Compulife Software Inc. v. Moses Newman ( 2020 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_________________________
No. 18-12004
________________________
D.C. Docket No. 9:16-cv-81942-RLR
COMPULIFE SOFTWARE INC.,
Plaintiff - Appellant,
versus
MOSES NEWMAN,
AARON LEVY,
DAVID RUTSTEIN,
a.k.a. David Anthony Gordon,
a.k.a. Bob Gordon,
a.k.a. Nate Golden,
BINYOMIN RUTSTEIN,
a.k.a. Ben Rutstein,
Defendants - Appellees.
_________________________
No. 18-12007
________________________
D.C. Docket No. 9:16-cv-80808-RLR
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COMPULIFE SOFTWARE INC.,
Plaintiff - Appellant,
versus
BINYOMIN RUTSTEIN,
a.k.a. Ben Rutstein,
JOHN DOES 1 - 10,
DAVID RUTSTEIN,
Defendants - Appellees.
________________________
Appeals from the United States District Court
for the Southern District of Florida
________________________
(May 20, 2020)
Before JORDAN and NEWSOM, Circuit Judges, and HALL, * District Judge.
NEWSOM, Circuit Judge:
There’s nothing easy about this case. The facts are complicated, and the
governing law is tangled. At its essence, it’s a case about high-tech corporate
espionage. The very short story: Compulife Software, Inc., which has developed
and markets a computerized mechanism for calculating, organizing, and comparing
life-insurance quotes, alleges that one of its competitors lied and hacked its way
*
Honorable James Randal Hall, United States District Chief Judge for the Southern District of
Georgia, sitting by designation.
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into Compulife’s system and stole its proprietary data. The question for us is
whether the defendants crossed any legal lines—and, in particular, whether they
infringed Compulife’s copyright or misappropriated its trade secrets, engaged in
false advertising, or violated an anti-hacking statute.
With the parties’ consent, a magistrate judge was tasked with tackling these
thorny issues in a bench trial. He determined that Compulife had failed to prove
any legal violation. We conclude, however, that in finding that Compulife hadn’t
demonstrated either copyright infringement or trade-secret misappropriation, the
magistrate judge made several discrete legal errors and, more generally, failed to
adequately explain his conclusions. Accordingly, we vacate the judgment in part
and remand with instructions to make new findings of fact and conclusions of law.
I
A
Warning: This gets pretty dense (and difficult) pretty quickly.
Compulife and the defendants are direct competitors in a niche industry:
generating life-insurance quotes. Compulife maintains a database of insurance-
premium information—called the “Transformative Database”—to which it sells
access. The Transformative Database is valuable because it contains up-to-date
information on many life insurers’ premium-rate tables and thus allows for
simultaneous comparison of rates from dozens of providers. Most of Compulife’s
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customers are insurance agents who buy access to the database so that they can
more easily provide reliable cost estimates to prospective policy purchasers.
Although the Transformative Database is based on publicly available
information—namely, individual insurers’ rate tables—it can’t be replicated
without a specialized method and formula known only within Compulife.
Compulife sells two different kinds of access to the Transformative
Database—a “PC version” and an “internet-engine version”—each run by its own
piece of software and each accompanied by its own type of license. Both pieces of
software contain an encrypted copy of the database. The PC-version software—
called the “PC quoter”—is sold along with a PC license that allows licensees to
install copies of the quoter on their personal computers and other devices for
(depending on the number of devices) a cost of either $180 or $300 per year. The
PC quoter uses its local copy of the Transformative Database to generate
insurance-rate estimates corresponding to demographic information entered by the
end user.
A PC licensee can purchase an add-on called the “web quoter” for an extra
$96 per year. The web-quoter feature allows the PC licensee to put a quoter on its
own website, which it can then use as a marketing tool to attract customers. Once
a licensee’s website is equipped with the web quoter, prospective life-insurance
purchasers can enter demographic information into fields on the licensee’s site and
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receive quotes directly from the licensee. Unlike the PC quoter—which contains
its own local copy of the Transformative Database—the web quoter generates
quotes by communicating with an internet-quote engine hosted on Compulife’s
server. The HTML source code of the web quoter is protected by a registered
copyright.
A second kind of license—the “internet-engine” license—permits a licensee
to host Compulife’s internet-quote engine, which includes the Transformative
Database, on its own server and to integrate it with additional features of its own
creation. (Naturally, it’s more expensive—it costs $1200 per year.) An internet-
engine licensee can then sell access to “its” product—which is an amalgamation of
Compulife’s internet-quote engine with any accoutrements that the licensee has
seen fit to add. Importantly, though, internet-engine licensees can sell access only
to Compulife’s PC licensees. This arrangement allows an internet-engine licensee
to include Compulife’s internet-quote engine—again, with the Transformative
Database—as a part of its own product, while simultaneously ensuring that it
doesn’t compete with Compulife for potential insurance-agent customers.
Compulife also permits an internet-engine licensee to provide its web-quoter
HTML code to the licensee’s customers so that the customers’ websites can
retrieve quotes from the licensee’s server. This is the same copyrighted HTML
code that Compulife provides to PC licensees with the web quoter add-on.
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In addition to the PC-version and internet-engine products that it licenses to
agents and that contain the Transformative Database, Compulife also provides
consumers with direct access to life-insurance quotes through its Term4Sale
internet site, www.term4sale.com. Term4Sale communicates with essentially the
same internet-quote engine that PC licensees’ web quoters access and that internet-
engine licensees are permitted to maintain on their own servers. Anyone can use
the Terms4Sale site to receive free life-insurance quotes directly from a copy of the
Transformative Database that Compulife hosts on its own server. The Term4Sale
site refers prospective life-insurance purchasers to insurance agents with whom
Compulife partners, who in turn pay Compulife for the referrals.
Now, to the defendants, who are also in the business of generating life-
insurance quotes—primarily through a website, www.naaip.org. “NAAIP” stands
for National Association of Accredited Insurance Professionals, but as the court
below found, “NAAIP is not a real entity, charity, not-for-profit, or trade
association, and is not incorporated anywhere.” Compulife Software, Inc. v.
Rutstein, No. 9:16-cv-80808, 2018 U.S. Dist. LEXIS 41111, at *15 (Mar. 12,
2018). Through naaip.org, the defendants offer a service similar to—and, the
evidence shows, at least partially copied from—Compulife’s web quoter, which
they call a “Life Insurance Quote Engine.” Any insurance agent can sign up for a
free website located on the domain naaip.org—for example,
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“http://naaip.org/tmatteson77.” The defendants host thousands of these sites on a
server in Israel and equip each one with the Life Insurance Quote Engine.
Prospective life-insurance purchasers can then obtain quotes on any of these
NAAIP-hosted websites by entering demographic information, just as they could
on the website of any Compulife PC licensee with a web quoter add-on. Each
NAAIP site includes a link that allows consumers to purchase insurance through
One Resource Group, Inc., a brokerage firm with which the defendants have
partnered. If a visitor to an NAAIP site uses the link to buy insurance, the
defendants receive a part of One Resource’s brokerage fees in exchange for the
referral.
The defendants also operate the BeyondQuotes website,
www.beyondquotes.com, which includes a Life Insurance Quote Engine like the
ones on participating NAAIP websites. BeyondQuotes operates similarly to
Compulife’s Term4Sale site, generating revenue by selling referrals to affiliated
insurance agents.
B
Having canvassed Compulife’s and the defendants’ respective businesses,
we should introduce the (complex) cast of individual characters that populate this
case. The first is Robert Barney, the founder and CEO of Compulife. Barney
personally updates Compulife’s Transformative Database. To do so, he draws on
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insurers’ publicly available rate information, but he also employs a proprietary
calculation technique—in particular, a secure program to which only he has access
and that only he knows how to use. Other relevant players at Compulife include
Jeremiah Kuhn, its CFO/COO, and Chris Bruner, the programmer who created the
Transformative Database.
Most significant among the defendants is David Rutstein, the founder of
NAAIP and the owner of BeyondQuotes. He operates naaip.org and
beyondquotes.com with help from his son, defendant Binyomin Rutstein, and their
co-defendants Aaron Levy and Moses Newman. At one point—more on this to
come—the defendants also employed a hacker named Natal, who, it is undisputed,
took Compulife’s data for use in the defendants’ software.1
There are also several key characters who aren’t directly affiliated with any
of the parties. MSCC is a software company and a Compulife customer with an
internet-engine license. It sells access to a proprietary program for life-insurance
agents called “Vam DB,” which (as is permissible for internet-engine licensees)
includes Compulife’s internet engine. And because MSCC hosts Compulife’s
1
There is some confusion about the hacker’s name in the record. We don’t know her first name.
As for her last, sometimes it’s rendered Natal, sometimes Matal. For simplicity’s sake, we will
use Natal.
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internet engine on its Vam DB server, it also hosts (again, as is permissible) a copy
of Compulife’s Transformative Database.
