# Appendix — Softel, Inc. v. Dragon Medical & Scientific Communications, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1910%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1998 - **Citation:** 523 U.S. 1020 ## Text Supreme Court, U.S. FILED 97 999 DrC 151997 No. OFFICE OF THE CLERK IN THE Supreme Court Of The United States OCTOBER TERM, 1997 SOFTEL, INC., Petitioner. DRAGON MEDICAL AND SCIENTIFIC COMMINCATIONS, INC..: DRAGON GROUP LTD.., also known as Dragon Medical and Scientific Communications, Ltd.; JOHN R. DARSEE, H. EUGENE HODGE. NINA ROMANOFF, Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT APPENDIX TO PETITION FOR A WRIT OF CERTIORARI CHARLA R. BIKMAN Counsel for Petitioner 25 Maple Lane East Hampton, N.Y. 11937 (516) 324-1306 35 vp TABLE OF CONTENTS Memorandum and Order - Hon. John M. Cannella —_ I NL, TEE eesicdcrsccccccccosnntcettcnsscssccessessccosees 1 Memorandum and Order - Miriam Goldman Cedarbaum QUIS BT, TODD cnsccececersticvscosesseccsscscescccevcctnceseeecees 43 Memorandum and Order - Miriam Goldman Cedarbaum GOR CREE FE, Ti acnnescrccccccsesccscccccccsesccceccccecesens 59 Decison of the United States Court of Appeals for the Second Circuit dated July 9, 1997 .................. 63 Order denying Motion for Rehearing ................:cccceee 88 2 | & , CESSES Eenne Ue ern ere 89 f° . < eRe rec reeemneos sever 93 Be A I a iiiticicccdiinenstnctnsreccosmnvmnmnenenatinnnmesyncees 34 a I oo sccoscntninenecavscdionabeinavbntieegninatdonis 94 CE ii dirensntssasinccetsemsssinunernieesencinonensstion 95 iad iccicctccctacbleseutendinehsnnintscniexicseonien 96 Excerpts from Transcript of Liability Trial, April 23, 1991 to May 13, 19914 .......... cece ceeseeeeeneees 98 Excerpts from Transcript of Damages Trial, May 8, 1995 to May 11, 1995 .............ccceeeeeeeeeeteees 120 Plaintiff's Exhibit 122 - Liability Trial Excerpt of Affidavit of Aaron Grosky - First Expert Report ....... 127 Plaintiff's Exhibit D-10 - Damages Trial ....................... 129 Plaintiff's Exhibit 130A - Liability Trial Excerpt of Hearing before the Task gL) rrr 130 NITED SlATES DISTRICT COURT OUTHERN DISTRICT OF NEW YORK SOFTEL, INC., “ Plaintiff, -against- MEMORANDUM DRAGON MEDICAL AND SCIENTIFIC AND ORDER COMM NICAT NS. INC., DRAGON ROUP LTD.. a/k/a DRAGON _ 87 Civ. 0167 (JMC) MEDICAL AND SCIENTIFIC COMM NIGATIONS LTD. JOHN R. DARSEE. H. EUGENE-HODGE, and NINA ROMANOFF, Defendants. 4 CANNELLA, D.J.: After a bench trial on plaintiff's claims, the Court finds in favor of plaintiff with respect to its first and fifth claims for relief stated in the Amended Complaint to the extent these claims are based on the Hairy Cell Roche and Low Back Pain programs. The Court further finds that plaintiff is entitled to recover punitive damages with respect to its fifth claim for relief. Plaintiff's claim for attomey’s fees, statutory damages and punitive damages with respect to its claim under its first claim for relief is denied. Plaintiff's second, third, fourth and sixth claims for relief are dismissed. Plaintiff's motion for further discovery with respect to the programs Advanced Cardiology Lab, Expert Consultations, Unasyn Oral Followup and Benign Prostatic Hypertrophy is denied BACKGROUND This action was tried by the Court without a jury on April 23, 1991 through May 9, 1991. Trial of the action was bifurcated and the instant trial was solely on the issues of liability and intent. Having heard and carefully considered all of the- evidence in this matter, the Court makes the following findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure. FINDINGS OF FACT The Parties } 1. Plaintiff, Softel, Inc. ["Softel"] is a New Hampshire corporation engaged in the business of developing and selling Al computer graphics products to users of IBM compatible computers. | Paul Fiondella is the president and sole shareholder of the | corporation. 2. Defendant Dragon Medical and Scientific Communications, Inc. [‘Dragon") is a New Jersey corporation engaged in the business of designing communications programs to present medical and scientific information. The programs are typically designed for pharmaceutical companies who use them to familiarize physicians with their products. 3.Dragon Group Ltd. a/k/a Dragon Medical and Scientific Communications Ltd. ("Dragon-U.K.") is a holding company based in London, England and has majority control of Dragon. The Court denied plaintiffs motion to add Dragon-U.K. to the action, by Memorandum and Order dated April 6, 1988. See Softel v. Dragon, 87 Civ. 0167 (JMC) (S.D.N.Y. Apr. 6, 1988). 4. Defendant H. Eugene Hodge founded Dragon and is its president and a shareholder. 5. Defendant Nina Romanoff is a Dragon employee who produces the film and videotape used in the computer programs. 6. Defendant John R. Darsee is a medical writer for Dragon and the director of its interactive department. 7. At the conclusion of plaintiffs case, the Court granted defendants’ motion for judgment as a matter of law under Rule | 50(a) of the Federal Rules of Civil Procedure with respect to | defendants Hodge and Romanoff, but denied the motion with | respect to defendant Darsee. Nature of Computer Software 8. Plaintiff wrote computer code for computer programs produced by Dragon. Plaintiff now asserts claims under federal copyright law, the Lanham Act and state law based on defendants’ alleged improper use of plaintiffs code in subsequent interactive programs. 9. The programs in issue are interactive programs designed to operate on personal computers. In an interactive program the user controls the direction of the computer program. A personal computer ["PC") consists of both hardware and software. The hardware includes the central processing unit, which controls the computer's functions; the internal memory; input devices such as a keyboard, mouse or touchscreen; output devices, such as a display screen and printer; and storage devices such as hard and floppy ae tne tem — — A2 disc drives. See Lotus Dev. Corp. V. Paperback Software Int'l, 740 F. Supp. 37, 43 (D._ Mass. 1990). 10. Software includes computer programs. There are numerous computer programming languages. Computers operate by executing instructions composed of binary digits of "zeros" and “ones”. A sequence of binary instructions is known as “machine language” or “object code." Computer programmers, however, generally write programs in “source code" or "assembly language" in which they replace binary digits with meaningful letters. A program written in source code must also be used with another program, called a “compiler” or "interpreter," which translates the source code into binary instructions which the computer can miiese es oe Daniel J. Fetterman, The Scope Of Copynant v, Symposium Number 36, 1, 7-8 (1990) (hereinafter ; Benin at Gooialens Protections, Similarly, assembly language must be translated into machine language through the use of an "assembler" program. The compiling or assembling process results in “object code” which can be used as 2 library or “object module.” See Lotus, 740 F. Supp. at 44. 11. “Linking” is the process of combining all of the parts of the computer program into the “executable” code which runs -the program. 12. Data is a collection of information, which is used by the computer program. It is generally formatted into files, which are stored on either the hard disc of the PC or on a floppy diskette. Data can include text and pictures. 13. Paint-and-draw computer programs enable the user to create graphic images on a computer screen. In this case, Dragon used paint-and-draw computer programs to create graphic images. 14. Graphic images drawn with a computer paint-and-draw program can be stored as data and used in another computer program, if that computer program has the ability to retrieve and display the images. Fiondella's Devel + of Vig 15. In January 1983, Fiondella developed a computer graphics program for Softel known as Videogram 1.0. The paint and-draw program was developed for use on a PC that was equipped with a Plantronics board. A Plantronics board is a color graphics card which expanded the range of colors on a PC from four to sixteen. A3 16. Videogram 1.0 allowed the user to create graphic images using a keyboard as the input device. The user could store the image in the computer's memory for later use. 17. In 1983, Fiondella began working on a new product, called Videogram 2.0, which enabled the user to create graphic images using a pen and tablet as the input device. Videogram 2.0 did not permit the user to incorporate images drawn with it into software it was writing. Softel later produced a utility program that performed this function. 18. Plaintiff obtained a Certificate of Registration of Copyright for Videogram 2.0, No. TX 2-045-304 on April 29, 1983. This copyright is not in issue. 19. In 1984, Fiondella began working on Videogram 3.0, an updated version of Videogram 2.0, to take advantage of IBM's Enhanced Graphics Adaptor ("EGA card"], which had greater Capabilities than the Plantronics board. Softel released Videogram 3.0 in the Fall of 1985. - ‘s Initial Contacts with Softel 20. In 1984, Pfizer Laboratories ["Pfizer") hired Dragon to produce a program which later became known as Heartlab. The program was based on the results of recent coronary research. 21. In November 1984, Darsee learned of the Videogram product in an IBM catalogue. He called Fiondella to find out whether Darsee could create bar charts using Videogram. Fiondelia recommended that Darsee purchase Videogram 2.0. Darsee purchased Videogram 2.0, but was unable to obtain a Plantronics graphic card which was needed to operate Videogram 2.0. Softel sold Darsee a Plantronics card and Fiondella delivered it to Darsee in December 1984 at Dragon's place of business. 22. Fiondella delivered the Plantronics card personally in order to determine whether there were any business opportunities for his company at Dragon. In particular, he thought that Dragon might be interested in acting as a distributor for Softel products. 23. Fiondella and Darsee dispute the substance of their conversation during their initial meeting. Fiondella testified that Darsee told him that Dragon expected to produce a series of interactive videodisc projects. Fiondella stated that he informed Darsee that Softel could create an “authoring language” that would enable Dragon to produce interactive computer programs simply by preparing graphic and text files, and any videodisc presentations. AG He told Darsee that the authoring language would be comprised of simple English language words in a text file. He further testified that he explained to Darsee that the advantage of an authoring language was that it could be used in subsequent projects without re-writing the computer code. According to Fiondella, Darsee showed great interest in his suggestions and the parties discussed forming a joint venture to market such an authoring language. Darsee denied discussing whether Dragon would be interested in Softel's production of an authoring language or the formation of any joint venture. 24. The Court finds Fiondella's testimony on this issue credible. Fiondella was an aggressive small businessman who was actively looking for business opportunities for his company Softel. It is not surprising that upon learning the Dragon had been hired to produce several interactive projects, he told Darsee that he could write computer code in a manner that would make it easier for Dragon to produce the interactive programs. This is the first time that Fiondella met Darsee and it is clear that he was interested in marketing his capabilities in the hope that Dragon would hire him. 25. Darsee asked Fiondella to produce a simulation of a beating heart for inclusion in the Heartiab project. The Azactam Program 26. In January 1985, E.R. Squibb & Sons, Inc. hired Dragon to create an interactive videotape program to train its pharmaceutical sales representatives about a new antibiotic called Azactam. The program became known as Azactam. 27. Chris Bazelgette, an employee of Dragon U.K., wrote the computer code for the program pursuant to Darsee’s instructions. Since Dragon intended to use graphic images created with Videogram 2.0 in Azactam, Dragon hired Fiondella to write code that would display graphic images created by Videogram in Azactam | (the "image retrieval routines”). 28. Fiondella agreed to write the code, but he did not provide Dragon with the source code for retrieving and displaying Videogram created graphic images. instead, he insisted that Bazelgette provide him with Bazelgette’s source code. Fiondella then integrated the two codes to produce the "executable"--the code in its final form. 29. Bazelgette's source code shows the use of external command files and text files. Fiondella asserts that it was his decision to use extemal command files and text files in the Azactam AS project, and not Darsee's or Bazeigette’s. Fiondella's claim is wholly unsupported. There is no basis for inferring that Darsee instructed Bazelgette how to write the computer code based on an informal conversation he had with Fiondella over a year ago. Rather, the evidence shows that despite his initial conversation with Fiondella, Darsee was interested in Fiondella's work and ideas for one limited purpose--to enable Dragon to retrieve and display Videogram created images. 30. Softel charged Dragon a fee for his services in writing the code to retrieve the Videogram created images which was fully paid. 31. Fiondella embedded a copyright notice in Softel's portion of the Azactam source code and in the executable delivered to Dragon. The Melanoma Program 32. In October 1984, before Dragon became acquainted with the Videogram program, Dragon and Roche Laboratories ("Roche") tentatively agreed that Dragon would develop at least three videodisc programs called Melanoma, Kaposi Sarcoma ("Kaposi"] and Hairy Cell Leukemia. 33. Darsee prepared a proposal containing a broad outline for the videodisc series and submitted it to Roche on November 15, 1984 (the "November 15 proposal]. The proposed program simulated a doctor's work-up of a patient suffering from a suspected cancer. The proposal suggested that the physician user be able to control the course of the program with a touchscreen, rather than utilize a rigid predetermined structure. Darsee suggested that the program comprise several levels of information which the physician- user could travel between. He also planned © place different categories of information on each level. 34. Roche approved Dragon's proposal in December 1984. 35. Darsee then met with Dr. Kirkwood, the medical consultant on the project. After speaking with Dr. Kirkwood, he began preparing a detailed design document for the program [the "Melanoma Design Document’. 