R.C. OLMSTEAD, INC., Plaintiff-Appellant, v. CU INTERFACE, LLC; THOMAS BURKHART; SOFTWARE PROPERTIES, LLC, Defendants-Appellees.
No. 09-3428
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Decided and Filed: May 19, 2010
606 F.3d 262
Before: GIBBONS, ROGERS, and KETHLEDGE, Circuit Judges.
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 File Name: 10a0148p.06. Appeal from the United States District Court for the Northern District of Ohio at Akron. No. 08-00234—Sara E. Lioi, District Judge. Argued: April 28, 2010.
ARGUED: David A. Campbell, III, VORYS, SATER, SEYMOUR AND PEASE LLP, Cleveland, Ohio, for Appellant. Andrew Mills Holford, ANELLI HOLFORD, LTD., Dublin, Ohio, for Appellees. ON BRIEF: David A. Campbell, III, VORYS, SATER, SEYMOUR AND PEASE LLP, Cleveland, Ohio, Daniel J. Clark, VORYS, SATER, SEYMOUR AND PEASE LLP, Columbus, Ohio, for Appellant. Andrew Mills Holford, ANELLI HOLFORD, LTD., Dublin, Ohio, for Appellees.
ROGERS, J., delivered the opinion of the court, in which GIBBONS, J., joined. KETHLEDGE, J. (p. 21), delivered a separate concurring opinion.
OPINION
ROGERS, Circuit Judge. R.C. Olmstead appeals the district court‘s grant of summary judgment to defendants in this copyright and trade secret infringement case brought by one provider of credit union software against the developer of a competing credit
I.
R.C. Olmstead, Inc., (“Olmstead“) develops and sells data processing software, hardware, and related services to credit unions. One of the credit unions to which Olmstead sold its software was Canton School Employees Federal Credit Union (“the CSE Credit Union“). In 1999, Olmstead and the CSE Credit Union entered into a data processing agreement whereby Olmstead licensed the use of its hardware and RCO-1 credit union processing software to the CSE Credit Union for a term of five years. Under the terms of the agreement, Olmstead provided several pieces of hardware, including the server upon which the RCO-1 software was to run. The server contained the executable version of the Olmstead code, which used emulators to run the software through “dumb terminals,” which could be emulated by personal computers connected to the server. The agreement did not expressly limit access to the software or the emulators on which it would run, but the agreement did state that Olmstead would maintain ownership of all software and hardware. On the subject of support, the agreement stated: “Personal computers may be integrated with the R.C. Olmstead system through the use of terminal emulation software. It is the Credit Union‘s responsibility to acquire a local Personal Computer support firm to perform maintenance, and support of all personal computers.”
As permitted by the agreement, the CSE Credit Union hired CU Interface, LLC, and its independent contractor, Thomas Burkhardt (collectively “CUI“), a developer, marketer
As part of the development process, CUI programmer Jason Akin interviewed several CSE Credit Union employees regarding their needs in developing credit union software. Neither CUI nor the CSE Credit Union placed limits on what Akin could discuss during these interviews, and Akin asked at least one teller, Tracie Rodriguez, about her experiences with the Olmstead software. During this time, Akin was provided with a teller-level username and password to the Olmstead software at the CSE Credit Union facility. This allowed him to access the RCO-1 interface, but not its source code. Akin testified at his deposition that he accessed the Olmstead software several times per week over the course of the development project.
One of CUI‘s other main programmers, Jay Lash, was a former CSE Credit Union teller with some educational background in computer programming. Lash began to do small projects for CUI in early 2004, while he was still employed by the CSE Credit Union, and he joined CUI officially in 2005. Lash testified that, while employed at CUI as an independent contractor (and later as an employee of CUI), he wrote most of the interface for the CUI software—the visual representation of the program on the computer screen that the customers and tellers would see. Lash was familiar with the Olmstead interface from his time as a teller, but he also testified that he had worked with a few different systems. Lash testified that all of the software systems with which he had worked had the same basic functions, but that Olmstead‘s software was an account-based system, whereas CUI‘s software was a person-based system. While he was employed at CUI, Lash retained his CSE
As CUI developed portions of its software, the CSE Credit Union ran those programs alongside the Olmstead software. One CSE Credit Union employee, Tracie Rodriguez, testified as follows about the final transition from Olmstead to CUI software:
A. What I remember is that one day we were using R.C. Olmstead and the next day we were not.
Q. Okay, so by taking that answer, am I correct that you don‘t remember any formal training as to hey, here it is, it‘s just a seamless transition?