Brian McSweeney is a life-insurance agent who, during the time of the
defendants’ alleged misconduct, was a Compulife PC licensee who used MSCC’s
Vam DB server. At the same time, McSweeney also had a working relationship
with the defendants—in particular, he was one of the agents who (as already
described) paid the defendants for leads generated from the BeyondQuotes site.
Eric Savage—another Compulife licensee—also had a working relationship with
defendant David Rutstein. McSweeney and Savage are important here because the
defendants used their relationships with them to gain access to Vam DB, and thus
to Compulife’s Transformative Database.
C
With that background, we turn (at last) to the alleged espionage. Compulife
claims that the defendants’ websites don’t report their own quotes but merely
reproduce Compulife’s own proprietary data. According to Compulife, the
defendants stole its data in two different ways, which form the basis of two
separate lawsuits. These suits—which have been called the “08 case” and the “42
case” throughout these proceedings, to denote their original docket numbers—were
consolidated for trial and remain consolidated on appeal.
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In the 08 case, Compulife contends that the defendants gained access to the
Transformative Database under false pretenses by purporting to work for licensed
Compulife customers. In particular, David Rutstein, using the email address
bob@naaip.org, represented that he was working with Compulife PC licensees
McSweeney and Savage and requested the HTML code for Compulife’s web
quoter, which he said would allow his websites to communicate with the copy of
the Transformative Database hosted on MSCC’s Vam DB server. Compulife
CFO/COO Kuhn responded by sending Rutstein the HTML code, believing that he
was a web designer employed by McSweeney, a licensed customer. 2 A
comparison of the HTML used by the defendants with Compulife’s HTML source
code shows without a doubt that the defendants copied some of it, although (as
we’ll discuss) the legal significance of that copying is disputed.
2
As already noted, the defendants really did have a professional relationship with McSweeney
and Savage, but Kuhn provided the HTML code only because he misunderstood the nature of
that relationship. Rutstein had partnered with McSweeney and Savage and forwarded them
customer leads from Beyond Quotes, but Beyond Quotes was not owned by McSweeney or
Savage. Nevertheless, when Rutstein requested HTML code for www.beyondquotes.com by
email he claimed to have an “account . . . thru Eric Savage.” He also explained that he intended
to set up a web quoter to forward “leads” to McSweeney, although he planned to set it up on a
website that “would be separate from” McSweeney’s. In context, Kuhn took this to mean that
Rutstein was a web designer helping McSweeney to set up a second website of his own. As
Kuhn had explained to Savage in an email exchange a few months earlier, each customer was
permitted to put the quoter on any website that he owned without an additional license, but an
additional license was required before the quoter could be implemented on a website owned by
someone else. Kuhn testified that he wouldn’t have emailed the HTML code if he had known
that “Beyond Quotes did not belong to Eric Savage or Brian McSweeney or any other authorized
user.”
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For several years, the defendants’ websites enjoyed access to Compulife’s
internet engine—and thus to the Transformative Database—on MSCC’s Vam DB
server. They used this access to generate quotes for all NAAIP websites and for
their own BeyondQuotes site. Compulife eventually discovered the ruse and cut
off the defendants’ unauthorized access, at which point their sites temporarily (and
conspicuously) stopped producing quotes. The defendants don’t deny that they
connected their NAAIP websites and BeyondQuotes to Compulife’s database on
the Vam DB server—they simply claim that their access was innocent.
In the 42 case, Compulife alleges that the defendants hired a hacker, Natal,
to “scrape” data from its server. Scraping is a technique for extracting large
amounts of data from a website. The concept is simple; a hacker requests
information from a server using ordinary HTTP commands similar to those that a
legitimate client program of the server might employ in the ordinary course.
Although a hacker could obtain the data manually by entering each command as a
line of code and then recording the results, the true power of a scraping attack is
realized by creating a robot—or “bot,” for short—that can make many requests
automatically and much more rapidly than any human could. A bot can request a
huge amount of data from the target’s server—technically one query at a time, but
several queries per second—and then instantaneously record the returned
information in an electronic database. By formulating queries in an orderly fashion
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and recording the resulting information, the bot can create a copy—or at least a
partial copy—of a database underlying a website.
Natal used this scraping technique to create a partial copy of Compulife’s
Transformative Database, extracting all the insurance-quote data pertaining to two
zip codes—one in New York and another in Florida.3 That means the bot
requested and saved all premium estimates for every possible combination of
demographic data within those two zip codes, totaling more than 43 million quotes.
Doing so naturally required hundreds of thousands of queries and would have
required thousands of man-hours if performed by humans—but it took the bot only
four days. The HTML commands used in the scraping attack included variables
and parameters—essentially words (or for that matter any string of characters) used
to designate and store values—from Compulife’s copyrighted HTML code. For
example, the parameter “BirthMonth” in Compulife’s code stores a number
between one and twelve, corresponding to a prospective purchaser’s birth month.)
Compulife alleges that the defendants then used the scraped data as the basis
for generating quotes on their own websites. The defendants don’t disagree,
3
David Rutstein testified that he asked Natal to obtain data on New York and California.
Whether he misspoke or Natal simply scraped the wrong data is unclear, but unrebutted
testimony establishes that the defendants set up their quote engines to provide only New York
and Florida quotes—specifically, quotes corresponding to two zip codes: 10458 and 33433.
Moreover, it is undisputed that the defendants received data files from Natal with data for just
those zip codes.
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except to claim that they didn’t know the source of the scraped data but, rather,
innocently purchased the data from a third party. Moses Newman testified,
however, that he watched Natal collect the requested data in a manner consistent
with a scraping attack. David Rutstein also testified that when the defendants
instructed Natal to obtain insurance-quote information, they fully intended for her
to “extract[] data” from an existing website.
D
Compulife filed suit in the United States District Court for the Southern
District of Florida. In both the 08 case and the 42 case, it asserted counts of
copyright infringement and trade-secret misappropriation. In the 08 case,
Compulife alleged that the defendants (1) infringed its copyright in the HTML
source code of its web quoter when they implemented similar quoters on their own
websites and (2) misappropriated its trade secret by accessing the Transformative
Database on MSCC’s Vam DB server to generate quotes without permission. In
the 42 case, Compulife alleged that the defendants (1) infringed its copyright by
copying parameters and variables from the HTML source code in order to carry out
a scraping attack and (2) misappropriated a trade secret by scraping data from its
Term4Sale site. Compulife also asserted false-advertising claims under the
Lanham Act, Florida Deceptive and Unfair Trade Practices Act, and Florida
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common law in both cases, as well as a violation of the Florida Computer Abuse
and Data Recovery Act in the 42 case.
The parties consented to a bench trial before a federal magistrate judge.
Although the judge found, as an initial matter, that Compulife had a valid
copyright in the text of its HTML source code and that its Transformative Database
was a protectable trade secret, he ruled in favor of the defendants. In doing so, he
held that Compulife hadn’t met its burden to prove—as it had to in order to make
out a copyright-infringement claim—that the defendants’ copied code was
“substantially similar” to its own and, further, that the defendants hadn’t
misappropriated any trade secrets. The judge separately rejected Compulife’s
false-advertising claims on the ground that Compulife had failed to identify any
false or misleading advertisement. Finally, he ruled that the defendants hadn’t
violated the Florida Computer Abuse and Data Recovery Act, because Compulife
failed to show that the data that the defendants took was protected by any
“technological access barrier” within the meaning of that statute.
Compulife contends that all of these determinations were in error,
identifying what it contends are mistakes of both law and fact in the magistrate
judge’s decision. Regarding copyright infringement and trade-secret
misappropriation, we agree with Compulife. As to the false-advertising and
Florida statutory claims, we agree with the magistrate judge’s conclusions.
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Accordingly, we will vacate the judgment in part and remand for new findings and
conclusions limited to the issues of copyright infringement and trade-secret
misappropriation.
II
On appeal from a bench trial, “the district court’s conclusions of law are
reviewed de novo,” but its “findings of fact . . . ‘shall not be set aside unless clearly
erroneous.’” MiTek Holdings, Inc. v. Arce Eng’g Co., 89 F.3d 1548, 1554 (11th
Cir. 1996) (citation omitted) (quoting Fed. R. Civ. P. 52(a)(6)). “[T]he standard of
review for a mixed question [of law and fact] all depends—on whether answering
it entails primarily legal or factual work.” U.S. Bank Nat. Ass’n ex rel. CWCapital
Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, 138 S. Ct. 960, 967 (2018).
Separately, “[w]hen an appellate court discerns that a district court has failed to
make a finding because of an erroneous view of the law, the usual rule is that there
should be a remand for further proceedings to permit the trial court to make the
missing findings.” Pullman-Standard v. Swint, 456 U.S. 273, 291 (1982).
We must also review findings of fact and conclusions of law to ensure that
they satisfy Federal Rule of Civil Procedure 52(a)(1). That rule requires that a
district court “find the facts specially and state its conclusions of law separately.”
Fed. R. Civ. P. 52(a)(1). We will vacate and remand a judgment resulting from a
bench trial where “the findings of the district court do not provide a sufficiently
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definite predicate for proper appellate review.” Hydrospace-Challenger, Inc. v.