36. The Melanoma Design Document explains that the program consists of a hierarchical series of menus from which the physician-user can make simulated medical decisions in the workup of one of four patients. The Melanoma Design Document provides an example of the program flow and drawings of the proposed menus. First, after selecting a patient, the user is presented with a A6 touchscreen menu entitied "Hospital Rounds” which contains categories relating to the evaluation of the patient such as history, physical examination, x-rays, and other diagnostic choices. If “history” is selected, then the history sub-menu is generated, which contains categories relating to the patient's past, present, and family history, as well as other categories conceming a patient's background. A video segment or text screen discusses the selected topic. The user then returns to the history sub-menu to make another choice, or the user may retum to the Hospital Rounds menu to make another selection. 37. Darsee completed the Melanoma Design Document on March 4, 1985, and sent it to Roche for its approval on this date. Roche approved the melanoma Design Document on or about March 10-12. Fiondella never saw the Melanoma Design Document while Darsee was preparing it and he did not help Darsee write the document. 38. Fiondella claims that it was his idea to structure the program using hierarchical menus. In support of his assertion, he testified that during the initial production meeting with regard to the Melanoma project he suggested that the program use hierarchical menus and external files. He further testified that after the production meeting he spoke to Darsee in greater detail about the design of menus and choices. Fiondella also testified that Hugh Osbome, a videodisc consultant was present at the meeting and that he also made suggestions conceming the structure of the program. Thus, Fiondella postulates that the production meeting occurred before Darsee submitted the Melanoma Design Document to Roche and that Darsee adopted Fiondella's idea to design the program using a hierarchical system of menus. 39. There is insufficient evidence to support Fiondella’s claim that it was Fiondella's idea to use a system of menus and choices in the Melanoma Design Document and not Darsee's. It is undisputed that Darsee prepared the initial November 15 proposal. Both the preliminary proposal and the Melanoma Design Document describe the conceptual framework of the program as comprising several levels. In both proposals, the user controls the flow of the program and has the ability to move from one level to another. The main difference between the two proposals is that the Melanoma Design Document is much more detailed than the original proposal and it contains the substantive medical information in each choice on each menu. While the Melanoma Design Document uses different terminology than the original proposal to refer to different levels and categories of information, the concepts contained in both A7 documents are the same. Fiondelia's testimony is the only evidence that Dragon or Darsee was interested in Fiondella’s expertise outside of his ability to write specific portions of computer code. If Darsee was interested in Fiondella’s suggestions insofar as they related to the overall structure and design of the program, it stands to reason that Darsee would have arranged formal meetings with Fiondella. According to Fiondella's testimony, however, Fiondella made his suggestions spontaneously during a preliminary production meeting. Moreover, the Melanoma Design Document is a highly detailed document and it is unlikely that Darsee would have been able to utilize Fiondella's ideas without any further discussion with him. The Court finds that Fiondella's claim that he was responsible for the incorporation of menus in the Melanoma Design Document is purely speculative. 40. The Melanoma project utilized a touchscreen, graphic designs and a video presentation. Dragon engaged Fiondelia to write computer code which controlled the operation of the touchscreen and videodisc player. 41. Dragon provided Fiondella with manuals from the hardware manufacturer to help Fiondella write the code necessary to operate the videodisc player and touchscreen. Fiondella wrote this code in modules. A module is a relatively short sequence of instructions which performs a specific subtask in the computer eee See Note, ey yyy eee - 88 Mich, L. Rev. 866, 871 (1990) [hereinafter Copyright Protection). 42. Dragon also retained Fiondelia to write computer code to retrieve and display graphic images drawn by Dragon artists with Videogram 2.0. 43. Several other persons worked on the project. Nina Romanoff was responsible for the videotape segments; graphic artists were responsible for creating graphics and medical illustrations; and Darsee was responsible for writing the medical text for the program. Darsee was also the project manager. 44. Softel billed Dragon for Fiondella's work on a per diem basis. When Fiondella finished his work, he gave Dragon the computer code in its executable form, and did not deliver his source code for the program. 45. Softel did not deliver a license for the program and the invoices do not make any reference to a license with respect to A8 further use of Softel's computer code. Softel, however, imbedded a copyright notice into the code of the program. 46. The Melanoma program was completed in May 1985. The K iP 47. The Kaposi program was the second videodisc project in the Roche Cancer Management series. Like Melanoma, Kaposi was an interactive program with videodisc segments. It also utilized the same hardware as Melanoma, and it incorporated graphic images drawn with Videogram 2.0. The program was also designed to simulate a physician's work-up of a patient. 48. Kaposi was completed in June 1985. Fiondella used computer code he had written in connection with Melanoma for the operation of the touchscreen, the videodisc player, and to retrieve and display Videogram images in Kaposi. 49. Darsee discussed programming issues with F iondelia in connection with his work in both Melanoma and Kaposi. Some of Darsee's suggestions were technical and concemed changes in the flow and operation of the program. 50. Fiondella wrote the Kaposi code making use of (1) an external file structure; (2) English language commands; (3) functional modules, particularly with respect to operating the hardware; and (4) a hierarchical series of menus and a touchscreen. 51. When Fiondella finished his work, he delivered the computer code in its executable form to Dragon, and retained the source code. He did not deliver a license, nor did he refer to a license on any of his invoices. However, he imbedded a license into the computer code. June 12 Meeting 52. On June 12, 1985, Fiondella met with Hodge to discuss a proposed contract between Fiondella and Dragon. The proposed contract set forth Softel’s fees for computer code written by Softel in future videodisc projects produced by Dragon. The proposed agreement also contained a provision that Softel retained ownership of any computer programs delivered under the agreement. 53. Hodge did not discuss any of the specific provisions contained in Fiondella's proposed contract with Fiondella. He thought that Fiondella's proposal was premature and he chose not to undertake any serious consideration of the proposed contract at A9 Ti this time. Access to Computer Code 54. At about the time that Kaposi was completed, Dragon sought Fiondella's assistance with respect to another program it was working on, called Sorbinil. Dragon had hired a free-lance computer programmer, Nixy Kontemporur, to write the computer code for the Sorbinil project. Dragon, however, intended to use graphic images drawn with Videogram 2.0 in the program. Consequently, Dragon hired Fiondella to integrate the computer routines needed to retrieve and display ideogram images into the Sorbinil code. 55. To integrate the routines, Fiondella took the image retrieval routines and a library of assembly language routines, which he kept on a transfer disc, to a computer located in the back room of Dragon's premises. He transferred the. code into a special directory on the hard disc of Dragon's computer. He then took a disc from Kontemporur and copied it onto another directory on the hard drive. He linked the two codes together to produce the executable code which he turned over to Kontemporur. When he was finished, he deleted all of the files from the hard drive. 56. On June 10, Softel sent Dragon an invoice which referred to a license for Fiondella's work. The invoice stated in pertinent part Certain proprietary software routines developed by Softei Inc. have been included in the Sorbinil application developed for Dragon by a third party. The inclusion of Softel Is routines for use in this single application is . authorized upon payment of the licensing fee below. It is understood by Dragon that any subsequent use of these routines in other applications by Dragon or its clients and or the sale or resale of the Sorbinil application by Dragon or its clients to other parties will involve an additional usage fee. | Plaintiff's Exhibit 63 57. Several problems with the computer program arose as the deadline for the completion of the Sorbinil project drew near. On : June 12, 1985, Hodge called Fiondella and asked him to reintegrate | the graphic image retrieval routines. Fiondella was out of town, but : his friend Nicholas Lorimer agreed to help him. Lorimer went to | Dragon's premises and Fiondella explained to him the process of integrating Softel code with the Sorbinil code over the phone. Pee ee er ee ek Oe Al0 i eee 58. The problems with the computer program continued, however, and Fiondella went to Dragon's premises when he retumed to New York on June 17. Fiondella and Kontemporur became engaged in an heated argument over whose code was causing the problems with the program. Fiondella testified that Kontemporur asked Fiondella to tum his Softel code over to Kontemporur so that Kontemporur could re-integrate the routines without asking for Fiondella assistance. Fiondella testified that when he refused to give his code to Kontemporur, Kontemporur permission. Fiondelia quite agitated over Kontemporur's threat to obtain his code. Hodge was present during the confrontation. He decided that Fiondella had behaved unprofessionaily during the vociferous exchange with Kontemporur and that Fiondella could no longer work at Dragon. 59. Defendants argue that Kontemporur's statement that he had the ability to retrieve Softel's code be stricken as hearsay. At trial, the statement was received into evidence under Rule 801(d)(2)(D) of the Federal Rules of Evidence, subject to a demonstration that Kontemporur was Dragon's agent. It is undisputed that Dragon hired Kontemporur to work on the Sorbinil project on a free-lance basis and that Kontemporur's statement was made while he was working on Sorbinil. To complete the Sorbinil of his employment. Defendants’ contention that Kontemporur was unauthorized to make the statement is unavailing. The Advisory Committee Notes to Rule 801(d) (2) (D) make clear that it is unnecessary to show that the declarant was authorized to make the statement. Given that Kontemporur's statement was made in the scope of his employment and in furtherance of his employment, the Court finds that the statement is admissible under Rule 801(d) (2) (D) of the Federal Rules of Evidence. 60. Fiondella eventually succeeded in linking the final executable Sorbinil code with his code. He completed his work at approximately 1:00 a.m. on June 18, 1985. He testified that before he left Dragon's premises he erased all of his source code from Dragon's computer. 61.Darsee was in Stockholm, Sweden, during the dispute between Kontemporur and Fiondella. 62.When Darsee retumed from Sweden he gained access to All the source code that Fiondella used in Sorbinil. The code he found had also been used in Kaposi. 63. Darsee claims that he found the code inadvertently. Darsee testified that the computer which Fiondella had been using in connection with the Sorbinil project had “crashed.” He stated that he inspected the computer and found a problem with the hard disk of the computer. He determined that the hard disk had to be sent out of the office for repairs. Darsee testified that he copied all of the files that were presently on the hard drive onto floppy diskettes to preserve them. When the hard disc was returned to Dragon's premises, Darsee testified that he transferred the files from the floppy diskettes back onto the hard drive of the computer. in doing so, he examined the directories of the files on the floppy diskettes. He stated that he discovered the source code for the Kaposi program as well as certain object modules containing the library of assembly language routines. He denied using any utility program which would permit him to gain access to files that had been previously erased. 64. In support of its contention that Darsee inadvertently discovered Softel’s code, defendants suggest that Lorimer could have left the Softel code on the hard drive of the computer when he was linking the two codes. 65. Darsee’s explanation as to how he obtained plaintiff's code cannot be reconciled with the other credible evidence. While itis possible that Lorimer accidentally left the code on defendants’ computer, defendants ignore that Fiondella subsequently worked on the program. Fiondella testified that he erased the code when he completed the Sorbinil program early on June 18 and his erasure would have erased any code that Lorimer accidentally left on the computer. Given the protective measures that Fiondella took to keep his code from defendants, it is highly implausible that Fiondella forgot to erase the code from the hard drive of Dragon's computer. In addition, Fiondella's testimony on this issue was particularly compelling and believable. On the other hand, Darsee's explanation appeared manufactured. Moreover, the evidence that Nixy Kontemporur could retrieve the routines by deleting Fiondella's erasures indicates that Dragon had the means of obtaining plaintiff's code. In sum, the Court finds that the weight of the credible evidence indicates that Dragon deliberately gained access to plaintiff's code. 66. After Fiondella finished working on Sorbinil, Darsee made certain corrections to the program at the request of Rob Johnston, Al2 a . the project manager for Sorbinil. The Court finds that there is insufficient evidence to support plaintiff's claim that Darsee deleted the copyright notice that Fiondella had placed in the Sorbinil code. gation Programs: Hairy Cell Roche. Back-paiN o Mesivch A. Hairy Cell Roche 67. On or about June 27, 1985, Dragon agreed to produce the third videodisc program in the Roche Cancer Management series, entitled Hairy Cell Leukemia. Roche requested that Dragon produce two versions of the project-one called Hairy Cell U.S., which was to be used with United States hardware, and the other called Hairy Cell Europe, which was to be used with European hardware. Dragon submitted a design proposal to Roche which was approved in October 1985. Thereafter, Dragon submitted a detailed outline of the program. 