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Mortgage Market Guide, LLC v. Freedman Report

July 28, 2008

THE MORTGAGE MARKET GUIDE, LLC, PLAINTIFF,
v.
FREEDMAN REPORT, LLC ET AL., DEFENDANTS.



The opinion of the court was delivered by: Wolfson, United States District Judge

OPINION

This matter comes before the Court upon an Amended Complaint brought by Mortgage Market Guide, LLC ("MMG") against Defendants The Freedman Report, LLC ("Freedman Report"), Aaron Freedman ("Freedman"), David Mozes ("Mozes"), and Donald Greitzer ("Greitzer") (collectively, "Defendants"). This action arises from Plaintiff MMG's claim that Defendants reproduced a particular page of the MMG Website, its bond page which provides mortgage based security information to its subscribers, on the Freedman Report's website.*fn1 After a fifteen day bench trial, the only counts remaining against Defendants are copyright infringement and breach of contract. Defendants primary defense against the claim of copyright infringement is that Plaintiff does not have a valid copyright registration. Defendants assail Plaintiff's copyright registration by pointing out a series of errors made by Plaintiff and its counsel during the registration process. Additionally, Defendants attack Plaintiff's breach of contract claim by asserting that it is preempted by the Copyright Act.

The Court finds that: (1) despite a variety of defects and numerous errors made during the course of Plaintiff's copyright registration of the MMG Website, nonetheless its copyright is still valid; and (2) Plaintiff's breach of contract claim is preempted by the Copyright Act because Plaintiff's breach of contract claim asserts the same rights protected by copyright law. As to liability, the Court finds that the Freedman Report, Freedman, and Mozes are liable for copyright infringement: the Freedman Report reproduced MMG's bond page and is therefore liable for infringement; Freedman and Mozes are liable due to their financial stake in the infringing company, the Freedman Report, and their supervisory role in directing the infringement. However, the Court finds that none of the Defendants are liable for breach of contract because Plaintiff's breach of contract claim is preempted.

I. OVERVIEW

A. PARTIES

Plaintiff MMG is a New Jersey limited liability company owned by Barry Habib ("Habib"), a 74% owner, and Curtis Warner ("Warner"), a 26% owner. (Tr. Vol. 1, Warner, April 9, 2007 at p. 87). MMG was founded in 2001 and Warner is the Chief Operating Officer. (Id. at 87:4-6). Defendant Freedman Report, LLC ("Freedman Report") is a California based limited liability company. (See Compl.). Defendants Freedman, Mozes, and Greitzer are all employees of Defendant Freedman Report. Freedman and Mozes each own a 50% stake in the Freedman Report, (Tr. Vol. 2, Freedman, April 10, 2007 at p. 46:11-46:17), and Greitzer is the Freedman Report's Director of Marketing, a job that he held since March 2005. (Greitzer Dep. 5:18-24). The Freedman Report was conceived in the summer of 2004 by Freedman and Mozes. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 46:7-46:10).

B. PROCEDURAL HISTORY

On January 10, 2006, Plaintiff MMG filed a Complaint in the District of New Jersey against Defendant Freedman Report alleging copyright infringement, trade dress infringement, unfair competition, tortious interference with prospective contract relations and unjust enrichment. (See Compl.). On July 26, 2006, Plaintiff MMG filed an Amended Complaint adding Defendants Freedman, Mozes, and Greitzer as parties and counts against all Defendants for conversion, and breach of contract. (See Amended Compl.). On November 1, 2006, Defendants filed a Motion to Dismiss Plaintiff's Complaint for Lack of Subject Matter Jurisdiction as to the Copyright Claim. The Court held a conference call with all counsel on November 21, 2006, wherein the Court notified counsel that it would decide Defendants' Motion to Dismiss at the time of trial. A fifteen day trial commenced on April 9, 2007, and after a few interludes in between, ended on January 9, 2008. All parties submitted their proposed findings of fact and conclusions of law to the Court on March 3, 2008.

II. FINDINGS OF FACT

A. Development of the Mortgage Market Guide Website

Habib, Warner, Paul Harrison ("Harrison"), a web developer, and some others began development of the Mortgage Market website ("MMG Website") in 2001. (Tr. Vol. 3, Habib, April 11, 2007 at p. 99:19-25). MMG's live bond page as it appeared on July 27, 2005 (except for the trendline customization option), first appeared on the MMG Website in late 2003. (Tr. Vol. 1, Warner, April 9, 2007 at p. 88:4-15; D-7, p 256). MMG's Website, at least until January 2003, was developed by one or more independent contractors, none of which were employees of MMG before January 2003. (Tr. Vol. 1, Warner, April 9, 2007 at p. 119:11-120:3; Tr. Vol 7, Warner, October 11, 2007 at p. 50:11-56:11). Warner testified that the MMG website had a bond page with a listing of one or more securities, dynamic pricing, a candlestick chart, and customization options since before it was redesigned in 2003. (Tr. Vol 7, Warner, October 11, 2007 at p. 4:14-5:24). However, Warner also testified that the candlestick chart first appeared on MMG's website, in the form submitted in MMG's copyright registration, in late 2003, (Tr. Vol. 1, Warner, April 9, 2007 at p. 88:21 - 89:1), the customization chart option first appeared on MMG's website sometime late 2003, early 2004, (Tr. Vol. 1, Warner, April 9, 2007 at p. 88:21 -89:1), and Habib testified that the bond page with all of the customization options, including trendlines, was first published on July 27, 2005. (Tr. Vol. 3, Habib, April 11, 2007 at p. 117:14 - 118:4). MMG has not produced any written agreement whereby it acquired the copyrights from any of these third party contractors with respect to the aspects of MMG's bond page that existed before the 2003 redesign, however the record demonstrates that at least some of the third party contractors involved in web development became employees of the company in early 2003. (Tr. Vol. 1, Warner, April 9, 2007 at p. 119:11-120:3; Tr. Vol 7, Warner, October 11, 2007 at p. 50:11-56:11).

