Compaq Computer Corp. v. Ergonome Inc.

• Decision Date: 05 October 2004
• Docket Number: No. 01-20861.,01-20861.
• Citation: 387 F.3d 403
• Parties: COMPAQ COMPUTER CORPORATION, Plaintiff-Counter-Defendant-Appellee, v. ERGONOME INCORPORATED, Defendant-Counter-Claimant-Appellant, Stephanie L. Brown; Thomas W. Mowrey, Defendants-Appellants. Ergonome Incorporated; et al., Plaintiffs, Ergonome Incorporated, Plaintiff-Appellant, v. Compaq Computer Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

387 F.3d 403

COMPAQ COMPUTER CORPORATION, Plaintiff-Counter-Defendant-Appellee, v. ERGONOME INCORPORATED, Defendant-Counter-Claimant-Appellant Stephanie L. Brown; Thomas W. Mowrey, Defendants-Appellants Ergonome Incorporated; et al., Plaintiffs, Ergonome Incorporated, Plaintiff-Appellant, v. Compaq Computer Corporation, Defendant-Appellee.

No. 01-20861.

United States Court of Appeals, Fifth Circuit.

October 5, 2004.

COPYRIGHT MATERIAL OMITTED

Michael O. Sutton (argued), S. Shawn Stephens, Matthew G. Reeves, Locke, Liddell & Sapp, Houston, TX, David Nimmer, Elliot Brown, Wendy Marantz Levine, Irell & Manella, Los Angeles, CA, for Compaq Computer Corp.

Parker H. Bagley (argued), Milbank, Tweed, Hadley & McCloy, New York City, for Defendants-Appellants.

Appeals from the United States District Court for the Southern District of Texas.

Before JONES, DENNIS and PICKERING, Circuit Judges.

EDITH H. JONES, Circuit Judge:

This case arises from Ergonome's claim that Compaq's Safety and Comfort Guide ("SCG") unlawfully infringed on a copyright held by Ergonome in Preventing Computer Injury: The HAND Book ("THB"), a teaching text describing ergonomically correct hand positions for computer users and ways to avoid repetitive stress injuries. On July 11, 2001, after a seven-day trial, the jury concluded that any copying by Compaq was de minimis and constituted fair use according to 17 U.S.C. § 107. The district court subsequently held that the doctrines of laches and equitable estoppel also barred Ergonome's claim. Based on these findings, the district court awarded Compaq its attorneys' fees of $2.7 million. Additionally, the district court deemed defendant Stephanie Brown to be the alter ego of Ergonome as a sanction for repeated discovery violations throughout the litigation process.

Ergonome, Brown, and her husband Mowrey appeal on multiple grounds and argue, inter alia, that (1) the jury's verdict should be set aside, (2) the district court erred in finding that laches and equitable estoppel bar their suit, (3) the district court erred in shifting attorneys' fees to Ergonome, and (4) Brown and Mowrey are not the alter egos of Ergonome and should not be held jointly and severally liable for the attorneys' fee award.

To prevail, Ergonome would have to persuade this court that each of the four independent bases for finding in Compaq's favor (de minimis, fair use, laches, and equitable estoppel) is legally erroneous. Ergonome has not succeeded in this formidable task, and, focusing exclusively on the jury's finding of fair use, we affirm the finding of no infringement. We reach no other substantive copyright issues raised by the parties. Additionally, we affirm the district court's decision to shift attorneys' fees and its discovery sanction against Brown. However, because no such sanction was imposed on Mowrey, we reverse this aspect of the judgment.

I. BACKGROUND

In 1992, Stephanie Brown began writing THB and subsequently registered the manuscript with the U.S. Copyright Office. Brown and Mowrey formed Ergonome in 1993 to publish and market the book. Brown assigned all her rights in THB, including the copyright, to Ergonome. THB was formally published in 1994.

In 1993, Compaq decided to update a booklet entitled Creating a Comfortable Work Environment that was packaged with each Compaq computer. During the revision process, Compaq's manager of the Human Factors Group, Cynthia Purvis, referenced THB. The finished booklet, renamed the Safety and Comfort Guide, contained four illustrations and seven phrases that were similar to photographs and phrases in THB.¹ Like its predecessor, the SCG was packaged and included with every Compaq computer.

Meanwhile, Brown and Mowrey had been attempting to market THB to various computer companies, including Compaq. Mowrey initially spoke to Purvis on the telephone in March 1994 and thereafter sent Purvis a letter detailing volume discount prices for THB. In November 1994, Brown and Mowrey attended a meeting with Compaq personnel in Houston to demonstrate Key Moves, a software derivative of THB. During this meeting, Purvis gave Brown a pre-publication copy of the 1994 SCG. According to Brown, while leafing through the SCG, she became aware of the similarities between the above-referenced four illustrations and seven phrases and THB. She said nothing of the alleged infringement, however, choosing instead to pursue the possibility of a software license with Compaq. Brown and Mowrey returned to Compaq again in January 1995 for another Key Moves demonstration.

