Free Other Notice - District Court of Arizona - Arizona

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA ) ) Plaintiff, ) vs. ) ) Nelcela, Inc., et al., ) ) Defendants. ) ) ) And Related Counterclaims, Cross-Claims, ) and Third-Party Claims. ) ) No. CIV 02-1954-PHX-MHM [proposed] FINDINGS OF FACT AND CONCLUSIONS OF LAW RE ANALYTICAL DISSECTION OF THE SIMILARITIES BETWEEN THE LEXCEL AND NELCELA SOFTWARE (Assigned to the Honorable Mary H. Murguia)

8 Merchant Transaction Systems, Inc., 9 10 11 12 13 14 15 16

On March 20, 2008, the Court heard oral argument regarding analytic dissection of

17 the similarities between the Lexcel Software and the Nelcela Software. Based on the 18 briefs and accompanying exhibits submitted by the parties, the arguments and evidence 19 offered at the hearing on March 20, 2008, the arguments and evidence submitted in 20 connection with the parties' cross-motions for summary judgment in 2006, the evidence 21 introduced during the Phase I trial in April 2007, and the pleadings filed in this matter, 22 the Court enters the following Findings of Fact and Conclusions of Law: 23 24 25 A. 1. Background This Lawsuit was commenced on October 3, 2002 by Merchant Transaction FINDINGS OF FACT1

26 Systems, Inc. ("MTSI") in a complaint seeking among other things to quiet title on the 27 To the extent and of these Findings of Fact are also deemed to be conclusions of law, they are hereby incorporated into the Conclusions of Law that follow. 28
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ownership of copyrights in certain computer software used for the processing of credit card transactions. (E.g., Dckt. 1, Count Two.) In its complaint, MTSI alleged, among other things, that (a) it is the owner of the computer software at issue, and (b) the Nelcela Parties had misrepresented to the U.S. Copyright Office and to others that the Nelcela Parties own the software. (Dckt. 1 at ¶¶ 23, 26, 34, 38, 39, 68.) 2. The Nelcela Parties (Nelcela, Inc., Len Campagna, and Alec Dollarhide)

responded to the complaint with a motion to dismiss contending, among other things, that Nelcela is the owner of the computer software at issue. (E.g., Dckt. 23 at 3.) 3. POST Integrations, Inc. and Ebocom, Inc. (collectively "POST") responded

to Nelcela's motion to dismiss by contending, among other things, that Lexcel, Inc. and/or Lexcel Solutions, Inc. claimed to be the owner of the computer software at issue. (E.g., Dckt. 26 at 6 & exs. A and B.) 4. On March 4, 2005, the parties jointly moved the Court to bifurcate the

determination of copyright ownership from resolution of the claims for damages for copyright infringement and the other claims for relief. (Dckt. 78.) Based on the parties' stipulation and representations of counsel, the Court approved the requested bifurcation. 5. On June 13, 2005, Lexcel Solutions, Inc. moved to intervene and to assert a

claim for copyright infringement against the Nelcela Parties alleging that the Nelcela Software was copied from, and/or is a derivative work of, the Lexcel Software. (Dckt. 169.) The Court granted Lexcel's motion to intervene on July 29, 2005. (Dckt. 209.) 6. On October 19, 2005, Lexcel Solutions, Inc. and Lexcel, Inc. filed an

Amended Complaint in which they alleged, among other things, that "Nelcela registered copyrights on computer software programs that are copies of Lexcel's copyrighted computer programs and/or derivative works of Lexcel's copyrighted computer programs." (Dckt. 277 ¶ 36.) 7. Lexcel holds U.S. Copyright registrations in computer software which is at

issue in this lawsuit: No. TX-5-462-976 ­ Merchant; No. TX-5-462-975 ­ Authorization­ VISA; and No. TX-5-509-439 ­ Database Architecture. (Trial Exhibits 576, 579, 580 2
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(Dckt. 498).) The computer software for which these copyright registrations have been obtained shall be referred to hereafter as "the Lexcel Software." 8. Nelcela also holds U.S. Copyright registrations in computer software which

is at issue in this lawsuit: No. TX-u-905-930 ­ Nelcela Merchant System; and No. TX-u905-929 ­ Nelcela Authorization System. (Trial Exhibits 133 & 140 (Dckt. 498).) The computer software for which these copyright registrations have been obtained shall be referred to hereafter as "the Nelcela Software." B. 9. Summary Judgment On February 17, 2006, the parties filed cross-motions for summary

judgment. (Dckt. 323-334.) 10. The motion for summary judgment filed by the MTSI, Lexcel, and POST

Parties (the "Joint Parties") sought a judgment that Nelcela did not own the Nelcela Software on the basis of evidence that, the Joint Parties claimed, showed (a) substantial similarities between the Nelcela Software and the Lexcel Software and (b) that "the Nelcela Software was unlawfully derived from the software Lexcel owns." (E.g., Dckt. 333 at 2:5-10, 4:18-20, 5:25-6:2, 7:17-9:25.) 11. The Joint Parties' evidence on summary judgment included expert reports

examining the software at issue as a whole, as well as specific examples of substantial similarities between the Nelcela Software and the Lexcel Software, including numerous passages of identical source code and widespread similarity in the column, field, and variable names between even those parts of the software that were written in different computer programming languages. (Dckt. 334.) 12. As noted in this Court's summary judgment Order (Dckt. 383 at 28), the

evidence offered by the Joint Parties included the deposition testimony of the Nelcela Parties' expert witness, Robert DeCicco, who agreed not only that the Lexcel Software and Nelcela Software share significant amounts of source code, but also that the best explanation of the similarity and overlap between the Lexcel Software and the Nelcela Software is the existence of copying. (E.g., Dckt. 334 at ¶¶ 27-29.) 3
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13.

