ISC-Bunker Ramo Corp. v. Altech, Inc.

• Decision Date: 25 June 1990
• Docket Number: No. 89 C 8736.,89 C 8736.
• Citation: 765 F. Supp. 1310
• Parties: ISC—BUNKER RAMO CORPORATION, Plaintiff, v. ALTECH, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

765 F. Supp. 1310

ISC—BUNKER RAMO CORPORATION, Plaintiff, v. ALTECH, INC., Defendant.

No. 89 C 8736.

United States District Court, N.D. Illinois, E.D.

June 25, 1990.

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Bruce S. Sperling, Eugene J. Frett, Mitchell H. Macknin, Sperling, Slater & Spitz, Chicago, Ill., Steven G. Lisa, Lisa & Lisa, Phoenix, Ariz., Barry W. Sufrin, John T. Gabrielides, Hosier & Sufrin, Ltd., Chicago, Ill., for plaintiff.

Thomas E. Dorn, Edward M. Keating, Vangelis Economou, Kinzer Plyer Dorn McEachran & Jambor, Chicago, Ill., Mary Ann Weems, Sestric, Korum & Weems, Clayton, Mo., Robert J. Crawford, Ronald B. Coolley, Arnold, White & Durkee, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

MAROVICH, District Judge.

Plaintiff ISC-Bunker Ramo Corporation ("ISC") designs and sells computer systems for use in financial institutions, and has its principal place of business in the state of Washington. Defendant Altech, Inc. ("Altech") services computer equipment and purchases and sells used computer equipment. Its principal place of business is located in St. Louis, Missouri. Before the court are Altech's objections to the report and recommendation of Magistrate Balog recommending the issuance of a preliminary injunction prohibiting Altech from infringing on several of ISC's copyrights, misappropriating certain trade secrets, and interfering with certain employment agreements. Magistrate Balog made his ruling after holding a hearing on May 2, 3, and 4, 1990. For the following reasons, we adopt the magistrate's report and recommendation, and issue the injunction as proposed.

Altech objects to virtually every finding in fact and conclusion of law in the magistrate's report. The purported basis for the vast majority of its objections is that the magistrate's findings are "unsupported by the evidence." We have considered all of Altech's objections and find all to be without merit. Most significantly, all of the magistrate's conclusions find support in the record; many are supported by overwhelming evidence. The magistrate clearly based his report and recommendation on careful consideration of all the evidence in the record and, while we specifically address most of Altech's objections, we will not comment on each and every one.

Altech's initial contention is that certain depositions of its employees were not offered into evidence and are not part of the record. The magistrate's report clearly refutes this contention, and in fact both sides referred to deposition testimony in their pre-hearing memoranda. Rep. 2;¹ ISC Pre-Hearing Memorandum at 5, 6, 7, 10, 14, 20; Altech Pre-Hearing Memorandum at 2, 3, 8. Altech has not demonstrated why these depositions should not be considered, though so much evidence supports the magistrate's findings that it scarcely matters whether we consider them or not.

Altech's first objection concerns copyright infringement and trade secret misappropriation relating to ISC's computer programs. Altech contends that ISC is not entitled to protection of these programs under the "first sale" doctrine, which provides that the owner of a copy of copyrighted material can sell the copy without permission of the copyright owner. 17 U.S.C. § 109. Altech contends that the "first sale" doctrine applies here because ISC sold disks containing its copyrighted programs to its customers and these customers in turn sold the copies to Altech. The evidence demonstrated, however, that ISC did not sell copies of its software to its customers; it only licensed them, making the "first sale" doctrine inapplicable. PX 109; Tr. 558-60. Altech contends that, while the software was licensed, ISC sold hard drives containing the programs to its customers. Before Altech could use an ISC program contained on a hard drive, however, it would have to copy the program on to a floppy disk. See Deposition of Gary Beyer at 114, 117-20. Sale of these hard drives thus did not constitute a sale of a copy of the copyrighted program.

With respect to Altech's infringement of ISC's field service manuals, Altech contends that ISC failed to prove that the information contained in the manual found in Altech's possession was substantially similar to the works protected by ISC's copyrights. In fact, the evidence conclusively demonstrated that Altech's manual was directly copied from ISC's manuals. PX 5, 5a, 5c, 5e, 20; Tr. 86-90. Altech objects to the findings on copyright infringement of ISC's disks, also on the grounds that there is no evidence that Altech's disks were substantially similar to ISC's. ISC presented detailed testimony demonstrating that Altech's disks were directly copied from ISC's disks. Tr. 248-265.

