Whelan Associates v. Jaslow Dental Labor., Civ. A. No. 83-4583.

• Decision Date: 22 January 1985
• Docket Number: Civ. A. No. 83-4583.
• Citation: 609 F. Supp. 1307
• Parties: WHELAN ASSOCIATES, INC. v. JASLOW DENTAL LABORATORY, INC., et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

609 F. Supp. 1307

WHELAN ASSOCIATES, INC. v. JASLOW DENTAL LABORATORY, INC., et al.

Civ. A. No. 83-4583.

United States District Court, E.D. Pennsylvania.

January 22, 1985.

Joel S. Goldhammer, Seidel, Gonda, Goldhammer, P.C., Philadelphia, Pa., Irwin S. Rubin, Rubin, Glickman & Steinberg, P.C., Souderton, Pa., for plaintiff.

Manny D. Pokotilow, Caesar, Rivise, Bernstein & Cohen, Ltd., Richard M. Bockol, Philadelphia, Pa., for defendant.

OPINION AND ORDER

VANARTSDALEN, District Judge.

A. FINDINGS OF FACT

1. Whelan Associates, Inc. (Whelan Associates) is a Pennsylvania corporation, incorporated and organized in 1979 by Elaine P. Whelan, who is the president and a director and controlling stockholder of Whelan Associates. The main business of Whelan Associates is designing and marketing custom computer applications. Insofar as relevant to this case, Whelan Associates is in the business of designing and marketing computer software programs for use in the business operations of dental laboratories.

2. Whelan Associates claims that it is the sole and exclusive owner of a computer software program which it has named the Dentalab System. The Dentalab System was designed for the IBM-Series 1 Computer and written in EDL computer language. It was later written for the IBM-Datamaster Computer in BASIC computer language. For all practical purposes the Datamaster Dentalab System is no longer being marketed due to lack of interest by the dental laboratory industry with utilizing the IBM-Datamaster computer. Whelan Associates has more recently developed a Dentalab system for use with the IBM-PC Computer, a smaller, more inexpensive personal computer, suitable for use with dental laboratories employing 25 or fewer employees. Whelan Associates claims ownership to registered copyrights to the Dentalab Computer programs and a related Installation Guide and a User Manual.

3. Plaintiff claims that the defendants have wilfully infringed upon plaintiff's copyrights, engaged in unfair competition and tortiously interfered with existing and prospective contractual relations. Plaintiff claims that defendants have wrongfully marketed the Dentalab System for the IBM-Series 1 Computer including marketing of maintenance agreements for previously sold systems. Plaintiff further claims that defendants wrongfully developed and are marketing an infringing software system for use with an IBM-PC Computer under the trade name Dentlab.

4. Elaine Whelan is an experienced computer programmer, analyst and systems designer. In 1978 she was owner of one-half of the corporate stock of Strohl Systems Group, Inc. (Strohl Systems). Myles Strohl was the owner of the other half of the stock. Strohl Systems, at that time, was in the business of designing custom computer software programs.

5. Jaslow Dental Laboratory, Inc. (Jaslow Laboratory) was in the business of operating a successful dental laboratory. Edward Jaslow, the father of Rand Jaslow, was the president. Rand Jaslow was an officer and stockholder of Jaslow Laboratory. During 1978, Rand Jaslow attempted to develop a computer program for various business operations of Jaslow Laboratory such as registering receipt of orders; processing orders; maintaining inventory, cost controls, and customer lists; performing invoicing, billing and accounting functions; and performing other related functions and services. Rand Jaslow had no experience or formal training in computers or in computer programming and systems design. He had purchased from Radio Shack a small, relatively inexpensive computer, a TRS-80, that had no printer and limited capacity. Rand Jaslow was unsuccessful in developing a computer program that would be useful in the operation of Jaslow Laboratory.

6. Rand Jaslow eventually had communications with Strohl Systems concerning Strohl Systems creating a workable computer system for Jaslow Laboratory. By letter dated August 31, 1978 (Exhibit J-1) Strohl Systems submitted a written proposal to Jaslow Laboratory to design and implement a computer software system for Jaslow Laboratory. The proposal outlined the general scope of the functions to be included in the design, the methods by which the design would be developed (including a description of the work to be done, such as preparation and delivery of the system together with instructions), a time schedule for completion, and the charges to be made for the services. Strohl Systems was to receive a fee of $18,000 to design the system plus certain expenses. The system was to be designed for use with an IBM-Series 1 computer which Jaslow Laboratory was to acquire, either by lease or purchase at its own expense. Elaine Whelan was designated in the proposal as the person who would "lead the Strohl Systems team."

