Here’s a story of a company founder leaving the company and the geographical area and starting a new company in the same line of business. It’s not necessarily a story about what not to do. It’s more a story of the legal issues that can arise when the founder creates copyrighted works, assigns the ownership of the copyrighted works to the first company and then creates similar works for the second company. Perhaps the founder could have retained the right to make derivative works, instead of assigning all of his copyright rights to the first company.
David Richison founded the Ernest Group, dba Paycom Payroll, a payroll processing company, in Oklahoma in the 1990s. He wrote two software programs for use at the company and then assigned his copyright interest in the programs to the Ernest Group. Richison left Oklahoma and the Ernest Group. He moved to Maryland and founded Period Financial Corporation, also a payroll processing company. Richison wrote two more software programs for Period. One of the programs was based on a program Richison wrote for Paycom.
Ernest Group sued Richison and Period for copyright infringement. Through the litigation process, a special master was appointed to evaluate whether Richison’s most recent program infringed the Ernest Group’s copyrights. The special master concluded that Richison’s work infringed. The district court adopted the special master’s report. The Tenth Circuit ruled that the special master did not conduct the required abstraction-filtration-comparison analysis and vacated and remanded.
The plaintiff in a copyright infringement case must prove 1) that the plaintiff owns a valid copyright and 2) that the defendant copied protectable elements of plaintiff’s copyrighted work. The second element requires an analysis of 1) whether the defendant copied and 2) whether the elements that the defendant copied are elements that are protected by copyright. The analysis focuses on the degree of similarity or “sameness” between the two works.
Copying deleted or so disguised as to be unrecognizable is not copying. A defendant may legitimately avoid infringement by intentionally making sufficient changes in a work which would otherwise be regarded as substantially similar to that of the plaintiff’s.
(Opinion pdf page 11).
Even when the defendant has obviously copied, the court is concerned only with copying elements of the work that are the plaintiff’s protectable expression. The Tenth Circuit uses the abstraction-filtration-comparison test to ensure that only the protectable elements of the plaintiff’s work are compared to the defendant’s work.
At the abstraction step, we separate the ideas (and basic utilitarian functions), which are not protectable, from the particular expression of the work. Then, we filter out the nonprotectable components of the product from the original expression. Finally, we compare the remaining protected elements to the allegedly copied work to determine if the two works are substantially similar.
First, in order to provide a framework for analysis, we conclude that a court should dissect the program according to its varying levels of generality as provided in the abstractions test. Second, poised with this framework, the court should examine each level of abstraction in order to filter out those elements of the program which are unprotectable. Filtration should eliminate from comparison the unprotectable elements of ideas, processes, facts, public domain information, merger material, scenes a faire material, and other unprotectable elements suggested by the particular facts of the program under examination. Third, the court should then compare the remaining protectable elements with the allegedly infringing program to determine whether the defendants have misappropriated substantial elements of the plaintiff’s program.
(Opinion pdf pages 12 – 13).
In looking at the special master’s report, the Tenth Circuit concluded that the special master did not document each step of his abstraction-filtration-comparison test analysis. Because the special master did not provide this documentation, the Tenth Circuit vacated the district court’s order adopting the special master’s report and remanded the case to the district court. The Tenth Circuit instructed the district court to request a more thorough report from the special master.
According to the Tenth Circuit, the special master’s report contained little evidence that he separated unprotectable ideas from the particular expression of the work. That’s the abstraction step. The ideas in the copyrighted work must be conscientiously and systematically separated, abstracted, from the expression.
The filtration step is next and requires filtering out the unprotectable elements. But a deficient abstraction analysis undermines the filtration process.
The Tenth Circuit ruled that the special master’s report
reads consonantly with the misconception that an infringement analysis begins and ends with ‘copying in fact.’ But, of course, an infringement analysis does not begin and end with ‘copying in fact.’ A finding of infringement also necessitates the conclusion that the elements copied by the defendant are protected by copyright. It is that conclusion that we assess using the abstraction-filtration comparison test. And, as we have explained, the special master does not appear to have conducted that test.
(Opinion pdf pages 16 – 17).
The special master’s focus should not have been on whether Richison’s software programs for his new company were created from scratch. Making a copyrighted work unrecognizable is not copying. The focus should have been on whether Richison copied the protectable elements of the works owned by the Ernest Group.
This case is Paycom Payroll, LLC v. David Richison, No. 13-6181, Tenth Circuit Court of Appeals.