Storage Tech. v. Custom Hardware Engin. & Consult.

• Decision Date: 24 August 2005
• Docket Number: No. 04-1462.,04-1462.
• Parties: STORAGE TECHNOLOGY CORPORATION (doing business as Storagetek), Plaintiff-Appellee, v. CUSTOM HARDWARE ENGINEERING & CONSULTING, INC., Defendant-Appellant, and David York, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

421 F.3d 1307

STORAGE TECHNOLOGY CORPORATION (doing business as Storagetek), Plaintiff-Appellee, v. CUSTOM HARDWARE ENGINEERING & CONSULTING, INC., Defendant-Appellant, and David York, Defendant-Appellant.

No. 04-1462.

United States Court of Appeals, Federal Circuit.

August 24, 2005.

COPYRIGHT MATERIAL OMITTED

Charles W. Steese, Steese & Evans, P.C., of Denver, Colorado, argued for plaintiff-appellee. With him on the brief was Sandra L. Potter. Of counsel on the brief were Michael D. Broaddus, Perkins Coie LLP, of Seattle, Washington, and Bobbee J. Musgrave, Musgrave & Theis, LLP, of Denver, Colorado. Of counsel were Jerry A. Riedinger, Perkins Coie LLP, of Seattle, Washington, and Mark T. Wasden, of Washington, DC; and Teresa L. Ashmore, Musgrave & Theis LLP, of Denver, Colorado.

Dean L. Franklin, Thompson Coburn LLP, of St. Louis, Missouri, argued for defendants-appellants Custom Hardware Engineering & Consulting, Inc. and David York. Of counsel on the brief were Edwin G. Harvey and Nicholas B. Clifford, Jr., Simon Passanante, PC, of St. Louis, Missouri, and Anthony G. Simon.

Joseph D. Steinfield, Prince, Lobel, Glovsky & Tye, LLP, of Boston, Massachusetts, for defendant-appellant David York.

Before RADER, SCHALL, and BRYSON, Circuit Judges.

Opinion for the court filed by Circuit Judge BRYSON.

Dissenting opinion filed by Circuit Judge RADER.

BRYSON, Circuit Judge.

Storage Technology Corporation ("StorageTek") manufactures automated tape cartridge libraries that can store massive amounts of computer data. The cartridge libraries consist of Library Storage Modules, or "silos," that contain numerous tape cartridges, tape drives for reading the cartridges, and a robot arm for moving the cartridges. Connected to each silo is a Library Control Unit that controls the robotic mechanisms in the silo and monitors their progress. The individual silos and Control Units are connected via a local area network to a Library Management Unit, which is a computer that can direct and control several silos. To access data from the library, a user sends a request for the data to the Management Unit. The Management Unit then transmits commands to the appropriate Control Unit to find and read the tape cartridge containing the requested data. The Control Unit then sends the data over the network back to the Management Unit.

A central element of this case concerns what occurs when the entire tape library is first turned on. Upon startup, the Management Unit loads executable code, called the "9330 code," from its hard drive into its random access memory ("RAM"). When the Control Unit is powered up, the Management Unit sends other code, called the "9311 code," across the network to the Control Unit, where it is loaded into the Control Unit's memory. Both processes happen automatically, without any action by the library user.

StorageTek's claims in this case stem from the fact that the 9330 and 9311 computer code is copyrighted. StorageTek describes both the 9330 and 9311 code as consisting of two intertwined, but distinct, groups: functional code and maintenance code. While StorageTek never specifies which portions of its copyrighted code fall into each group, it states that the functional code consists of the portions of the computer program that cause the Management Unit and Control Unit to run, while the maintenance code consists of the portions of the program that diagnose malfunctions and maintain the performance of the Management Unit and Control Unit. When StorageTek sells its tape libraries to customers, the company does not sell the software that runs the library. Rather, it only licenses the programs to its customers. The license covers only the functional code portions of the software, and it specifically excludes the maintenance code. However, StorageTek provides the entire code to the customer. Both the functional and maintenance code are automatically loaded into the RAM of the Control Unit and Management Unit upon startup, and copying the entire code is necessary to activate and run the library.

