Liu, Xu v. Price Waterhouse ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 01-1744 and 01-2119
XU LIU,
Plaintiff-Appellant,
v.
PRICE WATERHOUSE LLP and
COMPUTER LANGUAGE RESEARCH, INC.,
Defendants/Third-Party Plaintiffs-Appellees,
v.
XIAOMEI YANG,
Third-Party Defendant-Appellant.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 3093—James F. Holderman, Judge.
____________
ARGUED NOVEMBER 28, 2001—DECIDED SEPTEMBER 10, 2002
____________
Before HARLINGTON WOOD, JR., KANNE, and ROVNER,
Circuit Judges.
KANNE, Circuit Judge. A jury found against Xiaomei
Yang and Xu Liu on various copyright-infringement,
breach-of-contract, breach-of-fiduciary-duty, and conver-
sion of property claims. Yang and Liu now appeal. First,
Yang and Liu argue that the district court erred in deny-
ing their renewed motion for judgment as a matter of law
2 Nos. 01-1744 and 01-2119
or for a new trial and that it erred when it allowed Price
Waterhouse and Computer Language Research, Inc.’s
(“CLR”) economic expert to introduce the results of tele-
phone surveys as fact testimony. Further, Yang and Liu
contend that the district court abused its discretion
when it granted Price Waterhouse and CLR’s motion for
remittitur and when it denied Yang’s motion for prejudg-
ment interest and costs. We affirm the judgment of the
district court.
I. Background
Price Waterhouse’s Tax and Technology Group developed
and marketed a tax preparation software package, the
Tax Management System (“TMS”). The TMS software
was initially a DOS-based program. But in 1994, Price
Waterhouse hired Patrick J. McNerthney to develop a
Windows® version (8.0) of the TMS software. McNerthney
created a subprogram called RevUp32, which interfaced
with the Windows® TMS program to access files created
with the DOS-based program. Price Waterhouse owned the
copyrights pertaining to both the TMS software and the
RevUp32 program until it sold most of its TMS business
assets to CLR in December 1995.
In March 1995, Yang, an employee acting on behalf
of Price Waterhouse, attempted to locate computer pro-
grammers in China who could increase the speed of the
RevUp32 program in return for a fee and a commitment
by Price Waterhouse to outsource future projects to
China. Yang contacted several Chinese programmers and
eventually selected the Sichuan Sky Company Limited (the
“Sky Company”) to do the work. Shortly thereafter, Yang
became concerned that Price Waterhouse and the Sky
Company might exclude her from future projects. To al-
leviate Yang’s fears, Stephen Desmond, Price Waterhouse’s
partner in charge of the Tax Technology Group, prepared
a letter dated May 22, 1995, stating that if Yang success-
Nos. 01-1744 and 01-2119 3
fully met the objectives of the “China Project,” Price
Waterhouse would appoint her to lead future ventures in
China.
Yang and Gerard Niles, Price Waterhouse’s Chief De-
velopment Officer and Senior Vice President of the Tax
Technology Group, subsequently worked out the details of
the arrangement between Yang and Price Waterhouse
and set forth their agreement in a written letter dated
June 7, 1995. The letter, signed by Niles, stated in perti-
nent part:
Price Waterhouse LLP agrees to pay $25,000 (twenty-
five thousand dollars) for each 25% increase in TMS
speed resulting from work on the RevUp. After the
initial 25% improvement is achieved, payment will be
made in $1,000 increments for each percentage in-
crease. For example, if the speed is increased by 49%,
Price Waterhouse will pay $49,000.00.
...
Price Waterhouse will be given 30 days upon receipt
of the object code to perform acceptance testing. If
Price Waterhouse discovers problems, the consultants
agree to resolve any and all issues on a timely basis.
When issues are resolved, the consultants will give
Price Waterhouse an additional 30 days upon receipt
of the revised object code to perform acceptance test-
ing. Upon successful completion of acceptance testing
and verification of the speed increases, Price Water-
house will pay the aforementioned amount. . . . The Tax
Technology Group will supply the source code for the
RevUp . . . . It is clearly understood that the source
code is the sole property of Price Waterhouse and
Price Waterhouse gives no authority, implied or other-
wise, to distribute or copy this source code in any way.
Upon completion of the project, ALL source code will
be given back to Price Waterhouse.
4 Nos. 01-1744 and 01-2119
If this project is successful, Price Waterhouse will
consider the same consultants as strong candidates for
future development projects.
