IP Law Daily Finding of no copyright infringement in life insurance quote dispute reversed and remanded
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Wednesday, May 20, 2020

Finding of no copyright infringement in life insurance quote dispute reversed and remanded

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

After an infringement plaintiff has demonstrated that he holds a valid copyright and that the defendant engaged in copying, the defendant bears the burden of proving that the elements he copied are unprotectable.

After a magistrate judge in a bench trial involving computer-generated life insurance quotes found that individuals who took portions of the copyrighted database belonging to Compulife Software did not infringe its copyright, the Eleventh Circuit has reversed and remanded, finding that the magistrate judge erred by misallocating the burden of proof in the substantial-similarity analysis and by misapplying the rules for determining substantial similarity. The Eleventh Circuit also reversed the magistrate’s finding that no trade secrets had been misappropriated, ruling that the magistrate judge erred by relying on the fact that individual quotes are not trade secrets. And, finally, the Eleventh Circuit affirmed the magistrate judge’s rulings against Compulife on its claims for false advertising and illegal computer hacking (CompuLife Software, Inc. v. Newman, May 20, 2020, Newsom, K.).

Compulife Software developed and markets a computerized method for calculating and comparing life insurance quotes. It licenses to its clients access to its database and methods under a variety of product options. The National Association of Accredited Insurance Professionals (NAAIP) is also in the business of generating life insurance quotes. It turns out, however, that the NAAIP is not really an association, but rather a collection of guys who operate a website from Israel. At some point, they hired a hacker who scraped Compulife’s database, and they operated their website using some portion of Compulife’s data. The individuals also operate a website called BeyondQuotes, which includes a life insurance quote engine.

Compulife filed two suits, later consolidated, in Florida federal court against the four individuals operating the two websites, asserting claims for copyright infringement, trade secrets theft, false advertising, and computer hacking. The charge was that the websites did not report their own quotes; they merely reproduced Compulife’s proprietary data, which they stole. Both parties agreed to a bench trial before a magistrate judge. Even after ruling that Compulife had a valid copyright in the text of its source code and that the database was a protectable trade secret, the magistrate judge found in favor of the individuals on all four counts. He ruled that Compulife failed to meet its burden to prove that the copied code was "substantially similar" to its own. He found for the individuals on the trade secret claim on the ground that they had not misappropriated any trade secrets. He rejected the false advertising claim on the ground that no false or misleading advertisement was ever identified. He ruled that no violation of the state computer hacking statute had occurred because Compulife failed to prove that the data was protected by any "technological access barrier." Compulife appealed the decision to the Eleventh Circuit in Atlanta.

Copyright infringement. In reversing the magistrate’s ruling on copyright infringement, the Eleventh Circuit cited three errors. First, the magistrate judge erred when he placed the burden on Compulife to prove that the elements the individuals copied were protectable, rather than placing the burden on the individuals to prove that the elements they copied were not protectable. Second, the magistrate judge erred when he determined the substantiality of the copying by comparing what was taken to the full scope of the individual’s database rather than comparing what was taken to Compulife’s database. Third, the magistrate failed to explain his decision with sufficient facts and legal conclusions.

Burden of proof. As part of the process of determining whether an infringement has occurred, the judge is required to filter the portions of what was taken that are protectable from those portions of what was taken that are not protectable. Only after the data is filtered can the analysis of substantial similarity be undertaken. The magistrate judge imposed a burden on Compulife to prove that the elements of its copyrighted code were protectable.

The Eleventh Circuit, however, apparently for the first time, is clarifying that the burden shifts once the infringement plaintiff demonstrates that he holds a valid copyright. As a result, in this case, once Compulife proved the copyright (as the magistrate concluded that it had), the magistrate judge should have required the individuals to prove which portions of the database were unprotectable. Allocating the burden this way, the appellate court said, makes much more sense because, otherwise, Compulife would be required to prove a negative. Putting the burden on Compulife would potentially produce a series of impossible undertakings, which could be avoided if the individuals had the burden of proving unprotectable elements (for example, listing the states in alphabetical order).

