CONTINENTAL CASUALTY COMPANY v. BEARDSLEY

PALMIERI, District Judge.

Continental Casualty Company (Continental), an Illinois corporation, seeks a declaratory judgment1 that the defendants' copyright is invalid and not infringed, damages for unfair competition and for violation of the antitrust laws because of alleged misuse of the claimed copyright, and injunctive relief. The defendants seek damages on the ground of copyright infringement, unfair competition, and the inducement of breaches of implied contracts and confidential disclosures, and injunctive relief. The case was tried without a jury.

Essentially, the litigation stems from the defendant H. T. E. Beardsley's (Beardsley)2 claim that he is the originator of a plan called the "Beardsley Plan" and that the elements of this plan were validly copyrighted when he published a book entitled: "The Replacement of Lost Securities by the Beardsley Plan," on September 30, 1939, with notice of copyright.3 This book, better described as a pamphlet, consists of six pages, less than three of them explanatory matter, and the rest taken up by three insurance forms designed to provide blanket indemnity protection.

The problem of replacing lost stock certificates was one which vexed corporations having large numbers of stockholders. Because the stockholder as well as the corporation often had to do tedious and protracted paper work, in the event of stock certificate losses, the use of the blanket indemnity bond offered a convenient solution. Beardsley's plan was, in essence, an adaptation of the blanket indemnity bond device to the exigencies of the situations requiring the replacement of corporate securities which became lost or were stolen. Whether or not defendant was the sole originator of his plan is disputed. It is, however, clear that he popularized blanket protection in this field and in the related fields of losses of stock sent through the mail and of transfer of stock in waiver of probate proceedings.

The narrative part of the publication referred to was largely an exposition of the reasons of convenience and economy which should impel the use of the attached indemnity insurance forms both by corporations and their stockholders. On the first page of the narrative explanation and over the name of H. T. E. Beardsley appears the following:

It was conceded that the publication was distributed gratis, that many large corporations adopted the use of the forms, or substantially similar forms, and that Beardsley derived a considerable income from the commissions paid to him by the surety companies designated by these corporations as indemnitors.

Continental, which has its principal place of business in Chicago, does an extensive surety business. As part of that business, it has provided for the issuance of "Blanket Loss Original Instrument Bonds" which serve substantially the same purpose as the ones promoted by Beardsley in his business as broker. It has also underwritten coverage for losses of stock sent through the mails, and for transfers of stock in waiver of probate proceedings.

The business interests of the plaintiff and Beardsley have been in conflict for a number of years, and at least since 1948. In that year, in a letter to Continental, Beardsley charged Continental with infringement of his forms, and suggested that he could add plaintiff "to my list" and that he would "cooperate with them in getting for them a share of the business."4 Presumably, this was to be in exchange for his being recompensed by Continental as broker on all such coverage handled by Continental.5 Beardsley also stated, in the same letter, that he claimed no copyright "on a Bond" and that he had not sued and had no intention of suing anyone for infringement; but he also stated he had assurances from his attorneys that he had a good copyright on "my forms."

There can be no question that the defendants' business has been built up upon the representations that the "Beardsley Plan" was Beardsley's own, validly copyrighted, and consequently, the proper subject for its exclusive exploitation by him. Except for the narrative portion of the publication, plaintiff urges that Beardsley had nothing to copyright and that his assertions of exclusive rights of exploitation to the "Beardsley Plan" and to the documents implementing the plan have no legal basis. At the very threshold of the case, therefore, I must consider whether the defendants have a valid copyright.

