Dynamic Solutions, Inc. v. Planning & Control, Inc.

• Decision Date: 03 October 1986
• Docket Number: No. 86 Civ. 1886-CSH.,86 Civ. 1886-CSH.
• Citation: 646 F. Supp. 1329
• Parties: DYNAMIC SOLUTIONS, INC., Plaintiff, v. PLANNING & CONTROL, INC. & John Z. Censor d/b/a Censor & Company, Defendants.
• Court: U.S. District Court — Southern District of New York

646 F. Supp. 1329

DYNAMIC SOLUTIONS, INC., Plaintiff, v. PLANNING & CONTROL, INC. & John Z. Censor d/b/a Censor & Company, Defendants.

No. 86 Civ. 1886-CSH.

United States District Court, S.D. New York.

October 3, 1986.

COPYRIGHT MATERIAL OMITTED

Fryer, Ross & Gowen, New York City, for plaintiff; Gerald E. Ross, of counsel.

Fischer & Burstein, P.C., Meyers, Tersigni, Kaufman, Lurie, Feldman & Gray, New York City, for defendants; Stanley H. Fischer, Richard N. Gray, Robert H. Riley, of counsel.

MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

Plaintiff brings this action for copyright infringement, 17 U.S.C. § 501 et seq., and conversion and unfair competition under state law. The dispute concerns certain computer software, or "programs," of which plaintiff claims ownership. Subject matter jurisdiction is predicated on 28 U.S.C. § 1338(a), (b) and principles of pendent jurisdiction. Venue is proper under 28 U.S.C. § 1400(a).

Plaintiff moves pursuant to Rule 65, F.R. Civ.P., for a preliminary injunction barring defendants from using those programs or any computer programs based thereupon. By Memorandum Opinion and Order dated March 13, 1986, familiarity with which is assumed, a temporary restraining order was granted, which was extended on consent, see F.R.Civ.P. 65(b), until certain discovery could be completed and the preliminary injunction motion decided.

A hearing was held April 29, 1986 and May 2, 13 and 14, 1986, and testimony was taken from plaintiff's principal and its expert witness. Plaintiff also introduced, in the form of deposition transcripts,¹ testimony from defendant Censor, who appears to be the principal of defendant Planning and Control, Inc. ("PCI"). Defendants indicated that their only prospective witness was a computer expert of their own. (Tr. 384). For scheduling reasons, and because defendants strongly argued that plaintiff was not entitled to the requested injunction on the existing record, no testimony from defendants' expert was taken. Instead, defendants were asked to make an offer of proof as to its expert's testimony, and the parties then briefed the question whether plaintiff was entitled to the sought-after relief based on the testimony to date and the defendants' proffer. That is the question now before me.

I. Factual Background

This case involves the breakdown of a once-symbiotic relationship between two companies and two principals. Defendant John Censor's occupation is providing business training programs. At one time, Censor did business as "Censor and Company." (Tr. 71-72). He now does business through PCI, and the parties have treated the two defendants as one. At least some of PCI's training programs use computer simulation games; the computer software at issue here runs two of those games. Censor, however, appears to have only limited knowledge of computers and computer programming, and relies upon others to supply the necessary hardware and software.

Plaintiff Dynamic Solutions, Inc. ("DSI") is in the computer business and has supplied PCI with software for computer simulation games for a number of years. DSI was formed in 1971 by its present principal, Joseph Melhado, and one Anthony Paris. Initially Melhado and Paris were equal partners in the company. In or about 1973 formal ownership of Paris' share was transferred to Melhado, but Paris continued to receive 50 percent of DSI's profits as compensation as an employee and vice-president of DSI until some time in 1985. (Tr. 9, 70-71). Both Paris and Melhado did computer programming for DSI.

The relationship between DSI and PCI began about 1972. Censor contacted Paris with an eye toward joining forces to provide a training course for one of Censor's clients with a computer simulation component. Censor was to provide the training course and DSI was to provide the computer software. No software, however, was written until 1973, when Censor and Paris "got involved with Chase Manhattan Bank." Censor created a training course for Chase, and DSI created the simulation software. Paris was apparently responsible for writing the "source code"² created especially for the simulation games; this source code referenced and incorporated certain "utility codes," or "utility routines," that Melhado had written in the past for other DSI clients and which apparently cause the computer to execute certain specific functions which are useful in various programming contexts.³ The programs were written in FORTRAN and, designed to run on timesharing, mainframe computers, were stored on timesharing computer systems in accounts maintained by DSI and which could be accessed only by those who had knowledge of DSI's "password." When the simulation games were run in the course of a training seminar, each terminal would be hooked up to the mainframe computer through a telephone line. (Tr. 12-14; 74).

