Autoskill Inc. v. National Educational Support Systems, Inc., 92-2118

• Decision Date: 19 May 1993
• Docket Number: No. 92-2118,92-2118
• Citation: 994 F.2d 1476
• Parties: , 1993 Copr.L.Dec. P 27,099, 25 Fed.R.Serv.3d 838, 24 Bankr.Ct.Dec. 495, 26 U.S.P.Q.2d 1828 AUTOSKILL INC., a Canadian corporation, Plaintiff-Appellee, v. NATIONAL EDUCATIONAL SUPPORT SYSTEMS, INC., a New Mexico corporation, Defendant-Appellant. NATIONAL EDUCATIONAL SUPPORT SYSTEMS, INC., a New Mexico corporation, Plaintiff-Appellant, v. AUTOSKILL INC., a Canadian corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1476

994 F.2d 1476

61 USLW 2763, 1993 Copr.L.Dec. P 27,099,

25 Fed.R.Serv.3d 838,

24 Bankr.Ct.Dec. 495, 26 U.S.P.Q.2d 1828

AUTOSKILL INC., a Canadian corporation, Plaintiff-Appellee, v. NATIONAL EDUCATIONAL SUPPORT SYSTEMS, INC., a New Mexico

corporation, Defendant-Appellant.

NATIONAL EDUCATIONAL SUPPORT SYSTEMS, INC., a New Mexico

corporation, Plaintiff-Appellant, v. AUTOSKILL INC., a Canadian corporation, Defendant-Appellee.

No. 92-2118.

United States Court of Appeals, Tenth Circuit.

May 19, 1993.

G. Gervaise Davis, III of Davis & Schroeder, P.C., Monterey, CA (Scott David Schroeder and Gary C. Shallcross of Davis & Schroeder, P.C., Monterey, CA, and Ross Perkal, Albuquerque, NM, with him, on the brief), for National Educational Support Systems, Inc.

Robert W. Harris, Albuquerque, NM, for Autoskill Inc.

Before BALDOCK and HOLLOWAY, Circuit Judges, and O'CONNOR, ^* District Judge.

HOLLOWAY, Circuit Judge.

Autoskill, Inc. (Autoskill), a Canadian corporation, in 1986 obtained a certificate of registration of copyright on a computer program designed to test and train students with reading deficiencies. After National Educational Support Systems, Inc. (NESS), a New Mexico corporation, began marketing similar software in 1990, Autoskill sued for copyright infringement in the District of New Mexico. That court had jurisdiction of the claim of copyright infringement asserted under 28 U.S.C. § 1338(a) and 28 U.S.C. § 1332(a). The district court granted Autoskill a preliminary injunction against NESS covering some portions of Autoskill's program, Autoskill, Inc. v. National Educational Support Systems Inc., 793 F.Supp. 1557, 1573 (D.N.M.1992), and NESS appeals. We have appellate jurisdiction granted by 28 U.S.C. § 1292(a)(1). We affirm.

I. THE FACTUAL BACKGROUND

Beginning in the late 1970s, Dr. Christina Fiedorowicz and Dr. Ronald Trites, the president of Autoskill, developed a computer software program for use in teaching reading skills to students with reading disabilities. After reviewing some research of others, they designed their program to identify students with reading difficulties in three categories or subtypes: Type O, the oral reading subtype; Type A, the intermodal associative deficit subtype; and Type S, the sequential deficit subtype. Autoskill obtained a United States certificate of registration of the copyright on the software Trites and Fiedorowicz developed, effective January 27, 1986, called "Autoskill: Component Reading Subskills Testing and Training Program." 793 F.Supp. at 1559.

NESS was incorporated as a New Mexico corporation in 1989. Two of the principals of NESS, Byron Manning and Ron Neil, were familiar with the Autoskill program. As a salesman for the computer manufacturer UNISYS Corp., Neil sold ICON computers with Autoskill software to educational institutions for about four years between 1986 and 1990. NESS has explained that as "the first alternative for business of the newly organized NESS," Manning and Neil decided to attempt to obtain a license to market the Autoskill program. Brief of Appellant at 15. However, several months of negotiations between NESS and Autoskill ended in late 1989, without an agreement.

With the licensing negotiations with Autoskill still ongoing, Neil began discussions with a computer programming firm, Automation Consultants, Inc. (ACI), about developing a reading software program for NESS. The president of ACI, Lynn Beckwith, wrote in his notes about his initial conversations with Neil that the NESS software was "to be like AUTOSKILL" and was to be an "AUTOSKILL REPLACEMENT." 793 F.Supp. at 1559.

In January 1990, ACI began programming the NESS reading software. NESS specified the substantive and pedantic content of the NESS program to the programming firm. In addition, NESS gave the programmers copies of some of the published articles that had been used as part of the basis of the Autoskill program, as well as an Autoskill sales brochure. Id. By March 1990, the programming firm had produced a preliminary version of the NESS software, called "Nessi: Reading and Language Development Program." Appellant's App. at 391.

