Compulife Software Inc. v. Moses NewmanCompulife Software Inc. v. Moses Newman
There‘s nothing easy about this case. The facts are complicated, and the governing law is tangled. At its essence, it‘s a case about high-tech corporate espionage. The very short story: Compulife Software, Inc., which has developed and markets a computerized mechanism for calculating, organizing, and comparing life-insurance quotes, alleges that one of its competitors lied and hacked its way into Compulife‘s
With the parties’ consent, a magistrate judge was tasked with tackling these thorny issues in a bench trial. He determined that Compulife had failed to prove any legal violation. We conclude, however, that in finding that Compulife hadn‘t demonstrated either copyright infringement or trade-secret misappropriation, the magistrate judge made several discrete legal errors and, more generally, failed to adequately explain his conclusions. Accordingly, we vacate the judgment in part and remand with instructions to make new findings of fact and conclusions of law.
I
A
Warning: This gets pretty dense (and difficult) pretty quickly.
Compulife and the defendants are direct competitors in a niche industry: generating life-insurance quotes. Compulife maintains a database of insurance-premium information—called the “Transformative Database“—to which it sells access. The Transformative Database is valuable because it contains up-to-date information on many life insurers’ premium-rate tables and thus allows for simultaneous comparison of rates from dozens of providers. Most of Compulife‘s customers are insurance agents who buy access to the database so that they can more easily provide reliable cost estimates to prospective policy purchasers. Although the Transformative Database is based on publicly available information—namely, individual insurers’ rate tables—it can‘t be replicated without a specialized method and formula known only within Compulife.
Compulife sells two different kinds of access to the Transformative Database—a “PC version” and an “internet-engine version“—each run by its own piece of software and each accompanied by its own type of license. Both pieces of software contain an encrypted copy of the database. The PC-version software—called the “PC quoter“—is sold along with a PC license that allows licensees to install copies of the quoter on their personal computers and other devices for (depending on the number of devices) a cost of either $180 or $300 per year. The PC quoter uses its local copy of the Transformative Database to generate insurance-rate estimates corresponding to demographic information entered by the end user.
A PC licensee can purchase an add-on called the “web quoter” for an extra $96 per year. The web-quoter feature allows the PC licensee to put a quoter on its own website, which it can then use as a marketing tool to attract customers. Once a licensee‘s website is equipped with the web quoter, prospective life-insurance purchasers can enter demographic information into fields on the licensee‘s site and receive quotes directly from the licensee. Unlike the PC quoter—which contains its own local copy of the Transformative Database—the web quoter generates quotes by communicating with an internet-quote engine hosted on Compulife‘s server. The HTML source code of the web quoter is protected by a registered copyright.
A second kind of license—the “internet-engine” license—permits a licensee to host Compulife‘s internet-quote engine, which includes the Transformative Database, on its own server and to integrate it with additional features of its own creation. (Naturally, it‘s more expensive—it costs $1200 per year.) An internet-engine licensee
In addition to the PC-version and internet-engine products that it licenses to agents and that contain the Transformative Database, Compulife also provides consumers with direct access to life-insurance quotes through its Term4Sale internet site, www.term4sale.com. Term4Sale communicates with essentially the same internet-quote engine that PC licensees’ web quoters access and that internet-engine licensees are permitted to maintain on their own servers. Anyone can use the Term4Sale site to receive free life-insurance quotes directly from a copy of the Transformative Database that Compulife hosts on its own server. The Term4Sale site refers prospective life-insurance purchasers to insurance agents with whom Compulife partners, who in turn pay Compulife for the referrals.
Now, to the defendants, who are also in the business of generating life-insurance quotes—primarily through a website, www.naaip.org. “NAAIP” stands for National Association of Accredited Insurance Professionals, but as the court below found, “NAAIP is not a real entity, charity, not-for-profit, or trade association, and is not incorporated anywhere.” Compulife Software, Inc. v. Rutstein, No. 9:16-cv-80808, 2018 U.S. Dist. LEXIS 41111, at *15 (Mar. 12, 2018). Through naaip.org, the defendants offer a service similar to—and, the evidence shows, at least partially copied from—Compulife‘s web quoter, which they call a “Life Insurance Quote Engine.” Any insurance agent can sign up for a free website located on the domain naaip.org—for example, “http://naaip.org/tmatteson77.” The defendants host thousands of these sites on a server in Israel and equip each one with the Life Insurance Quote Engine. Prospective life-insurance purchasers can then obtain quotes on any of these NAAIP-hosted websites by entering demographic information, just as they could on the website of any Compulife PC licensee with a web quoter add-on. Each NAAIP site includes a link that allows consumers to purchase insurance through One Resource Group, Inc., a brokerage firm with which the defendants have partnered. If a visitor to an NAAIP site uses the link to buy insurance, the defendants receive a part of One Resource‘s brokerage fees in exchange for the referral.
The defendants also operate the BeyondQuotes website, www.beyondquotes.com, which includes a Life Insurance Quote Engine like the ones on participating NAAIP websites. BeyondQuotes operates similarly to Compulife‘s Term4Sale site, generating revenue by selling referrals to affiliated insurance agents.
