NLFC, Inc. v. Devcom Mid-America, Inc., MID-AMERIC

• Citation: 45 F.3d 231
• Decision Date: 19 January 1995
• Docket Number: D,INCORPORATE,No. 94-1150,MID-AMERIC,94-1150
• Parties: 1995 Copr.L.Dec. P 27,380, 33 U.S.P.Q.2d 1629 NLFC, INCORPORATED, Plaintiff-Appellant, v. DEVCOMefendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 231

45 F.3d 231

1995 Copr.L.Dec. P 27,380, 33 U.S.P.Q.2d 1629

NLFC, INCORPORATED, Plaintiff-Appellant, v. DEVCOM MID-AMERICA, INCORPORATED, Defendant-Appellee.

No. 94-1150.

United States Court of Appeals,

Seventh Circuit.

Argued Sept. 19, 1994.

Decided Jan. 19, 1995.

Marvin Benn, Hamman & Benn, Chicago, IL, Peter S. Vogel (argued), Stacy R. Obenhaus, Gardere & Wynne, Dallas, TX, for plaintiff-appellant.

Jody B. Rosenbaum, Bruce Golden (argued), Bruce P. Golden & Associates, Chicago, IL, for defendant-appellee.

Before BAUER and MANION, Circuit Judges, and GRANT, District Judge. ^*

MANION, Circuit Judge.

NLFC, Inc. ("NLFC") appeals a grant of summary judgment in favor of Devcom Mid-America, Inc. ("Devcom"). NLFC filed suit in federal district court against Devcom alleging federal copyright infringement (Count I). In addition, NLFC asserted three claims under Illinois law for misappropriation of trade secrets, tortious interference with contract, and unfair competition (Counts II-IV). The district court found that no genuine issue of material fact existed regarding the copyright infringement claim and granted summary judgment in favor of Devcom. The court then dismissed the remaining state law claims. We affirm.

I. Background

NLFC owns the copyright to a computer program (the "NLFC software") designed for use in medical pathology laboratories. ¹ Two medical facilities, Cabrini Medical Center ("Cabrini") and Franciscan Shared Laboratory ("FSL") (collectively "the labs"), contracted for the purchase and use of this software as part of computerized patient information systems installed in their labs. The software, however, contained many bugs (among other assorted problems) and the labs experienced great difficulty with NLFC in getting the program up and running. The difficulty was apparently so great that FSL sued NLFC and obtained, as part of a settlement agreement, the ability to "obtain maintenance and support services from whatever source FSL deems necessary." ² Toward that end, FSL contracted with Devcom, an outside consulting firm located in Oakbrook, Illinois, to "remove[ ] the bugs in the NLFC Software and to enable the NLFC Software to be run on the Clients' computers." ³ Devcom's work for FSL was so successful that FSL recommended its services to Cabrini, who was having similar problems getting its system running. Devcom performed the work for both labs using dedicated telephone lines, dumb terminals, and on-site efforts. In order to assist them in making the necessary changes, a viewable copy of the source codes to the NLFC software (more on this later) was printed at Devcom's offices. After completing the work, Devcom sent a letter marketing its newly-acquired expertise to other labs using the NLFC software.

After discovering that Devcom had been retained to fix its software, NLFC filed this lawsuit alleging that Devcom copied the software in violation of its copyright. NLFC also alleged that Devcom illegally marketed the NLFC software through the letter that it sent to other NLFC software users. After reviewing the record, the district court granted summary judgment in favor of Devcom and dismissed the three state law claims.

II. Analysis

NLFC first challenges the district court's grant of summary judgment on its copyright infringement claim. We review a grant of summary judgment de novo. Deutsch v. Burlington N. R. Co., 983 F.2d 741, 743 (7th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 1845, 123 L.Ed.2d 470 (1993). Summary judgment is proper only if the moving party demonstrates that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Bourne Co. v. Hunter Country Club, Inc., 990 F.2d 934, 938 (7th Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 308, 126 L.Ed.2d 256 (1993). When determining if a genuine issue of material fact exists, all facts must be construed in the light most favorable to the party opposing the motion and the court must draw all inferences in favor of that party. Smart v. State Farm Ins. Co., 868 F.2d 929, 931 (7th Cir.1989). The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). After the moving party makes this initial showing, the burden shifts to the party opposing summary judgment to present specific facts demonstrating a genuine issue for trial. Id. at 324, 106 S.Ct. at 2553; Becker v. Tenenbaum-Hill Assoc., Inc., 914 F.2d 107, 110 (7th Cir.1990). ⁴

Under section 106 of the Copyright Act, the owner of a copyright is given the exclusive right to (among other things) reproduce the work in copies, prepare derivative works based on the copyrighted work, and distribute copies of the work to the public. 17 U.S.C. Sec. 106; Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 258 (5th Cir.1988). Section 501(a) provides that "[a]nyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 118 ... is an infringer of the copyright ..." 17 U.S.C. Sec. 501(a).

