POSITIVE SOFTWARE SOLUTIONS, INC., Plaintiff,

v.

NEW CENTURY MORTGAGE CORPORATION, et al., Defendants.

No. CIV.A.3:03-CV-0257-N.
259 F. Supp. 2d 531 (N.D. Tex. 2003)

April 28, 2003

*532 W. Ralph Canada, Jr., Shore Deary, Dallas, TX, for plaintiff.
Barry C. Barnett , Ophelia F. Camina , Susman Godfrey, Dallas, TX, for defendants.

MEMORANDUM OPINION AND ORDER

GODBEY, District Judge

Before the Court are Plaintiff Positive Software Solutions, Inc.'s ("Positive Software") *533 motion for preliminary injunction and impoundment under the Copyright Act and Defendants' motions to compel arbitration. Defendant New Century Mortgage Corporation ("New Century") has recently advised the Court of certain conduct from which it is willing to abstain in the future (although it did not agree to entry of an injunction); the Court grants Positive Software injunctive relief to that extent. The Court also compels arbitration of the balance of Positive Software's claims.

I. BACKGROUND

New Century is in the mortgage business. It generates business through telephone contacts with prospective borrowers. Positive Software developed a software product called "LoanForce," which provides automated support for that process, in conjunction with other third-party supplied software. New Century licensed LoanForce from Positive Software (the "Software Subscription Agreement" or "SSA").

The information collected by the users of LoanForce and generated by the operation of Loan Force is collected and saved in an aggregation of data called a database. [FN1] LoanForce interacts with the database through third party software. LoanForce communicates with the database software through statements written in Structured Query Language ("SQL"). In order for the LoanForce software to interact correctly with the database, a description of the arrangement of the database, i.e., the composition of the various tables and fields and the types of data contained in each field, is included in SQL statements within the LoanForce source code (the "SQL Data Structures"). [FN2]

FN1. A database is not simply a shoe box into which all the information is thrown. It is, rather, a very structured hierarchy of information. For example, a relational database of related information may comprise multiple tables, each of which is divided into multiple rows, each of which is divided into multiple columns or fields, where all the rows in a given table each contain the same collection of fields or columns. For example, a database for mortgage-related telephone contacts might include: a customer table, where each customer is listed on a row with fields for customer ID number, name, etc.; a telephone call table, where each row describes a specific phone call with a customer, with appropriate fields to capture pertinent information regarding that call; a loan table, where each row describes a specific loan to a customer; and so on. If a column for customer ID number is included in every table, then the tables can all relate to each other through that common field. This is obviously not a technical or complete description of a database, but is sufficient for the matters at hand.

FN2. In particular, they are SQL Create Table statements.

In late 2002 and early 2003, Positive Software became aware of a new software package that New Century was using called LoanTrack, together with what are apparently databases called LFMoon and LTKMoon (collectively, "LoanTrack-1"). Although Positive Software was not aware of the fact at the time, it presently appears that LoanTrack-1 was an interim product that New Century intended to use as it made a transition away from LoanForce to new products called LoanTrack-2 and MLAS, which were developed partly inhouse and partly by a contractor called eConduit. [FN3] New Century currently anticipates LoanTrack-2 and MLAS will be usable by May, 2003. It appears that LoanTrack-1 will not provide all of New Century's business needs without LoanForce and/or its associated database components. It appears that LoanTrack-2 and MLAS will provide all of New Century's business needs without *534 utilizing the LoanForce application software.

FN3. New Century subsequently acquired eConduit.

The Software Subscription Agreement required annual renewal and payment of license fees. During 2002, New Century told Positive Software that New Century might want to expand its LoanForce license to include all of New Century's branch offices. During that same time, New Century was preparing its transition away from LoanForce with the development of LoanTrack-1 and LoanTrack-2. At the end of 2002, when renewal license fees were due, New Century asked Positive Software to defer full payment of the renewal fee and to consider alternative billing arrangements. Although Positive Software did not know it at the time, New Century did this in order to continue its use of LoanForce until New Century's replacement product was ready, without having to incur the full annual license fee for LoanForce.