B
Having canvassed Compulife‘s and the defendants’ respective businesses, we should introduce the (complex) cast of individual characters that populate this case. The first is Robert Barney, the founder
Most significant among the defendants is David Rutstein, the founder of NAAIP and the owner of BeyondQuotes. He operates naaip.org and beyondquotes.com with help from his son, defendant Binyomin Rutstein, and their co-defendants Aaron Levy and Moses Newman. At one point—more on this to come—the defendants also employed a hacker named Natal, who, it is undisputed, took Compulife‘s data for use in the defendants’ software.1
There are also several key characters who aren‘t directly affiliated with any of the parties. MSCC is a software company and a Compulife customer with an internet-engine license. It sells access to a proprietary program for life-insurance agents called “Vam DB,” which (as is permissible for internet-engine licensees) includes Compulife‘s internet engine. And because MSCC hosts Compulife‘s internet engine on its Vam DB server, it also hosts (again, as is permissible) a copy of Compulife‘s Transformative Database.
Brian McSweeney is a life-insurance agent who, during the time of the defendants’ alleged misconduct, was a Compulife PC licensee who used MSCC‘s Vam DB server. At the same time, McSweeney also had a working relationship with the defendants—in particular, he was one of the agents who (as already described) paid the defendants for leads generated from the BeyondQuotes site. Eric Savage—another Compulife licensee—also had a working relationship with defendant David Rutstein. McSweeney and Savage are important here because the defendants used their relationships with them to gain access to Vam DB, and thus to Compulife‘s Transformative Database.
C
With that background, we turn (at last) to the alleged espionage. Compulife claims that the defendants’ websites don‘t report their own quotes but merely reproduce Compulife‘s own proprietary data. According to Compulife, the defendants stole its data in two different ways, which form the basis of two separate lawsuits. These suits—which have been called the “08 case” and the “42 case” throughout these proceedings, to denote their original docket numbers—were consolidated for trial and remain consolidated on appeal.
In the 08 case, Compulife contends that the defendants gained access to the Transformative Database under false pretenses by purporting to work for licensed Compulife customers. In particular, David Rutstein, using the email address bob@naaip.org, represented that he was working with Compulife PC licensees McSweeney and Savage and requested the HTML code for Compulife‘s web quoter, which he said would allow his websites to communicate with the copy of the Transformative Database hosted on MSCC‘s Vam DB server. Compulife CFO/COO Kuhn responded by sending Rutstein the HTML code, believing that he was a web designer employed
For several years, the defendants’ websites enjoyed access to Compulife‘s internet engine—and thus to the Transformative Database—on MSCC‘s Vam DB server. They used this access to generate quotes for all NAAIP websites and for their own BeyondQuotes site. Compulife eventually discovered the ruse and cut off the defendants’ unauthorized access, at which point their sites temporarily (and conspicuously) stopped producing quotes. The defendants don‘t deny that they connected their NAAIP websites and BeyondQuotes to Compulife‘s database on the Vam DB server—they simply claim that their access was innocent.
In the 42 case, Compulife alleges that the defendants hired a hacker, Natal, to “scrape” data from its server. Scraping is a technique for extracting large amounts of data from a website. The concept is simple; a hacker requests information from a server using ordinary HTTP commands similar to those that a legitimate client program of the server might employ in the ordinary course. Although a hacker could obtain the data manually by entering each command as a line of code and then recording the results, the true power of a scraping attack is realized by creating a robot—or “bot,” for short—that can make many requests automatically and much more rapidly than any human could. A bot can request a huge amount of data from the target‘s server—technically one query at a time, but several queries per second—and then instantaneously record the returned information in an electronic database. By formulating queries in an orderly fashion and recording the resulting information, the bot can create a copy—or at least a partial copy—of a database underlying a website.
Natal used this scraping technique to create a partial copy of Compulife‘s Transformative Database, extracting all the insurance-quote data pertaining to two zip codes—one in New York and another in Florida.3 That means the bot requested
Compulife alleges that the defendants then used the scraped data as the basis for generating quotes on their own websites. The defendants don‘t disagree, except to claim that they didn‘t know the source of the scraped data but, rather, innocently purchased the data from a third party. Moses Newman testified, however, that he watched Natal collect the requested data in a manner consistent with a scraping attack. David Rutstein also testified that when the defendants instructed Natal to obtain insurance-quote information, they fully intended for her to “extract[] data” from an existing website.
D
Compulife filed suit in the United States District Court for the Southern District of Florida. In both the 08 case and the 42 case, it asserted counts of copyright infringement and trade-secret misappropriation. In the 08 case, Compulife alleged that the defendants (1) infringed its copyright in the HTML source code of its web quoter when they implemented similar quoters on their own websites and (2) misappropriated its trade secret by accessing the Transformative Database on MSCC‘s Vam DB server to generate quotes without permission. In the 42 case, Compulife alleged that the defendants (1) infringed its copyright by copying parameters and variables from the HTML source code in order to carry out a scraping attack and (2) misappropriated a trade secret by scraping data from its Term4Sale site. Compulife also asserted false-advertising claims under the Lanham Act, Florida Deceptive and Unfair Trade Practices Act, and Florida common law in both cases, as well as a violation of the Florida Computer Abuse and Data Recovery Act in the 42 case.
The parties consented to a bench trial before a federal magistrate judge. Although the judge found, as an initial matter, that Compulife had a valid copyright in the text of its HTML source code and that its Transformative Database was a protectable trade secret, he ruled in favor of the defendants. In doing so, he held that Compulife hadn‘t met its burden to prove—as it had to in order to make out a copyright-infringement claim—that the defendants’ copied code was “substantially similar” to its own and, further, that the defendants hadn‘t misappropriated any trade secrets. The judge separately rejected Compulife‘s false-advertising claims on the ground that Compulife had failed to identify any false or misleading advertisement. Finally, he ruled that the defendants hadn‘t violated the Florida Computer Abuse and Data Recovery Act, because Compulife failed to show that the data that the defendants took was protected by any “technological access barrier” within the meaning of that statute.