7. The proposal of August 31, 1978 was supplemented by a letter dated September 30, 1978 from Strohl Systems to Jaslow Laboratory (Exhibit J-2). The letter stated as follows:

This communication is a supplement to our proposal letter dated 8/31/78.

We propose that all software developed by us for your dental laboratory system remain under our ownership. This basic system can then be marketed to similar laboratories by our organization. A royalty of ten percent of the basic package price would be returned to Jaslow Dental Laboratory for each system sold. Modifications to the system would be sold separately with all proceeds to our organization.

If the above points of agreement are acceptable, would you please sign and return the enclosed copy.

8. The proposal as set forth in the letters of August 31 and September 30, 1978 was accepted by Jaslow Laboratory, although never acknowledged in writing. Pursuant to the agreement, Strohl Systems designed and installed a software computer system for use by Jaslow Laboratory on the IBM-Series 1 Computer. The system was installed and placed in operation in Jaslow Laboratory's place of business.

9. At all times, the designing of the computer system was under the direct supervision and control of Elaine Whelan, and it was she who actually designed the system. In performing this task, she conferred extensively with Rand Jaslow as to the operation of the business of Jaslow Laboratory. In the process she learned the methods used by Jaslow Laboratory in receiving, processing and delivering orders, invoicing, billing, controlling inventory, accounting and, in substance, the detailed manner in which Jaslow Laboratory conducted its business, other than the actual manufacturing processes used in filling orders. She also conferred with Rand Jaslow and other employees of Jaslow Laboratory as to features, capabilities and functions of the computer that would be desirable and useful in operating the business. In addition, she did a substantial amount of independent study and research as to the methods of operation of other dental laboratories in order to design a system that would be readily adaptable to other laboratories.

10. The computer program designed and originally developed for Jaslow Laboratory was written in Event Driven Language (EDL), a recognized form of computer language. Computer language is the method used to write the source code for a computer program. In designing this program, both Strohl Systems and Jaslow Laboratory intended and understood from the outset that the system would be designed so that it could be readily used and adapted by a skilled computer programmer for dental laboratories throughout the industry. It was contemplated that after developing a satisfactory system, Strohl Systems would market the system to other dental laboratories. Both Strohl Systems and Jaslow Laboratory knew that the operation of dental laboratories was substantially the same throughout the industry and that it would be quite feasible to adapt the system that would be developed for Jaslow Laboratory to many other dental laboratories.

11. The agreement (Exhibit J-2) expressly provided that "all software developed" by Strohl Systems for Jaslow Laboratory was to "remain under our Strohl Systems' ownership", and the "basic system" was then to be marketed by Strohl Systems. Jaslow Laboratory was the pilot program. Jaslow Laboratory agreed to make its computer available for demonstration purposes. As compensation for such demonstrations and for the information provided as to the operation of dental laboratories, Jaslow Laboratory was to receive a commission of 10% of the basic package price of any additional systems sold to other dental laboratories. Modifications to the basic system as originally developed for Jaslow Laboratory were to be sold separately by Strohl Systems and Jaslow Laboratory was to receive no part of the proceeds from such sales. (Exhibit J-2)

12. The system became operational for Jaslow Laboratory around March, 1979. As Rand Jaslow and other personnel of Jaslow Laboratory became familiar with the operation, modifications and enhancements were suggested and requested. Strohl Systems, through Elaine Whalen, made various enhancements and modifications between March and October, 1979. Strohl Systems, through Elaine Whelan, for these changes, and Jaslow Laboratory paid such charges.

13. In 1979, Strohl Systems commenced marketing the system it had developed. In so doing, it used the trade name of "Dentalab". The name was not registered as a trade name or trademark.

14. An agreement dated November 15, 1979 between Myles Strohl and Elaine Whelan and Strohl Systems separated the interests of Myles Strohl and Elaine Whelan in Strohl Systems. Under the agreement (Exhibit J-25), Elaine Whelan sold her entire interest in Strohl Systems. In return, she was granted permission to market the dental laboratory computer program under the name Dentalab. Myles Strohl and Strohl Systems agreed that they would refrain from engaging in any way in marketing computer programs for dental laboratories for a period of two years.

15. An agreement dated August 19, 1983 between Myles Strohl and Elaine...