Situation Management Systems v. Asp. Consulting

• Decision Date: 19 March 2009
• Docket Number: No. 08-1543.,No. 08-1585.,08-1543.,08-1585.
• Citation: 560 F.3d 53
• Parties: SITUATION MANAGEMENT SYSTEMS, INC., Plaintiff, Appellant/Cross-Appellee, v. ASP. CONSULTING LLC, Defendant, Appellee/Cross-Appellant, ASP. Consulting Group, Defendant.
• Court: U.S. Court of Appeals — First Circuit

560 F.3d 53

SITUATION MANAGEMENT SYSTEMS, INC., Plaintiff, Appellant/Cross-Appellee, v. ASP. CONSULTING LLC, Defendant, Appellee/Cross-Appellant ASP. Consulting Group, Defendant.

No. 08-1543.

No. 08-1585.

United States Court of Appeals, First Circuit.

Heard February 2, 2009.

Decided March 19, 2009.

William F. Dolan with whom Jones Day, Ryan C. Siden, and Siden & Associates, P.C. were on brief for appellant/cross-appellee.

Evan Fray-Witzer and Law Office of Evan Fray-Witzer on brief for the Association of Learning Providers and Blanchard Training and Development, Inc., amici curiae.

James J. Foster with whom Wolf, Greenfield & Sacks, P.C. was on brief for appellee/cross-appellant.

Before LYNCH, Chief Judge, TORRUELLA and BOUDIN, Circuit Judges.

LYNCH, Chief Judge.

The plaintiff consulting company, as part of its services to domestic and international clients, uses copyrighted training materials of several hundred pages geared toward teaching techniques for effective communication and negotiation within the workplace. It sued a competitor saying that the competitor had copied and used training materials substantially similar to plaintiff's in violation of the copyright laws.

This case concerns the proper application of two definitional criteria for what subject matter is eligible for copyright protection. The first is the originality requirement, see 17 U.S.C. § 102(a) ("Copyright protection subsists ... in original works of authorship ...."), which is a constitutional prerequisite for copyright protection. See Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 351, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991). The second is the statutory codification of the exclusion from copyright protection for processes and systems. See 17 U.S.C. § 102(b) ("In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work."). Indeed, the statutory restriction in § 102(b) is a codification of "[t]he most fundamental axiom of copyright law ... that `[n]o author may copyright his ideas or the facts he narrates.'" Feist, 499 U.S. at 344-45, 111 S.Ct. 1282 (second alteration in original) (quoting Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 556, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985)).

Here, the district court considered the plaintiff's works "largely noncopyrightable because they are devoted to describing a process or because they are not original." Situation Mgmt. Sys. v. ASP Consulting Group, 535 F.Supp.2d 231, 240 (D.Mass. 2008). To reach this conclusion, the district court treated the originality requirement as functionally equivalent to a novelty standard. E.g., id. at 243 (finding that the plaintiff's work "does not constitute original expression because it is merely a summary of common-sense communication skills"). It read the statutory exclusion of processes and systems from copyright protection as barring protection for descriptions of processes and systems. E.g., id. at 240 (finding the plaintiff's works largely unprotected by copyright because "they focus on concepts and teach a noncopyrightable process"). The court also found the plaintiff's works noncopyrightable based upon its own subjective assessment of the works' creative worth. E.g., id. at 239 (describing SMS's works as "fodder for sardonic workplace humor" and as "aggressively vapid").

A brief from amici, an industry association along with another company that produces corporate training materials, argues that the district court's conclusions have implications far beyond the dispute between the parties to this case and put at risk the legitimate copyright expectations of the more than $100 billion management training industry. Indeed, amici argue that under the district court's approach, those in the training industry would have difficulty obtaining effective copyright protection for their works. We vacate the district court's finding of noninfringement and remand for further proceedings consistent with this opinion.

I.

For more than thirty years, plaintiff Situation Management Systems, Inc. ("SMS") has provided consulting services aimed at improving employee communication and negotiation skills within the workplace. As part of its services, SMS has developed a series of training materials focused on teaching effective communication and negotiation techniques. Companies buy these materials from SMS and use them in employee training workshops. SMS typically charges its clients $200 to $250 per participant for the use of its materials. SMS's clients include Anheuser-Busch, General Mills, NASA, Pfizer, Procter & Gamble, Verizon, and companies abroad.

