Comprehensive Technologies Int'l v. Software Artisans

Citation: Comprehensive Technologies Int'l v. Software Artisans, 3 F.3d 730 (4th Cir. 1993).

Factual Background
Plaintiff, Comprehensive Technologies International, Incorporated (CTI) brought claims for copyright infringement, trade secret misappropriation, breach of confidentiality, and breach of contract against defendants Software Artisans, Incorporated, its employees, and engineer (Defendant employees).

CTI is a California corporation founded in 1980 by Celestino Beltran. The company engages in defense-related services. Hoping to diversify CTI's operations into newly emerging technologies, Beltran established a Software Products Group and designated Dean Hawkes to lead it in 1988. Each of the Defendant employees except Hawkes signed CTI's standard Confidentiality and Proprietary Information Agreement. Under the Agreement, each employee agreed not to disclose or use, directly or indirectly, during his employment and for three years thereafter any confidential, proprietary, or software related information belonging to CTI. The agreement specifically identified the Claims Express and EDI Link projects as confidential. These were the two projects the defendant employees were working on at the time for CTI. They were software packages designed for personal computers. Although Hawkes did not sign a Confidentiality and Proprietary Information Agreement, he did sign an Employment Agreement that contained similar but more restrictive provisions. In addition to promising confidentiality, Hawkes agreed that during the term of his employment he would not compete with CTI, solicit CTI's customers, or employ CTI's current or former employees.

In February of 1991, all of the Defendant employees left CTI. In April of 1991, the Defendants incorporated Software Artisans, Inc. and begun to market its own program called Transcend. Transcend is similar to Claim Express and EDI Link in that it is designed to prepare forms for transmission.

District Court Decision
The District Court found for the Defendants, holding that Transcend was not a literal copy of either Claims Express or EDI Link. The court acknowledged that under Whelan v. Jaslow, CTI could prove infringement by showing substantial similarities between the structure, sequence, and organization of the programs, but found that CTI had not met its burden of proof on that issue. Whelan held that an algorithm is a mechanical computational procedure. In denying CTI's claim for trade secret misappropriation, the district court found that CTI did not possess any trade secrets and that, even if CTI did possess trade secrets, the Defendants had not misappropriated them. The court found no evidence that CTI's purported trade secrets &mdash; the organization of Claims Express and EDI Link, the database access techniques of the two programs, and the unique identifiers of the two programs--derived independent economic value from not being generally known or were not readily ascertainable by proper means. The district court refused to enforce the covenant not to compete because it concluded that the covenant was broader than necessary to protect CTI's legitimate business interests.

Appellate Court Decision
CTI appealed the district court's decision, claiming that the court failed to apply the correct test to determine substantial similarity and therefore erred in concluding that the structure, sequence, and organization of Transcend were not substantially similar to that of Claims Express and EDI Link. CTI wanted the court to apply another test. However, the Court of Appeals found that CTI had not identified any evidence in the record indicating that the similarities between the programs were proved at trial. The court upheld the judgment as to copyright infringement and trade secret appropriation. But the court held that Defendant engineer's covenant not to compete should have been enforced. Defendant engineer had access to plaintiff's confidential information and the covenant allowed Defendant engineer to produce software so long as it was different from plaintiff's. The court concluded that the covenant not to compete was not greater than necessary to protect CTI's business and was not unduly harsh or oppressive. The court affirmed judgments for defendants in plaintiff's claims for copyright infringement and trade secret misappropriation but the court reversed the judgment concerning the noncompetition agreement.