The Gates Rubber Co. v. Bando Chemical Industries, Ltd.

The defendants appeal from the June 24, 1992, order of the district court in which it found that the defendants had infringed Gates’ copyright on an engineering computer program and wrongfully misappropriated trade secrets. We conclude that the district court erroneously extended copyright protection to certain unproteetable elements of the computer program. We also conclude that the district court failed properly to determine the proteetability of many of the elements of Gates’ program which it found to have been copied by the defendants. Accordingly, we remand the copyright claims to the district court for a reconsideration of the programs in light of the test we set forth herein, which involves a determination of whether there was copying and a determination of whether the copying constitutes actionable infringement through application of the abstraction-filtration-comparison test.

Considering the trade secret claims, we conclude that Gates’ claims were not preempted by federal law, that Gates made an adequate showing that certain of its mathematical constants were valuable trade secrets, and that Gates took adequate steps to protect the confidentiality of such trade secrets below and on appeal. Accordingly, we affirm those portions of the district court’s opinion with respect to. the trade secret claims.

FACTS

The plaintiff-appellee, Gates Rubber Co. (“Gates”), is a Colorado corporation that manufactures rubber belts for use in industrial machinery. Gates leads the industry in sales of industrial machine belts. In order to determine the proper rubber belt for a particular machine it is necessary to perform complicated calculations involving numerous variables. The complexity of these calculations is such that they have customarily been performed by an engineer and significant variance in outcome often resulted. In order to facilitate the efficient and accurate selection of belts, and to boost the sales of their products, Gates developed a computer program entitled “Design Flex 4.0.” With this program a salesman can input a number of variables and thereby calculate the proper Gates belt for a machine. The program uses published formulas in conjunction with certain mathematical constants developed by Gates to determine belt size. Gates obtained a Certificate of Copyright Registration on its Design Flex program.

The defendant, Bando American (“Ban-do”), is a division of a Japanese corporation that competes with Gates in the manufacture and sale of industrial belts. Numerous Ban-do employees were formerly employees of Gates, including the defendants Allen Hana-no (Bando’s president), Ron Newman, and Steven Piderit.

Until 1988, the defendant, Steven R. Pider-it, was a Gates’ employee. 1 While at Gates, Piderit had access to Gates’ Design Flex program, including its components and the design and access codes. 2 In 1988, Bando hired Piderit away from Gates and assigned him to develop a program that would assist *831 in the selection of the proper belts for industrial machinery. In June of 1989, Bando introduced a demonstration copy of “Chauffeur,” a computer program similar to Gates’ Design Flex program. The Chauffeur program was made available in March of 1990. Piderit claims to be the sole author of the Chauffeur program.

Gates filed this action in the U.S. District Court for the District of Colorado on January 4, 1992, alleging unfair competition, misappropriation of trade secrets, infringement of copyright, and breach of contract. On January 28, 1992, the district court held a hearing on Gates’ request for a TRO, which was denied, and ordered experts appointed. On February 26, 1992, the plaintiff filed an amended complaint expanding its claims, naming additional parties, and requesting a permanent injunction. A hearing on the permanent injunction was held on March 26, 1992. On June 24, 1992, the district court issued its opinion finding that the defendants had infringed Gates’ copyright and willfully and maliciously misappropriated trade secrets. In an order dated August 12, 1992, the court amended typographical errors in its opinion, and denied the defendant’s motions to make additional findings, to alter and amend the judgment, for a new trial and to stay enforcement. This appeal was filed on August 26, 1992. The appellants claim that the district court erred when it (i) extended copyright protection to facts and ideas in the Design Flex program, and (ii) granted relief on Gates’ trade secret claim.