I—Copyrightability

The general purposes of copyright protection are to afford authors the right to reap the fruits of their expression and to promote the store of information and objects of culture available for public enjoyment and application.6 Usually these two purposes are not inconsistent. Where, however, an author's monopoly threatens to infringe unduly on public use of the ideas or objects of that expression,7 the courts have demonstrated flexibility in adjusting the conflicting theories.8 Thus copyrightability may be altogether denied,9 or, if copyright is upheld, restrictively protected by requiring almost verbatim copying to constitute infringement.10 In other situations, the subject and purpose of copyright may be explicitly defined so as not to authorize an over-generalized monopoly which would restrict fair use of the disclosed information or objects.11

The overreaching of a legitimate monopoly of expression has often arisen in connection with legal forms.12 The classic situation is the creation, by dint of labor and inventiveness, and publication of a novel arrangement which greatly simplifies the problems incident to a particular legal task. Copyright protection is, of course, afforded the author as against copying disseminators of this information.13 The monopoly the author really covets, however,—the right to exact royalties from all who use the forms—is generally denied to him.14 Thus, in Baker v. Selden,15 the Supreme Court denied protection as against one who appeared to have copied an arrangement of columns for handling accounts. And in Dorsey v. Old Surety Life Ins. Co.,16 protection was denied as against a user of insurance forms probably very similar to those of the copyright owner, the decision being based on alternative holdings of non-infringement and lack of copyrightability.

There is sound policy to support this position. Where infringement is accomplished by one who seeks to disseminate information, the situation is not different from those where expressions of novelists, poets, and artists are given liberal protection. However, where the putative infringement is accomplished by one who uses the legal form for the function for which it was designed, different considerations become important.17

Skill in drafting legal instruments necessitates familiarity with the applicable forms and with the apposite jurisprudence. It follows that time tested terminology lends itself to repetitive use, given similar needs for its employment. The essence of good drafting is to free the client as much as possible from the danger of litigation, and the chances of controversy are generally attenuated when words with a history of settled meaning or of accepted usage are found and utilized. While this practice in other fields might be termed plagiarism, among lawyers its propriety is unquestioned.

One might urge that the propriety should be recognized if the putative infringer demonstrates that he has labored independently of the purportedly copyrighted document, as, for example, testing the original language and modifying, rejecting or retaining it as the independent researches suggest. However, the argument would run, if there appears to be merely a copying from the original—an unmistakable profiting solely from the labors of another—the copyright should be given effect. Although this position appears at first blush to be a just one, its adoption would create a mischievous precedent. A legal draftsman should not feel encumbered by copyright dangers vindicable only by court proofs of independent efforts, for such vindication in litigation is the exact evil his labors seek to avert. His skill should not lie in threading through jargon in a maze of forms, each one copyrightable because of a unique manner of expression even though all are on the same subject matter. Furthermore, the originator of a legal writing should have little to fear from one whose talents compel him to copy verbatim. The skill of a lawyer is commensurate with his ability to adapt present exigencies to foreseeable legal consequences. Such skill cannot be copied and the originator has nothing to fear from the slavish imitator.

In the instant case, Beardsley has copyrighted and published, I will assume for this argument, a booklet of explanation with forms entitled the "Beardsley Plan." There is no question that the booklet is copyrightable, and Continental so admits. There is also no question that Beardsley's arrangement of contents in his proposed bond, however novel that arrangement may be, is not copyrightable, for the novelty of the arrangement is the key concept in the plan, and ideas and plans fall outside the copyright laws.18 While Beardsley's statements and actions before and during trial suggest a claim of copyright that would include the arrangement, his brief is clear that he makes no claim to a copyright on the plan.19 Thus, the issue is drawn as to whether or not Beardsley's bond is protectible against infringement of its language, assuming arguendo that there was copying.

Continental, as a surety company, writes many forms of insurance in the normal course of its business, sometimes at the request of a purchaser, other times on its own initiative. Beardsley contends that Continental wrote its bonds in the latter fashion, and that its making the bonds available and selling them to customers constitute an infringement. But, in whatever fashion the bonds were written and sold, and the matter is disputed, it is clear that Continental, if it was using the information and language which Beardsley devised, was using it in the regular course of its business of selling and providing insurance. For the reasons expressed above, I hold that Beardsley is not entitled to copyright protection as against Continental's infringement, even assuming such infringement to exist.

II—Infringement

Beardsley's scheme, in general, provided for a surety binding itself to indemnify the corporation or transfer agent for liability which might result from improper replacement of lost securities. When a stockholder would petition for the replacement of his lost shares, he would be sent a form of affidavit, which called for a request for replacement, a statement of his financial responsibility, and his promise to indemnify the surety, corporation and transfer agent. The surety, upon receiving this affidavit, would execute and deliver a certificate by which it assumed liability on the bond previously filed with the corporation or transfer agent, and the latter would then replace the stock.