Altech further objects to the copyright infringement findings on the grounds that certain of the infringed programs were not copyrighted. See 17 U.S.C. § 411. The evidence showed, however, that these copies of non-registered programs also infringed on the prior copyrighted works from which they were derived. See Tr. 265. Altech also contends that the magistrate erred in taking the fact that Altech's disks contained errors as evidence that it improperly copied the disks. Rep. 26-27. We agree with the magistrate that Altech's possession of multiple copies of a defective disk suggests that the copies were made by Altech rather than by a customer of ISC's, as a customer would have access to a mistake-free copy of the disk. Id. In any event, whether Altech actually made copies of the copyrighted disks or not, it improperly used them. The disks were merely licensed to ISC's customers, so at the very least Altech would be liable as a contributory infringer. See American Int'l Pictures, Inc. v. Foreman, 576 F.2d 661, 664 (5th Cir.1978).

Altech objects to several aspects of the magistrate's findings on Altech's misappropriation of trade secrets and interference with the contractual relations between ISC and its employees. First, Altech argues that ISC did not present any evidence that any employee or former employees had access to trade secrets. In fact, there was a substantial body of evidence on this point. PX 92, 93; Affidavit of David Hardy, ¶¶ 11-15; Tr. 148-159. Second, Altech argues that the non-disclosure clause of the ISC employee agreement is so broad that it makes the entire agreement unenforceable. Altech bases this argument exclusively on Illinois case law, despite the fact that the agreements specifically provide that they are to be interpreted under Washington law. Exhibit B to Altech's Objections to Magistrate's Report. Altech has not informed us why we should ignore the parties' selection of Washington law, which was reasonable given the fact that ISC's headquarters is located in Washington. See Sarnoff v. American Home Products Corp., 798 F.2d 1075 (7th Cir.1986). Even under Illinois law, though, we find that the employment agreements are enforceable. Altech argues that the agreements are unlimited as to time and geographical territory. The agreements in fact do contain what amounts to a reasonable time limitation because the disclosure is only prohibited while the information remains confidential. The absence of a geographical limitation is reasonable because ISC is a nationwide corporation.

Third, Altech objects to the magistrate's findings on interference with contractual relations because it contends that ISC has not shown that failure to issue an injunction will result in irreparable harm. To the contrary, ISC has demonstrated that Altech has hired former ISC employees with confidential information and, taking advantage of its lack of training costs, plans to expand into the Chicago area to compete with ISC. Estimating ISC's loss of business from the threatened expansion would involve speculation, so that ISC's injury cannot be adequately compensated with money damages. While Altech contends that ISC's alleged unreasonable delay in bringing suit negates a finding of irreparable harm, this suit was not unreasonably delayed. ISC filed suit in November of 1989 and moved for a preliminary injunction on April 17, 1990. Sixteen of Altech's employees were hired after the fall of 1989.

Altech argues that most of the items which the magistrate found were trade secrets were actually matters of general knowledge. In support of this contention Altech invites us to review "the testimony of all witnesses presented." We decline this invitation, as a great deal of relevant evidence demonstrates that ISC's software and technical information are entitled to trade secret protection. Affidavit of Marc Lewis at ¶¶ 2-10, 14-16; Affidavit of Joseph Taylor at ¶¶ 7-9; Hardy Affidavit at ¶ 6; Affidavit of Scott Schmidtman at ¶¶ 2-7.

Altech also objects to the magistrate's trade secret findings on the grounds that no contractual relationship existed between itself and ISC, but presents no case law in support of this proposition. Similarly, while Altech contends that the injunction must be limited to the state of Illinois, the case law is to the contrary. See Instrumentalist Co. v. Marine Corps League, 509 F.Supp. 323 (N.D.Ill.1981). The magistrate's findings were amply supported by the evidence, and his proposed order is necessary to protect ISC from irreparable harm. We therefore adopt the magistrate's report and recommendation, which is attached to this opinion. We also will issue the magistrate's proposed order.

REPORT AND RECOMMENDATION

JAMES T. BALOG, United States Magistrate Judge.

This matter was referred to the undersigned Magistrate to hear the plaintiff's ISC-Bunker Ramo Corporation ("ISC") motion for preliminary injunction and thereafter to submit a report and recommendation. A hearing was held on May 2, 3, and 4, 1990.

The evidence consists of (i) exhibits specifically admitted into evidence; and (ii) oral testimony at the hearing, from Joe Taylor, Marc Lewis, David Hardy and Scott Schmidtman, who were called by ISC, and James Ulsenheimer and Terry Weatherby, who were...