B. Selection and Arrangement of the MMG Bond Page

The MMG live bond page permits customization of its candlestick chart. Since before July 27, 2005, those customization options included stochastics, resistance and support, moving averages, time frame, and security. (Tr. Vol. 3, Habib, April 11, 2007 at p. 101:15 - 25). Habib testified that he selected stochastics because of his belief that it is not a typical analytical tool for determining the market direction of mortgage-backed securities and because it tied into his seminar teaching. (Tr. Vol. 3, Habib, April 11, 2007 at p. 102:3 - 8, 103:20-25). Habib selected 21 trading days for MMG's stochastic analysis, even though the standard time frame for stochastic analysis is 14 trading days. (Tr. Vol. 3, Habib, April 11, 2007 at p. 104:17 - 25; Tr. Vol. 4, Gramza, April 12, 2007 at p. 108:1 - 109:9). Habib also testified that he chose a longer time frame because of his perception that there is less activity in the mortgage market than in other securities. (Tr. Vol. 3, Habib, April 11, 2007 at p. 105:2 - 12).

MMG chose four mortgage backed securities and the 10 year treasury note from a universe of 1,400 mortgage backed securities. (Tr. Vol. 3, Warner, April 11, 2007 at p. 35:5-22). With regard to the mortgage backed securities on MMG's bond table, Habib decided to provide not only the price of the securities at the last sale, but also pricing changes from the last sale and changes from 10:00am, 10:30am, 11:00am, and 11:30am. Given his experience, Habib was aware these were the times mortgage brokers received interest rate quotes from lending institutions. Thus, the bond table provided dynamic rather than static pricing. (Tr. Vol. 3, Habib, April 11, 2007 at p. 108:13 - 110:9). According to Habib, and it stands uncontradicted, none of MMG's competitors provided a live bond table with dynamic pricing until the Freedman Report published its live bond page. (Tr. Vol. 3, Habib, April 11, 2007 at p. 110:10 - 16). The "last sale" price for the mortgage-backed securities refreshes every two minutes or can be refreshed manually on the MMG bond page. (Tr. Vol. 3, Habib, April 11, 2007 at p. 111:16-22). Habib chose a two minute refresh rate instead of streaming because of his concern that some of MMG's potential customers' computers may not accept streaming information. (Tr. Vol. 3, Habib, April 11, 2007 at p. 112:23 - 113:17). The Freedman Report also uses a two minute refresher for its candlestick chart. (Tr. Vol. 3, Habib, April 11, 2007 at p. 113:3 - 8).

MMG first utilized trendlines as a customization option in its bond page on July 27, 2005. (Tr. Vol. 3, Habib, April 11, 2007 at p. 117:14 - 25). According to Warner's testimony, MMG was the only website company in the mortgage industry that utilized a dynamic bond table to express price changes of various mortgage backed securities several times a day. (Tr. Vol. 3, Warner, April 11, 2007 at p. 37:5-11; 38:25-39:12; 40:6-23). Freedman also testified, that to his knowledge, none of the other mortgage related websites, such as Market Alert, MBS Quoteline, Shirmeyer and MBS Alert have dynamic candlestick charts, dynamic bond tables or display stochastics. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 70:16-71:1; 72:2-9).

In addition, MMG selected basis points to express bond price changes instead of fractions. In Habib's opinion, using basis points as opposed to fractions is wrong, reasoning that a mortgage security's smallest increment is 1/30 which is the equivalent of 3.125 basis points. (Tr. Vol. 6, Habib, October 10, 2007 at p. 118:1 - 8). MMG uses three basis points to reflect a price change, which Habib avers is technically inaccurate. (Tr. Vol. 6, Habib, October 10, 2007 at p. 118:1 - 20). Freedman used the same basis point system. (Tr. Vol. 6, Habib, October 10, 2007 at p. 118:1 - 20).

Testimony from Defendants' expert Daniel Gramza ("Gramza"), indicates that there are over 1,358 mortgage-backed securities from which one can choose. An analyst must then select the type of chart to display information (i.e. - bar chart, Japanese candlestick, butterfly, etc.). (Tr. Vol. 4, Gramza, April 12, 2007 at p. 94:4-95:13; 96:14-105:12). Then there are 40-50 analytical studies from which to choose. (Tr. Vol. 4, Gramza, April 12, 2007 at p. 123:4-7). These various factors have all been pre-selected by MMG and are presented in a unique combination to its users. This conclusion is supported by Gramza's testimony that "it's unique to display a mortgage-backed security in a candle format," and that the Freedman Report and MMG Website were the only ones he was aware of to display mortgage-backed securities in such a way. (Tr. Vol. 4, Gramza, April 12, 2007 at p. 117:18-20; 119:8-15; 168:5-14). The Court finds that Gramza's testimony in connection with the uniqueness of displaying securities in the way described to be credible.

C . Defendants' Copying of the MMG Bond Page

Freedman testified at his deposition that he first looked at MMG's Website, including its bond page, in early 2005 with his colleague Michael Glick. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 60:8-62:13). Freedman also testified that the Freedman Report looked at the websites of competitors who distributed mortgage related information. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 55:12-23). Those websites included Market Alert, MBS Quotelines, Shirmeyer Report, MBS Alert and Plaintiff MMG's Website. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 56:3-6). Freedman testified that at the time, the Freedman Report's other competitors did not use candlestick charts. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 62:20-63:10). Freedman also testified at his deposition that he became an actual member of the MMG Website in December 2005, surreptitiously using the alias of Milton Fixel. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 57:1-58:10). Freedman logged in under this alias almost every day. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 59:16-25). Freedman testified that other websites did have bond tables, but none that looked exactly like MMG's bond table. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 64:3-65:11).

