Data General v. Grumman Systems
Case Date: 09/15/1994
Court: United States Court of Appeals
Docket No: 93-1637
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United States Court of Appeals United States Court of Appeals ______________________________ For the First Circuit For the First Circuit _____________________ ____________________ ____________________ No. 93-1637 ___________ DATA GENERAL CORPORATION, ET AL., _________________________________ Plaintiffs, Appellees, ______________________ v. __ GRUMMAN SYSTEMS SUPPORT CORPORATION, ____________________________________ Defendant, Appellant. _____________________ ____________________ ____________________ APPEAL FROM THE UNITED STATES DISTRICT COURT ____________________________________________ FOR THE DISTRICT OF MASSACHUSETTS _________________________________ [Hon. Walter Jay Skinner, Senior U.S. District Judge] ____________________________________________________ ____________________ Before Torruella, Cyr and Stahl, Circuit Judges. ______________ ____________________ Charles A. Gilman, with whom Cahill, Gordon & Reindel, Robert A. _________________ _________________________ __________ Alessi, Marshall Cox, Allen S. Joslyn, Immanuel Kohn, William T. ______ ____________ ________________ ______________ ___________ Lifland, Gerard M. Meistrell, Roy L. Regozin, Dean Ringel, Laurence T. _______ ___________________ ______________ ___________ ___________ Sorkin, Goodwin, Procter & Hoar, and Coudert Brothers, were on brief ______ ________________________ ________________ for appellant. Robert S. Frank, Jr., with whom Robert M. Buchanan,Jr., ____________________ ______________________ Brian A. Davis, Choate, Hall & Stewart, Jacob Frank, and Morris G. ______________ _______________________ ____________ __________ Nicholson, were on brief for appellees. _________ ____________________ September 14, 1994 ____________________ STAHL, Circuit Judge. Grumman Systems Support STAHL, Circuit Judge. _____________ Corporation ("Grumman") assigns error to the district court's handling of litigation arising from Grumman's acquisition, duplication, and use of MV/Advanced Diagnostic Executive System ("ADEX"), a sophisticated computer program developed by Data General Corporation ("DG") to diagnose problems in DG's MV computers. DG claimed that Grumman had infringed DG's ADEX copyrights and misappropriated trade secrets embodied in ADEX. A jury agreed, awarding DG $27,417,000 in damages (excluding prejudgment interest and attorney's fees). Grumman contends that the district court prematurely dismissed its affirmative defenses and counterclaims and committed several errors during and after the trial. While this case raises numerous issues touching on copyright law, Grumman's most intriguing argument -- presented below as both a defense and a counterclaim -- is that DG illegally maintained its monopoly in the market for service of DG computers by unilaterally refusing to license ADEX to Grumman and other competitors. The antitrust claims are intriguing because they present a curious conflict, namely, whether (and to what extent) the antitrust laws, in the absence of any statutory exemption, must tolerate short- term harm to the competitive process when such harm is caused by the otherwise lawful exercise of an economically potent "monopoly" in a copyrighted work. -2- 2 After a careful analysis, we affirm on all but one relatively minor issue concerning the calculation of damages. I. I. __ BACKGROUND1 BACKGROUND __________ DG and Grumman are competitors in the market for service of computers manufactured by DG, and the present litigation stems from the evolving nature of their competitive relationship. DG not only designs and manufactures computers, but also offers a line of products and services for the maintenance and repair of DG computers. Although DG has no more than a 5% share of the highly competitive "primary market" for mini-computers, DG occupies approximately 90% of the "aftermarket" for service of DG computers. As a group, various "third party maintainers" ("TPMs") earn roughly 7% of the service revenues; Grumman is the leading TPM with approximately 3% of the available service business. The remaining equipment owners (typically large companies in the high technology industry) generally maintain their own computers and peripherals, although they occasionallyneed outsideservice ona"time andmaterials" basis. ____________________ 1. Because the bulk of the fact-related issues on appeal concern the district court's analysis of the record on summary judgment, we generally present the evidence in a light most favorable to Grumman. See, e.g., Levy v. FDIC, 7 ___ ____ ____ ____ F.3d 1054, 1056 (1st Cir. 1993). Naturally, where the story touches on matters necessarily decided by the jury, we present the evidence in a manner most favorable to DG. See, ___ e.g., Toucet v. Maritime Overseas Corp., 991 F.2d 5, 11 (1st ____ ______ _______________________ Cir. 1993) (review of jury's damage award). -3- 3 A. Computer Service: Outputs and Inputs A. Computer Service: Outputs and Inputs ________________________________________ Support service for DG computers entails a variety of activities and a corresponding array of goods and services. The principal activities are maintenance and repair of computer equipment. Maintenance includes care of parts subject to failure as well as replacement of hardware components to bring equipment up to date. Repair involves the diagnosis and correction of hardware failure. Service technicians remedy equipment problems either by actually mending a malfunctioning part (e.g., reformatting a "broken" disk drive) or replacing the part. Each of these support service "outputs" benefit from a range of "inputs." For example, engineering change orders, along with certain documentation and parts, allow service technicians to make technological updates to computer hardware. In order to identify the existence and location of a malfunctioning part, a service technician may use diagnostics (now increasingly sophisticated software), schematics (maps of the location and function of hardware elements), and various types of documentation, together with the technician's own experience acquired by diagnosing equipment problems. In order to actually mend a malfunctioning part, a technician might fix the part on the spot with routine tools or sophisticated software (e.g., a software diagnostic that can reformat a disk drive), or send -4- 4 the part to a repair depot run either by the technician's employer or another service organization. The repair of a malfunctioning part often requires very detailed information about the part (such as the information provided by schematics and other documentation), and may in turn require smaller replacement parts. Finally, replacement of parts naturally requires the availability of spares. At the core of this litigation is a dispute about Grumman's access to software diagnostics and other service "tools" produced by DG for use in the repair, upgrading, and maintenance of DG equipment. B. TPM Access to Service Inputs B. TPM Access to Service Inputs ________________________________ DG's policies concerning TPM access to DG's service tools have developed over time. As described below, DG's policies have evolved through three stages. 1. Initial Suspicion _____________________ TPMs made their debut in the 1970s while DG was still relatively new to the computer manufacturing market. DG was suspicious of the ability of TPMs, often run and staffed by former DG technicians, to service DG computers without running afoul of DG's intellectual property rights or confidentiality agreements binding on former DG employees. In 1975, DG converted its suspicions into legal claims, filing suit against Lloyd Root and Robert Montgomery, two of its former employees, as well as Computer Systems -5- 5 Support Corporation ("CSSC"), the TPM that Root and Montgomery had founded after leaving DG.2 DG's principal allegations were that Root and Montgomery had breached their employment agreements by taking DG information with them when they left DG, and that CSSC personnel had been making unauthorized use of DG proprietary information. It was unclear, however, whether the proprietary items that CSSC was using were items sold or licensed to equipment owners (pursuant to agreements which arguably permitted some use by TPMs),3 or items taken directly from DG by Root and Montgomery. Lacking promising proof to support its claims, DG proposed a settlement whereby CSSC would agree to return any proprietary information that Root and Montgomery unlawfully took from DG, and DG would expressly authorize CSSC (and its successors) to use DG proprietary information in the maintenance and repair of DG computers.4 CSSC accepted, and ____________________ 2. For the sake of simplicity, we will refer to all three of the 1975 defendants as "CSSC." 3. There is some evidence that during the 1970s DG sold or licensed proprietary information to equipment owners under agreements which permitted owners to allow third parties to use that information to service the owners' computers. 4. DG and Grumman (which acquired CSSC in 1984) vigorously dispute the precise scope of this authorization. See infra ___ _____ Sections II.C.1.a and III.A.3. -6- 6 the parties signed a settlement agreement in 1976 ("the Settlement Agreement").5 2. Peaceful Coexistence ________________________ From 1976 until some point in the mid-1980s, DG affirmatively encouraged the growth of TPMs with relatively liberal policies concerning TPM access to service tools. DG sold or licensed diagnostics directly to TPMs, and allowed TPMs to use diagnostics sold or licensed to DG equipment owners. DG did not restrict access by TPMs to spare parts manufactured by DG or other manufacturers. DG allowed (or at least tolerated) requests by TPMs for DG's repair depot to fix malfunctioning circuit boards, the heart of a computer's central processing unit ("CPU"). DG sold at least some schematics and other documentation to TPMs. DG also sold TPMs engineering change order kits. And finally, DG training classes were open to TPM field engineers. Grumman suggests that DG's