Automated Solutions Corp. v. Paragon Data Systems, Inc.
756 F.3d 504
| 6th Cir. | 2014Background
- ASC and Paragon formed a Software Development and Ownership Agreement in 2001 to jointly develop the Single Copy Distribution System (SCDS) for the Chicago Tribune.
- SCDS used C++, handheld devices, and remote servers; Tribune licensed the system in August 2001.
- Paragon terminated the SDO Agreement in September 2003; Ohio state court later held Paragon could market but not sell SCDS without ASC’s consent and Paragon’s rights expired upon termination; Ohio court affirmed in 2006.
- ASC filed federal suit alleging copyright/trademark infringement, conversion, and related claims based on Paragon’s use of DRACI; discovery disputes ensued, including preservation failures and requests for forensic analysis.
- A magistrate judge recommended sanctions for spoliation and that Paragon’s conduct was at most negligent; Paragon sought summary judgment on ASC’s claims, and the district court granted summary judgment to Paragon on all ASC claims.
- ASC appeals, challenging discovery sanctions, the sufficiency of the copyright claim, and res judicata as to remaining claims.
- The court ultimately affirmed the district court’s rulings, including granting Paragon summary judgment on ASC’s copyright claim and applying res judicata to the remaining claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court properly sanctioned spoliation | ASC argues Paragon’s preservation failures warranted severe sanctions | Paragon contends sanctions were not warranted; conduct was at most negligent | No clear error; sanctions not warranted; affirmed |
| Whether an adverse inference instruction was required or appropriate | ASC seeks inference that DRACI derives from SCDS from spoliated Atkin drive | Paragon argues inference would be misplaced given lack of protectable elements identification | Adverse-inference instruction deemed irrelevant to the substantive copyright issue |
| Whether Paragon’s backup tapes were subject to preservation duties | Backups should have been preserved; could contain relevant data | Backup tapes were disaster-recovery, overwritten; not subject to preservation | District court did not abuse discretion; tapes not subject to duty to preserve |
| Whether ASC identified protectable elements to support copyright infringement | ASC identified original elements via expert; substantial similarity shown | ASC failed to identify protectable elements; no substantial similarity shown | Summary judgment affirmed for Paragon; ASC failed to identify protectable elements |
| Whether res judicata bars ASC’s remaining non-copyright claims | Remaining claims should proceed independently of copyright | Res judicata bars remaining claims tied to SCDS use post-breach | District court’s res judicata ruling affirmed; remaining claims barred |
Key Cases Cited
- Beaven v. U.S. Dep’t of Justice, 622 F.3d 540 (6th Cir. 2010) (Beaven test for spoliation sanctions and Beaven factors)
- Adkins v. Wolever, 554 F.3d 650 (6th Cir. 2009) (Affirmative standard and case-by-case discretion for sanctions)
- Adkins v. Wolever, 692 F.3d 499 (6th Cir. 2012) (Clarifies fault-based approach to sanctions; case-by-case)
- Flagg v. City of Detroit, 715 F.3d 165 (6th Cir. 2013) (Case-by-case determination of sanctions in spoliation)
- Kohus v. Mariol, 328 F.3d 848 (6th Cir. 2003) (Identify and eliminate unprotected elements in substantial similarity analysis)
- R.C. Olmstead, Inc. v. CU Interface, LLC, 606 F.3d 262 (6th Cir. 2010) (Requires identifying original protectable elements for copyright infringement)
- Lexmark Int’l, Inc. v. Static Control Components, Inc., 387 F.3d 522 (6th Cir. 2004) (Merger and scenes a faire doctrines in software copyright)
- United States v. Zolin, 491 U.S. 554 (U.S. 1989) (Crime-fraud exception and in camera review standards for privileged material)
- Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (Litigation holds and preservation duties in electronic discovery)
- Pension Committee of University of Montreal Pension Plan v. Banc of America Securities, 685 F. Supp. 2d 456 (S.D.N.Y. 2010) (Case-by-case approach to preservation failures; not per se gross negligence)