Price Waterhouse then disclosed to Yang the source code
to the RevUp32 program.1 In turn, Yang disclosed the
RevUp32-program source code to the Sky Company pro-
grammers. Using the original source code to the RevUp32
program, the Sky Company programmers successfully
increased the speed of the RevUp32 program by 264%.
Upon completion of this newer, faster RevUp32 pro-
gram (the “China RevUp32 program”), Yang sent the ob-
ject code to the “China RevUp32 program” to Price Water-
house.2 Although Yang was willing to turn over the ob-
ject code to the China RevUp32 program, she refused to
turn over the new source code unless Price Waterhouse
guaranteed her future work in China, in addition to pay-
ing her the $264,000 she was due under the June 7, 1995
letter agreement. Price Waterhouse, however, refused
to make any further guarantees to Yang and refused to
pay Yang the $264,000 until the source code for the China
RevUp32 program was turned over to Price Waterhouse.
Subsequently, the Sky Company programmers asserted
an ownership interest in the copyrights pertaining to the
China RevUp32 program. They then proceeded to assign
their asserted copyrights to Liu, Yang’s daughter. Yang
then registered the China-RevUp32-program copyrights
in Liu’s name.
1
The source code of a program is its operating instructions in
a format that a computer programmer can read and use to main-
tain and revise a program.
2
An object code is operating instructions in a format that can be
read by a computer, as opposed to the source code, which, as ex-
plained above, is read by a computer programmer.
Nos. 01-1744 and 01-2119 5
In December 1995, CLR purchased the TMS software
business from Price Waterhouse and began selling the TMS
software, which incorporated the China RevUp32 program.
Price Waterhouse and CLR then contacted Patrick
McNerthney, the programmer who had authored the
original RevUp32 program, and asked him to attempt
to increase the speed of his original RevUp32 program.
Because McNerthney was familiar with the original pro-
gram, he was able to enhance the RevUp32 program
for CLR in several weeks. Then, starting in November
1996, CLR substituted McNerthney’s faster RevUp32 pro-
gram for the China RevUp32 program in their TMS soft-
ware.
In April 1997, Liu filed a suit for copyright infringement
against Price Waterhouse and CLR for allegedly infring-
ing her copyrights in the China RevUp32 program by
selling the TMS software, which incorporated the China
RevUp32 program. Price Waterhouse and CLR denied
infringement and filed a counterclaim against Liu for
copyright infringement, alleging that Liu infringed their
copyrights in the China RevUp32 program by filing a
copyright registration in her name. Price Waterhouse
and CLR also filed a third-party complaint against Yang,
alleging contributory copyright infringement, breach of
fiduciary duty, conversion of property, and trade secret
misappropriation.
The above-recited facts were adduced during a ten-day
trial. Subsequently, the jury determined that Price Water-
house and CLR validly owned the copyrights in both
the original RevUp32 program and the China RevUp32
program. The jury further found that Liu had infringed
these copyrights by asserting an ownership interest in
the China RevUp32 program, that Yang had contributed
to Liu’s infringement, and that Yang breached her fiduci-
ary duty to Price Waterhouse and had converted prop-
erty. Additionally, Price Waterhouse was found to have
6 Nos. 01-1744 and 01-2119
breached the June 7, 1995 letter agreement by failing to
pay Yang the $246,000 that was due to her. Further, Yang
was found to have breached the same agreement by fail-
ing to turn over to Price Waterhouse the China-RevUp32-
program source code upon completion of the China project.
In their answers to a series of special interrogatories, the
jury found specifically that in the June 7, 1995 letter
agreement, the parties intended that the copyrights per-
taining to the China RevUp32 program would become the
property of Price Waterhouse upon completion of the pro-
ject and that the project was in fact completed. Further,
the jury found that Yang was a Price Waterhouse employ-
ee while she worked in China and that therefore she
was obligated to use her best efforts to protect Price Water-
house’s copyright interests. Additionally, the jury deter-
mined that Yang had not used her best efforts to protect
the China RevUp32 program while she was employed at
Price Waterhouse.
The jury awarded Price Waterhouse and CLR $200 in
damages for Liu’s copyright infringement and $200 in
damages for Yang’s contributory infringement. The jury
also awarded Yang damages in the amount of $600,000
for Price Waterhouse’s breach of contract. Liu and Yang
then moved for judgment as a matter of law or a new
trial pursuant to Rules 50(b) and 59, on the grounds that
the Sky Company programmers never actually assigned
their ownership interests in the China RevUp32 program
copyrights to Price Waterhouse and thus, Liu is the true
owner of the China RevUp32 program. The district court
rejected Liu and Yang’s argument and denied their mo-
tions. The district court then granted Price Waterhouse
and CLR’s motion for remittitur, reducing Yang’s award
from $600,000 to $264,000 on the grounds that the only
evidence Yang presented to the jury on her breach-of-
contract claim was that Price Waterhouse owed her
$264,000 pursuant to the June 7, 1995 letter agreement.
