Defendant Must Prove that Copied Portion of Copyrighted Work is Unprotectable

In Compulife Software Inc. v. Newman, 2020 WL 2549505 (11th Cir. May 20, 2020), the Eleventh Circuit clarified that a plaintiff, having established that the defendant copied part of a copyrighted work, need not prove that the copied portion was legally protectable; the defendant must prove that it was not.  The court also reviewed the elements of a trade-secret claim under Florida law.

The parties to the dispute provide insurance premium quotes electronically.  The plaintiff, Compulife, maintains premium information in its “Transformative Database,” which can’t be replicated without a formula known only within Compulife.  One of Compulife’s products permits a licensee to put on the licensee’s own website a “quoter,” the HTML source code which is protected by a registered copyright.  The “quoter” communicates directly with Compulife’s server, including the Transformative Database.  Compulife also makes quotes available, for free, in response to queries to its site www.term4sale.com.  These free quotes come directly from Compulife’s copy of its Transformative Database.

The defendants operate www.naaip.org, another site that generates life-insurance quotes.  Insurance agents can sign up for individual sites hosted on the NAAIP site, with each individual site including a copy of the defendants’ Life Insurance Quote Engine—which the evidence showed was copied, at least in part, from Compulife’s Transformative Database.

Compulife filed two actions against the defendants.  In one case, Compulife claimed that one of the defendants obtained Compulife’s copyrighted HTML code by representing that he was working with Compulife licensees.  Code comparison showed that the defendants copied at least some of the Compulife code, and that for years the defendants had access to the Transformative Database and used that to generate quotes for their own site.

In the second case, Compulife claimed that defendants used a hacker to “scrape” data from Compulife’s server.  The hacker used a “bot,” programmed with variables from Compulife’s copyrighted HTML code, to send a series of single queries to Compulife’s www.term4sale.com site at superhuman speed.  Through that process, the bot ultimately copied some or all of the Transformative Database for at least two zip codes, one in New York and one in Florida.  Both of Compulife’s complaints included claims for copyright infringement and trade-secret misappropriation, and Compulife also asserted claims for false advertising and for violation of Florida’s anti-hacking Computer Abuse and Data Recovery Act.

The parties consented to a bench trial before a magistrate judge.  The magistrate judge determined that Compulife’s copyright in the HTML code was valid, and that the Transformative Database was a trade secret.  But he nevertheless determined that Compulife had failed to prove any of its claims.  Compulife appealed.  The Eleventh Circuit, in an opinion written by Judge Newsom and joined by Judge Jordan and by Judge Hall visiting from the Southern District of Georgia, vacated as to the claims for copyright infringement and trade-secret misappropriation.

Reviewing the copyright claim, the court observed that “copying” as required for copyright infringement comprises both “factual” and “legal” copying.  The defendants’ copying having been established as a matter of fact during the bench trial, the question was whether the copied elements were “protected expression and of such importance to the copied work that the appropriation is actionable.”  “In most cases, a ‘substantial similarity between the allegedly offending program and the protectable, original elements of the copyrighted works’ establishes actionable copying.’” (quoting Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1542 (11th Cir. 1996)).  The analysis is both qualitative and quantitative, and is undertaken only after legally unprotectable parts of the work are set aside in a process called “filtration.”

The court found several errors in the magistrate judge’s application of that analysis to Compulife’s claims.  First, the magistrate judge put the burden on Compulife to prove that the copied elements of its code were protectable.  This was error:  “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.

Second, the magistrate judge erred by analyzing “substantiality” by reference to the infringing work, rather than by reference to the copyrighted work.  “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.”  Finally, the magistrate judge failed to state on the record sufficient findings and conclusions to permit meaningful appellate review.

Turning to the trade-secret claim, the court observed that the magistrate judge’s finding that the Transformative Database constituted a trade secret was not clearly erroneous (and was not really contested).  The question was whether it had been misappropriated.  In concluding that it had not, the magistrate judge failed to consider the multiple ways in which misappropriation under Florida law can occur—by acquisition, disclosure, or use.  Some forms of misappropriation under Florida law do not require a pre-existing “duty,” but the magistrate judge had erroneously treated the existence of a duty as an essential element of the claim.  He also erred in concluding that the public availability of quotes on the www.term4sale.com website automatically precluded a finding that “scraping” the site constituted misappropriation.  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.”  Relatedly, the fact that a human could obtain multiple quotes from Compulife’s website did not rule out the possibility that using a “bot” to obtain quotes at superhuman speed may constitute “improper means” sufficient to constitute misappropriation under Florida law.

Posted by Valerie Sanders.

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