Vault Corp. v. Quaid Software Ltd., Civ. A. No. 85-2283.

• Decision Date: 12 February 1987
• Docket Number: Civ. A. No. 85-2283.
• Citation: 655 F. Supp. 750
• Parties: VAULT CORPORATION v. QUAID SOFTWARE LIMITED.
• Court: U.S. District Court — Eastern District of Louisiana

655 F. Supp. 750

VAULT CORPORATION v. QUAID SOFTWARE LIMITED.

Civ. A. No. 85-2283.

United States District Court, E.D. Louisiana.

February 12, 1987.

COPYRIGHT MATERIAL OMITTED

Jarrell E. Godfrey, Jr. and Eleanor A. Lasky, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, La., for plaintiff.

William E. Wright, Jr., David P. Banowetz, Jr., Baldwin & Haspel, New Orleans, La., for defendant.

Harry A. Rosenberg, John P. Manard, Jr., Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., Max Stul Oppenheimer, Venable, Baetjer & Howard, Baltimore, Md., for Capital PC User Group, Central Point Software, Inc., The PC Tech Journal, John Denork and Dale Hillman.

HEEBE, Chief Judge.

Plaintiff, Vault Corporation, instituted an action against defendant, Quaid Software Limited, seeking a permanent injunction and damages. Vault manufactures certain data security software designed to prevent the copying of software programs, which is sold under the registered trademark PROLOK. Quaid has developed a program called "CopyWrite" which unlocks the PROLOK security software and allows the program contained on the protected diskette to be copied.

This matter came on for hearing on the motion of plaintiff, Vault Corporation, for a preliminary injunction enjoining defendant, Quaid Software Limited, from advertising for sale or selling that portion of its CopyWrite Program that unlocks PROLOK; from violating the PROLOK license agreement; from misappropriating Vault's trade secret (the PROLOK program); from infringing or contributorily infringing Vault's copyright on PROLOK; and ordering the impoundment of all Quaid's copies of CopyWrite that are capable of unlocking PROLOK. The Court, having heard the testimony at the hearing and having considered the evidence, the applicable law, the amicus brief, and the memoranda submitted by the parties, now makes the following findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a), as hereafter set forth.

FINDINGS OF FACT

1. Plaintiff, Vault Corporation (hereinafter "Vault"), is a corporation organized pursuant to the laws of the State of California and is domiciled in West Lake Village, California. Plaintiff does business in the State of Louisiana.

2. Defendant, Quaid Software Limited (hereinafter "Quaid"), is a corporation organized under the laws of the Province of Ontario, Canada, and is domiciled in Toronto, Ontario, Canada.

3. Vault manufactures and distributes a line of computer software security products designed to prevent the copying of programs. Its primary product, PROLOK, is a program placed on a medium of storage referred to in the computer trade as a floppy diskette, upon which a "read only memory" (ROM) type alteration (termed a "hard fingerprint" by Vault) has been made.

4. There are two parts to PROLOK: the software component (program) and the fingerprint disk (read only memory chip).

5. Vault developed the original commercial version of PROLOK in early 1983. Since 1983 Vault has produced three substantially revised versions of PROLOK. The first is described as versions 1.01-1.06, the second as version 1.7, and the third as versions 2.0-2.01.

6. PROLOK is sold on the open market through retail dealers, through mail order, and through direct sales to other software manufacturers.

7. The PROLOK diskettes are sold in various different packages, containing different numbers of diskettes, all of which indicate that PROLOK is copyrighted. Additionally, the following license agreement is printed on each package:

IMPORTANT! VAULT IS PROVIDING THE ENCLOSED MATERIALS TO YOU ON THE EXPRESS CONDITION THAT YOU ASSENT TO THIS SOFTWARE LICENSE. BY USING ANY OF THE ENCLOSED DISKETTE(S), YOU AGREE TO THE FOLLOWING PROVISIONS. IF YOU DO NOT AGREE WITH THESE LICENSE PROVISIONS, RETURN THESE MATERIALS TO YOUR DEALER, IN ORIGINAL PACKAGING WITHIN 3 DAYS FROM RECEIPT, FOR A REFUND.

1. This copy of the PROLOK Software Protection System and this PROLOK Software Protection Diskette (the "Licensed Software") are licensed to you, the end-user, for your own internal use. Title to the Licensed Software and all copyrights and proprietary rights in the Licensed Software shall remain with VAULT. You may not transfer, sub-license, rent, lease, convey, copy, modify, translate, convert to another programming language, decompile or disassemble the Licensed Software for any purpose without VAULT's prior written consent.