If the process were untaken appropriately, the plaintiff would have to prove that he had a valid copyright and that the defendant engaged in copying. The defendant would then have to prove the unprotectable material, which would be filtered out of the analysis. The burden would then shift back to the plaintiff to prove substantial similarity between the protectable material and the allegedly infringing work. In this case, the magistrate judge never reached the filtration issue. Instead, he concluded that Compulife failed to prove the protectable elements, and he found for the individuals. As a result, the decision had to be vacated and remanded for further proceedings in line with the burden-shifting analysis.

Substantial similarity. The determination of substantial similarity has both quantitative and qualitative aspects. Small amounts of data can constitute infringement if the data are qualitatively important. In determining substantiality, however, the magistrate judge apparently compared what was allegedly taken to the full amount of data in the individuals’ database. He concluded that no infringement occurred because the full database was much larger than the amount taken, so the amount taken was not substantial. The true quantitative comparison, however, should have been between what was taken and Compulife’s database. In any event, even if the amount were to be far less, a qualitative analysis should be undertaken to determine if the taking amounted to an infringement. As a result, the decision on the copyright infringement claim was reversed and remanded because it rested on a misunderstanding of the law.

Insufficient analysis. Even if the magistrate judge had not made his legal errors, the Eleventh Circuit said, it still would have reversed because the magistrate judge failed to state his findings of fact with sufficient detail to indicate the factual based for his conclusions of law. As a result, appellate review was rendered "practically impossible." For example, the magistrate judge should have indicated which elements of the copyrighted work he considered to be unprotectable in more detail. Furthermore, he was wrong to conclude that Compulife was required to prove both the quantitative and qualitative substantiality of copying. It was enough to prove one or the other. In this case, however, Compulife established at least some of both. To simply say that Compulife provided "no basis" for the quantity or quality of the copying was insufficient. The Eleventh Circuit also faulted the magistrate judge for failing to look more closely at the texts of the two code to determine similarity. "Even a cursory comparison of the two segments," the appellate court said, "suggests that the defendants’ work copied material from nearly every page of the copyrighted work."

Trade secrets. The Eleventh Circuit also reversed the magistrate’s ruling in favor of the individuals on the claim of trade secret misappropriation. He erred in two ways. First, he failed to consider several alternative varieties of misappropriation in the Florida statute. Second, he erred when he concluded that the fact that search results were publicly available precluded a finding of misappropriation. The magistrate judge had concluded that all varieties of misappropriation by use required a violation of some legal duty. This was a misreading of Florida law. Some varieties do not require a duty. In another part of his analysis, the magistrate judge considered only misappropriation by acquisition when he should have also considered misappropriation by use. It was true, as the magistrate judge had said, that the public quotes are not trade secrets. But the focus on the quotes was misplaced. The true analysis should have been whether trade secrets resided in the database itself. In addition, the magistrate failed to consider the means that was used. Compulife allowed a human to derive quotes. It did not authorize a bot unleashed by the hacker to derive quotes. The use of the bot could itself have been a misappropriation of the trade secrets even if humans were otherwise permitted to get quotes.

False advertising. The Eleventh Circuit agreed with the magistrate judge, however, that the false advertising claim under the Lanham Act should be dismissed in the absence of any proof of a false advertisement. The fact that the individuals hosted a quote engine on their website without mentioning the data was taken from Compulife was not an advertisement, much less a false one.

Computer hacking. The Eleventh Circuit also agreed with the magistrate judge on finding in favor of the individuals on the claim under the Florida Computer Abuse and Data Recovery Act. Violations require that the one charged have penetrated a "technological access barrier." No such proof existed here, and magistrate’s conclusion was affirmed.

The Eleventh Circuit, therefore, affirmed the lower court ruling in part and vacated and remanded it in part on the questions of copyright infringement and trade secret misappropriation.

The case is No. 18-12004.

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