Opinion
Cause No. IP 99-1577-C-M/S.
August 17, 2001
ORDER ON MOTION FOR SUMMARY JUDGMENT
This matter comes before the Court on a motion by the defendant, Media 100 Inc., f/k/a Data Translation Inc., (hereinafter "DTI/M100") requesting the Court to dismiss as a matter of law two claims for copyright infringement and one claim for trade secret misappropriation filed by the plaintiff, McRoberts Software, Inc., (hereinafter "MSI"). DTI/M100 contends that the software licensing agreement it signed with MSI should be interpreted as explicitly authorizing the uses of which MSI now complains. DTI/M100 further contends that even if the Court should find that there are questions of fact or law suggesting that the contract might not authorize one or more of the allegedly infringing uses, the Court still should find that: (a) the "complete integration" clause in the licensing agreement evidences the parties' intent to have the contract control any claims for unauthorized use; or (b) the clause requiring DTI/M100 to use MSI's software only with "Media 100 hardware and software" is a separate contractual covenant and not a condition precedent for the granting of the license. Thus, according to DTI/M100, the licensing agreement between the parties mandates that all of the intellectual property claims raised by MSI be treated strictly as claims for breach of contract. That being so, DTI/M100 invokes (a) the Limitation of Liability section of the licensing agreement and (b) the fact that MSI failed to provide evidence of specific contractual damages as proof that MSI's claims should be dismissed.
The Court has considered fully the parties' arguments and, for the reasons discussed below, finds that the complete integration clause in the licensing agreement does not bar MSI's claims for copyright infringement and trade secret misappropriation. The Court further finds that the contract between the parties clearly establishes that use with "Media 100 hardware and software" is a condition precedent for the granting of the license and not a separate contractual covenant. It follows that, to succeed in its motion for partial summary judgment, DTI/M100 must show that each of the allegedly infringing uses were clearly authorized by the license.
DTI/M100 has failed to make that showing. With respect to one of MSI's claims for copyright infringement, the Court finds that DTI/M100's theories regarding the proper interpretation of the licensing agreement are so overly broad as to be inconsistent with the plain language of the contract. With respect to MSI's other copyright claim, the Court finds that the licensing agreement is ambiguous, making further fact-finding necessary to determine the intentions of the parties. And, with respect to the trade secret misappropriation claim, the Court finds that DTI/M100's theory that hired outside consultants should be treated as the equivalent of employees, for the purpose of interpreting the contract, is without merit.
Consequently, the Court DENIES DTI/M100's motion for partial summary judgment on all three Counts.
I. BACKGROOUND
The facts in the light most favorable to MSI are these:
In 1993, Media 100, then known as Data Translation Inc. ("DTI/M100") licensed Comet C/G titling software ("CG"), version 2.0, from MSI for integration into DTI/M100's video editing software. Deposition of Stephen McRoberts ("McRoberts Dep.") at 19. Video editing software makes it possible to digitally manipulate raw audio and video signals that have been loaded into a computer. Affidavit of Steven D. Shea ("Shea Aff.") ¶ 4. Titling (or character generation) software enables the creation and manipulation of text along with the audio and video signals, making it possible to add credits or to caption a video clip. Id. ¶¶ 11, 12. Rather than write its own titling software, DTI/M100 bundled the CG software designed by MSI into its product line of "Media 100" video editing boards. Id. ¶ 13.
The Media 100 video boards were designed to be used with relatively high end Apple Macintosh ("Mac") personal computers ("PC's"). Id. ¶¶ 7, 33. They contained specialized hardware and specialized software. Id. The hardware consisted of a "video card" containing computer chips designed to process audio and visual information efficiently. Id. ¶ 8. The software consisted of "source code" and "executable code" by which a human editor can, in effect, communicate with the video card and control it. Id. ¶¶ 8, 9, and 17.
Source code is computer code in a human-readable format. Id. ¶ 18. Executable code is computer code in a computer-readable format. Id. ¶ 20. Typically, source code must be translated into executable code in order to be run directly by the computer. Id.
The Media 100 product line was designed for customers such as broadcast television and cable companies, as well as corporate and institutional video editors. Id. ¶ 6. It consisted of boards with varying functionality (depending upon price), all of which ran exclusively on Mac PC's. Id. ¶ 22; Pl. Brief, Ex. 5. Each Media 100 board contained a copy of the CG software, which was owned and copyrighted by MSI. Affidavit of Stephen McRoberts ("McRoberts Aff.") ¶ 6; Plaintiff's Statement of Material Facts 26 (quoting the Software Licensing Agreement between the parties in which the copyright was acknowledged).
PC's are run by a single main chip, known as a CPU, which performs the bulk of the computations. Id. ¶ 28. Information is ferried to and from the CPU by a hardware path referred to as a "bus." Id. ¶ 30. The architecture employed by Microsoft Windows based PC's is known as "PCI bus." Id. ¶ 31. Prior to 1995, Apple employed a different architecture, called "nuBus." Id. ¶ 32. When, in 1994, Apple decided to redesign its Mac line of PC's to use the PCI bus, Apple gave notice to those offering Mac products, such as DTI/M100, of the impending change. Id. ¶¶ 32, 34. However, MSI claims that it did not learn of Apple's intentions until June of 1995. McRoberts Dep. at 26.
DTI/M100 proceeded to adapt its video card so it would be compatible with the PCI bus and to modify its software so it would interface correctly with the new video card. Shea Aff. ¶¶ 37-8. By the end of 1995, DTI had completed the re-design of its video boards and had begun offering the new boards for sale. Id. ¶ 39. In December of 1995, DTI/M100 provided MSI with one of its new boards. McRoberts Dep. at 41.
