Ecimos, LLC v. Carrier Corp.

• Decision Date: 21 August 2020
• Docket Number: Nos. 19-5436/5519,s. 19-5436/5519
• Citation: 971 F.3d 616
• Parties: ECIMOS, LLC, Plaintiff-Appellee/Cross-Appellant, v. CARRIER CORPORATION, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

971 F.3d 616

ECIMOS, LLC, Plaintiff-Appellee/Cross-Appellant,

v.CARRIER CORPORATION, Defendant-Appellant/Cross-Appellee.

Nos. 19-5436/5519

United States Court of Appeals, Sixth Circuit.

Argued: March 13, 2020

Decided and Filed: August 21, 2020

Rehearing En Banc Denied September 24, 2020

ARGUED: K. Winn Allen, KIRKLAND & ELLIS LLP, Washington, D.C., for Appellant/Cross-Appellee. Jason O'Neal Perryman, GIBSON PERRYMAN LAW FIRM, Memphis, Tennessee, for Appellee/Cross-Appellant. ON BRIEF: K. Winn Allen, Michael A. Francus, KIRKLAND & ELLIS LLP, Washington, D.C., for Appellant/Cross-Appellee. Jason O'Neal Perryman, Ralph T. Gibson, GIBSON PERRYMAN LAW FIRM, Memphis, Tennessee, for Appellee/Cross-Appellant.

Before: BOGGS, CLAY, and GIBBONS, Circuit Judges

BOGGS, Circuit Judge.

Carrier and ECIMOS once had a long-standing business relationship that has now deteriorated. Carrier is a leading manufacturer of residential Heating, Ventilation, and Air Conditioning ("HVAC") systems and ECIMOS once produced the quality-control system that tested completed HVAC units at the end of Carrier's assembly line. The present dispute centers on Carrier's alleged infringement of ECIMOS's copyright on its database-script source code—a part of ECIMOS's software that stores test results. ECIMOS alleges that Carrier improperly used the database—indeed copied certain aspects of the code—to aid a third-party's development of a new testing software that Carrier now employs in its Collierville, Tennessee manufacturing facility. ECIMOS sued for copyright infringement and breach of contract and won a $7.5 million jury award.

Following trial, Carrier filed a renewed Rule 50 motion for a judgment as a matter of law or, in the alternative, a Rule 59(e) motion to amend the judgment or for a new trial. It contended that it did not infringe on ECIMOS's copyright as a matter of law and objected to most of the $7.5 million jury award. The district court denied most of the motion, finding that there was no basis to conclude that there was no infringement as a matter of law; but it granted the motion in part, reducing Carrier's total damages liability to $6,782,800. Carrier now appeals those decisions.

ECIMOS also filed a post-trial motion and asked the court to enjoin Carrier from using or disclosing ECIMOS's trade secrets and from using its third-party-developed database until a new, non-infringing database could be developed from scratch. ECIMOS also moved to amend the jury award so that it could receive even more damages from Carrier. The district court: (1) enjoined Carrier from using its new database, but stayed the injunction until Carrier could develop a new, non-infringing database subject to the supervision of a special master; (2) enjoined Carrier from disclosing ECIMOS's trade secrets, but also held that certain elements of ECIMOS's system were not protectable as trade secrets (such as ECIMOS's assembled hardware) and thus did not enjoin Carrier from using ECIMOS's system; and (3) rejected ECIMOS's motion to amend the jury award. ECIMOS now appeals those decisions.

We hold that there are sufficient reasons to conclude that Carrier did infringe on ECIMOS's copyright, but that Carrier's liability to ECIMOS based on its copyright infringement and its breach of contract can total no more than $5,566,050. We also hold that the district court did not err when it crafted its post-trial injunctions. For the reasons that follow, we therefore affirm in part and reverse in part the district court's rulings.

I. BACKGROUND

A. Factual Background

Carrier is a leading manufacturer of residential HVAC systems. ECIMOS—originally founded as "ECI" by a former Carrier employee—is the owner of an automated quality-control-testing system that assesses each HVAC unit at the end of a manufacturer's assembly line. The system, called the Integrated Process Control System ("IPCS"), consists of a software program and associated hardware that interacts with the HVAC unit to perform various tests. Carrier has "runtest" stations at the end of its manufacturing line where an employee connects a completed HVAC unit to the IPCS to perform quality-control tests to check for defects. The IPCS software pulls up the tests that the employee wants the system to perform, and the hardware performs those tests. The test results are then stored on a database within the IPCS software. The IPCS aided Carrier by automating and speeding up much of the quality-control process. At the time this dispute began, ECIMOS's IPCS was installed in each one of Carrier's 103 runtest stations in its Collierville, Tennessee plant, with Carrier paying ECIMOS a licensing fee for each one.

