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EXPEDITERS INT'L OF WASHINGTON, INC. v. DIRECT LIN

February 11, 1998

EXPEDITERS INTERNATIONAL OF WASHINGTON, INC., a Washington Corporation, Plaintiff,
v.
DIRECT LINE CARGO MANAGEMENT SERVICES, INC., Defendant.



The opinion of the court was delivered by: PISANO

 HON. JOEL A. PISANO, U.S. MAGISTRATE JUDGE :

 INTRODUCTION

 This matter comes before the Court upon the motions of defendant Direct Line Cargo Management Services, Inc. for summary judgment on plaintiff Expediters International of Washington, Inc.'s copyright infringement, trade secret misappropriation, and breach of contract claims, pursuant to Rule 56 of the Federal Rules of Civil Procedure. *fn1" The parties have submitted briefs, and oral argument was heard on January 5, 1998. For the following reasons, the defendant's motions for summary judgment are denied.

 FACTUAL SUMMARY

 This matter involves the alleged wrongful use of a computer software program. Plaintiff Expediters International ("EI") claims that a Taiwan company, Direct Line Cargo Management Services, Inc. ("CMS-Taiwan"), became affiliated with it and assigned to it the rights of an allegedly copyrighted software program. Prior to EI's affiliation with CMS-Taiwan, CMS-Taiwan was associated with the New Jersey defendant, Direct Line Cargo Management Services, Inc., ("DLCMS-USA"), and a group of affiliated Asian companies. During its association with the defendant, CMS-Taiwan issued a license to the defendant and its affiliates which permitted the companies to make limited use of the software. When CMS-Taiwan became associated with the plaintiff, however, this license expired. This lawsuit arises from the defendant's, and its affiliates,' alleged wrongful use of the software subsequent to the expiration of the license.

 BACKGROUND

 Plaintiff EI is a large international freight forwarding company that engages in the business of ocean consolidation services. See Countercl. P 1. The plaintiff became affiliated with CMS-Taiwan on September 15, 1993. See Complaint P 6. As part of this affiliation, EI claims it acquired all rights to computer programs known as freight consolidation software (the "Software"), which CMS-Taiwan had previously developed and registered with the United States Copyright Office. See Pikus Decl. at Ex. O; Complaint P 8. The Software enables consolidation companies to provide timely tracking and billing information about ocean freight shipments. See Yunker Aff. P 8.

 Defendant DLCMS-USA is a New Jersey firm that was "part of a group of companies interrelated through various contractual obligations and stock ownership which offered ... ocean cargo consolidation services." Countercl. P 4. The companies were affiliated "to provide the sales and marketing services in the United States, and ... to provide the warehouse and documentation services in various Asian countries." 12/23/93 McKenzie Decl. P 1. According to Mr. George McKenzie ("McKenzie"), the President of DLCMS-USA, "the idea behind the formation of the companies in 1983 was to use the emerging technology of personal computers and telecommunications in Ocean Cargo consolidation services ..." 12/23/93 McKenzie Decl. P 7.

 The defendant's pleadings characterize this group of companies, including a number of affiliated agents based in Singapore, Taiwan, Thailand, and other Far Eastern countries, as a "single business entity." *fn2" Countercl. P 5. A separate Hong Kong Holding Company, Marihill Ltd. ("Marihill"), is a principal of these Asian companies. See 12/23/93 McKenzie Decl. P 2, 4, and 5. Yorkmate Ltd. ("Yorkmate") is the majority shareholder of Marihill and defendant. See id. McKenzie owns 38% of the stock of DLCMS-USA, and 30% of the Yorkmate shares. See id. Ex. D. In his Declaration, McKenzie describes the relationships, profit distribution, commission, and billing practices that existed between DLCMS-USA and the Asian companies. *fn3" See 12/23/93 McKenzie Decl. P 2. Mutual agency agreements existed among these companies, whereby the Asian affiliates agreed to provide staff, facilities and customer information to the defendants for freight consolidation. See id. Ex. A.