Prior to DTI/M100's successful completion of this new board, however, MSI had developed a new version of its titling software, CG 3.0, with several improved features that DTI/M100 wished to incorporate into its Media 100 line. McRoberts Aff. ¶ 7. MSI and DTI/M100 entered into lengthy negotiations to create a customized form of the CG software that would incorporate these features. McRoberts Aff. ¶ 3. Each party submitted drafts of proposed provisions for the new agreement. Id,
On May 4, 1995, the parties entered into a contact "for the purpose of licensing existing and to-be-developed software." Data Translation CG Option SOFTWARE LICENSE ("Agreement") § 1; Pl. Brief, Ex. 2. The Agreement (a) engaged MSI to modify CG 2.0 to provide the additional functions that DTI/M100 sought and (b) licensed DTI/M100 to:
(1) modify the CG Option 2.0 source code; (2) generate executable code versions of CG Option 2.0; [and] (3) distribute executable code versions of CG Option 2.0 when integrated with DTI's Media 100 hardware and software used for digital video editing . . . .
Id. §§ 2, 5; Pl. Brief, Ex. 2. In return, DTI/M100 agreed to pay MSI $10,000 for its efforts in modifying the software and $75,000 for the license to distribute the modified software to its customers by bundling it into the Media 100 video editing package. Id. §§ 2, 3.2.
The "Licensing" section of the 1995 Agreement was very similar in wording to the "Licensing" section of the 1993 version. However, the 1993 contract stated: "The Comet software and any versions thereof (whether modified by MSI or DTI) shall be licensed only for use on Media 100 hardware and its logical successors." Data Translation SOFTWARE DEVELOPMENT CONTRACT § 5, Pl. Brief, Ex. 1. By contrast, the 1995 Agreement stated that "such versions shall be licensed only for use on [Media 100] hardware," not mentioning Media 100's logical successors or the fact that the software may be modified by either party. Agreement § 5, Pl. Brief, Ex. 2.
The 1995 Agreement further required that DTI/M100 "shall provide one source code copy of all revisions it makes . . . to MSI on magnetic media within thirty (30) days of release, and MSI may incorporate any such revisions in its version of [CG]." Id. § 5. In addition, the parties recognized that the data shared between the parties "may be proprietary to one or both," and that therefore "each agree[s not to] disclose source code provided by the opposite party to any third party without the express written approval by that opposite party." Id. § 3.7.
The Limitation of Liability section of the contract provided that liability "shall not exceed the aggregate amount paid [by the breaching party] to the other under this Agreement." Id. § 3.5. The parties further acknowledged that: "This Contract constitutes the entire agreement between MSI and DTI concerning the subject matter hereof . . . ." Id. § 4.4.
At the time of the 1995 Agreement, DTI/M100's product brochures stated that Media 100 hardware would function only on a PC using nuBus architecture. Pl. Brief, Ex. 5; Deposition of Steven D. Shea ("Shea Dep.") at 52-3. However, the design of DTI/M100's new video card for PCI bus computers made it potentially compatible with Windows based PC's as well as Mac PC's. Shea Aff. ¶ 41.
In 1996, DTI separated its other businesses from its digital video editing segment, and renamed the digital video editing business "Media 100" (hereinafter called "M100" to distinguish the business in general from the specific product line). Shea Aff. ¶ 3. At that time, DTI/M100 was marketing both nuBus and PCI bus video editing boards, but its software still could run only on Mac PC's. Shea Aff. ¶¶ 38-40, 42.
In order to sell to the growing number of Windows PC users, DTI/M100 decided to convert its Media 100 editing software to the Windows environment. Shea Aff. ¶ 43. On March 2, 1998, DTI/M100 signed a "Software Development Services Agreement" with Millennium Computer Corporation ("Millennium"), agreeing to pay Millennium $3.2 million to perform the software conversion. Shea Dep. at 69; Pl. Brief, Ex. 3. As a part of that effort, DTI/M100 gave a copy of the confidential source code for the CG titling software to Millennium, without the knowledge or consent of MSI. Id. at 66. The contract between DTI/M100 and Millennium specified that all data furnished to or produced by Millennium remained the exclusive property of DTI/M100, and was to be treated as confidential by Millennium. Pl. Brief, Ex. 3 ¶ 8. The contract further specified that Millenium was to be treated as "an independent contractor," not a partner, agent, or employee of DTI/M100. Id. ¶ 13.
After Millenium completed the conversion, DTI/M100 marketed its new line of Windows video editing boards under the product name "Finish." Shea Aff. ¶ 48. The Finish product line was essentially equivalent to the Media 100 product line in function, except that the former would only operate on Windows based PC's and the latter only on Apple based PC's. Id. ¶ 49.
DTI/M100 began selling Finish video editing boards in 1999. Id. ¶ 51. The boards contained translated copies of MSI's CG software. Id. ¶ 49. MSI complained to DTI/M100 that it was not licenced to incorporate the CG software into its Finish product line. Id. ¶ 52. MSI further complained that DTI/M100 was not licensed to use any version of CG software that operated on PCI bus architecture, rather than nuBus. Id. ¶ 53.
After MSI's complaint, DTI/M100 paid one of MSI's direct competitors $140,000 for the right to use its titling software in M100's Finish product line. Shea Dep. at 43, 47. DTI/M100 then removed the CG software and replaced it with the competing software. Id. MSI, in turn, demanded that DTI/M100 turn over a copy of the source code for the titling software, as it was modified by Millenium, but DTI/M100 failed to do so. McRoberts Aff. ¶ 5.