68. In January 1986, before the program was finalized, Roche asked Dragon to prepare a program for preliminary review in Zurich, Switzerland. Dragon decided to present a version of Hairy Cell U.S. because Roche had United States equipment in Zurich at this time. After he presented the program, Darsee received suggested modifications to the program. 69. Darsee then compiled a new version of Hairy Cail U. S. which incorporated some of the changes suggested at the Zurich meeting. Darsee transmitted this version of the program to representatives of Roche's European subsidiaries at their request on March 10, 1986. This program is known as "Hairy Cell Roche." Darsee testified that he did not retain the source code for Hairy Cell Roche because Dragon considered it an interim program. 70. Darsee admitted that he used the code he obtained from Dragon's computer to retrieve and display graphic images in Hairy Cell Roche. 71. After Hairy Cell Roche was delivered, Darsee testified that he made several more changes to the program. He testified that he changed the storage of the graphic files from a compressed format to an uncompressed format. By changing the storage of the graphic files, Darsee was able to use BLOAD, a command in Basic language, to retrieve and display Videogram created images on a computer with a Plantronics board. Thus, the latest version of Hairy Cell U.S. does not contain any of Fiondella’s image retrieval routines. This version was delivered to Roche in June 1986. 72. Dragon's claim that the June 1986 version of Hairy Cell U.S. was the final version of the program is against the weight of the evidence. Plaintiff introduced evidence that at an International Al3 m2 eee Interactive Communications Society (“IICS"] meeting on November 12, 1986 in New York, Darsee demonstrated Hairy Cell Roche-—the version which Dragon distributed on March 10, 1986. Plaintiff aiso introduced into evidence a letter which Dragon sent to Roche’s offices in New Jersey which indicated that the Hairy Cell Roche program was the completed version of the program. in light of the evidence, the Court finds that the Hairy Cell Roche program, which was delivered on March 10, 1986, was the final version of the Hairy Cell program intended for use with United States hardware. 73. Hairy Cell Europe does not contain any of piaintiff's image retrieval routines. Due to changes in the hardware, Darsee converted the graphic images used in Hairy Cell Roche to the "Halo" format. Halo is a commercial programming environment, including @ paint-and-draw program, with many commands relating to control of the graphic screen. In the Halo format, the command GREAD performs the function of displaying a graphic image on the screen. B. Low Back Pain 74. In March 1986, Pfizer engaged Dragon to produce a program entitied “Low Back Pain.” The program was completed on May 23, 1986. The program contained several program modules, one of which was the Backpain Expert Module. This program allows the user to select different patient characteristics from a series of menus. The program then compares the selected characteristics with possible ailments and provides a statistical analysis of the relative likelihood that the patient is suffering from each possible diagnosis. Both Low Back Pain and the Backpain Expert Module use graphic images drawn with Videogram 2.0. Since the graphic images were in the compressed format, code was needed to decompress and display the images on the screen. As with Hairy Cell Roche, Darsee used Softel's image retrieval routines to accomplish this task. C. Heartlab 75. Dragon produced an interactive program called Heartiab for Pfizer on March 2, 1986. Darsee wrote all of the computer code for Heartiab, except for the code which govemed the animation of a beating heart and the image retrieval routines. In May 1985, Darsee had asked Fiondella to insert into Darsee's code the routines for displaying Videogram images and to insert a routine for simulation of a beating heart. Fiondella inserted these routines and delivered the computer code to Dragon in executable form. Fiondella was paid for this work. Al4 76. in September 1985, Darsee asked Fiondella to modify the animation routines so that the heart would beat more rapidly. Fiondella told Darsee that he was too busy to work on the project and suggested that Darsee do it himself. Darsee made the changes using the image retrieval routines which he had obtained from Dragon's computer. Copyright Resistrat 77. On May 22, 1986, plaintiff sought to register a copyright for certain computer code (the “Copyright Collection’]. Plaintiff sought to register the following: (1) a program entitled "SHOWPIX.bas," which includes code similar to that of certain image retrieval routines (4 pages) (2) a collection of object code routines called “8068/8 Support Routines,” which includes the five | assembly code routines used to retrieve and display Videogram images (61 pages); and (3) source code for the Kaposi computer program (36 pages). Plaintiff was granted a Certificate of Copyright, Registration No. TXu 236 931, for the Copyright Collection, effective May 22, 1986. LN A RY FE CE st 4 CARI 78. Defendants admit that the image retrieval routines were used in Hairy Cell Roche, Low Back Pain and Heartlab. Defendants’ expert, John Cain, 1 confirmed that these programs utilized these routines. | A. Paintbox i 79. In late 1985, Darsee began working on a computer graphics paint-and-draw program, known as Paintbox, which : contained additional features that were unavailable from Videogram 2.0. The program was to be made available to graphic artists ; working for Dragon and was not intended for commercial distribution. 80. Paintbox evolved over time. The earliest versions of Paintbox included the image retrieval routines used to retrieve Videogram 2.0 images. Thereafter, Darsee made changes to the : program and in its final form Paintbox no longer incorporated the ; image retrieval routines. | 81. In 1986, Darsee contacted the Kurta Corporation ("Kurta’), because he was interested in obtaining one or two drawing tablets at a reduced price for use with Paintbox by Dragon artists. Darsee Al15 ean veers rec testified that as Dragon was not a typical end user of the product, he inquired whether he could obtain the products at a reduced price. Darsee testified that he was told to write a’ letter to the company describing Dragon's business. 82. The letter which Dragon sent to Kurta stated in pertinent part as follows: If the kind of work we are doing is of interest to you, particularly with respect to some kind of co-marketing strategy, it might be worthwhile for us to meet with you and demonstrate these programs. This could happen either in New York, Phoenix, or at some meeting where both companies might be present. 83. In his letter, Darsee described the Hairy Cell Roche and Low Back Pain programs and stated that these programs “could be priced high enough to make money.” 84. Darsee denied that he attempted to sell Paintbox to Kurta and to co-market the product. Darsee testified that he used the term “co-market’ because he believed this was the term that Kurta used when referring to a company that was entitled to a discount. 85. Darsee's claim that he was not seeking any type of co- marketing relationship with Kurta is unbelievable. His letter plainly discusses a co-marketing relationship with Kurta and there is no evidence to support his claim that the term "co-marketing” had any meaning other-than its plain meaning. Darsee's claim that the he was merely seeking a price discount from Kurta is completely belied by his own letter. In any event, Kurta never entered into negotiations with Dragon conceming Paintbox or any other Dragon program. 86. Fiondella testified that at the time Dragon was negotiating with Kurta, Fiondella was also negotiating with Kurta to co-market the newest version of Softel’s Videogram software. Plaintiff asserts that Dragon's letter to Kurta ended the Kurta Softel negotiations because Kurta did not want to become involved in litigation. No evidence was introduced to support plaintiff's claim. B. Body Demo 87. Body Demo is a computer program consisting of a collection of graphic images of the human anatomy created for intemai use to assist Dragon's artists. Dragon compiled the images in Body Demo from prior interactive projects it had produced in order to create a graphic library of the human body's organ Al6 systems. Many of the images were drawn using Videogram 2.0. 88. Body Dero was never distributed outside of Dragon. Dragon Expert Systems 89. The Expert Module is one of the five modules constituting the Hairy Cell Roche program. It is present in Hairy Cell Roche, Hairy Cell Europe, and in the Expert Module of Low Back Pain. The Expert Module instructs the user to select various patient characteristics on several different menus. Each menu in the Expert Module contains a selection entitled "How Close to Diagnosis." This selection compares all of the characteristics selected with a list of weighted characteristics for each type of leukemia, and through the use of bar charts depicts the relative probability that the patient is suffering from each particular strain of leukemia. 90. Darsee wrote the computer code for these routines using a programming device known as a two-dimensional array. Kaposi does not utilize this feature. 91. Fiondella testified that he did not write the computer code for these routines and admitted that there was no code similar to these routines in Kaposi. 92. Darsee exhibited the Hairy Cell Roche Expert Module at a forum of lICS on November 12, 1986 in New York. six companies, including Dragon, made presentations at the forum. There were, at most, 15-20 people present during Darsee's presentation. 93. During his presentation, Darsee explained how the Expert Module worked and described the process by which the program matched the disease characteristics selected by the user with the list of weighted characteristics of the subject diseases. Darsee did not mention Fiondella or Softel in connection with the program. 94. None of the persons present at the meeting requested that Dragon create a similar expert system for them or expressed an interest in obtaining a license for use of Dragon's computer code for this program. 95.In the Fall of 1985, Dragon began using the name “Dragon Expert Systems" as a marketing device to bring attention to its capabilities in the field of interactive technology. The term was intended to refer to Dragon's ability to create expert systems, but was not intended to limit its capabilities to this area. 96. Dragon sponsored a hospitality suite at a conference of Al7 the American Association of Family Practitioners on October 911 in Anaheim, California. in connection with its presentation, Hodge sent letters to prospective clients which described Dragon Expert Systems as follows: Recently, as a result of Dragon's application of medical- marketing communication skills in the field of interactive technologies, we have expanded--and can now offer a specialized service known as DRAGON EXPERT SYSTEMS. EXPERT SYSTEMS is a group of physicians, artists whose medium is computer-generated imaging, and computer programmers, who use the interactive technologies as educational and marketing tools. Plaintiff's Exhibit 160. 97. In a November 1, 1985 press release Dragon again described Dragon Expert Systems as a group of "physicians, computer graphic artists and programmers, who use interactive technologies as educational and marketing tools." The press announcement also stated that "computer technology, presentation video/graphics, and solid, well-researched information are the foundations of our work." 98. No evidence was presented to show that Dragon obtained any sales or business leads from either the conference or the press release. 99. On January 2, 1986, in connection with an upcoming presentation to J.C. Penny, Nina Romanoff stated that Dragon would be demonstrating the kind of “innovative, interactive programming that Dragon Expert Systems is currently designing and producing." 100. On January 4, 1986, Dragon submitted a proposal for an interactive educational program to Bames-Hind. Dragon represented that the computer program codes and routines were its own property and granted Barnes-Hind a license for use in the Bames-Hind Interactive Education program. Post-Litigation P 101. In 1988, Dragon produced the following programs: (1) Unasyn for Pfizer, (2) Hospital Microbiologist's Computer Module-An Interactive Program in Support of Unasyn IM/IV ("Micro"] for Pfizer, (3) OB/GYN for Pfizer; (4) Managed Health Care for CIBA-Geigy; and (5) Heart Command for Smith Kline French [collectively, the “post-litigation programs". A18 102. Each of these programs utilize either the EGA or VGA graphics cards, which are more advanced than the Plantronics graphics card. The EGA and VGA graphics cards have the capability of displaying graphic images of photographic quality. 103. Videogram 2.0 had been designed for use with a Plantronics graphics card. As a result of Dragon's decision to use the EGA or VGA graphics card, Dragon no longer used images drawn with Videogram 2.0. Thus, there was no need for the image retrieval routines or related assembly language routines. Instead, in the post-litigation programs the graphics files are stored in the Halo format, and are retrieved and displayed using the standard Halo GREAD command. 104. Dragon also eliminated the use of videodiscs in its interactive presentation. There was, therefore, no need for the routines which controlled and operated the videodisc player. 