EMILIO M. GARZA, Circuit Judge:
MGE UPS Systems, Inc. ("MGE") appeals the district court's Federal Rule of Civil Procedure 50(a) dismissal of its Digital Millennium Copyright Act ("DMCA") claim against Power Maintenance International, Inc. ("PMI"); General Electric
Uninterruptible power supply ("UPS") machines are used during periods of power outages to provide power to critical operating systems. MGE manufactures several lines of UPS machines, some of which require the use of MGE's copyrighted software programs Pacret and Muguet during servicing. This software fixes calibration problems more quickly than traditional manual servicing techniques. Without the software, a service technician can still partially service an MGE UPS machine, but a number of critical procedures (including recalibration and adjustment of voltage levels) can only be performed through use of the software, which works only on MGE-manufactured devices.
The software requires connection of an external hardware security key (called a "dongle") to the laptop serial port. Each dongle has an expiration date, a maximum number of uses, and a unique password. When the software is activated, it searches for a properly programmed dongle before it will fully launch. Once launched, the software will go through a second series of protocol exchanges with the data located on the UPS machine's microprocessors to confirm that MGE software is communicating with MGE hardware. If the protocol exchange is successful, MGE's software proceeds to collect system status information for the technician.
Years after MGE introduced its security technology, a number of software hackers published information on the internet disclosing general instructions on how to defeat the external security features of a hardware key. Once the software is cracked and the security key is defeated, the software can be accessed and used without limitation.
PMI is a critical power service company servicing a variety of brands of UPS machines, including MGE UPS machines. PMI initially subcontracted MGE to perform software service on MGE UPS machines, but sometime before June 2000, a group of PMI employees obtained at least one copy of MGE's software from an unknown source. GE acquired PMI in 2001.
In December 2004, MGE filed suit against GE/PMI for, inter alia, copyright infringement, misappropriation of trade secrets, unfair competition, conversion, and DMCA violations. GE/PMI does not dispute liability, inasmuch as it admits to recovering a laptop from a former PMI employee that contained hacked MGE software, and admits to five instances of this software's use from June 2000 through May 2002. MGE alleges that GE/PMI used the software a total of 428 times, including uses after the district court granted MGE a preliminary injunction against GE/PMI's use of MGE's software and trade secrets.
During the proceedings for this action, GE/PMI moved, renewed, and re-urged motions for summary judgment and judgment as a matter of law pursuant to Federal
The district court awarded MGE the total jury verdict, post-judgment interest, a permanent injunction against GE/PMI, impoundment of infringing materials, taxable costs, and attorney's fees. The district court declined to award prejudgment interest on the damage awards.
MGE argues that the district court erred in granting GE/PMI's Rule 50(a) motion dismissing MGE's DMCA violation claim. We review de novo a trial court's decision on a Rule 50(a) motion for judgment as a matter of law, viewing all of the evidence "in the light and with all reasonable inferences most favorable to the party opposed to the motion." Resolution Trust Corp. v. Cramer, 6 F.3d 1102, 1109 (5th Cir.1993) (internal quotations omitted). A Rule 50(a) motion is properly granted "[i]f the facts and inferences point so strongly and overwhelmingly in favor of the moving party ... that reasonable jurors could not have arrived at a contrary verdict." Id. (citation omitted).
GE/PMI argues that MGE's dongle does not actually prevent copying of MGE's software, but merely prevents access to the software. Once that access is breached, there are no barriers to copying the software. Accordingly, GE/PMI argues that MGE's software is "freely accessible" within the meaning of the DMCA because the dongle does not block the type of "access" the DMCA is designed to prevent. Furthermore, though the MGE software in GE/PMI's possession "was modified" to eliminate the need for a dongle, MGE has not presented evidence that a PMI employee initially modified the software.
