TRIAD SYSTEMS CORPORATION, a Delaware corporation, Plaintiff,

v.

SOUTHEASTERN EXPRESS CO., et al., Defendants.

SOUTHEASTERN EXPRESS SYSTEM, INC., a Georgia corporation, Counterclaimant,

v.

TRIAD SYSTEMS CORPORATION, Counter-Defendant.

No. C 92 1539-FMS.

31 U.S.P.Q.2d 1239 (N.D. Cal. 1994)

FERN M. SMITH, District Judge.

Introduction

1) In MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir.1993), cert. dismissed, 114 S.Ct. 671 (1994) ("MAI "), the Ninth Circuit held that the loading of MAI's copyrighted operating system software into the random access memory ("RAM") of an MAI brand computer, which necessarily occurs whenever an MAI computer is started up or reset, makes a "copy" of the operating system software under the Copyright Act. As a result, whenever Peak, an independent service organization, turns on or resets its customers' MAI computer systems, Peak infringes MAI's copyright. In this action, which involves Triad brand computers, the question presented by Triad's motion for summary judgment is whether Southeastern, an independent service organization, infringes Triad's copyrights when it services Triad computers. Southeastern disputes the infringement claim, raises defenses of fair use and copyright misuse, and moves for summary judgment on the fair use and copyright misuse defenses.

2) Southeastern also has raised various counterclaims. As to some of these counterclaims, Southeastern seeks a preliminary injunction. Triad also seeks summary judgment on some of Southeastern's antitrust counterclaims.

Background

I. Triad's Business

3) Triad manufactures computers for use by automotive parts stores and designs, sells and licenses software to run those computers. The Triad Series 12 computer system is comprised of, among other things, a hard disk drive, a tape drive, a combination processor/disk controller board and random access memory ("RAM"). The Triad system requires at least one video display terminal with keyboard and printer. These computer systems provide specialized automated support for customers in the automotive parts industry, allowing them to automate their sales, inventory, and accounting tasks.

4) Triad services the computers it sells and the software necessary to operate the computers. Triad's copyrighted software includes (1) operating system software (necessary to run any other program on the computer); (2) applications software (which performs the basic functions such as invoicing and accounting for the Triad computer owner); and (3) utilities, diagnostic and auxiliary software (used by technicians repairing Triad software or hardware) (hereinafter "service software").

II. Southeastern's Business

5) Southeastern is an independent service organization ("ISO") that services computers manufactured by Triad. Southeastern also deals in used Triad computers. Southeastern competes with Triad for the servicing and maintenance of Triad brand computers and currently provides maintenance services for fewer than fifty customers. According to Southeastern, it entered the maintenance business solely because Triad refused to service Triad systems brokered by Southeastern. Southeastern's maintenance services include service calls, depot repairs, expansion and upgrades of computer hardware, and the provision of replacement parts. Southeastern offers Triad users prices below Triad's for maintenance and used equipment. Declaration of George Barnes ("Barnes Decl.") PP 5, 6.

III. Service and "Copying"

6) Triad claims that when Southeastern services Triad computers it copies Triad software into RAM in three distinct manners. A Triad computer cannot be operated, for any purpose, without loading the operating system software into RAM; this necessarily creates a "copy" in the computer's internal memory. MAI, 991 F.2d 511. This copying occurs in one of two ways: (1) the software can be copied to RAM directly from the computer's own hard disk drive; or (2) by starting a Triad computer from its tape drive, the operating system and other program software is first copied onto the hard disk from the tape drive and then copied into the computer's RAM.

7) Triad also asserts that in order to perform the various service functions, a copy must first be made on the computer's hard disk; then, as the computer operates each portion of the program, that portion is copied into RAM.

Discussion

. . .

II. Infringement Issues

A. The Scope of Triad's License Agreements

8) To prevail on its copyright infringement claims, Triad must prove ownership of the copyright and a " 'copying' of protectable expression" beyond the scope of a license. S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 (9th Cir.1989). Triad's ownership is not in dispute and copying is discussed in more detail below. The applicable license agreements restrict the right of licensees to copy Triad software and prohibit anyone other than licensees from using Triad software.