405. Unlike Heartlab, Hairy Cell Roche and Low Back Pain which were written in Basic programming language, the post- litigation programs are written in QuickBASIC, which is an advanced 406.There is no literal similarity between the code contained in the Copyright Collection and the post-litigation programs. Non-Literal Similarity between ht Collect the Post-Litigation Programs and the 107. Plaintiff contends that in the Melanoma and Kaposi programs, Fiondella made several programming decisions which he included in the Copyright Collection. Plaintiff argues that these elements constitute the structure, sequence and organization of his copyrighted work and that Dragon's post-litigation programs are infringing because they contain these elements. The elements which plaintiff claims are entitled to copyright protection are the use of the following: (1) an external file structure; (2) English language commands; (3) functional modules, specifically including those to operate the hardware; and (4) a hierarchical series of menus with a touchscreen. Al9 1. Extemal Files 108. Cain's undisputed testimony established that the use of external data files for, inter alia, picture files and text files is a common feature in interactive computer programs. In these types of programs there is generally an extensive amount of information to be organized and extemal files are the most practical method of storing the data. 109. The Court finds Darsee's testimony that he learned of the use of external files when he worked with Chris Bazelgette on the Azactam project credible. The code prepared by Bazelgette for Azactam shows the use of an external file structure. 2. English Language Commands 110. Cain's unrebutted testimony also established that writing a computer program using English-language commands was common, as it was easier than using other symbols. In response to plaintiff's inference at trial that the insertion of a space between letters was unique, Cain testified that while this was less common he had seen code written in this manner. The court finds Cain's testimony in this regard credible. 3. Functional Modules 111. Fiondella. testified that a distinctive feature of Melanoma and Kaposi was that these programs were constructed in modules around particular functions. The Court, however, agrees with Cain's credible testimony that the organization of code into modules relating to particular functions is a common programming technique. Cain testified that the functional modules which plaintiff claimed were an element of the structure and organization of Kaposi were related to the hardware-j,e., the videodisc player, and the touchscreen. Cain examined sample computer code provided by the manufacturers of the videodisc controller and touchscreen and found that like the computer code in Melanoma and Kaposi, the sample code was also organized into modules relating to particular videodisc and touchscreen functions. 4. Hierarchy of Menus and Touchscreen 112. As to the use of a hierarchy of menus and a . touchscreen, Cain's testimony established that a touchscreen is a user-friendly input device commonly used in interactive programs. He also testified that the use of menus was also a user-friendly device commonly used in conjunction with a touchscreen. He further stated that the use of a hierarchy of menus in an interactive A20 program, implemented with a touchscreen is pervasive. 113. Fiondella testified that Dragon copied Softel’s method and manner by which the computer receives, assembles, retrieves and communicates data. Cain testified that when a touchscreen. is used a certain code is necessary to get a touchpoint, to interpret the touchpoint as a command and to execute the command. Based on Cain's expert testimony, the Court finds that Dragon did not copy the method used in Kaposi to operate the touchscreen. 5. Differences in Computer Code 114. Plaintiff's claim that Cain admitted that all of the post- litigation programs evolved from Softel’s computer code in the Kaposi program is unsupported by the trial record. To the contrary, Cain's detailed testimony established that the post litigation programs were significantly different from Kaposi in the following respects: (1) code; (2) command sets and processing of commands; (3) internal file structure; (4) processing of files; (5) command file interaction structure; and (6) organization of and relationship between modules of code. 415. Based on a thorough analysis of the computer code in plaintiff's copyrighted work and defendants’ post-litigation programs, Cain concluded that in his expert opinion defendants’ programs and plaintiff's copyrighted work did not have the same structure. The Court found Cain to be an extremely knowledgeable and credible witness, and based on his expert opinion the Court finds that the post-litigation programs were not in any way derived from plaintiff's copyrighted work. CONCLUSIONS OF LAW t Cocmaetnaeld ) 1. To prevail on a claim of copyright infringement, the plaintiff must show that he owns a valid copyright and that defendants impermissibly copied his copyrighted work. See Weissman v. Freeman, 868 F.2d 1313, 1318 (2d Cir.), cert. denied, 493 U.S. 883 (1989); Novelty Textile Mills, Inc. v. Joan Fabrics Corp., 558 F.2d 1090, 1092 (2d Cir. 1977). In this case, plaintiff asserts two types of infringement. The first claim concems the programs Hairy Cell Roche, Low Back Pain, and Heartlab. Plaintiff claims that these programs copy the literal computer code contained in the Copyright Collection. The second claim addresses the post-litigation programs. Plaintiff asserts that the post-litigation programs copy the "structure and organization" of the Kaposi computer program. A21 A. Joint Author 2. Defendants first contend that the Darsee is a joint author of the Kaposi program. in the altemative, defendants argue that Darsee is a joint author of the source code for Kaposi. by Nina Romanoff and computer code written by Fiondelia. Since Fiondella knew of the contributions others were making to the Kaposi program, defendants argue that under Edward B. Marks See id. at 267. The Second Circuit hold that since both persons knew that their individual efforts were being combined to produce one single work, the parties intended to create a joint work. See id. 5. Defendants’ reliance on Marks is misplaced. From the outset of his dealings with Dragon, Fiondelia consistently refused to turn over his source code to Dragon. In light of his conduct, it is unreasonable to infer that Fiondella intended his work to merge into to establish that Fiondella intended his contribution at the time i was created “to become part of a unitary work to which another will make or already has made a contribution.” Weissman, 868 F.2d at 6. Defendants next argue that given Darsee's contributions to the computer code, the computer code itself is a joint work. Contrary to defendants’ contention, the Melanoma Design Document fails to indicate that Darsee contributed to the writing of A22 Pe ae ee - Ce Te ten Cine! pict document is insufficient to render him a joint author of the computer code. 7. Darsee's notes also fail to indicate a level of participation sufficient to render Darsee a contributor to the computer code. The notes merely contain Darsee's suggestions or they bring certain errors to Fiondella's attention. In Whelan Assocs. v. Jasiow Dental Lab., 609 F. Supp. 1307, 1318-19 (E.D. Pa. 1985), affd, 797 F.2d 1222 (3d Cir. 1986), cert, denied, 479 U.S. 1031 (1987), the district court rejected a claim of joint authorship under similar circumstances. in Whelan, defendant argued that he was a co- author of computer code written by plaintiff because he conceived the idea of developing the particular computer program, he explained to plaintiff what the computer program was supposed to do, and he helped the plaintiff design the language and format of some of the screens which would appear as part of the computer program. The district court found defendant's claim unpersuasive given that it was plaintiff's “expertise and creativeness that designed the methods by which raw information would be stored, held in memory, collated, assembled, updated, incorporated and added to the visual screens or included in print-outs, subject to recall." |d. at 1318. The court compared defendant's contribution to that of an owner who explains to an architect the type and functions of a building the architect is to design for the owner. See id. at 1319. In this situation, the owner is not a co-author of the drawings regardiess of the extent of the owner's participation in offering ideas and setting limitations. See id. Similarly, where the owner of a computer program advises the computer programmer what he wants the computer program to accomplish, the computer programmer is the sole author of the source and object code and the design of the system. See id. at 1318; S.O.S., Inc. v. Payday, inc., 886 F.2d 1081, 1086-87 (9th Cir. 1989). 8. In this case, the overwhelming majority of the computer code was written by Fiondella. Any actual programming decisions Darsee may have made as evidenced by his notes are minimal in relation to the extensive programming completed by Fiondella. Although Darsee determined the flow of the program, “[t]Jo be an author, one must supply more than mere direction or ideas: one must ‘translate [ ] an idea into a fixed, tangible expression entitled to copyright protection." S$.0.S., 886 F.2d at 1087 (quoting Community for Creative Non-Violence v. Reid, 490 U.S. 730, 757)). Given that Darsee did no more than advise Fiondella of the tasks that the program was to accomplish, defendants’ claim of joint A23 -——~—— — — ——— 10. Defendants argue that its copying of plaintiff's image retrieval routines in Hairy Cell Roche and Low Back Pain did not violate federal copyright law because (1) the image retrieval routines are not entitled to copyright protection; and (2) its use of the image retrieval routines constituted a fair use. merge and there is no copyrightable material." M. Kramer Mfg. Co. v. Andrews, 783 F.2d 421, 436 (4th Cir. 1986). Thus, with respect to computer programs the issue is whether a particular idea is capable of being expressed in a different way. See Apple Computer, Inc. v. Franklin Computer Corp. 714 F.2d 1240, 1253 (3d Cir. 1983). If other programmers independently can create a program which performs the same function using a different expression then the program in issue is the expression of an idea and is copyrightable. See id. 12. Defendants argue that the graphic image retrieval routines which Fiondelia wrote to retrieve and display images created by 13. Defendants’ argument ignores Darsee’s testimony that he used the BLOAD function in Basic language in Hairy Cell U.S. to retrieve and display Videogram 2.0 created images on a Plantronics A24 graphics card. No evidence was presented which would indicate that Darsee had any difficulty in finding another means of retrieving and displaying Videogram 2.0 created images. Rather, his testimony indicated that the BLOAD function was readily available to him. The only difference between the two methods of image retrieval and display is that to use BLOAD Darsee stored the Videogram images in an uncompressed format. This difference is insignificant since both BLOAD and plaintiff's image retrieval routines permit the display of Videogram 2.0 images on a Plantronics graphics card. Thus, the Court finds that the image retrieval routines do not merge into the expression of the idea and, hence, are entitled to copyright protection. 2. Fair Use 14. Defendants next argue that their use of plaintiffs image retrieval routines was a “fair use” under the Copyright Act. Fair use is an affirmative defense to a claim of copyright infringement. The fair use doctrine is an “equitable rule of reason.” Sony Corp. of America v. Universal City Studios, 464 U.S. 417, 448 (1984). The purpose of the doctrine is to "balance[] the exclusive right of copyright owners against ‘the public's interest in the dissemination of information affecting areas of universal concer, such as art, science, and industry.” Weissman, 868 F.2d at 1323 (quoting Wainwright Secs. inc. v. Wail Street Transcript Corp., 558 F.2d 91, 94 (2d Cir. 1977), cert denied, 434 U.S. 1014 (1978)). Section 107 of the Copyright Act codifies the “fair use” doctrine. The section articulates four non-exclusive factors which are to be considered in deciding whether a particular use is fair. (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work: (3) the amount and substantiality of the portion used in relation to.the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. 17 U.S.C. § 107 (1988). 15. In this Circuit, “bad faith by the user of the copyrighted material [that] suggests unfaimess," Maxtone-Graham v. Burtchaell, 803 F.2d 1253, 1264 (2d Cir. 1986), cert. denied, 481 U.S. 659 (1987), is another relevant consideration in the fair use analysis. A25 See New Era Publications Int'l v. Carol Publishing Group, 904 F.2d 152, 160 (2d Cir.) , cert. denied, 111 S. Ct. 297 (1990). In Weissman, the Second Circuit noted that "to make use of another's copyright material fairly presupposes that the actor acted fairly and in good faith." Weissman, 868 Fd. at 1313. a. The Purpose and Character of the Use 16. In examining this factor, section 107 directs the court to consider “whether the use is of a commercial nature or is for nonprofit educational purposes.” Although the commercial use of copyrighted material weighs against a finding of fair use, it is not conclusive in the fair use inquiry. See Maxtone-Graham, 803 F.2d at 1262. It is undisputed that Dragon used plaintiff's image retrieval routines in programs which Dragon produced for pharmaceutical companies for profit. Since the programs were produced solely for profit, the first factor weighs against a finding of fair use. b. The Nature of the Copyrighted Work 17. The nature of the work favors a finding of fair use, when the copyrighted work is factual rather than creative. See Diamond v. Am-Law Corp., 745 F.2d 142 (2d Cir. 1984). This factor recognizes that because “the risk of restraining the free flow of information is more significant with informational work, the scope of permissible fair use is greater." Consumers Union of U.S.., Inc. v. General Signal Corp., 724 F.2d 1044, 1049 (2d Cir. 1983), cert. denied, 469 U.S. 823 (1984). The image retrieval routines performed the specific function of retrieving and displaying graphic images created with Videogram 2.0. Since the computer code Fiondella wrote performed a necessary utilitarian function this factor weighs in favor of a finding of fair use. c. The/ : and Substantiality of the Portion Used 18. The third factor requires the Court to consider both "the amount and substantiality of the portion used in relation to the copyrighted work, not to the allegedly infringing work. See New Era Publications, 904 F.2d at 158. A finding of fair use has been made even where an entire copyrighted work has been utilized, see Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984) and rejected when a fraction of the copyrighted work was utilized. However, where the “heart” of the work is copied, this factor generally weighs against a finding of fair use. See Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 565 (1985). Thus, the court must balance both the quantitative and qualitative aspects A26 of this component. 