In response to the Joint Parties' motion, the Nelcela Parties did not ask the

Court to engage in analytic dissection of the similarities between the parties' respective software, nor did they articulate any challenge to the substantive copyrightability of the Lexcel Software or the parts of the Lexcel Software that the Joint Parties had identified as similar to the Nelcela Software. (Dckt. 349.)2 Instead, the Nelcela Parties objected to the entry of summary judgment against them on the basis that the Joint Parties had not demonstrated, through undisputed evidence, which of the Lexcel and Nelcela Software was derived from the other. (See, e.g., id. at 13:2-7 ("No expert was able to prove which code was derived from the other."); see also id. at 2:8-10, 9:13-17; Dckt. 361 at 2:18-19.) 14. On September 30, 2006, the Court entered its Order on the motions for

summary judgment. (Dckt. 383.) The Court ruled, among other things, "Based upon the undisputed similarities between the Lexcel 2001 software, MTSI software and Nelcela software the Court finds that as a matter of law that they are substantially similar beyond the possibility of random chance and that copying took place." (Dckt. 383 at 28.) The Court further ruled "It is clear that there is has been copying between the Lexcel, MTSI and Nelcela software; however, the question still remains as to which party owns the software. The dispute surrounding this issue can be directly traced to the fact that neither party is able to conclusively establish which party developed the software first." (Id.) Accordingly, the Court found "there presently to be an issue of fact as to this relationship." (Id.) C. 15. Pre-Trial Proceedings On October 16, 2006, the Nelcela Parties filed a motion for reconsideration

of the Court's summary judgment ruling. (Dckt. 385.) The Nelcela Parties did not ask the Court in that motion to engage in analytic dissection of the similarities between the parties' software. The Nelcela Parties also did not articulate any substantive challenge to the

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The Court notes that the Nelcela Parties have asserted challenges to Lexcel's copyrights on statute of limitations grounds. 4
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copyrightability of either the Lexcel Software as a whole or the specific portions of the parties' respective software that the Joint Parties had identified as similar. (Id.) 16. On November 22, 2006, the Nelcela Parties filed a "Supplemental Briefing

re: Inconsistent Verdicts." (Dckt. 402.) The Nelcela Parties did not ask the Court in that filing to engage in analytic dissection of the similarities between the parties' software or challenge the substantive copyrightability of the Lexcel Software in whole or in part. (Id.) 17. On November 17, 2006, the Nelcela Parties filed their answer to Lexcel's

complaint along with counterclaims against Lexcel, Carl Kubitz, and Flora Kubitz (collectively the "Lexcel Parties"). (Dckt. 399.) The Nelcela Parties did not raise in their answer or counterclaims the defense of analytic dissection, challenge the copyrightability of the Lexcel Software in whole or in part, or otherwise ask the Court to engage in analytic dissection. (Id.) 18. On November 20, 2006, the Court held a pretrial conference. (Dckt. 407.)

At no time during that hearing did the Nelcela Parties ask the Court to engage in analytic dissection of the similarities between the parties' software or challenge the substantive copyrightability of the Lexcel Software in whole or in part. (Id.) 19. On January 19, 2007, the parties submitted their Joint Proposed Pretrial

Order. (Dckt. 424.) The Nelcela Parties did not contend in the Joint Proposed Pretrial Order that the Lexcel Software is not substantively copyrightable in whole or in part, nor did they ask the Court to engage in analytic dissection of the similarities between the parties' software. (Id.) 20. Beginning on March 26, 2007 and continuing on April 3, 2007, the Court

held a final pretrial conference. (Dckt. 454, 465.) At no time during those two hearings did the Nelcela Parties ask the Court to engage in analytic dissection of the similarities between the parties' software or otherwise challenge the substantive copyrightability of the Lexcel Software in whole or in part. (Id.)

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D. 21.

The Phase I Trial Trial on the issue of ownership began on April 10, 2007. (Dckt. 475.) Prior

to the commencement of trial, the Nelcela Parties never (a) raised the defense of analytic dissection, (b) challenged the substantive copyrightability of the Lexcel Software in whole or in part, or (c) otherwise asked the Court to engage in analytic dissection of the similarities between the parties' software. 22. In its opening instructions to the jury, the Court instructed the jury inter alia:

This Court has already found that the software submitted in this case by Lexcel in CD format, the software submitted by MTSI, and the software submitted by Nelcela, is substantially similar beyond the possibility of random chance, and that copying took place with respect to the Authorization System and Merchant System, common to all three software versions. [¶] The Court's determination is binding on your decision in this case. And you must accept it as true. [¶] The Court, however, has not determined whether Lexcel, Incorporated, or Nelcela, Incorporated, owns the Authorization System and/or Merchant System. That issue is left for you to determine and may be based upon which party created the Authorization System and Merchant System first. (Trans. at 120-21 (April 10, 2007) (Dckt. 525).) 23. Lexcel's President, Carl Kubitz, was the first witness to testify at trial. Mr.

Kubitz testified, among other things, that the database component of the Lexcel System is crucial; "the database is what glued it all together" and allowed the authorization system and merchant system components of the Lexcel System to communicate with each other. (Trans. at 225, 272-273 (April 11, 2007) (Dckt. 526.) Mr. Kubitz further testified that without the database, the other components of the Lexcel System would not function. (E.g., id. at 226.) 24. The Nelcela Parties did not mention analytic dissection in this lawsuit until

the sixth day of the jury trial. (Trans. at 1062, 1265 (April 18, 2007) (Dckt. 530); see also Trans. at 1476 (April 19, 2007) (Dckt. 531).) By that time, the Joint Parties had nearly finished examining the last witness called during their case in chief. 25. On the seventh day of trial, Nelcela offered the testimony of its expert

witness, Jeffrey M. Pell. During his direct examination, Mr. Pell testified that some of the similarities between the Lexcel Software and the Nelcela Authorization System consist of 6
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common source code used in many computer programs, and that he has seen computer databases with field names that match some of the database fields that appear verbatim in the Lexcel Software and the Nelcela Software. (Trans. at 1306-43, 1345 (April 19, 2007) (Dckt. 531).) 26. On cross-examination, Mr. Pell changed his testimony significantly. He