A number of SMS employees, including Dane Harwood and Alexander Moore, left SMS after Sharon Malouf acquired the company through bankruptcy proceedings in 2001. Following the end of Harwood's noncompete period, Harwood and Moore, along with an executive from a former European sublicensee of SMS, Alon Shklarek, founded defendant ASP. Consulting LLC ("ASP") in 2003. ASP offers training programs similar to SMS's, and the two compete for the same customers. ASP also has a series of training materials that focus on the same subject matter and teach similar communication and negotiation strategies as SMS's.

SMS claims ASP infringed its copyright in three of SMS's training workbooks: Positive Power & Influence ("PPI"), Positive Negotiation Program ("PNP"), and Promoting and Implementing Innovation ("PII"). PPI was first published in 1976 and is currently in its fourth edition. PPI is SMS's most widely circulated work and generates approximately seventy-five percent of SMS's revenues. More than a quarter million people have taken the PPI course. PNP, now in its third edition, was first published in 1978 and accounts for approximately fifteen percent of SMS's revenues. PII was first published in 1993 and is a much smaller part of SMS's business than the other two works at issue. SMS's works contain hundreds of pages of text, flowcharts, and illustrations teaching techniques for communication and negotiation within the workplace.

This suit claims infringement by three of defendant ASP's workbooks: Communicating 2 Influence ("C2I"), Negotiating Successful Agreements ("NSA"), and Championing Ideas ("CI"). SMS claims that ASP's C2I infringes its copyright to PPI, that NSA infringes PNP, and that CI infringes PII. ASP's works address the same topics as SMS's. Considering the circumstances under which ASP developed its materials, the district court found that this similarity was no coincidence. Situation Mgmt., 535 F.Supp.2d at 235. In particular, Harwood, Moore, and Shklarek each had access to SMS's works prior to forming ASP; Harwood even kept copies of SMS's works in the attic of his home after he left SMS. And Harwood and Moore were intimately familiar with SMS's works, having authored several editions of PPI, PNP, and PII while working at SMS. Moreover, Harwood and Moore together authored each of the allegedly infringing works relatively quickly after forming ASP. For example, they prepared a version of C2I over a period of six to thirty-four days.

On September 24, 2003, one of SMS's European licensees contacted Malouf to tell her that ASP's new C2I program was the same as SMS's PPI. Malouf then visited ASP's website and read a brief description of C2I, which she found strikingly similar to the PPI program. Malouf contacted ASP and asked to see ASP's written materials so that she could assess whether SMS had a claim against ASP for copyright infringement. SMS and ASP were unable to reach an agreement regarding the conditions under which Malouf could inspect ASP's works, and Malouf did not view ASP's works before filing suit.

On December 28, 2005, based upon the tip from the European licensee and the information on ASP's website, Malouf believed that SMS had a viable claim of copyright infringement and sued ASP in federal district court in New Hampshire, where SMS has its principal place of business. That suit was ultimately dismissed on August 15, 2006 for lack of personal jurisdiction over ASP.

SMS then sued ASP in the District of Massachusetts on September 1, 2006. The district court denied the parties cross-motions for summary judgment, and the parties agreed to treat the matter as a case stated. The district court held a hearing on ASP's liability for copyright infringement on November 7, 2007. At the hearing, SMS stated that it would seek statutory damages, not its actual damages. SMS had sued ASP before it had incurred any substantial actual damages as a result of ASP's alleged infringement. In its post-hearing briefing, SMS explained that it was seeking statutory damages of $75,000 for each infringing work, instead of actual damages, because ASP's "sales were apparently limited (to just a few customers) but [its] conduct was deliberate."

The district court found that ASP had copied SMS's works. It recognized that "[i]t is undisputed that Harwood and Moore had intimate familiarity with SMS's programs because they helped write them" and that "Harwood, Moore, and at least one other ASP employee had access to SMS's works during the period when they generated the accused works." Situation Mgmt., 535 F.Supp.2d at 235. This level of access to and familiarity with SMS's works, coupled with "[t]he fact that ASP's works address the same topics as SMS's" and the speed with which ASP produced its own works, indicated "that the creators of ASP's programs used SMS's materials in creating their own." Id.

The district court, however, determined that ASP's copying was not actionable because ASP's works were not substantially similar to the copyright protected aspects of SMS's works. It found that "the works at issue are so dominated by nonprotectable material that it is impossible to...