One of Congress' purposes behind enacting the DMCA was targeting the circumvention of technological protections. See Davidson & Assocs. v. Jung, 422 F.3d 630, 639-40 (8th Cir.2005). The DMCA's anti-circumvention provision states, "No person shall circumvent a technological measure that effectively controls access to a work protected under this title." 17 U.S.C. § 1201(a)(1)(A). To "circumvent a technological measure" means to "descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological
The DMCA does not describe the type of "access"-controlling technological measure required to invoke the DMCA's protections, and this is an issue of first impression in this Circuit. MGE proposes a definition from a Fifth Circuit non-DMCA case that discussed copyright issues and determined "access" to include "an opportunity to view the copyrighted work." Ferguson v. Nat'l Broad. Co., 584 F.2d 111, 113 (5th Cir.1978) (citing 3 M. NIMMER, COPYRIGHT § 13.02(A) (1978)). Reading this definition alongside definitions from Merriam-Webster's dictionary and Black's Law Dictionary, MGE concludes that "access" means "viewing, making use of, or using the protected work." MGE argues that dongles prevented access to its software and that without using both this hardware key and its corresponding password, a user cannot view, gain access to, or make use of the software.
However, MGE advocates too broad a definition of "access;" their interpretation would permit liability under § 1201(a) for accessing a work simply to view it or to use it within the purview of "fair use" permitted under the Copyright Act. Merely bypassing a technological protection that restricts a user from viewing or using a work is insufficient to trigger the DMCA's anti-circumvention provision. The DMCA prohibits only forms of access that would violate or impinge on the protections that the Copyright Act otherwise affords copyright owners. See Chamberlain Group, Inc. v. Skylink Techs., Inc., 381 F.3d 1178, 1202 (Fed.Cir.2004). The Federal Circuit, in analyzing the DMCA's anti-circumvention provision, concluded that it "convey[s] no additional property rights in and of themselves; [it] simply provide[s] property owners with new ways to secure their property." Id. at 1193-94. Indeed, "virtually every clause of § 1201 that mentions `access' links `access' to `protection.'" Id. at 1197. Without showing a link between "access" and "protection" of the copyrighted work, the DMCA's anti-circumvention provision does not apply. The owner's technological measure must protect the copyrighted material against an infringement of a right that the Copyright Act protects, not from mere use or viewing. Id. at 1204; see also Lexmark Int'l, Inc. v. Static Control Components, Inc., 387 F.3d 522, 547 (6th Cir.2004) (finding no DMCA anti-circumvention liability where an authentication sequence in a printer microchip blocked one form of access (printer function) but permitted free access from other avenues (for example, anyone who purchased that brand of printer could download a copy of the program)).
Here, MGE has not shown that bypassing its dongle infringes a right protected by the Copyright Act. MGE's dongle merely prevents initial access to the software. If no dongle is detected, the software program will not complete the start-up process. However, even if a dongle is present, it does not prevent the literal code or text of MGE's copyrighted computer software from being freely read and copied once that access is obtained; there is no encryption or other form of protection on the software itself to prevent copyright violations. Because the dongle does not protect against copyright violations, the mere fact that the dongle itself is circumvented does not give rise to a circumvention violation within the meaning of the DMCA.
Because the DMCA does not apply to mere use of a copyrighted work, and because MGE has not shown that GE/PMI circumvented MGE's software protections in violation of the DMCA, the district court did not err in granting GE/PMI's Rule 50(a) motion dismissing MGE's DMCA claim.
GE/PMI argues the district court erred in denying its Rule 50(a) motion with regard to MGE's claim under the Copyright Act because the testimony of MGE's damages expert had been stricken, and MGE improperly relied on PMI's total gross revenue figure rather than the portion reasonably related to the copyright infringement. For the same reason, GE/PMI argues MGE failed to prove all the elements of its state law misappropriation of trade secrets and unfair competition claims: without introducing evidence of PMI's profits related to the infringement, MGE has failed to prove damages for these claims.
