INTRODUCTION
{1} In 1988, Computer Associates International, Incorporated (Computer Associates) commenced action claiming copyright infringement and trade secret misappropriation against Altai, Incorporated (Altai). [1] Computer Associates alleged that Altai directly copied portions of Computer Associates ADAPTER computer program into Altai's OSCAR 3.4 computer program, albeit unknowingly according to Altai, when Altai hired a Computer Associates programmer. When Altai discovered this, Altai attempted to use no infringing material in the OSCAR 3.5 version. [2] Computer Associates also claimed that Altai's OSCAR 3.5 infringed on Computer Associates' copyrights. The Court of Appeals for the Second Circuit held that there was no copyright infringement in OSCAR 3.5, [3] and used the now well-known three-prong abstraction filtration-comparison test [4] in reaching this conclusion.
{2} Computer Associates in 1990 also filed an action in France's Commercial Court, charging Altai with infringing Computer Associates' French copyright. [5] The French Commercial Court in 1995 held that the Second Circuit's decision was not dispositive of the issue under the doctrine of res judicata because the U.S. and French laws on copyright are similar but not identical, but held that Altai did not infringe on Computer Associate's copyright. [6] Similarly, in September, 1997 the Second Circuit held that the issues of res judicata and collateral estoppel are inapplicable, [7] thus allowing the French appeal to proceed.
{3} This article will review the Computer Associates v. Altai litigation in the United States and France, including the subsequent wide-spread adoption of the three-prong test, and will analyze the issue of res judicata in international computer software copyright litigation. Finally, this author will make recommendations and predictions concerning the issue.
COMPUTER ASSOCIATES v. ALTAI
{4} James Williams and Claude Arney, III were friends and co-workers, even before both went to work for Computer Associates. Williams was employed with Computer Associates from 1977 to 1980, when he went to work for a predecessor of Altai; in 1988 Williams became the president of Altai. Arney worked for Computer Associates as a programmer from 1978 through 1983, when Williams approached him to work for Altai. When Arney came to Altai, Arney brought copies of the source from versions of Computer Associates' ADAPTER computer program, [8] and copied approximately 30% of Altai's OSCAR 3.4 source code from ADAPTER's source code, [9] which was the beginning of the problems between Computer Associates and Altai.
{5} When Computer Associates learned in 1988 that Altai copied ADAPTER, it filed suit, claiming copyright infringement and misappropriation of trade secrets. [10] When Altai received the complaint, it learned for the first time that 30% of the OSCAR 3.4 code came from ADAPTER. [11] Arney admitted that he copied some of ADAPTER's code, and, upon advice of counsel, Altai attempted a complete revision of OSCAR which included no code from ADAPTER. [12] In 1989, the new version, OSCAR 3.5, was sent to all OSCAR 3.4 customers as a free upgrade.
{6} In the copyright infringement action, Computer Associates had to prove ownership of a valid copyright [13] in the computer software program, [14] and copying by Altai. [15] Altai does not dispute that Computer Associates owns a valid copyright in SCHEDULER, which includes ADAPTER. [16] The second element of an infringement action, copying, can either be shown by direct evidence of copying, such as with the OSCAR 3.4 program, or access and substantial similarity, [17] which had to be shown concerning OSCAR 3.5. The district court assumed that Altai did had access, but found that Altai's programmers in good faith used reasonable means to rewrite OSCAR. [18] Concerning substantial similarity, [19] the district court stated that many tests used for determining substantial similarity are inadequate for computer programs. The district court also criticized the "simplistic test" for similarity of computer programs set forth by the Third Circuit in Whelan Associates v. Jaslow Dental Laboratory. [20] Whelan's broad test stated that the purpose or function of the work would be the idea, and everything not necessary to that purpose or function would be part of the expression, and therefore protectable by copyright. [21] Professor Nimmer has criticized this test, as it assumes that there is only one idea, and that everything else is expression. [22] Nimmer suggests instead Learned Hand's "abstractions test," [23] which, as applied to computer software programs, would progress in order of increasing generality from object code, to source code, to parameter lists, [24] to services required, to general outline. [25]
{7} Applying this abstractions test, the district court concluded that OSCAR 3.5 was not substantially similar to ADAPTER and therefore did not infringe. [26] Concerning code, the court's expert found that virtually no lines of code in OSCAR 3.5 were identical to ADAPTER. The expert found, concerning parameter lists, or the information set to and received from a subroutine, that he could not make a determination based upon the evidence, thus Computer Associates failed to meet its burden of showing substantial similarity. The list of services is of little importance, and the organizational chart was simple and obvious to anyone exposed to the operation of the program. [27] Thus, Altai's "clean-up" effort in OSCAR 3.5 resulted in a program not substantially similar to the ADAPTER program, [28] and consequentially, since there was no infringement, there were no damages awarded concerning OSCAR 3.5.