49. The image retrieval routines used by Dragon are only a small percentage of the Copyright Collection. The use, however, is qualitatively unfair. The:image ‘itrieval routines are a key part of the Copyright Collection that perform a valuable function. If the qualitatively important. See Pacific & Southem, Inc. y. Duncan, 744 F.2d 1490, 1497 (lith Cir. 1984), cert. denied, 105 S. Ct 1867 (1985). The significance of the routines is demonstrated by the value they have apart from the Copyright Collection. Such routines are sold on the market as a supplement specifically to write computer code which would enable Dragon to incorporate Videogram 2.0 graphic images into its software programs. This also indicates that the market value of the routines is separate and apart from, the remainder of the Copyright Collection. Given that the routines have a separate marketability, this factor weighs against a finding of fair use. d. Effect-on the Market 20. The final factor is the “effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107(4) (1988). The factor “is undoubtedly the single most important element of fair use.” Hamper & Row, 471 U.S. at 566. that plaintiff lost potential customers as a result of defendants’ use of its image retrieval routines. Rather, the evidence shows that with the advent of the EGA card in 1985, Fiondella concentrated on developing Videogram 3.0 which was capable of creating images that could be displayed on an EGA card and abandoned his efforts to market Videogram 2.0. Plaintiff's allegation that Dragon interfered with plaintiff's business opportunity with Kurta is without merit as plaintiff was marketing Videogram 3.0 which did not utilize Videogram 2.0 images. There is also no evidence to support plaintiff's claim that defendants’ incorporation of plaintiff's image retrieval routines into its programs discouraged others from hiring Fiondella to obtain its image retrieval routines. Given the lack of evidence that Dragon's use of plaintiff's image retrieval routines would affect the potential market for the copyrighted work, this A27 factor weighs heavily in favor of fair use. See Maxtone-Graham, 803 F.2d at 1264. 22. The factual nature of the image retrieval routines together with the lack of effect on the market for the routines is balanced against the commercial nature of defendants’ use of significant aspects of plaintiff's copyrighted work. 23. Turing to the issue of bad faith, Darsee admitted that when he saw plaintiff's image retrieval routines on the computer he Saw plaintiff Is copyright notice. The notice, however, did not dissuade him from using the routines in other Dragon projects. Darsee's justification for using Fiondelia's computer code is not credible. Fiondelia agreed to remove his copyright notice from the Azactam project only to accommodate Darsee and Dragon's client. There is utterly no basis for believing that Fiondella’s assent included a waiver of his rights in the computer code. Darsee's explanation is also unbelievable given the extraordinary lengths Fiondella went to protect the privacy of his were problems in integrating the code. Indeed, Fiondella became quite agitated and upset over Nixy Kontemporur’s threat to obtain Fiondella's code when Fiondella refused to tum his code over to Dragon. Finally, there is no reasonable basis for Darsee’s belief that Dragon's payment for Fiondella's work authorized him to utilize Fiondella's code in other projects. The copyright notice that plaintiff sent to Dragon with respect to the Sorbinil project explicitly stated that Dragon did not have a license to use Softel’s routines in any other programs for any other client. For the above reasons, the Court finds that Darsee did not act in good faith when he utilized plaintiff's image retrieval routines. 24. In this case, defendants’ lack of good faith in utilizing the routines tips the balance of the factors against a finding of fair use. Accordingly, plaintiff is entitled to recover on its claim of copyright A28 iia infringement with respect to defendants’ literal copying of plaintiff's image retrieval routines in the programs Hairy Cell Roche and Low Back Pain. C. The Post-Litigation P - Non-Literal Similarit 25. Plaintiffs second copyright infringement claim asserts that defendants’ post-litigation programs copy the structure, sequence and organization of plaintiff's copyrighted work. The four elements which plaintiff claims defendants impermissibly copied are: (1) the use of extemal files; (2) the use of English language commands; (3) the organization of the code into functional modules; and (4) the use of hierarchical menus with a touchscreen. Plaintiff argues that the above elements comprise an “authoring language which is protectable expression under the Third Circuit's decision in Whelan Assocs. v. Jasiow Dental Lab., 797 F.2d 1222 (3d Cir. 1986), cert, denied, 439 U.S. 1031 (1987). 26. It is well established that the literal elements of a computer program, ie., the source and object code, are copyrightable. See. e.g.., Apple Computer v. Franklin Computer, 714 F.2d 1240, 1249 (3d Cir. 1988), cert, denied, 464 U.S. 1033 (1984). The Second Circuit recently joined other courts which have held that copyright protection extends to the nonliteral elements of a computer program. See Computer Associates Int'l, Inc. v. Altai, Inc., slip op. 91-7893, 91-7935 (2d Cir. June 1992). Courts, however, have differed with respect to the scope of such copyright protection. In Whelan, the Third Circuit found that "the purpose or function of a utilitarian work would be the work's idea, and everything that is not necessary to that purpose or function would be part of the expression of the idea.” Whelan, 797 F.2d at 1236. Plaintiff argues that because defendants could have produced an interactive program which conveys medical information without using hierarchical menus, functional modules, extemal files, or English language commands, these elements are not necessary to the expression of the idea and, therefore, are entitled to copyright protection. 27. Judge Pratt, sitting by designation, rejected the Whelan rule in Computer Assocs. Intl, Inc. v. Altai, Inc., 775 F. Supp. 544 (E.D.N.Y. 1991), aff'd, slip op. 91-7893, 91-7935 (2d Cir. June 1992). Judge Pratt observed that the major flaw of the Whelan test was that it broadly defined the purpose of the program. Thus, he A29 rejected the Whelan rule because it "assumes that only one ‘idea” in copyright law terms, underlies any computer program, and that once a separable idea can be identified, everything else must be expression.” Id. at 559 (quoting 3 Nimmer on Copyright 13.03 [F], at 13-62.34). Judge Pratt decided that the better method for distinguishing idea from expression was Judge Hand's abstractions test which traditionally has been applied to literary works. The abstractions test is as follows: Upon any work. . . a great number of patterns of increasing generality will fit equally well, as more and more of the incident is left out. The last may perhaps be no more than the most general statement of what the (work] is about and at times might consist only of its title; but there is a point in this series of abstractions where they are no longer protected, since otherwise the [author) could prevent the use of his “ideas” to which, apart from their expressions, his property is never extended. Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir. 1930), cert. denied, 282 U.S. 902 (1931). Judge Pratt explained that with respect to computer software, the different increasing levels of abstraction are from object code, to source code, to parameter lists, to services required, to general outline. See Computer Assocs., 775 F. Supp. at 560. 27. In affirming Judge Pratt's decision, the Second Circuit set forth a three part test for distinguishing between unprotected idea and protected expression, based on the abstractions test advocated by Judge Pratt. See Computer Associates, slip op. at 30. First, using the abstractions test the court is directed to examine the allegedly copied program's structure and isolate each level of abstraction. See id. at 31. Second, the court is to examine the "structural components at each level of abstraction to determine whether their particular inclusion at that level was “idea” or was dictated by considerations of efficiency, so as to be necessarily incidental to that idea; required by factors external to the program itself; or taken from the public domain." Id. These components are filtered out of the analysis as they are non-protectable expression. See id. Third, the court must compare the elements which are left with the structure of the allegedly infringing program to determine whether there is substantial similarity between the two works. See id. While not extolling the same three part test, several courts and commentators have found that elements in computer software programs that are the most efficient means of accomplishing a task A30 or are standard in the industry are not protected by copyright. See Atari v. North Am. Philips Consumer Elecs. Corp.; 672 F.2d 607 (7th Cir.), cert. denied, 459 U.S. 880 (1982) ; Lotus Dev. v. Paperback Software Inti 1, 740 F. Supp. 37 (D. Mass. 1990); Telemarketing Resources v. Symantec Corp., 12 U.S.P.Q.2d (BNA) S. Menell, An Analysis of the ent, Computer 60 U. Cin. L. 28. In this case, plaintiff claims that there is substantial similarity between its copyrighted work and defendants’ post-litigation programs at the highest level of abstraction. Plaintiff states that the ultimate function of its program is to “direct the coordinated functioning of computers, computer screens, and video disks in order to produce an educational presentation with which human beings can interact by use of a touch screen." Plaintiff's Trial Memorandum, 87 Civ. 0167 (JMC), at 37 (S.D.N.Y. Apr. 22, 1991). Plaintiff claims that the programs are substantially similar because defendant's post- litigation programs contain (1) the use of a hierarchy of menus, (2) functional modules, (3) external files, and (4) English language commands. Defendants argue that these elements are entitled to copyright protection. 29. Tuming first to defendants’ use of hierarchical menus, plaintiff does not claim that the menus in the Copyright Collection and in defendants’ post-litigation programs are substantially similar. Plaintiff Is claim is significantly broader. Softel merely argues that both programs utilize menus. The expert testimony established that the use of hierarchical menus, which contains a series of choices, and a touchscreen is common. It is one of the most efficient and user-friendly interfaces. In Computer Associates, the Second Circuit specifically observed that “(efficiency is an industry wide goal” in support of its conclusion that evidence of similarly efficient structure is not a factor in the substantial similarity analysis. See Computer Assocs., slip op. at 33. One court which refused to extend copyright protection to the idea of using menus explained as follows: A31 [T]he idea at issue, the Process or manner of navigating intemally on any specific screen displays likewise is limited in the number of ways it may be simply achieved to facilitate user comfort. To give the plaintiff copyright protection for this aspect of its screen displays, would come dangerously close to allowing it to monopolize a significant portion of the easy-to- use intemal navigational conventions for computers. Manufacturers Technologies, Inc. v. Cams, Inc., 706 F. Supp. 984, 995 (D. Conn. 1989); » 12 U.S.P.Q.2d at 1996. The Second Circuit expressly approved of the reasoning in slip op. at 35. Given that the use of hierarchical menus and a touchscreen is necessary for an effective and efficient interactive program, the Court finds that the mere use of these elements is not copyrightable. 30. The use of functional modules is also not entitled to copyright protection. The evidence established that programmers commonly write code in modules which perform each necessary to other modules." Note, at 871. Thus, the Court finds that plaintiff's use of functional modules is also not entitied to Copyright protection. the Second Circuit observed that there are many elements which are dictated by either “(1) the mechanical specifications of the computer on which a particular program is intended to run; (2) compatibility requirements of other programs with ich ‘ computer industry.” Id. at 36. Such elements are not entitled to copyright protection. See id. The use of extemal files falls within 32. Finally, Cain's testimony established that the use of English language commands was logical, pervasive, and the most effective A32 way that the programmer can keep track of the available commands. Consequently, this element is not entitled to copyright protection. 33. Since each of the elements which plaintiff claims are entitied to copyright protection are filtered out at the second step of the Second Circuit's analysis set forth in Computer Associates, it is unnecessary for the Court to proceed to the third part of the analysis. 34. Softel does not dispute Cain's testimony that the four alleged copyrightable elements are either common, pervasive, obvious and/or essential to an efficient interactive computer software program. Plaintiff's contention is merely that the elements are not strictly necessary to an interactive program and, therefore, they are protectable expression. In light of the Second Circuit's recent decision in Computer Associates, however, it is now settled law in this Circuit that expression which is standard or the most efficient means of accomplishing a task merges with the idea and is not entitied to copyright protection. In sum, even at the broadest level of abstraction, all of the elements which plaintiff claims are protectable are not entitled to copyright protection as they are merely stock elements which are commonly used or mandated by efficiency considerations. Accordingly, plaintiffs claim of copyright infringement with respect to the post-litigation programs is without merit. ll. Section 43(a) of the Lanham Act 35. In its amended complaint, plaintiff alleges that defendants violated section 43(a) of the Lanham Act, 15 U.S.C. S 1125(a) by misrepresenting the authorship of the Hairy Cell Expert Module during Darsee’s presentation at the IICS on November 12, 1986. During trial, plaintiff alleged that defendants wrote several communications which violated section 43(a) of the Lanham Act in that they failed to attribute authorship to Fiondella.” 