Defendant's claims of copyright revolve around four points which he claims were original in his writings. His plan does not require the surety company to fix its liability by a specific sum on the bond filed by the surety with the corporation or transfer agent subscribing to the plan; instead the company can leave its penalty open limited only by a maximum sum established by statute for any specific claim. Another feature obviates the necessity of having a specific shareholder as principal of this bond; the surety assumes liability directly, fortified by the shareholder's promise of indemnification. A third feature makes the bond prospective in its coverage; the losses of stock to which it applies have not yet occurred when the bond is executed. The fourth feature is a clause in the bond which makes the surety's liability contingent upon its filing with the corporation or transfer agent a certificate by which it assumes its obligation. Except for unimportant variations, the other papers which defendant claims to have been infringed all bear similar notions and are similarly expressed.

Defendant has sought to prove his claim of infringement by proving that the draftsman for the plaintiff had access to the Beardsley papers, which the plaintiff acknowledged, and that Continental's forms are strikingly similar to Beardsley's and to forms which allegedly infringed them.20

The defendant urges this by allusion to two solecisms in the Continental papers: (1) a common grammatical error in verb tense identically made in a Continental form and in that of an alleged infringer; and (2) an inconsistency in that the term "principal" was not changed in all instances to "owners and obligors," the terms describing those who were liable on the blanket bonds. Defendant suggests that the latter point demonstrates a "scissors-and-paste" job on the part of the Continental draftsman, an argument from which I presumably am to infer that the draftsman copied from the Beardsley paper those parts in which the persons who are liable are correctly described.

I believe that defendant's proof of infringement is insufficient, despite the apparent similarity of expression found in the forms of the two parties. This is especially so with respect to defendant's claim of indirect infringement, that is, copying from the forms of an infringer, for there is no proof that the purported first infringer did in fact infringe. Defendant seeks to support his argument that the putative first infringer alluded to above in the discussion of plaintiff's solecisms, settled a prior lawsuit brought by Mr. Beardsley. But, of course, a settlement cannot be proof of an acquiescence in the merits of Beardsley's claims.20a

The striking similarity of language is totally explicable by the nature of the insurance art. Both Mr. Beardsley's format and his expressions were and are common in the business. For instance, practically all of his bond was anticipated by a blanket lost instrument bond to cover real estate transactions written in 1936 by the London and Lancashire Indemnity Company of America.21 It was also anticipated for the most part by a bond written in 1937 by the Fidelity and Casualty Company22 and by forms appearing in Christy, The Transfer of Stock, at page 90223. Both of the latter sources were employed by the plaintiff's draftsman. He also referred to a waiver of probate bond of the National Surety Corporation,24 allegedly written by Mr. Beardsley but not containing any notice of copyright and a blanket lost securities bond written in 1945 by the Great American Indemnity Co.25

The affidavit of loss similarly contains much identical language, which again is totally explicable by the nature of the art. Thus, defendant can claim no novelty of expression (novelty of idea is irrelevant) with respect to the information of financial worth sought to be elicited. Furthermore, there are differences in phraseology which can be seen by comparing the following paragraphs in the two forms.26

Defendant's form:

Plaintiff's form:

In comparing these paragraphs, one must remember that words of insurance art, and not literary expressions, are involved. Therefore, what might be called a paraphrase and plagiarism in another matter, is significantly different for the purposes of the matter at hand.27 All the words and expressions are commonplace within the insurance field. Any different interpretation would serve to confer a monopoly of an idea.

Defendant's proof was intended to suggest the inference of copying from arguments directed at demonstrating striking similarity between its forms and those of the plaintiff. Where there were differences in wording between them, defendant then sought to explain plaintiff's language by tracing it to another source. This tour de force cannot be successful, and can only serve to hoist defendant by his own petard, since if his forms were to be subjected to the same treatment, they too would appear to infringe.28 And this for a simple reason—any novelty of arrangement Mr. Beardsley devised, and it is unnecessary for me to rule on this disputed point— was produced by applying familiar, boiler plate language of the insurance art. Since the arrangement is the key idea of the Beardsley plan, and an idea cannot be copyrighted, and since Beardsley did not use a unique form of expression, defendant's claim of infringement must fail even assuming insurance forms such as these are copyrightable.