{8} Since Altai admitted infringement concerning OSCAR 3.4, damages had to be assessed for the five years the program was on the market. Computer Associates was entitled to actual damages and profits during this time. [29] Computer Associates' expert set a damage figure at nearly $14 million, while Altai's expert estimated damages to be $115,000. [30] The court disagreed with both, and found neither analysis to be helpful. One problem is that OSCAR and ADAPTER were not sold independently and many customers were unaware of their presence in the resident computer programs. There was further no evidence that Computer Associates lost a single sale as a result of OSCAR 3.4 being in Altai's programs. The court used the approach of allocating a proportion of the profit, in this case one-third, on a sale to the presence of the infringing OSCAR 3.4, thus making a just and reasonable inference as to the amount of damages. The district court in 1991 thus found profits and damages to be $364,444, plus interest, but with no punitive damages or attorneys fees or costs allocated. [31]
{9} In January, 1990, approximately two months before the trial in the district court, Computer Associates in France, with the non-profit L'Agence pour la Protection des Programmes, a private professional society representing the interests of authors and copyright owners of computer programs, secured on an ex parte order from the President of the Tribunal de Grande Instance (the Tribunal) authorizing seizure of computer programs and business records from the offices of Altai's French distributer, la Societe FASTER. Five object code tapes of Altai software containing OSCAR 3.5 code and FASTER's business records were seized. This order enjoined FASTER from distributing or marketing the allegedly infringing products. In February 1990, Computer Associates and L'Agence filed an action in the Tribunal de Commerce (the Commercial Court) in Bobigny, France, alleging that Altai imported and FASTER distributed OSCAR 3.5 in violation of computer Associates' French copyright. [32] The district court in 1991 denied Computer Associates' motion to modify a confidentiality order in place, as Computer Associates wanted to use these confidential materials in the French action. [33] After the district court's decision, Altai informed the Commercial Court of the district court's ruling that OSCAR 3.5 did not infringe, and of the appeal to the Court of Appeals for the Second Circuit; the trial was postponed in France until 1992. [34]
{10} In the U.S., both parties appealed to the Second Circuit; Altai abandoned its appeal, however. In this case of first impression, the Court of Appeals for the Second Circuit affirmed on the copyright infringement claim. [35] The court performed a slightly different analysis in reaching this conclusion, however, and adopted the now well-known three-prong-test: abstraction-filtration-comparison. [36]
{11} The Second Circuit stated that the line between an unprotected idea and protectable expression is difficult to draw, [37] and the starting point is Baker v. Selden, [38] which held that copyright protection is not granted to processes, or aspects of a work that are incident to the idea, system, or process. The Second Circuit stated that the district court wisely declined to follow the Third Circuit's decision in Whelan, [39] as Whelan "relies too heavily on metaphysical distinctions and does not place enough emphasis on practical considerations." [40] The Second Circuit developed the three prong test, the first prong of which was used by the district court; this three-prong test does not break new ground, and other circuits were invited to modify the test. [41]
{12} The first test, abstraction, was originally used for literary works such as novels and plays, but is adaptable to computer programs. [42] The court would break down the allegedly infringed computer program into its structural parts. This differs from the district court's approach, which filtered out noncopyrightable aspects of the allegedly infringing program. In a manner resembling reverse engineering, a court should dissect the allegedly copied program's structure, beginning with the code and ending with the program's function, and isolate each level of abstraction, or essentially retrace the steps taken during the program's creation in reverse order. [43]
{13} Second, Professor Nimmer and the Second Circuit suggest a successive filtering method to separate expression from non-protectable material, [44] such as public domain material, [45] material required by factors external to the program itself, [46] or elements dictated by efficiency. [47] Finally, after filtering, any core of protectable expression is examined to see if the defendant copied it. [48] When conducting this analysis, the Second Circuit in 1992 affirmed that there was no substantial similarity, and thus no copyright infringement. [49]
{14} In 1992, in France, Altai requested a stay of the French proceeding while Altai's request for an exequatur, which would allow the judgment from the district court to be introduced in the Commercial Court, was pending. The stay was granted in 1992; the exequatur was issued by the Tribunal in 1993. [50] In 1994, Computer Associates moved to resume the French proceedings, and trial began in the Commercial Court. [51] The Commercial Court in 1995 held that Altai's Oscar 3.5 did not violate Computer Associate's rights under French Copyright law. [52] The Court of Commerce rejected Altai's claim that the Second Circuit's decision was res judicata, since the parties were not identical; further, U.S. and French law on copyright protection for computer programs are similar, but not identical. The similarities between the two programs, according to the French court, were dictated by the manner in which the job flow is handled in a computer center. The source codes were different, and the architecture and organization have similarities dictated by constraining logic, and the interfaces were not subject to protection. Therefore, OSCAR 3.5 does not infringe on ADAPTER. [53] The Commercial Court awarded Altai 100,000 francs in damages from the seizure of Foster's inventory of Altai products. Computer Associates has appealed this decision to the Paris Court of Appeals. [54] The appeal is pending.