 While it was still associated with these companies, Countercl. P 5, CMS-Taiwan used the defendant as its agent in the United States. Complaint P 12. At that time, CMS-Taiwan permitted the defendant to use its Software for the limited purposes described in a license agreement dated June 29, 1993 (the "License Agreement"). This agreement permitted the Asian companies to receive origin data entry Software programs, while DLCMS-USA received the destination Software programs via electronic mail. Yunker Aff. P 7; 8/20/97 McKenzie Decl. P 3. In this manner, a customer's goods in Asia were consolidated with other freight and loaded on a vessel destined for the United States. Yunker Aff. P 8. The relevant information was then accessed through the Software, transferred onto documents, *fn4" and transmitted to the defendant and the customer-recipient in New Jersey. Id. As such, DLCMS-USA could use the Software to report the receipt of the goods at destination with other relevant data and to bill the customer for the total service, remitting a share of the proceeds to Asia. Id.

 The License Agreement between CMS-Taiwan and DLCMS-USA provides that:

 
The owner of the copyright of all [CMS-Taiwan] programs has authorized its use at DLCMSUSA office [sic] for the purpose of providing assistance to nominated [CMS-Taiwan] customers in the U.S. for the system application and first aid system problem identifications. Any other use of these programs, including any copying and/or reproduction of any of the material in it, any of the program logic in it, any part of the user menu with it, is an infringement of copyright and may result in civil liability or criminal prosecution as provided by law.
 
The owner of the copyright of all CMS-Taiwan programs has authorized and only authorizes its use at DLCMSUSA office [sic] for the programs CMS-Taiwan provides to DLCMSUSA management and staffs should have no access and must have no access to any of the programs CMS-Taiwan made and provided to any other CMS offices or agents offices in Asia unless otherwise specified and authorized in writing by CMS-Taiwan in advance.
 
The owner of the copy right [sic] of all CMS-Taiwan programs is Direct Line Cargo Management Services, Inc., a Taiwan company ....

 Yunker Aff. Ex. B.

 In addition to the June 29, 1993 Agreement between the defendant and CMS-Taiwan, the Asian companies entered into confidentiality agreements with CMS-Taiwan, which limited their use of the Software. *fn5" These agreements provide:

 
All programs and user manual are for [the Asian affiliate's] individual office to use which should be kept in good condition as confidential documents and to be within your own individual office only. No user manual and/or programs to be copied and/or to be shared with any person/party/company out side [sic] of your own office ... All report printout from the program are also part of the confidential documents and should only be sent to CMSNJ, CHB, and consignee offices ...
 
The objective of this request is to keep the integrity of the information under CMSTWN programs and to prevent any competition to know what we have been [sic] done and what is going to be. As you all [sic] aware of the situation of today that automation is the key part of the function behind a consolidation program and all CMS competitions [sic] are trying hard in all method [sic] to find out what we have today.

 12/14/91 Confidentiality Agreements, Pikus Decl. Ex. M. CMS-Taiwan and the Asian companies exchanged related messages by telefax:

 
All programs from CMSTWN ... are required to be kept as confidential documents and papers which include the user menu and all the correspondences from CMSTWN. There is no reason that any of those programs and documents would be released to any person outside of your office. Please notice the copyright of all those programs are owned by CMSTWN which as [sic] specified very clearly on the front screen of every program.

 7/6/93 telefax, 10/31/97 Libowsky Decl. Ex. A; 12/14/91, 7/6/93, and 7/7/93 telefaxes, Pikus Decl. Ex. M.