2. THE LICENSED SOFTWARE IS PROVIDED "AS-IS". VAULT DISCLAIMS ALL WARRANTIES AND REPRESENTATIONS OF ANY KIND WITH REGARD TO THE LICENSED SOFTWARE, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. UNDER NO CIRCUMSTANCES WILL VAULT BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES EVEN IF VAULT IS APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.

8. On PROLOK version 2.0, the first shipments of which were made on or about August 27, 1985, the following language was included:

To the extent the laws of the United States of America are not applicable, this license agreement shall be governed by the laws of the State of Louisiana.

(Emphasis added)

9. Vault sells blank protected diskettes to software producers. The software producer places his program on a PROLOK diskette, and sells the diskette to the public. The user of a program placed on a PROLOK diskette cannot make a copy of the program that will run independently of the original PROLOK diskette. The sole purpose of PROLOK is to inhibit copying of the program by the user.

10. Vault at all times attempted to prevent the general public from discovering the PROLOK program, method and technology. Their efforts included encrypting the PROLOK program in four layers of code, separating the various different programmers working on the program from each other, having all employees sign nondisclosure agreements prohibiting them from disclosing any of Vault's secrets, the use of shredding devices at the close of business each day to shred all paper containing any portion of the PROLOK program, and keeping the master PROLOK program locked in a safe.

11. Periodically Vault changes PROLOK in order to make it more difficult to be broken or unlocked.

12. The PROLOK licensing agreement is not necessarily enclosed in the sale by the software manufacturer to the ultimate user. The user usually is not aware that the program is on a PROLOK diskette.

13. Vault registered the copyrights of PROLOK versions 1.7 and 2.0 on August 8, 1985.

14. Defendant, Quaid Software Limited, manufactures at least three different computer software products and one hardware product.

15. Quaid manufactures a software program called "CopyWrite," which allows a user to make copies of programs contained on floppy diskettes. A segment of CopyWrite called "RAMKEY" allows a user to make copies of software programs placed on a PROLOK disk.

16. The development of CopyWrite took place at Quaid's offices in Toronto, Ontario, Canada.

17. CopyWrite is sold by Quaid primarily through mail order sales solicited by advertising in national magazines. The shipments are made from Quaid's offices in Canada.

18. Quaid advertises its products in at least six different personal computer publications which are distributed in all fifty states, including Louisiana. These publications include "Personal Computing", "PC Magazine", "BYTE", "Infoworld", "PC World Magazine", and "PC Tech Journal". In its advertisements, Quaid solicits direct mail sales of CopyWrite for $50.00 (U.S.) per unit. The advertisements state that CopyWrite is revised monthly to keep up with the latest in copy protection.

19. Quaid has been involved in a total of 375 transactions with Louisiana residents since 1983. This includes new sales and updates.

20. Quaid's total sales in Louisiana of all four of its products totalled $2,763.00 in fiscal year 1984, $9,756.00 in fiscal year 1985, and $6,665.00 in 1986 at the date of trial. Projected sales for 1986 were estimated to be approximately $13,000.00.

21. Quaid does not maintain any offices or personnel in Louisiana, nor does it operate any research, manufacturing or business operations in Louisiana.

22. Quaid has never purchased any PROLOK diskettes in Louisiana. Quaid has only purchased PROLOK diskettes by mail. These diskettes were received and used by Quaid solely in Canada.

23. It is an ordinary practice of computer users to purchase computer software and immediately make archival backup copies of that software. This is done in order to assure the user that in the event of mechanical, electrical or physical damage to the software program or disks, a functional backup copy is available for use.

24. Without the use of CopyWrite or other methods of unlocking PROLOK, a purchaser of a PROLOK protected software program cannot make a functional archival copy of that program.

25. Although one can make a "backup" copy of a PROLOK protected software program without CopyWrite or a similar product, that copy is not workable in the event that the original PROLOK disk is extensively damaged, destroyed or lost. The backup copy will operate only as long as the original PROLOK diskette is in either of the two disk drives of the computer. The backup copy will not operate by itself.

26. In order to unlock PROLOK protected software programs, Quaid developed RAMKEY and incorporated it within the CopyWrite product. The means for creating the RAMKEY program evolved in three different stages. In the first stage, Quaid developed RAMKEY by analyzing the operation of PROLOK using Disk Explorer and IBM Debug, two products sold on the open market. This analysis took place in September or October 1983. The next version of RAMKEY was developed with information gained through the disassembly and decompilation of PROLOK. The RAMKEY...