more closely adapted to our modern age of telefaxes, Internet communication, and electronic mail systems. The purpose behind the Copyright Act is to protect a copyright owner's right to be free from infringement in the United States. To allow an entity to curtail this right by merely directing its foreign agent to do its "dirty work" would be to hinder the deterrent effect of the statute and to thwart its underlying purpose. Because it is more closely aligned with the language, legislative history, and purpose of the statute, the Court adopts the Curb interpretation of Section 106 and finds that the mere authorization of infringing acts abroad constitutes direct infringement and is actionable under United States Copyright Law.
Having made this determination, the Court considers whether a reasonable jury could conclude that DLCMS-USA, in fact, authorized the Asian companies' actions. In light of DLCMS-USA's arguable motive and ability to control its affiliates, the Court cannot foreclose this possibility. A jury might reasonably infer that the defendant had a motive for authorizing the infringing acts, since the affiliates' use of the Software enabled the defendant to receive manifests and billing information to facilitate its consolidation ventures. McKenzie himself indicated that the Software was extremely valuable to the companies' business.
See 12/23/93 McKenzie Decl. P 14. In its Answer to the Complaint, DLCMS-USA asserts as an affirmative defense that it signed the License Agreement limiting its use of the Software because it was under duress. See Answer to Complaint at p. 6. Furthermore, during oral argument, defense counsel admitted that DLCMS-USA continued to use the Software after November 15, 1993 at the insistence of its customers. Finally, the fact that the defendant negotiated to use the Software during a transition period suggests that the defendant continued to need the Software, even after the license had expired.
In addition to motive, a jury might reasonably infer that the defendant had the ability to authorize the alleged infringing acts, owing to its close interaction with the affiliates. To prove this point, EI calls attention to the joint business dealings, the mutual agency agreements, and the shared profits, leadership, and ownership among the Asian companies and the defendant. Furthermore, it points to the defendant's own characterization of itself and its Asian affiliates as a "family of companies."
In light of the defendant's possible motive and power to authorize its affiliates to use the Software, the Court cannot, as a matter of law, find that the defendant did not direct its affiliates' actions. For this reason, the Court rejects the defendant's extraterritoriality argument.
b. Infringement of Container Manifests.
EI accuses the defendant of infringement through: "(1) its receipt and generation by telecopier of ... shipping manifests ... [created by the Software], (2) its use of those shipping documents to compute the appropriate billing amounts and prepare invoices and (3) its forwarding copies of the manifests and related documentation to the customers." Brief in Opposition to the Defendant's Motion for Summary Judgment of No Copyright Infringement at p. 16. In support of its extraterritoriality argument, the defendant argues that its use of the manifests in New Jersey does not bring the plaintiff's infringement claim within this Court's jurisdiction. Specifically, it asserts that the manifests are not themselves protected materials because EI failed to register a separate copyright for the manifests and because EI's allegations concerning the manifests are untimely. See Reply Brief of Defendant in Support of its Motion for Summary Judgment of No Copyright Infringement at pp. 1-7. These objections are misplaced.
Because the Court finds that the mere authorization of infringing acts abroad constitutes direct infringement liability, it need not determine the copyright status of the manifests to reject the defendant's extraterritoriality argument. As discussed, the manifests are relevant to EI's infringement claim because they evidence the Asian companies' use of allegedly copyrighted materials. In turn, the defendant's business motive to use these manifests, as well as its arguable control over the affiliates, raise a genuine issue of material fact as to whether it, in fact, authorized the acts of infringement.
c. The Exception Under Section 117 of the Copyright Act.
The defendant claims that the Asian companies' use of the Software was permissible under 17 U.S.C. § 117 of the Copyright Act, since CMS-Taiwan voluntarily delivered the Software to the Asian companies.
In making this argument, the defendant interprets Section 117 to permit lawful possessors of materials to copy and distribute the materials, even if they are protected by copyright. See Transcript of 1/5/98 Proceedings at p. 21; Defendant's Brief in Support of Summary Judgment of Plaintiff's Claim for Copyright Infringement at p. 13.
The defendant fails to consider the limited scope of Section 117, which is evidenced by the legislative history surrounding its enactment. The Final Report of the National Commission on New Technological Uses of Copyright Works ("CONTU Report"), which concerns the 1980 amendment of this Section, provides:
The placement of a work into a computer is the preparation of a copy ... One who rightfully possesses a copy of a program, therefore, should be provided with a legal right to copy it to that extent which will permit its use by that processor. This would include the right to load it into a computer ...
The CONTU Report at p. 31 (emphasis supplied), cited in Atari, Inc. v. JS & A Group, Inc., 597 F. Supp. 5, 9 (N.D.Ill. 1983).
Courts examining this legislative history have interpreted Section 117 to permit copying for the limited purpose of providing rightful possessors with access to programs for internal use.