In December 1996, Mowrey notified Purvis of Ergonome's infringement claims. In 1997, Compaq filed suit in federal district court in Houston seeking a declaration that the SCG did not infringe on THB. Ergonome subsequently filed an infringement action in federal district court in New York, which was transferred and consolidated with Compaq's declaratory judgment action in Houston. Both parties filed motions for summary judgment, and the district court concluded as a matter of law that the portions of THB at issue were copyrightable. However, the district court ultimately denied the motions because genuine issues of material fact remained as to Compaq's affirmative defenses of de minimis and fair use. See Compaq Computer Corp. v. Ergonome, Inc., 137 F.Supp.2d 768 (S.D.Tex.2001). The jury trial and resulting appeal followed.

II. DISCUSSION

A. Liability

"To establish copyright infringement, a plaintiff must prove ownership of a valid copyright and copying of constituent elements of the work that are copyrightable." Eng'g Dynamics, Inc. v. Structural Software, Inc., 26 F.3d 1335, 1340 (5th Cir.1994) (citing Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1999)). Copyright ownership is shown by (1) proof of originality and copyrightability and (2) compliance with the applicable statutory requirements. Id. Compaq does not dispute that Ergonome possessed a statutorily compliant copyright. In addition, the district court held as a matter of law that the portions of THB allegedly copied by Compaq reflected the necessary originality to qualify as copyrightable.² Compaq Computer Corp. v. Ergonome Inc., 137 F.Supp.2d 768, 777 (S.D.Tex.2001). The jury found that Compaq actually copied portions of THB.

Not all copying amounts to copyright infringement, however. Eng'g Dynamics, 26 F.3d at 1340-41. Specifically, Congress has excepted from infringement of copyrighted materials copying that amounts to "fair use" under 17 U.S.C. § 107. When determining fair use, Congress has provided a non-exclusive list of factors that must be considered:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use on the potential market for or value of the copyrighted work.

17 U.S.C. § 107 (2000). In the instant case, Compaq pleaded fair use as an affirmative defense, the jury was instructed on the four factors enumerated above, and they ultimately concluded that Compaq's copying of the four illustrations and seven phrases from THB amounted to fair use. On appeal, Ergonome does not challenge the fair use jury instruction. Instead, the company argues that the district court erroneously excluded evidence relevant to the fair use defense and erred in refusing to grant Ergonome's motion for judgment as a matter of law as to fair use.

1. Exclusion of Evidence

This court reviews a district court's decision to admit or exclude evidence for abuse of discretion. Green v. Administrators of Tulane Educ. Fund, 284 F.3d 642, 660 (5th Cir.2002). Even if an abuse of discretion is found, the harmless error doctrine applies unless a substantial right of the complaining party was affected. Id.

Ergonome contends that the district court excluded evidence relevant to the first statutory fair use factor. Specifically, Ergonome complains about the exclusion of evidence relating to (1) past lawsuits against Compaq for repetitive stress injuries ("RSI"), (2) the exact number of the offending copies of the SCG distributed with Compaq computers, and (3) the proposed volume discount quoted to Compaq by Mowrey. The district court apparently premised exclusion on Federal Rule of Evidence 403, finding that "its probative value is substantially outweighed by the danger of unfair prejudice." Fed. R. Evid. 403.

Ergonome asserts that the evidence concerning past RSI lawsuits is necessary to prove Compaq's "commercial motive" for copying from THB, that is, Compaq's desire to defray potential RSI liability. The first statutory fair use factor asks the court or jury to consider "the purpose or character of the use." While Compaq did not produce the SCG for individual sale or profit, the Supreme Court has noted that "[t]he crux of the profit/nonprofit distinction is not whether the sole motive of the use is monetary gain but whether the user stands to profit from exploitation of the copyrighted material without paying the customary price." Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985). Thus, the inclusion of the SCG with each Compaq computer constitutes a commercial use of the copied material.

The RSI evidence would be relevant to Ergonome's "motive" theory. However, the district court concluded that Ergonome's true reason for seeking to introduce the evidence was to paint Compaq as a "bad" company. The court did not abuse its discretion by concluding that any probative value the RSI evidence might hold was outweighed by its prejudicial and inflammatory nature and by its tendency to confuse the jury with tangential litigation. In any event, the exclusion was harmless, because even without the RSI lawsuit evidence,...