II. STANDARDS A. SUMMARY JUDGMENT
Summary judgment is granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is genuine only if the evidence is such that a jury reasonably could return a verdict for the opposing party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A disputed fact is material only if it might affect the outcome of the suit in light of the substantive law. Id. "In deciding a motion for summary judgment, the court will conclude that there is no genuine issue as to any proposed finding of fact to which no response is set out." Hartley v. Wisconsin Bell, Incorporated, 124 F.3d 887, 890 (7th Cir. 1997); Fed.R.Civ.P. 56(e).
The moving party has the initial burden of showing the absence of genuine issues of material fact. Schroeder v. Barth, 969 F.2d 421, 423 (7th Cir. 1992). This burden does not entail producing evidence to negate claims on which the opposing party has the burden of proof. See Green v. Whiteco Indus., Inc., 17 F.3d 199, 201 n. 3 (7th Cir. 1994). The party opposing a summary judgment motion bears an affirmative burden of presenting evidence that a disputed issue of material fact exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Scherer v. Rockwell Int'l Corp., 975 F.2d 356, 360 (7th Cir. 1992). The opposing party must "go beyond the pleadings" and set forth specific facts to show that a genuine issue exists. See Hong v. Children's Mem. Hosp., 993 F.2d 1257, 1261 (7th Cir. 1993), cert. denied, 511 U.S. 1005 (1994). This burden cannot be met with conclusory statements or speculation, Weihaupt v. American Med. Ass'n, 874 F.2d 419, 428 (7th Cir. 1989), but only with appropriate citations to relevant admissible evidence. Local Rule 56.1; Brasic v. Heinemann's Inc., Bakeries, 121 F.3d 281, 286 (7th Cir. 1997); Waldridge v. American Hoechst Corp., 24 F.3d 918, 923-24 (7th Cir. 1994). Evidence sufficient to support every essential element of the claims on which the opposing party bears the burden of proof must be cited. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
In considering a summary judgment motion, a court must construe all facts and draw all reasonable inferences "in the light most favorable" to the opposing party. Spraying Sys. Co. v. Delavan, Inc., 975 F.2d 387, 392 (7th Cir. 1992). The Court must review all the evidence in the record, and it may not make credibility determinations or weigh the evidence. Reeves v. Sanderson Plumbing Products Inc., 126 S. Ct. 2097, 2110 (2000). If a reasonable fact finder could find for the opposing party, then summary judgment is inappropriate. Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1294 (7th Cir. 1992). On the other hand, if the standard embraced in Rule 56(c) is met and the Court determines that a reasonable jury could not find for the party opposing the motion, then summary judgment is mandatory. Celotex Corp., 477 U.S. at 322-23; Shields Enters., 975 F.2d at 1294.
B. COPYRIGHT INFRINGEMENT
The Copyright Act provides that "anyone who violates one of the exclusive rights of the copyright owner . . . is an infringer of copyright." 17 U.S.C. § 501(a). The exclusive rights are defined in Section 106 of the Act. They include the rights "to do and authorize any of the following:
(1) to reproduce the copyrighted work in copies . . .;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies . . . of the copyrighted work to the public . . . ."
To establish infringement, MSI must prove that: (a) it owned a valid copyright in the CG titling software; and (b) DTI/M100 reproduced, prepared derivative works, or distributed copies of that software. Feist Publications, Inc., v. Rural Telephone Service Co., Inc., 499 U.S. 340, 361 (1991).
C. TRADE SECRET MISAPPROPRIATION
Under Indiana law, the "(2) disclosure or use of a trade secret of another without express or implied consent by a person who (B) at the time of disclosure . . . knew or had reason to know that his knowledge of the trade secret was (ii) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use" is a misappropriation of the trade secret. Ind. Code § 24-2-3-2 (1993). A trade secret is defined as "information, including a formula, pattern, compilation, program, device, method, technique, or process that (1) derives independent economic value . . . from not being generally known . . . and not being readily ascertainable . . .; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Id.
Indiana law provides that "[a]ctual or threatened misappropriation may be enjoined" or, in exceptional circumstances, royalties may be imposed as a condition of future use. Ind. Code § 24-2-3-3 (1993). The law also provides that a court may award damages for the actual loss caused by the misappropriation or for the unjust enrichment of the misappropriating party. Ind. Code § 24-2-3-4(a) (1993). In the event that neither of those are provable, a court may award a reasonable royalty for "the period during which the use could have been prohibited." Ind. Code § 24-2-3-4(b) (1993). Furthermore, "[i]f willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award" for actual damages or unjust enrichment. Ind. Code § 24-2-3-4(c) (1993).
III. DISCUSSION
MSI alleges four distinct offenses:
1. DTI/M100 modified MSI's CG software in 1995 to allow it to interface with a PCI bus video card, and then marketed the modified software for Mac PC's using the PCI bus, rather than nuBus, architecture.
2. DTI/M100 further modified the CG software in 1999 to make it operable on Windows based PC's, and then marketed it as part of its new "Finish"product line of digital video editing software for Windows PC's.
3. DTI/M100 made an unauthorized disclosure of the CG source code to Millenium, a third party software consultant.
4. DTI/M100 failed to turn over a copy of the modified source code to MSI, as required by the Licensing Agreement.
MSI characterizes the first three offenses as violations of its intellectual property rights, the first two sounding in federal copyright law and the third in Indiana trade secrets law. Pl. Brief at 3-4.
DTI/M100, on the other hand, argues that all of the issues raised by MSI are contractual in nature. Def. Brief at 9-12. Specifically, DTI/M100 asserts that the Licensing Agreement between the parties authorized each act of which MSI now complains. Def. Brief at 14-19. Moreover, according to DTI/M100, even if its own interpretation of the Agreement is incorrect, each wrongful act alleged by MSI was contemplated by the Agreement, and therefore MSI's only claim would be for breach of contract. Def. Brief at 1. DTI/M100's argument takes on particular significance because, as noted above, the Agreement limits cumulative damages for breaches of contract to, at most, the $85,000 paid by DTI/M100 to MSI under the terms of the Agreement. Def. Brief at 12.