III—Publication

A finding of copyrightability, if one were made, does not by itself entitle an author to copyright protection. Authors enjoy such protection before their writings are published, and, if the provisions of the copyright statute are followed, after publication.29 If, however, copies are distributed without the statutory requirements being satisfied, and if the distribution is not limited to a restricted group and for a particular purpose, the author loses his protection and cannot prevent copying of material so distributed.30

In the instant case, Beardsley devised his plan for the replacement of lost securities over a period of a year and a half ending in late 1938 or early 1939, and demonstrated both his inchoate and completed work to lawyers and businessmen in the surety and corporation fields, besides taking advice and accepting revisions throughout that time from them. In January of 1939, Beardsley had 100 copies of his pamphlet printed and distributed these copies to potential customers —corporate officers, transfer agents and surety companies. Also in that month, Columbia Gas & Electric Corporation (and apparently also Loft and General Electric companies) began to use Beardsley's system. It mimeographed copies of his form of bond and filed one executed by the Indemnity Insurance Company of North America as surety. It also printed forms of affidavit which it sent out, allegedly with instructions to return them whether or not used, to nine or ten stockholders who had lost their securities. Until this time, none of Beardsley's papers contained any notice of copyright.

In September of 1939, Beardsley had printed 500 more copies of his pamphlet. The copies bore on them a notice in the form "© 1939 H.T.E.Beardsley," and were distributed beginning October 2, 1939 to potential customers and to three persons who had no apparent economic interest in the plan. On June 23, 1945, copyright of the pamphlet was registered in the Copyright Office, the date of publication being given as September 30, 1939.

After October 1939, not only the booklet but all the forms of affidavit contained this notice. The only exceptions were the affidavits sent out to shareholders between 1941 or 1942 and 1949, by the Niagara Mohawk Power Company, a user of Beardsley's plan, and the notice was finally put on them when Beardsley brought the matter to the attention of the Corporation. In general, none of Beardsley's bonds was marked with the notice, and at one point after publication and notice of copyright, he stated that he claimed no copyright on a bond.31 In December, 1948, Beardsley, on the advice of counsel, had the form of notice on his papers changed so that "copyright" replaced "©."

Beardsley contends that the distribution of the first edition of his pamphlet was a limited one and hence was not a forfeiture of his common-law copyright. Thus, he argues, his later publication with notice of copyright was sufficient to place him within the coverage of the federal statute, which coverage was made complete upon subsequent registration in 1945. The form of bond, he says, was never publicly distributed, and hence needed no notice of copyright for common-law copyright was never forfeited. The "©," his argument continues, although not sanctioned by the copyright laws, was a harmless error of form which could not have misled putative infringers. So also was the careless omission of the copyright notice from the papers of the Niagara Mohawk Power Company.

I take up first the question of forfeiture, and since I decide it adversely to Beardsley's position, it will not be necessary to pursue the other points. It is true that the first edition was distributed to a limited group, but interest in his plan would naturally be confined to this group. This is evidenced by the fact that the subsequent printings with notice of copyright were similarly disseminated, except for the three copies distributed, as a matter of form, to the disinterested people. Beardsley contends that this pamphlet was circulated upon the condition that it could not be shown to others and had to be returned if not adopted. However, this statement was not proved and I cannot conclude that the actual conditions of distribution were those described. Beardsley testified that he had no thought of copyright at the time,32 and his entire selling technique encouraged those in the banking, corporation and surety community to discuss and exhibit his forms among themselves.32a Moreover, it is clear that anyone interested in the plan could have readily obtained one of Beardsley's pamphlets. Thus, I conclude that as a matter of fact the distribution of the first edition was unrestricted.33