Compulife contends that all of these determinations were in error, identifying what it contends are mistakes of both law
Accordingly, we will vacate the judgment in part and remand for new findings and conclusions limited to the issues of copyright infringement and trade-secret misappropriation.
II
On appeal from a bench trial, “the district court‘s conclusions of law are reviewed de novo,” but its “findings of fact . . . ‘shall not be set aside unless clearly erroneous.‘” MiTek Holdings, Inc. v. Arce Eng‘g Co., 89 F.3d 1548, 1554 (11th Cir. 1996) (citation omitted) (quoting
We must also review findings of fact and conclusions of law to ensure that they satisfy
* * *
With that précis, we will consider Compulife‘s claims in turn: (1) copyright infringement; (2) trade-secret misappropriation; (3) false advertising; and (4) violation of Florida‘s Computer Abuse and Data Recovery Act.
III
A
To succeed on its claim of copyright infringement, Compulife “must prove ‘(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original.‘” Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1541 (11th Cir. 1996) (quoting Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991)). The existence and validity of Compulife‘s copyright are undisputed, so we can proceed directly to the second prong—copying. Copying comprises two subparts, “factual and legal copying,” both of which Compulife, as the plaintiff, has the burden to prove. See BUC Int‘l Corp. v. Int‘l Yacht Council Ltd., 489 F.3d 1129, 1148 n.40 (11th Cir. 2007).
Factual copying—the question “whether the defendant actually used the plaintiff‘s material,” id.—may be shown “either by direct evidence, or, in the absence of direct evidence, it may be inferred from indirect evidence demonstrating that the defendant had access to the copyrighted work and that there are probative similarities between the allegedly infringing work and the copyrighted work.” MiTek, 89 F.3d at 1554.4 Factual copying isn‘t really disputed here, and we think it has been established, in any event,5 so we focus here on legal copying.
“Legal“—or “actionable“—copying occurs when “those elements of the [copyrighted work] that have been copied are protected expression and of such importance to the copied work that the appropriation is actionable.” Peter Letterese & Assocs. v. World Inst. of Scientology Enters., 533 F.3d 1287, 1300 (11th Cir. 2008) (alteration in original) (quoting MiTek, 89 F.3d at 1554). In most cases, a “‘substantial similarity’ between the allegedly offending program and the protectable, original elements of the copyrighted works” establishes actionable copying. Bateman, 79 F.3d at 1542; see also BUC, 489 F.3d at 1149 n.42
(“BellSouth established the ‘substantial similarity’ standard as the default mode of analysis for compilation copyright claims.“).6
Substantial similarity “must be assessed with respect to both the quantitative and the qualitative significance of the amount copied to the copyrighted work as a whole.” Peter Letterese, 533 F.3d at 1307. Quantitatively insubstantial copying may still be actionable if it is qualitatively substantial. See Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 565 (1985). For instance, because “a small portion of the structure or code of a [computer] program may nonetheless give it distinctive features or may make the program especially creative or desirable,” copying of that portion is actionable. 4 Nimmer on Copyright § 13.03[F][5] (2019).
B
We conclude that the magistrate judge (sitting as the district court) made several errors in the course of concluding that Compulife had failed to prove actionable—or legal—copying. Unpacking those errors will take some doing, but in short they are as follows. First, the magistrate judge improperly placed the burden on Compulife to prove, as part of the filtration analysis, that the elements the defendants copied were protectable; we hold that he should have required the defendants to prove that those elements were not protectable. Second, the judge seems to have evaluated the substantiality of the defendants’ copying vis-à-vis their allegedly infringing work; we hold that he should have judged the substantiality of the copied material vis-à-vis Compulife‘s copyrighted work. Finally, even if the magistrate judge hadn‘t based his decision on these legal errors, he failed to state on the record sufficient findings of fact and conclusions of law to permit meaningful appellate review. All of these missteps call for the same corrective: vacatur of the judgment with respect to copyright infringement.
1
First, the misplaced burden. To properly frame this error, a little background is in order. The magistrate judge misallocated the burden of proof applicable to the filtration step of the substantial-similarity analysis. Filtration, again, refers to the process of separating the protectable elements of a copyrighted work from elements that, for one reason or another, aren‘t protected.7
The notion that unprotected material should be disregarded when comparing two works is at least a century old. See Int‘l News Serv. v. Associated Press, 248 U.S. 215, 234 (1918). Conceiving of filtration as a distinct step in the infringement analysis, however, came into the law relatively recently, in the Second Circuit‘s seminal decision in Computer Assocs. Int‘l, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992). We have adopted a version of Altai‘s test, see Bateman, 79 F.3d at 1543–46, which has three steps: (1) abstraction, (2) filtration, and (3) comparison. Altai, 982 F.2d at 706. In order to “ascertain[] substantial similarity under this approach, a court . . . first break[s] down the allegedly infringed program into its
constituent structural parts“—that‘s abstraction. Bateman, 79 F.3d at 1544 (quoting Altai, 982 F.2d at 706). Next, the court “sift[s] out all non-protectable material“—filtration. Id. The “last step [is] to compare” any remaining “kernels[] of creative expression” with the “allegedly infringing program” to determine if there is in fact a substantial similarity
Filtration can be tricky because copied material may be unprotectable for a wide variety of reasons. First, for instance, copyright protection extends only to a work‘s expressive elements, not to any underlying “idea, procedure, process, system, method of operation, concept, principle, or discovery” expressed therein.
