IP Law Daily, COPYRIGHT—11th Cir.: Finding of no copyright infringement reversed amid failure to consider arrangement of computer code, (Aug 1, 2024)

By Robert B. Barnett Jr., J.D.

The Eleventh Circuit remanded for a determination of whether the arrangement of the computer code is protectible.

After a Florida district court ruled that Compulife Software’s competitors stole its computer-code trade secrets but did not infringe its copyrights, the Eleventh Circuit has reversed the finding of no copyright infringement because the trial court failed to consider the copyrightability of the computer code’s arrangement itself. Having reversed the infringement ruling, the appellate court affirmed the finding in favor of trade secret misappropriation, as well as the lower court’s finding that the defendants were jointly and severally liable despite their varying levels of culpability (Compulife Software, Inc. v. Newman, No. 21-14071 (11th Cir. August 1, 2024)).

Background. Compulife Software, Inc., makes life insurance comparison-and-quotation software, which it licenses to customers. The software relies on a proprietary database developed in part from relationships with various insurance companies. The software looks up information in the database and compiles a quote.

David Rutstein was an insurance agent who has been permanently barred from the industry. He created several websites registered in the names of his son Binyomin Rutstein and Aaron Levy. Using his son’s insurance license, David Rutstein obtained access to Compulife’s software by pretending to be associated with one of Compulife’s licensees. Thus, he lied to get Compulife to put its web quoter on Rutstein’s website. David Rutstein and Aaron Levy then ordered an employee, Moses Newman, to engaging in a scraping attack on Compulife’s website to obtain millions of quotes. Rutstein and the others used the scraped information to build their own database to compete with Compulife, quite successfully as it turned out.

Compulife sued David Rutstein, Binyomin Rutstein, Levy, and Newman in Florida federal court for copyright infringement and misappropriation of trade secrets. A magistrate judge held a bench trial, which was appealed, with the Eleventh Circuit clarifying some standards that apply and asking the trial court for more specific findings.

On remand, a new judge conducted a second bench trial that incorporated the Eleventh Circuit’s findings. The district court ruled that most of Compulife’s code was not protectible and that the protectible parts were not substantially significant to the code used by the competitor. After finding the four defendants not guilty of copyright infringement, the trial court ruled that the four defendants were guilty of misappropriation of trade secrets because the scaping constituted an improper means of obtaining the data. The court, therefore, granted injunctive relief and entered judgment for $184,225.87 in compensatory damages and $368,451.74 in punitive damages. All four defendants were held jointly and severally liable for the full amount.

Both sides appealed. Compulife appealed the decision rejecting its copyright infringement claim. The four individuals appealed the decisions on both the misappropriation claim and the ruling that all four defendants were jointly and severally liable.

Copyright infringement. In determining whether legal copying occurred, the courts in Florida use a three-step test: (1) an abstraction to break down the infringed program into its constituent parts, (2) a filtering to sift out non-protectible material, and (3) a comparison of the protected material with the infringing material to determine if infringement had occurred.

The appellate court ruled that the district court largely got the question right. It used the correct test, and it largely analyzed Compulife’s computer program correctly. The district court, however, made one crucial error: when abstracting the constituent parts in the first of the three steps, the district court failed to consider the arrangement of the source code as one of the constituent parts.

The arrangement of the source code can itself be protectible, the Eleventh Circuit said. In other cases, the Eleventh Circuit has held that the arrangement of yacht listings, the arrangement of elements of a user interface, and the arrangement of the sequence, structure, and organization of software packages were all protectible. This case is no different. Furthermore, the court said, the arrangement of literal elements, such as source code, is to be treated no differently from the arrangement of nonliteral elements of a program, which as a user interface.

Although the district court considered the selection and arrangement of Compulife’s code “to some degree,” the appellate court said, it “never identified the entire arrangement of these variables in the code as a constituent component of the code.” The failure to do so constituted reversible error. “We draw no conclusion about whether the arrangement of this code is protectable,” the Eleventh Circuit ruled. “We simply hold that the district court erred in failing to consider whether it was.”

The Eleventh Circuit then went on to analyze the district court’s use of the final two steps in the copying analysis, finding no error. Thus, the only issue for the lower court on remand will be to consider whether the arrangement of the code was a protectible element.

Trade secrets. A trade secrets misappropriation claim under Florida law has two components: (1) a trade secret possessed by the plaintiff and (2) misappropriation by the defendant.

Examining first whether the database that Compulife owned constituted a trade secret, the Eleventh Circuit agreed with the trial court that it did, confirming a similar conclusion that the Eleventh Circuit had reached on the first appeal. First, Compulife undertook all reasonable efforts to maintain its secrecy, including the “great lengths [it went through] to control the use of its software through licenses.” Second, Compulife’s decision to allow David Rutstein access to the database did not negate Compulife’s contention that it controlled access because Rutstein lied his way in. Third, even though the insurance quotes were publicly accessible, the compilation of the quotes was still a trade secret. Thus, the database constituted a trade secret.

Turning to misappropriation, the Eleventh Circuit had little difficulty concluding that the district court had correctly ruled that misappropriation had occurred. The four defendants clearly used improper means to access the database. Although scraping and similar technologies can be perfectly legal, the four defendants engaged in deceptive behavior to obtain the millions of quotes they received. In fact, the district court had determined that the four defendants stole somewhere between 3 million and 43.5 million quotes.

Furthermore, the evidence revealed that, after the scraping attack, Compulife lost business, lost customers looking for free trials, saw a reduction in free trials that were converted to four-month subscriptions, and saw a reduction in four-month subscriptions that converted to annual subscriptions. Meanwhile, the competitor saw gains in the quotes generated on its website and new revenue. As a result, the appellate court agreed with the district court that the competitor’s database posed a competitive threat. Thus, the Eleventh Circuit ruled, the district court was correct when it determined that Compulife’s trade secret had been acquired by the four defendants and that trade secret misappropriation has occurred.

Joint and several. Under Florida law, comparative fault is applied, except for intentional torts. Also under Florida law, trade secret misappropriation is an intentional tort. In addition, joint and several liability is applied when the defendants act in concert and their combined efforts produce a single injury. Thus, the Eleventh Circuit ruled, the lower court correctly ruled that joint and several liability applied in this case because the four defendants were guilty of acting in concert to commit an intentional tort.

Furthermore, joint and several liability does not require equal fault among all defendants. Compulife has the right to recover all damages from any of the four defendants, even if one or more of the four was less culpable than the others. David Rutstein lied his way into the database. Newman supervised the scraping attacks at David Rutstein’s and Levy’s direction. Binyomin Rutstein owned the company that designed the website, gave his father permission to use his insurance license, and collected fees generated from the stolen trade secrets.

The Eleventh Circuit noted in dicta that, though joint and several liability applies to compensatory damages, different levels of culpability may be relevant to assessing punitive damages. Because the issue was not raised on appeal, however, the Eleventh Circuit did not address it.

The Eleventh Circuit, therefore, affirmed the lower court’s opinion in part and reversed it in part. The matter was remanded for further proceedings.

The Case is No. 21-14071.

Judge: Brasher, A.

Attorneys: Joel Benjamin Rothman (SRipLaw, PA) for Compulife Software, Inc. Michael Gulisano (Gulisano Law, PLLC) for Moses Newman.

Companies: Compulife Software, Inc.

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