Copyright Case Briefs: Triad Systems Corp. v. Southeastern Express Company, 64 F.3d 1330 (9th Cir. 1995). U.S. Court of Appeals, Ninth Circuit.
Southeastern Express Company (“Southeastern”) appealed the district court's grant of a preliminary injunction in favor of Triad Systems Corporation (“Triad”). The injunction followed a finding that Southeastern was infringing on Triad's software copyrights and prohibited Southeastern from servicing Triad computer systems. The Court affirmed the grant of summary judgment but reversed the imposition of Rule 11 sanctions against two of Triad's attorneys. The holding in this case was later superseded by statute.
Triad manufactured computers for use by automobile parts stores and designed, sold, and licensed unique software to run its computers. Southeastern was an independent service organization (“ISO”) that serviced Triad computers. Southeastern competed with Triad for the business of servicing and maintaining Triad computers.
Triad's copyrighted software included:
(1) operating system software, which is necessary to run any other program on the computer (“OS software”);
(2) applications software, which performs the basic functions like accounting and invoicing for the Triad customer;
(3) utilities, diagnostic, and auxiliary software, which is used by technicians to repair Triad software and hardware (“service software”).
Since 1976, Triad had entered into three different contractual arrangements with its customers. From 1976 to 1985, Triad sold software outright to customers (“Regime 1”). In 1986, Triad began licensing its software (“Regime 2”). Under these agreements, customers were not permitted to duplicate the software or allow it to be used by third parties. In 1991, Triad began requiring licensees selling their computer systems to pay Triad a license transfer fee (“Regime 3”). Southeastern allegedly violated the copyrights by performing maintenance on customers in the Regime 2 and 3 periods.
To service a Triad computer, the Southeastern technician used the OS software and the service software in the Triad customer's possession. Triad argued that the violation occurs when Southeastern makes copies of Triad software in Southeastern computers' random access memory (RAM) when the computer is in use.
Triad filed suit against Southeastern in federal district court in April 1992. The district court ordered a bifurcated trial. Phase One discussing Triad's copyright infringement claims, damages, and Southeastern's fair use defense. Phase Two would include Southeastern's copyright misuse defense and any remaining counterclaims. In Phase One, the district court granted directed verdicts in favor of Traid on Southeastern's fair use defense to infringement. On February 3, the jury found that Southeastern had infringed Triad's software copyrights.
On March 15, 1995, the district court granted Triad's motion for a preliminary injunction.
Do any affirmative defenses apply to a defendant who stored copyrighted information on their computer's RAM in order to make repairs to said computer a violation of the copyright owner's rights?
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- Preliminary Injunction
Southeastern argued that:
(1) Triad could not show the possibility of irreparable injury,
(2) Triad could not show the likelihood of success on the merits because of Southeastern's meritorious affirmative defenses,
(3) the preliminary injunction was too broad and would harm Southeastern,
(4) the district court erred in bifurcating the trial.
- Irreparable Injury
Southeastern argued that Triad will suffer only monetary damages from lost revenues, which are not usually considered irreparable harm because of the availability of an adequate legal remedy. However, the Court notes that in a copyright infringement action, a showing of reasonable likelihood of success on the merits raises a presumption of irreparable harm. Triad needed only to show a reasonable likelihood of success on its copyright infringement claim to support the district court's grant of the preliminary injunction.
- Likelihood of Success on the Merits
The Court noted that to make its required showing of copyright infringement, Triad must prove (1) ownership of the copyrights and (2) copying of an expression protected by those copyrights. The Court held that Triad had shown both. Triad's ownership of valid copyrights was not in dispute and it was clear that Southeastern's activities were “copying” for the purpose of the Copyright Act.
- Fair Use
Southeastern argued that the preliminary injunction was improper because the district court failed to adequately consider Triad's affirmative defenses of fair use and copyright misuse. The Court upheld that district court's ruling that the doctrine of fair use did not apply to this case.
- Copyright Misuse
The Court also found that Southeastern could not show that it was likely to prevail on its asserted copyright misuse defense. It found that the district court properly distinguished Lasercomb America, Inc. v. Reynolds, 911 F.2d 970, 978–79 (4th Cir.1990), because Triad did not attempt to prohibit Southeastern or any other ISO from developing its own service software to compete with Triad.
- Overbreadth and Harm to Southeastern
The Court also rejected Southeastern's claim that the injunction was overly broad because it effectively prevented Southeastern from engaging in legitimate service activities even for Regime 1 customers. The Court noted that the injunction does no such thing. Rather, it required Southeastern to identify which customers own their software under Regime 1, and which are mere licensees under Regimes 2 and 3.
The Court further held that this injunction would not cause Southeastern to suffer extensive harm. Southeastern should not be allowed to complain of harm that would befall if it was properly forced to desist from its infringing activities.
The Court also rejected Southeastern's argument that the district court erred by bifurcating the trial. The Court said that Triad's copyright infringement claim and Southeastern's antitrust claims were discrete issues, involving separate, complex bodies of law. The district court justifiably did not want the jury to muddle the two.
- Rule 11 Sanctions
In October 1992, Triad supported its motion for a preliminary injunction on the declaration of David Mullen, Triad's field service coordinator (“the Mullen declaration”). Ten months later, when Southeastern deposed Mullen, Mullen had difficulty answering questions and at times contradicted his declaration statements. Southeastern moved to sanction the law firm. The district court sanctioned the individual attorneys rather than the whole firm.
The sanctioned attorneys maintained that under the then-current version of Rule 11, only a person whose signature was on the declaration could be subject to sanctions. Southeastern insisted that sanctions were appropriate because Lederman and Madison were actively involved in the preparation of the misleading declaration. The Court noted that until Rule 11 was amended in 1993, subsequent to the Mullen declaration, a bright-line rule applied: Only the individual attorney who actually signed the court paper could be sanctioned because of its contents. Because the sanctioned attorneys did not sign the declaration, they cannot be sanctioned based on its misleading nature.
The Court in this case followed Mai Systems Corp. v. Peak Computer Inc. to determine that a repair company was in violation of copyright when it temporarily downloaded copyrighted materials onto its computer's ram to perform the repair. This holding was later amended by legislation.
This blog was written by Ms. Claudia Lin, U.S.C. law student
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