But DTI/M100 is not content merely to argue that its liability should be so limited. It argues further that MSI has failed to provide any concrete evidence that it suffered monetary damages at all from the alleged breaches of contract. Def. Brief at 12-13. Therefore, DTI/M100 moves that each of the first three complaints be dismissed as a matter of law. In view of the fact that DTI/M100 does not even address the fourth complaint, which involves specific performance under the contract, the Court will consider DTI/M100's motion to be one for partial summary judgment on the first three complaints only.
A. MSI'S INTELLECTUAL PROPERTY RIGHTS UNDER THE LICENSE
As a preliminary matter, the Court notes that there is a question about what license applies to each of MSI's claims. Both parties have acknowledged that they agreed to a renewed license in 1998. Pl. Statement of Material Facts 33 (not disputed by MSI). But whereas the parties hotly contest the meaning of the 1995 Agreement, neither has even made mention of any terms or conditions of the 1998 license. Nor has the Court been provided with a copy of it. Therefore, the Court assumes that the parties intended to stipulate that the 1995 Licensing Agreement fully defines their respective rights.
DTI/M100's main theory is that the Licensing Agreement controls, i.e. preempts, the intellectual property rights asserted by MSI. According to DTI/M100, even if it might have overreached the intellectual property rights assigned to it, the essence of MSI's allegations are that DTI/M100 breached the underlying contract.
However, the nature of a license is not that a licensor, such as MSI, relinquishes ownership of all of its intellectual property rights except for those specifically reserved. Quite to the contrary, the licensor retains all intellectual property rights which are not specifically granted. As the Supreme Court explained in Henry v. Dick Co., a non-exclusive license amounts to a waiver by the licensor of the right to sue the licensee for infringement with regard to the uses that are licensed. 224 U.S. 1, 24-5 (1912) (overruled on other grounds by Motion Picture Patents Co. v. Universal Film Co., 243 U.S. 502 (1917)). Because, any "use not [licensed] is necessarily reserved to the [licensor]," a violation of "that reserved control of use" would still be considered an invasion of the licensor's intellectual property rights. Henry, 224 U.S. at 24.
Thus, if DTI/M100 did in fact exceed the scope of its license to use and distribute MSI's software, MSI has a right to sue for copyright infringement, and is not limited to a breach of contract claim just because it signed the Licensing Agreement. Sun Microsystems, Inc., v. Microsoft Corp., 188 F.3d 1115, 121 (9th Cir. 1999) (noting that "if . . . the licensee acts outside the scope, the licensor can bring an action for copyright infringement."); S.O.S., Inc., v. Payday, Inc., 886 F.2d 1081, 1087-8 (9th Cir. 1989) (holding that "[t]he district court erred in assuming that a license to use copyrighted work necessarily precludes infringement" where the licensee's use, in fact, "exceeds the scope of its license"); Gilliam v. American Broadcasting Cos., 538 F.2d 14, 30 (2d Cir. 1976). Similarly, if DTI/M100 did disclose source code, not only in violation of the non-disclosure clause of the Agreement, but also in violation of the Indiana Trade Secrets Act, then MSI still retains a right to sue DTI/M100 for misappropriation of the trade secret, unless DTI/M100 can show that MSI specifically waived that right in the Licensing Agreement.
1. Copyright infringement
Of course, if the alleged violation does not implicate "that reserved control of use" which defines the underlying intellectual property right, then the licensor can only sue for breach of contract because the intellectual property right itself has not been infringed. That is why, in copyright cases, courts have made a distinction between violations of independent contractual covenants within a licensing agreement and violations of the scope of the license itself. A violation of the former type sounds only in contract. A violation of the latter type may sound in contract or in federal copyright law.
a. A Condition of Granting the License
The Sun case cited above (which is the only case cited by DTI/M100 for its argument) is illustrative. Sun "created Java so that programmers could write a single program that would work on any operating system." 188 F.3d at 1118. When it licensed Java to Microsoft for adaptation and incorporation into its Windows operating system, Sun insisted that Microsoft's adaptations meet strict compatibility standards. Id. Sun later complained that Microsoft was distributing what Sun considered to be a "polluted" version of Java that did not meet the compatibility standards. Id.
The Ninth Circuit noted that the question of whether Sun's claim should be treated as one for copyright or contract "turns on whether the compatibility provisions help define the scope of the license." Id. at 1121. But the Ninth Circuit did not rule on this question. Instead, it remanded the case for a more careful analysis of the licensing agreement in order to determine if the compatibility conditions were independent covenants or limitations on the scope of the license. Id. at 1122-3.
On remand (in a case not cited by DTI/M100), the District Court did find that the compatibility requirements were independent covenants. Sun Microsystems, Inc., v. Microsoft Corp., 81 F. Supp.2d 1026 (N.D.Cal. 2000) (" Sun II"). The basis of the Sun II Court's decision was its reading of the contract. The Court noted that neither section 2.1 ("Source Code and Development License to Technology") nor section 2.2 ("Distribution License to Technology"), which together governed the copyright protected aspects of the license, even mentioned that Microsoft's right to modify and distribute Java should be "subject to, conditional on, or limited by compliance with the compatibility obligations." Id. at 1032. By contrast, the Court noted that the Trademark section of the license did spell out that the right to use Sun's Compatibility Logo depended upon fully meeting the compatibility requirements. Id. Similarly, the Surviving Products section required that Microsoft continue to meet Sun compatibility tests in order to sell products containing Java after the expiration of the license. Id. The Court therefore concluded that "the parties regarded the compatibility provisions of section 2.6 as separate covenants rather than limitations on the scope of the [copyright] license." Id.
