Dynamic Concepts, Inc. v. Tri-State Surgical Supply & Equip. Ltd.

DYNAMIC CONCEPTS, INC. Plaintiff-Appellant,POINT 4 DATA CORPORATION, Plaintiff-Counter-Defendant-Appellant, v. TRI-STATE SURGICAL SUPPLY AND EQUIPMENT LTD., Defendant-Counter-Claimant-Appellee,SJ COMPUTERS, INC., SHMUEL JUDKOVITZ, Defendants-Appellees.

DYNAMIC CONCEPTS, INC. Plaintiff-Appellee,POINT 4 DATA CORPORATION, Plaintiff-Counter-Defendant-Appellee, v. TRI-STATE SURGICAL SUPPLY AND EQUIPMENT LTD., Defendant-Counter-Claimant-Appellant,SJ COMPUTERS, INC., SHMUEL JUDKOVITZ, Defendants.

15-0563-cv

15-3212-cv

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

November 8, 2017

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT'S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION "SUMMARY ORDER"). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 8^th day of November, two thousand seventeen.

Present: PETER W. HALL, CHRISTOPHER F. DRONEY, Circuit Judges, ALISON J. NATHAN,^* District Judge.

For Plaintiff and Plaintiff-Counter-Defendant:

MATTHEW J. PRESS, Press Law Firm, P.L.L.C., New York, N.Y.

For Defendant-Counter-Claimant:

ROBERT J. BERNSTEIN, The Law Office of Robert J. Bernstein, New York, N.Y.

For Defendants:

ELI FIXLER, Esq., Brooklyn, N.Y.

Appeal from an order of the United States District Court for the Eastern District of New York (Carol B. Amon, Chief Judge).

UPON DUE CONSIDERATION WHEREOF it is hereby ORDERED, ADJUDGED, AND DECREED that the judgments and orders of the District Court are AFFIRMED IN PART, AND VACATED IN PART, and the case is REMANDED for further proceedings.

Plaintiffs are developers of two software programs, UniBasic (a computer development language, distributed by Dynamic Concepts, Inc.), and Genesys (an accounting software program sold by Point 4 Data Corporation that runs in the UniBasic programming language). In 1999, Tri-State Surgical Supply and Equipment Ltd. ("Tri-State"), purchased a license to use Genesys and UniBasic subject to certain limitations, including a limitation on the number of concurrent users. UniBasic, in turn, contained security measures designed to enforce these licensing limitations, including the Passport Licensing Security Software ("Passport"), designed to ensure that UniBasic would not run if the licensing conditions were not complied with. According to Plaintiffs, Tri-State, for reasons unimportant to the issues on appeal, with the assistance of Defendants SJ Computers, Inc., and Shmuel Judkovitz, modified these security measures (including Passport) in a way that prevented these software programs from enforcing the licensing restrictions. The Plaintiffs subsequently brought suit, alleging claims arising under, inter alia, the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. § 1201(a) (making it a violation to "circumvent a technological measure that effectively controls access to a work protected under [the Copyright Act]"), the Lanham Act, 15 U.S.C. § 1125(a), and breach of contract.

Plaintiffs now appeal the orders of the United States District Court for the Eastern District of New York (Amon, C.J.)¹, first, granting summary judgment to the Defendants on the Plaintiffs' DMCA claim, and second, granting summary judgment on the Plaintiffs' claim for aparticular category of damages arising out of their breach-of-contract claim (the "unrestricted user fees" claim). Additionally, in a separate appeal that we address in this summary order (15-3212-cv), Tri-State appeals the District Court's denial of its motion for attorney's fees on Plaintiffs' Lanham Act claims, made after the District Court entered final judgment on the merits as to all of the claims and counter-claims in this case, including Plaintiffs' Lanham Act claims. We assume the parties' familiarity with the underlying facts, procedural history, and issues in these appeals. For the reasons that follow, we affirm the District Court's grant of summary judgment to the Defendants on the DMCA claim, but vacate the District Court's award of summary judgment to the Defendants on the Plaintiffs' unrestricted user fees breach-of-contract claim. We also affirm the District Court's denial of attorney's fees as to the Lanham Act claims.

I. The DMCA Claim

First, we affirm the District Court's grant of summary judgment to the Defendants on the Plaintiffs' DMCA claim.

