952 F.2d 769 (3rd Cir. 1991), 91-1132, MacLean Associates, Inc. v. Wm. M. Mercer-Meidinger-Hansen, Inc.

Docket Nº:91-1132.
Citation:952 F.2d 769
Party Name:21 U.S.P.Q.2d 1345 MacLEAN ASSOCIATES, INC. v. WM. M. MERCER-MEIDINGER-HANSEN, INC. v. Barry MacLEAN and Greg Darnley Barry MacLean, Appellant.
Case Date:December 31, 1991
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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952 F.2d 769 (3rd Cir. 1991)

21 U.S.P.Q.2d 1345

MacLEAN ASSOCIATES, INC.

v.

WM. M. MERCER-MEIDINGER-HANSEN, INC.

v.

Barry MacLEAN and Greg Darnley Barry MacLean, Appellant.

No. 91-1132.

United States Court of Appeals, Third Circuit

December 31, 1991

Argued July 9, 1991.

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Frank J. Benasutti (argued), Benasutti, P.C., Wynnewood, Pa., for appellant.

Robert Neuner (argued), Robert C. Scheinfeld, Carl Oppedahl, Brumbaugh, Graves,

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Donohue & Raymond, New York City, and Roger W. Herrell, Dann, Dorfman, Herrell & Skillman, Philadelphia, Pa., for appellee.

Before STAPLETON, HUTCHINSON and ROSENN, Circuit Judges.

OPINION

HUTCHINSON, Circuit Judge.

I.

Barry MacLean (Mr. MacLean) appeals a ruling of the United States District Court for the Eastern District of Pennsylvania granting appellee, Wm. M. Mercer-Meidinger-Hansen, Inc.'s (Mercer's), motion for a directed verdict on Mr. MacLean's copyright claims against Mercer. Mr. MacLean is a former employee of Mercer, an employee benefit and compensation consulting firm. In addition to consulting, Mercer provides computer software for job evaluation to businesses. Mr. MacLean left Mercer to form a competing consulting firm, MacLean Associates, Inc. (MacLean Associates). Mr. MacLean asserts that he had a valid, enforceable copyright as creator of the Job Evaluation and Management System (JEMSystem) which Mercer infringed by incorporating it into software for a competing system, known as CompMaster, that Mercer devised.

For the reasons hereinafter set forth, we will vacate the judgment in favor of Mercer on Mr. MacLean's claim that Mercer's incorporation of the JEMSystem software into CompMaster infringed a copyright in JEMSystem belonging to Mr. MacLean as JEMsystem's creator and remand the case to the district court for further proceedings consistent with this opinion.

II.

On December 1, 1989, MacLean Associates filed a declaratory judgment action in the United States District Court for the Eastern District of Pennsylvania. It filed the action after notification from Mercer of its contention that MacLean Associates was infringing Mercer's copyright in CompMaster. MacLean Associates sought a judgment against Mercer declaring that MacLean Associates' computer software known as CARS written in the Clipper programming language (Clipper CARS) did not infringe Mercer's registered copyrights in CompMaster and that MacLean Associates did not compete unfairly with Mercer by misappropriating its trade secrets. Mercer filed an answer on January 4, 1990 and counterclaimed against MacLean Associates. Mercer then joined Mr. MacLean and Greg Darnley (Darnley), a former employee of Mercer hired by MacLean Associates, and filed third-party complaints against them.

MacLean Associates and Mr. MacLean filed an amended complaint and counterclaim on September 17, 1990. The amended complaint sought a judgment against Mercer declaring that neither MacLean Associates, Mr. MacLean nor Darnley had infringed Mercer's copyright or engaged in unfair competition. Mr. MacLean asserted two counterclaims against Mercer in his individual capacity. The first claim alleged that Mercer infringed his copyright in a computer spreadsheet program called JEMSystem by incorporating JEMSystem into a system called JES and later into CompMaster. The second claim alleged that Mercer falsely described its CompMaster program by failing to credit Mr. MacLean as an author of a portion of it in violation of section 43(a) of the Lanham Act, 15 U.S.C.A. § 1125(a) (West Supp.1991).

Mercer then filed an amended answer, counterclaims, affirmative defenses and reply to the amended pleading of MacLean Associates and Mr. MacLean. Mercer denied any liability to Mr. MacLean and asserted by way of affirmative defense that JEMSystem was owned by Mercer as a work made for hire or license and that Mr. MacLean's claims were barred by laches. Mercer counterclaimed against Mr. MacLean for a judgment declaring that it did not infringe Mr. MacLean's alleged copyright in JEMSystem and did not violate section 43(a) of the Lanham Act. Mercer also sought an order requiring Mr. MacLean to assign his copyright registration in JEMSystem to it, claiming it was either the owner or co-owner of the JEMSystem program.

