McRoberts Software, Inc. v. Media 100, Inc., 02-2403.
| Decision Date | 14 May 2003 |
| Docket Number | No. 02-2470.,No. 02-2403.,02-2403.,02-2470. |
| Citation | 329 F.3d 557 |
| Parties | MCROBERTS SOFTWARE, INC., Plaintiff-Appellee, Cross-Appellant, v. MEDIA 100, INC., Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Paul B. Overhauser (argued), Greenfield, IN, for Plaintiff-Appellee.
Dwight D. Lueck (argued), Barnes & Thornburg, Indianapolis, IN, for Defendant-Appellant.
Before FLAUM, Chief Judge, and MANION and ROVNER, Circuit Judges.
McRoberts Software, Inc. ("MSI") sued Media 100, Inc. ("Media 100") for copyright infringement, trade secret misappropriation, and breach of contract stemming from a 1995 licensing agreement between the parties for MSI's character generation computer software program. A jury found in favor of MSI on all three claims and awarded substantial damages. Upon motions by both parties for post-trial relief, the district judge: (1) affirmed the jury's finding that Media 100 infringed MSI's copyright, misappropriated MSI's trade secrets, and breached their contract; (2) upheld the jury's award of damages to MSI for copyright infringement and breach of contract; (3) vacated the jury's award of damages to MSI for trade secret misappropriation, calling it duplicative of the copyright infringement award; and (4) awarded MSI attorneys' fees and prejudgment interest.
Media 100 now appeals the jury's finding of liability for copyright infringement, the jury's damage awards for copyright infringement and breach of contract, and the district court's decision to award MSI attorneys' fees and prejudgment interest. MSI appeals the district court's decision to vacate the jury's damage award for trade secret misappropriation. We reverse the district court's order vacating the trade secret damages award and affirm in all other respects.
In 1992 MSI developed a computer software program for character generation called Comet/CG. Character generation is the process of placing text over video and audio, as when words appear over images in a television ad or credits scroll at the end of a movie. Prior to MSI's inventing its software, character generation required specialized hardware which cost up to $100,000, but MSI's Comet/CG software provided similar character generation capability for users of Apple's Macintosh personal computers at around $1,300. Media 100 (formerly Data Translation, Inc.) manufactured video editing equipment, including the very expensive character generation hardware used by advertising agencies and television production studios. When Media 100 decided to enter the personal computing market it turned to MSI to supply its Comet/CG software for use with its new "Media 100" line of personal video editing board hardware. MSI and Media 100 negotiated three separate licensing agreements, in 1993, 1995, and 1998. Only portions of the 1995 agreement are relevant to this case.
Initially, Media 100's personal video editing boards functioned only on Macintosh computers through a video card component called a NuBus. Windows computers, in contrast, are compatible only with a video component called a PCI bus. Therefore, until Macintosh retooled its computers in 1995 to accept PCI bus hardware, video editing systems could only function on Macintosh or Windows machines, but not both. The programming language for Macintosh and Windows machines was similarly incompatible, so MSI's Comet/CG source code could only be executed with Macintosh-compatible video editing boards. Early in the partnership between Media 100 and MSI, the Windows versus Macintosh debate remained distant on the horizon, at least in the video and graphic arts world. But it soon became clear that the personal computing market was going the way of Windows. By the time MSI and Media 100 negotiated their 1995 licensing agreement, both companies sensed that a profitable future had something to do with producing Windows-compatible products.
The crux of MSI's copyright infringement claim turns on the meaning of the phrase "Media 100 hardware" in the 1995 licensing agreement. Specifically, the parties dispute whether the license permitted Media 100's use of Comet/CG on only existing Macintosh-compatible systems (and their progeny) or on as-yet-undeveloped Windows-compatible systems. On summary judgment the district court determined that Section 5 of the 1995 licensing agreement defined the scope of Media 100's license to use MSI's Comet/CG software, and that all other intellectual property rights not licensed by the agreement were deemed held exclusively by MSI. Section 5 provided:
Subject to [Media 100] timely paying all amounts owing hereunder, upon payment of the $75,000 license fee stated in section 3.2 for the CG Option 2.0 license, then [Media 100] shall have a paid-up license to (1) modify the CG Option 2.0 source code; (2) generate executable code versions of CG Option 2.0; (3) distribute executable code versions of CG Option 2.0 when integrated with [Media 100]'s Media 100 hardware and software used for digital video editing, and such versions shall be licensed only for use on such hardware.