A. That I can recall, yes.
Q. Okay. Do you recall it being a seamless transition?
A. There was work involved. I mean, there was [sic] problems at first.
Rodriguez also testified that she received training on the CUI interface software, but that she could not recall when she received that training. Lash testified that there was “a lot” of support for employees when the conversion from Olmstead to CUI software took place, and that there was “quite a bit” of training on the new system, although Lash could not recall exactly how much. Lash testified that overall, there were “a couple weeks” dedicated to explaining the new software to CSE Credit Union employees.
Olmstead and the CSE Credit Union extended their original license agreement, but Olmstead exercised its option to terminate the agreement when it discovered that the CSE Credit Union was developing its own software. Olmstead informed the CSE Credit Union that it would be collecting the hardware and software leased to the CSE Credit Union under the terms of the agreement. When the CSE Credit Union learned that the representative sent by Olmstead to collect the hardware was accompanied by a third-party computer forensic analyst, the CSE Credit Union refused to allow Olmstead to remove the software because of concerns over the customer financial information stored on the server. Olmstead wanted to have the server examined by a computer forensic expert because it believed those experts could determine whether and when CUI employees had access to the literal elements of the Olmstead software, the Olmstead source code. The CSE Credit Union‘s CEO, Stanley Barnes, eventually destroyed the servers by drilling holes through them.
Olmstead brought suit against CUI, the CSE Credit Union, and Burkhardt, alleging misappropriation of trade secrets, tortious interference with contractual and business relationships, copyright infringement, violations of the Digital Millennium Copyright Act (DMCA), unjust enrichment, breach of contract, and spoliation. During discovery, the parties agreed to a protective order, under which discovery material was classified as “highly confidential,” which only experts and attorneys could view; and “confidential,” which the parties could view in addition to experts, counsel and their staff. Defendant CUI stated that no Olmstead employee would be able to view the CUI end use product—its software interface—and Olmstead filed a motion to compel discovery, stating that it needed access to CUI‘s interface to show that the two software products were substantially similar. The district court determined that CUI‘s end use product should be classified as highly confidential material under the protective order and could only be viewed by experts and counsel.
Olmstead retained Robert Reid as its only expert witness, and CUI provided Reid with access to its software in controlled conditions. Reid filed a two-page expert report and attached nearly two-hundred pages of exhibits showing various screenshots of the Olmstead and CUI interfaces. CUI moved to bar the use of Reid‘s report for failure to comply with
The district court granted CUI‘s motion to bar the use of Reid‘s testimony after determining that the report failed to comply with
Following the exclusion of Reid‘s report, CUI filed a motion for modification of the case management order. CUI stated that it did not intend to use any expert testimony for summary judgment practice, and therefore requested that the court not require the defendants to identify experts and provide reports until 45 days after ruling on the parties’ motions for summary judgment. Olmstead protested, arguing that CUI should be required to comply with the case management order. Olmstead stated that it had already assembled a workstation for Craig Minch, one of CUI‘s experts, to view and compare the software programs, and that dismantling and rebuilding the workstation after summary judgment would create a burdensome expense. The court and the parties agreed to modify the case management order as requested by CUI, but the parties also agreed that CUI would provide an expert report from Minch by the original deadline. Shortly after CUI provided Olmstead with Minch‘s report, Olmstead attempted to subpoena Minch for deposition, but CUI objected and argued that Olmstead could not depose Minch until after the court had ruled on the pending summary judgment motions. The court requested briefing on the matter, and CUI submitted a brief stating that it had re-classified Minch as a non-testifying expert and that Minch was therefore not subject to deposition.