Tracor/MAS, Inc., 520 F.2d 1030, 1034 (5th Cir. 1975).
* * *
With that précis, we will consider Compulife’s claims in turn: (1) copyright
infringement; (2) trade-secret misappropriation; (3) false advertising; and
(4) violation of Florida’s Computer Abuse and Data Recovery Act.
III
A
To succeed on its claim of copyright infringement, Compulife “must prove
‘(1) ownership of a valid copyright, and (2) copying of constituent elements of the
work that are original.’” Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1541 (11th
Cir. 1996) (quoting Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340,
361 (1991)). The existence and validity of Compulife’s copyright are undisputed,
so we can proceed directly to the second prong—copying. Copying comprises two
subparts, “factual and legal copying,” both of which Compulife, as the plaintiff,
has the burden to prove. See BUC Int’l Corp. v. Int’l Yacht Council Ltd., 489 F.3d
1129, 1148 n.40 (11th Cir. 2007).
Factual copying—the question “whether the defendant actually used the
plaintiff's material,” id.—may be shown “either by direct evidence, or, in the
absence of direct evidence, it may be inferred from indirect evidence
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demonstrating that the defendant had access to the copyrighted work and that there
are probative similarities between the allegedly infringing work and the
copyrighted work.” MiTek, 89 F.3d at 1554.4 Factual copying isn’t really disputed
here, and we think it has been established, in any event, 5 so we focus here on legal
copying.
“Legal”—or “actionable”—copying occurs when “those elements of the
[copyrighted work] that have been copied are protected expression and of such
importance to the copied work that the appropriation is actionable.” Peter
Letterese & Assocs. v. World Inst. of Scientology Enters., 533 F.3d 1287, 1300
(11th Cir. 2008) (alteration in original) (quoting MiTek, 89 F.3d at 1554). In most
cases, a “‘substantial similarity’ between the allegedly offending program and the
protectable, original elements of the copyrighted works” establishes actionable
copying. Bateman, 79 F.3d at 1542; see also BUC, 489 F.3d at 1149 n.42
4
A warning here: Although “probative similarity” may sound just like “substantial similarity”—
which we’ll encounter momentarily—“[t]here is a vital distinction here between” them.
4 Nimmer on Copyright § 13.02[B] n.70.4 (2019). “[P]robative similarity is but one of several
vehicles to prove copying as a factual matter,” whereas “substantial similarity” is part of the test
for legal copying and “remains an indispensable element of plaintiff’s proof, even in cases . . . in
which defendant does not contest factual copying.” Id. § 13.01[B].
5
David Rutstein frankly admits that the defendants had access to Compulife’s copyrighted
HTML. Further, his testimony strongly suggests copying in fact, because he admits that “a life
insurance quote engine [was] put on to Beyond Quote” after “[c]ommunications between myself
and Compulife Software.” The defendants make similar admissions in their brief to us. Finally,
defendant Moses Newman agreed that he modified the HTML on naaip.org “so that it would no
longer be the same” as Compulife’s copyright-protected HTML. All of which is to say that the
defendants have conceded access, at the very least, and they don’t meaningfully dispute factual
copying.
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(“BellSouth established the ‘substantial similarity’ standard as the default mode of
analysis for compilation copyright claims.”). 6
Substantial similarity “must be assessed with respect to both the quantitative
and the qualitative significance of the amount copied to the copyrighted work as a
whole.” Peter Letterese, 533 F.3d at 1307. Quantitively insubstantial copying
may still be actionable if it is qualitatively substantial. See Harper & Row
Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 565 (1985). For instance,
because “a small portion of the structure or code of a [computer] program may
nonetheless give it distinctive features or may make the program especially
creative or desirable,” copying of that portion is actionable. 4 Nimmer on
Copyright § 13.03[F][5] (2019).
Before comparing two works to determine if they display the required
substantial similarity, a court must “eliminate from comparison the unprotectable
6
In special circumstances, we have required that two works be more than substantially similar
before infringement can be found, but this is not such a case. In MiTek, we adopted a “virtual
identicality” standard for “analyzing claims of compilation copyright infringement of nonliteral
elements of a computer program.” 89 F.3d at 1558. The virtual-identicality standard originated
in the Ninth Circuit. See Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1446 (9th Cir.
1994). Nonliteral elements of a computer program “are the products that are generated by the
code’s interaction with the computer hardware and operating program(s),” of which “screen
displays and the main menu” are illustrative examples. MiTek, 89 F.3d at 1555 n.15. “Source
and object code,” on the other hand, are “literal elements.” Id. Copying of these elements, even
nonliterally—i.e., without verbatim copying—therefore does not fall into the category analyzed
for “virtual identicality” as identified in MiTek. “[A]pplication of ‘virtual identicality’ [is]
limited to a specific factual context” that we have described as “narrow.” BUC, 489 F.3d at 1149
n.42. Because the copying alleged here concerns source code, the substantial-similarity standard,
rather than the heightened virtual-identicality standard, applies.
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elements of” the copyrighted work. Bateman, 79 F.3d at 1545. This process—
known as “filtration”—is necessary because even substantial similarity between a
copyrighted work’s unprotectable elements and a purportedly infringing work isn’t
actionable, regardless of how many unprotectable elements are copied or how
important they may be. Id. at 1544.
B
We conclude that the magistrate judge (sitting as the district court) made
several errors in the course of concluding that Compulife had failed to prove
actionable—or legal—copying. Unpacking those errors will take some doing, but
in short they are as follows. First, the magistrate judge improperly placed the
burden on Compulife to prove, as part of the filtration analysis, that the elements
the defendants copied were protectable; we hold that he should have required the
defendants to prove that those elements were not protectable. Second, the judge
seems to have evaluated the substantiality of the defendants’ copying vis-à-vis
their allegedly infringing work; we hold that he should have judged the
substantiality of the copied material vis-à-vis Compulife’s copyrighted work.
Finally, even if the magistrate judge hadn’t based his decision on these legal errors,
he failed to state on the record sufficient findings of fact and conclusions of law to
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permit meaningful appellate review. All of these missteps call for the same
corrective: vacatur of the judgment with respect to copyright infringement.
1
First, the misplaced burden. To properly frame this error, a little background
is in order. The magistrate judge misallocated the burden of proof applicable to the
filtration step of the substantial-similarity analysis. Filtration, again, refers to the
process of separating the protectable elements of a copyrighted work from
elements that, for one reason or another, aren’t protected.7
The notion that unprotected material should be disregarded when comparing
two works is at least a century old. See Int’l News Serv. v. Associated Press, 248
U.S. 215, 234 (1918). Conceiving of filtration as a distinct step in the infringement
analysis, however, came into the law relatively recently, in the Second Circuit’s
seminal decision in Computer Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693 (2d
Cir. 1992). We have adopted a version of Altai’s test, see Bateman, 79 F.3d at
1543–46, which has three steps: (1) abstraction, (2) filtration, and (3) comparison.
Altai, 982 F.2d at 706. In order to “ascertain[] substantial similarity under this
approach, a court . . . first break[s] down the allegedly infringed program into its
7
Filtering “protectable expression from non-protectable expression is . . . a question of law or, at
the very least, a mixed question of law and fact.” Home Design Servs., Inc. v. Turner Heritage
Homes Inc., 825 F.3d 1314, 1325 (11th Cir. 2016) (alteration in original) (quoting Intervest
Constr., Inc. v. Canterbury Estate Homes, Inc., 554 F.3d 914, 920 (11th Cir. 2008)).
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constituent structural parts”—that’s abstraction. Bateman, 79 F.3d at 1544
(quoting Altai, 982 F.2d at 706). Next, the court “sift[s] out all non-protectable
material”—filtration. Id. The “last step [is] to compare” any remaining “kernels[]
of creative expression” with the “allegedly infringing program” to determine if
there is in fact a substantial similarity—comparison. Id. Although we have
observed that Altai, by its terms, dealt only with a narrow category of copying, see
MiTek, 89 F.3d at 1555 n.16, “a parallel type of analysis”—including filtration, or
its equivalent—applies more generally, see Bateman, 79 F.3d at 1545. Here, we
focus on the filtration step because that’s where we conclude the magistrate judge
went astray.
Filtration can be tricky because copied material may be unprotectable for a
wide variety of reasons. First, for instance, copyright protection extends only to a
work’s expressive elements, not to any underlying “idea, procedure, process,
system, method of operation, concept, principle, or discovery” expressed therein.
17 U.S.C. § 102; see also Baker v. Selden, 101 U.S. 99, 102 (1879) (“[T]here is a
clear distinction between the book, as such, and the art which it is intended to
illustrate.”). Courts call this the “idea-expression” dichotomy, with the term “idea”
standing in “as a metonym for all eight categories” of unprotectable material.