Positive Software, unbeknownst to New Century, was investigating New Century's LoanTrack-1 project and had concluded that LoanTrack-1 was making improper use of Positive Software's intellectual property rights in LoanForce. Positive Software thus began to prepare for litigation with New Century. On January 1, 2003, New Century went into default under the Software Subscription Agreement. On January 6, 2003, Positive Software sent New Century demand for payment. New Century never made the payments required under the Software Subscription Agreement. On February 6, 2003, Positive Software declared the Software Subscription Agreement to be terminated. This lawsuit soon followed.

Positive Software seeks injunctive and monetary relief from New Century for breach of the Software Subscription Agreement, copyright infringement, misappropriation of trade secrets, violation of the Digital Millennium Copyright Act of 1998, conversion, fraud and civil conspiracy. Positive Software moved for preliminary injunction relating to LoanTrack-1. The Defendants moved to compel arbitration pursuant to the Software Subscription Agreement. The Court will address those matters in turn. [FN4]

FN4. New Century asks the Court in its motion to compel arbitration to exercise its discretion under Rule 65 and defer the question of injunctive relief to the arbitrator in the arbitration proceeding. The Court declines to defer ruling on Positive Software's motion for preliminary injunction and impoundment under the Copyright Act, because New Century agreed in the Software Subscription Agreement, discussed infra, that Positive Software could apply to a court for preliminary relief to stop the disclosure or misappropriation of confidential information. Positive Software requests relief to enforce the terms of the Software Subscription Agreement, enjoin further misappropriation of its confidential information, and preserve the status quo between the parties pending arbitration. The issuance of a preliminary injunction, thus, is proper. See RGI, Inc. v. Tucker & Assoc., Inc., 858 F.2d 227 (5th Cir.1988) (upholding preliminary injunction preserving status quo pending arbitration where such relief was contemplated by the parties.)

II. POSITIVE SOFTWARE IS ENTITLED TO A PRELIMINARY INJUNCTION AGAINST
INFRINGEMENT OF THE SQL DATA STRUCTURES IN LOANFORCE

[1] The requirements for issuance of a preliminary injunction are (1) substantial showing of likelihood of success on the merits; (2) substantial threat of irreparable injury; (3) balance of harm weighs in favor of injunction; and (4) injunction will not harm the public interest. E.g., Walgreen Co. v. Hood, 275 F.3d 475, 477 (5th Cir.2001) . The Court finds that Positive Software is entitled to injunctive relief on its copyright infringement claim. Because the Court would not consider any greater relief on any of Positive Software's other *535 theories, it is unnecessary to address those theories in this Order.

A. Likelihood of Success on the Merits

[2] The Court finds that Positive Software owns the rights to LoanForce and holds valid copyright registrations for LoanForce and its component parts. The Court must first consider whether the SQL Data Structures are copyrightable subject matter, then whether that copyright is infringed.

Under the copyright laws, a "computer program" is "a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result." 17 U.S.C. § 101 . The Court finds that the SQL Data Structures here are a set of statements to be used indirectly in a computer in order to bring about a certain result. Accordingly, the SQL Data Structures are proper subject matter for copyright protection. [FN5] This is consistent with the overall policy behind copyright law of protecting creative expression. [FN6] Although some discussions in the legal literature give short shrift to the importance of and creative expression in data structures, [FN7] the Court finds that the SQL Data Structures here have the requisite degree of creative expression to be copyrightable. This result is consistent with the Fifth Circuit's holding that user interface input/output formats are copyrightable. See Eng'g Dynamics, Inc. v. Structural Software, Inc., 26 F.3d 1335 (5th Cir.1994) . [FN8]