9) Triad software customers are subject to several different contractual arrangements. For convenience, the parties and this Court have referred to these various agreements as "Regime 1," "Regime 2," and "Regime 3" agreements respectively. It is undisputed that from 1976 to 1985, Triad sold its systems outright, including the software on them, pursuant to Regime 1 contracts. Regime 1 agreements are sales agreements whereby the software customer becomes the owner of the particular software with full rights to copy and authorize the making of copies for uses permitted under 17 U.S.C. s 117; see also 17 U.S.C. s 109(a). It follows that copies permitted under section 117 of the Copyright Act, even if they are made by Southeastern while servicing Regime 1 customers, are non-infringing.

10) In 1986, Triad began licensing, rather than selling, the software on its systems pursuant to Regime 2 agreements. Those agreements precluded licensees from "duplicat[ing]" the software. Regime 2 also prohibits use of licensed software by third parties. In 1991, Triad began using Regime 3 agreements, which add a requirement that licensees selling their systems pay Triad a license transfer fee. Prior Opinion at 4-5.

11) Triad asserts that Southeastern provides services to Triad software customers subject to Regimes 2 and 3, thereby copying Triad's copyrighted software. Southeastern claims it only services Regime 1 customers, software owners empowered to authorize Southeastern's use. While the present record supports an inference that some of Southeastern's customers are bound by the terms of Regime 2 and 3 agreements, Triad has failed to identify any specific instance of copying. This creates a dispute of material fact regarding the extent of copying of software governed by Regime 2 and Regime 3 license agreements. There is no dispute, however, that to the extent Southeastern uses its customers' licensed copies of Triad operating system and service software subject to Regimes 2 and 3 agreements, that use results in the making of unauthorized copies.

B. Southeastern Copies Triad Software

12) The Copyright Act affords protection to "original works of authorship fixed in a tangible medium of expression...." 17 U.S.C. s 102(a). This includes "literary works," id. at s 102(a)(1), which Congress intended to include computer programs. Computer Associates Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 702 (2d Cir.1992) ("CAI"). Although this protection extends to the literal elements of a computer program as well as the non-literal structures of the program, the copyright does not protect ideas, procedures, processes, systems, methods of operation, concepts, principles or discoveries, but only the expression of these ideas, procedures, etc. 17 U.S.C. s 102(b); Baker v. Selden, 101 U.S. (11 Otto) 99 (1879).

13) Triad alleges that Southeastern infringes by copying operating system software registered as Nos. TXU 514-344, TXU 514-363, TXU 514-346, TXU 514- 362. Second Amended Complaint PP 64 & 66.

14) The Copyright Act defines "copies" as: material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. 17 U.S.C. s 101.

15) The Copyright Act then explains: A work is "fixed" in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration. 17 U.S.C. s 101.

16) The Court finds that Southeastern's loading of licensed Triad operating system software into the RAM of its customers' Triad computers creates fixed copies of Triad's software. MAI, 991 F.2d 511; Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 260 (5th Cir.1988); Final Report of the National Commission on New Technological Uses of Copyrighted Works, at 22 (1979) ("CONTU Report ").

17) Southeastern's attempts to distinguish this case from MAI on this point are unavailing. In MAI, the Ninth Circuit, faced with similar facts, found that Peak, an ISO, made fixed copies when it loaded MAI's operating system software into RAM while servicing MAI brand computers. The court stated: [B]y showing that Peak loads the software into the RAM and is then able to view the system error log and diagnose the problem with the computer, MAI has adequately shown that the representation created in the RAM is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." 991 F.2d at 518 (quoting 17 U.S.C. s 101). Bound by this authority, the Court finds that Southeastern makes fixed copies of Triad's operating system software whenever it services a Triad computer but, as explained below, not because copying Triad software results in the generation of video screens.

18) Southeastern admittedly loads operating system software into the RAM of its customers' Triad computers; however, Southeastern contends that the copies of Triad software into RAM are not "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." 17 U.S.C. s 101. Specifically, Southeastern asserts a dispute exists as to whether the loading of operating system results in the generation of octal representations on the Triad computer system's video display terminal. That dispute, if any, is not material.