testified that although he would expect multiple programs that process credit card transactions to accomplish the same functionality, what is not common is how a programmer goes about accomplishing that functionality. (Trans. at 1376:21-1377:3 (April 19, 2007) (Dckt. 531).) Mr. Pell admitted that the functionality expressed in the Lexcel source code is not required by the programming languages used, and that it was Lexcel's creative choice how to express the credit card processing functionality in Lexcel's source code. (Id. at 1381:11-13, 1386:5-7.) He admitted that the file names, variable names, functions names, and comments that appear verbatim in the Lexcel Software and the Nelcela Software are not required by industry practice, the programming languages used, programming manuals or other third-party sources, but rather reflect creative choices made by the Lexcel programmers when they wrote the Lexcel Software. (E.g., id. at 1372:24-1373:3, 1373:21-25, 1382:7-19, 1382:24-1383:1, 1387:10-24.) Mr. Pell additionally admitted that the he has not seen any VISA publication that sets forth the common elements that appear in the Lexcel and Nelcela source code. (Id. at 1355:16-24.) He also testified that the database field names in the Lexcel Software are not mandated by VISA, that a computer programmer can name a database field "as he sees fit," and that every database field used by Lexcel could have been named differently. (E.g., id. at 1370:25-1371:1, 1360:3-9, 1364:16-19, 1356:22-1357:2.) 27. To illustrate that a computer programmer must use his own creative

expression to establish the names of database tables and fields, Mr. Pell was asked during cross-examination to write down how he would specifically name fields in a database to process credit card transactions. Not one of the field names Mr. Pell wrote down matched the field names that appear verbatim in both the Lexcel Software and the Nelcela 7
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Software. (Trans. at 1358:18-1361:25, 1363:3-1364:15, 1365:9-1367:25, 1370:1-24 (April 19, 2007) (Dckt. 531).) 28. On April 25, 2007, the jury returned its unanimous verdict finding: a. "Based on the evidence presented at trial, we, the jury, find that

Lexcel, Inc., is the owner of the `authorization system' at issue in this case." b. "Based on the evidence presented at trial, we, the jury, find that

Lexcel, Inc., is the owner of the `merchant system' at issue in this case." c. "Based on the evidence presented at trial, we, the jury, find that

Lexcel, Inc., has met its burden of establishing ownership over the `database component or system' of the Lexcel software, which is the subject of United States copyright registration No. TX-5-509-439 entitled `Database Architecture.'" (Dckt. 501.) E. 29. The Post-Trial Proceedings On May 7, 2007, the Nelcela Parties filed a motion for judgment as a matter

of law or for a new trial, in which they asserted inter alia that the Court erred by failing to engage in analytic dissection prior to issuance of its September 30, 2006 summary judgment ruling. (Dckt. 505 at 2, 5-6.) On May 24, 2007, the Joint Parties responded to Nelcela's motion by arguing inter alia that Nelcela waived its analytic dissection defense on the issue of ownership and that the defense is unfounded in this case. (Dckt. 522 at 45.) 30. On August 15, 2007, the Court heard argument on Nelcela's motion for

judgment as a matter of law or for a new trial. (Dckt. 545.) On August 22, 2007, the Court entered its Order denying Nelcela's motion for judgment as a matter of law or for a new trial, authorizing the parties to engage in limited discovery, and permitting Nelcela to brief its analytical dissection challenge to ownership of the software. (Dckt. 547.) 31. On August 31, 2007, the Joint Parties filed their "List of Common Features

and Elements Between the Lexcel Software and the Nelcela Software." (Dckt. 555.) 32. On September 14, 2007, the Nelcela Parties filed their "Opening Brief re: 8

Analytical Dissection." (Dckt. 560.)
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33.

On September 28, 2007, the Joint Parties filed their "Response to Nelcela's

Opening Brief re Analytic Dissection," along with exhibits including computer source code highlighted to show some of the portions that appear verbatim in the Lexcel source code and the Nelcela source code as well as declarations from two expert witnesses (Dr. David B. Posner and Robert A. Lerche) and a declaration from Lexcel's President, Carl Kubitz. (Dckt. 565.) 34. Dr. Posner attests in his declaration that the Nelcela Software contains

substantial similarities to the Lexcel Software including: program structure; file names; file structures; variable names, definitions, and data structures; procedures and functions; formatting; commenting; and database structures and definitions including table and column names and table and column data types. (Dckt. 565 at ex.12 ¶ 9.) Dr. Posner further attests that the similarities between the Lexcel Software and the Nelcela Software are not the result of constraints imposed by the programming languages used to create the source code or the computer hardware on which the systems were designed to operate, and cannot be explained by programming conventions, efficiency concerns, or third-party sources such as programming manuals. (Id. ex. 12 ¶¶ 29-33.) And Dr. Posner attests that the portions of the Lexcel Software that appear verbatim in the Nelcela Software comprise a crucial and indispensable part of the Lexcel Software such that absent such portions, the value of the Lexcel Software would be severely diminished. (Id. ex. 12 ¶ 34.) 35. Mr. Kubitz attests in his declaration that Lexcel uniquely created the Lexcel

Software from scratch, and that the Lexcel Software was not copied from VISA or other credit card processing publications or from programming manuals or other third-party sources. (Dckt. 565 at ex.13 ¶¶ 3-6.) Mr. Kubitz further attests that to create its database, Lexcel first created an architecture for its database, which is commonly known as a "database schema." (Id. ¶ 8.) Mr. Kubitz attests that Lexcel used its own creative judgment to create its database schema, including the specific composition of tables and fields to include in the database and the names given to each of the tables and fields. (Id.) Mr. Kubitz further attests that the none of the names or elements used in its database 9
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schema were dictated or even recommended by VISA or any other third-party entity, but rather are the sole result of Lexcel's creative judgment. (Id. ¶ 9.) 36. On October 10, 2007, the Nelcela Parties filed their "Reply Regarding