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In its amended counterclaims and third-party claims against MacLean Associates, Mr. MacLean and Darnley, Mercer asserted claims concerning the alleged copying of CompMaster into Clipper CARS. These claims included copyright infringement and common law causes of action under Pennsylvania law for misappropriation and misuse of trade secrets, unfair competition, unjust enrichment and misappropriation of business information. Mercer further asserted third-party claims solely against Darnley for breach of fiduciary duty and for contribution to or indemnification from any judgment which might be rendered against Mercer and in favor of Mr. MacLean.

All these competing claims eventually came to trial before a jury. After Mr. MacLean and MacLean Associates rested their case-in-chief, the district court directed a verdict against Mr. MacLean on his claims for infringement of his copyright in JEMSystem and false designation of origin. It held that Mercer was the owner and author of all copyrights in JEMSystem. Specifically, the district court ruled that Mr. MacLean was an employee of Mercer at the time he created JEMSystem and thus Mercer was the owner of all copyrights in JEMSystem because it was a work made for hire. Alternately, the district court ruled that Mr. MacLean gave Mercer an implied license in the JEMSystem program. As a third alternate ground for granting Mercer's motion for a directed verdict, the court held that Mr. MacLean furnished JEMSystem to Mercer when he had full knowledge that Mercer would copy and exploit it and that thus his JEMSystem claims against Mercer were barred under the doctrine of laches. 1

The rest of the case then proceeded before the jury. At the close of its evidence, Mercer voluntarily dismissed all of its claims against Mr. MacLean and Darnley. Mercer's claims against MacLean Associates for copyright infringement and misappropriation of trade secrets in connection with MacLean Associates' Clipper CARS software were submitted to the jury on special interrogatories. The jury found that MacLean Associates infringed Mercer's copyright in CompMaster and misappropriated Mercer trade secrets. The jury awarded Mercer an aggregate amount of $1,958,021.00 in compensatory and punitive damages.

In a judgment and injunction order dated January 9, 1991, the district court entered judgment on the verdict against MacLean Associates and enjoined it from continued infringement of Mercer's rights in CompMaster or continued unfair competition with it. 2 Mr. MacLean and MacLean Associates moved for judgment notwithstanding the verdict, or alternately, a new trial. Additionally, MacLean Associates moved for a stay of proceedings to enforce the judgment pursuant to Federal Rule of Civil Procedure 62(b). The district court denied both of these motions in an order entered January 18, 1991. On February 15, 1991, Mr. MacLean, on his own behalf, filed a notice of appeal from the district court's order of January 18, 1991. Mr. MacLean then filed a second notice of appeal on February 19, 1991 from the district court's

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judgment and injunction order. 3 Both appeals were timely.

III.

Mr. MacLean began work at Mercer in 1980. 4 Mr. MacLean became a highly paid, high level employee of the company with the title of "principal." As a principal, he received stock as partial compensation and participated in a special compensation program. Among Mr. MacLean's responsibilities at Mercer were the creation and execution of marketing plans in the field of compensation consulting. The New York Stock Exchange (NYSE) was one of Mercer's clients for whom Mr. MacLean was responsible. In 1984 and 1985, Mr. MacLean directed a study for the NYSE in which he sought to design a job evaluation system and administrative procedures to accompany the system. A preliminary report of the study was delivered to the NYSE on September 19, 1985.

On September 30, 1985, MacLean left the formal employ of Mercer to open his own employment consulting business in New Hope, Pennsylvania under the name "MacLean Associates, Inc." Following his formal exit from Mercer, Mr. MacLean continued to provide services to the NYSE. Mr. MacLean did not inform the NYSE that he was no longer employed with Mercer. Instead, Mr. MacLean continued to administer the NYSE project on Mercer's behalf precisely as before, but now as a paid consultant. Mr. MacLean did not seek to take the NYSE account to his newly formed company since the NYSE was already under contract with Mercer and he did not think the NYSE would choose to do business directly with his new company.

While working as a paid consultant for Mercer on its job with the NYSE, Mr. MacLean's responsibilities remained the same as they were before he left Mercer. From October 1985 to June 1986, Mercer authorized Mr. MacLean to communicate with the NYSE on Mercer stationery as a Mercer principal. Mr. MacLean billed Mercer for his services and Mercer paid these bills without any specific reimbursement from the NYSE. The evidence introduced at trial also showed that Mr. MacLean had authority after he left the formal employ of Mercer to bind Mercer in its contractual relationship with the NYSE. For example, in November of 1985 Mr. MacLean absolved the NYSE of a $90,000.00 debt the NYSE owed to Mercer on the software project.

Central to the dispute in this case is the development, by both Mercer and Mr. MacLean, of computer software used to evaluate job performance. Beginning...

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