{15} In 1995, when Altai learned of Computer Associates' French appeal, Altai requested that the U.S. district court enjoin Computer Associates from pursuing the French appeal. In 1996, the district court denied this request, holding that the French action was not barred by res judicata or collateral estoppel, and that Altai did not satisfy the threshold requirements for foreign antisuit injunction. [55] on the merits precludes the parties or their privies from relitigating issues that were or could have been raised in that action, [56] but res judicata does not apply when the initial forum did not have the power to award the full measure of relief sought in the later litigation. [57] Res judicata, however, cannot be used to bar claims that did not exist at the time of the first claim. [58] Res judicata, thus, does not apply in Altai for several reasons, according to the district court. First, the U.S. court could have declined to exercise subject matter jurisdiction as copyright laws generally do not have extraterritorial jurisdiction, [59] and thus Computer Associates may not have been permitted to raise the French infringement in the U.S. [60] Second, the U.S. court may not have been able to exercise personal jurisdiction over FASTER and FASTER may not have been in privity with a party in the U.S. action, Altai. [61] Even without these jurisdictional barriers, however, the district court still would not have barred the French suit under res judicata, as res judicata requires the preclusion to be limited to the transaction at issue in the first transaction, and in Altai, the acts are different, the parties are different, and the copyright laws are different. [62] Thus, res judicata does not bar the second action, according to the district court.
{17} Collateral estoppel bars a party from relitigating an identical issue of fact or law that was litigated and decided in a prior proceeding, if the party had a full and fair opportunity to litigate the issue and the decision of the issue was necessary to support a valid and final judgment on the merits. [63] The district court held that since the two legal standards are not the same, the French action is also not barred by collateral estoppel. [64]
{18} A federal court may enjoin foreign suits involving persons subject to its jurisdiction, [65] but international comity requires that this remedy be used sparingly and granted only with care and great restraint, only after other means of redressing the injury have been explored. [66] The Second Circuit has two threshold requirements for a foreign antisuit injunction: first, whether the parties to both suits are the same; and second, whether resolution of the case before the enjoining court would be dispositive of the action to be enjoined. [67] Concerning the first requirement, the French action includes parties not present in the U.S., and concerning the second requirement, the French action involves issues that could not have been raised in the U.S. Thus, the foreign antisuit injunction also fails, and the French action was not barred by the district court. [68]
{19} On appeal to the Court of Appeals for the Second Circuit, a unanimous panel affirmed the district court's denial of Altai's motion to enjoin Computer Associate's French action. [69] The court reviewed the district court's application of the principles of res judicata and collateral estoppel de novo, but accepted all factual findings that were not clearly erroneous. [70]
{20} Claim preclusion, under res judicata, bars the subsequent litigation of any claims arising from the transaction or series of transactions which was the subject of the prior suit. [71] Altai failed to show that the conduct that is the subject of the French action occurred prior to the U.S. action, [72] and the district court could not have exercised personal jurisdiction over FASTER. [73]
{21} The district court was also affirmed on the issue of collateral estoppel, as the issues must be identical in the two courts. Issues are not identical when the legal rules are significantly different. [74] While Altai argued that U.S. and French copyright law are not significantly different, as both protect expression and not ideas, the Second Circuit stated:
{22} Such a superficial comparison begs key questions: What constitutes expression or ideas in the context of computer software, to what extent may expression be copied with impunity when it is necessary to the communication of the idea, how much expression is not original with the plaintiff or is in the public domain? Altai's argument is far from sufficient to show that the two copyright standards in France and the United States are "identical" as required for application of collateral estoppel. [75]
{23} Therefore, the district court was also affirmed on the issue of collateral estoppel.