Custom Hardware Engineering & Consulting, Inc., ("CHE") is an independent business that repairs data libraries manufactured by StorageTek. In order to diagnose problems with the libraries, CHE intercepts and interprets error messages produced by the maintenance code. The error messages are known as fault symptom codes. The fault symptom codes are generated by the Control Unit and are transmitted to the Management Unit over the network within a package of information, called an Event Message. To ensure that the Control Unit is configured to send the fault symptom codes, CHE needs to override a password protection scheme, called GetKey, which was written by StorageTek to disallow certain unauthorized reconfigurations of the maintenance code on the Control Unit. CHE has used two devices to circumvent GetKey. The original device, called a Library Event Manager ("LEM"), was connected to the network between the Control Unit and the Management Unit. The LEM worked by trying different passwords to "crack" GetKey. The LEM then allowed CHE to force the Control Unit to send fault symptom codes over the network after rebooting the Management Unit and Control Unit. CHE has ceased using the LEM in favor of a different device, the Enhanced Library Event Manager ("ELEM"). The ELEM also is attached to the network between the Control Unit and Management Unit. Rather than "cracking" the GetKey password, the ELEM mimics a signal from the Management Unit to the Control Unit upon rebooting the Control Unit, which causes the maintenance code on the Control Unit to be configured to send the fault symptom codes. CHE then intercepts the Event Messages and interprets the fault symptom codes. Based on the information in those error codes, CHE is able to diagnose and repair the data libraries.

StorageTek brought an action in the United States District Court for the District of Massachusetts against CHE and its president, David York. StorageTek alleged that CHE committed copyright infringement when CHE rebooted and reconfigured its customers' Control Units and Management Units. Storage Tech. Corp. v. Custom Hardware Eng'g & Consulting, Inc., No. 02-12102-RWZ (D.Mass.). Additionally, StorageTek alleged that CHE violated the anticircumvention provision of the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. § 1201(a), when CHE circumvented the GetKey protection system to force the customer's Control Unit to transmit error codes. StorageTek also claimed that CHE misappropriated its trade secrets by intercepting the Event Messages, which StorageTek asserts is confidential information. Finally, StorageTek asserted other claims, including an action for patent infringement, that are not at issue in this appeal. In response, CHE counterclaimed, alleging that StorageTek had committed various antitrust violations.

Upon bringing suit, StorageTek asked the district court to issue a preliminary injunction against CHE. After a hearing on the motion, the district court agreed that StorageTek had shown a substantial likelihood of success on the copyright, DMCA, and trade secret claims. Additionally, the court found that the potential losses to StorageTek's business due to CHE's activities were sufficiently great that the balance of hardships favored issuing a preliminary injunction. Finally, the trial court held that CHE's antitrust counterclaims would likely fail and in any event could not shield CHE from an injunction. The court therefore enjoined CHE from circumventing the GetKey system, intercepting and displaying Event Messages, or causing the copying of the maintenance code on its customers' systems. CHE appeals. Because the issues on appeal are not within our exclusive jurisdiction, we follow the law of the circuit from which this appeal is taken. Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d 1562, 1572 (Fed.Cir.1997).

I

CHE does not deny that the copyrighted maintenance code is copied into the Control Unit's or Management Unit's RAM when the company reboots its customers' systems. See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 518-19 (9th Cir.1993). Nor does CHE dispute that the duplication of the maintenance code is outside the explicit grant of StorageTek's software license to its customers. Absent a defense, CHE's actions would constitute copyright infringement. Stenograph L.L.C. v. Bossard Assocs., Inc., 144 F.3d 96, 99 (D.C.Cir.1998). CHE maintains, however, that its replication of the maintenance code is permissible based on a variety of defenses. Specifically, CHE argues that the copying is protected by sections 117(a) and 117(c) of the Copyright Act, 17 U.S.C. §§ 117(a), 117(c), and the doctrine of fair use. CHE also claims that it is implicitly authorized to copy the maintenance code and that StorageTek's copyright on the code is invalid.

A

CHE first asserts that section 117(c) of the Copyright Act shields it from liability for copyright infringement. Section 117(c) has not previously been construed by the First Circuit or any court of appeals, and we therefore treat the issue as one of first impression. Section 117(c) provides that

it is not an infringement for the owner or lessee of a machine to make or authorize the making of a copy of a computer program if such copy is made solely by virtue of activation of a machine that lawfully contains an authorized copy of the computer program, for purpose only of maintenance or repair of that machine, if —

(1) such new copy is used in no other manner and is destroyed immediately after the maintenance or repair is completed; and

(2) with respect to any computer program or part thereof that is not necessary for the machine to be activated, such program or part thereof is not accessed or used other than to make such new copy by virtue of the activation of the machine.

CHE's position is that its actions are protected by section 117(c) because the owners of the tape libraries...