plaintiff and themselves,
their financial interest in the induced party’s business,
their responsibility for another’s welfare, their intention to
influence another’s business policies in which they have an
interest, their giving of honest, truthful requested advice,
or other factors that show the interference was proper.
Tiernan v. Charleston Area Med. Ctr., Inc., 506 S.E.2d 578, 591–92 (W. Va. 1998)
(quoting Torbett v. Wheeling Dollar Sav. & Tr. Co., 314 S.E.2d 166, 167 (W. Va.
1983)).
CSS’s lack of specificity in alleging the intentional acts of the Defendants that
interfered with CSS’s business relationships makes me doubt the viability of its
tortious interference claim. However, viewing the evidence in the light most favorable
to the nonmoving party (CSS), I FIND that there are genuine disputes of material
facts relevant to this claim. Namely, I FIND that there is a dispute as to whether the
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Defendants used improper means to interfere with CSS’s contracts and relationships
with customers, or whether the Defendants can show the defense of legitimate
competition. In addition, I FIND that there is a dispute as to whether the Defendants’
alleged interference caused the harm allegedly sustained by CSS. As the Defendants
themselves point out, there is some evidence to suggest that some of CSS’s customers
“decided to switch to CT not because of any alleged ‘tortious interference’ of
Defendants but because of their ‘frustration with [CSS’s] poor service.’” Defs.’ Mem.
Supp. Mot. Summ. J. 18. Accordingly, the Defendants’ Motion for Summary
Judgment is DENIED with respect to Count IV (Tortious Interference) of the First
Amended Complaint.
G. Declaratory Judgment (“Work for Hire”)
Finally, CSS requests a declaratory judgment that, under the “work for hire”
doctrine, it is the author of any computer programs developed by Christopher
Herrington during his employment with CSS. Although the parties did not address
this claim in their briefing on the Defendants’ Motion for Summary Judgment, CSS
was on notice that it had to come forward with all of its evidence in response to the
Defendants’ request for summary judgment “on all claims.” See Celotex Corp., 477
U.S. at 326. Therefore, I will address this claim sua sponte.
The Copyright Act defines a “work made for hire” as “a work prepared by an
employee within the scope of his or her employment.” 17 U.S.C. § 101.5 “In the case
of a work made for hire, the employer . . . is considered the author for purposes of this
Subsection (2) of the definition of “work made for hire” deals with specially commissioned works, and
is not relevant to the facts of this case.
5
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title, and, unless the parties have expressly agreed otherwise in a written instrument
signed by them, owns all of the rights comprised in the copyright.” 17 U.S.C. 201(b).
In other words,
an employer owns a copyright in a work if (1) the work
satisfies the generally applicable requirements for
copyrightability set forth in 17 U.S.C. § 102(a), (2) the work
was prepared by an employee, (3) the work was prepared
within the scope of the employee’s employment, and (4) the
parties have not expressly agreed otherwise in a signed,
written instrument.
Balt. Orioles v. Major League Baseball Players Ass’n, 805 F.2d 663, 667 (7th Cir.
1986); see also Miller v. CP Chems., Inc., 808 F.Supp. 1238, 1242 (D.S.C. 1992) (citing
Balt. Orioles).
Here, the first and fourth elements (copyrightability and absence of a signed
writing) are not at issue. Furthermore, there is no genuine dispute that Christopher
Herrington was an employee of CSS, although there may be some dispute as to
exactly how much of his competing software programs were developed during his
employment rather than after his resignation from CSS. For purposes of this
analysis, I will assume that the entirety of Christopher Herrington’s competing
software programs were developed while he was still employed with CSS.
The real issue here is whether Christopher Herrington’s competing software
programs were “prepared within the scope of the employee’s employment.” The
Supreme Court has made clear “that common-law agency principles govern resolution
of that question.” Avtec Sys., 21 F.3d at 571 (citing Cmty. for Creative Non-Violence
v. Reid, 490 U.S. 730, 739–40 (1989)). “[A] servant’s conduct is within the scope of
employment ‘only if: (a) it is of the kind he is employed to perform; (b) it occurs
43
substantially within the authorized time and space limits; [and] (c) it is actuated, at
least in part, by a purpose to serve the master.’” Id. (second alteration in original)
(quoting Restatement (Second) of Agency § 228). Again, there is no dispute that
Christopher Herrington’s software programs are “of the kind” of work that he was
employed to perform. And, while there may be a dispute as to whether Christopher
Herrington developed his programs on CSS’s time, or using their facilities, I will
assume for the sake of this analysis that this element is satisfied.
However, it is clear that the development of Christopher Herrington’s software
programs was not “actuated, at least in part, by a purpose to serve” CSS. In order to
satisfy this condition, CSS must show that Herrington “was at least appreciably
motivated by a desire to further [CSS’s] corporate goals.” Avtec Sys., 21 F.3d at 572
(alteration and internal quotation marks omitted); see also Restatement (Second) of
Agency § 235 (“An act of a servant is not within the scope of employment if it is done
with no intention to perform it as a part of or incident to a service on account of which
he is employed.” (emphasis added)). Clearly, Christopher Herrington’s purpose in
designing his software programs was to compete with CSS, not to further their
corporate goals. Thus, Herrington developed his competing programs with no
intention to serve his employer, CSS.
Therefore, I FIND that Christopher Herrington’s computer programs were not
“prepared within the scope of [Herrington’s] employment” with CSS. The programs
are not “works made for hire” within the meaning of the Copyright Act, and CSS is
not considered the author of the programs for copyright purposes. I also FIND that
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there is no genuine dispute of material fact relevant to the declaratory judgment
claim,6 and that the Defendants are entitled to judgment as a matter of law.
Accordingly, the Defendants’ Motion for Summary Judgment is GRANTED with
respect to Count VIII (Declaratory Judgment) of the First Amended Complaint.
IV.
Conclusion
In summary, the Defendants’ Motion for Summary Judgment [ECF No. 123] is
GRANTED with respect to Count I (Copyright Infringement), Count II (Breach of
Contract), Count V (Unjust Enrichment), Count VI (Misappropriation of Trade
Secrets), and Count VIII (Declaratory Judgment) of the First Amended Complaint.
The Defendants’ Motion for Summary Judgment is DENIED with respect to Count
III (Duty of Loyalty), Count IV (Tortious Interference), and Count VII (Injunctive
Relief) of the First Amended Complaint.
The court DIRECTS the Clerk to send a copy of this Order to counsel of record
and any unrepresented party.
ENTER:
January 29, 2018
Although I indicated that there may be some disputes of fact related to the declaratory judgment
claim, these facts are immaterial because I have found that CSS is unable to establish an essential
element of the work-for-hire test. Regarding that essential element (i.e., whether Christopher
Herrington’s computer programs were prepared within the scope of his employment), there is no
genuine dispute of any material fact.
6
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