[Media 100] shall provide one source code copy of all revisions it makes to Comet/CG to MSI on magnetic media within thirty (30) days of release, and MSI may incorporate such revisions in its version of Comet/CG.
During negotiations for the 1995 agreement, MSI knew that Media 100 had developed a new video editing board based on the PCI bus architecture. While Media 100's new bus hardware made its products potentially compatible with Windows machines, the bundled video editing software, including Comet/CG, that Media 100 agreed to license from MSI still only operated on Macintosh machines. In 1998 Media 100 decided that it could no longer afford to be outside looking in on the Windows machine market, so it entered an agreement with software development firm Vanteon (formerly Millennium Computer Corp.) to translate the Comet/CG source code from Macintosh to Windows (akin to translating English to Chinese, in the words of MSI owner, Mr. McRoberts). Media 100 gave Vanteon a copy of MSI's confidential Comet/CG source code, without MSI's consent or knowledge, and paid Vanteon nearly $3.2 million to translate the code as quickly as possible. When Vanteon completed the task, Media 100 took the new code, put it into a Windows-compatible video editing system, and began selling it immediately. This new product line was named "Finish" and was essentially the same as the old "Media 100" line, except that Finish worked on Windows machines and Media 100 worked on Macintosh machines.
Soon after the Finish boards containing the translated Comet/CG code hit the market, MSI complained to Media 100 that it was not licensed to incorporate the Comet/CG software into its Windows-compatible product line, nor was it licensed to use any new version of Comet/CG that operated on PCI bus architecture rather than NuBus. Moreover, MSI demanded that Media 100 give it a copy of the translated Comet/CG code created by Vanteon as required by the licensing agreement. Media 100 refused to give MSI the translated code, but it removed all Finish products containing the translated MSI software from the market, licensed another company's Windows-compatible CG software, and reissued the Finish video boards with the new software.
MSI sued Media 100 in federal district court, claiming: (1) copyright infringement under the Federal Copyright Act based on Media 100's unauthorized creation and distribution of the translated Windows-compatible Comet/CG software, (2) trade secret misappropriation under Indiana's Trade Secret Act based on Media 100's unauthorized disclosure of the confidential Comet/CG source code to Vanteon, and (3) breach of contract under Indiana common law based on Media 100's failure to provide MSI with a copy of its translated Windows-compatible Comet/CG software. The district court denied Media 100's motion for partial summary judgment, finding that MSI's intellectual property claims were not preempted by the terms of the licensing agreement. The court determined that the 1995 license permitted Media 100 to generate and distribute executable code versions of Comet/CG source code that it had modified, but only so long as the modifications to the source code were themselves within the scope of the license. Further, the court determined that the scope of the licensing agreement was ambiguous. Although the court found that the phrase "when integrated with [Media 100]'s Media 100 hardware and software used for digital editing" delineated the scope of the license, it decided that the phrase may have included only NuBus hardware and Macintosh-compatible systems, as MSI contended, or it may have also included PCI bus hardware and Windows-compatible systems, as Media 100 argued.
MSI and Media 100 took their case to trial, and a jury found in favor of MSI on all three claims, awarding MSI substantial damages. Specifically, the jury awarded MSI damages for copyright infringement in the amount of $1.2 million for actual damages and $900,000 for lost profits; for trade secret misappropriation in the amount of $300,000; and for breach of contract in the amount of $85,000. Media 100 sought post-trial relief on all claims under Rules 50 and 59 of the Federal Rules of Civil Procedure. The court denied Media 100's Rule 50 motion for judgment as a matter of law on the substantive claims and declined to award a new trial under Rule 59 or reduce the jury's damage awards for copyright infringement and breach of contract; however, the court vacated the jury's $300,000 damage award for trade secret misappropriation, calling it duplicative of the copyright infringement award. Additionally, the district court granted MSI's post-trial motion for attorneys' fees ($192,283), costs ($475), and prejudgment interest ($313,061)....
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