Nos. 01-1744 and 01-2119 7
Further, the court denied Yang’s motion for prejudgment
interest on her breach-of-contract claim and her motion
for costs.
On appeal, Yang and Liu argue that the district court
erred in denying their motion for judgment as a matter
of law or for a new trial because Liu is the true owner of
the China RevUp32 program and consequently neither
she nor Yang could have infringed Price Waterhouse’s
copyrights. They contend that because the Sky Company
programmers exclusively authored the China RevUp32
program, the ownership interest in the China RevUp32
copyrights vested in the programmers. Further, accord-
ing to Liu and Yang, the June 7, 1995 letter agreement
is not a valid transfer of copyright ownership from the
Sky Company programmers to Price Waterhouse. Addi-
tionally, Yang and Liu contend that the district court
abused its discretion in admitting hearsay testimony
from Price Waterhouse and CLR’s economic expert; that
the district court abused its discretion in granting Price
Waterhouse and CLR’s motion for remittitur; and that
the district court abused its discretion in denying Yang’s
motion for prejudgment interest and costs.
II. Analysis
A. Renewed Motion for Judgment as a
Matter of Law or a New Trial
We review the denial of a post-trial motion for judg-
ment as a matter of law de novo but view the evidence in a
light most favorable to the nonmoving party. See Am.
Nat’l Bank & Trust v. Reg’l Transp. Auth., 125 F.3d 420,
431 (7th Cir. 1997). In applying this de novo standard of
review, we evaluate whether any reasonable jury could
have reached the same conclusion. See id. If we answer
this question affirmatively, then we will not overturn the
district court’s denial of the motion. See id. With respect
8 Nos. 01-1744 and 01-2119
to Yang and Liu’s motion for a new trial, we will only
overturn the district court’s denial of this motion for an
abuse of discretion. See id. Under this standard, “we shall
not second-guess the decision of a trial judge that is in
conformity with established legal principles and, in terms
of its application of those principles to the facts of the
case, is within the range of options from which one would
expect a reasonable trial judge to select.” Id. (quotation
omitted).
Yang and Liu do not dispute that Price Waterhouse
authorized Yang and the Sky Company programmers to
produce a derivative work using the original RevUp32
program. Instead, Yang and Liu contend that contrary
to the findings below, the intent of the parties is irrele-
vant to the question of who owns the copyrights in the
derivative work. They assert that even if the parties
intended that Price Waterhouse would own the copy-
rights in the derivative work, Price Waterhouse by law
cannot own these copyrights because the derivative
work’s authors did not execute a written document assign-
ing ownership of the derivative work to Price Water-
house pursuant to 17 U.S.C. § 204(a). Section 204(a)
provides that “[a] transfer of copyright ownership, other
than by operation of law, is not valid unless an instru-
ment of conveyance, or a note or memorandum of the
transfer, is in writing and signed by the owner of the
rights conveyed or such owner’s duly authorized agent.” 17
U.S.C. § 204(a).
Yang and Liu’s reasoning is flawed. Price Waterhouse,
as the owner of the copyrights in the original RevUp32
program, possesses the exclusive right to prepare deriva-
tive works from this original program. See 17 U.S.C.
§ 106(2); Stewart v. Abend, 495 U.S. 207, 220, 110 S. Ct.
1750, 109 L. Ed. 2d 184 (1990). Because Price Warehouse
possesses such an exclusive right, in order for the Sky
Company programmers to have lawfully prepared a de-
Nos. 01-1744 and 01-2119 9
rivative work, the programmers needed authorization
from Price Waterhouse to use its original program. See
S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1088-89 (9th
Cir. 1989). The June 7, 1995 letter agreement authorized
Yang to recruit the Sky Company programmers to use its
original work to prepare a derivative work. Because
the trial court found that the language of the June 7, 1995
agreement was ambiguous, it was appropriate to look
at the intent of the parties to determine the scope of the
Sky Company programmers’ authorization. The June 7,
1995 letter agreement stated that “[u]pon completion of
the project, ALL source code will be given back to Price
Waterhouse.” Viewing this language in a light most fa-
vorable to Price Waterhouse and CLR, the license agree-
ment provided that Price Waterhouse, not the Sky Com-
pany programmers, would obtain copyright ownership of
the China RevUp32 program.
