Compulife Software Inc. v. Newman, No. 18-12004

• Decision Date: 20 May 2020
• Docket Number: No. 18-12007,No. 18-12004
• Citation: 959 F.3d 1288
• Parties: COMPULIFE SOFTWARE INC., Plaintiff - Appellant, v. Moses NEWMAN, Aaron Levy, David Rutstein, a.k.a. David Anthony Gordon, a.k.a. Bob Gordon, a.k.a. Nate Golden, Binyomin Rutstein, a.k.a. Ben Rutstein, Defendants - Appellees. Compulife Software Inc., Plaintiff - Appellant, v. Binyomin Rutstein, a.k.a. Ben Rutstein, John Does 1 - 10, David Rutstein, Defendants - Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

959 F.3d 1288

COMPULIFE SOFTWARE INC., Plaintiff - Appellant,

v.Moses NEWMAN, Aaron Levy, David Rutstein, a.k.a. David Anthony Gordon, a.k.a. Bob Gordon, a.k.a. Nate Golden, Binyomin Rutstein, a.k.a. Ben Rutstein, Defendants - Appellees.

Compulife Software Inc., Plaintiff - Appellant,

v.Binyomin Rutstein, a.k.a. Ben Rutstein, John Does 1 - 10, David Rutstein, Defendants - Appellees.

No. 18-12004

No. 18-12007

United States Court of Appeals, Eleventh Circuit.

May 20, 2020

Joel Benjamin Rothman, Sriplaw, Boca Raton, FL, Jerold I. Schneider, Schneider IP Law, Boynton Beach, FL, for Plaintiff-Appellant.

Allison Levey Friedman, Allison L. Friedman, PA, Aventura, FL, for Defendants-Appellee.

Before JORDAN and NEWSOM, Circuit Judges, and HALL,^* District Judge.

NEWSOM, Circuit Judge:

There’s nothing easy about this case. The facts are complicated, and the governing law is tangled. At its essence, it’s a case about high-tech corporate espionage. The very short story: Compulife Software, Inc., which has developed and markets a computerized mechanism for calculating, organizing, and comparing life-insurance quotes, alleges that one of its competitors lied and hacked its way into Compulife’s system and stole its proprietary data. The question for us is whether the defendants crossed any legal lines—and, in particular, whether they infringed Compulife’s copyright or misappropriated its trade secrets, engaged in false advertising, or violated an anti-hacking statute.

With the parties’ consent, a magistrate judge was tasked with tackling these thorny issues in a bench trial. He determined that Compulife had failed to prove any legal violation. We conclude, however, that in finding that Compulife hadn’t demonstrated either copyright infringement or trade-secret misappropriation, the magistrate judge made several discrete legal errors and, more generally, failed to adequately explain his conclusions. Accordingly, we vacate the judgment in part and remand with instructions to make new findings of fact and conclusions of law.

I

A

Warning: This gets pretty dense (and difficult) pretty quickly.

Compulife and the defendants are direct competitors in a niche industry: generating life-insurance quotes. Compulife maintains a database of insurance-premium information—called the "Transformative Database"—to which it sells access. The Transformative Database is valuable because it contains up-to-date information on many life insurers’ premium-rate tables and thus allows for simultaneous comparison of rates from dozens of providers. Most of Compulife’s customers are insurance agents who buy access to the database so that they can more easily provide reliable cost estimates to prospective policy purchasers. Although the Transformative Database is based on publicly available information—namely, individual insurers’ rate tables—it can’t be replicated without a specialized method and formula known only within Compulife.

Compulife sells two different kinds of access to the Transformative Database—a "PC version" and an "internet-engine version"—each run by its own piece of software and each accompanied by its own type of license. Both pieces of software contain an encrypted copy of the database. The PC-version software—called the "PC quoter"—is sold along with a PC license that allows licensees to install copies of the quoter on their personal computers and other devices for (depending on the number of devices) a cost of either $180 or $300 per year. The PC quoter uses its local copy of the Transformative Database to generate insurance-rate estimates corresponding to demographic information entered by the end user.

A PC licensee can purchase an add-on called the "web quoter" for an extra $96 per year. The web-quoter feature allows the PC licensee to put a quoter on its own website, which it can then use as a marketing tool to attract customers. Once a licensee’s website is equipped with the web quoter, prospective life-insurance purchasers can enter demographic information into fields on the licensee’s site and receive quotes directly from the licensee. Unlike the PC quoter—which contains its own local copy of the Transformative Database—the web quoter generates quotes by communicating with an internet-quote engine hosted on Compulife’s server. The HTML source code of the web quoter is protected by a registered copyright.