liberal policies were beneficial to DG because increased capacity (and perhaps competition) in the service aftermarket would be a selling point for DG equipment.6 3. Increased Restrictions __________________________ ____________________ 5. Another provision of the Settlement Agreement prohibited CSSC from using DG proprietary information in the design or manufacture of computer equipment. That provision is not at issue in this case. 6. Grumman acquired CSSC in 1984, thereby becoming a successor in interest to CSSC's rights under the 1976 Settlement Agreement. -7- 7 In the mid-1980s, DG altered its strategy. With the goal of maximizing revenues from its service business, DG began to refuse to provide many service tools directly to TPMs. DG would not allow TPMs to use the DG repair depot, nor would it permit TPMs to purchase schematics, documentation, "change order" kits, or certain spare parts. DG no longer allowed TPM technicians to attend DG training classes. Finally, DG developed and severely restricted the licensing of ADEX, a new software diagnostic for its MV computers. The MV series was at once DG's most advanced computer hardware and an increasingly important source of sales and service revenue for DG. A number of items unavailable to TPMs directly from DG were either available to all equipment owners (even customers of TPMs) from DG, or were available to TPMs from sources other than DG. For example, DG depot service, change order kits, and at least some documentation were available to all equipment owners. There is also evidence that Grumman had its own repair depot and that Grumman could make use of repair depots run by other service organizations (sometimes called "fourth party maintainers"). Likewise, there is evidence that TPMs could purchase at least some spare parts from sources other than DG. The situation was different with respect to ADEX. DG service technicians would use ADEX in performing service -8- 8 for DG equipment owners. DG would also license ADEX for the exclusive use of the in-house technicians of equipment owners who perform most of their own service.7 However, DG would not license ADEX to its own service customers or to the customers of TPMs. Nor was ADEX available to TPMs from sources other than DG. At least two other diagnostics designed to service DG's MV computers may have become available as early as 1989, but no fully functional substitute was available when this case was tried in 1992. Grumman found various ways to skirt DG's ADEX restrictions. Some former DG employees, in violation of their employment agreements, brought copies of ADEX when they joined Grumman. In addition, DG field engineers often stored copies of ADEX at the work sites of their service customers, who were bound to preserve the confidentiality of any DG proprietary information in their possession. Although DG service customers had an obligation to return copies of ADEX to DG should they cancel their service agreement and switch to a TPM, few customers did so. It is essentially undisputed that Grumman technicians used and duplicated copies of ADEX left behind by DG field engineers. There is also uncontroverted evidence that Grumman actually acquired copies of ADEX in this manner in order to maintain libraries of ____________________ 7. This latter group is comprised of Cooperative Maintenance Organizations ("CMOs"). -9- 9 diagnostics so that Grumman technicians could freely duplicate and use any copy of ADEX to service any of Grumman's customers with DG's MV computers. -10- 10 C. The Present Litigation C. The Present Litigation __________________________ In 1988, DG filed suit against Grumman in the United States District Court for the District of Massachusetts.8 DG patterned its suit after a similar action it brought against Service & Training, Inc. ("STI") in the United States District Court for the District of Maryland. See Service & Training, Inc. v. Data General ___ __________________________ ____________ Corp., 737 F. Supp. 334 (D. Md. 1990), aff'd on other _____ _____ __ _____ grounds, 963 F.2d 680 (4th Cir. 1992) ("STI"). STI was _______ ___ another TPM in the DG aftermarket and a successor to Montgomery's interest in the 1976 Settlement Agreement. In one count, DG alleged that Grumman's use and duplication of ADEX infringed DG's ADEX copyrights, and requested injunctive relief, 17 U.S.C. 502 (1988), as well as actual damages and profits, 17 U.S.C. 504(b) (1988). In another count, DG alleged that Grumman had violated Massachusetts trade secrets law by misappropriating copies of ADEX in violation of confidentiality agreements binding on former DG employees and DG service customers. On December 29, 1988, the district court issued a preliminary injunction prohibiting Grumman ____________________ 8. Grumman subsequently filed an action in the United States District Court for the Northern District of California alleging that DG had violated California's antitrust laws. See Grumman Sys. Support Corp. v. Data General Corp., 125 ___ ____________________________ ___________________ F.R.D. 160 (N.D. Cal. 1988). That