Put more abstractly, the Sun II Court's determination that Microsoft had not violated Sun's copyright, even if it might have breached the licensing contract, was founded upon three logically connected observations. First, Sun's business strategy of making Java compatible with all operating systems is not in and of itself legally protectible under federal copyright laws. Second, the alleged violation by Microsoft of the contractual commitment to respect that compatibility cannot be considered a violation of Sun's copyright unless the requirement to maintain compatibility was a condition precedent for the granting of the license. Third, a careful reading of the contract established that the parties did not actually intend compatibility to be a condition precedent for Microsoft's right to distribute copies of the Java program as modified for use with its Windows operating system.
In its brief, DTI/M100 cites the first Sun case for the proposition that the violation of an independent contractual covenant does not give rise to a cause of action for copyright infringement. That is not in dispute. But DTI/M100 then asserts, as if it were a logical consequence, that "[t]he limitation on Media 100's commercial use of Comet/CG, requiring that it be used only with enumerated Media 100 hardware used for digital video editing, is an independent contractual covenant, not a copyright violation." Def. brief at 11. DTI/M100 cites no authority for this proposition, nor does it provide any contractual analysis to prove that it is so.
Of course, the right of the licensor, MSI, to choose the kind of hardware on which its software may be used is not, in and of itself, legally protected by copyright law. Therefore, the Court agrees with DTI/M100 that this question is analogous to the compatibility question in the Sun cases. MSI can only invoke federal copyright law if the licensing agreement makes the right to use and distribute CG software conditional upon the distribution of that software with the intended hardware.
However, this case is distinguishable from Sun II precisely because the contractual analysis is different. The Agreement between DTI/M100 and MSI begins with a Background section which includes a declaration of purpose. The first sentence states that DTI/M100 "has an on-line video production system known as Media 100," and explains that "Media 100, which consists of both hardware and software, is used in professional video production." Pl. Brief, Ex. 2 (emphasis added). The paragraph then goes on to say that MSI has developed a new version of its stand-alone CG software and that DTI/M100 wants to (a) "hire MSI as a consultant to perform the integration" of CG's new capabilities with DTI/M100's present product line and (b) purchase a license to the source code "to permit DTI to fully integrate the new capabilities of Comet/CG with the Media 100 hardware/software product." Id. (emphasis added). This strongly suggests that the purpose of the parties was to enable DTI/M100 to use the modified CG software with the particular type of hardware then defined as "Media 100 hardware." Otherwise, both of the references to the hardware would have been superfluous.
Even more importantly, Section 5 (License) makes clear that the particular hardware is central to the granting of the license. This section contains two paragraphs, of which the first is the one which actually grants the license. It authorizes DTI/M100 to: (1) modify the source code; (2) generate executable code versions of the modified source code; and (3) "distribute executable code versions of [modified] CG Option 2.0 when integrated with DTI's Media 100 hardware and software used for digital video editing, and such versions shall be licensed only for use on such hardware." Pl. Brief, Ex. 2 (emphasis added).
The phrase "when integrated with DTI's Media 100 hardware" modifies the right to "distribute executable code versions" of CG software. Therefore, guided by the principle discussed above that MSI retains any intellectual property rights which it did not relinquish, the Court interprets that phrase to mean that any attempt to distribute executable code versions of CG not integrated with Media 100 hardware is not authorized by the license. In addition, the phrase "shall be licensed only for use on such hardware" clearly indicates that the requirement is an express condition upon the granting of the license. DTI/M100 makes no attempt to explain it any other way. Thus, unlike in Sun II, the plain language of the licensing section of the contract establishes that the restriction to "Media 100 hardware" is an express condition of the granting of the license and not an independent contractual undertaking of the parties. Whatever the parties meant by "Media 100 hardware," any distribution of CG software that is not integrated with such hardware is a violation of MSI's copyright, not just a breach of contract.
b. Media 100 Hardware
The question remains: What did the parties mean by "Media 100 hardware?" This is a matter of interpreting the license, and in such matters state contract law provides the rules of construction. S.O.S., 886 F.2d at 1088; Graham v. James, 144 F.3d 229, 237 (2nd Cir. 1998). The Licensing Agreement provides that Indiana law shall apply. Pl. Brief, Ex. 2 § 4.6. Under Indiana law, a court's primary objective is to ascertain the parties' mutual intent at the time they entered into the contract and to effectuate that intent. First Federal Savings Bank v. Key Markets, 559 N.E.2d 600, 603-4 (Ind. 1990). To that end, a court must rely upon the express language of the contract, Ethyl Corp. v. Forcum-Lannom Assoc., 433 N.E.2d 1214, 1217 (Ind.Ct.App. 1982), except where that language is ambiguous. Jenkins v. King, 65 N.E.2d 121, 123 (Ind. 1946). Words, paragraphs, and sections are to be construed in light of the meaning of the entire document. Key Markets, 559 N.E.2d at 604.
In 1996, DTI changed the name of its video editing business to Media 100. But that raises no inference that the parties intended, back in 1995, for "Media 100" to refer to DTI's entire business of video editing.
Nevertheless, DTI/M100 argues that, at the time the contract was signed, "Media 100 hardware and software" referred to a broad line (and presumably all) of DTI's digital video editing products. Def. Brief at 14. Therefore, according to DTI/M100, the parties must have intended the phrasing to encompass not only any video editing product already being made by DTI/M100 but also any digital video editing products to be developed and marketed by DTI/M100 in the future. Def. Brief at 16-17. MSI argues, on the other hand, that the parties intended for the license to cover only Media 100 hardware as it existed in Media 100 products at the time the contract was signed. Pl. Brief at 7. In particular, MSI argues that the use of CG software should have been restricted to those Media 100 video editing boards which operated with Mac PC's employing the old nuBus architecture, because that was the only type of PC on which Media 100 products could operate at the time the Agreement was signed.
