Trandes Corp. v. Guy F. Atkinson Co.

• Decision Date: 10 June 1993
• Docket Number: No. 92-2182,92-2182
• Parties: 1993 Copr.L.Dec. P 27,112, 27 U.S.P.Q.2d 1014 TRANDES CORPORATION, Plaintiff-Appellee, v. GUY F. ATKINSON COMPANY, Defendant-Appellant, and Washington Metropolitan Area Transit Authority, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 655

996 F.2d 655

1993 Copr.L.Dec. P 27,112, 27 U.S.P.Q.2d 1014

TRANDES CORPORATION, Plaintiff-Appellee, v. GUY F. ATKINSON COMPANY, Defendant-Appellant, and Washington Metropolitan Area Transit Authority, Defendant.

No. 92-2182.

United States Court of Appeals, Fourth Circuit.

Argued March 4, 1993.

Decided June 10, 1993.

John G. DeGooyer, Hopkins & Sutter, Washington, DC (Ronald A. Uitz, on brief), for appellant.

Christian D. Abel, Murray, Jacobs & Abel, Alexandria, VA, (Richard Murray, Murray, Jacobs & Abel, Alexandria, VA, Tobey B. Marzouk, Thomas M. Parry, Washington, DC, on brief) for appellee.

Before WILLIAMS, Circuit Judge, SPROUSE, Senior Circuit Judge, and VOORHEES, Chief United States District Judge for the Western District of North Carolina, sitting by designation.

OPINION

WILLIAMS, Circuit Judge:

The Trandes Corporation brought this diversity suit against the Guy F. Atkinson Company (Atkinson) and the Washington Metropolitan Area Transit Authority (WMATA). Trandes alleged that WMATA improperly disclosed and Atkinson improperly acquired and used the "Tunnel System." The Tunnel System is a computer program written by Trandes's president, James Brusse, to perform survey calculations for the construction of subway tunnels. After a three day trial, the district court submitted five issues to the jury: (1) whether WMATA breached its contract with Trandes, (2) whether WMATA breached its fiduciary duties to Trandes, (3) whether WMATA misappropriated Trandes's trade secrets, (4) whether Atkinson misappropriated Trandes's trade secrets, and (5) whether Atkinson's actions had been willful, wanton, and malicious. The jury found for Trandes on each claim and awarded $17,400 in compensatory damages. ¹ The jury also found that Atkinson's actions had been willful, wanton, and malicious and accordingly awarded Trandes $750,000 in punitive damages.

After the jury returned its verdict in favor of Trandes, Atkinson moved for judgment as a matter of law. Atkinson also moved for a remittitur of punitive damages on the ground that any act of misappropriation occurred after the effective date of the Maryland Uniform Trade Secrets Act (MUTSA), Md.Com.Law II Code Ann. §§ 11-1201 to -1209 (Michie 1990), and was therefore subject to the statutory cap that limits punitive damages to twice compensatory damages, id. § 11-1203(d). The district court denied both motions. Trandes Corp. v. Guy F. Atkinson Co., 798 F.Supp. 284, 288-90 (D.Md.1992).

Atkinson now appeals from the district court's decisions, arguing that (1) Trandes's claim of trade secret misappropriation is preempted by § 301(a) of the Copyright Act, 17 U.S.C. § 301(a) (1988); (2) Trandes failed to prove that it possessed any trade secrets; (3) Trandes failed to prove that Atkinson ever acquired any of the alleged trade secrets; and (4) Trandes failed to prove that Atkinson's acquisition of the Tunnel System was improper. We reject these arguments and hold that the district court properly denied Atkinson's motion for judgment as a matter of law. We therefore affirm Atkinson's liability for trade secret misappropriation. Atkinson correctly argues, however, that the evidence does not support the district court's conclusion that Atkinson misappropriated Trandes's trade secrets before the effective date of the MUTSA. We therefore reverse the district court's denial of Atkinson's motion for a remittitur and remand for an assessment of punitive damages in accordance with § 11-1203(d) of the MUTSA.

I.

Atkinson first argues that § 301(a) of the Copyright Act preempts Trandes's claim for trade secret misappropriation. This argument raises a question of law, which we review de novo. Taylor v. Local No. 7, Int'l Union of Journeymen Horseshoers, 353 F.2d 593, 601 (4th Cir.1965), cert. denied, 384 U.S. 969, 86 S.Ct. 1859, 16 L.Ed.2d 681 (1966).

The district court did not explicitly rule on Atkinson's preemption argument, but instead held that the Copyright Act did not govern this case because Trandes did not timely register the Tunnel System for copyright protection. Trandes Corp., 798 F.Supp. at 286 n. 1. In reaching this conclusion, the district court relied on § 411 of the Copyright Act, which provides that "no action for infringement of the copyright in any work shall be instituted until registration of the copyright claim has been made in accordance with this title." 17 U.S.C. § 411(a) (Supp. II 1990).