1 Nimmer on Copyright § 2A.06; see, e.g., Oravec v. Sunny Isles Luxury Ventures,
L.C., 527 F.3d 1218, 1224 (11th Cir. 2008). Second, and separately, some
21
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expression may be so intrinsic to the communication of an idea—or procedure,
process, etc.—that it is considered to have “merged” into the idea. According to
the merger doctrine, where there are sufficiently “few ways of expressing an idea,
not even the expression is protected by copyright.” BUC, 489 F.3d at 1143. In one
seminal example, the First Circuit determined that a written rule governing a
sweepstakes—requiring, for instance, that “[e]ntrants should print name, address
and social security number on a boxtop, or a plain paper”—wasn’t protectable
because the ideas it expressed were “so straightforward and simple” that “at best
only a limited number” of possible modes of expression could exist to convey
them. Morrissey v. Procter & Gamble Co., 379 F.2d 675, 678–79 (1st Cir. 1967).
Third—and this is easier to understand—material taken from the public
domain is unprotected, even if incorporated into a copyrighted work. See Stewart
v. Abend, 495 U.S. 207, 234 (1990) (holding that an author “may receive
protection only for his original additions,” not “elements . . . already in the public
domain”). Fourth, material may be unprotected if it constitutes scènes à faire—
that is “[i]ncidents, characters, or settings that are indispensable or standard in the
treatment of a given topic.” Corwin v. Walt Disney Co., 475 F.3d 1239, 1251 (11th
Cir. 2007) (alteration in original) (quoting Herzog v. Castle Rock Entm't, 193 F.3d
1241, 1248 (11th Cir. 1999)); see also Beal v. Paramount Pictures Corp., 20 F.3d
454, 459 (11th Cir. 1994) (describing scènes à faire as “stock scenes that naturally
22
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flow from a common theme”). For example, we have noted that there is “no
protection for common elements in police fiction, such as ‘drunks, prostitutes,
vermin and derelict cars’ and ‘foot chases and the morale problems of policemen,
not to mention the familiar figure of the Irish cop.’” Corwin, 475 F.3d at 1251(quoting Walker v. Time Life Films, Inc., 784 F.2d 44, 50 (2d Cir. 1986)). Finally,
certain ways of arranging information—say, alphabetically—are entirely
unoriginal, and therefore unprotectable. See Feist, 499 U.S. at 363 (explaining that
presenting data in alphabetical order is “so commonplace that it has come to be
expected as a matter of course”).
How might these categories of unprotectability apply in a case like this one?
Well, for one, by analogy to merger and scènes à faire, elements of computer
source-code expression “dictated by external factors” aren’t entitled to copyright
protection. Bateman, 79 F.3d at 1547. Frequently, “compatibility requirements
and industry demands . . . [can make it] ‘virtually impossible to write a program to
perform particular functions in a specific computing environment without
employing standard techniques.’” Id. at 1546–47 (quoting Altai, 982 F.2d at 709).
The author of a copyrighted code can’t obtain protection for such standard modes
of expression, lest he effectively monopolize an underlying “idea.”
In any event, many species of unprotectability may be at issue in a single
case, and the filtration process must eliminate all of them so that only protectable
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material is considered when deciding—at the comparison step—whether two
works are substantially similar. Bateman, 79 F.3d at 1545 (“[F]iltration should
eliminate from comparison the unprotectable elements of ideas, processes, facts,
public domain information, merger material, scènes à faire material, and other
unprotectable elements.” (alteration in original)).
With that background, we come to the magistrate judge’s first error. In his
opinion, the magistrate judge implicitly placed on Compulife the burden of proving
that the elements of its HTML code that the defendants copied were protectable.
In particular, he faulted Compulife for having “made no attempt to identify the
protectable elements of the 2010 HTML Source Code.” Compulife Software, 2018
U.S. Dist. LEXIS 41111, at *38. Although we haven’t previously done so, we now
clarify that after an infringement plaintiff has demonstrated that he holds a valid
copyright and that the defendant engaged in factual copying, the defendant bears
the burden of proving—as part of the filtration analysis—that the elements he
copied from a copyrighted work are unprotectable. That is so for two main
reasons. First, assigning this burden to the defendant is consonant with our
existing precedent, and it enjoys the support of the foremost copyright treatise. See
Bateman, 79 F.3d at 1542 (“[T]he plaintiff must also respond to any proof
advanced by the defendant that the portion of the copyrighted work actually taken
does not satisfy the constitutional requirement of originality as set forth in Article
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I, § 8, cl. 8.” (emphasis added)); 4 Nimmer on Copyright § 13.03[F][3] (“Although
[a] plaintiff’s failure to present proof about [merger and scènes à faire] could
defeat a plaintiff’s application for a preliminary injunction, it would seem that
defendant must go forward at trial with appropriate evidence as to those
doctrines.”).
Second, placing the burden to prove protectability on the infringement
plaintiff would unfairly require him to prove a negative. Protectability can’t
practicably be demonstrated affirmatively but, rather, consists of the absence of the
various species of unprotectability. If the plaintiff had the burden of proving
protectability, he would have to preemptively present evidence negating all
possible theories of unprotectability just to survive a motion for summary
judgment. Cf. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1116 (11th Cir. 1993)
(noting that a summary-judgment movant “simply may . . . point[ ] out . . . that
there is an absence of evidence to support the non-moving party’s case” where the
non-moving party bears the burden of proof). And, of course, some types of
unprotectability can be negated only by presenting practically infinite evidence. A
plaintiff, for instance, can’t be expected to present the entirety of the public domain
as it existed when he authored his copyrighted material in order to show that no
elements of his work were taken from it. Nor could a plaintiff reasonably
introduce the entire corpus of relevant, industry-standard techniques just to prove
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that none of the material copied from his work constituted scènes à faire. Placing
the burden of proving protectability on the plaintiff would seemingly require just
these kinds of impossibilities.
Placing the burden on the defendant, by contrast, merely requires him to
identify the species of unprotectability that he is alleging and to present supporting
evidence where appropriate. If, for instance, the defendant believes that some part
of the copyrighted work is in the public domain, he must narrow the inquiry by
indicating where in the public domain that portion of the work can be found.
Similarly, if he thinks that what he copied amounts to usual industry practice, he
must indicate the standards that dictate that technique. The plaintiff then faces the
manageable task of “respond[ing],” Bateman, 79 F.3d at 1542, to the appropriately
narrowed issue. Placing the burden on the defendant, therefore, isn’t just
consistent with our own precedent and leading scholarly commentary, but also
fairer and more efficient.
In light of these considerations, copyright-infringement analysis should
proceed as follows: Once the plaintiff has proven that he has a valid copyright and
that the defendant engaged in factual copying, the defendant may seek to prove
that some or all of the copied material is unprotectable. If the defendant carries
this burden as to any portion of the copied material, that material should be filtered
out of the analysis before comparing the two works. After filtration is complete,
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the burden shifts back to the plaintiff to prove substantial similarity between any
remaining (i.e., unfiltered) protectable material and the allegedly infringing work.
If the defendant demonstrates—at the filtration stage—that it copied only
unprotectable material, such that no substantial similarities remain after filtration,
the defendant is entitled to summary judgment. See Home Design Servs., Inc. v.
Turner Heritage Homes Inc., 825 F.3d 1314, 1322 (11th Cir. 2016). But because
the defendant bears the burden to demonstrate unprotectability, the mere failure of
the plaintiff to present evidence of protectability—assuming that a valid copyright
and factual copying have already been established—isn’t a sufficient reason to give
judgment to the defendant. Rather, where the defendant’s evidence is insufficient
to prove that a particular element is unprotectable, the court should simply assume
that the element is protectable and include that element in the final substantial-
similarity comparison between the works.8
8
That is not to say that the defendant must always introduce evidence in order to enable the
district court to filter. The defendant may sometimes be able to demonstrate by argument alone
that an element of a copyrighted work is unprotected. For example, no evidence would be
necessary to convince a court that alphabetization is an entirely unoriginal method of arranging
data and thus unprotectable as a structural element of a work. See Feist, 499 U.S. at 363. But
where evidence is required to determine whether some element is protectable, it is the defendant
who must advance it or risk abandoning the issue.
One other thing: A plaintiff may concede that some element of code is unprotectable, in
which case a district court will not err in filtering that element. When, for instance, the plaintiff
provides a list of features it believes to be protectable, he implicitly concedes that elements not
included on the list are unprotectable. See MiTek, 89 F.3d at 1555 (“After submitting a
specification of the elements that it deemed to be protectable, [a plaintiff] cannot now argue that
the district court failed to abstract further the elements of its own designation of protectable
features.”).
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Accordingly, the magistrate judge here erred by placing on Compulife the
burden of proving protectability. For the reasons we have explained, Compulife
didn’t have to affirmatively prove that the copied portions of its code were
protectable. Rather, the defendants had the burden to demonstrate that the copied
elements were unprotectable. If the magistrate judge believed that the record
contained insufficient evidence to make a conclusive finding about the
protectability of any element, he should have proceeded to the comparison step—
i.e., proceeded to determine substantial similarity—without filtering anything out.
Instead, the judge found for the defendants—seemingly without undertaking any
comparison of the parties’ codes—in effect treating the entirety of Compulife’s
code as unprotectable. That was an error.