DTI/M100 attempts to support its argument by selectively highlighting the words " used for digital video editing" from the phrase "when integrated with DTI's Media 100 hardware and software used for digital video editing." Def. Brief at 16. However, the word "hardware" in this phrase is modified by both "Media 100" and "used for digital video editing." Therefore, the Court declines DTI/M100's invitation to excise "Media 100" from the contract by artificially emphasizing "used for digital video editing." The contract unambiguously limits DTI/M100 to the use of CG software only when integrated with Media 100 digital video editing products, in whatever sense that is to be distinguished from non-Media 100 digital video editing products.
DTI/M100 does attempt to explain that the phrase "Media 100" is not entirely silent. According to DTI/M100, it was put into the contract to distinguish the digital video editing line of business (whose products were then marketed under the name Media 100) from other lines of business run by DTI. But the Court does not find that argument persuasive because there would still be no need for the phrase "Media 100," given that the phrase "used for digital video editing" already restricts the license for use only with those products of DTI used for digital video editing. The Court rejects any contrived interpretation which renders "Media 100" superfluous.
Still, DTI/M100 argues that "it would be absurd to hold that this license extended only to use in one narrow embodiment of a dynamic Media 100 hardware and software product." Def. Brief at 16. According to DTI/M100, the only way that the license could be interpreted as restricting the use of the CG software to the Media 100 products as they existed at the time would be if the Court were to add "an entirely new (and absent) term [to the contract], the term "then-existing hardware and software." Id.
The Court finds this rhetoric wholly unpersuasive. Media 100 hardware can only be characterized meaningfully as "then-existing hardware" from the vantage point of the present, looking back. Indeed, the very phrasing: "then-existing hardware" implies the present existence of non-Media 100 hardware, something that DTI/M100 probably would prefer not to admit. Therefore, the Court presumes that what DTI/M100 really meant is that MSI's interpretation would impliedly add the term "now-existing hardware and software." But of course, there is nothing surprising about that. "Now existing" is part of the presumed meaning of any word, unless the context says otherwise.
For example, it would not be reasonable to infer that a contract explicitly authorizing the use of WordPerfect 5 would impliedly authorize the later use of WordPerfect 9, even though the latter is derived from the former and serves the same word processing function. It is no more reasonable to infer that the authorization to use CG software with Media 100 hardware and software automatically implies a further authorization to use CG with Finish hardware and software. As a matter of common sense, the phrase "Media 100 hardware and software" does not stretch that far. Nor is there any language in the Agreement stating, or even suggesting, that the license further includes the right to use CG with later developed video editing products designed for Windows PC's. Indeed, the fact that DTI/M100 did not even begin to develop the Finish line of products until three years after the Agreement was signed, and did not market the new line of products until four years after, makes it highly unlikely that either of the parties contemplated such a development at the time the license was granted. Therefore the Court denies DTI/M100's motion to dismiss MSI's claim regarding the use of CG software in DTI/M100's Finish line of video editing products.
However, the same argument does not apply to the question of whether the use of CG software with Mac PC's employing PCI bus architecture was unauthorized. Unlike the later development of Windows video editing boards, DTI/M100's continued ability to make video editing boards for Mac PC's was certainly contemplated by the parties at the time that the license was granted. Of course, that does not prove that DTI/M100 actually contracted for the right to modify CG software for use on Mac PC's employing PCI bus architecture. It is no more rational to argue that MSI should have put in an explicit restriction to bar the anticipated development than it is to argue that DTI/M100 should have put in an explicit clause to authorize it. But, because the phrase "Media 100 hardware" does not, in and of itself, specify a particular kind of bus that must be used to satisfy the license, the Court finds that the contract is ambiguous with regard to this point. Even a technical reading of "hardware" as referring to the specialized chips used in the Media 100 boards does not resolve the issue. The bus architecture is more a property of the PC than of the video editing board.
MSI seems to believe that the restriction to "Media 100 hardware and software" carries with it a restriction to the particular hardware then in use on Mac PC's. This assumes that the nature of the bus used by Apple was somehow essential, and not merely incidental, to the contractual understanding of the parties. But MSI does not explain why it was essential. Instead, MSI's argument amounts to a categorical claim that any change in the way its CG software was used by DTI/M100 would be unauthorized. The Court finds this assertion unpersuasive, because the language of the Agreement clearly gives DTI/M100 more flexibility than that.
Section 1 of the Agreement states that the parties entered into the contract "for the purpose of licensing existing and to-be-developed software." Pl. Brief, Ex. 2. "[T]o-be-developed software" might refer only to the modifications that MSI was hired to make in order to customize the CG 2.0 software. However, if that was all the parties meant by "to-be-developed software," then there would have been no need to talk about licensing existing software too. The existing software would have to refer to CG before it was modified. And that software was already licensed by DTI/M100 in 1993.
Section 5 of the Agreement grants DTI/M100 a license "to (1) modify the CG Option 2.0 source code . . . ." Pl. Brief, Ex. 2 (emphasis added). Again, this could mean nothing more than that the parties intended to grant DTI/M100 the right to make use of the modifications made by MSI. But the subject of the verb "modify" is DTI/M100, not MSI. Presumably, then, the parties anticipated, at the time of the Agreement, that DTI/M100 might make at least some modifications of its own to the CG software. Indeed, the second paragraph of Section 5, requiring DTI/M100 to provide MSI with a copy of the source code for any revision that it makes, would make no sense if the parties had intended MSI to be the only one making revisions.