court later dismissed Grumman's action on the grounds that the claim was a compulsory counterclaim to DG's copyright infringement action pending in the District of Massachusetts. Id. ___ -11- 11 from using ADEX. See Data General Corp. v. Grumman Sys. ___ ___________________ ____________ Support Corp., No. 88-0033-S (D. Mass. Dec. 29, 1988) ______________ ("Grumman I").9 The parties then prepared for trial.10 _________ 1. Pre-Trial Issues ____________________ Grumman raised a host of affirmative defenses and counterclaims, all eventually rejected by the district court in response to DG's motions for partial summary judgment. Three of these issues play a pivotal role in Grumman's appeal. a. 1976 Settlement Agreement _____________________________ Grumman alleged that the 1976 Settlement Agreement authorized it (as a successor to CSSC) to "acquire, possess, copy and use" all DG diagnostics, including ADEX. Liberally construed, Grumman's allegation of a right to "copy and use" ADEX fairly includes an allegation that Grumman has ____________________ 9. The jury subsequently found that Grumman continued to use ADEX in violation of the injunction. That finding is unchallenged on appeal. 10. In the course of the pre- and post-trial litigation, the district court issued a series of published and unpublished opinions which contain additional background material. See, ___ e.g., Data General Corp. v. Grumman Sys. Support Corp., 761 ____ ___________________ ___________________________ F. Supp. 185 (D. Mass. 1991) ("Grumman II"); Data General __________ _____________ Corp. v. Grumman Sys. Support Corp., No. 88-0033-S (D. Mass. _____ ___________________________ May 2, 1991) ("Grumman III"); Data General Corp. v. Grumman ___________ __________________ _______ Sys. Support Corp., 795 F. Supp. 501 (D. Mass. 1992) ____________________ ("Grumman IV"); Data General Corp. v. Grumman Sys. Support __________ ___________________ _____________________ Corp., 834 F. Supp. 477 (D. Mass. 1992) ("Grumman V"); Data _____ __________ ____ General Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340 _____________ __________________________ (D. Mass. 1993) ("Grumman VI"); Data General Corp. v. Grumman __________ __________________ _______ Sys. Support Corp., 825 F. Supp. 361 (D. Mass. 1993) ____________________ ("Grumman VII"). ___________ -12- 12 a right to copy and use DG diagnostic software in the possession of DG equipment owners. Judge Skinner rejected the Settlement Agreement defense by adopting the reasoning of the STI courts, which had rebuffed the same arguments on a ___ nearly identical record. See Grumman V, 834 F. Supp. at 482- ___ _________ 83. In the district court decision in STI, Judge Motz ___ analyzed the language of the Settlement Agreement, testimony from the lawyers who negotiated it, and evidence of the parties' subsequent conduct. 737 F. Supp. at 339-41. On the basis of this evidence, Judge Motz concluded that the Settlement Agreement did not require DG to license any proprietary information to CSSC or its customers, nor did the Settlement Agreement prevent DG from prohibiting CSSC from copying and using proprietary information in the custody of DG service customers. Id.11 ___ b. Antitrust Defenses ______________________ Grumman also claimed that DG could not maintain its infringement action because DG had used its ADEX copyrights to violate Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. 1 and 2 (1988 & Supp. IV 1992).12 Specifically, Grumman charged that DG misused its copyrights by (1) tying ____________________ 11. Although the reasoning of the Fourth Circuit's affirmance differed from that of Judge Motz on other issues, the two courts appear to have been in total agreement with respect to the Settlement Agreement issue. 12. Grumman presented the antitrust claims as independent counterclaims as well. -13- 13 the availability of ADEX to a consumer's agreement either to purchase DG support services (a "positive tie") or not to purchase support services from TPMs (a "negative tie"), and (2) willfully maintaining its monopoly in the support services aftermarket by imposing the alleged tie-in and refusing to deal with TPMs. Concerning the tying claim, the district court again adopted the reasoning of the Fourth Circuit in STI, ___ this time for the proposition that there was insufficient proof of a tying agreement to withstand summary judgment. Grumman V, 834 F. Supp. at 484-85. The Fourth Circuit held _________ that there was no positive tie for two independent reasons. First, the court noted that DG did not actually license ADEX to its service customers. STI, 963 F.2d at 686-87. Second, ___ the court held that there was not enough evidence to prove that any license to use ADEX was conditioned on the purchase of DG support services. Id. at 687. The court noted that ___ there was no explicit tying condition in any written agreement. Id. The court also noted that there was ___ insufficient evidence of unwilling purchases of DG support service so as to justify an inference of an implicit condition; customers may simply