Analytic Dissection," to which they attached an affidavit from their expert witness Jeffrey A. Pell. (Dckt. 572.) Mr. Pell attests in his affidavit that the similarities between the Nelcela Software and the Lexcel Software comprise only parts of the works, not the entirety of the works. (Dckt. 572 at ex. A ¶ 8(a).) Mr. Pell further attests that he has seen some of the database field names in the Lexcel Software used in other credit card processing software. (Id. ex. A ¶ 8.) And Mr. Pell attests that the similarities in the software identified by Lexcel are not similarities in the function of the computer programs. (Id. ex. A ¶ 10.) 37. On March 20, 2008, the Court heard oral argument on the analytical

dissection issues, along with the testimony of Dr. David B. Posner and Jeffrey A. Pell. (Dckt. 595.) 38. The Joint Parties' expert witness, Dr. Posner, holds a Ph.D. in mathematics

from the University of California, Berkley, has extensive experience in computer software and database design and implementation, and is an expert in computer programming, computer programming languages, and computer databases. (Trans. at 45:11 ­ 46:13 (Mar. 11, 2008) (Dckt. 597).) Dr. Posner testified at the hearing on direct examination that the similarities between the Lexcel Software and the Nelcela Software highlighted in exhibits 1 through 11 to the Joint Parties' Analytic Dissection Brief reflect the creative expression of the Lexcel programmers when creating the Lexcel Software. (Trans. at 50:21-23 (Mar. 11, 2008) (Dckt. 597).) He explained that such similarities are not the result of constraints imposed by the programming languages used by Lexcel, are not the result of third-party manuals or other third-party sources, are not required by VISA, and are not the result of standard or inevitable ways to write computer programs. (Id. at 49:15 ­ 50:20.) Dr. Posner further testified that the file names, variable names, procedure and function names, database table names, and database field names used by Lexcel are the 10
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result of creative choices made by Lexcel when writing its source code. (Id. at 50:25 ­ 51:25, 55:24 ­ 57:15.) The names are not required by the programming languages used to create the Lexcel source code or by third-party sources such as VISA. (Id.) Dr. Posner testified that the database structure and names used by Lexcel reflect the creative expression of the Lexcel programmers and are "absolutely critical" components of the Lexcel Software. (Id. at 57:16-25.) 39. On cross-examination, Dr. Posner acknowledged that there is a logical

relationship between the database field names used by Lexcel and the data required by VISA for credit card transactions: many of the Lexcel database field names represent mnemonics corresponding to particular data required by VISA. However, Dr. Posner testified that the choice of the specific names used by Lexcel could have been done in "a million ways." (Id. at 61:19 ­ 62:2.) Dr. Posner explained, in his affidavit and his expert report, that even though some parts of the Lexcel and Nelcela source code were written in different programming languages, which made direct comparison difficult, the presence of such a large number of identical, yet unique, database field names in both the Lexcel Software and the Nelcela Software provides evidence that the underlying database schema was copied. (Dckt. 334 ex. 12 at 5-8, 23-28; Dckt. 565 ex. 12 ¶¶ 22-29.) Dr. Posner testified at the hearing that this database schema is critical to the functioning of the database. (Trans. at 57:20-25 (Mar. 11, 2008) (Dckt. 597).) 40. In response to questioning from the Court, Dr. Posner testified that "[t]here

are virtually an infinite number of ways" to express the elements that the Joint Parties have identified in common between the Lexcel Software and the Nelcela Software. (Id. at 72:313.) He explained that there are "an infinite number of ways that the problem could have been carved up and the data organized and the functionality organized." (Id. at 72:14-19.) He additionally testified that the database field names used by Lexcel are "completely at the discretion of the programmer" and are part of the creative process, and that "there's nothing in [the Lexcel Software] that is uniquely determined" by VISA. (Id. at 72:2073:23.) And Dr. Posner testified that the database field names used by Lexcel are 11
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"completely the choice of the programmer" and "all at the discretion of the programmer." (Id. at 75:6-16.) 41. The Nelcela Parties' expert witness, Mr. Pell, has extensive experience in

dealing with financial transaction processing primarily with VISA, MasterCard, American Express, Diners' Club, and Discover. (Trans. at 76:23-77:3 (Mar. 11, 2008) (Dckt. 597).) Mr. Pell testified on direct examination that as a matter of good programming practice, a computer programmer should attempt to name variables and database fields in a manner representative of the data that is being processed. (Id. 78:16-79:15.) He testified that the naming of variables and data fields is important to enable the programmers to be able to diagnose and understand what the computer code is doing, as well as to enable future maintenance and alteration of the software. (Id. at 79:16-80:24.) He further testified that the similarities between the Lexcel Software and Nelcela Software are not surprising because both softwares are designed to achieve certification with VISA. (Id. at 84:1886:16.) 42. On cross-examination, Mr. Pell testified that the variable and database field

names used by Lexcel are not required by industry practice, programming manuals, or the programming languages used; rather, Lexcel's programmers had to use their own discretion to create the names when writing the Lexcel source code. (Id. at 88:18-89:25.) Mr. Pell further testified that he has not seen any VISA publication that sets forth the common elements that appear in the Lexcel Software and the Nelcela Software, and that the names used by Lexcel are not mandated by VISA. (Id. at 90:1-7.) Mr. Pell explained that selection of the names used by Lexcel was an important task the programmers performed when creating the source code, and that the Lexcel programmers could have named their database fields any way they wanted. (Id. at 90:8-91:3). Mr. Pell further testified that while good programming practice would require the naming of database fields in a meaningful way to reflect the kinds of data required by VISA, there are innumerable ways to name the database base fields in a meaningful way; neither VISA, the programming languages used, nor programming constraints limit the innumerable ways in 12
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which a programmer can exercise his or her creative judgment when naming variables and database fields. (Id. at 93:1-23.) 43. On examination by the Court, Mr. Pell testified that he has seen some of the

variable names in the Lexcel Software used in other computer software, but gave as an example only three variable names that he has seen used in other computer software. (Id. at 96:14-98:10.) 44. On re-cross, Mr. Pell testified that he has not seen every database field name

highlighted in exhibit 6 to the Joint Parties' Analytic Dissection Brief used in other computer software. (Id. at 99:15-25.) He further testified that variable naming conventions used in the computer industry cannot explain the verbatim similarities between the database field names in the Lexcel Software and the Nelcela Software, and that the specific names used by Lexcel are the result of the discretion of the computer programmers who created the Lexcel source code. (Id. at 100:1-101:17.) 45. Based on the Court's observation of the testimony of Dr. Posner and Mr.