See, e.g., Apple Computer, Inc. v. Formula International, Inc., 594 F. Supp. 617, 621-22 (C.D.Cal. 1984); Micro-Sparc, Inc. v. Amtype Corp., 592 F. Supp. 33, 35 (D.Mass. 1984). In Apple Computer Inc., Apple alleged that the defendant, a computer vendor, infringed on its copyright by distributing diskette copies of Apple software along with its computer kits to customers. 594 F. Supp. 617. Even though the defendant lawfully possessed the Apple software, the Court rejected the argument that its copying and use of the software was exempt under Section 117. Id. at 622. The court reasoned that the defendant's use was not limited to "internal use," since the defendant was not copying the software merely to access it on its own computer. Id.; see also Micro-Sparc, Inc., 592 F. Supp. 33 (typing computer programs from directions in a magazine and subsequently selling the programs to third parties is not exempt under Section 117 because such copying is not limited to internal use).
In light of both the legislative history and caselaw concerning Section 117, the Court finds that the Asian companies' alleged use of the Software clearly does not fall within the ambit of the exception. The plaintiff alleges that the Asian companies, in conjunction with the defendant, generated, transmitted, and used manifests created by the Software to provide billing information to customers. For the purposes of Section 117, this application transcends mere internal use because it was not necessary for the Asian companies to access the Software in their own computers.
Because the plaintiff creates a genuine issue of material fact as to whether the Asian companies, in concert with the defendant, continued to use the Software for billing purposes, and because these alleged activities do not fall within the exception provided in Section 117, the defendant's motion for summary judgment of plaintiff's copyright infringement claim is denied.
III. Trade Secret Misappropriation.
Plaintiff alleges that the defendant, in conjunction with its Asian affiliates, misappropriated its trade secret by copying and continuing to use the Software after the expiration of the License Agreement. New Jersey caselaw defines a trade secret as a "formula, process, device or compilation which one uses in his business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." See Rohm and Haas Co. v. Adco Chemical Co., 689 F.2d 424, 431 (3rd Cir. 1982); Sun Dial Corp. v. Rideout, 16 N.J. 252, 257, 108 A.2d 442 (1954). To assert a trade secret misappropriation claim, the subject matter of the purported trade secret must not be a matter of public knowledge or of general knowledge within the industry. Rohm and Hass Co., 689 F.2d at 431; Sun Dial Corp., 16 N.J. at 257.
The Court finds that EI raises a genuine issue of material fact concerning the above criteria. The defendant concedes, for the purposes of this motion, that it is possible for the plaintiff to make out a claim for trade secret misappropriation relating to the underlying ideas and concepts of the Software. See Defendant's Brief in Support of Summary Judgment of No Trade Secret Misappropriation at p. 5. Furthermore, as discussed, one might reasonably infer that the Software was a valuable business tool for the defendant, in light of McKenzie's admissions, the defendant's duress defense, and its need for the sixty day transition period. Finally, the plaintiff's refusal to reveal the Software's source code, as well as the existence of confidentiality agreements, satisfies the Court that both EI and its predecessor, CMS-Taiwan, strove to keep the Software confidential.
While, for the purposes of this motion, the defendant does not contest these issues, it seeks summary judgment on essentially two grounds. Firstly, it urges the Court to grant its motion pursuant to Section 301(a) of the United States Copyright Act, which preempts state claims founded solely on allegations of copyright infringement. Secondly, the defendant argues that, even if the Court determines that EI's claim survives preemption because it alleges a breach of confidentiality, there is insufficient proof that DLCMS-USA has breached such a duty.
a. Preemption under the Copyright Act.
The defendant argues that EI's trade secret misappropriation claim is preempted because it is duplicative of its claim for copyright infringement. Under Section 301(a) of the Copyright Act, state law is preempted when it grants copyrightable subject matter protection that is equivalent to the protection afforded by § 106 of the Act. 17 U.S.C. §§ 106, 301(a) (1996).
It is well established that computer programs fall within the subject matter of copyright. See, e.g., Apple Computer Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3rd Cir.); National Car Rental System, Inc. v. Computer Associates Int'l., Inc., 991 F.2d 426, 431 (8th Cir. 1993); Computer Associates Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 702 (2d. Cir. 1992); Architectronics, Inc. v. Control Systems, Inc., 935 F. Supp. 425, 438 (S.D.N.Y. 1996). Therefore, in considering the preemption argument, the Court focuses on whether EI's trade secret misappropriation claim seeks to protect rights equivalent to the exclusive copyright rights.
Section 301(b) of the Copyright Act states:
Nothing in the title annuls or limits any rights or remedies under the common law or the statutes of any State with respect to ... activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 ...
17 U.S.C. § 301(b)(3). Consequently, under Section 301(b), a copyright claim does not preempt a misappropriation claim where "an extra element is required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a state-created cause of action ... A state law claim is not preempted if the extra element changes the nature of the action so that it is qualitatively different from a copyright infringement claim." Ez-Tixz, Inc. v. Hit-Tix, Inc., 919 F. Supp. 728 (S.D.N.Y. 1996) (quoting Computer Associates Int'l v. Altai, Inc., 982 F.2d 693, 737 (2d Cir. 1992)).