This case presents a number of issues that have never been squarely before a panel of this circuit, most notably the proper test to be applied to determine the scope of copyright protection for computer programs. In an attempt to aid the district courts in this determination and to bring clarity to this difficult area of the law, we first set forth what we consider to be the best means to determine the scope of protection. 3 In this first section, we seek to draw together the major issues that must be addressed and we try to organize the issues within a coherent framework that will be useable to the district courts that must address these claims in the first instance. We next briefly summarize the constitutional and statutory principles and the key judicial decisions that control and illuminate our analysis. As this analysis demonstrates, our approach is consistent with the evolving law in this area. We then apply our legal analysis to the facts in this ease, finding that, in several respects, the district court erred in its application. Finally, we consider the trade secrets issues raised by the appellants. 4

DISCUSSION

I. THE COPYRIGHT INFRINGEMENT ISSUE.

A. The Test for Determining Whether the Copyright of a Computer Program Has Been Infringed.

In order to prevail on a claim of copyright infringement, the plaintiff must show: (1) ownership of a valid copyright, and (2) copying by the defendant of protected components of the copyrighted material. Feist Publications v. Rural Telephone Service Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 1296, 113 L.Ed.2d 358 (1991); Autoskill v. National Educational Support Systems, Inc., 994 F.2d 1476, 1487 (10th Cir.1993), cert. denied, — U.S.—, 114 S.Ct. 307, 126 L.Ed.2d 254 (1993). A Certificate of Registration, if timely obtained, constitutes prima facie evidence of the validity of the copyright. *832 17 U.S.C. § 410(c); Autoskill, 994 F.2d at 1487. Once the presumption pursuant to 17 U.S.C. § 410(c) is established, the defendant has the burden of overcoming it. Autoskill, 994 F.2d at 1487.

Williams Electronics, Inc. v. Artic International, Inc., 685 F.2d 870, 873 (3d Cir.1982). 5

Once the plaintiff has shown that it holds a valid copyright, it must next prove that the defendant unlawfully appropriated protected portions of the copyrighted work. This question involves two separate inquiries: 1) whether the defendant, as a factual matter, copied portions of the plaintiffs program; 6 and 2) whether, as a mixed issue of fact and law, those elements of the program that have been copied are protected expression and of such importance to the copied work that the appropriation is actionable. 3 Melville B. Nimmer, Nimmer on Copyright § 13.01[B], at 13-8 to 13-15 (1993) (hereinafter “Nimmer”); see Arnstein v. Porter, 154 F.2d 464, 472-73 (2d Cir.1946).

A plaintiff can establish that the defendant copied his program either through the presentation of direct evidence, or through indirect evidence that shows (1) that the defendant had access to the copyrighted program, and (2) that there are probative similarities between the copyrighted material and the allegedly copied material. 7 Auto skill, 994 F.2d at 1489; Atari Games Corp. v. Nintendo of America Inc., 975 F.2d 832, 837-38 (Fed.Cir.1992); Whelan Associates v. Jaslow Dental Laboratory, Inc., 797 F.2d 1222, 1231-32 (3d Cir.1986), cert. denied 479 *833 U.S. 1031, 107 S.Ct. 877, 93 L.Ed.2d 831 (1987); Arnstein, 154 F.2d at 468; 3 Nimmer § 13.01[B], at 10-12. 8 Direct proof of copying is rare, Whelm, 797 F.2d at 1231; Roth Greeting Cards v. United Card Co., 429 F.2d 1106, 1110 (9th Cir.1970), and plaintiffs will typically rely on the indirect method of proof. Ultimately, to prove factual copying, the plaintiff must come forward with sufficient evidence that a reasonable factfinder, taking together the evidence of access and the similarities between the programs, 9 could find that the second work was copied from the first. 10

Although we suggest that it will often be helpful to make an initial determination of whether the defendant copied portions of the plaintiffs program before determining whether the copying involved protectable elements under the copyright law, there may be cases where the issue of protectability can more efficiently be addressed first. The order of the analysis will depend on the individual facts and issues in each case. Of course, even if generalized copying is established in the first instance, it will ultimately still be necessary to establish copying of precisely identified protected elements of a program before copyright infringement can be established.

