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Untwisting the Fixation Requirement: Flexible Rules on Moveable Sculptures

by Hannah Hurley | Jan 23, 2025 | Copyrights

The US Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal of a claim of copyright infringement for kinetic and manipulable sculptures, finding that movable structures were sufficiently “fixed” in a tangible medium for copyright purposes. Tangle, Inc. v. Aritzia, Inc., et al., Case No. 23-3707 (9th Cir. Jan. 14, 2024) (Koh, Johnstone, Simon, JJ.)

Tangle, a toy company, holds copyright registrations for seven kinetic and manipulable sculptures, each made from 17 or 18 identical, connected 90-degree curved tubular segments. These sculptures can be twisted or turned 360 degrees at the joints, allowing for various poses. Aritzia, a lifestyle apparel brand, used similar sculptures in its retail store displays, leading Tangle to file a lawsuit alleging copyright and trade dress infringement. Aritzia’s sculptures were larger, were a different color, and had a chrome finish.

The Copyright Act requires that a work of authorship be “fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). At the pleading stage, the district court concluded that the sculptures were not fixed and thus dismissed Tangle’s copyright claim. The district court also dismissed the trade dress claim for failure to provide adequate notice of the asserted trade dress. Tangle appealed.

While the Ninth Circuit agreed with the district court’s dismissal of the trade dress claim, it disagreed with the district court’s ruling on the copyright claim. Comparing the kinetic, movable sculptures to music, movies, and dance, the Court found that Tangle’s dynamic sculptures were entitled to copyright protection and that Tangle adequately alleged valid copyrights in its sculptures. The Court held that the works’ ability to move into various poses did not, by itself, support the conclusion that they were not “fixed” in a tangible medium for copyright purposes.

The Ninth Circuit held that under the “extrinsic test” test, which looks at “the objective similarities of the two works, focusing only on the protectable elements of the plaintiff’s expression,” as set forth in the Court’s 2018 decision in Rentmeester v. Nike, Tangle plausibly alleged copying of its protected works by alleging that the creative choices it made in selecting and arranging elements of its copyrighted works were substantially similar to the choices Aritzia made in creating its sculptures.

Since Aritzia failed to dispute that Tangle had properly alleged copying, the Ninth Circuit stated that Tangle only needed to show that the sculptures were substantially similar to prove infringement. Applying its 2004 decision in Swirsky v. Carey, the Ninth Circuit explained that “substantial similarity can be found in a combination of elements, even if those elements are individually unprotected.”

The Ninth Circuit found that the copyrighted and accused sculptures were similar enough to the ordinary observer to constitute infringement because both were comprised of identical, connected 90-degree curved tubular segments that could be twisted and manipulated to create many different poses. The Court further explained that the vast range of possible expressions could afford the sculptures broad copyright protection.

Just Compensation Based on Hypothetical Negotiation

by Paul Devinsky | Jan 16, 2025 | Copyrights

In a long-standing copyright dispute on its second visit to the US Court of Appeals for the Federal Circuit, the Court affirmed the modest damages award from the US Court of Federal Claims, ruling that a hypothetical negotiation between the parties would have resulted in a license in the amount awarded by the claims court. Bitmanagement Software GmBH v. United States, Case No. 23-1506 (Fed. Cir. Jan. 7, 2025) (Dyk, Stoll, Stark, JJ.)

In 2016 Bitmanagement sued the US Navy for copyright infringement of its software. The Court of Federal Claims awarded damages based on usage of the software, rather than the number of copies made. In the first appeal, the Federal Circuit agreed with the claims court that the Navy had an implied license to make copies of the software but was limited as to simultaneous users of the software, a condition that the Navy breached. The Federal Circuit remanded the case with the following instruction:

Because Bitmanagement’s action is against the government, it is entitled only to “reasonable and entire compensation as damages . . . , including the minimum statutory damages as set forth in section 504(c) of title 17, United States Code.” 28 U.S.C. § 1498(b).