Mozes first viewed the MMG Website sometime before August 27, 2004. (Mozes Dep. 49:20-25). Subsequently, Mozes tracked the development of the MMG website "to see what elements they had added over time." (Mozes Dep. 73:12-20). Through his monitoring, Mozes was aware that MMG had a newsletter, and in late 2005, he, Freedman, and Greitzer decided that the Freedman Report would also publish a newsletter. (See Mozes Dep. 103:13-20; 105:23-25). Exhibit P-58 is an email dated October 4, 2005 confirming that Freedman got the idea of a newsletter from MMG and had a copy of MMG's newsletter "to see what it looked like." (Ex. P-58, Email, p. 2).

Greitzer is the Freedman Report's Director of Marketing, a job he has held since March 2005. (Greitzer Dep. 5:18-24). Greitzer interviewed for the marketing director's job in March of 2005. (Greitzer Dep. 10:4-11). The night before his interview, Mozes, one of the founders of the Freedman Report, suggested that Greitzer look at MMG's Website to understand what the Freedman Report wanted to do. (Greitzer Dep. 14:4-18; Mozes Dep. 30:21-31:13). Mozes did not discuss any other competing websites with Greitzer during his interview. (Mozes Dep. 31:22-32:1). When Greitzer was hired, his primary responsibility was to manage setting up the Freedman Report's website. (Greitzer Dep. p.28:20-29:9). In the summer of 2005, Greitzer subscribed to MMG using the fictitious name of Daniel Raymond, (Greitzer Dep. 15:7-15), and logged in 26 times between June 28 and July 13, 2005. (Tr. Vol. 7, Warner, October 11, 2007 at p. 65:20-66:5).

As of March 2005, the Freedman Report did not have a functioning website, i.e. - it only had a shell with a functioning homepage - there was no bond page and no other functioning pages at the time. (Greitzer Dep. 19:10-21; 20:1-7; Byer Dep. 33:22-36:15). Greitzer was the principal person dealing with Jeff Byer ("Byer") at Dice Media, which was the website development company the Freedman Report hired to design its website. (Greitzer Dep. 28:20- 29:17). Freedman gave Byer a link to the MMG Website and Byer subscribed to the MMG Website under his own name. (Byer, 33:22-36:15). He logged in 13 times between May 25 and June 9, 2005. (Tr. Vol. 7, Warner, October 11, 2007 at p. 67:25-68:11).

D. Nabh Proposals to the Freedman Report for Website Development

The Freedman Report hired Padmanabh Dabke's ("Dabke") company, Nabh Information Systems, Inc. ("Nabh") to provide an application that would allow financial information to be displayed on the Freedman Report's website. Dabke is the principal of Nabh. (Dabke Dep. p. 11). He became involved with the Freedman project in July 2005 through Byer. (Dabke Dep. 14:21-25). Essentially, Byer directed Dabke to replicate portions of the MMG Website for the Freedman Report, (Dabke Dep. 14:23-15:11), and Dabke referred Wirawan Chokry ("Chokry"), an employee at Nabh since April 2003, to the MMG public bond page, (Dabke Dep. p. 26). At the time, the MMG Website contained a bond table, a candlestick chart, and option panel to configure the chart. (Dabke Dep. 16:1-5).

Dabke's contract was with Freedman, although Byer put Dabke in touch with Freedman. (Byer Dep. 66:25-67:9). As demonstrated by Exhibit P-32, in a July 14, 2005 email, Dabke stated that he looked at the MMG website to see what was involved in the project. (See P-32). Byer's testimony indicates that Freedman's bond page was derived from MMG's bond page. He testified that Freedman presented the candlestick information to Dabke, (Byer Dep. 78:4-79:12), and that the customization options appeared to have been taken from the MMG Website, (Byer Dep. 83:18-21). Similarly, he testified that the stochastic option also appeared to be taken from the MMG Website, (Byer Dep. 83:22-84:11), and that the resistance and support options were also derived from the MMG Website, (Byer Dep. 86:17-87:11). In fact, consistent with Byer's testimony, the Court finds that the information located in Dabke's initial statement of work came directly from MMG's Website. (Byer Dep. 86:5-88:20). Accordingly, the Court finds that Byer's testimony in connection with the copying of MMG's bond page features to be highly credible because of his position as an employee of the Freedman Report.

Chokry worked on the Freedman Report website as an employee of Nabh. (Chokry Dep. p. 7, 13). Chokry was instructed to build a website using the MMG Website as an example to "implement" the chart application. (Chokry Dep. p. 14-17). He testified that he viewed the MMG Website's public page and replicated the information on the chart displayed there. (Chokry Dep. p. 14-17). Additionally, Dabke instructed Chokry to build a website including an editor to set user preferences regarding alerts -- this was also a feature employed by the MMG Website. (Chokry Dep. p. 23). Chokry's testimony indicates that the MMG bond page was the only website that he was directed to duplicate. (Chokry Dep. p. 81-82).

Freedman asked Byer of Dice Media to design his website in August 2004, however this proposal, Exhibit P-81, which is Dice Media's August 27, 2004 proposal, had no reference to a bond page. Also, P-83, which is Dice's April 7, 2005 proposal likewise contained no reference to a bond table or a candlestick chart. (Tr. Vol. 12, Freedman, November 5, 2007 at p. 47:2-49:13). The first time that Dice was asked to supervise the creation of a bond table for Freedman is in paragraph 6 of its July 19, 2005 proposal (P-84). This was after Greitzer and Byer had looked at MMG's bond page multiple times through their subscriptions. In the July 19, 2005 proposal, Exhibit P-84, for the first time, Dice agreed to manage "the 3rd party vendor in development of the program to display the Telerate API content." Byer contracted the design of the Freedman Report's bond page to Nabh. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 83:18-84:2). Freedman told Byer and Nabh about the features he wanted in the customization box. He told them he wanted moving averages, the ability to draw in support and resistance levels and trendlines and stochastics. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 84:7-25). MMG has the identical features in its customization box. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 84:7-25).