To be sure, some filtration is warranted here. Some elements of
Compulife’s code are unprotectable—and indeed, are so obviously so that no proof
is necessary. For example, in order to calculate insurance quotes, Compulife’s
code has to collect each consumer’s state of residence, and in organizing that
information Compulife has chosen to alphabetize the 50 states and assign each
state a number. Although the decision to order the states in this way may have
originated with Compulife, mere alphabetization is unoriginal and unprotectable.
See Feist, 499 U.S. at 363. As a result, although the defendants copied the
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alphabetization, that particular structural element should be filtered out and
excluded when analyzing the similarities between the works. 9
But the magistrate judge never even reached the filtration issue. Instead,
having placed the burden on Compulife to prove that the copied elements of its
code were protectable—and found its evidence lacking—he gave judgment for the
defendants without ever undertaking a filtration analysis. In so doing, he failed to
make required factual findings and legal conclusions “because of an erroneous
view of the law.” Swint, 456 U.S. at 291. Accordingly, we must vacate and
“remand for further proceedings” to give the district court a chance to make the
missing findings. Id. We won’t attempt a comprehensive filtration analysis from
scratch—“[w]e are, after all, a court of review, not a court of first view.” Callahan
v. United States Dep't of Health & Human Servs. through Alex Azar II, 939 F.3d
1251, 1266 (11th Cir. 2019). 10
9
A closer question, however, is whether Compulife’s inclusion of the District of Columbia in the
list of states and the bifurcation of New York into business and non-business categories are
protectable elements of structure. We don’t reach the question, but rather leave all specific
filtering questions for the district court to consider in the first instance on remand.
10
It is enough to remand for new findings and conclusions rather than an entirely new trial. See,
e.g., Ionmar Compania Naviera, S. A. v. Olin Corp., 666 F.2d 897, 905 (Former 5th Cir. 1982)
(Tjoflat, J.); Golf City, Inc. v. Wilson Sporting Goods, Co., 555 F.2d 426, 438 & n.20 (5th Cir.
1977). Like the rest of this case, though, the procedural history here is complicated. The
magistrate judge retired just days after issuing his decision and wasn’t available even to consider
Compulife’s motion for a new trial. In his absence, the district court encouraged Compulife to
withdraw the motion and file this appeal, noting that it would take considerable time for a new
magistrate to get sufficiently up to speed on the technical facts of this case to rule on its motion
for a new trial, a suggestion that Compulife seems to have followed. Federal Rule of Civil
Procedure 63 allows one judge to substitute for another in conducting a hearing or trial “upon
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2
Explaining the magistrate judge’s second legal error is more straightforward.
(A low bar.) As we will explain, he implicitly evaluated the significance of the
defendants’ copying vis-à-vis their offending work, rather than Compulife’s
copyrighted work. In so doing, the magistrate judge called his ultimate conclusion
into doubt. The law is clear that both the quantity of the appropriation and the
qualitative importance of the appropriated portion are properly judged by their
significance to the copyrighted work, not their significance to the allegedly
infringing work. As the Supreme Court has said—and as we have reaffirmed—“a
taking may not be excused merely because it is insubstantial with respect to the
infringing work.” Harper & Row, 471 U.S. at 565 (emphasis in original); see also
Peter Letterese, 533 F.3d at 1307 (explaining that “it is the relative portion of the
copyrighted work—not the relative portion of the infringing work—that is the
relevant comparison”).
The magistrate judge evinced this error in stating that Compulife “provided
no basis on which to evaluate what quantity of the HTML code from the
certifying familiarity with the record and determining that the case may be completed without
prejudice to the parties,” but “[i]n a hearing or a nonjury trial, the successor judge must, at a
party’s request, recall any witness whose testimony is material and disputed and who is available
to testify again without undue burden.” Because the issues are technical and complicated, new
findings will be necessary here, and the parties will likely be entitled to recall many witnesses
should they wish, the substitute judge may be “satisfied that he cannot perform the duties we
have given him.” Golf City, 555 F.2d at 438 n.20 (5th Cir. 1977). If so, the judge “may in his
discretion grant a new trial.” Id.30
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www.naaip.org agent’s website, which spans twenty-five pages, is copied from
[Compulife’s] 2010 HTML code, which spans just over nine pages.” Compulife
Software, 2018 U.S. Dist. LEXIS 41111, at *39–40. In addition to being wrong as
a matter of fact—the full texts of both codes are in the record, and a side-by-side
comparison reveals the extent of the defendants’ copying—this statement implies a
mistaken view of law. A 25-page work could, of course, reproduce the entirety of
a 9-page work verbatim, even though it also necessarily includes some material not
taken from the shorter work. Seemingly, then, by pointing to the disparity in
lengths here, the magistrate judge meant to suggest that the defendants’ inclusion
of additional material could undercut or even preclude a finding of infringement.
But, under controlling law, adding new material to copied material doesn’t negate
(or even ameliorate) the copying. See Harper & Row, 471 U.S. at 565. That the
accused work is significantly longer than the copyrighted work is irrelevant
because the substantiality of copying is evaluated only with respect to the
copyrighted work. See Peter Letterese, 533 F.3d at 1307. The magistrate judge’s
ultimate determination that the works are not substantially similar therefore
implicitly rests on another misunderstanding of law. Remand is necessary to allow
fresh findings, untainted by this error.
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3
Finally—with respect to copyright infringement, anyway—even if the
magistrate judge hadn’t based his determination on the foregoing legal errors, his
analysis was insufficient to permit meaningful appellate review. Rule 52 requires a
district court conducting a bench trial to “find the facts specially and state its
conclusions of law separately” and to include these findings and conclusions on the
record. Fed. R. Civ. P. 52(a)(1). A court’s failure to “to state [findings of fact]
with sufficient detail to indicate the factual basis for [the] ultimate conclusions of
law” requires us to vacate the judgment and remand for a new bench trial because
it renders appellate review “practically impossible.” Ionmar Compania Naviera, S.
A. v. Olin Corp., 666 F.2d 897, 903 (Former 5th Cir. 1982) (Tjoflat, J.). 11 Vacatur
and remand are also warranted where the district court fails to reach a sufficiently
important conclusion of law necessary to support its judgment. Gechter v.
Davidson, 116 F.3d 1454, 1458 (Fed. Cir. 1997) (“The same rule governs when a
conclusion on a crucial issue of law is omitted.”). Rule 52 violations require us to
vacate and remand for new findings and conclusions because “[w]e are . . . a court
of review, not a court of first view.” Callahan, 939 F.3d at 1266.
11
Ionmar was decided by a non-unit panel of the Former Fifth Circuit and is therefore binding
on us. See Ionmar, 666 F.2d at 897 n.*; Stein v. Reynolds Sec., Inc., 667 F.2d 33, 34 (11th Cir.
1982) (explaining that a decision “made by a non-unit panel of the Former Fifth, the full en banc
court of the Former Fifth, or Unit B panel of the Former Fifth Circuit” is “binding precedent
which we would have to follow absent Eleventh Circuit en banc consideration”).
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To allow meaningful appellate review, a district court must indicate which
elements of the copyrighted work it considers to be unprotectable in more detail
than was given here. The magistrate judge didn’t filter—or even specifically
identify—any protectable or unprotectable elements of Compulife’s copyrighted
code. 12 Nor did he evaluate the importance of any copied elements of that code as
part of a substantial-similarity analysis. Nor, finally, did he even identify, at the
threshold, which elements of Compulife’s code the defendants had copied as a
factual matter. Instead of making these necessary determinations, the magistrate
judge merely stated that Compulife “failed to prove that ‘th[e] elements of the
program that have been copied are protected expression,’” Compulife Software,
2018 U.S. Dist. LEXIS 41111, at *38 (quoting MiTek, 89 F.3d at 1554), that
Compulife had “failed to provide any basis on which to conclude that the copied
portions of the 2010 HTML Source Code . . . are important,” id. (quotation and
quotation marks omitted), and that Compulife “provided no basis on which to
evaluate what quantity of the HTML code from the www.naaip.org agent’s
website . . . is copied from [its] 2010 HTML code,” id. at *39–40. We can’t
12
As already noted, which elements should be filtered is a question of law, or at least a mixed
question of law and fact, to be determined by a judge before a factfinder decides whether
copying was substantial. See supra note 7. We would likely review the filtration determination
de novo—based on our case law and because it requires primarily legal work—but we needn’t
definitively settle on a standard of review here. Even if this determination is reviewed for clear
error, the magistrate judge’s failure to make a specific determination frustrates our ability to
meaningfully review the ultimate determination of actionable copying.
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effectively review the magistrate judge’s ultimate conclusion—that Compulife
failed to prove its case—without answers to the important prerequisite questions
that he left unaddressed. And we decline to answer such questions as a matter of
“first view.” Callahan, 939 F.3d at 1266. Accordingly, vacatur and remand are
appropriate.