 When CMS-Taiwan became affiliated with the plaintiff, it continued its relationship with the group of companies until the termination agreement took effect on September 15, 1993. See Complaint PP 12, 14. At this time, the plaintiff offered the defendant the opportunity to join in its venture with CMS-Taiwan. However, the defendant "declined to join any affiliation between plaintiff and CMS-Taiwan." Defendant's Answer to Complaint P 14. The parties subsequently agreed to a sixty day transition agreement, (the "Transition Agreement"), extending from September 15, 1993 until November 15, 1993, during which time the plaintiff and CMS-Taiwan permitted the defendant to use the Software for specific customers. *fn6" See 12/28/93 McKenzie Deposition, Libowsky Decl. Ex. D; Yunker Aff. P 9.

 On December 13, 1993, plaintiff filed this action alleging that the defendant, in conjunction with its Asian affiliates, continued to use the Software for freight consolidation billing and reporting purposes, despite the expiration of the License Agreement and the transition period. When it filed its Complaint, plaintiff simultaneously filed a motion for a preliminary injunction and for a temporary restraining order. On December 22, 1993, Judge Sarokin entered an Order temporarily restraining defendant from using the Software for any purpose other than to serve five specific clients. See 12/22/93 Order.

 EI seeks relief for copyright infringement, trade secret misappropriation, and breach of contract. Specifically, the plaintiff claims that DLCMS-USA directed and authorized the Asian affiliates to use their copies of the Software to print shipping manifests and bills of lading. See Brief in Opposition of the Defendant's Motion for Summary Judgment of No Copyright Infringement at p. 22. EI claims that the defendant then violated EI's rights through its receipt of those manifests, its subsequent use of the shipping documents to compute billing amounts and invoices, and its forwarding copies of the manifests to the customers. See id. at p. 16. Specifically, the plaintiff seeks damages resulting from the defendant's alleged use of the Software with respect to thirty customers, between November 16, 1993 and December 31, 1994. See Transcript of 1/5/98 Proceedings at p. 39.

 In support of its claims, plaintiff offers the expert report of Mr. Jeffrey M. Morrison. *fn7" After comparing manifests generated by the Software in October 1993 (during the transition period) with manifests that the Asian companies generated and transmitted to the defendant in January 1994 (after the transition period), Morrison concluded that the Asian companies continued to use the Software to generate manifests after the transition period expired. See Exp. Rept., Wepner Decl. Ex. A. Morrison reached this conclusion owing to the similarities between the two reports. *fn8" See id. According to Morrison, the format of manifests are completely controlled by the original program instructions, (the "source code"). *fn9" For this reason, Morrison claims "it defies reason that two versions of a report created by two different software developers or development teams working independently of each other, would both produce the identical results ... The chances of this occurring are about 1 in 3." Exp. Rept., Wepner Decl. Ex. A at 3.

 The plaintiff also relies on an affidavit from its Development Manager, John Yunker. See Yunker Aff. PP 14-47 and Exs. J-U. Yunker compared the source code for the portion of the Software that controls the printing of manifests with the defendant's manifests generated on November 26, 1993 (after the transition period), to determine whether the companies used the Software to generate this document. See id. By comparing this data, Yunker determined that "the Software, or an identically 'reverse engineered' copy of the Software, was used to create the printed page identified as [the defendant's manifest]". *fn10" Id. P 30.

 Furthermore, the plaintiff relies on certain admissions from the defendant. McKenzie confirmed that the manifests which Morrison compared with the source code were "received by DLCMS ... [and] generated in Hong Kong ... [and] Singapore." McKenzie Decl. P 3. Correspondence dated November 23, 1993, from the defendant's former counsel, Mr. Hamilton, Esq., states: "DLCMS-USA is now using the software only as requested by these [five] customers [who held extensions from plaintiff] ... DLCMS will pay royalty fees retroactive from November 16, 1993." 11/23/93 Hamilton Correspondence, Yunker Aff. Ex. C. Hamilton reiterated this contention during oral arguments on both December 13, 1993 and February 14, 1994 before Judge Sarokin, stating that five of DLCMS-USA's customers "insisted ... they be allowed to continue to use [the Software] during the transition period while they decide which way to go." Transcript of 12/13/93 Proceedings at pp. 13-14, Yunker Aff. Ex. F; Transcript of 2/14/94 Proceedings at p. 8, Yunker Aff. Ex. G. Finally, on December 29, 1993, the defendant's systems supervisor, Charles Conover III, testified that the process of generating billing documents on software in Asia and transmitting them to the defendant in New Jersey for use did not change after the expiration of the license on September 15th, 1993. *fn11" See Conover Deposition at 21, Yunker Aff. Ex. U.