FN5. But cf. Baystate Techs., Inc. v. Bentley Sys., Inc., 946 F.Supp. 1079, 1086 (D.Mass.1996) (finding data structures in CAD program not independently copyrightable). One article has suggested that data structures should not be copyrightable when that monopoly would also give the holder a monopoly over an algorithm that required use of that data structure. See Marci A. Hamilton & Ted Sabety, Computer Science Concepts in Copyright Cases: The Path to a Coherent Law, 10 HARV. J.L. & TECH. 239, 259-64 (1997). The article uses "data structure" there as meaning a generic type of structure, rather than a particular implementation of a database. Thus, to permit a copyright of the linked list data structure would be impermissible because it would preclude use of an algorithm (such as Quicksort) that requires that type of data structure. Id. at 259-60. The article does not appear to suggest that a specific database structure used in a specific commercial application is not a proper subject for copyright. In any event, there is no indication in the record here that copyright of the SQL Data Structures would result in a monopoly in any algorithm.

FN6. The Court notes by way of example the extensive academic literature in database design and the flourishing development of XML, a data description "meta-language." See http://www.w3.org/xml. This level of creative expression goes well beyond "some minimal degree of creativity" or a "minimal creative spark." Feist Publications, Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 362, 363, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991) (compilation of telephone book white pages not copyrightable).

FN7. E.g., Baystate, 946 F.Supp. at 1090

FN8. Likewise, the Court finds that there are more than one or a few ways to organize the data structures required for programs such as LoanTrack and LoanForce, so the idea here does not merge with the expression. E.g., Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 837 (10th Cir.1993) .

[3] [4] The Court now considers whether there was actionable copying of the SQL Data Structures. Factual copying is usually shown by access and "probative similarity." Id. at 1340. Once factual copying is shown, the court must determine whether that was legally actionable by determining substantial similarity. Id. at 1341. The Court's analysis of this issue is substantially simplified by the fact that LoanTrack-1 contains substantial verbatim or near-verbatim copying of the SQL Data Structures. The Court finds that New Century had access to the SQL Data *536 Structures and that there is enough probative similarity to find that New Century factually copied the SQL Data Structures.

Substantial similarity is usually determined in the computer software context by the abstraction-filtration-comparison methodology. Id. at 1343. Due to the verbatim or near-verbatim copying at issue here, the Court need not undertake the abstraction step of the analysis. In connection with filtering out unprotectable elements from protectable expression, New Century argues that the SQL Data Structures are generic. This is the computer software version of the scenes a faire doctrine. See Mitchell Zimmerman, Baystate: Technical Interfaces Not Copyrightable--On to the First Circuit, THE COMPUTER LAWYER, April 1997, at 9, 16-17. Certain elements of the SQL Data Structures might be dictated by external market factors. See Plains Cotton Coop. Ass'n v. Goodpasture Computer Serv., Inc., 807 F.2d 1256, 1262 (5th Cir.) , cert denied, 484 U.S. 821, 108 S.Ct. 80, 98 L.Ed.2d 42 (1987) ; Eng'g Dynamics, 26 F.3d at 1346-47. However, there is no evidence in this record that the detailed structure of the SQL Data Structures--the organization of data into tables, the selection of column elements for the tables, the names, data types, and sizes of the column elements--is dictated by external market factors, and the Court finds that structure is not dictated by external factors. Accordingly, the Court need not "filter out" any of the SQL Data Structures as unprotectable expression dictated by market factors. [FN9]