Pell, the Court finds in favor of the Joint Parties on all issues of credibility as to these two witnesses. CONCLUSIONS OF LAW3 A. 1. Waiver Analytic dissection is a defense which the Nelcela Parties bear the burden of

raising and pursuing. 4 NIMMER ON COPYRIGHT § 13.03[F][3] p.13-138); see also EtsHokin v. Skyy Spirits, 225 F.3d 1068, 1082 (9th Cir. 2000) (holding that the doctrines of merger and scenes a faire are defenses to infringement). The Court had no sua sponte obligation to conduct analytic dissection. Softel v. Dragon Medical, 118 F.3d 955, 965 n.9 (2d Cir. 1997); 4 NIMMER ON COPYRIGHT § 13.03[F][3] p.13-138. This is especially so where, as here, the evidence at summary judgment included the Nelcela Parties' own

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To the extent any of these Conclusions of Law contain findings of fact, they are hereby incorporated into the Findings of Fact above. 13
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expert witness's testimony agreeing that copying is the most likely explanation for the similarities between the parties' computer software. 2. The Joint Parties' 2006 motion for summary judgment put Nelcela on notice

that Nelcela's claim to own the Nelcela Software was being challenged based on the alleged similarities between the Lexcel Software and the Nelcela Software. Nelcela nonetheless failed to raise analytic dissection as a defense to the Joint Parties' motion for summary judgment. 3. This Court's ruling on summary judgment found, "[b]ased upon the

undisputed similarities between the Lexcel 2001 software, MTSI software and Nelcela software the Court finds that as a matter of law that they are substantially similar beyond the possibility of random chance and that copying took place." (Dckt. 383 at 28:14-16.) This Court's order articulated the remaining issue for trial as "which party developed the software first." (Id. at 28:20-22.) 4. A party that fails to raise a ground, legal or factual, in opposition to a

summary judgment motion cannot later assert that ground to challenge the summary judgment ruling. USA Petroleum Co. v. Atlantic Richfield Co., 13 F.3d 1276, 1283 (9th Cir. 1994); FED.R.CIV.P. 56(e). Nelcela failed to raise its analytic dissection defense in opposition to the Joint Parties' motion for summary judgment. Accordingly, the Court finds that the Nelcela Parties waived their current analytic dissection challenge to the Court's summary judgment ruling. 5. Any remaining analytic dissection defense on the ownership issue that

Nelcela might have had after this Court's ruling on summary judgment was waived when Nelcela failed to include the defense in the Joint Proposed Pretrial Order and by failing to ask the Court to engage in analytical dissection prior to the commencement of the trial. The Joint Proposed Pretrial Order "controls the course of the action unless the court modifies it" and the Court may only modify the Order "to prevent manifest injustice." FED.R.CIV.P. 16(d)-(e); Rockwell Int'l Corp. v. United States, 127 S. Ct. 1397, 1408 (2007) (the pretrial order "supersede[s] all prior pleadings and control[s] the subsequent 14
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course of the action").4 Failure to raise a defense or evidentiary issue in a pretrial order constitutes a waiver and bars the party from offering the evidence or raising the issue during trial. Northwest Acceptance Corp. v. Lynnwood Equipment, Inc., 841 F.2d 918, 924 (9th Cir. 1988) (defense not raised in pretrial order is waived); Eberle v. Anaheim, 901 F.2d 814, 817 (9th Cir. 1990) (same). 6. Accordingly, the Court finds that the Nelcela Parties have waived any

challenges based on analytic dissection to the Court's summary judgment ruling or the jury's verdict. The jury has conclusively determined that Lexcel Inc., not Nelcela, owns both the authorization system and merchant system computer software at issue in this case, as well as the database components of the Lexcel Software. The jury's verdict therefore shall be conclusive as to the issue of ownership of the computer software during Phase II of this proceeding. B. 7. Copyrightability & Analytic Dissection Although the Court finds that the Nelcela Parties have waived their defense

of analytic dissection as to the issue of ownership, the Court will nevertheless consider their analytic dissection defense as necessary for the determination of whether the Lexcel Software is entitled to broad or narrow copyright protection during the Phase II trial. 8. Lexcel is entitled to a jury trial in Phase II on its claim for damages for

copyright infringement against the Nelcela Parties unless "no reasonable juror could find substantial similarity of ideas and expression" between the Lexcel and Nelcela Software. Swirsky v. Carey, 376 F.3d 841, 844 (9th Cir. 2004). The Court's role is to determine if there is "a genuine issue regarding whether the ideas and expressive elements of the works are substantially similar." Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1472 (9th Cir. 1992). "`[W]hen objectively speaking a triable case of expressive similarity exists, the case must be sent to the trier of fact.'" Id. at 1477 (quoting 4 NIMMER ON COPYRIGHT § 13.03[E][3] at 13-78.20).)
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9.

One of the hallmarks of copyrightability is originality. "The standard of

originality required for a copyright is minimal." Johnson Controls v. Phoenix Control Sys., 886 F.2d 1173, 1175 (9th Cir. 1989). "All that is needed to satisfy originality is for the author to contribute `something more than a "merely trivial" variation.'" Swirsky, 376 F.3d at 851. 10. Computer software is copyrightable if expressive choices were made by the

programmers in achieving the ideas expressed in the program using available language and syntax. Johnson Controls, 886 F.2d at 1175; Aharonian v. Gonzales, 77 U.S.P.Q. 1449, 1453 (N.D. Cal. 2006). 11. "Computer programming is a highly creative and individualistic endeavor.

