Plains Cotton Co-op. Ass'n of Lubbock, Texas v. Goodpasture Computer Service, Inc.

• Decision Date: 21 January 1987
• Docket Number: No. 86-1126,86-1126
• Citation: 807 F.2d 1256
• Parties: , 1987 Copr.L.Dec. P 26,056, 1 U.S.P.Q.2d 1635 PLAINS COTTON COOPERATIVE ASSOCIATION OF LUBBOCK, TEXAS, Plaintiff-Appellant, v. GOODPASTURE COMPUTER SERVICE, INC., William James Godlove, Richard R. Fisher, Peter H. Cushman, and Clarence Michael Smith, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1256

807 F.2d 1256

55 USLW 2437, 1987 Copr.L.Dec. P 26,056,

1 U.S.P.Q.2d 1635

PLAINS COTTON COOPERATIVE ASSOCIATION OF LUBBOCK, TEXAS Plaintiff-Appellant, v. GOODPASTURE COMPUTER SERVICE, INC., William James Godlove Richard R. Fisher, Peter H. Cushman, and Clarence Michael Smith, Defendants-Appellees.

No. 86-1126.

United States Court of Appeals Fifth Circuit.

Jan. 21, 1987.

Rehearing and Rehearing En Banc Denied Feb. 19, 1987.

Hughes & Luce, David C. Godbey, Clifton T. Hutchinson, Eric R. Cromartie, Denise A. Bretting, Dallas, Tex., for plaintiff-appellant.

Schuyler B. Marshall, IV, Dallas, Tex., Jones, Trout, Flygare, Moody & Brown, James L. Wharton, Lubbock, Tex., Thompson & Knight, Hal R. Ray, Jr., Dallas, Tex., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before THORNBERRY, JOHNSON and WILLIAMS, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

Appellant Plains Cotton Cooperative Association of Lubbock, Texas, appeals the denial of its application for a preliminary injunction against appellees Goodpasture Computer Service, Inc., Peter H. Cushman, Richard R. Fisher, William James Godlove, and Clarence Michael Smith, to prevent them from marketing, distributing, or otherwise using software allegedly stolen or copied from appellant. Because we agree with the district court that appellant has not satisfied its burden of demonstrating irreparable harm or substantial likelihood of success on the merits, we affirm the denial of the application for a preliminary injunction.

I.

Plains Cotton Cooperative Association of Lubbock, Texas ("Plains") is a non-profit agricultural cooperative comprised of approximately twenty thousand cotton farmers residing in Texas and Oklahoma. Its The Telcot "system" comprises functional specifications outlining what the software can accomplish, design specifications determining how the software accomplishes those functions, programs implementing the design specifications, and documentation detailing the programming and specifications so that future programmers can understand and modify the software. The programs, written in human-readable computer language, are called "source code;" translated into a computer-readable language, they are called "object code." The Telcot system is used by cotton farmers, ginners, and buyers through terminals connected to Plains' large central computer by telephone lines. These terminals allow the system's users to retrieve the desired cotton market information from Plains, but they provide no access to the documentation, programming, design or functional specifications of the Telcot system.

purpose is to assist its members in the growing and marketing of cotton. Toward that end, Plains developed a computer software system, Telcot, designed to provide its members with information regarding cotton prices and availability, with accounting services, and with the capability to consummate actual sales electronically.

Telcot was first marketed in 1975, and improvements and refinements in the software have been made continuously since that date. The system was developed at Plains by a team of programmers that included appellees Cushman, Fisher, Godlove, and Smith ("employee/appellees"). None of these employees was required to sign confidentiality agreements as a condition of his employment with Plains.

In 1979, Plains' general manager Dan Davis left the company in order to start a new venture called Commodity Exchange Service Company ("CXS"). Davis had been heavily involved with the creation of Telcot, and he wanted to expand its capabilities by adapting Telcot for use on personal computers. CXS and Plains entered into an agreement, on July 5, 1979, for the development, refinement, and marketing of a personal-computer version of Telcot. Under the agreement, any modifications, developments or enhancements of Telcot would be owned jointly by Plains and CXS.

On April 13, 1984, CXS hired Cushman, Fisher, Godlove and Smith away from Plains, and put all four of them to work on the Telcot personal-computer project. When Godlove left Plains, he copied and took possession of a complete tape record of the Telcot source code detailing Telcot's programming. Five days later, Plains gave CXS written notice that it intended to terminate their contract. Subsequently, the parties agreed that their contract would terminate on April 18, 1985, and that Plains would have an irrevocable option through April 18, 1986 to purchase CXS's interest in various programs. Plains never exercised that option.