Since the vitality of federal copyright protection is in question, it might be expected that federal law would be applied to determine whether that protection was vitiated by an earlier forfeiture.34 However, that forfeiture, if there were such, was of a common-law copyright, that is, of an author's literary property. Since this common-law right preceded the Constitutional grant35 and was preserved, not established, by the copyright statutes,36 it would follow that state law should determine its scope. The issue is far from clear and there are decisions37 and compelling arguments38 both ways. Since the matter was not briefed or argued, I think it wiser to leave the question to the side, since I can decide the matter before me by referring to both federal and New York law.39

Federal law, while clear in its statement that the common-law protection is lost by a distribution not limited to a restricted group and for a particular purpose, is not entirely clear in its application. The difficulty arises from comparing generally similar factual situations which are deemed to constitute general publications where satisfaction of federal copyright requirements is an issue, but limited publications when forfeiture of common-law copyright is involved.40 Recently, the Second Circuit has formalized this tendency toward a double standard by stating it, albeit by way of dictum, as a rule of law.41

It is doubtful that this feature of copyright law was intended to apply to situations similar to that of defendant. The concept of limited publication, it would seem, serves the purpose of permitting authors to submit copies of their writings to associates and acquaintances for criticism without losing their literary property.42 It also allows authors to give copies to a few of their friends,43 to submit copies to a very restricted number of potential customers,44 and to present copies of technical writings along with lectures.45 In all these instances, it is generally presumed that those who receive copies in such circumstances are under an obligation to restrict their use to the terms of reference.46 Accordingly, common-law copyright is not forfeited and the author remains eligible for federal copyright protection. The courts are generally unwilling, however, to deem as limited anything but a very restricted distribution,47 probably on the ground that the author might be content with his common-law copyright, which is not limited by time, instead of dedicating his information to the public in exchange for federal copyright protection, which is limited in duration.48

The instant case presented just such an unlimited distribution. While no doubt Beardsley could argue that he sought criticism on his first 100 copies of his explanation and forms, and that many subscribers to his plan made changes in the wording, the fact remains that his plan had been formulated by this time and that three companies had adopted it. Moreover, the copies were available to all who might be interested, and Beardsley, far from being averse to his distributees' showing his forms to other interested parties, seemed anxious for wide consideration of his papers since thereby he was building up an impressive surety brokerage business. Thus I have no difficulty in finding that under federal law Beardsley forfeited his right to copyright.49

New York law gives the defendant even less solace. There is no talk of double standards, and, in fact, it has been stated that common-law protection is lost by the same circumstances which would be tantamount to a publication general for the purpose of federal protection.50 Accordingly, I find that defendant forfeited his common-law copyright and thus cannot claim federal protection.

IV—Unfair Competition

Defendant, in addition to claiming copyright infringement, has also counterclaimed on the theory of unfair competition. His proof indicates no interference with contractual or confidential relations, nor does it show that plaintiff was passing off its product as defendant's. Indeed, it essentially does not differ from that which he introduced to prove copyright infringement. Nevertheless, Beardsley urges this claim, relying on the International News Service v. Associated Press doctrine of misappropriation.51 This doctrine holds it unlawful for a business, without proper efforts of its own, to capitalize on the expenses and endeavors of another. The rule has arisen from situations where there has been interference with intangible rights connected with news reporting and radio broadcasting.

The matter is, of course, one of state law which is entertained in this court because of diversity of citizenship of Beardsley and Continental, or because it is joined with a substantial and related claim under the copyright laws.52 However, the source of law authoritative for a federal court has been questioned, especially where the claim of unfair competition is related to a federal trademark matter.53 The issue is a complex one, and even if state law is authoritative, it is by no means clear that the federal courts will always be bound by the rigidities of the Erie doctrine.54 Unfortunately, these issues were not briefed or argued by the attorneys,* and since the substantive issue is settled in the same fashion in all three of the possibly applicable jurisdictions, Illinois, New York and Federal, I believe that their decision might await a more propitious instant.

In Illinois, an unfair competitor is one who causes the consuming public to confuse his product with the products of another.55 While Illinois has modified its earlier requirement that only the "palming off" of one's goods as those of his competitor can constitute this tort,56 the requirement of confusion remains a categorical imperative.57 Under this view defendant cannot prevail, for plaintiff has taken great pains to avoid any possible suggestion that its plan had anything to do with Mr. Beardsley's plan.