The Federal Circuit further instructed the claims court that Bitmanagement was:

. . . not entitled to recover the cost of a seat license for each installation. If Bitmanagement chooses not to pursue statutory damages, the proper measure of damages shall be determined by the Navy’s actual usage of BS Contact Geo in excess of the limited usage contemplated by the parties’ implied license. That analysis should take the form of a hypothetical negotiation. . . . As the party who breached the . . . requirement in the implied license, the Navy bears the burden of proving its actual usage of the . . . software and the extent to which any of it fell within the bounds of any existing license.

Following this mandate, the claims court denied Bitmanagement’s damages demand of almost $86 million and awarded $154,000. Bitmanagement appealed, arguing that it was entitled to damages based on each copy of the software made, rather than damages based on use exceeding the implied license.

The Federal Circuit disagreed, explaining that the law does not require that every award of copyright damages be on a per-copy basis:

. . . whenever the copyright in any work protected under the copyright laws of the United States shall be infringed by the United States . . . the exclusive action which may be brought for such infringement shall be an action by the copyright owner against the United States in the Court of Federal Claims for the recovery of his reasonable and entire compensation as damages for such infringement . . .

As the Federal Circuit noted, the methods used to determine recovery of “actual damages” under § 504 are those “appropriate for measuring the copyright owner’s loss.” Therefore, in § 504(b) cases, the copyright owner must prove “the actual [...]

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Interoperability Doesn’t Imply Derivative Work

by Jodi Benassi | Jan 9, 2025 | Copyrights

The US Court of Appeals for the Ninth Circuit explained that to be a derivative work, a program interoperative with another must actually incorporate aspects of the underlying work. The Court further ruled that licensees of a copy of a computer program are not “owners” of the copy and therefore are not entitled to make copies for the purposes permitted by 17 U.S.C. § 117(a). Oracle International Corp. v. Rimini Street, Inc., Case No. 23-16038 (9th Cir. Dec. 16, 2024) (Bybee, Bumatay, Bennett, JJ.)

Rimini provides third-party support for Oracle software and is a direct competitor with Oracle in the software support services market. For more than a decade, Oracle and Rimini have been involved in what the Ninth Circuit describes as a “pitched copyright war.” This latest battle relates to changes Rimini made to its business model after a district court determined that Rimini had infringed Oracle’s copyrights. Rimini developed a new process for servicing customers using Oracle software and sought a declaratory judgment that its revised process did not infringe Oracle’s copyrights. Oracle counterclaimed for copyright infringement and Lanham Act violations.

The district court found that Rimini created infringing derivative works because its new process interacted and was usable with Oracle software. The district court found that Rimini violated Oracle’s PeopleSoft and Database licensing agreements and made several statements violating the Lanham Act. The court struck Rimini’s affirmative defense to copyright infringement under 17 U.S.C. § 117(a), granted Oracle summary judgment that Rimini infringed Oracle’s copyrights, and issued a permanent injunction against Rimini. Rimini appealed.

Derivative Works

The Ninth Circuit disagreed with the district court’s analysis of Rimini’s new process, noting that the district court focused on an “interoperability test,” which does not exist under the text of the Copyright Act or in precedent. In effect, the district court’s test would find that if a product interoperates with a preexisting copyrighted work, then it must be derivative. The Ninth Circuit explained that while the Copyright Act uses broad language to describe derivative works, the derivative work must actually incorporate the underlying work. For Rimini’s new process to be a derivative work, it must incorporate Oracle’s copyrighted work, either literally or nonliterally. The Court found that just because Rimini’s new process interacted with Oracle’s software, that was insufficient to find it was a derivative work.

Affirmative Defense: Section 117(a)

The Copyright Act permits an owner of a copy of a computer program to make a copy or adaptation of that program for certain purposes under 17 U.S.C. § 117(a). The Ninth Circuit vacated the district court’s ruling, striking Rimini’s affirmative defense under Section 117(a), because the district court erred in determining whether Oracle’s customers “owned” a copy of Oracle’s software, PeopleSoft. The Court explained that to determine whether a party is an “owner of a copy” of a computer program, the courts look to whether the party has “sufficient incidents of ownership” over the “copy” of the software, in view of the totality of the parties’ agreement. Factors that [...]