Significantly, in Exhibit P-33, under the heading "Updating the Bond Rate Table," Nabh confirmed that the Freedman bond table he was working on "will display a table similar to the one shown in the figure above," which was MMG's actual bond table. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 87:1-90:1). Nabh's July 14, 2005 work quote (P-33) also includes a candlestick chart similar to MMG's. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 87:1-90:1). Freedman's bond table and candlestick chart were also to be dynamic just that like that of MMG. Page 1 of P-33 indicates that Freedman's bond table will update every 30 minutes, making it dynamic, just as MMG's bond table. Moreover, page 1 of P-33 states: "The customer will be alerted if the price change falls outside the limits specified by the customer." That is a service Freedman wanted to offer and MMG also offered that service. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 93:14-94:7). The second page of P-33 titled "2. Alerts Editor" states "[t]he application will provide a simple forms editor to set user preferences corresponding to positive and negative price deltas and the time at which the alerts are sent." Freedman's testimony indicates that his understanding is that the subscriber will choose certain thresholds, and if the chosen threshold is reached, the subscriber gets a text alert on the telephone. Freedman's testimony also indicates that he understood that MMG provided the identical service. (Tr. Vol. 2, Freedman, April 10, 2007 at p 91:1-19).

Greitzer looked at MMG's website 26 times between June 23, 2005 and July 13, 2005. (Tr. Vol. 7, Warner, October 11, 2007 at 65:20-66:5). Byer looked at MMG's website 13 times between May 25, 2005 and June 9, 2005. (Tr. Vol. 7, Warner, October 11, 2007 at 67:25-68:11). To do so, both Greitzer and Byer became trial MMG members and thus agreed not to:

4. upload, post, publish, transmit, reproduce, distribute or in any way exploit any information, software or other material obtained through the Service for commercial purposes (other than as expressly permitted by the provider of such information, software or other material).

(P-120, p. 3). Exhibit P-120 is MMG's "Subscriber Terms and Conditions of Use." (Tr. Vol. 5, Habib, October 9, 2007 at 103:8-11). In order to access MMG's site either as a paid subscriber or for a trial subscription, the user would have to hit "accept" the Subscriber Terms and Conditions of Use. (Tr. Vol. 5, Habib, October 9, 2007 at 103:12-20). "Step 6" on D-7, p. 277 involves a subscriber's agreement to the MMG Terms and Conditions. A subscriber must first "click here to view the terms and conditions agreement." (Tr. Vol. 3, Habib, April 11, 2007 at 118:5-119:3). When they signed up for their subscriptions, Greitzer and Byer were subject to the same sign up process.

At the time of their subscriptions, Byer and Greitzer were working with Nabh to develop the Freedman Report's website. P-32 is Dabke's email to Byer, dated July 14, 2005, regarding Dabke's preparation of Nabh's Initial Statement of Work. In P-32, Dabke states that he looked at MMG's site to "see what is involved in this project." Dabke's questions in P-32 reference the MMG elements, as does P-33. P-34 references Byer's response to P-32 (Dabke's July 14, 2005 email to Byer). Thus, it is clear that by July 15, 2005, Byer is responding to questions asked of him by Dabke after he accessed MMG's website, including its bond page. P-35 is a July 18, 2005 email from Byer to Dabke and Chokry (of Nabh) asking for another Nabh work proposal. Again, this shows Byer's involvement with Nabh after he logged onto MMG's website. P-36 is a July 18, 2005 email from Dabke to Byer attaching another Nabh work quote, which is P-37. That work quote is substantially the same as the earlier work quote, including reference to MMG's bond table and candlestick chart. Again at page 1 of P-37, Nabh indicates it will create a bond table "similar to the one shown above," which was MMG's bond table. P-38 is a July 22, 2005 email from Greitzer to Freedman and Mozes showing his involvement in the development of Freedman's bond page. In P-38, Greitzer acknowledges that he reviewed the Nabh proposal and had questions concerning it. P-39 is an August 8, 2005 email from Dabke to Byer and Greitzer dealing with the development of the Freedman bond page. That email asks the Freedman Report to summarize changes discussed earlier. P-39 also includes an August 26, 2005 email from Dabke to Greitzer and Freedman which enclosed the August 26, 2005 Bond Quote Application (P-49).

Exhibit P-42 is the August 23, 2005 "Bond Quotes Application: Project Quote" from Nabh. The table in Section 1.1, "Bond Rate Table," reflects what the Freedman Report wanted. (Tr. Vol. 2, Freedman, April 10, 2007 at 115:25-116:3). Section 1.3 of Exhibit P-42 shows the proposed candlestick chart for the Freedman Report which Nabh designed. (Tr. Vol. 2, Freedman, April 10, 2007 at 116:4-14). Like MMG, the chart is dynamic and gives the user the ability to select resistance and support levels, moving averages and stochastics. According to Freedman's testimony, at the time, only the Freedman Report and MMG had such a dynamic chart with those customization options coupled with a dynamic bond table. (Tr. Vol. 2, Freedman, April 10, 2007 at 116:20-118:18). P-49 is the executed Nabh Project Quote. It contains the same features as P-33, including a dynamic bond table which is substantially similar to that of MMG. It also contains a dynamic candlestick chart with customization options, all of which are similar to, if not the same as, MMG's. Therefore, Nabh fulfilled its undertaking to provide a bond table and candlestick chart with customization options, which it previously stated would be similar to that of MMG. On August 30, 2005, Greitzer wrote to Dabke of Nabh, Inc. asking if he could include a trendline on the Freedman Report's candlestick chart. This was Freedman's first request to add a trendline. (Tr. Vol. 2, Freedman, April 10, 2007 at 129:9-131:1). MMG added a trendline to its chart for the first time on July 27, 2005. (Tr. Vol. 3, Habib, April 11, 2007 at 117:14-25). Thus, Freedman requested the addition of a trendline to the Freedman Report's chart 33 days after MMG initiated its initial use of trendlines. By the time Freedman asked Dabke to include trendlines on the Freedman Report's candlestick chart, he had already seen MMG's trendlines on its candlestick chart. (Tr. Vol. 2, Freedman, April 10, 2007 at 131:8-11). P-10 is the August 30, 2005 email from Freedman asking Dabke to include trendlines on the candlestick chart.

