Cross v. Consumer, 08-10521.

Citation622 F.3d 361
Decision Date29 September 2010
Docket NumberNo. 08-10521.,08-10521.
PartiesMGE UPS SYSTEMS, INC., Plaintiff-Appellant-Cross-Appellee, v. GE CONSUMER AND INDUSTRIAL, INC.; GE Industrial Systems, Inc.; General Electric Company; Power Maintenance International, Inc., Defendants-Appellees-Cross-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

OPINION TEXT STARTS HERE

Stephen Andrew Kennedy (argued), Zachary M. Groover, Kennedy, Clark & Williams, P.C., Dallas, TX, for MGE UPS Systems, Inc.

Joseph F. Cleveland, Jr. (argued), Jeremy Heath Coffman, Richard Hunt Gateley, Brackett & Ellis, P.C., Fort Worth, TX, for Defendants-Appellees-Cross-Appellants.

Andy Tindel, Provost Umphrey Law Firm, L.L.P., Tyler, TX, for Motion Picture Ass'n of America, Inc., Amicus Curiae.

Stacy R. Obenhaus, Gardere Wynne Sewell, L.L.P., Dallas, TX, for Entertainment Software Ass'n, Business Software Alliance, Recording Industry Ass'n of America and Software and Information Industry Ass'n, Amici Curiae.

Mark Reiling Freeman, U.S. Dept. of Justice, Civ. Div., App. Staff, Washington, DC, for U.S., Amicus Curiae.

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

Before BARKSDALE, GARZA and PRADO, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

The original opinion in this case was issued by the panel on July 20, 2010. Treating the petition for rehearing en banc as one for panel rehearing, we GRANT the petition in part, withdraw our previous opinion (612 F.3d 760 (5th Cir.2010)), and substitute the following.

MGE UPS Systems, Inc. (MGE) appeals the district court's Federal Rule of Civil Procedure 50(a) dismissal of its Digital Millennium Copyright Act (“DMCA”) claim against Power Maintenance International, Inc. (PMI); General Electric Company (GE); GE Consumer and Industrial, Inc.; and GE Industrial Systems, Inc. (collectively, GE/PMI). MGE also appeals the district court's denial of prejudgment interest on MGE's damages award. GE/PMI cross-appeals on four grounds: (1) whether the district court erred in dismissing GE/PMI's Rule 50(a) motion because MGE failed to present evidence of damages, or in the alternative, whether the district court erred in dismissing GE/PMI's Rule 50(b) motion because the $4.6 million jury award was not a reasonable calculation of damages; (2) whether MGE impermissibly double-recovered damages; (3) whether the parties had a tolling agreement in place that permitted MGE to recover damages prior to December 17, 2001; and (4) whether the district court erred in granting MGE injunctive relief against GE/PMI.

I

Uninterruptible power supply (“UPS”) machines are used during periods of power outages to provide power to critical operating systems. MGE manufactures several lines of UPS machines, some of which require the use of MGE's copyrighted software programs Pacret and Muguet during servicing. This software fixes calibration problems more quickly than traditional manual servicing techniques. Without the software, a service technician can still partially service an MGE UPS machine, but a number of critical procedures (including recalibration and adjustment of voltage levels) can only be performed through use of the software, which works only on MGE-manufactured devices.

The software requires connection of an external hardware security key (called a “dongle”) to the laptop serial port. Each dongle has an expiration date, a maximum number of uses, and a unique password. When the software is activated, it searches for a properly programmed dongle before it will fully launch. Once launched, the software will go through a second series of protocol exchanges with the data located on the UPS machine's microprocessors to confirm that MGE software is communicating with MGE hardware. If the protocol exchange is successful, MGE's software proceeds to collect system status information for the technician.

Years after MGE introduced its security technology, a number of software hackers published information on the internet disclosing general instructions on how to defeat the external security features of a hardware key. Once the software is cracked and the security key is defeated, the software can be accessed and used without limitation.

PMI is a critical power service company servicing a variety of brands of UPS machines, including MGE UPS machines. PMI initially subcontracted MGE to perform software service on MGE UPS machines, but sometime before June 2000, a group of PMI employees obtained at least one copy of MGE's software from an unknown source. GE acquired PMI in 2001.