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Let’s Not Get It On: Battle of the Greatest Hits

by Kavya Rallabhandi | Nov 14, 2024 | Copyrights

The US Court of Appeals for the Second Circuit affirmed a district court ruling that Ed Sheeran’s 2014 hit “Thinking Out Loud” does not infringe the copyright on Marvin Gaye’s 1973 classic “Let’s Get It On.” Structured Asset Sales, LLC v. Sheeran, Case No. 23-905 (2d Cir. Nov. 1, 2024) (Calabresi, Parker, Park, JJ.)

In 1973, Ed Townsend and Marvin Gaye wrote the Motown hit “Let’s Get It On.” Townsend subsequently registered a copyright for the song’s melody, harmony, rhythm, and lyrics by sending the deposit copy of sheet music to the US Copyright Office. Townsend, Gaye, and Motown Records each held a one-third share in the copyright. Structured Asset Sales (SAS) purchases royalty interests from musical copyright holders, securitizes them, and sells the securities to other investors. SAS owns a one-ninth interest in the royalties from “Let’s Get It On.” Townsend’s remaining two-ninths share in the copyright is split between Kathryn Griffin, Helen McDonald, and the estate of Cherrigale Townsend.

In 2014 Ed Sheeran and Amy Wadge wrote the global chart-topper and Grammy-award-winning song “Thinking Out Loud.” In 2018, SAS brought a copyright infringement suit against Sheeran, Wadge, and various entities that produced, licensed, and distributed “Thinking Out Loud” (collectively, Sheeran). SAS alleged similarities in harmonies, drums, bass lines, tempos, and chord progression combined with anticipation (harmonic rhythm). SAS’s lawsuit followed the Griffin/McDonald/estate of Cherrigale Townsend’s 2017 lawsuit against Sheeran (Griffin lawsuit) alleging materially similar claims.

The district court determined that SAS’s infringement claim was limited to the scope of Townsend’s registration as reflected in the deposit copy (i.e., the sheet music) and excluded the sound recording of “Let’s Get It On.” As evidence that the songs were similar, SAS’s expert witness testified that the “Let’s Get It On” deposit copy included an inferred bass line that matched the bass line in Gaye’s sound recording of “Let’s Get It On” and the bass line in “Thinking Out Loud.” The district court rejected this testimony, concluding that “copyright law protects only that which is literally expressed, not that which might be inferred or possibly derived from what is expressed.”

The district court then denied Sheeran’s two motions for summary judgment without prejudice, determining that whether chord progression and harmonic rhythm in “Let’s Get It On” demonstrated sufficient originality and creativity to warrant copyright protection was a factual question to be determined at trial. Sheeran filed a motion for reconsideration. After the jury in the Griffin lawsuit found that Sheeran did not infringe the “Let’s Get It On” copyright, the district court granted Sheeran’s motion for reconsideration and concluded that “[t]here is no genuine issue of material fact as to whether defendants infringed the protected elements of [‘Let’s Get It On’]. The answer is that they did not.” SAS appealed.

SAS argued that the district court erred in limiting the evidence SAS could present to support its infringement claim and in granting summary judgment in favor of Sheeran. The Second Circuit rejected both arguments.

The Second Circuit explained that excluding the audio recording of “Let’s Get It On” was not error because the 1909 Copyright Act protects [...]

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If Provider Knew Product Would Be Used to Infringe, It Is a Contributor

by Lois D. Mermelstein | Oct 24, 2024 | Copyrights

In a case brought by a group of record labels against an internet service provider (ISP) for contributory copyright infringement of more than 1,400 songs, the US Court of Appeals for the Fifth Circuit ruled that the provider, which knew how its product would be used by subscribers, could be contributorily liable for its subscribers’ actions, but that because the record companies registered albums – not individual songs – with the US Copyright Office, statutory copyright damages were not available for each infringed song. UMG Recordings, Inc. et al. v. Grande Communications Networks, LLC, Case No. 23-50162 (5th Cir. Oct. 9, 2024) (Higginson, Higginbotham, Stewart, JJ.)