It bears noting that the magistrate judge’s reasoning would have been
sufficient if it really were true that, in seeking to demonstrate substantial similarity,
Compulife had provided “no basis” to evaluate either the quantity or the quality of
the defendants’ copying. Although “[t]he burden is on the copyright owner to
demonstrate the significance of the copied features,” MiTek, 89 F.3d at 1560, and
“both the quantitative and the qualitative significance of the amount copied” must
be assessed, Peter Letterese, 533 F.3d at 1307, the plaintiff needn’t prove both the
quantitative and qualitative substantiality of copying—it’s enough to prove one or
the other. See id. (noting that qualitatively important copying may be actionable
even where “the amount of expression copied [is] quantitatively small with respect
to the length” of the copyrighted work). If Compulife had failed in both respects,
that failure would have been fatal. In fact, though, Compulife provided at least
some evidence of both quantitative and qualitative significance.
To start, Compulife provided the texts of both works, and the court could
easily have analyzed the similarities between them to ascertain the quantitative
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extent of copying. So too, the qualitative significance could have been evaluated
solely on the basis of the two texts. Although the copyright owner has the burden
to prove qualitative significance, MiTek, 89 F.3d at 1560, nothing requires him to
introduce extrinsic evidence of that significance. Qualitative significance is often
apparent on the face of the copied portion of a copyrighted work. See Peter
Letterese, 533 F.3d at 1315 (inferring the qualitative significance of “the way
[concepts] were ‘selected, coordinated, or arranged’” from statements within the
work itself). Moreover, and in any event, Compulife actually did provide extrinsic
evidence of the qualitative significance of some copied elements. Chris Bruner
testified that part of the code copied by the defendants includes variable names and
parameters that must be formatted exactly for the web quoter to communicate with
the Transformative Database at all. At a minimum, this testimony is some
evidence of the qualitative significance of the copied portion of Compulife’s work.
A district court is free not to credit such testimony, but it can’t ignore it.
The magistrate judge’s failure to look more closely at the texts of the two
codes is particularly concerning given the similarities apparent on their faces.
Even a cursory comparison of the two segments suggests that the defendants’ work
copied material from nearly every page of the copyrighted work. The defendants’
code includes nine of the eleven basic sections of Compulife’s code, arranged in
almost exactly the same order. The defendants’ code even reproduces
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idiosyncratic elements of Compulife’s work, like treating New York as two
separate jurisdictions—one for business and another for non-business—an element
of the code that was obsolete by the time the defendants copied it. Perhaps the
magistrate judge had good reasons to discount these and other similarities, but his
failure to explain himself prevents any meaningful review.
Accordingly, the magistrate judge’s conclusions that Compulife failed to
present necessary evidence were unwarranted. At the least, the judge should have
engaged with the evidence presented by Compulife and explained why he found it
unconvincing. He then should have explained what elements of Compulife’s work
he had filtered out and why the defendants’ code was not substantially similar to
whatever material survived filtration. The omission of these details from the
magistrate judge’s findings of fact and conclusions of law precludes meaningful
review and requires vacatur and remand.
IV
And now for something completely different—trade-secret law. To prove a
claim under the Florida Uniform Trade Secrets Act (FUTSA), Compulife “must
demonstrate that (1) it possessed a trade secret and (2) the secret was
misappropriated.” Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d
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1279, 1297 (11th Cir. 2018) (quotation and quotation marks omitted).13 Florida
law defines a trade secret as
information . . . that: (a) [d]erives independent economic value . . .
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and (b) [i]s the subject of
efforts that are reasonable under the circumstances to maintain its
secrecy.
Fla. Stat. § 688.002(4). “[W]hether something is a trade secret is a question
typically ‘resolved by a fact finder after full presentation of evidence from each
side.’” Yellowfin Yachts, 898 F.3d at 1298–99 (quoting Lear Siegler, Inc. v. Ark-
Ell Springs, Inc., 569 F.2d 286, 288–89 (5th Cir. 1978)). The magistrate judge
found that Compulife’s Transformative Database was a trade secret, a finding that
is not clearly erroneous and that, in any event, doesn’t seem to be contested on
appeal. We can therefore move straight to the question of misappropriation.
13
Compulife also alleges a violation of the Defend Trade Secrets Act (DTSA). DTSA creates a
federal cause of action that largely mirrors FUTSA. See 18 U.S.C. § 1836(b)(1) (“An owner of a
trade secret that is misappropriated may bring a civil action.”). Indeed, DTSA’s definitions of
“misappropriation” and “improper means” are largely identical to those discussed in text, with
one important difference. See 18 U.S.C. § 1839(5), (6). In DTSA, “reverse engineering,
independent derivation, or any other lawful means of acquisition” are expressly exempted from
the definition of “improper means.” 18 U.S.C. § 1839(6)(b). The definition of “trade secret,”
while not identical to FUTSA’s definition, is substantially equivalent. 18 U.S.C. § 1839(3). We
assume, as the parties seem to, that the substantive standard for misappropriation is identical
under FUTSA and DTSA, at least as they apply here. Accordingly, we won’t undertake a
separate analysis of Compulife’s DTSA claim.
37
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One party can misappropriate another’s trade secret by either acquisition,
disclosure, or use. See Fla. Stat. § 688.002(2). Compulife alleges
misappropriation both by acquisition and by use—but not by improper disclosure.
A person misappropriates a trade secret by acquisition when he acquires it and
“knows or has reason to know that the trade secret was acquired by improper
means.” Id.§ 688.002(2)(a). A person misappropriates a secret by use if he uses it
“without express or implied consent” and either:
1. Used improper means to acquire knowledge of the trade secret; or
2. At the time of disclosure or use, knew or had reason to know that
her or his knowledge of the trade secret was:
a. Derived from or through a person who had utilized improper
means to acquire it;
b. Acquired under circumstances giving rise to a duty to
maintain its secrecy or limit its use; or
c. Derived from or through a person who owed a duty to the
person seeking relief to maintain its secrecy or limit its use; or
3. Before a material change of her or his position, knew or had reason
to know that it was a trade secret and that knowledge of it had been
acquired by accident or mistake.
Id. § 688.002(2)(b).
The concept of “improper means”—which under FUTSA may apply in both
the acquisition and use contexts—is significant here, so we should pause to unpack
it. As used in FUTSA, “[i]mproper means” is defined to include “theft, bribery,
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misrepresentation, breach or inducement of a breach of a duty to maintain secrecy,
or espionage through electronic or other means.” Id. § 688.002(1). In the law of
trade secrets more generally, “theft, wiretapping, or even aerial reconnaissance”
can constitute improper means, but “independent invention, accidental disclosure,
or . . . reverse engineering” cannot. Kewanee Oil Co. v. Bicron Corp., 416 U.S.
470, 476 (1974).14 Actions may be “improper” for trade-secret purposes even if
not independently unlawful. See E. I. duPont deNemours & Co. v. Christopher,
431 F.2d 1012, 1014 (5th Cir. 1970) (rejecting the argument “that for an
appropriation of trade secrets to be wrongful there must be a trespass, other illegal
conduct, or breach of a confidential relationship”). Moreover, the inadequacy of
measures taken by the trade-secret owner to protect the secret cannot alone render
a means of acquisition proper. So long as the precautions taken were reasonable, it
doesn’t matter that the defendant found a way to circumvent them. Indeed, even if
the trade-secret owner took no measures to protect its secret from a certain type of
reconnaissance, that method may still constitute improper means.
In one case from the former Fifth Circuit, for example, DuPont claimed that
trade secrets had been misappropriated by photographers who took pictures of its
methanol plant from a plane. See Christopher, 431 F.2d at 1013. These aerial
14
The defendants here don’t argue that they reverse-engineered any trade secret, so we needn’t
address the reverse-engineering question.
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photographs, DuPont contended, threatened to reveal its secret method of
manufacturing methanol. See id. at 1013–14. The photographers sought summary
judgment, emphasizing that “they conducted all of their activities in public
airspace, violated no government aviation standard, did not breach any confidential
relation, and did not engage in any fraudulent or illegal conduct.” Id. at 1014. The
Fifth Circuit rejected their contention and held that the aerial photography
constituted improper means even though DuPont had left the its facility open to
inspection from the air. See id. at 1015. Under the broad definition adopted in
Christopher, misappropriation occurs whenever a defendant acquires the secret
from its owner “without his permission at a time when he is taking reasonable
precautions to maintain its secrecy.” Id.* * *
Although the magistrate judge found Compulife’s Transformative Database
to be a trade secret, he determined that the defendants hadn’t misappropriated it.
The magistrate judge’s analysis, however, contains two flaws. First, in both in the
08 case and in the 42 case, he failed to consider the several alternative varieties of
misappropriation contemplated by FUTSA. Second, in the 42 case, he erred in
reasoning that the public availability of quotes on Compulife’s Term4Sale site
automatically precluded a finding that scraping those quotes constituted
misappropriation.
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A
The magistrate judge rejected the misappropriation-by-use claims in the 08
case because he found that Compulife had “failed to prove the existence of the
duty critical to its claims of trade secret misappropriation through use.” Compulife
Software, 2018 U.S. Dist. LEXIS 41111, at *50. The judge erred in considering
only varieties of misappropriation by use that require a violation of some legal
“duty” external to the statute.15 To be sure, some types of use-misappropriation do
require proof of an external duty under the Florida statute, see Fla. Stat.