A court should not be led by defense counsel to believe that complex programs consist only of commonly known techniques and materials strung together without significant originality or skill. A court likewise should be unpersuaded by plaintiff's counsel's focus on the sheer number of similar bits and pieces in the two programs, without an adequate explanation of the significance of those similar components and how they might have come about." 4 NIMMER ON COPYRIGHT § 13.03[F][4][e][i], at 13-144.1. 12. Copyright registrations are presumptive evidence of copyrightability.

Swirsky, 376 F.3d at 851. For computer programs such as the Lexcel Software, Lexcel was required to deposit with the U.S. Copyright Office "identifying portions of the program." 37 C.F.R. § 202.20(c)(2)(vii); see also 17 U.S.C. § 408(b). One of the primary purposes of this deposit requirement is to "furnish the Copyright Office with an opportunity to assess the copyrightability of the applicant's work." Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1162 (1st Cir. 1994). The Copyright Office uses the deposited portions of the computer program to "`examine[ ] the deposit to determine the existence of copyrightable authorship.'" Id. (quoting 54 FED.REG. 13,173 (1989)). 13. The U.S. Copyright Office has determined that the Lexcel Software is

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The Court finds it appropriate to rely upon that determination as prima facie evidence that the Lexcel Software is original. Johnson Controls, 886 F.2d at 1175; see also Bibbero Sys., Inc. v. Coldwell Sys., Inc., 893 F.2d 1104, 1106 (9th Cir. 1990) ("a certificate of registration constitutes prima facie evidence of copyrightability and shifts the burden to the defendant to demonstrate why the copyright is not valid") (citing 17 U.S.C. § 410(c); Transgo, Inc. v. Ajac Trans. Parts Corp., 768 F.2d 1001, 1019 (9th Cir. 1985)). 14. Although the Nelcela Parties assert that the Lexcel Software is similar to

computer source code set forth in programming manuals or in use by other companies for credit card processing, this contention is insufficient to rebut the presumption of originality arising from Lexcel's copyright registrations in the absence of evidence that Lexcel copied from these other sources. Johnson Controls, 886 F.2d at 1175. In order to rely on thirdparty sources to rebut the presumption of originality, the Nelcela Parties were required not only to come forth with proof of copying of the alleged third-party source, but also to establish that Lexcel's source code "is substantially similar to the prior work in both ideas and expression." North Coast Indus. v. Jason Maxwell, Inc., 972 F.2d 1031, 1033-34 (9th Cir. 1992). The Nelcela Parties have offered nothing more than third-party sources that do not match the copying at issue and unverified tales of manuals that have never been produced. 15. Analytic dissection is a process used by courts to perform an "extrinsic

analysis" of copyrightability. Analytic dissection is a means to filter out similarities that are subject to limiting doctrines that would render them uncopyrightable, such as similarities that: (1) lack originality, (2) flow naturally from basic ideas, or (3) are one of the few ways in which a particular idea can be expressed. Apple Corp., Inc. v. Microsoft Corp., Inc., 35 F.3d 1435, 1439 (9th Cir. 1994). 16. To perform analytic dissection, the Court starts at the highest level of

generality and compares the two works for similarity. If no similarities are found, then there can be no actionable claim for copyright infringement. If similarities do exist, then the Court must keep looking at increasingly more detailed levels to determine whether 17
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similarities exist between the works. Once the Court has dissected the works to their lowest levels of similarity, the Court must then compare the similarities to determine whether they involve substantial copyrightable material. See, e.g., Data East USA, Inc. v. Epyx, Inc., 862 F.2d 204, 207 (9th Cir. 1988); Apple v. Microsoft, 35 F.3d at 1442-46; Brown Bag Software, 960 F.2d at 1472-73. 17. Even when the similarities between two works are not themselves

copyrightable, the copyright laws still protect "against nearly identical copying" of original material, although the copied work may only be entitled to "thin" protection against verbatim copying. Apple v. Microsoft, 35 F.3d at 1444. 18. Here, the similarities between the Lexcel Software and the Nelcela Software

persist from most general to the most specific level, as set forth in the Joint Parties' list of common features and elements. (Dckt. 555.) That list is consistent with the expert reports submitted by the Joint Parties in support of their 2006 summary judgment motions. Moreover, in its opening and reply briefs on analytic dissection, Nelcela does not contest the existence of the similarities at each of these levels of similarity, but rather argues that each of the listed similarities involve elements that are not copyrightable as a matter of law. (Dckt. 560 at 3:20-23.) 19. The Court finds that the Joint Parties have presented evidence of substantial

similarities between the Lexcel Software and the Nelcela Software extending as deep as the actual computer source code of the two works. 20. Beginning with the non-literal elements of the two works at their highest or

most general level, the Court finds substantial similarities. The tasks performed by the Lexcel Software and the Nelcela Software are the same: authorizing, processing, and storing credit card transactions and data. Dissecting further, the Court finds that the computer platform on which the Lexcel Software and the Nelcela Software are the same: personal computers. Dissecting further, the Court finds that the design and layout of the processing systems embodied by the Lexcel Software and the Nelcela Software are similar, including (a) their breakdown of functionality into authorization, merchant, and 18
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database components, (b) the interaction of the components, and (c) the further breakdown of functionality within a component into particular files and modules, often having the same name and performing the same tasks as the corresponding Lexcel file or module; (d) the utilization of a single database by all components; and (e) the use of many identical database table and column names and table and column data types. The Court finds that these similarities between the Lexcel Software and the Nelcela Software are not dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 21. Lexcel does not seek copyright protection for these non-literal elements in