The plaintiffs are a group of major record labels, while the defendant, Grande Communications Network, is a large ISP. To combat copyright infringement among individuals using peer-to-peer file-sharing networks such as BitTorrent, the plaintiffs used a third-party company, Rightscorp, to identify infringing conduct by engaging with BitTorrent users, documenting that conduct, and using the information to notify ISPs of its findings so that the ISPs could take appropriate action. However, for nearly seven years Grande did not terminate subscribers for copyright infringement but merely notified them of a complaint. In the district court, a jury found Grande liable for contributory copyright infringement of more than 1,400 of the plaintiffs’ sound recordings. The jury found that the infringement was willful and awarded nearly $47 million in statutory damages. Grande appealed.

The Fifth Circuit explained that to prove direct infringement by Grande’s subscribers, the plaintiffs had to show “(1) that Plaintiffs own or have exclusive control over valid copyrights and (2) that those copyrights were directly infringed by Grande’s subscribers.” To meet the elements of secondary liability for subscribers’ conduct, “Plaintiffs had to demonstrate (3) that Grande had knowledge of its subscribers’ infringing activity and (4) that Grande induced, caused, or materially contributed to that activity.”

In analyzing the fourth element, the Fifth Circuit noted that previous Supreme Court cases involving a single moment of sale (Sony Corp. of America v. Universal City Studios (1984) and Metro-Goldwyn-Mayer Studios v. Grokster (2005)) did not control because the plaintiffs’ theory of liability was “not based on Grande’s knowledge about its subscribers’ likely future activities after the moment of sale, but rather on Grande’s knowledge of its subscribers’ actual infringements based on its ongoing relationship with those subscribers.” Further, unlike Twitter v. Taamneh (2023) (a case in which family members of an ISIS terrorist attack victim alleged that US social media companies aided and abetted ISIS by permitting the group’s members to use the platforms for ISIS’s purposes), here the “direct nexus between Grande’s conduct and the tort at issue permits an inference that Grande’s knowing provision of internet services to infringing subscribers was actionable.”

The district court’s jury instructions – that Grande could be contributorily liable if Grande could have “take[n] basic measures to prevent further damages to copyrighted works, yet intentionally continue[d] to provide access to infringing sound recordings,” were not erroneous, as Grande had access to [...]

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What a Croc! False Claim That Product Feature Is Patented Can Give Rise to Lanham Act Violation

by Karen Gover | Oct 17, 2024 | Trademarks

The US Court of Appeals for the Federal Circuit reversed and remanded a grant of summary judgment on a false advertising claim, concluding that a cause of action under Section 43(a) of the Lanham Act can arise when a party falsely claims to hold a patent on a product feature and advertises that feature in a misleading way. Crocs, Inc. v. Effervescent, Inc., Case No. 2022-2160 (Fed. Cir. Oct. 3, 2024) (Reyna, Cunningham, JJ.; Albright, District J., sitting by designation).

Crocs, the well-known maker of molded foam footwear, sued several competitor shoe distributors for patent infringement in 2006. The case was stayed pending an action before the International Trade Commission but resumed in 2012 when Croc added competitor U.S.A. Dawgs as a defendant to the district court litigation. The case was stayed twice more, from 2012 to 2016 and 2018 to 2020. In between those stays, in May 2016, Dawgs filed a counterclaim against Crocs and 18 of its current and former officers and directors, alleging false advertising violations of Section 43(a) of the Lanham Act. 15 U.S.C. § 1125(a). The individual defendants were later dismissed from the action.

Dawgs claimed that Crocs deceived consumers and damaged its competitors by falsely describing its molded footwear material, which it calls “Croslite,” as “patented,” “proprietary,” and “exclusive.” Dawgs alleged that it was damaged by Crocs’ false advertisements and commercial misrepresentations because Crocs suggested that its competitors’ footwear material was inferior. Croslite is in fact not patented, as Crocs conceded.