Exhibit P-26 is the November 8, 2005 Freedman bond page, and P-27 is the November 8, 2005 MMG live bond page. They are substantially similar if not identical. Freedman's bond pricing table contains three Fannie Mae and one Ginnie Mae mortgage-backed security and the 10 year Treasury. So does P-27, MMG's bond table. The only difference is that the Freedman Report uses two 30 year 6% bonds, while the MMG table does not have a 6% bond. Both tables show the "current price" (P-26) and "last sale" (P-27). Both have a day change vertical column and a change since 9:00 a.m. and 10:00 a.m. In addition, MMG has a 10:30 a.m. and 11:00 a.m. change. Thus they both include a dynamic bond table coupled with a dynamic candlestick chart with customization options.

Both P-26 and P-27 show dynamic Japanese candlestick charts immediately below the bond table. Both show trendlines. Indeed, the Freedman Report added trendlines shortly after MMG incorporated trendlines on its candlestick chart. Both candlestick charts show 10, 25, 50, 100 and 200 day moving averages. On both exhibits, a stochastics analysis is in the box immediately below the candlestick chart and both exhibits use a 21 trading day stochastic. Both exhibits show a customization box below the stochastics giving the user the option of time frame, moving averages and security. Both exhibits permit the user to choose resistance and support levels, trendlines, and stochastics. The Freedman Report permits the user to "create graph," while MMG permits the user to "draw chart." At the bottom of the live bond page each exhibit gives the user "chart printing options." In P-26, the Freedman Report permits a printable candlestick chart and a printable candlestick and stochastic chart. MMG gives the option of a printable candlestick chart, a printable stochastic chart, and a combination printable candlestick and stochastic chart. At the very bottom, both exhibits say that "the candlestick chart automatically refreshes every two minutes."

Exhibit D-73 is a purported copy of the MMG Website as it existed on May 20, 2004. P-33 is the Nabh Initial Project Quote dated July 14, 2005. In the Nabh Initial Project Quote there is a reference to the MMG Website - paragraph 1 is titled "Updating the Bond Rate Table." The table columns are labeled as Security, Last Sale, Day Change, 10a.m., 10:30a.m. - these and the other time price changes are exactly the same as in D-73. (Tr. Vol. 13, Freedman, November 7, 2007 at p. 94:2-20). The May 2004 MMG Website bond page is substantially the same as the November 2005 MMG Website bond page except for the addition of trendlines and some minor differences. (Tr. Vol. 13, Freedman, November 7, 2007 at p. 114:12-116:3).

In the present case, the differences between the competing bond pages are negligible. Out of all the defining features and customization options found on the MMG bond page, the only significant differences between it and the Freedman Report's bond page are that the Freedman Report uses different Fannie and Ginnie Mae securities in its bond table, includes a 40-day moving average and offers the ability to chart the 10 year Treasury. (Tr. Vol 11, Freedman, October 25, 2007 at p. 33:7-33:19). However, some other differences do exist, including: a different number of columns on the bond table, different benchmark times, different triggers for the appearance of a red or green background on the bond table, different choices for the time frames for the chart, different choices for moving averages, different printing options, different colored candlestick wicks, no gap between candlestick wicks and bodies, and different options for stochastics. (Tr. Vol 13, Freedman, November 7, 2007 at p.124:12-128:17).

In addition, the Freedman Report's pop-up box on the candle is a feature that provides different information than is contained in MMG's pop-up. (Tr. Vol. 2, Freedman, April 10, 2007 at 119:5-120:23; P-43, P-44). The Freedman Report's coloration of the bond table also works differently than MMG's. The background on the Freedman Report's bond table is red or green, depending on the day change. MMG's background only takes on a color if the user's threshold has been met. (Tr. Vol. 3, Warner, April 11, 2007 at 54:15-56:6; Tr. Vol. 5, Habib, October 9, 2007 at 55:3-59:12; see also Tr. Vol 11, Freedman, October 25, 2007 at 13:8-14:19). The Freedman Report's stochastics chart shows 75 and 25 as the overbought and oversold levels, while MMG's stochastics chart shows 80 and 20 as those levels. Id. The Freedman Report's bond page does not provide a pop-up web alert window when a user's price threshold has been exceeded or when there is a price change alert, (Tr. Vol 11, Freedman, October 25, 2007 at 60:21-61:11; Tr. Vol 10, Freedman, October 24, 2007 at 60:23-61:2), while MMG's bond page does. Also, the Freedman Report's intraday price change alert appears on the daily report page, not as a pop-up on the bond page. (Tr. Vol 9, Freedman, October 23, 2007 at 69:5-71:8). There is also a difference between MMG and the Freedman Report's alert interface because the Freedman Report's mechanism to set the threshold for an alert is different than MMG's interface for setting alerts. (P-64, P-65).

Nonetheless, a close comparison of the two websites demonstrates that both the MMG Website and the Freedman Report have a dynamic bond table, a candlestick chart, and customization options. The customization options are similar and both contain stochastics, trendlines, moving options, customization options, as well as resistance and support. Similarly, both websites give the user the ability to view dynamic candlestick charts only. (Tr. Vol. 13, Freedman, November 7, 2007 at p. 114:12-116:3). This evidence, despite other small differences, demonstrates that the MMG Website bond page was copied by the Freedman Report.

E. THE FREEDMAN REPORT MAKES CHANGES TO ITS WEBSITE

The Freedman Report revised its bond page in or about January 2006. Exhibit P-60 is a February 7, 2006 proposal by Nabh Information Systems, Inc. titled "Chart Editing Panel Modifications Quote." This resulted from Freedman's request to Nabh to modify the Freedman Report website. (Tr. Vol. 2, Freedman, April 10, 2007 at p.148:10-25). Exhibit P-26 is the Freedman Report's bond page as it existed prior to February 2006. (Tr. Vol. 2, Freedman, April 10, 2007 at p.151:12-15). This request followed the filing of the Complaint in this case by a month. The elements that were changed are described in a Statement of Work, which is entered into evidence as P-60:

3. An image will be added at the bottom of the [candlestick] chart. Clicking on this image will bring up the chart control panel [the customization options].

