“Although the district court considered the selection and arrangement of Compulife’s code to some degree, the district court never identified the entire arrangement of these variables in the code as a constituent component of the code.” – Eleventh Circuit Court of Appeals
On Thursday, the United States Court of Appeals for the Eleventh Circuit published an opinion in Compulife Software, Inc., v. Newman, a copyright infringement and trade secret misappropriation case that has been winding through the courts for some time.
The original claim alleged that the defendants, consisting of multiple individuals, obtained access through improper means to the data used by Compulife in its software. The software in question allowed users the ability to calculate an individualized quote for life insurance policies using publicly and privately obtained data from different providers. Through various means, including a supervised scraping attack of Compulife’s website, the complaint alleged the defendants gained access to millions of quotes generated by its software and implemented the quotes into their own websites, decreasing Compulife’s sales.
Both parties waived their right to a jury trial, and in the original appeal, the Eleventh Circuit remanded the case while “clarifying” some of the contested legal issues. That decision, dubbed Compulife I by the Eleventh Circuit, was discussed in a two-part article published on IPWatchdog when it was released in 2020.
At the second bench trial, the new judge found that Compulife’s copyright claim failed because most of its code was not protectable. Applying the original appellate decision that the scraping of Compulife’s website constituted “improper means” for the purpose of the trade secret misappropriation claim, the district court granted injunctive relief while awarding compensatory and punitive damages for Compulife against all defendants, jointly and severally.
Both parties filed appeals. Compulife argued that the court erred in its finding of no copyright infringement, while the defendants argued that there was no trade secret misappropriation, and, even if there was, they should not have been held jointly and severally liable.
Copyright Infringement
The appellate court first addressed Compulife’s appeal of the copyright infringement claim. If it could be determined that there was factual copying as well as legal copying, then Compulife could have a viable infringement claim that warranted remanding the case. Compulife I already found factual copying, so the court looked to its abstraction-filtration-comparison test to identify if legal copying was present.
First, the opinion broke down the allegedly infringed program into its constituent structural parts. It agreed with Compulife that the arrangement of its source code, while a literal element of a program and thus arguably distinguishable from other cases in which only nonliteral elements were considered, was a potentially protected constituent part of the program. The district court had looked at individual parts but failed to look at the arrangement as a whole. . The appellate court explained:
“Although the district court considered the selection and arrangement of Compulife’s code to some degree, the district court never identified the entire arrangement of these variables in the code as a constituent component of the code.”
Thus, the issue was remanded.
Next, the opinion looked at whether the district court properly sifted out all non-protectable material. While Compulife argued that the district court failed to find protectability in several of its elements, the appellate court disagreed, instead confirming that the use of some of its variables were “too obvious” to be an original work, among other individualized findings.
Finally, the opinion compared the protected material with the alleged copycat to determine if both the quantitative and the qualitative significance of the amount copied warranted a finding in favor of Compulife. The appellate court, while clarifying that the arguments pertaining to the arrangement of the code were to be determined on remand, disagreed with Compulife’s argument as to the remaining elements of the code – while 84% of Compulife’s code was copied, only roughly 8% of its protectable code was copied. In addition, the appellate court could not find any significance of the remaining elements, meaning Compulife’s argument failed to show both quantitative and qualitative significance of the copying.
Trade Secret Misappropriation and Liability
The appellate court next looked at whether the court erred in its finding of trade secret misappropriation. The court in Compulife I already determined the existence of a trade secret, and the appellate court once again had no issue ruling that the defendants used improper means to acquire the trade secret even if those means were not “independently unlawful”:
“…scraping and related technologies … may be perfectly legitimate. Much of the modern internet is built on those technologies. But the defendants in this case did not take innocent screenshots of a publicly available site; instead, they copied the order of Compulife’s copyrighted code and used that code to commit a scraping attack that acquired millions of variable-dependent insurance quotes.”
As a result, the appellate court found no error in the district court’s ruling on the issue of trade secret misappropriation. Additionally, the appellate court found no error in finding the defendants jointly and severally liable since they acted “in concert,” and trade secret misappropriation is an intentional tort that falls under the exception to Florida’s comparative fault regime.
Image Source: Deposit Photos
Author: AndreyPopov
Image ID: 211210396