19) While the MAI court found that the generation of an "error log" on the computer's video display terminal was evidence of the creation of a fixed copy, the court did not hold or imply the converse: i.e., that the absence of such a video display would be evidence that fixed copies were not created. Nor does the court's reasoning require such a result. MAI stands for the more general proposition that a "copy made in RAM is 'fixed' and qualifies as a copy under the Copyright Act." 991 F.2d at 519.

20) This interpretation is supported by earlier Ninth Circuit application of copyright principles to computer programs. In Apple Computer, Inc. v. Formula Int'l, Inc., 725 F.2d 521 (9th Cir.1984), the court found that the Copyright Act "makes no distinction between the copyrightability of those programs which directly interact with the computer user and those which simply manage the computer system." Id. at 525. Southeastern's contention that the copy of Triad operating system software into RAM cannot be "fixed" because it does not generate any screens would revive this functionally meaningless distinction in the context of fixation analysis. The purposes of the Copyright Act would not be served by judicial approval of such an artificial distinction. Indeed, the CONTU Report used similar reasoning to reject a proposal that programs be copyrighted only when their use leads to "copyrighted" output such as printed material. CONTU Report at 21. It follows that this Court's determination of fixation should not hinge on a distinction between copies of operating system software that generate video screens and those that do not.

21) Southeastern also attempts to challenge the fixed nature of the copies made in RAM with the testimony of Mr. George Barnes, Southeastern's president. The testimony is offered to show that copies made by Southeastern do not reside in RAM long enough to be deemed "copies" under the Copyright Act. The Copyright Act provides that a copy is only "fixed" when it is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." 17 U.S.C. s 101. But the copyright law is not so much concerned with the temporal "duration" of a copy as it is with what that copy does, and what it is capable of doing, while it exists. "Transitory duration" is a relative term that must be interpreted and applied in context. This concept is particularly important in cases involving computer technology where the speed and complexity of machines and software is rapidly advancing, and where the diversity of computer architecture and software design is expanding at an ever-increasing rate. CONTU Report at 22- 23.

22) In order to use a Triad computer, one must reproduce the operating system software in the computer's RAM. This software "communicates" with the computer hardware in order to perform certain functions. This software also allows the computer to interact or "communicate" with various application software. It may be, as Mr. Barnes suggests, that in the Triad system, the software resides in the RAM for only a millisecond. It also may be that in other computer systems, operating system software must remain in RAM from the moment the computer is turned on until the moment it is turned off. The fact remains, however, that an ephemeral RAM copy of Triad operating system software is the functional equivalent of a longer lasting copy in other computer systems. As a result, the kind of temporal distinction Southeastern is attempting to draw is not probative of the fixation question and does not disturb this Court's finding that the copies Southeastern makes are sufficiently fixed to be copies under MAI and the Copyright Act.

23) Southeastern also contends that using a Triad computer only results in portions of Triad's operating system software being copied into RAM at any one time. Again, this technical distinction does not detract from this Court's central conclusion that any unlicensed copying of Triad software into RAM during service constitutes copying under the Copyright Act. The fact that the entirety of Triad's literary work is protected does not mean that such work must be copied as a whole before the protective shield of copyright law is activated. Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 564-65 & 569 (1985).

24) MAI holds that loading software into RAM creates a fixed copy and further holds that this principle extends to the loading of certain operating system software. There is nothing unique about the Triad system that requires a different result.

25) The record further supports the unrefuted inference that loading Triad service software into RAM creates "copies" under MAI.

. . .

C. Fair Use

26) Southeastern claims that its copying is excused by the doctrine of fair use, which is "an equitable rule of reason." Harper & Row, 471 U.S. at 560 (quoting H.R.Rep. No. 1476, 94th Cong., 2d Sess. 65, reprinted in, 1976 U.S.C.C.A.N. 5659, 5679)) (hereinafter "House Report"). "[F]air use analysis must always be tailored to the individual case," Harper & Row, 471 U.S. at 552, and the Court must ensure that its application of the fair use defense comports with and advances the constitutional policies underlying the Copyright Act. When setting boundaries between unprotected ideas and protected expression and between fair and infringing uses, the Court must be pragmatic and maintain the balance between competition and protection. CAI, 982 F.2d at 711 (citing Apple Computer, 714 F.2d at 1253).