The district court held that because Minch was a non-testifying expert, Olmstead was not entitled to depose him. The court examined the case law on whether a party could shield an expert from deposition by re-classifying that expert as a non-testifying expert and determined that the majority rule that such a move did shield an expert from deposition was consistent with the purposes of the
The parties filed cross motions for summary judgment, but before the district court ruled on those motions, the CSE Credit Union and Olmstead reached a settlement agreement and the CSE Credit Union was dismissed as a party to the case. The district court then granted summary judgment for CUI on all of Olmstead‘s remaining claims. The court determined that Olmstead was not entitled to any adverse evidentiary inference against CUI for the CSE Credit Union‘s alleged spoliation of evidence because Olmstead had not alleged any fault on the part of CUI. The court also determined that there was no evidence in the record to indicate that CUI had accessed Olmstead‘s source code, and that although CUI had access to Olmstead‘s end use product based on the teller-level access to the CSE Credit Union‘s programs, the RCO-1 interface was not a trade secret protected under Ohio law and CUI had not engaged in any misappropriation as defined by Ohio law. Finally, the district court determined that Olmstead had not produced any direct evidence of copying to sustain a copyright infringement claim, and its indirect evidence was insufficient to create a question of fact as to whether copying occurred.1 Olmstead filed this timely appeal.
II.
A. Discovery Issues
1. The Protective Order
The district court did not abuse its discretion in denying Olmstead employees access to the CUI end use product (the CUI software interface) because the district court‘s decision to grant Olmstead‘s experts access to the software properly balanced the need for Olmstead to have access to relevant and necessary information with CUI‘s interest in preventing a potential competitor from having access to its software.
In response to discovery requests for access to the CUI software, CUI asserted that its end use product—the “Circa 2005 CUPD” software—contained trade secrets and that the disclosure of that software to a competitor could cause CUI considerable harm. Olmstead contended that its employees were in the best position to evaluate the software
To show the district court abused it discretion in allowing only Olmstead‘s counsel and expert access to the CUI software, Olmstead points to this court‘s unpublished opinion in Bell Data Network Communications, Inc. v. Symbol Technologies, Inc., 114 F.3d 1186 (6th Cir. 1997) (table), but that case is inapposite. In Bell, this court held that a district court abused its discretion by not allowing the plaintiffs adequate time for discovery when the district court disregarded its own continuance allowing the plaintiffs to depose witnesses whose affidavits the defendants used in their motion for summary judgment. Id. at *2. We also noted that the district
2. Robert Reid‘s Expert Report
The district court did not abuse its discretion in barring the use of Robert Reid‘s expert report because the report failed to comply with the requirements of
(i) a complete statement of all opinions the witness will express and the basis and reasons for them;
(ii) the data or other information considered by the witness in forming them;
(iii) any exhibits that will be used to summarize or support them;
(iv) the witness‘s qualifications, including a list of all publications authored in the previous 10 years;
(v) a list of all other cases in which, during the previous four years, the witness testified as an expert at trial or by deposition; and (vi) a statement of the compensation to be paid for the study and testimony in the case.
The district court clearly outlined the deficiencies in Reid‘s report. Most troubling of the violations that the district court described is Reid‘s failure, in violation of
In arguing that Reid‘s report satisfied
Olmstead argues, for the first time on appeal, that “[r]egardless of whether Reid‘s report strictly complied with Rule 26, the exclusion of his testimony was unwarranted.” The thrust of Olmstead‘s argument is that because CUI was not required to identify its own expert until several months after the production of Reid‘s initial report and because
3. The Deposition of Craig Minch
Olmstead was not entitled to take the deposition of Craig Minch because CUI redesignated Minch as a non-testifying expert.
The district court correctly determined that Olmstead was not entitled to depose Minch before the court ruled on the pending motions for summary judgment, even though CUI originally designated Minch as a testifying expert. As the district court stated, “the overwhelming majority of courts hold that a party may re-designate an expert as non-testifying, and that this insulates the expert from deposition by other parties absent a showing of ‘exceptional circumstances.‘” See, e.g., In re Shell Oil Refinery, 132 F.R.D. 437, 440 (E.D. La. 1990). This position is consistent with the
Olmstead argues that CUI‘s re-designation of Minch was an unfair attempt to prevent CUI from deposing Minch and a violation of
Past judicial restrictions of discovery on an adversary‘s expert, particularly as to his opinions, reflect the fear that one side will benefit unduly from the other‘s better preparation. The procedure established in subsection (b)(4)(A) holds the risk to a minimum. Discovery is limited to trial witnesses, and may be obtained only at a time when the parties know who their expert witnesses will be. A party must as a practical matter prepare his own case in advance of [the time when the parties designate their expert witnesses], for he can hardly hope to build his case out of his opponent‘s experts.