 On October 10, 1997, DLCMS-USA filed this motion for summary judgment on the plaintiff's claims for copyright infringement, trade secret misappropriation, and breach of contract. EI simultaneously filed a motion for contempt, alleging that the defendant and the Asian companies continued to use the Software after Judge Sarokin issued the temporary restraining order on December 13, 1993. The latter motion was denied without prejudice. See 2/11/98 Order.

 ARGUMENT

 I. Summary Judgment Standard .

 The standard for granting summary judgment under Federal Rule of Civil Procedure 56 is a stringent one: summary judgment shall be granted only when there are no genuine issues of material fact in dispute and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). See Hersh v. Allen Prods. Co., 789 F.2d 230, 232 (3d Cir. 1986). In deciding a motion for summary judgment, a federal district court must construe the facts and inferences in a light most favorable to the nonmoving party. See Pollock v. American Telephone & Telegraph Long Lines, 794 F.2d 860, 864 (3d Cir. 1986). The role of the Court is "not to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 The standards announced by the Supreme Court place the burden of demonstrating that there is an absence of genuine issues of material fact on the party moving for summary judgment. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-32, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). If the moving party sustains this burden, it is incumbent upon the nonmoving party to come forward with specific facts to show that there is a genuine issue of material fact for trial. See Anderson, 477 U.S. at 248. It is the role of the court to then ask whether the summary judgment record is sufficient such that a reasonable jury could find facts that demonstrate, by a preponderance of the evidence, that the nonmoving party is entitled to a verdict. See In re Paoli R.R. Yard PCB Litigation, 916 F.2d 829, 860 (3d Cir. 1990), cert. denied, 499 U.S. 961 (1991).

 II. Copyright Infringement.

 EI claims that DLCMS-USA infringed on its copyright by authorizing its Asian affiliates to use the Software for billing purposes after the expiration of the License Agreement. *fn12" The plaintiff bears the burden of proof in a copyright action. See Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 434, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984); Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 290 (3rd Cir.), cert. denied, 502 U.S. 939, 112 S. Ct. 373, 116 L. Ed. 2d 324 (1991); Midway Mfg. Co. v. Bandai-America, Inc., 546 F. Supp. 125, 138 (D.N.J. 1982). To establish a prima facie case of copyright infringement, a plaintiff must prove: (a) ownership of a valid copyright in the infringed work; and (b) copying by defendant (or a violation of another of the exclusive rights provided to a copyright owner by the Copyright Act). See Sid & Marty Krofft Television Productions, Inc. v. McDonald's Corp., 562 F.2d 1157, 1162 (9th Cir. 1977); CMM Cable Rep, Inc. v. Keymarket Communications, Inc., 870 F. Supp. 631, 636 (M.D.Pa. 1994).

 For the purposes of this motion only, DLCMS-USA does not contest that the plaintiff has actual ownership of the copyrighted Software, or that the expert report raises a genuine issue of material fact as to whether the Asian companies used the Software after the expiration of the License Agreement. See Transcript of 1/5/98 Proceedings at pp. 8, 15. However, the defendant raises three arguments in support of its summary judgment motion.

 Firstly, DLCMS-USA contends that EI's copyright infringement claim is beyond the jurisdiction of this Court, since the alleged acts of infringement occurred outside of the United States. Secondly, defendant argues that the plaintiff is not entitled to relief in connection with the defendant's use of manifests generated by the Asian companies after the transition period. Thirdly, DLCMS-USA contends that the alleged use of ...


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