In December 2004, MGE filed suit against GE/PMI for, inter alia, copyright infringement, misappropriation of trade secrets, unfair competition, conversion, and DMCA violations. GE/PMI does not dispute liability, inasmuch as it admits to recovering a laptop from a former PMI employee that contained hacked MGE software, and admits to five instances of this software's use from June 2000 through May 2002. MGE alleges that GE/PMI used the software a total of 428 times, including uses after the district court granted MGE a preliminary injunction against GE/PMI's use of MGE's software and trade secrets.

During the proceedings for this action, GE/PMI moved, renewed, and re-urged motions for summary judgment and judgment as a matter of law pursuant to Federal Rules of Civil Procedure 50(a) and (b) arguing, inter alia, that MGE could not sustain a DMCA cause of action against GE/PMI. After initially denying GE/PMI's pretrial motion for summary judgment and its Rule 50(a) motion on MGE's DMCA claim, the district court dismissed the DMCA claim during an off-record jury charge conference. The jury found that GE/PMI had infringed MGE's copyrights, misappropriated MGE's trade secrets, and committed unfair business practices. The jury awarded MGE the following damages:

A. Damages for misappropriation of trade secrets on MGE's data disk:

1. Net profits earned by GE/PMI from January 1, 2001 to December 17, 2001: $460,000

2. Net profits earned by GE/PMI from December 18, 2001 to August 15, 2005: $1,852,000

B. Damages for copyright infringement:

1. Net profits earned by GE/PMI from January 1, 2001 to December 17, 2001: $368,000

2. Net profits earned by GE/PMI from December 18, 2001 to August 15, 2005: $1,852,000

C. Damages for misappropriation of MGE software trade secrets:

1. Net profits earned by GE/PMI from January 1, 2001 to December 17, 2001: $92,000

2. Net profits earned by GE/PMI from December 18, 2001 to August 15, 2005: $0

TOTAL: $4,624,000

The district court awarded MGE the total jury verdict, post-judgment interest, a permanent injunction against GE/PMI, impoundment of infringing materials, taxable costs, and attorney's fees. The district court declined to award prejudgment interest on the damage awards.

II

MGE argues that the district court erred in granting GE/PMI's Rule 50(a) motion dismissing MGE's DMCA violation claim. We review de novo a trial court's decision on a Rule 50(a) motion for judgment as a matter of law, viewing all of the evidence “in the light and with all reasonable inferences most favorable to the party opposed to the motion.” Resolution Trust Corp. v. Cramer, 6 F.3d 1102, 1109 (5th Cir.1993) (internal quotations omitted). A Rule 50(a) motion is properly granted [i]f the facts and inferences point so strongly and overwhelmingly in favor of the moving party ... that reasonable jurors could not have arrived at a contrary verdict.” Id. (citation omitted).

GE/PMI argues that MGE has failed to show that the DMCA's anti-circumvention provision applied to the actions of the GE/PMI employees, because it cites no evidence that a GE/PMI employee or representative was responsible for circumventing the security features of MGE's software-as opposed to merely using the software after some other party disabled the code requiring a dongle. As a result, GE/PMI argues, its actions did not violate the DMCA and would, at most, have amounted to copyright infringement.

One of Congress' purposes behind enacting the DMCA was targeting the circumvention of technological protections. Davidson & Assocs. v. Jung, 422 F.3d 630, 639-40 (8th Cir.2005). The DMCA's anti-circumvention provision states, “No person shall circumvent a technological measure that effectively controls access to a work protected under this title.” 17 U.S.C. § 1201(a)(1)(A). To “circumvent a technological measure” means to “descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner.” Id. § 1201(a)(3)(A). “Effectively controls access to a work” means that “the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work.” Id. § 1201(a)(3)(B).

Because § 1201(a)(1) is targeted at circumvention, it does not apply to the use of copyrighted works after the technological measure has been circumvented. See Universal City Studios, Inc. v. Corley, 273 F.3d 429, 443 (2d Cir.2001). ([T]he DMCA targets the circumvention of digital walls guarding copyrighted material (and trafficking in circumvention tools), but does not concern itself with the use of those materials after circumvention has occurred.”). The issue, therefore, is not whether the technological measures that effectively controlled access to MGE's software were circumvented at some point, but whether the actions of GE/PMI's own representatives amounted to circumvention. The DMCA defines circumvention broadly to include not only disabling protections, but also avoiding or bypassing them. See 17 U.S.C. § 1201(a)(3)(A). We, however, do not construe “bypass” or “avoid” to encompass use of a copyrighted work subsequent to a circumvention merely because that use would have been subject to a technological measure that would have controlled access to the work, but for that circumvention. So broad...

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