Crocs argued in its motion for summary judgment that Dawgs failed as a matter of law to state a cause of action under Section 43(a) because the alleged advertising statements were directed to a false designation of authorship of the shoe products and not to their nature, characteristics, or qualities, as Section 43(a)(1)(B) requires. The district court agreed. Applying the Supreme Court’s 2003 decision in Dastar Corp. v. Twentieth Century Fox Film Corp. and the Federal Circuit’s 2009 decision in Baden Sports, Inc. v. Molten USA, Inc., the district court granted summary judgment to Crocs. It reasoned that falsely claiming to have “patented” something is similar to a false claim of authorship or inventorship, not to the types of false advertising prohibited by the Lanham Act. Dawgs appealed.

Dawgs argued that the district court’s application of Dastar and Baden to the circumstances of its case was inapposite, and the Federal Circuit agreed. In Dastar, the petitioner copied a television series in the public domain, made minor changes, and sold it as a video set, passing it off as its own. The Supreme Court held that a false claim of authorship does not give rise to a cause of action under the Lanham Act. Similarly, in Baden, the Federal Circuit found that a basketball manufacturer’s false suggestion that it was the author of the “innovative” “dual-cushion technology” in its basketballs did not give rise to a false advertising claim under the Lanham Act.

In this case, however, the Federal Circuit reasoned that Croc’s false [...]

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Creative License: Fair Use Defense Paints Over Infringement Battle

by Kyle Sorenson, PhD | Oct 3, 2024 | Copyrights, Trademarks

Affirming the application of the fair use defense to copyright infringement, the US Court of Appeals for the Fifth Circuit determined that a district court’s sua sponte invocation of a fair use defense to parallel trademark claims was harmless error. The Court also affirmed that the district court did not abuse its discretion in awarding attorneys’ fees based on the prevailing party standard for copyright claims. Keck v. Mix Creative Learning Ctr., L.L.C., Case No. 23-20188 (5th Cir. Sept. 18, 2024) (Jones, Smith, Ho, JJ.)

Michel Keck, a multimedia artist, sued Mix Creative Learning Center, a Texas-based art studio, for copyright and trademark infringement after Mix Creative sold art kits featuring Keck’s dog-themed artwork and a brief biography, intended for at-home learning during the pandemic. Keck had registered her Dog Art series (in the form of decorative works) with the US Copyright Office and her name as a trademark with the US Patent & Trademark Office. Keck claimed that Mix Creative’s art kits violated her rights. After receiving notice of the lawsuit, Mix Creative promptly ceased selling its kits.

Following discovery, both parties filed cross-motions for summary judgment. The district court granted summary judgment in favor of Mix Creative on Keck’s copyright claim, finding fair use, and also granted summary judgment on the trademark claim sua sponte, as both parties had agreed that the fair use defense applied to both claims. The district court further awarded Mix Creative more than $100,000 in attorneys’ fees and costs, although it declined to hold Keck’s attorneys jointly and severally liable.

Keck appealed, challenging the copyright fair use finding and the district court’s sua sponte application of the fair use defense to the trademark claim. Mix Creative challenged the district court’s refusal to hold Keck’s attorneys jointly and severally liable for fees.

The Fifth Circuit affirmed the district court’s application of the fair use defense to Keck’s copyright claims. The Court focused on the first and fourth factors of the fair use defense (respectively, the purpose and character of the use and the effect of the use on the potential market for or value of the original work), noting that the courts typically give these two factors special attention.

On the first factor, the Fifth Circuit found Mix Creative’s use to be transformative. Although Mix Creative is a commercial enterprise, the art kits served an educational purpose, distinct from the decorative purpose of Keck’s original works. As a result, the likelihood of Mix Creative’s kits serving as a substitute for Keck’s original works in the market was low.

The fourth factor also favored Mix Creative, as the Fifth Circuit found no evidence that Mix Creative’s kits would harm the market value of Keck’s original decorative works. In fact, the Court suggested that the kits might enhance Keck’s reputation and sales by providing her with free advertising. Furthermore, Mix Creative operated in a different market (educational rather than decorative), and Keck had not demonstrated any history of selling derivative works for children’s art lessons. The [...]