prefer service supported by ADEX diagnostics over service that is not. Id. at 687-88. ___ The court further held that there was insufficient evidence of a negative tie because, on the record before the court, -14- 14 "[t]he fact that CMOs do not purchase repair services . . . is at least as consistent with the legitimate and independent business decision not to purchase unneeded services as it is with an agreement not to purchase such services." Id. at ___ 686. Judge Skinner conducted his own exhaustive analysis of the monopolization claim, concluding that Grumman failed to "assert[] any facts that would indicate that DG has engaged in any unlawful exclusionary conduct." Grumman II, __________ 761 F. Supp. at 192. The court essentially narrowed the question to whether DG's restrictive policies with respect to TPMs constitute unlawful unilateral refusals to deal, reasoning that DG's actions do not rise to the level of unlawful exclusionary conduct for several reasons. The court agreed with Grumman that this case, like Aspen Skiing Co. v. ________________ Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), raises ______________________________ "the issue of prior promotion of competition in a market that is later halted," Grumman II, 761 F. Supp. at 190. The __________ district court nonetheless concluded that Grumman had failed to demonstrate that DG's restrictive policies have unreasonably harmed the competitive process. In particular, the court noted that DG's policies with respect to most service products do not prevent TPMs from competing in the service market because "DG will sell its service products, except [ADEX and schematics], to any ultimate consumer -15- 15 regardless of whether [the consumer] now or later use[s] a TPM." Id. at 191. The court also observed that "TPMs have ___ demonstrated the ability to develop diagnostics [without schematics], even if they are not as efficient as MV/ADEX." Id. Lastly, the court suggested that the Sherman Act would ___ not compel DG to disclose its schematics, in part because such compulsory disclosure would undermine the incentives of copyright and patent laws. Id. at 192.13 ___ In rejecting Grumman's motion for reconsideration of the grant of summary judgment on the monopolization claim, the district court also directly addressed Grumman's contention that DG's refusal to license ADEX to TPMs constitutes exclusionary conduct. The court stated that DG's refusal to license ADEX to TPMs was not exclusionary because "DG offers to the public a license to use MV/ADEX on any computer owned by the customer," and therefore DG "`did not withhold from one member of the public a service offered to the rest[.]'" Grumman III, slip op. at 5 (citing Olympia ___________ _______ Equip. Leasing Co. v. Western Union Tel. Co., 797 F.2d 370, __________________ ______________________ 377 (7th Cir. 1986), cert. denied, 480 U.S. 934 (1987)). _____ ______ c. Federal Preemption of State Trade Secrets ______________________________________________ Claim _____ ____________________ 13. The district court also held that neither ADEX nor DG's schematics were "essential facilities" that DG (as a monopolist in the service aftermarket) must share with its competitors. Id. at 191-92. Grumman does not assign error ___ to this aspect of the district court's decision. -16- 16 Grumman unsuccessfully sought to convince the district court that Section 301 of the Copyright Act of 1976, 17 U.S.C. 301 (1988 & Supp. IV 1992), preempts DG's state law action for misappropriation of trade secrets. The district court held that DG's trade secrets claim was not preempted because DG did not simply allege conduct equivalent to the copying and use which form the basis of an infringement claim; instead, DG's trade secrets claim was based on Grumman's acquisition of ADEX in violation of confidentiality agreements binding on former DG employees and service customers. Grumman IV, 795 F. Supp. at 507. __________ 2. Trial Issues ________________ Stripped of its affirmative defenses, Grumman proceeded to trial. Grumman focused its defensive energies in two areas. Grumman attacked DG's proof of the prima facie elements of copyright infringement and misappropriation of trade secrets, and attempted to undermine DG's broad-gauged request for compensation for lost profits and disgorgement of Grumman's MV-related profits. a. Validity of Copyright Registration ______________________________________ During the trial, it became evident that DG had made several errors in registering its ADEX copyrights. After Edward Gove, a DG official, testified that DG had deposited with the Copyright Office the correct excerpts of -17- 17 human-readable "source code,"14 Grumman introduced evidence that there were some errors in the deposits for the first three versions of ADEX. In rebuttal testimony, Gove confirmed that there were a number of minor, inadvertent errors in the deposits that would not affect the operation of the programs.15 Grumman argued to the district court that any error in a copyright deposit renders the registration invalid, and