36. Section 43 (a) of the Lanham Act proscribes “both express and implied false representations made in connection with the sale of goods and renders the maker of such representations liable to those damaged by the representations.” Consumers Union, 724 F.2d at 1051; see 15 U.S.C. § 1125(a) (1988). To prevail on a misrepresentation claim under section 43 (a) of the Lanham Act, "a plaintiff must prove that the defendant misrepresented an ‘inherent quality or characteristic’ of the defendant's product.” National Ass'n of Pharmaceutical Mfrs., Inc. v. Ayerst Labs., 850 Fd. 904, 917 (2d Cir. 1988). 37. With respect to Darsee's presentation of the Hairy Cell A33 Expert Module at the lICS meeting the evidence established that Darsee wrote the computer code for the Expert Module. Fiondella admitted that he did not write this computer code. Cain's testimony confirmed that none of the code in Kaposi was similar to the code that performed the essential operations of the Hairy Cell Expert Module. 38. Since it is undisputed that Darsee wrote the code which performs the essential operations of the Hairy Cell Expert Module, defendants did not make any misrepresentations conceming the “inherent quality or characteristics" of its products.° 39. The letters which plaintiff alleges violate section 43(a) of the Lanham Act state that Dragon has a division entitied Dragon Expert Systems which is a group of physicians, computer graphic artists and programmers, and that Dragon Expert Systems is capable of creating interactive programming. See Findings of Fact, at 1 95- 97, 99, 100. Plaintiff claims that the letters are false and misleading because they fail to state that Paul Fiondella is responsible for Dragon's present ability to produce interactive programs. Plaintiff also alleges that the letters created consumer confusion as to the true authorship of the computer program and deprived Softel of possible business. 40. Even assuming the truth of plaintiffs claim that it is responsible for Dragon's present capabilities, Dragon's statements in the letters are true representations. The letters merely state that Dragon has the present ability to produce interactive computer programs. They do not make any claim as to how Dragon gained the ability to produce such programs. Contrary to plaintiff's contention, the Lanham Act does not impose an obligation upon Dragon to give plaintiff recognition for its work in prior projects. Thus, plaintiff's claim that given Fiondella's contributions, Dragon was obligated to give credit to Fiondelia is wholly without merit. Accordingly, plaintiff's claim under the Lanham Act is dismissed. lll. State Law Claims A. Trade Secret 41. To prevail on a trade secret claim, plaintiff must demonstrate that (1) it possessed a trade secret, and (2) defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means." Rapco Foam, Inc. v. Scientific Applications, Inc., 479 F. Supp. 1027, 1029 (S.D.N.Y. 1979). A trade secret "may consist of any formula, pattern, device or compilation of information which is used in one's A34 business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. I" Integrated Cash Mgt. Servs., Inc. v. Digital Transactions, inc., 920 F.2d 171, 173 (2d Cir. 1990) (quoting Restatement of Torts § 757, comment b). In determining whether a trade secret exists, New York courts consider the following: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. id. The most meaningful consideration is “whether the information was secret.” Lehman v. Dow Jones & Co., inc., 783 F.2d 285, 298 (2d Cir. 1986). 42. Plaintiff claims that both the image retrieval routines as well as the structure, sequence and organization of its code constitutes a trade secret. The structure, sequence and organization of plaintiff is code is clearly not a protectable trade secret. Fiondella freely discussed his use of menus, English language commands, functional established that these elements were not novel or original. See. e.g, Ferber v. Sterndent Corp., 51 N.Y.2d 782, 783-84, 412 N.E.2d 1311, 1311, 433 N.Y.S.2d 85, 85 (1980). 43. The evidence clearly established that the image retrieval routines are a protectable trade secret. Defendants’ sole contention that Fiondella failed to maintain the secrecy of the routines is without merit. Fiondella consistently refused to give the routines to Dragon and he provided Dragon only with the finished executable code which contained the routines. 44. The evidence also established that defendants used plaintiffs trade secret after discovery by improper means. Defendants’ improper use of the routines where plaintiff took steps to safeguard the secrecy of the routines, creates liability for use of A35 a trade secret. See Defiance Button Mach. Co. v. C & C Metal Prods., 759 F. 2d 1053, 1063-64 (2d Cir. 1985) . Thus, the Court finds in favor of plaintiff with respect to its trade secret claim.‘ B. Unfair C tition & Mi iation: P ption 45. Softel claims that defendants unfairly competed with Softe! by falsely claiming that Dragon's products were produced by Dragon and failing to attribute authorship to Softel. Defendants contend that plaintiff's unfair competition claim is preempted by federal copyright law. 46. Section 301 of the Copyright Act, 17 U.S.C. 301 (1988) sets forth the following two conditions which must be satisfied for preemption of a right under state law: "(1) the work in which the right is asserted must be fixed in tangible form and come within the subject matter of copyright as specified in § 102, and (2) the right must be equivalent to any of the rights specified in § 106. 11 Baltimore Orioles v. Major League Baseball Players Ass'n, 805 F.2d 663, 674 (7th Cir. 1986), cert denied 480 U.S. 941 (1987); Universal City Studios, inc. v. T-Shirt Gallery Ltd., 634 F. Supp. 1468, 1474-75 (S.D.N.Y. 1986). 47. it is undisputed that the first condition for preemption is satisfied since computer programs are copyrightable and plaintiff's Copyright Collection is a work fixed in a tangible medium. 48. As to the second condition for preemption, a state law right is equivalent if under state law the act of reproduction, performance, distribution or display will in itself infringe the state created right. See Mayer v. Josiah Wedgwood & Sons, Ltd., 301 F. Supp. 1523, 1535 (S.D.N.Y. 1985) ; accord Baltimore Orioles, 805 F.2d at 678 n.26. A state law claim is not preempted, however, if certain additional elements are required to constitute the state cause of action. See id.. The “extra element” must be “one which changes the nature of the action so that it is qualitatively different from a copyright infringement claim. Elements such as awareness or intent, which alter the action’s scope but not its nature, will not save it from preemption under S 301." Mayer, 601 F. Supp. at 1535 (emphasis in original). 49. it is well established that plaintiff's unfair competition claim is preempted by federal copyright law to the extent that it seeks protection against copying of plaintiff's work. See Walker v. Time Life Films, inc., 784 F.2d 44, 53 (2d Cir. 1986); Wamer Bros. v. American Broadcasting Cos., 720 F.2d 231, 247 (2d Cir. 1983). Thus, plaintiff's unfair competition claim is preempted insofar as plaintiff's A36 claim is based on defendants’ copying of plaintiff's work. 50. However, an unfair competition claim which alleges a tort of reverse passing off is not preempted by state law. See Wamer Bros., 720 F.2d at 247. In this case, plaintiff's unfair competition claim is based on the tort of reverse passing off as plaintiff claims that the defendants falsely claimed that its products were their own and failed to attribute authorship to Softel. The Court finds that plaintiff's claim of unfair competition fails on its merits for the same reasons plaintiff's claim under section 43(a) of the Lanham Act failed. authoring against the preservation of the freedom to imitate.” Nash v. CBS, Inc., 704 F. Supp. 823, 834 (N.D. Ill. 1989), affd, 899 F.2d 1557 (7th Cir. 1990). 53. Plaintiff's second argument is that its misappropriation claim falls within the "hot news” exception recognized in the House Judiciary Committee Report on the 1976 Amendments to the Act. The House Report states that “state law should have (quoting H. Report No. 1476, reprinted at 17 U.S.C.A. 301). As an example of hot news, the House Report referred to the misappropriation claim asserted in International News Serv. v. Associated Press, 248 U.S. 215 (1918). In Intemational News. defendant intercepted the lines of another wire service and reported in the House Report, plaintiff's claim does not involve reproduction 55. Another issue in the trial of this action is whether defendants willfully violated plaintiff's rights. The Court finds that Darsee intentionally gained access to plaintiffs image retrieval routines. See infra Findings of Fact, at 65. Darsee's testimony that he thought he was entitied to use the code, despite the copyright notice he saw in the code is similarly not worthy of belief. See infra Conclusions of Law, at 20. Accordingly, the Court finds that defendants acted willfully in utilizing plaintiffs image retrieval routines. V. Damages 56. The issue of intent is relevant with respect to plaintiff's Claim that it is entitied to punitive damages and attomey's fees. This is one of the issues stated in the joint pre-trial order. See Pre-Trial Order, 87 Civ. 0167 (JMC), at 14 (S.D.N.Y. Mar. 6, 1990). A. Federal Copyright Law 57. Turning first to plaintiff's claim of copyright infringement, wrarrealeran Bete Bm Pe ghee A oy Roe tmpe statutory damages instead of actual damages and profits. See 17 U. S. C. Sec. 504 (c) (1) (1988) . In addition, the court has discretion to these damages, however, ‘is prohibited by section 412 where A38 (1) any infringement of copyright in an unpublished work commenced before the effective date of its registration; or (2) any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work. 17 U.S.C. § 412 (1988). Thus, to obtain statutory damages or attomey's fees the copyright owner must have registered the copyright prior to the infringement. See, eg., Cable/Home Communication Corp. v. Network Prods., Inc., 902 F.2d 829, 851 (11th Cir. 1990); Evans Newton, Inc. v. Chicago Sys. Software, 793 F.2d 889, 897 (7th Cir.), cert. denied, 479 U.S. 949 (1986); Eden Toys, inc. v. Florelee Undergarment Co., 697 F.2d 27, 33 (2d Cir. 1982). 58. In this case, plaintiff's copyrighted work was first published in the Melanoma program in May 1985. it was again published in its present form in the Kaposi program in June 1985. Plaintiff's work infringement occurred after the effective date of registration. See Singh v. Famous Overseas, inc., 680 F. Supp. 533, 536 (S.D.N.Y. 1988). ° Thus, the Court finds that plaintiff may not recover statutory damages or attorney's fees. Plaintiff is also not entitied to punitive damages with respect to its copyright claim. See Oboler v. Goldin, 714 F.2d 211, 213 (2d Cir. 1983). B. Trade Secret Smith v. Lightning Bolt Productions, inc., 861 F.2d 363, 371 (2d Cir. 1988) (quoting Borkowski v. Borkowski, 39 N.Y.2d 982, 983, 355 N.E.2d 287, 287, 387 N.Y.S.2d 233, 233 (1976). The evidence TT eel DS eo System, Inc., 503 F. Supp. 1137, 1155 (S.D.N.Y. 1980), aff'd, 672 F.2d 1095 (2d Cir.), cert. denied 459 U.S. 826 (1982). 60. Each of defendants’ justifications for using plaintiff's image retrieval routines is not credible. Defendants’ claim that they believed they were entitied to use the code because they had paid for it is unbelievable in light of plaintiff's insertion of a copyright notice in the code and the Sorbinil invoice which limited used of the code to the Sorbinil project. Dragon's belief that it could utilize plaintiff's code because it believed that Fiondelia was its employee is also unpersuasive given that Fiondella repeatedly refused to provide Dragon with his code. Finally, defendants’ claim that they believed in good faith that the computer code was a joint work under the Copyright Act is similarly unpersuasive given Fiondella's efforts to maintain the secrecy of his code. Accordingly, the Court finds that defendants acted willfully and in bad faith, thereby entitling plaintiff to punitive damages with respect to its trade secret claim. CONCLUSION After a bench trial on plaintiff's claims, the Court finds in favor of plaintiff with respect to its first and fifth claims for relief in the Amended Complaint to the extent these claims are based on the Hairy Cell Roche and Low Back Pain programs. The Court further finds that plaintiff may recover punitive damages under its state law Claim stated in its fifth claim for relief. Plaintiff's claim for attorney's fees, statutory damages and punitive damages with respect to its Claim under its first claim for relief is denied. Plaintiff's second, third, fourth, and sixth ’ claims for relief are dismissed. Plaintiff's motion for further discovery with respect to the programs Advanced Cardiology Lab, Expert Consultations, Unasyn Oral Followup and Benign Prostatic Hypertrophy is denied. if the parties are able to agree, they shaii submit to the Court the amount of plaintiff's damages. If the parties are unable to agree, they are directed to submit to the Court a joint pre-trial order conceming the damages phase of this trial no later than July 24, 1992. SO ORDERED. /s/ JORN W. CANNELTA United States District Judge Dated: New York, New York A40 June 29, 1992 FOOTNOTES 4. The court found Cain to be qualified as an expert to analyze the graphic image retrieval routines and structure and logic of the alleged infringing programs. Plaintiff was preciuded from offering an expert at trial. See Memorandum and order, 87 Civ. 0167 (JMC) (S.D.N.Y. Oct. 23, 1990). Paul Fiondella testified in great length conceming highly technical computer programming issues and Cain stated that in his opinion he believed that Fiondelia testified almost entirely as an expert. See Trial Transcript at 1636. 2. At trial, the Court granted plaintiff's motion to conform its pleading to the proof. 3. To the extent that plaintiff's claim is that the Hairy Cell Expert Module utilizes plaintiffs image retrieval routines, assuming arquendo that they were used, Dragon's failure to credit Fiondella with authorship of the image retrieval routines does not violate section 43(a) of the Lanham Act. The image retrieval routines, if utilized, are de minimis when considered in light of the purpose and value of the Expert System. 