After working at CXS for approximately one year, the four employees/appellees succeeded in designing a personal-computer version of Telcot, and they produced a document setting out design specifications for the new software. The preliminary nature of the design and the comprehensiveness of the design document are disputed by the parties in this appeal. No programming was actually written for the new software.

In March, 1985, CXS filed for bankruptcy, and the four employee/appellees began to search for other employment opportunities. At that same time, appellee Goodpasture Computer Service Inc. ("Goodpasture"), a computer service company located in Brownfield, Texas, began discussions with CXS and its employees concerning various possible joint ventures or working relationships. Goodpasture knew that former Plains employees were working at CXS to create a personal-computer version of Telcot. No agreement was made between Goodpasture and CXS, but Goodpasture did succeed in hiring away from CXS appellees Cushman, Fisher, Godlove, and Smith.

The four employee/appellees signed employment agreements with Goodpasture in which they agreed not to breach any confidences of their former employers, Plains and CXS, while working for Goodpasture.

In violation of this employment agreement, however, Fisher brought to his new job a computer diskette containing Telcot programming designs. Twenty days after arriving at Goodpasture, the four former Plains employees had completed a design of a personal-computer version of a cotton exchange program, designated "GEMS" by Goodpasture. By November, 1985 Goodpasture began to market GEMS in a rough, incomplete form. At the time of the preliminary injunction hearing, the software was still not fully operational.

GEMS is very similar to Telcot on the functional specification, programming, and documentation levels. In fact, several pages of the GEMS design manual appear to be direct copies of pages from the design manual appellees created at CXS. The main difference between the two systems is that Telcot is designed to work on a mainframe computer, whereas GEMS is designed for a personal-computer. Appellees allege that, with one exception, they did not copy programs used for Telcot, but instead "drew on their knowledge of the cotton industry and expertise in computer programming and design gained over a number of years." The exception is appellee Fisher's admission that he did copy one Telcot subroutine in programming GEMS. When Goodpasture discovered the copying on February 7, 1986, the subroutine was replaced, and Fisher was discharged.

On January 15, 1986, Plains filed suit against Goodpasture and its employees Cushman, Fisher, Godlove, and Smith, seeking damages and injunctive relief for misappropriation of trade secrets, unfair competition, conversion, breach of confidential relationship, and trade dress infringement. After registering its copyright in the Telcot computer programs and associated manuals, Plains amended its complaint to include claims for copyright infringement.

Plains made a motion for a preliminary injunction based on its copyright and trade secret claims, and a hearing was held on February 7 and 10, 1986. Both sides presented expert testimony on the issue of whether GEMS was copied from Telcot. On February 17, the district court denied the motion, and Plains subsequently instituted this appeal.

II.

In order to secure a preliminary injunction, the movant has the burden of proving four elements: (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable injury if the injunction is not issued; (3) that the threatened injury to the movant outweights any damage the injunction might cause to the opponent; and (4) that the injunction will not disserve the public interest. Enterprise International, Inc. v. Corporacion Estatal Petrolera Ecuatoriana, 762 F.2d 464, 471 (5th Cir.1985). These four elements are mixed questions of fact and law. Apple Barrel Productions, Inc. v. Beard, 730 F.2d 384, 386 (5th Cir.1984). In reviewing the findings of fact made by the district court, we will uphold those findings unless they are clearly erroneous. Id. In contrast, the court's conclusions of law "are subject to broad review and will be reversed if incorrect." Commonwealth Life Insurance Co. v. Neal, 669 F.2d 300, 304 (5th Cir.1982).

After reviewing findings of fact and conclusions of law, however, we note that ultimately a "district court's decision to grant or deny a preliminary injunction lies within its discretion." Enterprise International, 762 F.2d at 472; Apple Barrel Productions, 730 F.2d at 386. Thus, we are bound to affirm the judgment of the district court absent an abuse of discretion.

In denying the motion for a preliminary injunction, the district court concluded that appellant had failed to satisfy two of the four prerequisites for injunctive relief: a showing of irreparable harm and a showing of a substantial likelihood of success on the merits. Appellant contends that the district court abused its discretion (1) by using the wrong legal standard in analyzing the copyright infringement claim, and (2) by not addressing the misappropriation of trade secrets claim.

III.

Appellant argues that the district court applied the wrong legal standard in determining that appellant had not demonstrated a sufficient likelihood...