requested that the court so instruct the jury. The district court refused, instructing the jury instead that minor, inadvertent errors in the deposit of excerpts of computer code do not threaten the validity of the copyright registration. As a fall-back tactic, Grumman renewed its previous request that the district court compel DG to produce the entire human-readable source code for each version of ADEX so that Grumman could more effectively cross-examine Gove about the significance of the errors. The district court refused to do so, and later explained its discretionary decision by finding that "Grumman had an adequate opportunity ____________________ 14. "Source code" refers to an annotated text, written in a programming language intelligible to humans, that represents the set of instructions comprising a particular computer program. See Computer Assocs. Int'l, Inc. v. Altai, Inc., 22 ___ ____________________________ ___________ F.3d 32, 33 n.1 (2d Cir. 1994); Johnson Controls, Inc. v. _______________________ Phoenix Control Sys., Inc., 886 F.2d 1173, 1175 n.2 (9th Cir. __________________________ 1989). "Object code" refers to the text of the same set of instructions, translated into binary form (a sequence of zeros and ones) intelligible to the computer itself. See id. ___ ___ 15. The errors are described infra, note 23. _____ -18- 18 to explore the errors contained in the initial copyright deposits, to challenge Data General's explanation of those errors, and to argue these issues before the jury." Grumman _______ VI, 825 F. Supp. at 352. Using a special verdict form, the __ jury found that DG had properly registered each of the ADEX copyrights. b. Actual Damages and Profits ______________________________ Grumman argued that the jury should identify and ignore that portion of Grumman's profits which was not attributable to Grumman's use of ADEX. To this end, Grumman introduced evidence that some of its revenues were derived from servicing DG computers that cannot or need not be serviced with ADEX, and that the value of Grumman's use of ADEX to service customers with MV computers was distinct from the value of other products and services Grumman provided to those customers. In contrast, DG offered evidence that because equipment owners prefer to purchase all service from one vendor, equipment owners with both MV computers and other DG computers ("mixed-equipment customers") would not have purchased service from Grumman if Grumman had lacked access to ADEX. DG also offered evidence tending to show that, even if Grumman did not always use ADEX in servicing a computer, Grumman could not have attracted and retained its MV-related business had it not been for Grumman's use of ADEX. DG's -19- 19 expert witness opined that DG's damages totaled $28,003,000 - - $26,364,000 in DG's lost profits and $1,639,000 in nonduplicative profits16 earned by Grumman as a result of its acquisition and use of ADEX. Attempting to blunt at least part of DG's sweeping "but for" theory, Grumman asked the district court to instruct the jury to discount that portion of Grumman's profits which was not attributable to the infringement. The court instructed the jury that DG could recover that portion of Grumman's profits that was "attributable to the infringement," but did not elaborate on the jury's task in this regard. Left to choose between the parties' theories, the jury apparently accepted the essence of DG's theory, though the total award of compensatory damages was $27,417,000, somewhat less than DG requested.17 3. Post-Trial Issues _____________________ Grumman sought relief from the judgment on a number of grounds, two of which are most relevant to this appeal. a. Actual Damages and Profits ______________________________ ____________________ 16. "Nonduplicative profits" are those profits earned by Grumman that would not have been available to DG in the absence of Grumman's wrongful conduct. See 17 U.S.C. ___ 504(b) (providing that copyright owner may "recover . . . any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages"). 17. On the verdict slip, the jury assessed the same amount of damages -- $27,417,000 -- for Grumman's misappropriation of trade secrets. -20- 20 Claiming that the jury's award was speculative and excessive, Grumman moved for a new trial or, in the alternative, remittitur. See Fed. R. Civ. P. 59(a). As the ___ district court related: Grumman complains that the jury awarded speculative and excessive damages because it uncritically adopted the plaintiff's damage analysis in its entirety which was built on theoretically unsound and factually inaccurate assumptions. More specifically, defendant contends that the plaintiff's damage analysis failed to identify relevant revenues, failed to apply a reasonable profit margin, and failed to apportion service profits between infringing and non-infringing activities. Grumman VI, 825 F. Supp. at 349 (footnote omitted). The ___________ district court denied the motion, ruling in essence that DG's theory of damages was proper and that the jury was free to weigh the testimony of DG's