With its reading software ready to demonstrate, NESS began a marketing effort in May 1990. Id. at 186. A Canadian-based firm, Lifeskills Technology, signed an agreement with NESS to distribute the NESS program in Canada. Both NESS and Lifeskills began hearing rumors that Autoskill was planning to initiate a copyright infringement action against NESS. In April 1991, an attorney for Autoskill sent a letter to Lifeskills stating that Autoskill viewed the NESS software as an infringing program, and warning that Lifeskills could be named in an infringement action. Id. at 389-90.

NESS filed a suit in the District of New Mexico in July 1991 for a declaratory judgment that it did not infringe the Autoskill copyright, and other relief. Id. at 1, 5-6 (complaint). The district judge issued a temporary restraining order that prohibited Autoskill officers and other employees from interfering with the distribution of the NESS software. On September 25, 1991, Autoskill filed this instant case in the District Court against NESS for copyright infringement and misappropriation of trade secrets, seeking a preliminary injunction, which is at issue here, to prevent continued infringement. Autoskill's action was consolidated with the NESS suit.

On April 21, 1992, the district judge granted Autoskill a preliminary injunction which prohibited NESS from "[m]anufacturing, reproducing, duplicating, copying, marketing, selling, renting, lending, distributing, displaying or demonstrating any portion of any NESSI Program or user manual which is substantially similar to the protectible elements of the Autoskill Program" and "[d]oing any other act which infringes on the protectible portion of the Autoskill Program." 793 F.Supp. at 1573. ¹ The judge concluded that Autoskill had shown a substantial likelihood of success on the merits and had prevailed on the other three elements--irreparable harm, proof that the threatened injury outweighed the potential harm to NESS from the injunction, and that the injunction would not be adverse to the public interest. Id. at 1572.

II. APPELLATE JURISDICTION

In a motion to dismiss this appeal, Autoskill argued two theories: (1) the automatic bankruptcy stay of 11 U.S.C. § 362 prevented NESS from appealing the preliminary injunction; and (2) NESS' notice of appeal was untimely because it was filed more than 30 days after the order granting the injunction. We reserved judgment on the jurisdictional question for disposition by the hearing panel.

On April 27, 1992, six days after the district judge entered the preliminary injunction, NESS filed a voluntary petition in the Bankruptcy Court for the District of New Mexico in which it sought relief under Chapter 11. Commencement of the voluntary Chapter 11 case constituted an order for relief under the chapter. See 11 U.S.C. § 301. Subsequently, on June 3, 1992, memorializing an oral ruling on June 2, the bankruptcy judge granted Autoskill relief from the automatic stay so that Autoskill might enforce the preliminary injunction. None of the bankruptcy judge's orders are before us for review.

NESS initiated this appeal of the preliminary injunction by filing a notice of appeal on June 26, 1992, the sixtieth day after it filed the Chapter 11 petition and the sixty-sixth day after the injunction issued. On July 7, 1992, Autoskill filed the motion to dismiss the appeal for lack of jurisdiction. NESS then sought a ruling in the bankruptcy court on the applicability of the automatic stay to the appeal, or in the alternative a ruling granting it relief from the automatic stay in order to pursue the appeal. See Appellant's App. at 162. On July 16, 1992, the bankruptcy judge ruled that the appeal was permissible on two grounds. First, he held that Rule 6009 of the Bankruptcy Rules controlled; thus, NESS had not needed court approval to prosecute the appeal. Id. Second, the judge granted NESS relief from the automatic stay to prosecute an appeal of the preliminary injunction. Id.

A. 11 U.S.C. § 108(b)(2)

We address first the timeliness of NESS' notice of appeal filed outside the 30 days allowed by Rule 4(a) of the Federal Rules of Appellate Procedure.

In arguing that its notice of appeal was timely, NESS relies on the 60-day time period that 11 U.S.C. § 108(b)(2) provides for certain actions by Chapter 11 trustees or debtors in possession. ² We must decide whether, when the Rule 4(a) 30-day period for filing a notice of appeal has not expired before the filing of a bankruptcy petition, § 108(b)(2) extends the time for filing a notice of appeal for 60 days after the order for relief is entered. Few courts have addressed the question and the issue is one of first impression in our circuit. ³

Rule 4(a)(1) of the Federal Rules of Appellate Procedure requires a party appealing as of right in a civil case to file a notice of appeal "within 30 days after the date of entry of the judgment or order appealed from." Since the notice of appeal here was filed outside the 30-day time period, NESS relies on § 108(b)(2) of the Bankruptcy Code. In general terms, § 108(b) embodies a longstanding provision in the bankruptcy statutes that "permit the trustee, when he steps into the shoes of the debtor, an extension of time for filing an action or doing some other act that is required to preserve the debtor's rights." H.R.Rep. No. 595, 95th Cong., 1st Sess. 318 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6275; see also S.Rep. No. 989, 95th Cong., 2d Sess. 30 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5816 (same). Section 108(b) provides:

Except as provided in subsection (a) of this section, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor or an individual protected under section 1201 or 1301 of this title may...