Third—and this is easier to understand—material taken from the public domain is unprotected, even if incorporated into a copyrighted work. See Stewart v. Abend, 495 U.S. 207, 234 (1990) (holding that an author “may receive protection only for his original additions,” not “elements . . . already in the public domain“). Fourth, material may be unprotected if it constitutes scènes à faire—that is “[i]ncidents, characters, or settings that are indispensable or standard in the treatment of a given topic.” Corwin v. Walt Disney Co., 475 F.3d 1239, 1251 (11th Cir. 2007) (alteration in original) (quoting Herzog v. Castle Rock Entm‘t, 193 F.3d 1241, 1248 (11th Cir. 1999)); see also Beal v. Paramount Pictures Corp., 20 F.3d 454, 459 (11th Cir. 1994) (describing scènes à faire as “stock scenes that naturally flow from a common theme“). For example, we have noted that there is “no protection for common elements in police fiction, such as ‘drunks, prostitutes, vermin and derelict cars’ and ‘foot chases and the morale problems of policemen, not to mention the familiar figure of the Irish cop.‘” Corwin, 475 F.3d at 1251 (quoting Walker v. Time Life Films, Inc., 784 F.2d 44, 50 (2d Cir. 1986)). Finally, certain ways of arranging information—say, alphabetically—are entirely unoriginal, and therefore unprotectable. See Feist, 499 U.S. at 363 (explaining that presenting data in alphabetical order is “so commonplace that it has come to be expected as a matter of course“).
How might these categories of unprotectability apply in a case like this one? Well, for one, by analogy to merger and scènes à faire, elements of computer source-code expression “dictated by external factors” aren‘t entitled to copyright
In any event, many species of unprotectability may be at issue in a single case, and the filtration process must eliminate all of them so that only protectable material is considered when deciding—at the comparison step—whether two works are substantially similar. Bateman, 79 F.3d at 1545 (“[F]iltration should eliminate from comparison the unprotectable elements of ideas, processes, facts, public domain information, merger material, scènes à faire material, and other unprotectable elements.” (alteration in original)).
With that background, we come to the magistrate judge‘s first error. In his opinion, the magistrate judge implicitly placed on Compulife the burden of proving that the elements of its HTML code that the defendants copied were protectable. In particular, he faulted Compulife for having “made no attempt to identify the protectable elements of the 2010 HTML Source Code.” Compulife Software, 2018 U.S. Dist. LEXIS 41111, at *38. Although we haven‘t previously done so, we now clarify that after an infringement plaintiff has demonstrated that he holds a valid copyright and that the defendant engaged in factual copying, the defendant bears the burden of proving—as part of the filtration analysis—that the elements he copied from a copyrighted work are unprotectable. That is so for two main reasons. First, assigning this burden to the defendant is consonant with our existing precedent, and it enjoys the support of the foremost copyright treatise. See Bateman, 79 F.3d at 1542 (“[T]he plaintiff must also respond to any proof advanced by the defendant that the portion of the copyrighted work actually taken does not satisfy the constitutional requirement of originality as set forth in Article I, § 8, cl. 8.” (emphasis added)); 4 Nimmer on Copyright § 13.03[F][3] (“Although [a] plaintiff‘s failure to present proof about [merger and scènes à faire] could defeat a plaintiff‘s application for a preliminary injunction, it would seem that defendant must go forward at trial with appropriate evidence as to those doctrines.“).
Second, placing the burden to prove protectability on the infringement plaintiff would unfairly require him to prove a negative. Protectability can‘t practicably be demonstrated affirmatively but, rather, consists of the absence of the various species of unprotectability. If the plaintiff had the burden of proving protectability, he would have to preemptively present evidence negating all possible theories of unprotectability just to survive a motion for summary judgment. Cf. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1116 (11th Cir. 1993) (noting that a summary-judgment movant “simply may . . . point[] out . . . that there is an absence of evidence to support the non-moving party‘s case” where the non-moving party bears the burden of proof). And, of course, some types of unprotectability can be negated only by presenting practically infinite evidence. A plaintiff, for instance, can‘t be expected to present the entirety of the public domain as it existed when he authored his copyrighted material in order to show that no elements of his work were taken from it. Nor could a plaintiff reasonably introduce the entire corpus of relevant, industry-standard techniques just to
Placing the burden on the defendant, by contrast, merely requires him to identify the species of unprotectability that he is alleging and to present supporting evidence where appropriate. If, for instance, the defendant believes that some part of the copyrighted work is in the public domain, he must narrow the inquiry by indicating where in the public domain that portion of the work can be found. Similarly, if he thinks that what he copied amounts to usual industry practice, he must indicate the standards that dictate that technique. The plaintiff then faces the manageable task of “respond[ing],” Bateman, 79 F.3d at 1542, to the appropriately narrowed issue. Placing the burden on the defendant, therefore, isn‘t just consistent with our own precedent and leading scholarly commentary, but also fairer and more efficient.