As an element of their DMCA claim, Plaintiffs had to show that at least one of the underlying software programs to which the security protocols (such as Passport) granted access—i.e., Genesys and/or UniBasic—was protected under the Copyright Act. 17 U.S.C. § 1201(a). To establish that the two programs were copyrightable (as well as to support Plaintiffs' claim that Defendants modified Passport), Plaintiffs submitted two declarations as part of their opposition to the Defendants' motion for summary judgment: the first from the CEO of Dynamic Concepts, Inc. (the developer of UniBasic) Douglas Chadwick, see A 353, and the second from the CEO of Point 4 Data Corporation (the developer of Genesys), Don Burden, see A 459. The declarations included descriptions of Genesys and UniBasic as well as commentary on how the code and features of each program compared to industry standards and other,comparable software programs—to demonstrate sufficient originality to render the programs copyrightable.² The declarations also referenced and attached exhibits, which included screenshots of the Genesys program.

The District Court found that both declarations contained expert testimony, as defined under Federal Rule of Evidence 702, rather than solely lay opinion, as permitted under Federal Rule of Evidence 701, or lay testimony, under Federal Rule of Evidence 601. See SPA 18-27 (Report and Recommendation of Magistrate Judge Mann); SPA 81, 84-92 (Decision of Chief Judge Amon adopting in part, and reserving judgment in part on, the R & R). Because it was undisputed that the Plaintiffs had not timely complied with expert discovery disclosure rules, the District Court found preclusion to be the appropriate remedy, and thereby struck every paragraph in the respective declarations that included any expert testimony, as well as certain exhibits that were referenced and explained solely in those paragraphs. See SPA 34; SPA 91-92. Having before it virtually no evidence describing the underlying programs, the District Court finally concluded that no reasonable jury could find that the Plaintiffs had met their burden of showing that their computer programs contained copyrighted material. On this basis, the District Court awarded summary judgment to the Defendants on the DMCA claim. SPA 43; SPA 93.

On appeal, Plaintiffs argue: (1) that the District Court abused its discretion in concluding that the declarations contained expert testimony; (2) that, assuming that the declarations did contain expert testimony, the District Court abused its discretion in ordering preclusion as the appropriate remedy for the Plaintiffs' failure to comply with expert discovery rules; and (3) that, even assuming preclusion was warranted, generally, the District Court abused its discretion in striking the entirety of each paragraph that it found to contain expert testimony as well as the exhibits referenced in those paragraphs, rather than striking only those sentences or words that were designated expert. We find no abuse of discretion.

A. The District Court Did Not Abuse Its Discretion in Finding the Declarations Contained Expert Testimony

The Plaintiffs first argue that the district court abused its discretion in finding that the Burden and Chadwick declarations contained expert testimony. "We review a district court's decision [whether] to admit evidence for abuse of discretion." United States v. Garcia, 413 F.3d 201, 210 (2d Cir. 2005).

Federal Rule of Evidence 701 states that "[i]f a witness is not testifying as an expert, testimony in the form of an opinion is limited to one that is: (a) rationally based on the witness's perception, (b) helpful to clearly understanding the witness's testimony or to determining a fact in issue; and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702." Fed. R. Evid. 701 (emphasis added). We have stated, in considering the third pre-requisite to admissibility under Rule 701, that "a court must focus on 'the reasoning process' by which a witness reached his proffered opinion," and that, to constitute lay opinion, an opinion must be the product of "reasoning processes familiar to the average person in everyday life," rather than "scientific, technical, or other specialized knowledge." Garcia, 413 F.3d at 215 (quoting 4 Weinstein's Federal Evidence § 701.03[1]). The purpose of these pre-requisites to admissibility under Rule 701 "is to prevent a party from conflating expert and lay opinion testimony thereby conferring an aura of expertise on a witness without satisfying the reliability standard for expert testimony set forth in Rule 702 and the pre-trial disclosure requirements [for expert testimony]" in Federal Rule of Civil Procedure 26. Id. Finally, it is well established that "[i]t is the proponent of lay opinion testimony who must satisfy the rule's three foundation requirements." Id. at 211.

For the reasons that follow, we find that the District Court did not abuse its discretion in concluding that the Chadwick and Burden declarations included expert testimony.

First, the District Court did not abuse its discretion in finding that the declarants' proffered testimony as to the uniqueness of certain...