experts more heavily than that of Grumman's experts. Id. at 349-51. ___ b. Attorney's Fees ___________________ The district court included in its judgment order an award of attorney's fees under the Copyright Act, although it appears that the court has not yet fixed the amount. Grumman argued that the court should not award attorney's fees because DG had "elected" only those remedies available under Massachusetts trade secrets law, which does not allow -21- 21 an award of attorney's fees.18 The district court denied the motion, finding that DG had merely sought to maximize the judgment by selecting the most generous body of law for each element of its recovery. Grumman VI, 825 F. Supp. at 346. ___________ The district court reasoned further that because DG would not receive a double award of attorney's fees, the judgment was in no need of correction. Id. at 346-47. ___ 4. Issues on Appeal ____________________ Grumman renews its arguments concerning the pre- trial, trial, and post-trial issues described above. Grumman claims that the district court erred in entering summary judgment on its affirmative defenses, questions the propriety of certain of the district court's jury instructions, maintains that the jury's award of damages lacks evidentiary support, and insists that DG is not entitled to recover attorney's fees. After reviewing the procedural rules that govern this appeal, we address each of Grumman's arguments in turn. II. II. ___ PROCEDURAL PRINCIPLES PROCEDURAL PRINCIPLES _____________________ Because this appeal turns largely on questions of law, we outline the corresponding standard of review. Although the reasoning of the court below may provide a ____________________ 18. Massachusetts law provides for a higher rate of prejudgment interest on compensatory damages than does federal law. -22- 22 useful starting point for analysis, the district court's view of the law is not binding on a court of appeals. See ___ Williams v. Poulos, 11 F.3d 271, 278 (1st Cir. 1993) (citing ________ ______ Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d ________________ _____________________________ 453, 457 (1st Cir. 1992)). Thus, we exercise our independent judgment in evaluating the legal correctness of the district court's jury instructions. Likewise, we must reach our own conclusion as to a statute's correct construction. See FDIC ___ ____ v. Keating, 12 F.3d 314, 316 (1st Cir. 1993). _______ Similarly, in reviewing a district court's entry of summary judgment, we determine anew whether the moving party has shown "that there is no genuine issue as to any material fact and that [it] is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). See also Bird v. Centennial ___ ____ ____ __________ Ins. Co., 11 F.3d 228, 231 (1st Cir. 1993). "In this _________ context, `genuine' means that the evidence about the fact is such that a reasonable jury could resolve the point in favor of the nonmoving party and `material' means that the fact is one that might affect the outcome of the suit under the governing law." Pagano v. Frank, 983 F.2d 343, 347 (1st Cir. ______ _____ 1993) (citations, internal quotation marks, and brackets omitted). Although "we read the record and indulge all inferences in a light most favorable to the non-moving party," Rivera-Ruiz v. Gonzalez-Rivera, 983 F.2d 332, 334 ___________ _______________ (1st Cir. 1993), the adverse party cannot defeat a well- -23- 23 supported motion by "rest[ing] upon the mere allegations or denials of [its] pleading," Fed. R. Civ. P. 56(e). If the nonmovant bears the ultimate burden of persuasion with respect to its claim or defense, it may avert summary judgment only if it identifies issues genuinely in dispute and advances convincing theories as to their materiality. See Pagano, 983 F.2d at 347 (citing Anderson v. Liberty ___ ______ ________ _______ Lobby, Inc., 477 U.S. 242, 247-48 (1986)). Of course, it may ___________ be difficult for a trial court to forecast the reaction of a reasonable jury to an intricate array of complex theories. Nonetheless, Rule 56 applies equally to simple cases as well as cases involving complicated legal principles and theories of recovery. See, e.g., Amerinet, Inc. v. Xerox Corp., 972 ___ ____ ______________ ____________ F.2d 1483, 1490 (8th Cir. 1992) ("In complex antitrust cases, no different or heightened standard for the grant of summary judgment applies."), cert. denied, 113 S. Ct. 1048 (1993). _____ ______ Finally, we note that we are at liberty to affirm a district court's grant of summary judgment "on any ground supported in the record even if the issue was not pleaded, tried or otherwise referred to in the proceedings below.'" de Casenave v. United States, 991 F.2d 11, 12 n.2 (1st Cir. ___________ ______________ 1993). III. III. ____ DISCUSSION DISCUSSION __________ A. DG's Intellectual Property Claims A. DG's Intellectual Property Claims _____________________________________ -24- 24 We first examine the two arguments that strike at the heart of DG's right to pursue its claims: DG's alleged failure to comply with the copyright registration