Among the works protected under Sec. 106 of the Act are computer programs. Atari Games Corp. v. Nintendo of America Inc., 975 F.2d 832, 838 (Fed.Cir.1992) (as literary works, copyright protection extends to computer programs). A "computer program" is defined in Sec. 101 of the Act as "a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result." These instructions take at least two forms. The first, the source code, is a set of "human readable" instructions to the computer in computer languages such as BASIC and FORTRAN. Johnson Controls Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173, 1175 and n. 2 (9th Cir.1989). A computer program also uses an object code. This is the same set of instructions, but in binary code: the presence or absence of an electrical charge, which may be represented by a series of 1's and 0's, at each cycle of a computer's operation that ultimately direct the computer's activity. Id.; Midway Mfg. Co. v. Strohon, 564 F.Supp. 741, 750 (N.D.Ill.1983). Computers do not act directly on source code instructions, but rather transform them into object code within the machine. Midway Mfg. Co., 564 F.Supp. at 750. Both the source and object codes to computer software are also individually subject to copyright protection. Johnson Controls, 886 F.2d at 1175; Midway Mfg. Co., 564 F.Supp. at 750-51.

In this case, NLFC contends that the district court erred in holding, as a matter of law, that its exclusive rights to the NLFC software under Sec. 106 were not violated. Specifically, NLFC claims that the evidence presented below shows that Devcom violated its rights in two ways: (1) that Devcom, in the process of its activities on behalf of Cabrini and FSL, copied the NLFC software onto its in-house computer system, and (2) that Devcom illegally marketed the NLFC software as modified. We address each allegation in order.

First, NLFC alleges that the district court erred in finding that Devcom had not copied the NLFC software onto its in-house computers. Neither party disputes that loading software into a computer constitutes the creation of a copy under the Copyright Act. MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 519 (9th Cir.1993), cert. dismissed, --- U.S. ----, 114 S.Ct. 671, 126 L.Ed.2d 640 (1994); Vault Corp., 847 F.2d at 260 ("the act of loading a program from a medium of storage into a computer's memory creates a copy of the program"); 2 Nimmer on Copyright, Sec. 8.08[A] (1994) (computer input constitutes the making of a "copy"). Rather, the dispute in this case centers on whether NLFC presented evidence from which a reasonable juror could conclude that such copying took place. ⁵ Devcom of course was under no duty to negate NLFC's claims in this case. Celotex Corp., 477 U.S. at 323, 106 S.Ct. at 2552-53 (while party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record, if any, which it believes demonstrates the absence of a genuine issue of material fact, there is nothing in Rule 56 that requires a moving party to negate an essential element of an opponent's claim for which it bears the ultimate burden at trial). Instead, NLFC bore the burden, as the party opposing the motion, of coming forward with affirmative evidence proving its allegation (in this case, that Devcom did in fact illegally copy the NLFC software onto its computers). And, of course, that inference must be "reasonable in light of the competing inferences." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 588, 106 S.Ct. 1348, 1356-56, 89 L.Ed.2d 538 (1986). "I[f] the factual context renders the claims asserted by the party opposing summary judgment implausible, the party must 'come forward with more persuasive evidence to support their claim than would otherwise be necessary.' " McDonnell v. Cournia, 990 F.2d 963, 967 (7th Cir.1993) (quoting Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356).

NLFC claims that it made the requisite showing and points us to the following portion from the deposition of Jon Kristofferson, Devcom's Director of Software Development:

Q: [Y]ou still have Exhibit No. 1 there in front of you, and am I wrong, isn't that a Lab Force program?

A: It says Lab Force.

Q: It also says Devcom. Does that mean it was printed out at Devcom's offices?

A: Yeah, I would say it was.

Q: Do you know where that particular program ... came from?

A: No.

Q: Was it printed at a Devcom office?

A: Yes.

From this testimony NLFC asked the district court (and now this court) to infer that Devcom loaded the software onto its in-house computers prior to printing. The factual context in this case, however, will not support this inference. For example,...