§ 688.002(2)(b)2.b., c. Just as surely, though, the same statute describes other
kinds of use-misappropriation that do not depend on the existence of an external
duty. When, for instance, a defendant knows that his knowledge of a trade secret
was acquired using “improper means,” or that he has acquired knowledge of a
trade secret “by accident or mistake” and still uses it, such use is actionable
misappropriation. Fla. Stat. § 688.002(2)(b)1., 2.a., 3. Moreover, while not
defined in the statute, the bar for what counts as “use” of a trade secret is generally
low. See Penalty Kick Mgmt. v. Coca Cola Co., 318 F.3d 1284, 1292 (11th Cir.
2003) (“[A]ny exploitation of the trade secret that is likely to result in injury to the
15
Compulife doesn’t concede that it failed to prove a preexisting duty, which it locates in its
licensing agreements. We needn’t address the contractual-duty issue because we vacate the
judgment on other grounds.
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trade secret owner or enrichment to the defendant is a ‘use.’” (quoting Restatement
(Third) of Unfair Competition § 40 cmt. c (1995))). Even assuming that the
defendants had no external “duty” not to use Compulife’s trade secret, they
nonetheless may have used the secret in violation of the statute.
The magistrate judge never considered these possibilities, although they are
plainly contemplated in the Florida statute. And there was clearly enough evidence
of these other, non-duty-based varieties of use-misappropriation that the magistrate
judge should have discussed them before dismissing them. In the 08 case, the
defendants plausibly engaged in “misrepresentation”—and thus “improper means”
within meaning of the statute—given the way that David Rutstein explained the
defendants’ affiliation with McSweeney and Savage to Compulife’s Jeremiah
Kuhn when Rutstein initially sought access to the Transformative Database. Fla.
Stat. § 688.002(1), (2)(b)1. Alternatively, even if the email exchange between
Rutstein and Kuhn didn’t amount to “improper means,” it could have been
understood as an “accident or mistake” of which the defendants knew or had
reason to know and by which they gained knowledge of the Transformative
Database. Id. § (2)(b)3. In either case, the defendants’ use would amount to
misappropriation—without respect to the presence (or absence) of any external
duty. The magistrate judge’s failure to consider either possibility requires vacatur
and remand. See Swint, 456 U.S. at 291 (explaining that failure “to make a finding
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because of an erroneous view of the law” generally requires remand “to permit the
trial court to make the missing findings”).
The magistrate judge should also have considered misappropriation by use
in the 42 case. The judge seems to have considered only misappropriation by
acquisition as to that case—more on that momentarily—but there was no
justification for truncating the analysis in this way. If the scraping attack
constituted “improper means”—a question that the magistrate judge also failed to
address—it would be difficult to escape the conclusion that the defendants either
(1) used a trade secret of which they had improperly acquired knowledge or
(2) used a trade secret of which they had acquired knowledge from a person whom
they knew or had reason to know had improperly acquired the knowledge. See Fla.
Stat. § 688.002(2)(b)1., 2.a. The defendants admitted both to hiring the hacker and
to observing her take actions consistent with a scraping attack. It’s hard to see how
the defendants didn’t at least “have reason to know” that Natal had acquired
knowledge of a trade secret for them by improper means—if, indeed, the scraping
attack amounted to improper means. The magistrate judge’s failure to consider
this possibility must also be rectified on remand.
B
In addition to improperly ignoring the possibility of misappropriation by use
in the 42 case, the magistrate judge erred in his treatment of misappropriation by
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acquisition. He reasoned—improperly, we conclude—that the Transformative
Database couldn’t have been misappropriated by acquisition in the 42 case because
the individual quotes that Natal scraped were freely available to the public. True,
the quotes’ public availability is important to the first prong of trade-secret
misappropriation—the initial determination whether a protectable secret exists.
Public availability creates a vulnerability, which—if unreasonable—could be
inconsistent with the reasonable precautions requisite to trade-secret protection.
See Fla. Stat.§ 688.002(4)(b). But here the magistrate judge found that the
Transformative Database was a trade secret; he gave judgment for the defendants
because he believed that the public availability of the quotes precluded a finding of
misappropriation. The magistrate judge reasoned that all “claims in the 42 case,
alleging misappropriation of these quotes, necessarily fail” simply because the
individual quotes were available to the public and thus did “not constitute trade
secrets.” Compulife Software, 2018 U.S. Dist. LEXIS 41111, at *45.
That is incorrect. Even granting that individual quotes themselves are not
entitled to protection as trade secrets, the magistrate judge failed to consider the
important possibility that so much of the Transformative Database was taken—in a
bit-by-bit fashion—that a protected portion of the trade secret was acquired. The
magistrate judge was correct to conclude that the scraped quotes were not
individually protectable trade secrets because each is readily available to the
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public—but that doesn’t in and of itself resolve the question whether, in effect, the
database as a whole was misappropriated. Even if quotes aren’t trade secrets,
taking enough of them must amount to misappropriation of the underlying secret at
some point. Otherwise, there would be no substance to trade-secret protections for
“compilations,” which the law clearly provides. See Fla. Stat. § 688.002(4)
(“‘Trade secret’ means information, including a . . . compilation.”); Unistar Corp.
v. Child, 415 So. 2d 733, 734 (Fla. Dist. Ct. App. 1982) (holding that a “distillation
of” publicly available information was a protectable trade secret). And total, stem-
to-stern appropriation is unnecessary to establish liability; appropriation of a
“substantial portion” is sufficient. Cf. Penalty Kick Mgmt., 318 F.3d at 1292–1293
(“The unauthorized use need not extend to every aspect or feature of the trade
secret; use of any substantial portion of the secret is sufficient to subject the actor
to liability.” (quoting Restatement (Third) of Unfair Competition § 40 cmt. c
(1995))).
Nor does the fact that the defendants took the quotes from a publicly
accessible site automatically mean that the taking was authorized or otherwise
proper. Although Compulife has plainly given the world implicit permission to
access as many quotes as is humanly possible, a robot can collect more quotes than
any human practicably could. So, while manually accessing quotes from
Compulife’s database is unlikely ever to constitute improper means, using a bot to
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collect an otherwise infeasible amount of data may well be—in the same way that
using aerial photography may be improper when a secret is exposed to view from
above. See Christopher, 431 F.2d at 1013. In the most closely analogous case of
which we are aware, a district court held that hacking a public-facing website with
a bot amounted “improper means.” Physicians Interactive v. Lathian Sys., Inc.,
No. CA 03-1193-A, 2003 WL 23018270, at *8 (E.D. Va. Dec. 5, 2003) (“There
can be no doubt that the use of a computer software robot to hack into a computer
system and to take or copy proprietary information is an improper means to obtain
a trade secret, and thus is misappropriation under the VUTSA.”). 16 In that case,
the trade-secret owner’s “failure to place a usage restriction on its website” did not
automatically render the hacking proper. Id. at *7. So too, here.
Consider how broadly the magistrate judge’s reasoning would sweep. Even
if Compulife had implemented a technological limit on how many quotes one
person could obtain, and even if the defendants had taken all the data, rather than a
subset of it, each quote would still be available to the public and therefore not
entitled to protection individually. On the magistrate judge’s logic, Compulife
16
VUTSA—the Virginia Uniform Trade Secrets Act—is sufficiently similar to FUTSA that
Physicians Interactive provides a persuasive indication that similar hacking would constitute
improper means under FUTSA, as well. Compare Va. Code § 59.1-336 (“‘Improper means’
includes theft, bribery, misrepresentation, use of a computer or computer network without
authority, breach of a duty or inducement of a breach of a duty to maintain secrecy, or espionage
through electronic or other means.”) with Fla. Stat. § 688.002(1) (“‘Improper means’ includes
theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy,
or espionage through electronic or other means.”).
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couldn’t recover even in that circumstance, because even there—in the magistrate
judge’s words—“any member of the public [could] visit the website of a
Compulife customer to obtain a quote” with “no restriction” on the subsequent use
of the quote. Compulife Software, 2018 U.S. Dist. LEXIS 41111, at *45. But
under the plain terms of the governing statute, the defendants would be liable in
this scenario; they would have acquired a compilation of information that
“[d]erives independent economic value . . . from . . . not being readily
ascertainable” and “[i]s the subject of efforts that are reasonable under the
circumstances to maintain its secrecy” by means which plainly amount to
“espionage through electronic . . . means.” Fla. Stat.§ 688.002(1), (4).
The magistrate judge treated the wrong question as decisive—namely,
whether the quotes taken were individually protectable. He left undecided the truly
determinative questions: (1) whether the block of data that the defendants took was
large enough to constitute appropriation of the Transformative Database itself, and
(2) whether the means they employed were improper. Having found that the
Transformative Database was protectable generally, the magistrate judge was not
free simply to observe that the portions taken were not individually protectable
trade secrets.