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Even Free Libraries Come With a Cost

by Anisa Noorassa | Sep 12, 2024 | Copyrights

The US Court of Appeals for the Second Circuit affirmed a district court’s judgment of copyright infringement against an internet book archive, holding that its free-to-access library did not constitute fair use of the copyrighted books. Hachette Book Group Inc. v. Internet Archive, Case No. 23-1260 (2d Cir. Sept. 4, 2024) (Menashi, Robinson, Kahn, JJ.)

Hachette Book Group, HarperCollins Publishers, John Wiley & Sons, and Penguin Random House (collectively, the publishers) brought suit against Internet Archive alleging that its “Free Digital Library,” which loans copies of the publishers’ books without charge, violated the publishers’ copyrights. Internet Archive argued that its use of the publishers’ copyrighted material fell under the fair use exception to the Copyright Act because Internet Archive acquired physical books and digitized them for borrowing (much like a traditional library) and maintained a 1:1 ratio of borrowed material to physical copies except for a brief period during the COVID-19 pandemic.

The district court reviewed the four statutory fair use factors set forth in § 107 of the Copyright Act:

The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes.
The nature of the copyrighted work.
The amount and substantiality of the portion used in relation to the copyrighted work as a whole.
The effect of the use upon the potential market for or value of the copyrighted work.

The district court found that Internet Archive’s use of the works was not covered by the fair use exception because its use was non-transformative, was commercial in nature due to its solicitation of donations, and was disruptive of the market for e-book licenses. Internet Archive appealed.

The Second Circuit affirmed, addressing each factor in turn.

The Second Circuit held that Internet Archive’s use of the copyrighted material was non-transformative because Internet Archive copied the works wholesale and the “transformation” of the material from a physical copy to a digital copy that could be loaned out was not sufficient to fundamentally alter the nature of the copyrighted material. The Court maintained that the “recasting of a novel as an e-book” is a “paradigmatic” example of a derivative work.

However, contrary to the district court, the Second Circuit found that Internet Archive’s use of the works was not commercial in nature despite its solicitation of donations, citing Internet Archive’s nonprofit status and free distribution of archived materials. The Court explained that the mere association with other platforms where users may buy print copies of the works combined with the existence of a “donate” button was insufficient to render the use commercial.

The Second Circuit held that the second fair use factor also weighed against Internet Archive, since both the fiction and nonfiction works digitized by Internet Archive were nonetheless original and creative. The Court held that the “greater leeway” that is allowed for fair use of “factual or informational” work was not sufficient to weigh in favor of Internet Archive since the nonfiction works nevertheless “represent the authors’ [...]

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It’s All Grecco to Me: No “Sophisticated Plaintiff” Exception to Discovery Rule

by Katherine Pappas | Aug 29, 2024 | Copyrights

In a case of first impression, the US Court of Appeals for the Second Circuit held that there is no “sophisticated plaintiff” exception to the Copyright Act’s discovery rule, which provides that a copyright claim only accrues upon the copyright owner’s discovery of the infringement or when the copyright owner (in the exercise of due diligence) should have discovered the infringement. Michael Grecco Productions, Inc. v. RADesign, Inc., Case No. 23-1078 (2d Cir. Aug. 16, 2024) (Wesley, Chin, Lee, JJ.)

Michael Grecco Productions (MGP) is a photography studio and business owned by commercial photographer Michael Grecco, who presents himself as an industry leader in copyright registration and enforcement. This case arose in the context of Grecco’s January 2017 photos of a model wearing shoes designed by Ruthie Davis. The photos were published in a magazine in August 2017. MGP claimed that Davis republished at least two of these photos on her brand’s website and social media platforms without a license. In its complaint, MGP alleged that Davis’s use of the photos began on August 16, 2017, but that MGP did not discover this infringement until February 8, 2021. On October 12, 2021 (more than four years after the infringement began but less than one year after its discovery), MGP filed suit against Davis alleging copyright infringement. MGP’s complaint also pled facts describing Grecco’s “efforts to educate photographers concerning the benefits of copyright registration” and how Grecco himself “spends time and money to actively search for hard-to-detect infringements, and how he enforces his rights under the Copyright Act.”