The contents of this panel will be exactly the same as the current editor pane.

Clicking on the "Draw Chart" button at the bottom of this panel will close the pop-up and redraw the chart based on the new parameters. (Ex. P-60). The customization options on P-26 are identical to those in the "current [Freedman] editor pane" and were simply transferred to a pop-up window activated by clicking a button as shown on P-61. (Tr. Vol. 2, Freedman, April 10, 2007 at p.152:3-13, 156:19-157:15). The two chart-printing links on the bottom of P-26 were removed. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 153:17-154:10). Chart customization options were displayed horizontally after February 2006, instead of vertically, as in P-26. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 158:4-159:8). But they are the same customization options. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 158:4-159:8). The "set alert" on P-26 was changed to an upward pointing arrow, but the arrow on P-61 gives the same "set alert" options as P-26. (Tr. Vol. 2, Freedman, April 10, 2007 at p. 159:9-160:11).

In P-61, a copy of the Freedman Report Website dated May 19, 2006, there is a downward arrow labeled "Click here to customize graph." Freedman conceded that when you click on that, the customization panel at the bottom of the Freedman Report's previous live bond page (P-26) will pop up. (Tr. Vol. 13, Freedman, November 7, 2007 at p. 70:7-71:16). The customization options in P-61 are identical to the previous format. (Tr. Vol. 13, Freedman, November 7, 2007 at p. 71:9-16; see also Ex. D-11). The pop-up that is displayed when the cursor is held over a candle is the same as it was on the prior Freedman Report bond page. (Tr. Vol. 13, Freedman, November 7, 2007 at p. 72:4-20). Also, the arrow link stating "Click here to set text alerts" shows the same text alert editor as shown on the previous Freedman Report bond page. (Tr. Vol. 13, Freedman, November 7, 2007 at p. 73:10-24). The Freedman Report's bond page was revised again later so that (i) only four securities appear for the current bond pricing, and (ii) each securities' pricing is displayed in a separate table. (Tr. Vol. 6, Habib, October 10, 2007 at p. 72:24-73:20; Ex. D-12). However, the Court finds that the 2006 changes were cosmetic, as demonstrated in Freedman's testimony and by reference to Exhibits P-26 and P-27, D-11, D-12 and P-60 through P-64.*fn2

F. MMG WEBSITE'S TERMS AND CONDITIONS

The MMG website contained a copyright notice indicating "(c) COPYRIGHT 2005 MORTGAGE MARKET GUIDE, LLC." In P-120, the Subscriber's Terms and Conditions of Use, the paragraphs listing what a subscriber may not do informs the subscriber that MMG is protected under U.S. copyright laws. (See P-120, ¶¶ 1-2). Exhibit P-120 is MMG's "Subscriber Terms and Conditions of Use" (subscriber agreement). (Tr. Vol. 5, Habib, October 9, 2007 at 103:8-11). In order to access MMG's site either as a paid subscriber or for a trial subscription, the user would have to "accept" the Subscriber Terms and Conditions of Use. (Tr. Vol. 5, Habib, October 9, 2007 at 103:12-20). "Step 6" on D-7, p. 277 involves a subscriber's agreement to the MMG Terms and Conditions. A subscriber must first "click here to view the terms and conditions agreement." (Tr. Vol. 3, Habib, April 11, 2007 at 118:5 - 119:3). Habib testified that subscribers such as Freedman, Greitzer and Byer would have been denied access to MMG's site unless they had agreed to the terms and conditions of use. (Tr. Vol. 5, Habib, October 9, 2007 at 103:12-20). Since a paying or trial subscriber must click "accept" after viewing the MMG Website's Terms and Conditions of Use, the Court concludes that Byer, Freedman and Greitzer had notice of the Terms and Conditions of Use and accepted them as a condition of site access.

G. COPYRIGHT REGISTRATION

Plaintiff first filed an initial copyright registration in December 2005 for the MMG Website. Numerous errors were present in this first application for copyright registration, including: an incorrect designation of the author; an ambiguous designation as to whether the subject of copyright was a compilation or derivative work; and an incorrect designation of the date of first publication. To follow, there were numerous attempts by counsel to correct these erroneous submissions through supplemental registrations. As discussed infra, the Court finds that these submissions were not an effort to mislead the Copyright Office, but were merely the result of Plaintiff's and counsels' carelessness and/or lack of knowledge of the intricacies of copyright filing requirements.

Exhibit P-1 is Plaintiff's initial copyright registration application prepared and filed by Jacquelyn Inserra, Esq. ("Inserra") in December 2005. (Tr. Vol. 1, Inserra, April 9, 2007 at 54:6-13). Inserra used March 1, 2001 as first publication date in the initial application because Curtis Warner of MMG told her that it was the first date of publication for the MMG Website. (Tr. Vol. 1, Inserra, April 9, 2007 56:2-7). In paragraph 6a of P-1, "Derivative Work or Compilation," Inserra added that it contained "securities pricing quotes (including stock and bond quotes) and U.S. Treasury taxation rates." (Tr. Vol. 1, Inserra, April 9, 2007, at 56:19-57:3). Inserra testified that she intended to register the work as a compilation, (Tr. Vol. 1, Inserra, April 9, 2007, at 57:2-3), and added the word "text" to paragraph 6b based on her conversations with the Copyright Office, (Tr. Vol. 1, Inserra, April 9, 2007, at 58:12-59:2).