The court’s inquiry does not end with a finding that the defendant copied portions of the plaintiffs program. Liability for copyright infringement will only attach where protected elements of a copyrighted work are copied. Baker v. Selden, 101 U.S. 99, 101-03, 25 L.Ed. 841 (1879). “[T]he mere fact that a work is copyrighted does not mean that every element of the work may be protected.” Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 348, 111 S.Ct. 1282, 1289, 113 L.Ed.2d 358 (1991).

The Copyright Act provides:

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) (Supp.1993). 11 Accordingly, in order to impose liability for copyright infringement, the court must find that the defendant copied protectable elements of the plaintiffs program and that those protectable elements comprise a substantial part of the plaintiffs program when it is considered as a whole. Autoskill, 994 F.2d at 1496-98; *834 Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1475-77 (9th Cir.), cert. denied, — U.S. —, 118 S.Ct. 198, 121 L.Ed.2d 141 (1992); Data East USA, Inc. v. Epyx, Inc., 862 F.2d 204, 208 (9th Cir.1988).

Determining which elements of a program are protectable is a difficult task. However, an effective test can be formulated from constitutional and statutory constraints and guided by existing case law to determine the scope of copyright infringement. In substantial part, we adopt the “Abstraction-Filtration-Comparison” test which we previously approved for use in the context of a preliminary injunction ruling in Autoskill, 994 F.2d at 1487-98. See also Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693, 701-14 (2d Cir.1992); Lotus Development Corp. v. Paperback Software International, 740 F.Supp. 37 (D.Mass.1990). 12

First, in order to provide a framework for analysis, we conclude that a court should dissect the program according to its varying levels of generality as provided in the abstractions test. Second, poised with this framework, the court should examine each level of abstraction in order to filter out those elements of the program which are unprotectable. Filtration should eliminate from comparison the unprotectable elements of ideas, processes, facts, public domain information, merger material, scenes a faire material, and other unprotectable elements suggested by the particular facts of the program under examination. Third, the court should then compare the remaining protecta-ble elements with the allegedly infringing program to determine whether the defendants have misappropriated substantial elements of the plaintiffs program.

■ We now proceed to examine each of these steps in greater detail.

1. Abstraction

The first step in the analysis involves dissecting the allegedly infringed program according to the abstractions test. As Judge Learned Hand wrote in Nichols v. Universal Pictures Corp., 45 F.2d 119 (1930), cert. denied, 282 U.S. 902, 51 S.Ct. 216, 75 L.Ed. 795 (1931), a case dealing with the alleged copyright infringement of a theatrical script:

Upon any work, and especially upon a play, a great number of patterns of increasing generality will fit equally well, as more and more of the incident is left out. The last may be no more than the most general statement of what the play is about, and at times might only consist of its title; but there is a point in this series of abstractions where they are no longer protected, since otherwise the playwright could prevent the use of his “ideas,” to which, apart from their expression, his property is never extended.

Id. at 121. The abstractions test is especially well suited to the dissection of computer programs because the test breaks down a program in a way that parallels the typical development of a program. See Autoskill, 994 F.2d at 1491-92; Whelan, 797 F.2d at 1229-30; 3 Nimmer § 13.03[F], at 13-102.9 to 13-102.19.

We agree with Professor Nimmer that “applying [the abstractions] test conscientiously and systematically can help a court separate ideas from expression and eliminate from the substantial similarity analysis those portions of a work that are not eligible for copyright protection.” 3 Nimmer § 13.03[F] 13-102.17. However, in and of itself, the abstraction test does not identify the protect-able elements of a program. Rather, it is merely one tool that can be utilized to accomplish this task. Abstraction is particularly useful in enabling a court to filter out ideas and processes from protectable expression.