In light of these considerations, copyright-infringement analysis should proceed as follows: Once the plaintiff has proven that he has a valid copyright and that the defendant engaged in factual copying, the defendant may seek to prove that some or all of the copied material is unprotectable. If the defendant carries this burden as to any portion of the copied material, that material should be filtered out of the analysis before comparing the two works. After filtration is complete, the burden shifts back to the plaintiff to prove substantial similarity between any remaining (i.e., unfiltered) protectable material and the allegedly infringing work. If the defendant demonstrates—at the filtration stage—that it copied only unprotectable material, such that no substantial similarities remain after filtration, the defendant is entitled to summary judgment. See Home Design Servs., Inc. v. Turner Heritage Homes Inc., 825 F.3d 1314, 1322 (11th Cir. 2016). But because the defendant bears the burden to demonstrate unprotectability, the mere failure of the plaintiff to present evidence of protectability—assuming that a valid copyright and factual copying have already been established—isn‘t a sufficient reason to give judgment to the defendant. Rather, where the defendant‘s evidence is insufficient to prove that a particular element is unprotectable, the court should simply assume that the element is protectable and include that element in the final substantial-similarity comparison between the works.8
Accordingly, the magistrate judge here erred by placing on Compulife the burden of proving protectability. For the reasons
To be sure, some filtration is warranted here. Some elements of Compulife‘s code are unprotectable—and indeed, are so obviously so that no proof is necessary. For example, in order to calculate insurance quotes, Compulife‘s code has to collect each consumer‘s state of residence, and in organizing that information Compulife has chosen to alphabetize the 50 states and assign each state a number. Although the decision to order the states in this way may have originated with Compulife, mere alphabetization is unoriginal and unprotectable. See Feist, 499 U.S. at 363. As a result, although the defendants copied the alphabetization, that particular structural element should be filtered out and excluded when analyzing the similarities between the works.9
But the magistrate judge never even reached the filtration issue. Instead, having placed the burden on Compulife to prove that the copied elements of its code were protectable—and found its evidence lacking—he gave judgment for the defendants without ever undertaking a filtration analysis. In so doing, he failed to make required factual findings and legal conclusions “because of an erroneous view of the law.” Swint, 456 U.S. at 291. Accordingly, we must vacate and “remand for further proceedings” to give the district court a chance to make the missing findings. Id. We won‘t attempt a comprehensive filtration analysis from scratch—“[w]e are, after all, a court of review, not a court of first view.” Callahan v. United States Dep‘t of Health & Human Servs. through Alex Azar II, 939 F.3d 1251, 1266 (11th Cir. 2019).10
Explaining the magistrate judge‘s second legal error is more straightforward. (A low bar.) As we will explain, he implicitly evaluated the significance of the defendants’ copying vis-à-vis their offending work, rather than Compulife‘s copyrighted work. In so doing, the magistrate judge called his ultimate conclusion into doubt. The law is clear that both the quantity of the appropriation and the qualitative importance of the appropriated portion are properly judged by their significance to the copyrighted work, not their significance to the allegedly infringing work. As the Supreme Court has said—and as we have reaffirmed—“a taking may not be excused merely because it is insubstantial with respect to the infringing work.” Harper & Row, 471 U.S. at 565 (emphasis in original); see also Peter Letterese, 533 F.3d at 1307 (explaining that “it is the relative portion of the copyrighted work—not the relative portion of the infringing work—that is the relevant comparison“).
The magistrate judge evinced this error in stating that Compulife “provided no basis on which to evaluate what quantity of the HTML code from the www.naaip.org agent‘s website, which spans twenty-five pages, is copied from [Compulife‘s] 2010 HTML code, which spans just over nine pages.” Compulife Software, 2018 U.S. Dist. LEXIS 41111, at *39–40. In addition to being wrong as a matter of fact—the full texts of both codes are in the record, and a side-by-side comparison reveals the extent of the defendants’ copying—this statement implies a mistaken view of law. A 25-page work could, of course, reproduce the entirety of a 9-page work verbatim, even though it also necessarily includes some material not taken from the shorter work. Seemingly, then, by pointing to the disparity in lengths here, the magistrate judge meant to suggest that the defendants’ inclusion of additional material could undercut or even preclude a finding of infringement. But, under controlling law, adding new material to copied material doesn‘t negate (or even ameliorate) the copying. See Harper & Row, 471 U.S. at 565. That the accused work is significantly longer than the copyrighted work is irrelevant because the substantiality of copying is evaluated only with respect to the copyrighted work. See Peter Letterese, 533 F.3d at 1307. The magistrate judge‘s ultimate determination that the works are not substantially similar therefore implicitly rests on another misunderstanding of law. Remand is necessary to allow fresh findings, untainted by this error.
3
Finally—with respect to copyright infringement, anyway—even if the magistrate judge hadn‘t based his determination on the foregoing legal errors, his analysis was insufficient to permit meaningful appellate review. Rule 52 requires a district court conducting a bench trial to “find the facts specially and state its conclusions of law separately” and to include these findings and conclusions on the record.