GE/PMI argues that the district court erred in denying its Rule 50(a) motion because MGE failed to present sufficient evidence of damages. Under 17 U.S.C. §§ 504(a)(1) and (b), a copyright owner is permitted to recover his own "actual damages," including lost profits and "reasonable royalty rates," or what a willing buyer would have been reasonably required to pay a willing seller as a licensing fee for the actual use of the copyrighted material by the infringers. Davis v. Gap, Inc., 246 F.3d 152, 167 (2d Cir.2001). A copyright owner may also seek "any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages." 17 U.S.C. § 504(b). If the copyright owner chooses to claim infringer's profits, "the copyright owner is required to present proof only of the infringer's gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work." Id.; see also Estate of Vane v. Fair, Inc., 849 F.2d 186, 188 (5th Cir.1988) (applying this standard to copyright infringement action seeking infringer's profits). GE/PMI argues that MGE failed to satisfy the first step of proving infringer's profits because MGE's only evidence of gross revenues was Exhibit DX-37, a one-page bar graph showing PMI's "total revenue" from all lines of business from 2001 through 2004. GE/PMI contends that this chart includes undifferentiated gross revenue from servicing a variety of brands of equipment, not merely MGE equipment, and therefore does not reflect revenues "attributable to the infringement."
"[O]nce liability has been shown, § 504(b) creates an initial presumption that the infringer's `profits ... attributable to the infringement' are equal to its gross
MGE sought over $100 million in damages based almost exclusively on the testimony of its only damages expert, Dr. Laurance Prescott. Dr. Prescott's testimony related to two damage models: (1) MGE's lost profits; and (2) recovering a reasonable royalty. Notably, Dr. Prescott did not testify to GE/PMI's profits attributable to the infringement. The district court carried GE/PMI's Federal Rule of Evidence 702 and Daubert
Once Dr. Prescott's testimony was stricken, MGE offered a final witness, MGE general manager Michael O'Brien, who presented testimony relating only to MGE's reasonable royalty damages. O'Brien was never designated as an expert on damage calculations. The district court ultimately found his testimony insufficient to permit MGE to offer a jury instruction on reasonable royalty damages.
MGE's only remaining evidence of damages was DX-37, the bar graph indicating
GE/PMI argues that it would not have included DX-37 in its proposed exhibits had it known that Dr. Prescott's testimony would be stricken
"[W]hen one of the prima facie elements of a claim is damages and the claimant fails to introduce evidence of those damages, he or she commits a fatal error." Prunty v. Ark. Freightways, Inc., 16 F.3d 649, 652 (5th Cir.1994). MGE's decision to seek GE/PMI's profits was clearly a last-minute attempt to save its copyright infringement claim from dismissal for failure to prove damages. MGE has not succeeded. GE/PMI presented evidence that approximately 10% of PMI's UPS service business came from MGE-branded machines, and MGE's software was usable only with MGE UPS machines and not with competitors' products. Thus, PMI's total revenue far exceeds the approximately 10% of revenue reasonably related to the infringement of MGE's copyright. MGE needed to present a more narrowly tailored calculation of PMI's profits in order to cognize a claim for copyright damages "attributable to the infringement." Accordingly, the district court erred in denying GE/PMI's Rule 50(a) motion on MGE's copyright infringement claims because MGE has not shown damages under § 504(b).
GE/PMI argues the district court erred in denying its Rule 50(a) motion regarding
There is little precedent under Texas law to guide us in determining whether MGE has sustained the burden of proof required of a plaintiff seeking to recover a defendant's net profits. In the only reported Texas case involving the recovery of defendant's profits for a misappropriation of trade secrets claim, the Dallas Court of Appeals held that although defendant's profits are a "proper element[ ] of damages in a case involving the wrongful use of a trade secret," a plaintiff cannot recover damages without offering evidence "to show the actual profit made by [defendant]." Elcor Chem. Corp. v. Agri-Sul, Inc., 494 S.W.2d 204, 214 (Tex.Civ.App.— Dallas 1973, writ ref'd n.r.e.); see also Carbo Ceramics, Inc. v. Keefe, 166 Fed. Appx. 714, 723 (5th Cir.2006) (unpublished) (interpreting Texas law to permit a plaintiff to "seek damages measured by the defendant's actual profits resulting from the use or disclosure of the trade secret"); Houston Mercantile Exch. Corp. v. Dailey Petroleum Corp., 930 S.W.2d 242, 248 (Tex.App.—Houston [14th Dist.] 1996, no writ) (finding that, as a threshold requirement to recovering damages for trade secret and unfair competition claims, "a plaintiff must produce evidence from which the jury may reasonably infer that the damages sued for have resulted from the conduct of the defendant").