isolation, but rather seeks protection of the combination of the identified non-protectable elements. The Court finds, based on the testimony and declaration of Dr. Posner, that the combination of the identified non-literal elements involves the creative expression of the computer programmers who created the Lexcel Software, and therefore the combination of these elements is subject to copyright protection. Johnson Controls, 886 F.2d at 1175. 22. Dissecting further by turning to the literal elements, the Court finds

substantial similarities in the source code of the Lexcel Software and the Nelcela Software. The works contain similar program structures and elements. The works include many identically named files performing identical functions using similar file structures. The works contain many similar variables, including many variables having identical names, definitions, and data structures. The works contain similar procedures and functions, including many identically named procedures and functions that perform similar tasks. The works contain similar programmer comments, including many comments that appear identically in the two works. The works contain similar database structures and definitions, including many identical table and column names and table and column data types. And, as shown in the declaration of Dr. Posner, and not refuted by Nelcela, the works contain many identical sections of source code (including formatting, naming, and 19
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commenting). The Court finds that these similarities between the Lexcel Software and the Nelcela Software are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 23. The Nelcela Parties, who bear the burden of proof on their analytic

dissection defense, have failed to come forth with credible explanations for the numerous similarities between the Lexcel Software and the Nelcela Software. 24. As evidenced in Dr. Posner's declaration at ¶ 11, and not disputed by the

Nelcela Parties, the highlighted portions of the Lexcel file "ACCOUNT.SQL" as shown in Exhibit 1 to the Joint Parties' Analytic Dissection Brief appear verbatim in multiple Nelcela files including "MERRPTS.PBL" and "ACCMAST.PBL." Both the database table name "ACCOUNT_MASTER" and the database field names in that table appear verbatim in the both the Lexcel Software and the Nelcela Software. The Court finds that these similarities are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties.
25.

As evidenced in Dr. Posner's declaration at ¶ 12, and not disputed by the

Nelcela Parties, the highlighted portions of the Lexcel file "AUTHDAEM.C" as shown in Exhibit 2 to the Joint Parties' Analytic Dissection Brief appear verbatim in the Nelcela file "AUTHDAEM.C." In addition to having the identical file name, almost the entirety of the
Lexcel file, including variables, parameters, formatting, and the unique way in which Lexcel chose to express the functionality performed by the file appear verbatim in the Nelcela file. The Court finds that these similarities between the Lexcel Software and the Nelcela Software

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the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 26. As evidenced in Dr. Posner's declaration at ¶ 13, and not disputed by the

Nelcela Parties, the highlighted portions of the Lexcel file "CARD.SQL" as shown in Exhibit 3 to the Joint Parties' Analytic Dissection Brief appear verbatim in the Nelcela file "ACCMAST.PBL." Both the database table name "CARDHOLDER_MASTER" and the database field names in that table appear verbatim in the both the Lexcel Software and the Nelcela Software. The Court finds that these similarities between the Lexcel Software and the Nelcela Software are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 27. As evidenced in Dr. Posner's declaration at ¶ 14, and not disputed by the

Nelcela Parties, the highlighted portions of the Lexcel file "CMDEXEC.C" as shown in Exhibit 4 to the Joint Parties' Analytic Dissection Brief appear verbatim in the Nelcela file "CMDEXEC.C." In addition to having the identical file name, almost the entirety of the Lexcel file, including variables, parameters, formatting, and the unique way in which Lexcel chose to express the functionality performed by the file appear verbatim in the Nelcela file. The Court finds that these similarities between the Lexcel Software and the Nelcela Software are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 21

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28.

As evidenced in Dr. Posner's declaration at ¶ 15, and not disputed by the

Nelcela Parties, the highlighted portions of the Lexcel file "CMDEXEC.H" as shown in Exhibit 5 to the Joint Parties' Analytic Dissection Brief appear verbatim in the Nelcela file "CMDEXEC.H." In addition to having the identical file name, almost the entirety of the Lexcel file, including variables, parameters, and the unique way in which Lexcel chose to write this source code appear verbatim in the Nelcela file. The Court finds that these similarities between the Lexcel Software and the Nelcela Software are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 29. As evidenced in Dr. Posner's declaration at ¶¶ 16 and 19, and not disputed

by the Nelcela Parties, the highlighted portions of the Lexcel files "IDR.SQL" and "SELECT.SQL" as shown in Exhibits 6 and 9 to the Joint Parties' Analytic Dissection Brief appear verbatim in multiple Nelcela files including "BASE2OUT.PBL," "BASE2IN.PBL," and "VISAMGT.PBL." The Court finds that these similarities between the Lexcel Software and the Nelcela Software are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 30. As evidenced in Dr. Posner's declaration at ¶ 17, and not disputed by the

Nelcela Parties, the highlighted portions of the Lexcel file "INTERCHANGE.H" as shown in Exhibit 7 to the Joint Parties' Analytic Dissection Brief appear verbatim in the Nelcela file "INTERCHA.H." In addition to having a similar file name, almost the entirety of the Lexcel file, including variables, parameters, formatting, commenting, and the unique way in which Lexcel chose to write this source code appear verbatim in the Nelcela file. The Court finds that these similarities between the Lexcel Software and the Nelcela Software 22
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are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 31. As evidenced in Dr. Posner's declaration at ¶ 18, and not disputed by the

Nelcela Parties, the highlighted portions of the Lexcel file "ISOSTRUCT.H" as shown in Exhibit 8 to the Joint Parties' Analytic Dissection Brief appear verbatim in the Nelcela file "IS08583S.H." In addition to having a similar file name, a substantial portion of the Lexcel file, including variables, parameters, formatting, commenting, and the unique way in which Lexcel chose to write this source code appears verbatim in the Nelcela file. The Court finds that these similarities between the Lexcel Software and the Nelcela Software are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties. 32. As evidenced in Dr. Posner's declaration at ¶ 20, and not disputed by the

Nelcela Parties, the highlighted portions of the Lexcel file "TABLES" as shown in Exhibit 10 to the Joint Parties' Analytic Dissection Brief appear verbatim in the Nelcela file "ACCMAST.PBL." Both the database table name "IS08583SETTLE" and many of the database column names in the Lexcel file appear verbatim in the Nelcela file. The Court finds that these similarities between the Lexcel Software and the Nelcela Software are not the result of random chance, nor are they dictated by: (a) constraints imposed by the programming languages used, (b) constraints imposed by the computer hardware, (c) programming conventions, (d) shared third-party sources, (e) standard or inevitable means for writing computer source code, or (f) requirements imposed by VISA or other third parties.
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33.