4.Alth defendants do not contend that plaintiffs trade secret claim is preempted, the Court notes that such an argument would be unavailing. Since plaintiff established at trial that defendants used plaintiff's image retrieval routines as a result of wrongful acquisition, the trade secret claim is not preempted by federal copyright law. See entitled to attomey’s fees is within he scope of the joint pre-trial order as an entitlement to attomey’s fees is based on defendants’ intent. fees under the Copyright Act. in its motion for leave to amend its complaint to add a claim under section 43(a) of the Lanham Act, plaintiff stated that “[bjecause defendants’ infringement commenced prior to registration of plaintiff's copyright, plaintiff is not entitled to attomey's fees under the Copyright Act of 1976. See Plaintiff's Reply A4l ae ee Seaenentientiateeietii Memorandum in Support of its Motion to Amend the Compiaint (S.D.N.Y. July 20, 1987). 7. At trial, plaintiff consented to dismissal of its sixth claim for reief. A42 NITED STATES Di 1 RI CT COURT UTHERN DISTRICT OF NEW YORK SOFTEL, INC., DRAGON MEDICAL AND SCIENTIFIC NICAT! N TD., DRAGON C N DARSEE. H. H. EUGENE HODGE. NINA PFIZER, | NC BHARMAC and Pel INC... Defendants. APPEARANCES: oo & & SEYMOUR oS Wet ard Pind Street Room 2102 New York, New York 10036 By: | Whitney North Seymour, Jr., Esq. Esq. Craig A. Landy, CHARLA R. BIKMAN, Esq. Atomey for Plai 105 Que ne Street, Suite 46C York, New York 10007 O13) 346-9774 STROOCK & STROOCK & LAVAN Attorneys for eenearas 7 Hanover Squa New York, New York 10004-2594 By: Bruce H. Schneider, Esq. Gordon Kessler, Esq. 52 Vanderbilt Avenue New York, New York 10017 By: William A. Rome, Esq. A43 een Ce REE CEDARBAUM, J. Softel, Inc. ("Softel"), a company that develops and sells computer graphics products, sues Dragon Medical and Scientific Communications, Inc. (“Dragon”) and some of Dragon's employees for copyright and trademark infringement, misuse of trade secrets and unfair competition. ' From April 23, 1991 to May 13, 1991, Judge Cannella held a bench trial limited to liability issues, in which he found defendants Dragon and John Darsee ? liable for copyright infringement and misuse of trade secrets, and found that the misuse of trade secrets was willful and in bad faith, vines gemaehaplag punitive damages. See S: ik : i Communications, Inc., No. 87 Civ. 0167 (JMC), 1992 WL 168190 (S.D.N.Y. June 29, 1992) [hereinafter |'Softel |"). Familiarity is assumed with Judge Cannelia's decision which is the law of this case. From May 8, 1995 to May 11, 1995, | held a bench trial to determine the amount of damages for which defendants are liable. After examining the documents, observing the demeanor of the witnesses, and considering the plausibility and credibility of their testimony, | make the following findings of fact and conclusions of law. Find) f Fact The Parties 1. Plaintiff Softel is a New Hampshire corporation engaged in the business of developing and selling computer graphics products to users of IBM compatible computers. Paul Fiondella is the president and sole shareholder of Softel. (Softel |, Findings of Fact (“F.F.”) Par. 1.) 2. Defendant Dragon was a New Jersey corporation engaged in the business of designing interactive computer programs to present medical and scientific information until it ceased doing business on January 31, 1992. (See Softel |, F.F. Par. 2; Tr. at 380.) 3. Defendant John R. Darsee was a medical writer for Dragon and the director of its interactive department. (Softel.1, F.F. 1 Par. 6.) * Although Dragon Medical and Scientific Communications, Ltd. is named as a party in the caption, no entity has ever existed under that name. Judge Cannella granted judgment as a matter of law to defendants Hodge and Romanoff at the conclusion of plaintiffs case. The Pfizer defendants and defendant Hoffman LaRoche settied with plaintiff before trial. A44 ib APRS ES SALONS CANT “12114 4. In November 1984, Darsee purchased Videogram 2.0, a “paint-and-draw" computer graphics program, from Softel. (Softel 1. F.F. Pars. 15, 17, 21.) Videogram 2.0 did not enable the user to incorporate images drawn with it into software the user was writing.(Softel |, F.F. Par. 17) 5. in January 1985 through June 1985, Dragon hired Fiondella towrite code that would display graphics images created in Videogram 2.0 in several of Dragon's interactive programs. (the "image retrieval routines”) (Softel |, F.F. Pars. 26-66, 75.) 6. Fiondella never gave Dragon the source code he had written. Rather he gave Dragon only the "executable" object code. (Softel |, F.F. Pars. 28, 44, 51, 60, 75.) 7. Darsee somehow gained access to Softel’s source code and used the code to retrieve and display graphics images in two Dragon interactive programs, Hairy Cell Roche and Low Back Pain. (Softel |, F.F. Pars. 62, 65, 70.) 8. On May 22, 1986, plaintiff sought to register a copyright for certain computer code (the “Copyright Collection”). Plaintiff sought to register the following: (1) a program entitled "SHOWPIX.bas," which includes code similar to that of certain image retrieval routines; (2) a collection of object code routines called “8068/8 Support Routines,” which includes the five assembly code routines used to retrieve and display Videogram images; and (3) source code for one of the projects plaintiff did for Dragon. Plaintiff was granted a Certificate of Copyright, Registration No. TXu 236 931, for the Copyright Collection, effective May 22, 1986. (Softel |, F.F. Par. 77; Plaintiff's Liability Trial Exhibit (“PLX”) 34.) 9. In 1988, Dragon utilized a different paint-anddraw program (called “Dr. Halo”) instead of plaintiffs Videogram software in producing several interactive programs. (Softei |, F.F. Pars. 101- 103.) Because the images used in those programs were stored in a different format for use with a different type of graphics card, those programs did not use the image retrieval routines. (Softel I, F.F. Par. 103.) The programs Dragon produced in 1988 were not in any way derived from Softel”s copyrighted work. (Softel |, F.F. Par. 115.) , n : s' Use of image Reirieval 10. Defendants presented evidence that plaintiff charged a license fee of $2,000 for the use of the image retrieval routines in A45 - another program and that plaintiff offered Dragon a contract, which Dragon refused, pursuant to which Dragon would have paid plaintiff $3,500 per computer program to license code previously developed by plait (Tr. at 292-99; PLX 63, 66.) 11. Evidence was also presented that Dragon paid license fees on two occasions to Media Cybemetics for the use of code similar to that of the image retrieval routines in connection with images created in the Dr. Halo paint-and-draw program. (Tr. at 598- 606.) In 1987, Dragon paid Media Cybemetics $10,000 for a license to use code that retrieved graphics images in ten Dragon software packages. (Plaintiff's Damage Trial Exhibit ("PDX") D-18.) In 1989, Dragon paid Media Cybemetics $8,200 for a license to use such code in an unlimited number of programs. (Tr. at 598.) 12. Evidence was presented at trial that a license for the use of source code may be substantially more expensive than a license for the use of the executable code. For example, plaintiff's expert testified that he obtained a license to use the source code of the UNIX operating system for $43,000, but an executable copy of the software was available for $600. (Tr. at 60.) This license did not allow the user to incorporate the UNIX software into its own products. (Tr. at 61.) No evidence was presented as to how much a source code license would cost for a program that performed functions similar to those of the image retrieval routines. 13. Based on the evidence presented at trial, | find that plaintiff's lost profits are $7,000, that is, the amount plaintiff would have charged defendants under its proposed agreement for the use of the image retrieval routines in two programs. Although a source code license fee might have been considerably higher, | find that it is unlikely that Dragon would have paid such a high fee considering the availability of other programs which performed the same functions as the Videogram image retrieval routines. (See Defendants’ Damage Trial Exhibits (‘DDX") AT & AU; Tr. at 587-615.) Dragon used plaintiff's source code only to produce the Hairy Cell and Low Back Pain programs. It did not use the source code for any other purpose. Essentially, the value to Dragon of the use of plaintiff's code was the saving of the license fee it would have paid OR ee eee ee ee 14. Dragon's gross revenue from the Hairy Cell Roche program was $92,500. (DDX A; PDX D-2.) Dragon's gross revenue from the Low Back Pain program was $85,415.32. (DX | B; PDX D- A46 15. Dragon incurred direct costs of $39,108-96 for the production of the Hairy Cell Roche program and $32,630.36 for the production of the Low Back Pain program. (DDX A & B. ) 3 These costs included expenses for video copying and editing, audio recording, equipment rental, freelance graphic artists, a background music composer and actors. (Tr. at 391-93.) 46. In addition to out-of-pocket expenses, Dragon incurred direct labor costs of $31,001.00, indirect labor costs of $261.07 and overhead expenses of $11,616.00 in connection with the production of Hairy Cell Roche, and direct iabor costs of $7,156.38, indirect labor costs of $1,112.27 and overhead expenses of $2,968.05 in connection with Low Back Pain. (PDX D-2.) Direct labor was computed on an employee-by-employee basis as an allocation of each employee's salary based on hours worked on a project as a of his or her total hours worked on all projects. (Tr. at 394.) Indirect labor costs were computed by allocating year-end employee bonuses based upon the direct labor allocation. (id.) overhead expenses were also allocated to each project based on the direct labor expended on that project. (id.) Overhead expenses included only the portion of rent, maintenance and utilities associated with production and did not include the portion of those expenses associated with administration. (Tr. at 395-96.) 17. Dragon also received $31,800.02 in revenues by providing “exhibit support” when the Hairy Cell program was shown at some exhibitions. (PDX D-2; Tr. at 400.) The expenses associated with the exhibit support were $25,676.17 in direct costs, $1,402.89 in direct labor, $251.76 in indirect labor and $769.88 in overhead. (PDX D-2.) 18. The computer code of Softel's image retrieval routines comprises a relatively small portion of the total number of lines and memory (measured in bytes) in the Hairy Cell and Low Back Pain programs. Softel’s code comprises 15.8% of the lines and 6.1% of the bytes in the Low Back Pain program and comprises 7.8% of the 3 PDX D-2 lists the direct costs for the Low Back Pain program as $33,472.36. Because defendants have the burden of showing the costs that should be taken into account in assessing damages, see C.L. Par. 1 infra, | will use the lesser amount shown in DDX B. A47 tie tniaiaaial bytes in the Hairy Cell program. ‘ (Tr. at 566, 571, 577-78; DDX AP- 1, AP-2, AR.) If one considers only the portions of Softel's code actually called and used in the program, those percentages are further reduced. (Tr. at 571, 576-77; DDX AP-1, AP-2, AR.) 19. In determining the portion of profits attributable to the image retrieval routines, it is necessary to examine not only the quantity of the infringed code in relation to the entire program, but also the qualitative importance of that code. See Computer Assocs. Inti'1. Inc, v. Altai, inc., 775 F. Supp. 544, 571-72 (E.D.N.Y. 1991), affd in part. vacated in part, 982 F.2d 693 (2d Cir. 1992). Although defendants presented evidence that plaintiffs image retrieval routines comprised only a smail part of the Hairy Cell Roche and Low Back Pain programs, that evidence is not wholly determinative of the contribution the image retrieval routines made to the program. 20. Because the routines made it possible to show quickly graphics images on the screen, they were an integral part of the Hairy Cell Roche and Low Back Pain interactive computer programs. (Tr. at 28-29, 156, 490-91.) 21. Dragon's sales of these programs are attributable not only to the use of the graphics images, but also to the overall design and the subject matter of the presentation, which were developed entirely | by Dragon. (Tr. at 349, 446-47, 450-51, 493-96.) In addition, some | of the images used in Hairy Cell were brought up to the screen from videodisc, and some graphics images used in Low Back Pain were | in Dr. Halo format. (Tr. at 445-46, 455-56; DDX M.) The display of | these images did not employ the image retrieval routines. (Tr. at 450, | 455-56, 492.) | 22. Taking all of these factors into account, | find that 50 percent of Dragon's profits from the Hairy Cell and Low Back Pain programs are attributable to plaintiff's image retrieval routines. ; 's Financial Condit 23. In the fiscal year ending January 31, 1987, Dragon's Net income was $58,798. (DDX J.) 24. Dragon ceased doing business on January 31, 1992 after its board of directors decided to dissolve the company. (Tr. at 380; PDX D-4.) ‘Defendants’ expert was unable to determine the percentage of lines of Softel code in the Hairy Cell program because he did not have the source code to that program. (Tr. at 575.) A48 25. As of May 10, 1995, Dragon had collected ali debts owed to it, and had outstanding expenses of $550 per three-month period and deferred compensation owed to Darsee and Eugene Hodge, Dragon's president. (Tr. at 405-06, 411.) 26. As of May 10, 1995, Dragon had two bank’accounts with a combined balance of $16,187.26. (Tr. at 406-07; DDX AX & AY.) Darsee's Financial Condition 27. Dragon paid Darsee $69,249.98 in salary and bonus in 1986 and $72,000 in 1987. 28. Darsee is currently employed by Scientific Information Systems (‘ISIS"), a company that designs and produces programs that communicate product information or education. (Tr. at 478-80.) The shares of SIS are owned by Darsee's wife, his oldest daughter, and one other person. (Tr. at 486.) 29. In 1993, SIS paid a salary of $20,500 to Darsee and a salary of $83,000 to Darsee's wife. (DDX Y-9.) In 1993, Darsee was also paid $70,250 by Cypress Scientific Pres., Inc. and his wife was paid $61,745 by Hackensack Medical Center. (id.) Darsee has not yet filed an income tax return for 1994. (Tr. at 479; DDX Y-10.) 30. Darsee's assets are the following: a checking account with a balance of between $4,000 and $6,000, a term life insurance policy, a retirement account worth approximately $31,000, and a joint tenancy interest in the house that his wife bought in 1985. (Tr. at 479.) The house was valued at $248,000 in 1991, and was subject to mortgages totaling $169,841 as of June, 1993. (Tr. at 476-77.) Darsee was made a joint tenant in 1989 when he and his wife decided to refinance their mortgage and the bank conditioned the refinancing upon the deed being in both of their names. (Tr. at 475.) 