290 F.3d 98 (2nd Cir. 2002), 01-7678, Medforms, Inc. v. Healthcare Management

Docket Nº:01-7678(L), 01-7724(XAP).
Citation:290 F.3d 98
Party Name:MEDFORMS, INC., Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, v. HEALTHCARE MANAGEMENT SOLUTIONS, INC., d/b/a Healthcare Informatics, Inc., a Delaware Corporation, and Ernest L. Lang, Defendants-Appellees-Cross-Appellants. Medvar, Inc., Defendant-Third-Party Plaintiff-Counter-Claimant-Appellee-Cross-Appellant, v. Bruce Gallit, Third-Party D
Case Date:May 07, 2002
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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290 F.3d 98 (2nd Cir. 2002)

MEDFORMS, INC., Plaintiff-Counter-Defendant-Appellant-Cross-Appellee,


HEALTHCARE MANAGEMENT SOLUTIONS, INC., d/b/a Healthcare Informatics, Inc., a Delaware Corporation, and Ernest L. Lang, Defendants-Appellees-Cross-Appellants.

Medvar, Inc., Defendant-Third-Party Plaintiff-Counter-Claimant-Appellee-Cross-Appellant,


Bruce Gallit, Third-Party Defendant.

Nos. 01-7678(L), 01-7724(XAP).

United States Court of Appeals, Second Circuit

May 7, 2002

Argued Dec. 10, 2001.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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W. James MacNaughton, Woodbridge, NJ, for Plaintiff-Counter-Defendant-Appellant-Cross-Appellee.

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Jonathan Robert Nelson, New York, NY (Law Office of Jonathan Robert Nelson, of counsel), for Defendants-Appellees-Cross-Appellants and Defendant-Third-Party Plaintiff-Counter-Claimant-Appellee-Cross-Appellant.

Before: OAKES, CARDAMONE and POOLER, Circuit Judges.

OAKES, Senior Circuit Judge.

Plaintiff-counter-defendant-appellant-cross-appellee Medforms, Inc. ("Medforms") appeals from judgments of the United States District Court for the Southern District of New York, William H. Pauley III, Judge, dismissing its complaint after a jury trial and denying its motions for judgment as a matter of law and for a new trial. The district court found more than sufficient evidence from which the jury could have reasonably concluded that the defendants rebutted the validity of the plaintiff's copyright registrations because the purported author had not contributed original material. Because we find that an author can be a person who translates an original idea into a fixed expression or a person who authorizes another to do so, we affirm.

Defendants-appellees-cross-appellants, Healthcare Management Solutions, Inc. d/b/a Healthcare Informatics, Inc. ("Healthcare Informatics") and Ernest L. Lang, and defendant-third-party-plaintiff-counter-claimant-appellee-cross-appellant Medvar, Inc. ("Medvar"), appeal from judgments of the district court granting partial summary judgment to Medforms, dismissing Medvar's counterclaim as abandoned, and denying the defendants' motion for attorneys' fees and costs. We affirm the denial of the motion for attorneys' fees, remand for clarification of the district court's judgment dismissing the counterclaim, and decline to reach the grant of partial summary judgment as moot.


This case involves two computer programs, "FormFree" and "Superbill Express," which are designed to create and print forms for use in medical offices. The history of the two programs began prior to 1989, when MedPlus, Inc. ("MedPlus"), a computer and software company, was distributing "Medical Manager," a billing and collection software package used by doctors. Medical Manager could not, by itself, print the many different claim forms insurance carriers were requiring doctors to use. Instead, doctors purchased the forms from the insurance carriers and hand-fed them into their printers. In 1989, in response to this problem, Yosef Gold, a computer programmer and minority partner in MedPlus, designed, and MedPlus began distributing, "Laser Forms Module," a computer program that enabled Medical Manager users to print their own insurance claim forms without having to separately purchase and hand feed the forms.

In October 1989, Igor Modlin began working for MedPlus as a computer programmer. He was not paid initially. In November 1989, MedPlus began paying Modlin "off the books," and, in August 1991, Modlin went onto MedPlus's official payroll. Under Gold's supervision, Modlin began revising Laser Forms Module. The revised program became known as Form-Free. FormFree performed many of the same functions as Laser Forms Module but could be "serialized," which prevented customers from making unauthorized copies of FormFree without having the requisite code.

FormFree consisted of three parts: 1) the form files containing the data necessary to print various insurance forms; 2) the format files that provided instructions

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to Medical Manager about where to print specific data on the form; and 3) the core executable program that instructed the computer to assemble and print the completed claim forms and contained the serialization capabilities.