The Nelcela Parties contend that computer databases are not copyrightable,

citing Baystate Technologies v. Bentley Systems, 946 F.Supp. 1079 (D.Mass. 1996). The Court disagrees with this contention. Computer source code is protectable by copyright. E.g., Johnson Controls, 886 F.2d at 1175. Since Baystate Technologies, more recent cases have recognized that this protection extends to the source code and the database schemas used to design computer databases. Positive Software Solns. v. New Century Mort., 259 F.Supp.2d 531, 535 (N.D.Tex. 2003); Szen Corp. v. Anderson, 2007 WL 1728717 (E.D.Wash. 2007). In the present case, that conclusion is even more compelling because the U.S. Copyright Office has issued Lexcel a copyright specifically in its database components (Trial Exhibit 580). Nelcela has failed to rebut the presumption of copyrightability stemming from the issuance of that copyright registration. Accordingly, the Court finds that the database component of the Lexcel Software is entitled to copyright protection. 34. The Court finds that the similarities between the Lexcel Software and the

Nelcela Software identified herein comprise crucial and indispensable parts of the Lexcel Software, and are thus qualitatively significant. The Court also finds that the similarities between the Lexcel Software and the Nelcela Software, which comprise multiple files and hundreds of lines of computer source code and database elements, comprise quantitatively significant portions of the Lexcel Software. 35. The doctrines of merger and scenes a faire are defenses to infringement,

rather than barriers to copyrightability. Ets-Hokin, 225 F.3d at 1082; Satava v. Lowry, 323 F.3d 805, 810 n.3 (9th Cir. 2003), cert. denied, 540 U.S. 983 (2003). Merger occurs when "an idea and its expression are indistinguishable," in which case "the expression will only be protected against nearly identical copying." Apple v. Microsoft, 35 F.3d at 1444. The doctrine of scenes a faire is closely related. Under the doctrine of scenes a faire, features which are "`as a practical matter indispensable, or at least standard, in the treatment of a given idea' . . . are treated like ideas and are therefore not protected by copyright. . . [but 24

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even] the mere indispensable expression of these ideas . . . may be protected only against virtually identical copying." Id. (quoting Frybarger v. IBM, 812 F.2d 525 (9th Cir. 1987)). 36. The Court finds that neither the doctrine of merger nor the doctrine of scenes

a faire applies in the present case because the ideas expressed by the Lexcel Software, i.e., the processing of credit card transactions, are distinguishable from Lexcel's expression of the ideas, and the choices made by Lexcel when creating the Lexcel Software are not indispensable or standard in the treatment of the ideas. As explained in the declaration and testimony of Dr. Posner, whose testimony the Court finds to be credible, the Lexcel Software is the creative result of numerous choice point decisions made by Lexcel when creating the software. The software could have been created in innumerable ways, thereby rendering the doctrines of merger and scenes a faire inapplicable. 37. For the above stated reasons, the Court finds that the similarities in the literal

elements between the Lexcel Software and the Nelcela Software constitute protectable expression in the context of the medium involved. C. 38. A Jury Trial Shall Be Held on the Issue of Copyright Infringement. As set forth above, Lexcel has presented evidence of substantial similarity

between the Lexcel Software and the Nelcela Software, including both verbatim passages of copying of computer source code and the widespread use of identical idiosyncratic names for columns, fields, and variables in their databases and source code. 39. The jury's verdict in Phase I that Lexcel, not Nelcela, owns the software at

issue is no longer subject to challenge by Nelcela on the basis of analytic dissection because of Nelcela's waiver of the analytic dissection defense at every stage of the Phase I proceedings to determine ownership. However, had Nelcela not waived that defense as to the determination of ownership, the Court would reaffirm its prior summary judgment determination of substantial similarity for the reasons stated herein. 40. The substantial similarities presented by Lexcel constitute at least an "indicia

of a sufficient disagreement concerning the substantial similarity of the two works," under 25

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either a "broad" or a "thin" protection standard. Therefore, Lexcel's claim for copyright infringement "must be submitted to a trier of fact." Swirsky, 376 F.3d at 844. 41. Based on the evidence available to the Court, including the Court's

assessment of the credibility of the parties' expert witnesses, the Court concludes that the similarities between the Lexcel Software and the Nelcela Software are entitled to "broad" copyright protection because the ideas expressed by the parties' software ­ the processes for processing credit card transactions ­ are separable from the computer source code and database components used to express the ideas, and because there is a wide range of possible expression that could have been used to accomplish the same functionality to process credit card transactions. See Apple v. Microsoft, 35 F.3d at 1446-47 (broader protection is available where more variations of expression are available). Accordingly, IT IS HEREBY ORDERED that the jury's verdict in Phase I has finally resolved the determination of ownership of the computer software at issue in this case. IT IS FURTHER ORDERED that at the Phase II trial, the jury shall be instructed in accordance with the Court's summary judgment ruling that the Lexcel Software and the Nelcela Software are substantially similar beyond the possibility of random chance, and that copying took place with respect to the parties' Authorization Systems and Merchant Systems. The jury shall also be instructed that the similarities between the Lexcel Software and the Nelcela Software are entitled to broad copyright protection. IT IS FURTHER ORDERED that the parties may commence discovery for Phase II. The parties shall submit an agreed case management plan for the Phase II proceedings by ________________________________.

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