A second kind of license—the "internet-engine" license—permits a licensee to host Compulife’s internet-quote engine, which includes the Transformative Database, on its own server and to integrate it with additional features of its own creation. (Naturally, it’s more expensive—it costs $1200 per year.) An internet-engine licensee can then sell access to "its" product—which is an amalgamation of Compulife’s internet-quote engine with any accoutrements that the licensee has seen fit to add. Importantly, though, internet-engine licensees can sell access only to Compulife’s PC licensees. This arrangement allows an internet-engine licensee to include Compulife’s internet-quote engine—again, with the Transformative Database—as a part of its own product, while simultaneously ensuring that it doesn’t compete with Compulife for potential insurance-agent customers. Compulife also permits an internet-engine licensee to provide its web-quoter HTML code to the licensee’s customers so that the customers’ websites can retrieve quotes from the licensee’s server. This is the same copyrighted HTML code that Compulife provides to PC licensees with the web quoter add-on.

In addition to the PC-version and internet-engine products that it licenses to agents and that contain the Transformative Database, Compulife also provides consumers with direct access to life-insurance quotes through its Term4Sale internet site, www.term4sale.com. Term4Sale communicates with essentially the same internet-quote engine that PC licensees’ web quoters access and that internet-engine licensees are permitted to maintain on their own servers. Anyone can use the Terms4Sale site to receive free life-insurance quotes directly from a copy of the Transformative Database that Compulife hosts on its own server. The Term4Sale site refers prospective life-insurance purchasers to insurance agents with whom Compulife partners, who in turn pay Compulife for the referrals.

Now, to the defendants, who are also in the business of generating life-insurance quotes—primarily through a website, www.naaip.org. "NAAIP" stands for National Association of Accredited Insurance Professionals, but as the court below found, "NAAIP is not a real entity, charity, not-for-profit, or trade association, and is not incorporated anywhere." Compulife Software, Inc. v. Rutstein , No. 9:16-cv-80808, 2018 U.S. Dist. LEXIS 41111 at *15 (Mar. 12, 2018). Through naaip.org, the defendants offer a service similar to—and, the evidence shows, at least partially copied from—Compulife’s web quoter, which they call a "Life Insurance Quote Engine." Any insurance agent can sign up for a free website located on the domain naaip.org—for example, "http://naaip.org/tmatteson77." The defendants host thousands of these sites on a server in Israel and equip each one with the Life Insurance Quote Engine. Prospective life-insurance purchasers can then obtain quotes on any of these NAAIP-hosted websites by entering demographic information, just as they could on the website of any Compulife PC licensee with a web quoter add-on. Each NAAIP site includes a link that allows consumers to purchase insurance through One Resource Group, Inc., a brokerage firm with which the defendants have partnered. If a visitor to an NAAIP site uses the link to buy insurance, the defendants receive a part of One Resource’s brokerage fees in exchange for the referral.

The defendants also operate the BeyondQuotes website, www.beyondquotes.com, which includes a Life Insurance Quote Engine like the ones on participating NAAIP websites. BeyondQuotes operates similarly to Compulife’s Term4Sale site, generating revenue by selling referrals to affiliated insurance agents.

B

Having canvassed Compulife’s and the defendants’ respective businesses, we should introduce the (complex) cast of individual characters that populate this case. The first is Robert Barney, the founder and CEO of Compulife. Barney personally updates Compulife’s Transformative Database. To do so, he draws on insurers’ publicly available rate information, but he also employs a proprietary calculation technique—in particular, a secure program to which only he has access and that only he knows how to use. Other relevant players at Compulife include Jeremiah Kuhn, its CFO/COO, and Chris Bruner, the programmer who created the Transformative Database.

Most significant among the defendants is David Rutstein, the founder of NAAIP and the owner of BeyondQuotes. He operates naaip.org and beyondquotes.com with help from his son, defendant Binyomin Rutstein, and their co-defendants Aaron Levy and Moses Newman. At one point—more on this to come—the defendants also employed a hacker named Natal, who, it is undisputed, took Compulife’s data for use in the defendants’ software.¹

There are also several key characters who aren’t directly affiliated with any of the parties. MSCC is a software company and a Compulife customer with an internet-engine license. It sells access to a proprietary program for life-insurance agents called "Vam DB," which (as is permissible for internet-engine licensees) includes Compulife’s internet engine. And because MSCC hosts Compulife’s internet engine on its Vam DB server, it also hosts (again, as is permissible) a copy of Compulife’s Transformative Database.

Brian McSweeney is a life-insurance agent who, during the time of the defendants’ alleged misconduct, was a Compulife PC licensee who used MSCC’s Vam DB server. At the same time, McSweeney also had a working relationship with the defendants—in particular, he was one of the agents who (as already described) paid the defendants for leads...