Application of the abstractions test will necessarily vary from case-to-case and program-to-program. Given the complexity and ever-changing nature of computer technology, we decline to set forth any strict methodology for the abstraction of computer programs. See generally Andrew H. Rosen, Virtual Reality: Copyrightable Subject Matter and the Scope of Judicial Protection, 33 Jurimetrics J. 35 (1992). Indeed, in most *835 cases we foresee that the use of experts will provide substantial guidance to the court in applying an abstractions test. However, a computer program can often be parsed into at least six levels of generally declining abstraction: (i) the main purpose, (ii) the program structure or architecture, (iii) modules, (iv) algorithms and data structures, • (v) source code, and (vi) object code. See John W.L. Ogilvie, Defining Computer Program Parts Under Learned Hand’s Abstractions Test in Software Copyright Infringement Cases, 91 Mich.L.Rev. 526 (1992) (hereinafter “Ogilvie”).

The main purpose of a program is a description of the program’s function or what it is intended to do. See Ogilvie at 534; Altai, 982 F.2d at 697 (“ultimate function or purpose”); Whelan, 797 F.2d at 1238 (“purpose”). When defining a program’s main purpose, the court must take care to describe the program’s function as specifically as possible without reference to the technical aspects of the program.

The program’s architecture or structure is a description of how the program operates in terms of its various functions, which are performed by discrete modules, and how each of these modules interact with each other. The architecture or structure of a program is often reduced to a flowchart, which a programmer uses visually to depict the inner workings of a program. Paperback, 740 F.Supp. at 44 — 45. Structure exists at nearly every level of a program and can be conceived of as including control flow, data flow, and substructure or nesting. Control flow is the sequence in which the modules perform their respective tasks. See Ogilvie at 535; Whelan, 797 F.2d at 1230 (arrangement of modules); Gates Rubber, 798 F.Supp. at 1514 (sequence of events). Data flow describes the movement of information through the program and the sequence with which it is operated on by the modules. See Ogilvie at 535; Gates Rubber, 798 F.Supp. at 1514 (“described as being analogous to ‘receipt’”). Substructure or nesting describes the inner structure of a module whereby one module is subsumed within another and performs part of the second module’s task. Ogilvie at 535.

The next level of abstraction consists of the modules. See 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, 871, 899 (1990) (hereinafter “Englund”). A module typically consists of two components: operations and data types. An operation identifies a particular result or set of actions that may be performed. For example, operations in a calculator program might include adding or printing data. A data type defines the type of item that an operator acts upon such as a student record or a daily balance. See Ogilvie at 534-36.

Algorithms and data structures are more specific manifestations of operations and data types, respectively. An algorithm is a specific series of steps that accomplish a particular operation. Ogilvie at 536; see Whelan, 797 F.2d at 1229-30. Data structure is a precise representation or specification of a data type that consists of (i) basic data type groupings such as integers or characters, (ii) values, (iii) variables, (iv) arrays or groupings of the same data type, (v) records or groupings of different date types, and (vi) pointers or connections between records that set aside space to hold the record’s values. Ogilvie at 536-39; see Whelan, 797 F.2d at 1230.

The computer program is written first in a programming language, such as Pascal or Fortran, and then in a binary language consisting of zeros and ones. Source code is the literal text of a program’s instructions written in a particular programming language. Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 663 (4th Cir.1993); Whelan, 797 F.2d at 1230. Object code is the literal text of a computer program written in a binary language through which the computer directly receives its instructions. Autoskill, 994 F.2d at 1492 n. 18; Altai 982 F.2d at 698.

These generalized levels of abstraction will not, of course, fit all computer codes. Ordinarily, expert testimony will be helpful to organize a particular program into various levels of abstraction. In any event, as point *836 ed out earlier, the organization of a program into abstraction levels is not an end in itself, but it is only a tool that facilitates the critical next step of filtering out unprotectable elements of the program.

2. Filtration

Once a court has succeeded in identifying the various levels of abstraction of a computer program, it must filter out those elements of the program that are not protected by copyright. The Copyright Act provides that “idea[s], procedure[s], processes], system[s], method[s] of operation, concepts], principles, or discoveries]” are not protectable. 17 U.S.C. § 102(b) (Supp.1993). Accordingly, the court must filter out these unprotectable elements. In order to effectuate the purposes behind the copyright laws, it is also appropriate to apply the doctrines of merger and scenes a faire to filter out unprotectable elements.