B. Spoliation
The district court did not abuse its discretion in declining to sanction CUI for the CSE Credit Union‘s destruction of Olmstead‘s hard drives, which prevented Olmstead‘s forensic experts from determining whether CUI programmers had accessed the Olmstead software source code, because the district court‘s decision balanced the lack of any
That the CSE Credit Union‘s destruction of the hard drives may have constituted spoliation of evidence does not require a different result. “[A] federal court‘s inherent powers include broad discretion to craft proper sanctions for spoliated evidence.” Adkins v. Wolever, 554 F.3d 650, 651 (6th Cir. 2009) (en banc). This power “arises not from substantive law, but, rather, ‘from a court‘s inherent power to control the judicial process.‘” Id. at 652 (quoting Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001)). As this court and its “sister circuits have recognized, a proper spoliation sanction should serve both fairness and punitive functions.” Id. The district court based its decision not to sanction CUI for the CSE Credit Union‘s destruction of evidence on CUI‘s lack of fault, thereby addressing the punitive aspect of the sanctions inquiry. Olmstead argues that the court erred in failing to consider the fairness aspect, stating that “CUI should not be permitted to benefit from the act of spoliation committed by its joint venturer, CSE.” But this fairness aspect cuts both ways, as the potential for unfairness exists if CUI were sanctioned for conduct in which it was not involved. Several jurisdictions have addressed these fairness concerns raised by third-party spoliation by recognizing an independent tort of spoliation. See Phoebe L. McGlynn, Note, Spoliation in the Product Liability Context, 27 U. Mem. L. Rev. 663, 691-92 (1997). As the district court discussed, Ohio recognizes intentional spoliation of evidence as an independent cause of action that may be brought against either the primary defendant to an action or the third party to the action. See Smith v. Howard Johnson Co., 615 N.E.2d 1037, 1038 (Ohio 1993). Olmstead brought an independent claim of intentional spoliation against the CSE Credit Union under Ohio law, and Olmstead eventually settled all claims with the CSE Credit Union. Thus, Olmstead was not left without a remedy for any harm caused by the CSE Credit Union‘s spoliation, and the district court did not abuse its discretion in declining to impose a sanction on CUI.
On the merits, CUI was entitled to summary judgment with respect to Olmstead‘s copyright infringement claims because Olmstead has not produced any direct evidence of copying and Olmstead‘s indirect evidence of copying was not sufficient to create a fact question as to whether copying occurred. To prevail in an action for copyright infringement, “a plaintiff must establish that he or she owns the copyright creation, and that the defendant copied it.” Kohus v. Mariol, 328 F.3d 848, 853 (6th Cir. 2003). A plaintiff can show copying in two ways, either through direct evidence of copying, or by indirect evidence. Id. at 853-54. When there is no direct evidence of copying, “a plaintiff may establish ‘an inference of copying by showing (1) access to the allegedly-infringed work by the defendant(s) and (2) a substantial similarity between the two works at issue.‘” Id. (quoting Ellis v. Diffie, 177 F.3d 503, 506 (6th Cir. 1999)). Because Olmstead has no direct evidence of copying and was not able to create a triable question of fact through indirect evidence, CUI was entitled to summary judgment on Olmstead‘s copyright infringement claim.
The district court correctly determined that Olmstead presented no direct evidence of copyright infringement. All of the facts Olmstead listed as direct evidence of copying require a factfinder to infer that copying occurred based on circumstantial evidence. According to Olmstead, “CUI‘s programmers accessed the Olmstead software multiple times per week while engaged in their development work“; CUI‘s programmers met with CSE Credit Union employees who had worked as tellers and had experience with the Olmstead system; a former CSE Credit Union employee who was familiar with the Olmstead software was responsible for designing the CUI interface; and one CSE Credit Union teller stated that although she eventually received training on the CUI system, she did not receive any training on the day that the CSE Credit Union transferred from the Olmstead software to the CUI system. Even construed in the light most favorable to Olmstead for summary judgment, all of this evidence still requires a factfinder to infer that copying occurred; therefore the district court correctly determined that Olmstead did not produce any direct evidence of copying.