To allow meaningful appellate review, a district court must indicate which elements of the copyrighted work it considers to be unprotectable in more detail than was given here. The magistrate judge didn‘t filter—or even specifically identify—any protectable or unprotectable elements of Compulife‘s copyrighted code.12 Nor did he evaluate the importance of any copied elements of that code as part of a substantial-similarity analysis. Nor, finally, did he even identify, at the threshold, which elements of Compulife‘s code the defendants had copied as a factual matter. Instead of making these necessary determinations, the magistrate judge merely stated that Compulife “failed to prove that ‘th[e] elements of the program that have been copied are protected expression,‘” Compulife Software, 2018 U.S. Dist. LEXIS 41111, at *38 (quoting MiTek, 89 F.3d at 1554), that Compulife had “failed to provide any basis on which to conclude that the copied portions of the 2010 HTML Source Code . . . are important,” id. (quotation and quotation marks omitted), and that Compulife “provided no basis on which to evaluate what quantity of the HTML code from the www.naaip.org agent‘s website . . . is copied from [its] 2010 HTML code,” id. at *39–40. We can‘t
effectively review the magistrate judge‘s ultimate conclusion—that Compulife failed to prove its case—without answers to the important prerequisite questions that he left unaddressed. And we decline to answer such questions as a matter of “first view.” Callahan, 939 F.3d at 1266. Accordingly, vacatur and remand are appropriate.
It bears noting that the magistrate judge‘s reasoning would have been sufficient if it really were true that, in seeking to demonstrate substantial similarity, Compulife had provided “no basis” to evaluate either the quantity or the quality of the defendants’ copying. Although “[t]he burden is on the copyright owner to demonstrate the significance of the copied features,” MiTek, 89 F.3d at 1560, and “both the quantitative and the qualitative significance of the amount copied” must be assessed, Peter Letterese, 533 F.3d at 1307, the plaintiff needn‘t prove both the quantitative and qualitative substantiality of copying—it‘s enough to prove one or the
To start, Compulife provided the texts of both works, and the court could easily have analyzed the similarities between them to ascertain the quantitative extent of copying. So too, the qualitative significance could have been evaluated solely on the basis of the two texts. Although the copyright owner has the burden to prove qualitative significance, MiTek, 89 F.3d at 1560, nothing requires him to introduce extrinsic evidence of that significance. Qualitative significance is often apparent on the face of the copied portion of a copyrighted work. See Peter Letterese, 533 F.3d at 1315 (inferring the qualitative significance of “the way [concepts] were ‘selected, coordinated, or arranged‘” from statements within the work itself). Moreover, and in any event, Compulife actually did provide extrinsic evidence of the qualitative significance of some copied elements. Chris Bruner testified that part of the code copied by the defendants includes variable names and parameters that must be formatted exactly for the web quoter to communicate with the Transformative Database at all. At a minimum, this testimony is some evidence of the qualitative significance of the copied portion of Compulife‘s work. A district court is free not to credit such testimony, but it can‘t ignore it.
The magistrate judge‘s failure to look more closely at the texts of the two codes is particularly concerning given the similarities apparent on their faces. Even a cursory comparison of the two segments suggests that the defendants’ work copied material from nearly every page of the copyrighted work. The defendants’ code includes nine of the eleven basic sections of Compulife‘s code, arranged in almost exactly the same order. The defendants’ code even reproduces idiosyncratic elements of Compulife‘s work, like treating New York as two separate jurisdictions—one for business and another for non-business—an element of the code that was obsolete by the time the defendants copied it. Perhaps the magistrate judge had good reasons to discount these and other similarities, but his failure to explain himself prevents any meaningful review.
Accordingly, the magistrate judge‘s conclusions that Compulife failed to present necessary evidence were unwarranted. At the least, the judge should have engaged with the evidence presented by Compulife and explained why he found it unconvincing. He then should have explained what elements of Compulife‘s work he had filtered out and why the defendants’ code was not substantially similar to whatever material survived filtration. The omission of these details from the magistrate judge‘s findings of fact and conclusions of law precludes meaningful review and requires vacatur and remand.
IV
And now for something completely different—trade-secret law. To prove a claim under the Florida Uniform Trade Secrets Act (FUTSA), Compulife “must demonstrate that (1) it possessed a trade secret and (2) the secret was misappropriated.” Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279, 1297 (11th Cir. 2018) (quotation and quotation
information . . . that: (a) [d]erives independent economic value . . . from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
One party can misappropriate another‘s trade secret by either acquisition, disclosure, or use. See
- Used improper means to acquire knowledge of the trade secret; or
- At the time of disclosure or use, knew or had reason to know that her or his knowledge of the trade secret was:
- Derived from or through a person who had utilized improper means to acquire it;
- Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
- Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
- Before a material change of her or his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
The concept of “improper means“—which under FUTSA may apply in both the acquisition and use contexts—is significant here, so we should pause to unpack it. As used in FUTSA, “[i]mproper means” is defined to include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.”
In one case from the former Fifth Circuit, for example, DuPont claimed that trade secrets had been misappropriated by photographers who took pictures of its methanol plant from a plane. See Christopher, 431 F.2d at 1013. These aerial
photographs, DuPont contended, threatened to reveal its secret method of manufacturing methanol. See id. at 1013–14. The photographers sought summary judgment, emphasizing that “they conducted all of their activities in public airspace, violated no government aviation standard, did not breach any confidential relation, and did not engage in any fraudulent or illegal conduct.” Id. at 1014. The Fifth Circuit rejected their contention and held that the aerial photography constituted improper means even though DuPont had left its facility open to inspection from the air. See id. at 1015. Under the broad definition adopted in Christopher, misappropriation occurs whenever a defendant acquires the secret from its owner “without his permission at a time when he is taking reasonable precautions to maintain its secrecy.” Id.
* * *
Although the magistrate judge found Compulife‘s Transformative Database to be a trade secret, he determined that the defendants hadn‘t misappropriated it. The magistrate judge‘s analysis, however, contains two flaws. First, in both the 08 case and in the 42 case, he failed to consider the several alternative varieties of misappropriation contemplated by FUTSA. Second, in the 42 case, he erred in reasoning that the public availability of quotes on Compulife‘s Term4Sale site automatically precluded a finding that scraping those quotes constituted misappropriation.