(a) The Idear-Expression Dichotomy

One of the fundamental tenets of copyright law is that protection extends only to the author’s original expression and not to the ideas embodied in that expression. 17 U.S.C. § 102(b) codifies this tenet by denying copyright to ideas, concepts and principles. Numerous cases have expounded on the idea-expression dichotomy. See e.g., Feist, 499 U.S. at 344-51, 111 S.Ct. at 1287-90 (dicta); Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 556-57, 105 S.Ct. 2218, 2228-29, 85 L.Ed.2d 588 (1985); Baker v. Selden, 101 U.S. 99, 104, 107, 25 L.Ed. 841 (1879); Autoskill, 994 F.2d at 1491. Distinguishing between ideas and the expression of those ideas is not an easy endeavor, and given the varying nature of computer programs it must necessarily be ad hoc. With the framework provided by the abstractions test, however, we believe that a court can adequately filter out the ideas of a program. For example, the main purpose or function of a program will always be an unprotectable idea. See Whelan, 797 F.2d at 1236, 1238; Paperback, 740 F.Supp. at 65. Likewise, each module may typically be described by es individual purpose or function, and the basic function or purpose of a module will nearly always be an unprotectable idea or process. At the other end of the abstractions spectrum, source and object code, which are the literal elements of a program, will almost always be found to be protectable expression unless the doctrines of merger and scenes a faire come into play. See Altai 982 F.2d at 702; Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173, 1175 (9th Cir.1989); Whelan, 797 F.2d at 1233. The intermediate levels of abstraction, such as structure, sequence, organization, and the like, are less prone to generalizations. While the structure of one program may be unprotectable because it constitutes an idea, the organization and arrangement of another program may be expressive and thereby protectable. And, of course, within a program certain structural elements may be protectable expression while other elements are unprotectable ideas.

(b) The Process-Expression Dichotomy

Although it is the idea-expression distinction that has received the primary attention in the cases construing copyright protection, the Copyright Act denies protection to other equally important program elements. When considering utilitarian works such as computer programs one of the most important of these elements is process. See Englund, 88 Mich.L.Rev. 866. 17 U.S.C. § 102(b) denies protection to procedures, processes, systems and methods of operation. 13 The legislative history of the Copyright Act clarifies any ambiguity about the status of processes.

Some concern has been expressed lest copyright in computer programs should extend protection to the methodology or processes adopted by the programmer, rather than merely to the “writing” expressing his ideas. Section 102(b) 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 *837 methods embodied in the program are not within the scope of the copyright law.

H.R.Rep. No. 1476, 94th Cong., 2d Sess. 57 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5670.

The Supreme Court addressed the copy-rightability of a utilitarian process in Baker v. Selden, 101 U.S. 99, 25 L.Ed. 841 (1879). There, the Court considered whether the author of a book describing an accounting system could obtain protection over the system itself through copyright of the book. The Court distinguished the “art” or process from the author’s explanation thereof and found the former unprotectable. Baker, 101 U.S. at 104. Other courts have similarly found processes unprotectable. See e.g., Altai, 982 F.2d at 704; Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832, 838-39 (Fed.Cir.1992). Certain processes may be the subject of patent law protection under Title 35 of the United States Code. See Atari Games, 975 F.2d at 839-40; Englund, 88 Mieh.L.Rev. at 893-94. Although processes themselves are not copyrightable, an author’s description of that process, so long as it incorporates some originality, may be pro-tectable. See Applied Innovations, Inc. v. Regents of the Univ. of Minnesota, 876 F.2d 626, 636 (8th Cir.1989); Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1250-51 (3d Cir.1983), cert. dismissed, 464 U.S. 1033, 104 S.Ct. 690, 79 L.Ed.2d 158 (1984).

Returning then to our levels of abstraction framework, we note that processes can be found at any level, except perhaps the main purpose level of abstraction. Most commonly, processes will be found as part of the system architecture, as operations within modules, or as algorithms.