requirements and the possible preemption of the state trade secrets claim by Section 301 of the Copyright Act. We then discuss Grumman's two affirmative defenses -- the 1976 Settlement Agreement Defense and the "misuse" defense -- each of which is intended to undermine both the copyright claim and the trade secrets claim. Finally, we review Grumman's challenges to the award of actual damages, infringer's profits, and attorney's fees. 1. Validity of Copyright Registration ______________________________________ Registration of a work with the Copyright Office provides several benefits to a plaintiff in an infringement action. First, although copyright protection attaches the day original expression is fixed in a tangible medium, see 17 ___ U.S.C. 102(a) (1988 & Supp. IV 1992), and thus an infringer may be liable for infringement from that day forward, see 17 ___ U.S.C. 408(a) (1988 & Supp. IV 1992) (providing that "registration is not a condition of copyright protection"), registration of the copyright is a prerequisite to suit under the Copyright Act, 17 U.S.C. 411(a) (1988 & Supp. IV 1992). Second, upon accepting the registrant's application, fee, and deposit of a representative copy of the work, see 17 U.S.C. ___ 408, the Copyright Office issues a certificate of -25- 25 registration, which is admissible in an infringement action as "prima facie evidence of the validity of the copyright and of the facts stated in the certificate," 17 U.S.C. 410(c) (1988).19 In the case of computer programs which, like ADEX, are either unpublished or published only in machine- readable form, the copyright owner must deposit "identifying portions of the program," generally the first and last 25 pages of the human-readable source code 37 C.F.R. 202.20(c)(2)(vii) (1993).20 By questioning DG's compliance with the registration requirements, Grumman is effectively claiming that (1) DG may not claim infringement of those ADEX copyrights for which DG tendered a defective deposit; and (2) even if DG is free to bring such claims, it is not entitled to a presumption as to the validity of the copyrights at issue. ____________________ 19. To demonstrate copyright infringement, DG had the burden of demonstrating (1) that it owns a valid copyright in the versions of ADEX alleged to have been copied, and (2) that Grumman copied constituent, original elements of ADEX. See ___ Feist Publications, Inc. v. Rural Tel. Serv. Co., 111 S. Ct. _________________________ ____________________ 1282, 1296 (1991); Concrete Mach. Co. v. Classic Lawn ____________________ _____________ Ornaments, Inc., 843 F.2d 600, 605 (1st Cir. 1988); 3 ________________ Melville B. Nimmer & David Nimmer, Nimmer on Copyright ____________________ 13.01, at 13-5 to 13-6 (1993) (hereinafter "Nimmer"). ______ 20. Where the program contains trade secret material, the copyright regulations permit some portions of the deposit to be blocked out, and allow a portion of the deposit to be in machine-readable "object code" (lines of zeroes and ones). 37 C.F.R. 202.20(c)(2)(vii)(A)(2). If the deposit includes no blocked-out portions and consists entirely of source code, the first and last ten pages of the program will suffice. Id. ___ -26- 26 Essentially, Grumman's argument is that the district court erred in instructing the jury that minor, inadvertent errors in material deposited with a registration application do not affect the validity of the registration.21 DG admits that there were inadvertent errors in the material deposited with the registration application for ADEX Revisions 0.0 to 2.0,22 but maintains that the errors are inconsequential.23 Grumman does not ____________________ 21. The district court instructed the jury as follows: Because the function or registration [with respect to computer programs] is symbolic, clerical errors in the materials deposited with the application for registration do not affect the validity of the registration. For instance, discrepancies in the dates, filing the wrong pages, or partial pages, and similar errors, if accepted by the Copyright Office, do not impeach the validity and effect of the registration. If the errors were intentional, however, for purposes of deceiving the Copyright Office and perpetrating a fraud, the errors invalidate the registration. 22. Grumman does not question the validity of the copyright registration for the last five versions of ADEX, which ____ Grumman also admitted it copied and used. Therefore, Grumman's argument, if persuasive, would not constitute a complete defense to the infringement action; the real issue is the extent of infringement properly subject to suit. 23. With respect to ADEX Revisions 0.0, 1.0, and 2.0, DG attempted to deposit the first and last ten pages of source code (with no trade secrets blocked-out) in accordance with 37 C.F.R. 202.20(c)(2)(vii)(A)(2). In all three instances, DG deposited the correct last ten pages but did not deposit the correct first ten pages. Nonetheless, in the case of ADEX Revisions 1.0 and 2.0, there was only one difference between the deposited pages and the pages DG in |