For example, while Section 301 preempts a state law claim of unfair competition founded solely on the defendant's use of copyrighted materials, Computer Associates Int'l, 982 F.2d at 719, a claim which involves an extra element, such as a breach of a confidential relationship, renders that cause of action qualitatively different from the rights protected by the Copyright Act. Id. at 717; see also Gates Rubber Co. v. Bando Chemical Industries, Ltd., 9 F.3d 823, 847 (10th Cir. 1993) (copyright claim for wrongful use of a computer program does not preempt a trade secret misappropriation claim where the defendant gained access to the program through a former employee of the plaintiff who breached his duty of confidentiality); Ez-Tixz, Inc., 919 F. Supp. 728 (no preemption where plaintiff not only alleges that the defendants displayed, publicized, and distributed its copyrighted program, but that they did so in violation of an agreement to keep the trade secrets within the program confidential).
The defendant contends that EI's claim does not satisfy this "extra element" test. DLCMS-USA argues that, although the plaintiff alleges that DLCMS-USA violated the License Agreement, plaintiff fails to allege that it violated any duty of confidentiality toward the plaintiff.
See Defendant's Brief in Reply for Summary Judgment of No Trade Secret Misappropriation at p. 10.
The plaintiff's Complaint alleges that, "in connection with [the] agency agreement" between CMS-Taiwan and DLCMS, CMS-Taiwan granted DLCMS a limited license to use the Software. See Complaint P 12. This license "allowed defendant to utilize the Software in supporting deliveries to clients ... and was expressly limited to this purpose and prohibited its use for other purposes or its dissemination to employees, staff or third parties." Id. The Complaint alleges that, despite the expiration of the license, "[DLCMS] continues ... to utilize the Software." Id. P 15. Furthermore, according to the Complaint, the plaintiff and CMS-Taiwan "have always treated the Software as confidential, controlled and limited its licensing use and [have] not released the source code to any third parties." Complaint at P 10. The plaintiff alleges that the Software gave it a competitive advantage in the service and retention of clients, id. P 11, and that "defendant ... used the Software to secure its relationships with ... customers and collect fees that rightfully belong to plaintiff." Id. P 18. In its Fourth and Fifth Counts, plaintiff seeks relief for trade secret misappropriation: "Defendant's acts constitute a misappropriation of plaintiff's trade secrets." Id. P 32; see also Brief in Opposition at pp. 14-20.
Pleadings should not be narrowly construed with regard to claims of trade secret misappropriation. The legislative history of Section 301 provides that "the evolving common law rights of ... trade secret ... would remain unaffected as long as the causes of action contain elements, such as ... a breach of trust or confidentiality, that are different in kind from copyright infringement ... 'misappropriation' is not necessarily synonymous with copyright infringement." House Report at 5748, cited in Computer Associates Int'l, 982 F.2d at 717.
The Second Circuit examined this legislative history of Section 301 in Computer Associates Int'l, which involved a software company's alleged copying of plaintiff's computer program. 982 F.2d 693. The Court rejected the argument that plaintiff's misappropriation claim was preempted merely because the plaintiff alleged both copyright infringement and misappropriation in its Complaint. See Computer Associates Int'l, 982 F.2d at 719-20. The Court found that the circumstances surrounding the case rendered the plaintiff's misappropriation claim substantively different from its infringement claim. Id. at 720. In making this determination, the Court examined the factual allegations of the Complaint, which involved a former employee's misappropriation of software information and the defendant competitor's reckless use of the information. Id. at 719-20. The Court further looked to the plaintiff's briefs, which suggested that the defendant hired the former employee to misappropriate confidential information. Id. at 720.
As in Computer Associates Int'l, EI's allegations and arguments sufficiently assert a breach of confidentiality claim. The Complaint alleges that the defendant and Asian companies entered into a License Agreement with the plaintiff which limited the use of the Software. It alleges that the plaintiff strove to keep the Software's source code confidential. Furthermore, the Complaint alleges that the defendant used this secret information in violation of the agreement, and that this use prejudiced the plaintiff. Finally, the plaintiff devotes approximately one-third of its brief to a discussion concerning breach of confidentiality. In light of these arguments, the allegations within its Complaint, and the legislative history behind Section 301, the Court finds that the plaintiff adequately sets forth a breach of confidentiality claim. Because the plaintiff's trade secret misappropriation claim contains this "extra element," it survives preemption under Section 301.
b. DLCMS-USA's Liability for Trade Secret Misappropriation.
The defendant argues, in the alternative, that even if the Court interprets the claim to allege a breach of confidentiality, there is insufficient evidence that the defendant breached any such duty toward EI. New Jersey courts analyze trade secret misappropriation claims by relying on the confidentiality principles set forth in the Restatement Third of Unfair Competition. See, e.g., Sun Dial Corp., 16 N.J. 252 at 257, 108 A.2d 442; Hammock By Hammock v. Hoffmann-LaRoche, Inc., 142 N.J. 356, 384, 662 A.2d 546 (1995). Section 41 of the Restatement Third of Unfair Competition provides, in relevant part:
A person whom a trade secret has been disclosed owes a duty of confidence to the owner of the trade secret ... if:
(a) the person made an express promise of confidentiality prior to the disclosure of the trade secret; or