31. Darsee's mortgage payments are approximately $2,000 per month. (Tr. at 480.) Monthly payments on his car lease are $300. (Tr. at 481.) Darsee and his wife provide for three children, aged 23, 16 and 6. (Tr. at 471-72.) This year they paid the costs of their oldest child's master degree in education at Fordham University, which amounted to $19,000, and leased a car for her commute to and from school. (Tr. at 481.) Darsee’s 16-year-old child has Down's Syndrome, and Darsee and his wife incur additional expenses associated with that child’s special health and educational needs. (Tr. at 482-85.) 32. Darsee does not have any indemnification agreement with Dragon. (Tr. at 433.) A49 Conclusions of Law Copyright Damages 1. Section 504(b) of the Copyright Act provides: Actual Damages and Profits. - The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and not taken into account in computing the actual damages. In establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer's gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work. 2. Plaintiff argues that its actual damages are its costs of developing the image retrieval routines. The only case plaintiff cites in support of the proposition that development costs are an ae measure of sense damages is Harris Market 1518, 1524 (10th Cir. 1991). r= that case, the Tenth Circuit held that it was not reversible error for the trial court to have admitted evidence on plaintiffs development costs where the court gave a jury instruction, to which defendant did not object, that copyright infringement damages may include plaintiffs unrecovered costs. That case is not persuasive authority for the thesis that the plaintiff in this case is entitled to its development costs as part of its actual damages. 3. Although there may be situations in which it is appropriate for a plaintiff who is successful on a copyright infringement claim to recover development costs as part of its actual damages, the facts of this case do not present such a situation. Defendants’ use of plaintiffs copyrighted computer code did not prevent plaintiff from profiting from use of the code except to the limited extent of preventing plaintiff from receiving license fees from Dragon. (See Softel |, Conclusions of Law (“C.L.”) Par. 21.) In fact, plaintiff used some of the code contained in the image retrieval routines in other programs it sold. (Tr. at 172-75.) Therefore, plaintiff's costs in developing the image retrieval routines cannot be considered an “unrecovered cost." Plaintiff did not present evidence that any of the image retrieval routines was developed specifically for Dragon and was not marketable to others. 4. Plaintiffs actual damages from the copyright infringement A50 are the profits it lost as a result of defendants’ infringement. In this case, plaintiff's losses are measured by the royalty payments it would have received from defendants for the use of the source code for the image retrieval routines, or $7,000. See Findings of Fact Par. 13, supra. 5. In addition to lost profits, plaintiff is entitled to recover defendants’ profits earned as a result of the infringement. 6. Plaintiff urges that because Judge Cannella determined that the infringement was willful, defendants should not be able to deduct any expenses in calculating profits. Plaintiffs view is supported by neither a plain reading of the ‘Copyright Act nor decisions in this Circuit. See Corp., 106 F.2d 45 (2d Cir. 1939), affd, 309 U.S. 390 (1940); Warner Bros., Inc. v. Gav Toys. Inc,, 598 F. Supp. 424 (S.D.N.Y. 1984); RSO Records, Inc, v. Peri, 596 F. Supp. 849 (S.D.N.Y. 1984). 7. Courts have allowed the deduction of a variety of expenses, including an allocation of fixed cost overhead expenses associated with the production of an infringing product. See In Design v. K-Mart Apparel Com., 13 F.3d 559, 565-66 (2d Cir. 1994); Sheldon, 106 F.2d at 54; Wamer Bros. 598 F. Supp. at 428-29. Plaintiff did not challenge the validity or method of computation of any of Dragon's claimed expenses. (See Tr. at 389.) Therefore, because defendants have offered a fair and reasonable formula for determining allocation of fixed costs such as overhead and salaries, they are entitled to the deduction of the amounts claimed as expenses from gross revenues in computing profits under Section 504(b). 8. Plaintiff correctly notes that an increase in defendants’ good will resulting from their infringement may be considered a “profit” for which the plaintiff is entitled to damages under Section 504(b). See Business Trends Analysts, Inc. v. Freedonia Group, Inc., 887 F.2d 399, 404 (2d Cir. 1989). However, plaintiff did not present evidence supporting its contention that defendants’ good will was enhanced as a result of their infringement of plaintiff's image retrieval routines. Darsee testified at trial that he had not shown the Hairy Cell program to any prospective clients. (Tr. at 502.) Although Darsee did show the Hairy Cell program at a meeting of the International Interactive Computer Society in November 1986 (Softel |, F.F. Par. 72), plaintiff did not present any evidence that Dragon obtained new customers or increased its good will with existing customers as a result of that demonstration. (See also Softel |, F.F. A51 Par. 98.) Trade Secret Damages 9. Damages for misappropriation of a trade secret may be measured by either plaintiff's losses or the profits or other benefits gained by defendants through the use of the trade secret. See A.F.A. Tours, Inc, v. Whitchurch, 937 F.2d 82, 87 (2d Cir. 1991); Timely Prods, Corp. v, Arron, 523 F.2d 288, 304 (2d Cir. 1975); A.H. , 268 F. Supp. 289, 302 (S.D.N.Y. 1967), affd, 389 F.2d 11 (2d Cir.), cert. denied 393 U.S. 835 (1968); Ewen vy. Gerofsky, 86 Misc.2d 913, 382 N.Y.S.2d 651, 655 (Sup. Ct. N.Y. Cty. 1976); 3 Roger M. Milgram, Milgram on Trade Secrets Sec. 15.02[3][c] (1994). 10. Another method of computing damages for trade secret misappropriation is the assessment of a reasonable royalty for the use of the trade secret. iversi Youngstown Corp,, 504 F.2d 518, 536 (5th Cir. 1974); Vitro Com. y. Hall Chemical Co., 292 F.2d 678, 681-83 (6th Cir. 1961); 3 Milgram on Trade Secrets Sec. 15.02[3)[e]. Both plaintiff and defendants Suggest in their pre-trial briefs that a "reasonable royalty” or license fee determination might be an appropriate measure of damages. (See Plaintiff's Trial Mem. on Damages, at 18-19; Defendant's Mem. in Opp. to Plaintiff's Mot. for Summ. J., at 17.) 11. Plaintiff contends that the measure of damages should be the costs of developing the program times a multiplier which takes into account the probable retum on the investment in product development. Plaintiff cites University Computing in support of its method of computation. In University Computing, however, the court did not apply such a measure. It did discuss the various methods of measuring damages for trade secret misappropriation and noted that development costs are a factor to be considered in determining what would have been a reasonable royalty for the use of a misappropriated trade secret. University Computing, 504 F.2d at 538. The court noted that the application of the “reasonable royalty” measure of damages in lieu of the usual approach of measuring damages by defendants’ profits was appropriate where defendants made no profits from the misappropriation. Id. at 536. If defendants had made a profit, the court indicated that it would have measured damages by the profits gained by defendants through the use of plaintiff's trade secret. |d. 12. The appropriate measure to use in computing trade A52 sa teint te, WA NCR te eset ety ection nD Abie wi alba Aca GR dl! Plain iA lei sites ima MGB 4 $d det eit secret damages in this case is the amount of defendants’ profits. ° 13. In computing defendants’ profits from the trade secret misappropriation, defendants are entitied to set off the costs associated with the production of the product that incorporates the misappropriated trade secret. See Elnicky Enterprises y, Spotlight Presents. Inc., 213 U.S.P.Q. 855, 863 (S.D.N.Y. 1981), accounting settled, 213 U.S.P.Q. 955 (S.D.N.Y. 1982); David Fox & Sons. Inc. , 30 A.D.2d 789, 292 N.Y.S.2d 21, 23 (1st Dep't 1968) (unfair competition). 14. In measuring defendants’ profits, it is also appropriate to apportion damages based on the role plaintiff's trade secret played in the commercial success of defendants’ product. See University Computing, 504 F.2d at 539. 15. Plaintiff argues that it should be awarded damages based on the competitive advantage gained by Dragon in being able to market its interactive programs with graphics displays earlier than competitors. Although such gains could be brought into the calculation of damages, plaintiff did not prove that Dragon gained any time advantage over competitors. Dragon's expert on computer graphics programs testified that other graphics software was available at the time that Dragon developed the Hairy Cell and Low Back Pain programs which allowed user. 2 incorporate images made with a paint-and-draw program into the users’ own programs. (Tr. at 583-609.) Plaintiff did not proffer any contradictory testimony as to the availability of programs with functionality similar to that of the Videogram image retrieval routines. 16. Therefore, the compensatory damages based on defendants’ profits earned from the misappropriation of plaintiff's trade secret are the same amount as those awarded for defendants’ profits gained from copyright infringement. 17. Because defendants’ profits from copyright infringement and trade secret misappropriation are coextensive in this case, plaintiff is entitled to only one recovery of defendants’ profits. See * This measure results in a larger recovery for plaintiff than the reasonable royalty method since that measure would be essentially the same as the lost profits measure conducted for the copyright infringement damages. At any rate, the measure used makes little difference, since plaintiff cannot receive a double recovery when the damages are coextensive. See Computer Assocs. Int'l. Inc. v. Altai, Inc., 982 F.2d 693, 720 (2d Cir. 1992). A53 Computer Assocs. Int'l, Inc, v. Altai, Inc., 982 F.2d 693, 720 (2d Cir. 1992). Prejudgment interest 18. Prejudgment interest with respect to the trade secret misappropriation claim is determined by New York law. N.Y.Civ. Prac. L. & R. Sec. 5001(a) provides: Interest shall be recovered upon a sum awarded. . . because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property, except that in an action of equitable nature, interest and the rate and date from which it shall be computed shall be in the court's discretion. 19. Plaintiff and defendants agree that trade secret misappropriation is "an act. . . interfering with title to, or possession or enjoyment of, property,” and, is therefore, within Section 5001/(a). (See Defendants’ Post-Trial Proposed Findings of Fact and Conclusions of Law Regarding Damages Par. 163; Plaintiff's Trial Mem. on Damages, at 28.) 20. Defendants argue that because disgorgement of profits is an equitable remedy, the court has discretion whether to award prejudgment interest. However, where “(t]he cause of action and damages requested are essentially legal in nature, . . . the court must apply the statutory rate of interest." Action S.A. v. Marc Rich & Co,, 951 F.2d 504, 508-09 (2d Cir. 1991). Because plaintiff's claim for damages for trade secret misappropriation is essentially legal in nature, prejudgment interest on the trade secret damages must be awarded pursuant to Section 5001(a). Even if the claim were held to be equitable, | would exercise my discretion to grant prejudgment interest in this case. 21. The issue of the permissibility of prejudgment interest under the current Copyright Act, which neither expressly allows nor prohibits such an award, is unresolved in the Second Circuit. In Design v, K-Mart Apparel Corp,_, 13 F.3d 559, 569 (2d Cir. 1994). lf such an award is permitted, the award of prejudgment interest is discretionary. |d. 22. In the exercise of my discretion, | award plaintiff prejudgment interest on the lost profits portion of the copyright infringement damages because prejudgment interest on lost profits compensates plaintiff for loss of the use of those funds. See United States Naval Inst. v. Charter Communications, Inc., 17 U.S.P.Q.2d 1063, 1067 (S.D.N.Y. 1990) (awarding prejudgment interest on A54 are as portion of award representing plaintiff's lost profits, but not on portion of award representing defendant's profits from infringement), aff'd in oe eae 936 F.2d 692 (2d Cir. 1991); see also Bourne Co. v. Walt Disney Co., 31 U.S.P.Q.2d 1858, 1860-61 (S.D.N.Y. 1994) (awarding prejudgment interest on stipulated damages settlement). 23. N.Y. Civ. Prac. L. & R. Sec. 5001(b) provides: Interest shall be computed from the earliest ascertainable date the cause of action existed, except that interest upon damages incurred thereafter shall be computed from the date incurred. Where such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date. 24. A claim exists for trade secret misappropriation when (1) defendants possessed a trade secret, and (2) defendants used that trade secret in breach of an agreement. confidence, duty, or as a result of discovery by improper means. (Softel |, C.L. Par. 41.) 25. Plaintiff urges that interest should be computed from the date upon which Darsee first gained access to the source code of the image retrieval routines. However, the cause of action did not exist until defendants both possessed the code and used it. Therefore, interest should be computed from the dates upon which plaintiff's code was incorporated into defendants’ programs. Because neither side presented evidence as to when Darsee incorporated plaintiff's code, the earliest ascertainable dates of the existence of the cause of action are the dates upon which the programs were completed. The Hairy Cell program was completed on March 10, 1986, and the Low Back Pain program was completed on May 23, 1986. (Softel |, F.F. Pars. 72, 74.) Therefore, interest on damages arising from the Hairy Cell program should be computed from March 10, 1986 and interest on damages arising from the Low Back Pain program should be computed from May 23, 1986. For ease of calculation, all damages will be calculated from April 14, 1986, the midpoint between these two dates. See N.Y. Civ. Prac. L. &R. Sec. 5001(b); Computer Assocs,, 775 F. [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1910%3A2. Public record. Not legal advice.