The law of New York is somewhat more liberal than that of Illinois. "Palming off" and "confusion" are not the sole criteria for finding unfair competition, as the tort has also been found from other circumstances. Thus, the doctrine of International News Service v. Associated Press,58 has been applied to unauthorized recordings and re-broadcasts taken from radio broadcasts,59 to appropriation of comic strip characters identified by the public with their creator,60 and to a motion picture which was intended to capitalize on a public interest in the events taking place in a particular sporting arena.61 In a very recent case, where a complaint was held to state a valid cause of action, the doctrine was extended to cover the unauthorized dissemination, by one given access under an understanding of confidence, of original fashion creations.62

In all of these cases the holding is partly based on the theory that one cannot appropriate the property of another. However, it is clear that unfair competition will not be found on merely this circumstance. The preceding cases contained features of deception—the appropriator seeking to capitalize as well on the reputation of the aggrieved original sponsor of the product or service.63 Moreover, the decisions also are based partly on interferences with contractual relations affecting exclusive rights to intangibles.64 Thus, in Metropolitan Opera Ass'n, Inc., v. Wagner-Nichols Recorder Corp.,65 one who recorded and sold the radio broadcasts of "live" Metropolitan opera performances was enjoined from continuing this activity. The court based its conclusion on appropriation of another's effort, on the public being deceived as to the quality of the recorded performances, and on the resulting interference with the Metropolitan Opera Association's contracts with radio broadcasting and recording companies. The same elements were present in Dior v. Milton.66 When only appropriation of another's efforts is involved, and the other elements are not present, the New York courts refuse to find unfair competition.67

The instant case clearly cannot be subsumed under the New York desiderata for unfair competition. Not only is the proof deficient of Continental's appropriating Mr. Beardsley's forms, but there is not a shred of evidence indicative of a belief that Continental was being helped by Mr. Beardsley's business reputation. Moreover, Mr. Beardsley had no exclusive interest in his idea or in his product with which Continental might have interfered.

In the federal courts, the doctrine of International News Service v. Associated Press68 seems to have been even further restricted. Except for a very similar fact situation,69 the case has never been extended. Thus, Judge L. Hand70 described the International News Service case as holding "no more than that a western newspaper might not take advantage of the fact that it was published some hours later than papers in the east, to copy the news which the plaintiff had collected at its own expense. In spite of some general language it must be confined to that situation (Cheney Bros. v. Doris Silk Corp., 2 Cir., 35 F.2d 279, 281); certainly it cannot be used as a cover to prevent competitors from ever appropriating the results of the industry, skill, and expense of others. * * In the case at bar if [plaintiffs] cannot bring themselves within the law of common-law copyright, there is nothing to justify a priori any continuance of their control over the activities of the public to which they have seen fit to dedicate the larger part of their contribution." Accordingly, Beardsley cannot prevail on a theory of unfair competition.

Beardsley has also counterclaimed on a theory of breach of confidences and of implied contracts. There is insufficient proof to substantiate these claims.

Continental, in addition to its action for a declaratory judgment that the Beardsley plan was not copyrightable nor infringed, also has sued for damages on the theory of unfair competition and violations of the anti-trust laws. Both of these last two causes of action have not been proved and they must be dismissed.

Defendant for many years has used assertions that his system was copyrighted as a business expedient. He has also stated that he would not desist from such assertions unless his copyright were to be invalidated by a court of last resort.71 Unless Beardsley is restrained from making these assertions, Continental's business will continue to suffer substantial damage. Not only is it likely that business will be lost to it, but Continental would be compelled to engage in a multiplicity of suits in order to vindicate its position. Moreover, the difficulty of proving the proximate cause for not gaining or for losing a particular source of business makes a suit for damages an inadequate remedy. For these reasons, and since there is no merit in the defendant's position, defendant should be restrained from claiming a copyright on his plan or on any of his forms and from distributing any of his forms which purport to be copyrighted.

Plaintiff is directed to submit a form of judgment on notice.