In the instant matter, MGE faces the same problems showing "actual profits resulting from the use or disclosure of the trade secret" as it did on its copyright claim. DX-37 demonstrated PMI's total revenue, not "actual profits." MGE has not presented evidence that provides any means of distinguishing revenue PMI gained from other sources from revenue gained through misappropriation of MGE's trade secrets, let alone a calculation of profits from the relevant portion of revenue. MGE attempts to distinguish Elcor by arguing that DX-37 is "credible evidence of PMI's profits," but MGE needed to take additional steps to deduct unrelated revenue and costs from these total figures in order to demonstrate PMI's profits related to the infringement. MGE failed to do so.
However, MGE argues that comment f to the RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 45 (1995) governs damages under Texas law, and contends that it met its burden under this burden-shifting framework:
MGE points to PMI's total revenue in DX-37 and argues that, under the Restatement, this exhibit satisfies its burden of proof with regard to PMI's "sales" of providing service to UPS machines. MGE contends that GE/PMI subsequently had the burden of demonstrating which portions of PMI's revenue were not attributable
Texas courts have not adopted the RESTATEMENT (THIRD) OF UNFAIR COMPETITION in its entirety and whether § 45's comment f is controlling in Texas courts is still an open question. See, e.g., In re Bass, 113 S.W.3d 735, 739-40 (Tex.2003) (following the original RESTATEMENT OF TORTS' definition of and factors used to identify trade secrets, despite this section's slight alteration thereof in the RESTATEMENT (THIRD) OF UNFAIR COMPETITION
Accordingly, the district court erred in declining to grant GE/PMI's Rule 50(a) motion on MGE's misappropriation of trade secrets and unfair competition claims.
GE/PMI contends the district court erred in denying its Rule 50(b) motion at the close of the case because there was legally insufficient evidence to support the jury's $4.6 million damage award; in denying its request to apply the One-Satisfaction Rule to MGE's recovery under Texas law; and in concluding that damages from acts occurring before December 17, 2001 were not barred by the three-year statute of limitations under both the Copyright Act and Texas law. Additionally, MGE contends the district court abused its discretion by denying MGE's request for prejudgment interest on damages. Because the district court erred in dismissing GE/PMI's Rule 50(a) motion at the close of MGE's case because MGE has failed to prove its damages claims, these arguments are moot.
GE/PMI appeals the district court's grant of a permanent injunction against GE/PMI's use of MGE's software and trade secrets. We review the denial or grant of a permanent injunction for an abuse of discretion. Schlotzsky's, Ltd. v. Sterling Purchasing & Nat'l Distrib. Co., 520 F.3d 393, 402 (5th Cir.2008).
Section 502 of the Copyright Act authorizes the court to grant "`final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.'" Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 790 (5th Cir.1999) (quoting 17 U.S.C. § 502(a)). GE/PMI contends that in 2005 it turned over the only infringing article, a laptop that had not been used since 2002, and that the only data disk found was in a former employee's possession who admitted to keeping it for his own reference after he left the company. However, GE/PMI admitted to five instances of direct copyright infringement, and MGE presented
Given that there may be infringing materials still in GE/PMI's possession, and given GE/PMI's failure to conform to the constraints of the preliminary injunction, the district court did not abuse its discretion in granting a permanent injunction against GE/PMI's future use of MGE's software and trade secrets.
For the foregoing reasons, we AFFIRM the district court's grant of GE/PMI's Rule 50(a) motion dismissing MGE's DMCA claim. We also AFFIRM the district court's grant of a permanent injunction against GE/PMI's use of MGE's software and trade secrets. We REVERSE the district court's denial of GE/PMI's Rule 50(a) motion on MGE's copyright infringement, unfair competition, and misappropriation of trade secrets claims for MGE's failure to prove damages under 17 U.S.C. § 504(b) and Texas law, and RENDER a take-nothing judgment for MGE.