Therefore, the Court finds that the Licensing Agreement unambiguously permits DTI/M100 some flexibility to make modifications in the CG software, provided that those modifications remain within the overall scope of the license. That is, the modifications must be designed for integration with DTI/M100's Media 100 hardware and software.
That still leaves unresolved the question of what the parties meant by "Media 100 hardware and software." As discussed above, the sweep of that phrase cannot be so broad as to encompass the Finish line of products. But the phrase is sufficiently ambiguous to leave the narrower question unanswered: Was DTI/M100 licensed to modify the CG software as necessary for use with the redesigned Mac PC's or was the license designed to be obsolete in a year or two when the new Mac PC's became the standard? Technically, the answer depends upon whether the parties would have considered the redesigned video editing boards also to be Media 100 hardware and software or whether they would have considered the boards to be a new product not covered by the license.
Where a contract is ambiguous, it is appropriate for the courts to look at extrinsic evidence with the purpose of establishing the parties' intent. King, 65 N.E.2d at 123. It is undisputed that at the time DTI/M100 signed the Licensing Agreement, it knew that the new Mac PC's would require PCI bus architecture. Indeed, it is clear that DTI/M100 was already planning a new video board for use with the new Mac PC's. Undoubtedly, it would have frustrated DTI/M100's very purpose in licensing the CG software to be foreclosed from modifying that software to make it functional with the latest and best Mac PC's.
On the other hand, the formation of a contract requires a meeting of the minds. MSI asserts that it did not know that Apple was in the process of changing its PC architecture at the time the Licensing Agreement was signed. That being so, a genuine issue of fact has been raised as to whether both parties contemplated the adaptation of CG software for use with the new Mac PC's. It is not up to the Court to impose what it thinks the contract should have meant, or to protect the unilateral interests of one party, no matter how reasonable. Key Markets, 559 N.E.2d at 604 (A court must not renegotiate the bargain, but only attempt to enforce the contract as it is.). Therefore, summary judgment is inappropriate with regard to this issue.
2. Misappropriation of Trade Secrets
MSI claims that its source code is a trade secret under Indiana law. Ind. Code § 24-2-3-1 et. seq. (1993). It further claims that DTI/M100 misappropriated the source code when it provided a copy to software consultant Millennium for the purpose of having it translated, along with the rest of DTI/M100's digital video editing software, into a Windows-compatible format.
In its motion for summary judgment, DTI/M100 does not address the elements of MSI's prima facie case for misappropriation. DTI/M100 merely argues that (1) MSI's misappropriation claim is controlled by the non-disclosure clause in the Licensing Agreement rather than by Indiana tort law; and (2) the disclosure of CG source code to Millennium for the purpose of making modifications was authorized by the Agreement.
As discussed above, the signing of a non-exclusive licensing agreement is not a blanket waiver of intellectual property rights. Therefore, the fact that MSI agreed to a non-disclosure clause does not mean that it agreed to waive any cause of action for a tort predicated, at least in part, upon the wrongful disclosure. Were the Court to hold otherwise, any party seeking to protect its trade secrets would be obliged not to put its intentions into the contract, lest that become a Trojan horse, limiting rather than protecting the party's rights to seek redress.
Of course, parties can contract to waive some or all of their rights under state tort law. But because the proper legal presumption is that MSI retains the right not to have its trade secrets misappropriated, the burden falls upon DTI/M100 to show either that: (a) the language of the contract unambiguously shows that MSI waived that right; or (b) the language is ambiguous, but the parties' intent was to address all misappropriation claims solely as contract claims. DTI/M100 has failed to make either argument.
The non-disclosure clause provides that: "MSI and DTI each agree to no[t] disclose source code provided by the opposite party to any third party without the express written approval by that opposite party." On its face, this does not waive the right to seek redress under the Trade Secrets Act. And, though the wording is not inconsistent with an intent to rely solely on contractual remedies for misappropriation, it does not imply such an intent either. Therefore, DTI/M100 has failed to establish as a matter of law that the non-disclosure clause in the contract constituted a general waiver of either party's right to invoke the Act.
Even so, DTI/M100 argues that it was authorized by the contract to make the particular disclosure to Millennium of which MSI now complains. According to DTI/M100:
1. The Software Development Services Agreement effectively made Millennium into an agent of DTI/M100.
2. For purposes of interpreting its Licensing Agreement with MSI, an agent is essentially equivalent to an employee.
3. Therefore, the disclosure to Millennium was not, in fact, a disclosure to a "third party" as prohibited by the Agreement.
Def. Brief at 18.
Both premises of this syllogism are flawed. The Software Development Services Agreement expressly states that Millennium is to be considered an independent contractor, not a partner, agent, or employee of DTI/M100. In particular, Millennium was given "no power or authority to bind [DTI/M100 or] to assume or create any obligation, express or implied on [DTI/M100's] behalf . . . ." Pl. Brief, Ex. 3 § 13. It is disingenuous, then, for DTI/M100 to tell this Court that the hiring of Millennium was the logical equivalent of hiring an employee.
In Community for Creative Non-Violence v. Reid, 490 U.S. 730, 741 (1989), the Supreme Court listed a number of factors to be considered in determining whether a hired party should be considered an employee. These include: the location of the work, the duration of the relationship between the parties, whether the hiring party has a right to assign additional projects to the hired party, whether the hiring party pays employee benefits, etc. Suffice it to say, Millennium meets practically none of the criteria for being an employee.
It is at least arguable that Millennium might be considered DTI/M100's agent in this matter.
However, an agent does not have the same status as an employee vis a vis the "third party" language in the non-disclosure clause. The plain meaning of "third party" in this context is anyone who is not a party (i.e. signatory) to the contract. DTI/M100 does not claim that Millennium is a party, nor that Millennium is legally bound in any way by DTI/M100's Licensing Agreement with MSI. Therefore, Millennium must be considered a third party, according to the plain meaning of the Agreement.