The only indirect evidence offered by Olmstead in support of substantial similarity is Tracie Rodriguez‘s testimony regarding the transition between the CUI and Olmstead software, but this testimony fails to create a triable question of fact. As the district court discussed, Rodriguez stated about the transition that “[t]here was work involved, I mean, there was problems at first.” Moreover, Lash testified that CUI employees were provided with “a lot” of support during the transition, and that there
Notably, in its brief before this court, Olmstead blames its inability to provide any real analysis of substantial similarity on the district court‘s evidentiary rulings. However, as discussed earlier, the district court did not abuse its discretion in governing discovery in this case. Moreover, the evidence that Olmstead did obtain, even if considered by the district court, would not be sufficient to create a question of fact as to whether CUI copied original elements of Olmstead‘s software. Neither Reid‘s report, nor Reid‘s additional declaration provided by Olmstead in an attempt to cure the deficiencies in the report, even begins to provide the kind of abstraction-filtration-comparison analysis we applied in Kohus, id. at 855 n.1, and that the district court found lacking. As mentioned above, under Kohus, the factfinder determines substantial similarity first by asking what aspects of the copyrighted work, if any, are protected, and then by asking whether the second work involves elements that are substantially similar to the protected elements of the copyrighted work. Id. at 855. All of the evidence offered by Olmstead clearly lacks the abstraction and filtration elements. Olmstead has not attempted to identify those elements of its software that are original; thus its substantial similarity analysis does not filter elements that would be expected to be common to any credit union software, those dictated by the particular business practices. Although the additional Declaration of Robert Reid improves upon Reid‘s initial expert report in that it specifically identifies certain elements of CUI‘s software that are similar to Olmstead‘s software, Reid does not opine on whether those elements are original elements.2 Thus, even Reid‘s additional report fails to create a question of fact as to whether CUI copied original elements of Olmstead‘s software.
D. Trade Secrets
The district court correctly held that Olmstead‘s end user product—the RCO-1 interface—was not a trade secret because Olmstead did not take reasonable steps to maintain its secrecy. CUI was therefore entitled to summary judgment with respect to Olmstead‘s trade secrets claim because Olmstead‘s end use product was not a trade secret and Olmstead did not produce any evidence indicating that CUI accessed the Olmstead source code.
The summary judgment evidence showed that the RCO-1 interface was not a trade secret. In Ohio, “trade secret” means:
information . . . that satisfies both of the following:
(1) It derives independent economic value, actual or potential, 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.
(2) It is the subject of efforts that are reasonable to maintain its secrecy.
The court stated that Olmstead‘s own president had testified that the Olmstead interface is not a trade secret, that Olmstead‘s contract with the CSE Credit Union did not contain any confidentiality provisions preventing third parties from viewing the interface, and that the agreement expressly contemplated that the CSE Credit Union would use a third-party personal computer support firm to assist with support and to provide the terminal emulation software. These factors, combined with Olmstead‘s inability to identify any affirmative steps it took to maintain the secrecy of its user interface, amply support the district court‘s determination that the Olmstead user interface was not a trade secret, so that summary judgment was proper on Olmstead‘s trade secrets claim.
In claiming that the RCO-1 interface is a trade secret, Olmstead relies almost entirely on its factually incorrect claim that the district court determined that CUI‘s interface was a trade secret, based on the district court‘s discovery ruling limiting Olmstead‘s access to the CUI software. As Olmstead sees it, fairness, the law-of-the-case doctrine, and the doctrine of estoppel all mandate that the trade secret status of the Olmstead interface is at least a question of fact, but this argument fails for two reasons. First, a finding that CUI‘s interface is a trade secret does not necessitate a finding that the RCO-1 interface is a trade secret. The RCO-1 interface is not a trade secret, due at least in part to Olmstead‘s lack of efforts to maintain its secrecy; that factor has no
The district court correctly determined that CUI was entitled to summary judgment on Olmstead‘s trade secrets claim.
III.
For these reasons, the order of the district court granting summary judgment to the defendants on all remaining claims is affirmed.
R.C. OLMSTEAD, INC. v. CU INTERFACE, LLC, et al.
No. 09-3428
KETHLEDGE, Circuit Judge, concurring. I join the court‘s opinion, and write briefly to emphasize that it was not only permissible, but salutary that the district court chose to enforce