1. THE FIRST AMENDMENT TO THE COPYRIGHT REGISTRATION

After filing the application, Inserra received a call from Jesse Golphin of the Copyright Office. (Tr. Vol. 1, Inserra, April 9, 2007, at 60:16-23). As a result of that conversation, Inserra filed P-2, an amendment to the application. (Tr. Vol. 1, Inserra, April 9, 2007, at 62:4-19). She changed the name of the author from Habib to MMG. (Tr. Vol. 1, Inserra, April 9, 2007, at 62:20-63:2). Inserra testified that pursuant to her conversation with the Copyright Office, the December 4, 2005 signature date should remain the same, (Tr. Vol. 1, Inserra, April 9, 2007, at 63:14-22), and that in preparing P-2, she "did exactly what [Golphin] told [her] to do." (Tr. Vol. 1, Inserra, April 9, 2007, at 64:1-6).

Exhibit P-3 is the Certificate of Registration, TX-6-274-129, issued by the Copyright Office effective December 7, 2005. (Tr. Vol. 1, Inserra, April 9, 2007, at 64:16-24). Exhibit D-7 is the deposit copy. The first page bears the Library of Congress stamp and the TX-6-274-129 identifies the Certificate of Registration. Inserra received the deposit copy (D-7) from Warner. (Tr. Vol. 1, Inserra, April 9, 2007, at 66:16-68:9). Inserra understood that D-7 represented the website as it looked on March 1, 2001, because Mr. Warner told her that March 1, 2001 was the first date of publication. (Tr. Vol. 1, Inserra, April 9, 2007, at 66:16-68:9). Inserra testified that Plaintiff intended to copyright the selection and arrangement of the data as a compilation and not the data itself. (Tr. Vol. 1, Inserra, April 9, 2007, at 69:16-24). Similarly, Inserra testified that she intended to copyright mainly the selection and arrangement of the data on the bond page, including the Japanese candlestick chart and its customization. (Tr. Vol. 1, Inserra, April 9, 2007, at 70:4-11).

Inserra left Budd Larner, PC ("Budd Larner") in March 2006, and did no further work regarding the MMG Website's registration after she filed P-2. (Tr. Vol. 1, Inserra, April 9, 2007, at 70:25-71:4). Inserra testified that Exhibit P-2 was not a second application, but that it was an amendment to P-1 and, therefore, repeating information contained in P-1 was not necessary. (Tr. Vol. 1, Inserra, April 9, 2007, at 77:17-78:6). Exhibit D-7A is certified by the copyright office as a copy of the registration issued by the copyright office. (Tr. Vol. 1, Inserra, April 9, 2007, at 80:23-81:21). Warner testified that page 256 of D-7 is a page from MMG's Website containing an image of the sample bond quote page as it appeared on July 27, 2005. (Tr. Vol.1, Warner, April 9, 2007, at 88:1-9). His testimony also reflects that page 256 also contains a bond quote table and a candlestick chart, both of which first appeared in the website in late 2003. (Tr. Vol. 1, Warner, April 9, 2007, at 88:10-20). Page 257 of Exhibit D-7 contains customization options which, except for trendlines, first appeared in the website in late 2003 or early 2004. (Tr. Vol. 1, Warner, April 9, 2007, at 88:21-89:1).

MMG added trendlines as a customization option on July 27, 2005. (Tr. Vol. 1, Warner, April 9, 2007, at 91:11-92:14). Exhibit P-9 is an archive of MMG's daily market update from Wednesday, July 27, 2005, and it states: "We have added a new feature to the bond page which illustrates the trend." (Tr. Vol. 1, Warner, April 9, 2007, at 93:9-94:15). D-7 was printed on November 29, 2005, and Warner testified that as a consequence, it shows certain financial data from that date. (Tr. Vol. 1, Warner, April 9, 2007, at 95:4-16). Warner also testified that other than for date-sensitive data, there is no difference between the sample bond page in D-7 and the sample bond page as it existed on July 27, 2005. (Tr. Vol. 1, Warner, April 9, 2007, at 95:25-96:16). In addition, Warner testified that on July 27, 2005, he used a program called "Snaggit" to copy the bond page as it appeared on that date. (Tr. Vol. 1, Warner, April 9, 2007, at 122:13-24). D-7 is an exact snapshot of the bond page on July 27, 2005 at 1:14 Eastern Time. (Tr. Vol. 1, Warner, April 9, 2007, at 124:6-9).

Defendants aver that Warner's testimony is not credible, alleging that the deposit copy's sample bond table, in D-73, is actually taken from May 24, 2004 and not July 27, 2005. (Tr. Vol. 7, Freedman, October 25, 2007, at 135:2-140:7). Thus, making the first publication date much earlier than what was represented in the copyright registration. Defendants support their assertion by utilizing a third party website called web-archive to produce an after the fact snapshot of the MMG bond page on May 20, 2004, which contains identical financial information as the July 27, 2005 MMG sample bond page submitted to the Copyright Office.*fn3

(Tr. Vol. 7, Freedman, October 25, 2007, at 135:2-140:7). Freedman contends that this shows a discrepancy in Warner's testimony and a misrepresentation to the Copyright Office.*fn4 However, this only indicates to the Court that the financial data in the bond page submitted in the deposit copy was from May 24, 2004 and not July 27, 2005. The deposit copy containing the MMG bond page in question is labeled as a sample bond page and indicates that it is not populated with live bond information, therefore, it is not contradictory that it contains financial data from a previous date. Thus, it has no implication to the copyright registration's validity and the Court finds that both Warner and Freedman's underlying testimony regarding this issue, along with a comparison of D-7 and D-73, is consistent with Warner's representations made to the Court and the Copyright Office.