We express no opinion as to whether enough of the Transformative Database
was taken to amount to an acquisition of the trade secret, nor do we opine as to
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whether the means were improper such that the acquisition or use of the quotes
could amount to misappropriation. We merely clarify that the simple fact that the
quotes taken were publicly available does not automatically resolve the question in
the defendants’ favor. These issues must be addressed on remand. 17
V
That concludes the hard part. We turn now to the more straightforward
issues, both of which the magistrate judge got exactly right: false advertising and
Florida’s anti-hacking statute.
A
To recover for false advertising under the federal Lanham Act, 15 U.S.C.
§ 1051 et seq., Compulife had the burden to prove five elements:
(1) the ads of the opposing party were false or misleading, (2) the ads
deceived, or had the capacity to deceive, consumers, (3) the deception
had a material effect on purchasing decisions, (4) the misrepresented
17
The magistrate judge rejected the acquisition-based claims in the 08 case because it found that
the nature of the defendants’ access to the Transformative Database couldn’t amount to
acquisition. This question should also be reconsidered on remand, however, because the
magistrate judge’s misunderstanding of the location of the Transformative Database was clear
error and may have played a dispositive role in that determination. The magistrate judge found
that “[e]nd users can access the Transformative Database only through . . . www.term4sale.com.”
Compulife Software, 2018 U.S. Dist. LEXIS 41111, at *6–7. But in so doing, the judge cited to
trial testimony in which Chris Bruner said the opposite. Bruner explained that the internet
“engine is set up to use data files locally to itself” and users therefore can’t normally access
“files on Compulife’s server.” The “internet engine software” accesses “data” put into
Compulife’s “database” when it uses “data files locally to itself.” This indicates the basic fact
that the magistrate judge misunderstood: Compulife provides an encrypted copy of its
Transformative Database to each licensed user as part of its software. Robert Barney even
testified squarely that “[t]he PC version delivers the database.” Indeed, the defendants don’t
appear to contest that point; they acknowledge in their brief that MSCC’s Vam DB sever
contained the Transformative Database.
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product or service affects interstate commerce, and (5) the movant has
been—or is likely to be—injured as a result of the false advertising.
Johnson & Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., 299 F.3d 1242, 1247
(11th Cir. 2002). 18
Compulife bore the burden of proving that the defendants had actually
advertised falsely or misleadingly, and the magistrate judge did not clearly err in
determining that Compulife failed to prove the existence of any false or misleading
advertisement. See Osmose, Inc. v. Viance, LLC, 612 F.3d 1298, 1309 (11th Cir.
2010) (“Literal falsity is a finding of fact reviewed for clear error.”). As the
magistrate judge observed, Compulife didn’t clearly identify at trial any particular
statement alleged to constitute false advertising. In its proposed findings of fact
and conclusions of law, Compulife asserted that “[e]nticing . . . users” with “quotes
for term life insurance where the source of those quotes is infringing software and
18
Compulife also asserts false advertising in violation of the Florida Deceptive and Unfair Trade
Practices Act (FDUTPA) and Florida common law, but these aren’t truly distinct allegations.
Compulife admits that “[t]he legal standards for Florida statutory and common law claims of
trademark infringement and unfair competition under . . . [FDUTPA] are the same as those for
federal claims of trademark infringement and unfair competition.” Br. of Appellant at 69
(quoting Rain Bird Corp. v. Taylor, 665 F. Supp. 2d 1258, 1267 (N.D. Fla. 2009)). Accordingly,
Compulife has waived any claim under FDUTPA or Florida common law that doesn’t rise or fall
with its Lanham Act claims, and we won’t analyze either separately. See also Crystal Entm’t &
Filmworks, Inc. v. Jurado, 643 F.3d 1313, 1323 (11th Cir. 2011) (“[T]he legal standards we
apply to [the FDUPTA] claim are the same as those we have applied under section 43(a) of the
Lanham Act.”); Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes & of
Malta v. Fla. Priory of Knights Hospitallers of Sovereign Order of Saint John of Jerusalem,
Knights of Malta, Ecumenical Order, 702 F.3d 1279, 1296 (11th Cir. 2012) (“The success of . . .
state unfair competition and FDUTPA claims is tied to the federal Lanham Act claims for
infringement and false advertising.”).
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stolen trade secrets is . . . unquestionably unfair competition and false advertising.”
The bare fact that the defendants hosted a quote engine on their website without
providing notification that Compulife was the ultimate source of the quotes,
though, doesn’t imply the existence of any advertisement, let alone a false one.
And just because the defendants stipulated that the quote engine was a “key
benefit” doesn’t mean, as Compulife seems to imply, that the defendants made any
particular advertisement regarding that engine, and, again, it certainly doesn’t
imply any misleading advertisement. Although before us Compulife singles out an
advertisement on NAAIP’s website, it didn’t present that ad to the magistrate
judge. Accordingly, it has waived any argument predicated on that ad. See CSX
Transportation, Inc. v. Gen. Mills, Inc., 846 F.3d 1333, 1336–37 (11th Cir. 2017)
(“[I]f a party hopes to preserve a[n] . . . argument, . . . [it] must first clearly present
it to the district court . . . in such a way as to afford the district court an opportunity
to recognize and rule on it.” (alterations in original)).
Even if the issue had been properly preserved, we wouldn’t find clear error
here. The language from NAAIP’s website on which Compulife now focuses
likely doesn’t qualify as false advertising under the statute because it has no
capacity to deceive and wasn’t material to any purchasing decision. See 1-800
Contacts, Inc., 299 F.3d at 1247. Compulife claims that the defendants advertised
their quote engine as a “key benefit” on their website, but the contents of this
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advertisement aren’t so clear in the record. The defendants stipulated before the
magistrate judge that the quote engine was a key benefit of their site, not that they
had advertised it as such. And while David Rutstein testified that NAAIP
“advertises that it has a quote engine” on its home page, he refused to say that it
was advertised as “a great quote engine” or that it was “an important selling point.”
If credited, Rutstein’s testimony would indicate that the web advertisement lacked
materiality and the “capacity to deceive” consumers. 1-800 Contacts, Inc., 299
F.3d at 1247 Compulife insists that the ad was deceiving because it held out
Compulife’s technology as NAAIP’s, but merely claiming to have a quote engine
is unlikely to mislead anyone into assuming anything about the ultimate source of
the software or the quotes that it generates. Moreover, even if consumers were
misled, it is still difficult to see why that deception would have “had a material
effect on purchasing decisions.” Id. Consumers have good reason to care about
the quality of the quote engine, but not the identity of its author or the host of the
server with which it communicates.
We find no error—much less clear error—in the magistrate judge’s
determination that Compulife failed to prove false advertising. To make its case,
Compulife needed to identify a particular statement or set of statements that
amount to a false advertisement, which it failed to do. And Compulife’s belated
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argument before this Court is both unpreserved and unconvincing. We affirm as to
this issue.
B
At long last, we reach the final issue in this appeal—the Florida Computer
Abuse and Data Recovery Act, which provides a cause of action for certain kinds
of hacking. As relevant here, it states: “A person who knowingly and with intent
to cause harm or loss . . . [o]btains information from a protected computer without
authorization . . . [or] [c]auses the transmission of a program, code, or command to
a protected computer without authorization . . . caus[ing] harm or loss . . . is
liable to. . . the owner of information stored in the protected computer.” Fla. Stat.
§ 668.803(1) & (2) (emphasis added). A “protected computer” is one that “can be
accessed only by employing a technological access barrier.” Fla. Stat.
§ 668.802(6).
Compulife doesn’t attempt to argue that the defendants penetrated a
“technological access barrier.” Instead, Compulife maintains that this showing
was unnecessary because it did not allege a violation of Fla. Stat. § 668.803(3)—
which imposes liability for “[t]raffic[king] in any technological access barrier
through which access to a protected computer may be obtained without
authorization”—but only of § 668.803(1) & (2). On this point, Compulife simply
misreads the law, overlooking the fact that a “protected computer”—as used in
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subsections (1) & (2)—is statutorily defined as one that can be accessed only “by
employing a technological access barrier.” Fla. Stat. § 668.802(6). All CADRA
violations—not just those arising under § 668.803(3)—therefore require proof of
access through a “technological access barrier.” Compulife’s undisputed failure to
prove the presence of a “technological access barrier” is fatal to its claim. We
affirm as to CADRA.
VI
The magistrate judge committed errors of law and made insufficient
findings, which tainted his conclusion that Compulife’s copyright was not
infringed. He also erred in his analysis of trade-secret misappropriation, both by
failing to consider the application of several species of misappropriation and by
committing legal error. Accordingly, we vacate the judgment as to copyright
infringement and trade-secret misappropriation and remand for new findings of
fact and conclusions of law. We find no reversible error in the magistrate judge’s
rejection of Compulife’s other claims and affirm the remainder of the judgment.
AFFIRMED in part, VACATED in part, and REMANDED for new
findings of fact and conclusions of law on the claims of copyright infringement and
trade-secret misappropriation.
53