Davis moved to dismiss the suit as time-barred, arguing that the complaint was deficient on its face based on the Copyright Act’s three-year limitations period. Purporting to apply the governing “discovery rule,” the district court found that MGP’s “relative sophistication as an experienced litigator in identifying and bringing causes of action for unauthorized uses of Grecco’s copyrighted works leads to the conclusion that it should have discovered, with the exercise of due diligence,” the alleged infringement within the statute’s three-year limitations period. Based on this rationale, the district court granted Davis’s motion to dismiss. MGP appealed.

Reviewing the district court’s ruling de novo, the Second Circuit found that the district court erred as a matter of law in concluding that MGP’s complaint was barred by the three-year limitations period.

The Second Circuit explained that it (and 10 other circuit courts) had already held that in enacting the Copyright Act, Congress intended to employ “the discovery rule” as the measure of when a claim for infringement accrues. Under this rule, a claim for copyright infringement accrues when a diligent plaintiff discovers or should have discovered the infringement. This timing is in contrast to “the injury rule,” under which the claim would accrue when the infringement in-fact occurred. As the Court explained, the discovery rule is not an equitable tolling or estoppel doctrine available to some “worthy” plaintiffs but not others. Rather, it is the rule used to determine when a cognizable claim for copyright [...]

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Insuring Innovation: Software Code May Be Protected as an Arrangement

by Karen Gover | Aug 22, 2024 | Copyrights, Trade Secrets

The US Court of Appeals for the Eleventh Circuit once again remanded a trade secret and copyright dispute involving software for generating life insurance quotes, finding that the district court erred by failing to consider the copyrightability of the source code’s arrangement. As to the trade secret claim, however, the Eleventh Circuit found that the district court did not err in finding that the defendants misappropriated the trade secrets at issue and could be held jointly and severally liable, despite varying levels of culpability. Compulife Software, Inc. v. Newman, Case No. 21-14074 (11th Cir. Aug. 1, 2024) (Jordan, Brasher, Abudu, JJ.)

Compulife’s software generates life insurance quotes using a proprietary database of insurance rates. The software produces a quote by using blocks of code, arranged in a particular manner, that correspond to different data points such as state, birth month, birthday, birth year, sex and smoking status. Compulife licenses its software to customers and offers an online version to the public.

David Rutstein is a former insurance agent who is permanently barred from the profession. Rutstein misled Compulife into giving him its software by pretending that he worked with someone who had a license to use it. Rutstein then created and registered several websites in his son’s name using Compulife’s software in connection with the sites. One of the websites was later owned by Aaron Levy. Rutstein and Levy directed an employee, Moses Newman, to launch a scraping attack on Compulife’s website to get millions of quotes, which they used for their own websites. Compulife’s sales declined as a result.

Compulife sued Rutstein, Rutstein’s son, Levy and Newman for copyright infringement and misappropriation of trade secrets, among other claims. After a bench trial, the parties appealed, and the Eleventh Circuit directed the district court to make more specific findings. After a second bench trial, the district court determined that the defendants did not infringe Compulife’s software by copying it and using it for their own website, but they did misappropriate Compulife’s trade secrets. The defendants were held jointly and severally liable despite differing degrees of culpability. All parties appealed.

Compulife argued that the district court erred in concluding that the defendants did not infringe its copyright. The Eleventh Circuit agreed in part, finding that the district court incorrectly applied the abstraction-filtration-comparison test used in software copyright infringement analyses. Compulife claimed that the arrangement of its various source code elements (e.g., state, birth month, birthday, birth year and sex) was a creative and therefore protectable form of expression. The Court agreed that the arrangement was potentially protectable, similar to its holding in another case that the arrangement of yacht listings in a boat guide could be protectable. BUC Int’l v. Int’l Yacht Council (11th Cir. 2007). The Court remanded the copyright infringement analysis to the district court, finding that it erred in the abstraction step because it “never identified the entire arrangement of these variables in the code as a constituent component of the code.” The Eleventh Circuit disagreed, however, with [...]

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