FN9. A similar argument is sometimes made under this rubric. Some argue that the customer desire for functional compatibility with a copyrighted work is a "market factor" that makes those elements required for compatibility unprotected. See Baystate, 946 F.Supp. at 1088-89. This confuses the functional requirements of the application (e.g., to perform word processing) with the commercial desirability of compatibility (e.g., greater market for word processor if it will import Microsoft Word.doc file formats). Although New Century does not make a compatibility argument here, that kind of compatibility issue appears to be factually what motivated New Century--in order to transition away from the LoanForce product, it was more convenient for New Century to copy the SQL Data Structures for a while. This commercial compatibility argument is more in the nature of a fair use argument, rather than an argument that certain aspects of the copyrighted work were dictated by market factors and thus were unprotectable. See Zimmerman, supra, at 17 ( Baystate analysis "confuses protectability with fair use"). Commercial compatibility does not fare well as a fair use argument, however, because it typically involves depriving the copyright holder of a license fee for the commercial benefit of the infringer. See 17 U.S.C. § 107 (factors determining fair use include whether use is commercial and the effect of the use on the market for or value of the copyrighted work); Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 451, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) ("every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright"); Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985) (same).

The Court confesses some puzzlement with the apparent attractiveness of this commercial compatibility argument in the computer software copyright arena. It is not an argument that would even be attempted in traditional areas of copyright. ("In order to sell colored pieces of cardboard, market factors required that I duplicate the appearance of Pokemon/Yu-Gi-Oh/Magic Cards in order to be compatible.") The persistence of the argument in the computer software copyright context perhaps reflects unease with the fit between computer software and copyright, and a perception that market needs justify a bit of judicial fiddling with the scope of copyright. What the market needs is perhaps better left to the realm of private contract, legislative change, or, in the appropriate case, antitrust law.

Finally, the Court turns to comparison. The Court's task here is made somewhat more difficult in that neither party provided *537 complete copies of both works. [FN10] The record before the Court shows near-verbatim copying of significant portions of the SQL Data Structures. Even given a sliding scale with relatively narrower protection for functional and nonfiction works, Eng'g Dynamics, 26 F.3d at 1348, the Court finds that the amount and near verbatim nature of the copying show substantial similarity between LoanTrack-1 and the SQL Data Structures. That copying is therefore legally actionable. Accordingly, the Court holds that Positive Software has shown a substantial likelihood of success on the merits of its claim that LoanTrack-1 (including the associated LFMoon and LTKMoon components) infringe Positive Software's copyrights in LoanForce.

FN10. Defendants refused to produce copies of their source code to Positive Software during discovery until directly ordered to do so following the preliminary injunction hearing.

B. Other Factors Support Injunctive Relief

[5] [6] [7] Although a finding of copyright infringement does not give rise to a presumption of irreparable harm, Plains Cotton, 807 F.2d at 1261, a finding of irreparable harm often naturally, if not inevitably, follows from a finding of infringement. [FN11] Positive Software's copyright is a right of statutory and even constitutional magnitude. Continuing infringement of that right cannot be adequately addressed by damages after the fact. Accordingly, Positive Software has shown a threat of irreparable harm. [FN12] The balance of harm analysis is made easier by New Century's recent offer to refrain voluntarily from the conduct covered by the preliminary injunction entered here. The fact that New Century is willing to make that undertaking voluntarily indicates to the Court that any harm to New Century from such an undertaking is minimal and outweighed by the possible harm to Positive Software flowing from continued infringement. Finally, the public interest does not appear implicated here, other than the public interest inherent in enforcing the copyright laws. On balance, and considering all four factors, the Court finds that Positive Software has shown it is entitled to injunctive relief. [FN13]

FN11. New Century acknowledges the possibility of irreparable harm in the Software Subscription Agreement, paragraph 7F. Although the pro forma contractual recital is certainly not binding on the Court, it is at least some evidence that supports the Court's finding on this point.

FN12. The fact that New Century has recently offered to quit infringing voluntarily does not eliminate that threat, as such a voluntary commitment could be withdrawn as easily as it was given.

FN13. The Court declines to grant Positive Software its requested relief of impoundment under the Copyright Act, and the Defendants' objections to the affidavits of Edward Mandel and Judy Sanchez Etchison, filed on April 4, 2003, are overruled.

[The court next ruled that Positive Software must arbitrate its remaining claims.]