MGE UPS Systems v. GE Consumer

Citation: MGE UPS Systems v. GE Consumer & Indus. Inc., 2010 WL 2820006 (5th Cir. July 20, 2010)(full-text).

Factual Background
Uninterruptible power supply (UPS) machines are used during periods of power outages to provide power to critical operating systems. Plaintiff, MGE UPS Systems, Inc. (MGE), manufactures several lines of UPS machines, some of which require the use of MGE's copyrighted software programs Pacret and Muguet during servicing. This software fixes calibration problems more quickly than traditional manual servicing techniques. Without the software, a service technician can still partially service an MGE UPS machine, but a number of critical procedures can only be performed through use of the software, which works only on MGE-manufactured devices.

The software requires connection of an external hardware security key to the laptop serial port. Each security key has an expiration date, a maximum number of uses, and a unique password. When the software is activated, it searches for a properly programmed security key before it will fully launch. Once launched, the software will go through a second series of protocol exchanges with the data located on the UPS machine's microprocessors to confirm that MGE software is communicating with MGE hardware. If the protocol exchange is successful, MGE's software proceeds to collect system status information for the technician.

Years after MGE introduced its security technology, a number of software hackers published information on the internet disclosing general instructions on how to defeat the external security features of the hardware key. Once the software is cracked and the security key is defeated, the software can be accessed and used without limitation.

Defendant, Power Maintenance International, Inc. (PMI), is a critical power service company servicing a variety of brands of UPS machines, including MGE UPS machines. PMI initially subcontracted MGE to perform software service on MGE UPS machines, but sometime before June 2000, a group of PMI employees obtained at least one copy of MGE's software from an unknown source. General Electric Company (GE) acquired PMI in 2001.

Trial Court Proceedings
In December 2004, MGE filed suit against GE/PMI for copyright infringement, misappropriation of trade secrets, unfair competition, conversion, and Digital Millennium Copyright Act (DMCA) violations. GE/PMI does not dispute liability, inasmuch as it admits to recovering a laptop from a former PMI employee that contained hacked MGE software, and admits to five instances of this software's use from June 2000 through May 2002. MGE alleges that GE/PMI used the software a total of 428 times, including uses after the trial court had granted MGE a preliminary injunction against GE/PMI's use of MGE's software and trade secrets.

During the proceedings for this action, GE/PMI moved, renewed, and re-urged motions for summary judgment and judgment as a matter of law pursuant to Federal Rules of Civil Procedure 50(a) and (b) arguing that MGE could not sustain a DMCA cause of action against GE/PMI. After initially denying GE/PMI's pretrial motion for summary judgment and its Rule 50(a) motion on MGE's DMCA claim, the trial court dismissed the DMCA claim during an off-record jury charge conference.

The jury found that GE/PMI had infringed MGE's copyrights, misappropriated MGE's trade secrets, and committed unfair business practices. The trial court awarded MGE the total jury verdict, post-judgment interest, a permanent injunction against GE/PMI, impoundment of infringing materials, taxable costs, and attorney's fees.

Appellate Court Proceedings
MGE appealed the trial court's Federal Rule of Civil Procedure 50(a) dismissal of its DMCA claim against PMI, GE, GE Consumer and Industrial, Inc., and GE Industrial Systems, Inc. MGE also appealed the trial court's denial of prejudgment interest on MGE's damages award. GE/PMI cross-appealed on four grounds: (1) whether the trial court erred in dismissing GE/PMI's Rule 50(a) motion because MGE failed to present evidence of damages, or in the alternative, whether the trial court erred in dismissing GE/PMI's Rule 50(b) motion because the $4.6 million jury award was not a reasonable calculation of damages; (2) whether MGE impermissibly double-recovered damages; (3) whether the parties had a tolling agreement in place that permitted MGE to recover damages prior to December 17, 2001; and (4) whether the trial court erred in granting MGE injunctive relief against GE/PMI.

The appellate court held that since the DMCA does not apply to mere use of a copyrighted work and since MGE has not shown that GE/PMI circumvented MGE’s software protections in violation of the DMCA, the trial court was not mistaken in granting GE/PMI’s Rule 50(a) motion dismissing MGE’s DMCA claim. The appellate court also held that Plaintiff did not prove damages from copyright infringement and did not prove damages from misappropriation of trade secret. Further, the appellate court held that the trial court did not abuse its discretion in granting permanent injunction against Defendant's future use of Plaintiff's software and trade secrets because there may still be infringing materials in GE/PMI’s possession and because GE/PMI failed to conform to the constraints of the preliminary injunction.