On December 8, 1975, DSI by Melhado and Censor & Company by Censor executed a letter agreement (hereinafter sometimes referred to as the "1975 agreement" or "the agreement") intended "to clarify, define and regularize the relationship, the responsibilities, obligations and rights of both parties."⁴ (¶ 2). The agreement, drafted by Censor, first describes various aspects of the parties' then-existing relationship. DSI, it states, "currently serves Censor and will continue to serve as a time-sharing broker, i.e. arranging for time-sharing services," for which DSI was paid directly by Censor clients. (¶ 3). The agreement noted, "DSI provides, for some Censor clients, consulting services to create the new software that produces the simulations." (¶ 4). DSI also "provides and makes available, from time to time, certain software which is proprietary to DSI...." (¶ 5). Two examples of programs considered DSI "proprietary software" are given (¶¶ 4, 11), but the term is not further defined in the agreement. DSI had "in the past ... been paid in full for the consulting services and for the use of the proprietary software," and the agreement provides that "this practice will continue by which DSI will be paid for consulting services they render or for the use of any proprietary software, separate from timesharing payments." (¶ 6).

The contract then establishes the ownership of the computer programs and simulation games. The agreement provides, "the new software, i.e., the computer simulations that result from the efforts of Censor plus the consulting services provided by DSI, for which DSI was and is fully paid, become products which are now the sole and exclusive property of Censor. DSI hereby expressly disclaims any and all claims of ownership, proprietorship or partnership or other interest of any nature whatsoever in these computer simulation products." (¶ 7). DSI further "disclaimed any interest in current simulation products, already created, and/or to new products now under development or those that may be developed at any time in the future." (¶ 8). Although the agreement as drafted by Censor would also have transferred ownership of the DSI proprietary software involved in the simulation programs, that provision was struck by Melhado. (Ex. 1 ¶ 7). The source codes at issue in this lawsuit operate two of the games which, plaintiff concedes, belong to Censor under paragraph 8 of the agreement: "Operations Management" and "Project Management" (together, the "simulation games").⁵ Plaintiff also concedes that the source codes that were written to operate these two games on timesharing computers belong to Censor under the 1975 agreement. (These source codes are hereinafter referred to as the "1975 programs" or the "1975 source codes").

The agreement went on to provide:

Before each and every client engagement in the future, whether for an outright sale, a licensing agreement for an existing product, for the design of a new, custom simulation or for the provision of any Censor service which involves DSI in any way, a brief work order will be prepared by Censor specifying (a) consulting services and (b) proprietary software required and (c) fees to be paid to DSI for the use of consulting services and proprietary software.

(¶ 10). These work orders were to be signed by specified officers or partners. (¶ 12).

In the years following the 1975 agreement, Censor continued conducting training seminars using the 1975 programs on the timesharing computers, and DSI continued acting as Censor's "timesharing broker." Paris remained DSI's contact with Censor until he left DSI in the summer of 1985. By that time, Censor and his new corporation, PCI, represented about 90 percent of DSI's business. (Tr. 56-58). Despite the transfer of ownership in the 1975 agreement, Censor never actually possessed the source codes or computer tapes for the simulation games. Rather, DSI maintained them in its time-sharing computer accounts. (Tr. 32). It appears that some of the formalities of the 1975 agreement were not respected. For example, although the agreement provided for preparation by Censor of signed work orders "before each and every client engagement," no written work orders were ever prepared. (Tr. 44; Dep. 76-77).⁶ DSI continued to make "minor" modifications to the simulation programs, at least sometimes on Paris' own initiative. (Tr. 79-81).

The record only provides one specific example of the way Censor and DSI worked together in providing a course involving the timesharing programs to a client. In 1981, Censor contracted to provide Mobil Research & Development Corporation with one of the training simulation programs. Censor negotiated a licensing arrangement with Mobil for one of his simulation training courses. According to Censor, this agreement was similar to those PCI had with other large corporate clients. (Dep. 162). DSI was not a party to the agreement, but it included a provision for DSI's benefit under which Mobil would pay "royalties for the use of certain proprietary computer programs, Scheduling and PERT 6, which underlie the...