{24} Finally on the issue of foreign antisuit injunction, the Second Circuit did not even decide whether the threshold requirements were applicable, [76] as the requested injunction was not necessary to protect U.S. jurisdiction or the integrity of U.S. judgment, as the French action would not affect a decision rendered by a U.S. court. Therefore, in the interests of comity, this argument also failed, and the district court was affirmed. [77]
CONCLUSION
{25} The Second Circuit in 1992 used the three-prong abstraction-filtration-comparison test and concluded that Altai's OSCAR 3.5 did not infringe Computer Associate's copyright. [78] The Second Circuit stated that the contours of copyright protection for non-literal program structure are not completely clear, but as future cases were decided, the contours would become better defined. [79] This is, in fact, what has happened in the U.S., and the Second Circuit's test has been used frequently for determining substantial similarity of computer software programs. For example, in 1996 in Mitek Holdings, Incorporated v. Arce Engineering Company, Incorporated, the Court of Appeals for the Eleventh Circuit, in a case of first impression on the copyright ability of nonliteral elements of a computer program, affirmed the district court's finding of no infringement. [80] The district court applied the abstraction-filtration-comparison test to determine whether two wood truss layout programs were substantially similar. [81] The district court found, and the court of appeals affirmed, that the elements of the plaintiffs' program that were allegedly copied were not protectable, thus the copyright infringement claims were dismissed. [82] The Eleventh Circuit Court of Appeals in 1995 reversed a district court's judgment in a copyright infringement action upon finding that the trial judge erred in limiting the filtration step of the three-prong test to instances of nonliteral copying only. [83] The court reversed and remanded for a new trial.
{26} The Court of Appeals for the Fifth Circuit in 1994 in Engineering Dynamics, Incorporated v. Structural Software, Incorporated also endorsed the three-prong test in determining substantial similarity of structural engineering software. [84] The Court of Appeals for the Tenth Circuit in 1993 in Gates Rubber Company v. Bando Chemical Industries, Limited also adopted and elaborated upon the abstraction-filtration-comparison test for literal elements of a computer program. [85] In Atari Games Corporation v. Nintendo of America, Incorporated, the Federal Circuit in 1992 also endorsed the analysis of Computer Associates v. Altai in finding infringement when an unauthorized copy of object code was obtained from the Copyright Office. [86]
{27} The First Circuit in Lotus Development Corporation v. Borland International, Incorporated, however, found the test to be of little help, as Borland dealt with deliberate literal copying of Lotus's menu command hierarchy instead of nonliteral copying of computer code as in Altai. [87] In Apple Computer, Incorporated v. Microsoft Corporation, the Ninth Circuit affirmed the district court, which held that there was no copyright infringement of Apple's graphical user interface. [88] The virtual identity standard, not substantial similarity, was used in Apple as the range of protectable expression was narrow and Apple licensed the user interface to Microsoft, but Altai was cited by the district court. [89] Thus, in the U.S., the three-prong test has received much recognition. [90] Altai does concede that the three-prong test has not yet been discussed in French decisions, other than in the context of Computer Associates' French claims. [91]
{28} Concerning the res judicata issue, both the French court [92] and the U.S. courts [93] held that the action in question was not barred by the foreign action. This author agrees with the courts' conclusions, since the laws and the parties were different in the cases. These precedents may lead to more litigation, but to hold otherwise would allow parties to litigate in a favorable forum and use this to bar litigation elsewhere.
{29} Altai found this multiple litigation in different forums to be "vexatious." [94] In the U.S., the lawsuit was brought by Computer Associates on the eve of Altai's planned merger with a competitor of Computer Associates, and the merger was canceled. [95] In France, Faster was Altai's most successful foreign distribution, accounting for approximately 47% of Altai's total foreign revenue; according to Altai, the French seizure essentially put Faster out of business and, at the time of Faster's liquidation, Faster owed Altai $258,000. [96] While this seems unfair, for issues of international comity, the courts correctly, in this author's opinion, allowed the cases to proceed.
{30} The whole unfortunate incident for Altai was precipitated, albeit unknowingly, when a former Computer Associate employee brought more than know-how to his position at Altai. Software firms must be very careful to not use copyrighted material. Computer Associates asserts that Altai should have recognized that ARNEY might use confidential material, and Williams should have inquired into Arney's activities or confidential obligation, and should have instructed Arney not to use competitive information. [97] Even though Altai only paid $344,00 for copyright infringement of OSCAR 3.4, and nothing for infringement of OSCAR 3.5 or the trade secret claim, in both the U.S. and France, the expense of litigation has been very high for both firms.