Although § 411(a) relates to the validity of Trandes's copyright infringement claim, it has no bearing on the preemption of state law under § 301. Section § 411(a) merely requires a copyright owner to register its copyright before filing an action for copyright infringement. Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 492 n. 44, 104 S.Ct. 774, 815 n. 44, 78 L.Ed.2d 574 (1984). As nothing more than a jurisdictional prerequisite, § 411(a) does not affect the broad preemptive scope of § 301. Trandes cannot escape the preemptive effect of § 301 merely by failing to register its copyright in a timely fashion. See Computer Assocs. Int'l, Inc. v. Altai, Inc., 775 F.Supp. 544, 565 (E.D.N.Y.1991) (failure to comply with requirements for copyright protection does not negate federal preemption), aff'd in part, vacated in part, and remanded, 982 F.2d 693 (2d Cir.1992). Consequently, the district court erred in relying on § 411(a). For the reasons set forth below, however, we agree with the district court's conclusion that the Copyright Act does not preempt Trandes's trade secret claims.

Section 301(a) of the Copyright Act provides that

all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright ... in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright ... are governed exclusively by this title.... [N]o person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.

17 U.S.C. § 301(a) (emphasis added); but see 17 U.S.C. § 301(b) (1988 & Supp. II 1990). ² Trandes's claim for trade secret misappropriation seeks to protect rights in its computer program, which clearly comes within the "subject matter" of copyright. 17 U.S.C. § 102(a) (1988 & Supp. II 1990) (the subject matter of copyright is "original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device"); see also M. Kramer Mfg. Co. v. Andrews, 783 F.2d 421, 434-35 (4th Cir.1986) (computer programs are copyrightable); Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1249 (3d Cir.1983) ("a computer program, whether in object code or source code, is a 'literary work' and is protected from unauthorized copying, whether from its object or source code version"), cert. dismissed, 464 U.S. 1033, 104 S.Ct. 690, 79 L.Ed.2d 158 (1984); 1 Roger M. Milgrim, Milgrim on Trade Secrets § 2.06A[c], at 2-168 to 2-171 (1993). Thus, if the rights Trandes seeks to protect are "equivalent" to the exclusive rights reserved to the owner of a copyright, Trandes's cause of action for misappropriation of trade secrets is preempted.

The owner of a copyright has the exclusive right to (1) reproduce the work, (2) prepare derivative works based on the work, (3) distribute copies of the work, (4) perform the work publicly, and (5) display the work publicly. 17 U.S.C. § 106 (1988 & Supp. II 1990). Trandes predicated its unsuccessful claim for copyright infringement on Atkinson's unauthorized acquisition and use of its computer software. Because Trandes based its claim for misappropriation of trade secrets on the same conduct, Atkinson contends that the latter cause of action is preempted. To support its claim, Atkinson relies on the holdings of Relational Design & Technology, Inc. v. Data Team Corp., 23 U.S.P.Q.2d (BNA) 1074, 1992 WL 97799 (D.Kan.1992); Computer Associates, 775 F.Supp. 544; and Videotronics, Inc. v. Bend Electronics, 564 F.Supp. 1471 (D.Nev.1983), later proceeding, 586 F.Supp. 478 (D.Nev.1984).

Atkinson takes the wrong approach by focusing its preemption analysis on the conduct alleged to support the two causes of action. To determine whether a particular cause of action involves rights equivalent to those set forth in § 106, the elements of the causes of action should be compared, not the facts pled to prove them. As the Second Circuit held in Harper & Row Publishers, Inc. v. Nation Enterprises, 723 F.2d 195, 200 (2d Cir.1983), rev'd on other grounds, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985), "when a state law violation is predicated upon an act incorporating elements beyond mere reproduction or the like, the rights involved are not equivalent and preemption will not occur." (Emphasis added.) See also Computer Assocs. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 716 (2d Cir.1992) (following Harper & Row test); but see Relational Design, 23 U.S.P.Q.2d at 1076 (where defendants allegedly reproduced and/or sold copies of plaintiff's software programs without authorization, the facts alleged to support the misappropriation and copyright infringement claims were identical and the trade secret action was preempted); Computer Assocs., 775 F.Supp. at 564 (where plaintiff's complaint stated that the act of copying the various elements of its computer program constituted both infringement of copyright and misappropriation of trade secrets, the trade secret claim was preempted). ³ To avoid preemption, a cause of action defined by state law must incorporate elements beyond those necessary to prove copyright infringement, and must regulate conduct qualitatively different from the conduct governed by federal copyright law. Harper & Row, 723 F.2d at 200-01; 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 1.01[B] at 1-14 (1992). This test has...