B. DAMAGE LIMITATION
Because the Court does not find that summary judgment is warranted on MSI's copyright or trade secret misappropriation claims, DTI/M100's argument that MSI's cause of action should be dismissed because MSI did not document any damages resulting from the breach of contract must also fail. The copyright law provides wide-ranging possibilities for equitable relief, as well as statutory damages even if the plaintiff documents no actual damages. 17 U.S.C. § 502-505. In particular, § 504(c)(1) provides that a "copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action." Similarly, the Trade Secrets Act allows the Court to order injunctive relief, such as the destruction of unauthorized copies of the source code. Ind. Code 24-2-2-3. Therefore, damages is not an element of the plaintiff's prima facie case under either claim, and the Court need not consider summary judgment on the issue.
Still DTI/M100 seems to believe that the Limitation of Liabilities section of the Agreement which limits monetary damages and precludes "special, indirect, incidental, or consequential damages including without limitation loss of profit" somehow prevents MSI from seeking any form of relief for the violation of its intellectual property rights other than money damages in an amount not to exceed the $85,000 total value of the contract. Def. Brief at 12. However, this is nothing more than a back door attempt to make the same argument (through a restriction on permissible damages instead of a restriction on permissible causes of action) that the Court has already rejected — that a licensing agreement presumptively preempts the intellectual property rights of the licensor. As the Sun II Court noted, with regard to the remedies limitation section of the licensing agreement between Sun and Microsoft, that limitation restricted Sun's ability to claim relief "as to contractual breaches, but not as to other claims, such as ones for copyright and trademark infringement." 81 F. Supp.2d at 1030.
Again, the Court recognizes that a clause in a licensing agreement could be designed to limit the types of damages available for copyright infringement. But the particular Limit of Liability section in question in this case does not mention intellectual property rights in any form. Nor (even if it had mentioned intellectual property rights) does it say anything by way of precluding equitable relief. Therefore, the Court holds that the clause applies only to breaches of contract, and not to violations of MSI's intellectual property rights.
DTI/M100 finally argues that, at a minimum, even if the copyright claim survives, the Court should find as a matter of law that MSI is not entitled to claim "actual damages." Copyright law provides that a plaintiff may elect either to claim statutory damages or else to claim "actual damages" plus "any additional profits of the infringer" not included in actual damages. 17 U.S.C. § 504. According to DTI/M100, any claim that MSI might have for actual damages is too speculative, given that MSI has never developed titling software for Mac's that use PCI bus architecture, much less for PC's that use a Windows format. Def. Brief at 19-20.
The Court agrees that, under these circumstances, any claim by MSI for lost sales is too speculative. However, actual damages may include the lost royalties or licensing fees that MSI would have earned from DTI/M100 if DTI/M100 had paid for the unauthorized use of MSI's copyrighted software. Softel, Inc. v. Dragon Medical and Scientific Communications Ltd., 891 F. Supp. 935, 941 (S.D.N.Y. 1995) (finding that "actual damages . . . are measured by the royalty payments [plaintiff] would have received from defendants for the use of the source code") (reconsideration granted in part, 37 U.S.P.Q.2d 1282 (S.D.N.Y. 1995), order affirmed and remanded, 118 F.3d 955 (2nd Cir. 1997), certiorari denied, 523 U.S. 1020 (1998)). Moreover, copyright law recognizes that damages are often difficult to prove with precision, and grants the Court discretion in determining damages, based upon the particular facts of the case. Therefore, it is premature for the Court to make a ruling at this time with regard to actual damages.
IV. CONCLUSION
Having fully considered the parties' arguments, and for the reasons discussed above, the Court rejects DTI/M100's assertion that MSI's intellectual property claims must be preempted by the licensing agreement between the parties. As a matter of law, MSI retains all of its intellectual property rights, except where the licensing agreement specifically grants them to DTI/M100. As a matter of fact, the license does not state any express intention on the part of the parties to have the contract control any of the intellectual property claims asserted by MSI.
It follows that DTI/M100's motion for partial summary judgment can only be based upon its alternative argument that the contract authorizes each of the particular uses of CG software that MSI now alleges are infringing. DTI/M100's arguments justifying each challenged use center upon its interpretation of two key phrases in the license. The first phrase authorizes use of CG software "when integrated with DTI's Media 100 hardware and software for use with digital video editing." DTI/M100's theory is that this phrase unambiguously asserts the parties' intention to permit the use of CG software with any of DTI/M100's digital video editing hardware and software.
Because DTI/M100's interpretation would render the sub-phrase "Media 100 hardware and software" mute, the Court respectfully disagrees. In the context of the licensing agreement, the phrase "Media 100 hardware and software" remains undefined, but not unhelpful. In particular, the Court holds that "Media 100 hardware and software" cannot be interpreted so broadly as to encompass "Finish" hardware and software, a product not developed until four years after the licensing agreement was signed. However, there is a question of fact whether or not the parties intended to permit DTI/M100 to use CG software with the new line of Mac PC's that were under development when the licensing agreement was signed.
The other key phrase involves the question of whether Millennium was truly a "third party" in the sense that the parties intended when they agreed to prohibit disclosures of the CG source code to third parties. DTI/M100's theory is that Millennium was acting as its agent, in the same sense that an employee would act as an agent, and that therefore Millennium was not a third party. The Court finds that this theory is without merit. The contract between Millennium and DTI/M100 expressly states the parties' intention that Millennium not be treated as an agent. Moreover, it is well established law that agents are not generally considered the equivalent of employees.
Having rejected each of DTI/M100's legal theories, the Court DENIES DTI/M100's motion for partial summary judgment.
IT IS SO ORDERED this day of August 2001.