FormFree was revised several times, resulting in versions 1.0 through 2.0. Gold designed the specifications for revisions to the program for each version. FormFree's form and format files were adopted from the form and format files used in Laser Forms Module, which were written entirely by Gold. These files were not materially changed when Laser Forms Module was revised and FormFree was created. No version of FormFree could print forms containing Medical Manager patient information without the form and format files.

Modlin worked on the source code for the serialization and encryption aspects of the core executable program in versions 1.0 through 1.7. Source code is a mathematical set of instructions that a computer converts into an executable program that can then be distributed and run by other computers. Source code is generally proprietary and not given out to the public. Modlin was responsible for inputting the information into the computer to create the source code. Gold testified that he told Modlin "specifically what to do and how to do it" in writing the source code for the FormFree core executable program while Modlin testified that his work was largely independent of direction from Gold.

While at MedPlus, Modlin also worked on "Superbill Express." A "superbill" is a form used by doctors that combines standard diagnostic codes with billing information. Superbill Express consisted of three parts that were not visible to an end user: 1) "SBX," which enabled the doctor to input information that would be contained on the superbill; 2) "Super," which put information in columns and laid out the form; and 3) "Parse," which put the form into the computer language commonly understood by printers. Without the Super and Parse programs, Superbill Express could not print Medical Manager client information onto a form with a laser printer.

The first version of Superbill Express allowed MedPlus to prepare computerized "superbills" but was never distributed outside of MedPlus. Gold created the first version of Superbill Express, version 1.0, in 1988. The initial version contained all three parts of the program but the parts were not integrated, meaning that multiple steps were required to use the program. Version 1.7 of the software was the first version that integrated the three parts of the program so that Superbill Express could be marketed directly to clients. Modlin worked on the SBX source code for versions 1.7 through 2.0, though the first version he spent any significant time on was version 2.0. As with FormFree, conflicting evidence was presented at trial about the extent and independence of his work on the SBX source code.

Modlin left MedPlus in March 1992. He went to work for Northeastern Medical ("NEM"), MedPlus's rival in the distribution of Medical Manager. Bruce Gallit was the principal of NEM at the time. Gallit and Modlin formed a new company called Medforms, Inc. On advice of counsel, Modlin assigned any copyrights in his work to Medforms, which then filed for and obtained two copyright registrations.

The first copyright registration states that the title of the work is "FormFree" and the nature of authorship is the "[e]ntire computer program for creating forms on laser printer." The second copyright registration states that the title of the work is "Superbill Express (SBX)" and the nature of authorship is the "[e]ntire computer

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program—allows . . . forms to be designed and print[sic] on laser print[er]." Despite the registrations' claim to cover entire computer programs, designed to print forms, Medforms did not provide the Copyright Office with the FormFree form and format files or the Superbill Express Super and Parse files, which are required for the printing process. In addition, the copyright registrations do not mention the preexisting programs from which they derived or Gold's involvement in their creation.

In 1994, MedPlus went out of business. MedPlus assigned its rights to the Form-Free and Superbill Express software to Gold and to Avi Moskowitz, MedPlus's founder. Gold and Moskowitz assigned the rights to Medvar, a digital value-added reseller. Medvar then licensed Healthcare Informatics to copy and distribute the software.

In January 1995, counsel for Medforms notified Healthcare Informatics and Ernest L. Lang, the president of Healthcare Informatics and officer and director of Medvar, that Medforms had copyrights in the FormFree source code and the Super-bill Express source code. Medforms demanded that Lang and Healthcare Informatics cease and desist from making and distributing unauthorized copies of both programs. The defendants refused.

In July 1997, Medforms brought suit against Medvar, Lang, and Healthcare Management Solutions d/b/a Healthcare Informatics for copyright infringement. Medvar counterclaimed, seeking a declaratory judgment that it owned the copyrights and that Medforms's registrations were null and void.

On June 24, 1999, the district court granted partial summary judgment to Medforms. The court found that, as a matter of law, Modlin was not a Medforms employee when he worked on the Form-Free software and dismissed the defendants' affirmative defense that FormFree belonged to MedPlus under the "work made for hire" doctrine.

The infringement claims and remaining defenses were then tried before a jury. The district court submitted the case to the jury with a series of special verdicts as to Medforms's infringement claims and the defendants' affirmative defenses. Neither the jury instructions nor the verdict form...

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