The Carrier-ECIMOS relationship began in 1992, when ECIMOS first installed its IPCS in Carrier's Collierville plant. Originally, the IPCS software ran on Microsoft's "MS-DOS" operating system. In 2002, Carrier purchased an upgraded system from ECIMOS for $1.4 million. The upgrade included ECIMOS's Visual Basic 6 ("VB6") software which ran on Microsoft's Windows XP operating system. Throughout this first part of their relationship, Carrier and ECIMOS had a practice under which ECIMOS performed regular maintenance on the IPCS and then submitted a proposal for the maintenance work to Carrier, who then issued a purchase order for the service. Carrier sometimes also purchased "service pack" hours from ECIMOS in bulk, to pre-pay for expected maintenance work.

In 2004, ECIMOS began formally incorporating licensing terms into the proposals that it sent to Carrier. These terms prohibited the "[u]nauthorized copying, reverse engineering, decompiling, disassembling, decrypting, translating, renting, sub-licensing, leasing, distributing, and/or creating derivative works based on the software, in whole or in part." This 2004 iteration of the Carrier-ECIMOS contract is the operative contract that underlies the contract-breach-damages argument on appeal.

After 2004, each party's account of the state of the relationship begins to diverge. ECIMOS claims that its relationship with Carrier was "ongoing" and "iterative." In this relationship, according to ECIMOS, Carrier developed new products and asked ECIMOS to develop quality-control tests and procedures for them. In contrast, Carrier claims that it viewed ECIMOS's products and services as "poor" and "inadequate." Carrier believed the IPCS storage database was inefficient because it recorded results for every possible test that could be performed, even if some tests were not actually run on a particular Carrier unit. Thus, even if Carrier wanted to perform just one test on one component of an HVAC unit, the IPCS logged the result as if every possible test had been performed, with the unperformed tests giving a result of "0" that was then stored in its database. According to Carrier, this created a bulky and unmanageable database file that often caused the system to lock up and delay production.

In August 2011, ECIMOS announced that it would no longer provide service or routine maintenance to the IPCS VB6 software because Microsoft no longer supported Windows XP, which was the operating system that VB6 ran on. ECIMOS claims that, at the time of the announcement, it had already developed an upgraded software program for the IPCS called VB.Net that ran on Windows 7—the new Microsoft operating system—and that it was planning on submitting a proposal to Carrier to sell the upgrade. ECIMOS claims that it expected Carrier to agree to the proposal just as it had done before, when the IPCS upgraded to VB6 and Windows XP in 2002. However, unbeknownst to ECIMOS at the time, Carrier had already installed the VB6 software directly onto the Windows 7 operating system in April 2011. And Carrier continued operating the IPCS as before, even asking ECIMOS for maintenance of the IPCS when initial problems with the migrated software arose. ECIMOS claimed that this action breached the parties’ licensing agreement, which prohibited Carrier from copying or duplicating the software without ECIMOS's consent, or from making any "updates" or "upgrades" without paying ECIMOS an additional licensing fee.

Moreover, in late 2011, unbeknownst to ECIMOS, Carrier began discussing the development of a new quality-control software with a third-party developer, Amtec Solutions Group ("Amtec"). Ostensibly, Carrier wanted Amtec to develop a software and storage database similar to the IPCS's, but one that would run more smoothly. ECIMOS states that it suspected that Carrier's requests for maintenance during this time were actually veiled attempts at getting ECIMOS to divulge more trade secrets to aid the development of the competing software. It is during this period that ECIMOS accuses Carrier of improperly sharing its copyrights and trade secrets. ECIMOS also claims that these actions breached the parties’ licensing contract.

Despite these developments, the two parties apparently interacted with each other without change for a few years, with Carrier using the VB6 software on Windows 7 and ECIMOS completing periodic maintenance on the IPCS. On March 6, 2014, ECIMOS formally submitted a proposal to Carrier to sell the upgraded VB.Net software, along with several maintenance-related repairs and upgrades to the IPCS hardware. The total quote for the entire upgrade was $1,021,000. However, the proposal stipulated that the fee for the "[s]oftware migration from VB6 to VB.Net" for all of Collierville's runtest stations was only $118,000. ECIMOS believed that Carrier would accept the upgrade just as it did in 2002 when ECIMOS migrated the IPCS software from the MS-DOS operating system to Windows XP. However, Carrier never accepted the proposal. Instead, in early 2015, Carrier accelerated its work with Amtec to develop a new, competing quality-control system. This Amtec-developed system included both a software application (the "Runtest Execution System" or "RES") and a new storage database (the "Manufacturing Execution System" or "MES"). For...