A
The magistrate judge rejected the misappropriation-by-use claims in the 08 case because he found that Compulife had “failed to prove the existence of the duty critical to its claims of trade secret misappropriation through use.” Compulife Software, 2018 U.S. Dist. LEXIS 41111, at *50. The judge erred in considering only varieties of misappropriation by use that require a violation of some legal “duty” external to the statute.15 To be sure, some types of use-misappropriation do require
The magistrate judge never considered these possibilities, although they are plainly contemplated in the Florida statute. And there was clearly enough evidence of these other, non-duty-based varieties of use-misappropriation that the magistrate judge should have discussed them before dismissing them. In the 08 case, the defendants plausibly engaged in “misrepresentation“—and thus “improper means” within meaning of the statute—given the way that David Rutstein explained the defendants’ affiliation with McSweeney and Savage to Compulife‘s Jeremiah Kuhn when Rutstein initially sought access to the Transformative Database.
The magistrate judge should also have considered misappropriation by use in the 42 case. The judge seems to have considered only misappropriation by acquisition as to that case—more on that momentarily—but there was no justification for truncating the analysis in this way. If the scraping attack constituted “improper means“—a question that the magistrate judge also failed to address—it would be difficult to escape the conclusion that the defendants either (1) used a trade secret of which they had improperly acquired knowledge or (2) used a trade secret of which they had acquired knowledge from a person whom they knew or had reason to know had improperly acquired the knowledge. See
B
In addition to improperly ignoring the possibility of misappropriation by use
That is incorrect. Even granting that individual quotes themselves are not entitled to protection as trade secrets, the magistrate judge failed to consider the important possibility that so much of the Transformative Database was taken—in a bit-by-bit fashion—that a protected portion of the trade secret was acquired. The magistrate judge was correct to conclude that the scraped quotes were not individually protectable trade secrets because each is readily available to the public—but that doesn‘t in and of itself resolve the question whether, in effect, the database as a whole was misappropriated. Even if quotes aren‘t trade secrets, taking enough of them must amount to misappropriation of the underlying secret at some point. Otherwise, there would be no substance to trade-secret protections for “compilations,” which the law clearly provides. See
Nor does the fact that the defendants took the quotes from a publicly accessible site automatically mean that the taking was authorized or otherwise proper. Although Compulife has plainly given the world implicit permission to access as many quotes as is humanly possible, a robot can collect more quotes than any human practicably could. So, while manually accessing quotes from Compulife‘s database is unlikely ever to constitute improper means, using a bot to collect an otherwise infeasible amount of data may well be—in the same way that using aerial photography may be improper when a secret is exposed to view from above. See Christopher, 431 F.2d at 1013. In the most closely analogous case of which we are aware, a district court held that hacking a public-facing website with a bot amounted “improper means.” Physicians Interactive v. Lathian Sys., Inc., No. CA 03-1193-A, 2003 WL 23018270, at *8 (E.D. Va. Dec. 5, 2003) (“There can be no doubt that the use of a computer software robot to hack into a computer system and to take or copy
Consider how broadly the magistrate judge‘s reasoning would sweep. Even if Compulife had implemented a technological limit on how many quotes one person could obtain, and even if the defendants had taken all the data, rather than a subset of it, each quote would still be available to the public and therefore not entitled to protection individually. On the magistrate judge‘s logic, Compulife couldn‘t recover even in that circumstance, because even there—in the magistrate judge‘s words—“any member of the public [could] visit the website of a Compulife customer to obtain a quote” with “no restriction” on the subsequent use of the quote. Compulife Software, 2018 U.S. Dist. LEXIS 41111, at *45. But under the plain terms of the governing statute, the defendants would be liable in this scenario; they would have acquired a compilation of information that “[d]erives independent economic value . . . from . . . not being readily ascertainable” and “[i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy” by means which plainly amount to “espionage through electronic . . . means.”
The magistrate judge treated the wrong question as decisive—namely, whether the quotes taken were individually protectable. He left undecided the truly determinative questions: (1) whether the block of data that the defendants took was large enough to constitute appropriation of the Transformative Database itself, and (2) whether the means they employed were improper. Having found that the Transformative Database was protectable generally, the magistrate judge was not free simply to observe that the portions taken were not individually protectable trade secrets.
We express no opinion as to whether enough of the Transformative Database was taken to amount to an acquisition of the trade secret, nor do we opine as to whether the means were improper such that the acquisition or use of the quotes could amount to misappropriation. We merely clarify that the simple fact that the quotes taken were publicly available does not automatically resolve the question in the defendants’ favor. These issues must be addressed on remand.17
That concludes the hard part. We turn now to the more straightforward issues, both of which the magistrate judge got exactly right: false advertising and Florida‘s anti-hacking statute.
A
To recover for false advertising under the federal Lanham Act,
- the ads of the opposing party were false or misleading,
- the ads deceived, or had the capacity to deceive, consumers,
- the deception had a material effect on purchasing decisions,
- the misrepresented product or service affects interstate commerce, and
- the movant has been—or is likely to be—injured as a result of the false advertising.