Further, obtaining copyright protection in the deriva-
tive work was beyond the scope of the permissible uses
authorized by the June 7, 1995 letter agreement. See 1
NIMMER ON COPYRIGHT § 3.06, at 3-34.26 at 26(1) (2002)
(“[T]he right to claim copyright in a noninfringing deriva-
tive work arises by operation of law, not through authority
from the copyright owner of the underlying work. None-
theless, if the pertinent agreement between the parties
affirmatively bars the licensee from obtaining copyright
protection even in a licensed derivative work, that con-
tractual provision would appear to govern.”) (emphasis
added); see also Gracen v. Bradford Exch., 698 F.2d 300,
303 (7th Cir. 1983) (stating that “[e]ven if [Gracen] was
authorized to exhibit her derivative works, she may not
have been authorized to copyright them”).
Contrary to Yang and Liu’s argument on appeal, because
the Sky Company programmers never had any owner-
ship interest in the copyrights in the derivative China
10 Nos. 01-1744 and 01-2119
RevUp32 program, 17 U.S.C. § 204(a) is inapplicable. As
the district court explained:
While the Copyright Act makes authors of derivative
works the presumptive owners of copyright rights in
their contribution, it also allows parties to adjust
those rights by contract. Here, the jury found that the
parties to the letter agreement did just that—agreed
that Price Waterhouse would hold the copyright in
the derivative work. Because of the ambiguity in the
letter agreement, it was necessary and proper for the
jury to consider “the parties’ ” intent in entering into
the letter agreement in order to determine the respec-
tive rights of Price Waterhouse, Yang and the subse-
quent authors of the derivative work, even though those
subsequent authors, the Sky Company Programmers,
did not sign the letter agreement.
Because the jury found that, pursuant to the June 7,
1995 letter agreement, the parties intended that Price
Waterhouse would own the copyrights in the derivative
work, we find no error in the district court’s denial of
Yang and Liu’s motion for judgment as a matter of law
and no abuse of discretion in the district court’s denial
of Yang and Liu’s motion for a new trial.3
B. Motion In Limine to Exclude Expert Testimony
Next, Liu argues that we should reverse the district
court’s denial of her motion in limine to exclude the testi-
mony of Price Waterhouse and CLR’s accounting expert,
3
We do not need to reach the merits of Yang and Liu’s second
argument on appeal—that the district court erred in denying
certain revised jury instructions regarding damages—as it re-
lies upon a finding that Liu was the true owner of the copyright
in the China RevUp32 program.
Nos. 01-1744 and 01-2119 11
Julie Davis, on the issue of Liu’s alleged damages due
to Price Waterhouse and CLR’s copyright infringement.
We review a trial court’s ruling on the admission of expert
testimony for an abuse of discretion. See Bourelle v. Crown
Equip. Corp., 220 F.3d 532, 535 (7th Cir. 2000). How-
ever, we note that even if the district court abused its
discretion in admitting Davis’s expert testimony, such an
error is not grounds “for granting a new trial or for set-
ting aside a verdict or for vacating, modifying, or other-
wise disturbing a judgment or order, unless refusal to take
such action appears to the court inconsistent with sub-
stantial justice.” FED. R. CIV. P. 61; see also Palmquist v.
Selvik, 111 F.3d 1332, 1339 (7th Cir. 1997) (“Disturbing
the judgment of the district court on evidentiary grounds
is necessary only if an erroneous ruling had a substan-
tial influence over the jury.”) (quotation omitted). Accord-
ingly, we will not reverse a jury verdict if an erroneous
admission of expert testimony is harmless; we recognize
that an error is harmless if it did not contribute to the
verdict in a meaningful manner. See Jones v. Lincoln Elec.
Co., 188 F.3d 709, 725 (7th Cir. 1999).
In the present case, Davis testified to the amount of
damages Liu sustained on account of Price Waterhouse
and CLR’s alleged infringement of her copyrights. The
jury, however, never actually reached this issue when
determining their verdict because the jury found that
neither Price Waterhouse nor CLR was liable to Liu for
any damages for infringement, as neither party was
found to have committed copyright infringement. There-
fore, Davis’s testimony was irrelevant to the jury’s ver-
dict. Thus, even if we were to assume that the district
court did err in denying Liu’s motion in limine, we would
not disturb the judgment of the district court as Davis’s
testimony cannot be shown to have had any influence at
all upon the jury’s verdict.