2. THE SECOND AND THIRD AMENDMENTS TO THE COPYRIGHT REGISTRATION

In July 2006, Michael Rosenbaum, Esq. prepared Exhibit P-4 to amend the existing registration primarily to change the date of first publication from 2001 to 2003. (Tr. Vol. 1, Rosenbaum, April 9, 2007, at 129:12-130:6). P-4 is on a form promulgated by the copyright office as "Form CA for Supplementary Registration." (P-4 (upper right corner)). P-4 also contained other changes such as the address of MMG, the name of the contact person from Inserra to Rosenbaum and, on line 6b, "text" was expanded to read "Compilation and new material including text, graphs, charts, tables and artwork relating to the mortgage market." Line 2A was supplemented to state that it was "Online work consisting of analysis of the mortgage market, including charts, table, graphs and commentary." (Tr. Vol.1, Rosenbaum, April 9, 2007, at 130:20-132:3; Ex. P-4). Exhibit P-6 is the copyright registration issued as a consequence of P-4. It bears the registration number TX-6-274-129 which is the registration number originally issued by the Copyright Office. P-6 states that the registration's effective date is December 7, 2005. (Tr. Vol.1, Rosenbaum, April 9, 2007, at 135:1-21; Ex. P-4). Exhibit P-6 contains a date of first publication of November 29, 2005. The 2005 publication date was a change effected by the Copyright Office because the deposit copy showed a November 29, 2005 date. (Tr. Vol.1, Rosenbaum, April 9, 2007, at 133:22-135:5; Ex. P-6). Mr. Rosenbaum thereafter conversed with the Copyright Office and explained that D-7 was first published on July 27, 2005, and that November 29, 2005 was the date it was printed. The Copyright Office advised him to file an amended application. (Tr. Vol.1, Rosenbaum, April 9, 2007, at 136:14-137:12; Ex. P-6). Exhibit P-102 is the amended application on form "CA for Supplementary Registration." (Tr. Vol.1, Rosenbaum, April 9, 2007, at 136:11-22; Ex. P-102). As reflected in P-102, the registered copyright was amended by the Copyright Office on January 18, 2007, to reflect July 27, 2005 as the date of first publication. The Court finds that July 27, 2005 is the proper date of first publication for the MMG bond page, with its addition of trendlines.

H. MMG'S LIVE BOND PAGE CAN BE ACCESSED INDEPENDENTLY OF ACCESSING THE ENTIRE WEBSITE AND IS THUS SELF-CONTAINED

During the course of this case, Plaintiff's claim of copyright infringement against the Defendants has been limited from infringement of the entire MMG Website to infringement of its bond page, a singular web page in the MMG Website. Therefore, the Court need only look at MMG's bond page at pages 256 and 257 of D-7. The live bond page is found on MMG's Website, and it is completely self-contained. (Tr. Vol. 3, Habib, April 11, 2007, at 115:13-18; Warner, 22:20-23; Ex. P-13). A client can access the MMG live bond page without accessing the entire website. (Tr. Vol. 3, Habib, April 11, 2007, at 115:13-18; Warner, 23:1-4). This is accomplished through an email from MMG which contains an embedded link that connects the subscriber directly to the live bond page. The live bond page is independent of the rest of the site. (Tr. Vol. 3, Warner, April 11, 2007, at 23:1-17). The live bond page operates independently because it is dynamic and changes with changes in market pricing, refreshing every two minutes. (Tr. Vol. 3, Warner, April 11, 2007, at 25:5-8). The live bond page can also be accessed from the link at the top of the navigation bar in the MMG Website. (Tr. Vol. 3, Warner, April 11, 2007, at 25:16-21). A subscriber also could save the live bond page on his or her browser and go directly to the live bond page. (Tr. Vol. 3, Habib, April 11, 2007, at 115:22-116:18; Warner, 23:5-26:5). Accordingly, the Court will proceed with its analysis of MMG's bond page as a self contained work, within MMG's larger copyright registration of its entire website.

I. DAMAGES

Plaintiff MMG sets forth its purported damages in a chart presented in Exhibit P-134. That chart first sets forth MMG's trial subscribers who became Freedman subscribers after October 2005, the date Freedman first published its bond page. Warner and Habib testified that 16% of MMG trial subscribers become paying subscribers. (Tr. Vol. 5, Habib, October 9, 2007 at 13:10-15; Tr. Vol. 8 Warner, October 22, 2007 at 128:9-16). Additionally, the chart shows the subscription price annually, semiannually and monthly ($899, $998, and $1,199.40, respectively). It then shows the renewal rate of each type of subscriber. This, too, was testified to by Habib. (Tr. Vol. 5, Habib, October 9, 2007 at 18:3-18). Next, the chart in P-134 avers that 70% of MMG subscribers also subscribe to the MMG Weekly. It then shows the subscription renewal prices. This, too, was testified to by Habib. (Tr. Vol. 5, Habib, October 9, 2007 at 18:19-19:24).

Based on the above, as set forth in P-134, MMG speculates that in year one MMG lost 59 potential paid subscribers, 41 of whom would also have become MMG newsletter subscribers. The chart attached to P-134 then shows that in the first year, MMG's alleged lost subscription revenue to Freedman was $47,347 plus $23,734 lost revenue from its newsletter. In years two through five, with renewal rates of 82% of annual membership, 65% for semiannual, and 68% for monthly memberships, the chart attached to P-134 shows lost revenues of $55,326, $52,124, $32,556 and $24,767, respectively. The total lost revenues alleged by MMG for the five years for both lost website subscribers and newsletter subscribers is $225,855 (P-134).

P-125, an April 23, 2007 Budd Larner letter to defense counsel, further sets forth the manner in which MMG calculated its damages. While the amount of damages claimed in that letter is more than that set forth in P-134, MMG explains that the difference does not relate to the formula in P-125. Rather, the reduction was due to a reduction in the number of subscribers who transferred from MMG to the Freedman Report after the Freedman Report first published its live bond page. (Tr. Vol. 8 Warner, October 22, 2007 at 40:22-43:15).

Finally, P-132, an October 7, 2007 Budd Larner letter to defense counsel, attaches a list of former MMG subscribers who were on the Freedman Report's subscriber list. That list breaks down those who were MMG trial subscribers and paid subscribers. (See P-132 attachment at p. 1, Key). P-133 is an October 16, 2007 letter from Budd Larner to defense counsel which eliminates some of the people included on the former MMG subscriber list attached to P-132. Also attached to P-133 is a list of additional subscribers who had been eliminated from MMG's damage claim, because it appears that they remained members of MMG after subscribing to the Freedman Report (e.g., Rick Diaz in P-133) or because ...


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