Johnson & Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., 299 F.3d 1242, 1247 (11th Cir. 2002).18
Compulife bore the burden of proving that the defendants had actually advertised falsely or misleadingly, and the magistrate judge did not clearly err in determining that Compulife failed to prove the existence of any false or misleading advertisement. See Osmose, Inc. v. Viance, LLC, 612 F.3d 1298, 1309 (11th Cir. 2010) (“Literal falsity is a finding of fact reviewed for clear error.“). As the magistrate judge observed, Compulife didn‘t clearly identify at trial any particular statement alleged to constitute false advertising. In its proposed findings of fact and conclusions of law, Compulife asserted that “[e]nticing . . . users” with “quotes for term life insurance where the source of those quotes is infringing software and stolen trade secrets is . . . unquestionably unfair competition and false advertising.” The bare fact that the defendants hosted a quote engine on their website without providing notification that Compulife was the ultimate source of the quotes, though, doesn‘t imply the existence of any advertisement, let alone a false one. And just because the defendants stipulated that the
Even if the issue had been properly preserved, we wouldn‘t find clear error here. The language from NAAIP‘s website on which Compulife now focuses likely doesn‘t qualify as false advertising under the statute because it has no capacity to deceive and wasn‘t material to any purchasing decision. See 1-800 Contacts, Inc., 299 F.3d at 1247. Compulife claims that the defendants advertised their quote engine as a “key benefit” on their website, but the contents of this advertisement aren‘t so clear in the record. The defendants stipulated before the magistrate judge that the quote engine was a key benefit of their site, not that they had advertised it as such. And while David Rutstein testified that NAAIP “advertises that it has a quote engine” on its home page, he refused to say that it was advertised as “a great quote engine” or that it was “an important selling point.” If credited, Rutstein‘s testimony would indicate that the web advertisement lacked materiality and the “capacity to deceive” consumers. 1-800 Contacts, Inc., 299 F.3d at 1247. Compulife insists that the ad was deceiving because it held out Compulife‘s technology as NAAIP‘s, but merely claiming to have a quote engine is unlikely to mislead anyone into assuming anything about the ultimate source of the software or the quotes that it generates. Moreover, even if consumers were misled, it is still difficult to see why that deception would have “had a material effect on purchasing decisions.” Id. Consumers have good reason to care about the quality of the quote engine, but not the identity of its author or the host of the server with which it communicates.
We find no error—much less clear error—in the magistrate judge‘s determination that Compulife failed to prove false advertising. To make its case, Compulife needed to identify a particular statement or set of statements that amount to a false advertisement, which it failed to do. And Compulife‘s belated argument before this Court is both unpreserved and unconvincing. We affirm as to this issue.
B
At long last, we reach the final issue in this appeal—the Florida Computer Abuse and Data Recovery Act, which provides a cause of action for certain kinds of hacking. As relevant here, it states: “A person who knowingly and with intent to cause harm or loss . . . [o]btains information from a protected computer without authorization . . . [or] [c]auses the transmission of a program, code, or command to a protected computer without authorization . . . caus[ing] harm or loss . . . is liable to . . . the owner of information stored in the protected computer.”
Compulife doesn‘t attempt to argue that the defendants penetrated a “technological access barrier.” Instead, Compulife maintains that this showing was
VI
The magistrate judge committed errors of law and made insufficient findings, which tainted his conclusion that Compulife‘s copyright was not infringed. He also erred in his analysis of trade-secret misappropriation, both by failing to consider the application of several species of misappropriation and by committing legal error. Accordingly, we vacate the judgment as to copyright infringement and trade-secret misappropriation and remand for new findings of fact and conclusions of law. We find no reversible error in the magistrate judge‘s rejection of Compulife‘s other claims and affirm the remainder of the judgment.
AFFIRMED in part, VACATED in part, and REMANDED for new findings of fact and conclusions of law on the claims of copyright infringement and trade-secret misappropriation.
Notes
That is not to say that the defendant must always introduce evidence in order to enable the district court to filter. The defendant may sometimes be able to demonstrate by argument alone that an element of a copyrighted work is unprotected. For example, no evidence would be necessary to convince a court that alphabetization is an entirely unoriginal method of arranging data and thus unprotectable as a structural element of a work. See Feist, 499 U.S. at 363. But where evidence is required to determine whether some element is protectable, it is the defendant who must advance it or risk abandoning the issue.
One other thing: A plaintiff may concede that some element of code is unprotectable, in which case a district court will not err in filtering that element. When, for instance, the plaintiff provides a list of features it believes to be protectable, he implicitly concedes that elements not included on the list are unprotectable. See MiTek, 89 F.3d at 1555 (“After submitting a specification of the elements that it deemed to be protectable, [a plaintiff] cannot now argue that the district court failed to abstract further the elements of its own designation of protectable features.“).
It is enough to remand for new findings and conclusions rather than an entirely new trial. See, e.g., Ionmar Compania Naviera, S. A. v. Olin Corp., 666 F.2d 897, 905 (Former 5th Cir. 1982) (Tjoflat, J.); Golf City, Inc. v. Wilson Sporting Goods, Co., 555 F.2d 426, 438 & n.20 (5th Cir. 1977). Like the rest of this case, though, the procedural history here is complicated. The magistrate judge retired just days after issuing his decision and wasn‘t available even to consider Compulife‘s motion for a new trial. In his absence, the district court encouraged Compulife to withdraw the motion and file this appeal, noting that it would take considerable time for a new magistrate to get sufficiently up to speed on the technical facts of this case to rule on its motion for a new trial, a suggestion that Compulife seems to have followed.