12 Nos. 01-1744 and 01-2119
C. Motion for Remittitur
Next, Yang argues that the district court’s grant of
Price Waterhouse and CLR’s motion for remittitur should
be reversed because she claims that she is entitled to ex-
cess damages above and beyond the $246,000 under sev-
eral different theories of tort liability. “[A] jury has wide
discretion in determining damages.” Am. Nat’l Bank &
Trust, 125 F.3d at 437. And a “trial judge may vacate
a jury’s verdict for excessiveness only when the award
was ‘monstrously excessive’ or the award has ‘no ration-
al connection to the evidence.’ ” DeBiasio v. Ill. Cent. R.R.,
52 F.3d 678, 687 (7th Cir. 1995); see also Frazier v. Norfolk
& W. Railway Co., 996 F.2d 922, 925 (7th Cir. 1993).
Here, the district court explained that the only evi-
dence Yang submitted in support of her breach-of-con-
tract damages was her invoice to Price Waterhouse for
$246,000. Additionally, Yang failed to plead any allega-
tions of tortious conduct; the jury was never instructed on
the elements of any torts that Yang now argues support
the jury’s $600,000 verdict; and finally, Yang consented
to jury instructions that limited her contract damages to
$264,000. This last reason standing alone is sufficient to
find against Yang on appeal. See Jabat, Inc. v. Smith, 201
F.3d 852, 857 (7th Cir. 2000) (“When parties do not ob-
ject to jury instructions, these instructions generally be-
come the law of the case.”) (quotation omitted). Once the
law of the case is settled, the parties can only argue that
the jury did not properly apply the instructions to the
facts. See id. Consequently, we find no error in the district
court’s determination that a portion of the jury’s award
was not rationally connected to the evidence.
D. Prejudgment Interest
Finally, Yang argues that under the Illinois Interest Act,
815 ILCS 205/2 (1998), she is entitled to prejudgment
Nos. 01-1744 and 01-2119 13
interest on her breach-of-contract claim.4 Here, the district
court denied Yang prejudgment interest because Price
Waterhouse had a good-faith dispute with Yang regard-
ing ownership of the source code in the China RevUp32.
Yang argues that it does not matter that there was a
good-faith dispute over the source code. Rather, Yang
asserts that as long as the amount she was owed was
readily ascertainable, she is entitled to prejudgment
interest.
A district court’s decision to award or deny prejudgment
interest will not be disturbed unless that decision consti-
tutes an abuse of discretion. See Singer Co. v. Skil Corp.,
803 F.2d 336, 341 (7th Cir. 1986). Under the Illinois
Interest Act, a creditor is entitled to receive a 5% per
annum interest rate on all monies after they become due
if they are being withheld by an unreasonable and vex-
atious delay of payment. 815 ILCS § 205/2. However, if
payment is being withheld in good faith, because of a
genuine and reasonable dispute, interest will not be
awarded. See Gen. Dynamics Corp. v. Zion State Bank
& Trust Co., 427 N.E.2d 131, 134 (Ill. 1981). This good-faith
exception recognized in General Dynamics has been lim-
ited by the Illinois appellate courts. In Weidner v. Szostek,
614 N.E.2d 879, 883-84 (Ill. App. Ct. 1993), the Illinois
appellate court explained that when parties’ contracts
specifically provide for prejudgment interest on amounts
past due, the good-faith exception set out in General
Dynamics is inapplicable. However, when a prejudgment
interest award is being claimed pursuant to a statute,
then the good-faith exception set out in General Dymanics
4
Yang also argues that the district court abused its discretion
when it denied her motion for costs. Yang premises this argument
on the assumption that we would find Liu to be the proper owner
of the copyright in the China RevUp32 program. Because we made
no such finding, there is no need to discuss this argument.
14 Nos. 01-1744 and 01-2119
may apply. See id. Although the Illinois Supreme Court
has not spoken directly to this issue, we believe that the
Illinois appellate court’s position is correct.
Here, Yang is claiming prejudgment interest pursuant
to the Illinois Interest Act, 815 ILSC § 205/2. The par-
ties themselves, however, never contemplated awarding
prejudgment interest on amounts past due in their agree-
ment. Thus, in this instance the General Dynamics good-
faith exception could be applicable. Because Yang failed
to turn over the source code pursuant to the June 7, 1995
letter agreement, we believe that the district court did
not abuse its discretion in finding that payment was be-
ing withheld by Price Waterhouse in good faith because
of a genuine and reasonable dispute between the parties
and that therefore, Yang was not entitled to an award of
prejudgment interest.
III. Conclusion
For the foregoing reasons, we AFFIRM the district court.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-97-C-006—9-10-02