(c) Facts

The Copyright Act also denies protection to discoveries. 17 U.S.C. § 102(b). The Supreme Court squarely addressed the issue of the protectability of facts in its recent opinion in Feist Publications, Inc. v. Rural Telephone Services Co., 499 U.S. 340, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991). In Feist, the Court considered the copyright-ability of a telephone directory comprised merely of names, addresses, and phone numbers organized in alphabetical order. The Court rejected the notion that copyright law was meant to reward authors for the “sweat of the brow,” and instead concluded that protection only extends to the original components of an author’s work. As to facts, the Court found that

No one may claim originality as to facts. This is because facts do not owe their origin to an act of authorship. The distinction is one between creation and discovery: the first person to find and report a particular fact has not created the fact; he or she has merely discovered its existence. ... [0]ne who discovers a fact is not its maker or originator. The discoverer merely finds and records.

499 U.S. at 347, 111 S.Ct. at 1288 (internal quotations and citations omitted). Like ideas and processes, facts themselves are not pro-tectable; however, an author’s original compilation, arrangement or selection of facts can be protected by copyright. Feist, at 348, 111 S.Ct. at 1289; Applied Innovations, 876 F.2d at 636. However, “the copyright is limited to the particular selection or arrangement. In no event may copyright extend to the facts themselves.” Feist, 499 U.S. at 350-51, 111 S.Ct. at 1290. In computer programs facts may be found at a number of levels of abstraction, but, will most often be found as part of data structures or literally expressed in the source or object codes.

(d) Public Domain

“The two fundamental criteria of copyright protection [are] originality and fixation in tangible form_” H.R.Rep. No. 1476, 94th Cong., 2d Sess. 51 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5664. 17 U.S.C. § 102(a) establishes that copyright can only subsist in “original works of authorship.” (emphasis added). Originality in the field of copyright requires that the work be independently created by the author and that it possesses a minimal degree of creativity. Feist, 499 U.S. at 361, 111 S.Ct. at 1296. Accordingly, in determining copyright infringement, a court must filter out all unoriginal elements of a program, including those elements that are found in the public domain. *838 See Comprehensive Technologies International, Inc. v. Software Artisans, Inc., 3 F.3d 730, 736 (4th Cir.1993); Altai 982 F.2d at 710; Atari Games, 975 F.2d at 839; Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1474-75 (9th Cir.1992), cert, denied, — U.S. —, 113 S.Ct. 198, 121 L.Ed.2d 141 (1992); E.F. Johnson Co. v. Uniden Corp. of America, 623 F.Supp. 1485, 1499 (D.Minn.1985). Unoriginal elements of a program may be found at any level of abstraction.

Once a court has filtered out a program’s ideas, processes, facts, and unoriginal elements, it has eliminated most of those elements that are unprotected based on the first principles of copyright law. However, in order to give effect to these principles, the courts have devised two additional filtration doctrines. These are the doctrines of merger and scenes a faire.

(e) The Merger Doctrine

Under the merger doctrine, copyright protection is denied to expression that is inseparable from or merged with the ideas, processes, or discoveries underlying the expression. Concrete Machinery Co. v. Classic Lawn Ornaments, Inc., 843 F.2d 600, 606-607 (1st Cir.1988); Apple Computer, Inc. v. Microsoft Corp., 799 F.Supp. 1006, 1021 (N.D.Cal.1992), order clarified, 821 F.Supp. 616 (1993); Englund, 88 Mich.L.Rev. at 877. The merger doctrine is applied as a prophylactic device to ensure that courts do not unwittingly grant protection to an idea by granting exclusive rights to the only, or one of only a few, means of expressing that idea. See Herbert Rosenthal Jewelry Corp. v. Kalpakian, 446 F.2d 738, 742 (9th Cir.1971). If protection were granted to these expressions, it would so increase the cost of creation for others who seek to build on the work that it would impede progress in the arts. Such a result is contrary to the goals of copyright as embedded in the Constitution. See U.S. Const., art. I, § 8, cl. 8.

(f) Scenes A Faire

Under the scenes