27) When adapting the principles of copyright law to new circumstances, the development of the law is best served by attention to these underlying principles, rather than by fruitless attempts to fit proverbial square pegs into round holes. Software cases, like those involving any other literary work, must be viewed in the context of existing copyright law, not vice-versa. A concise discussion of these general principles appears in Justice Stewart's opinion in Twentieth Century Music Corp. v. Aiken: The limited scope of the copyright holder's statutory monopoly, like the limited copyright duration required by the Constitution, reflects a balance of competing claims upon the public interest: Creative work is to be encouraged and rewarded, but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and the other arts. The immediate effect of our copyright law is to secure a fair return for an "author's" creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good.... When technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of this basic purpose. 422 U.S. 151, 156, 95 S.Ct. 2040, 2043-44 (1975) (citations and footnotes omitted). This interpretation of the central goal of the copyright law was confirmed in the Supreme Court's decision in Feist Publications, Inc. v. Rural Tel. Serv. Co., 111 S.Ct. 1282 (1991). Feist rejects the "sweat of the brow" doctrine and teaches that substantial effort alone cannot confer copyright status on an otherwise uncopyrightable work. Still, "the fair use doctrine has always precluded a use that 'supersede[s] the use of the original.' " Harper & Row, 471 U.S. at 550 (quoting Folsom v. Marsh, 9 F.Cas. 342, 344-45 (No. 4,901) (CC Mass.1841). Although Congress has defined computer programs as literary works entitled to copyright protection, it is not for the courts to let incentive-based arguments which favor broad rotection obscure other fundamental tenets of copyright doctrine favoring competition.

28) Section 107 of the Copyright Act codifies the doctrine of fair use and lists the following four nonexclusive factors for courts to weigh in determining whether a specific use is in fact fair: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. 17 U.S.C. s 107.

29) Although these determinations are fact-driven, this does not protect copyright holders and infringers from summary disposition of claims where there are no material factual disputes. See e.g., Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510, 1522 (9th Cir.1992) ("Accolade "); Narrell v. Freeman, 872 F.2d 907, 910 (9th Cir.1989). For the reasons stated below, the Court finds that while Southeastern has not sufficiently shown fair use to prevail on summary judgment, it has raised a genuine issue of material fact as to fair use in its use of Triad operating system software and in its practice of making backup copies of Triad software while reformatting and rebooting customers' hard drives, precluding summary judgment for Triad on infringement. To the extent Southeastern uses its customers' licensed Triad service software to diagnose and repair Triad computers and software, however, the fair use defense will not apply.

1. Effect of the Use Upon the Potential Market for or Value of the Copyrighted Work

30) Although listed last in the statute, this is " 'undoubtedly the single most important' factor" in analyzing the fair use issue. Lewis Galoob Toys, Inc. v. Nintendo of America, Inc., 780 F.Supp. 1283, 1294 (N.D.Cal.1991), aff'd., 964 F.2d 965 (9th Cir.1992), cert. denied, 113 S.Ct. 1582 (1993) (quoting Harper & Row, 471 U.S. at 566). It asks whether " 'if the challenged use should become widespread, it would adversely affect the potential market for the copyrighted work' ... by diminishing potential sales, interfering with marketability, or usurping the market ..." Accolade, 977 F.2d at 1523, (quoting Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 451 (1984) ("Sony")); Melville B. Nimmer & David Nimmer, Nimmer On Copyright s 13.05[A][4] at 13-102.61-62 (1993) ("Nimmer ").

31) To show market effect under fair use analysis, Triad must establish "with reasonable probability" a prima facie case of actual damage, i.e., the existence of a "causal connection between the infringement and a loss of revenue." Harper & Row, 471 U.S. at 567-68 (citations omitted) (emphasis added). As explained below, Triad has failed to show adverse market effect with respect to Triad's market with auto parts dealers; there is a dispute of material fact as to the effect on the value of and potential market for Triad software resulting from Southeastern's use of operating system software and its practice of making backup copies of Triad software while providing service to its customers; and there is some adverse market effect from Southeastern's use of its customer's licensed copies of Triad service software, but there is a dispute concerning the extent to which Southeastern uses its customers' service software. As a result, the Court cannot resolve the fair use issue on summary judgment.

32) Triad has failed to show that Southeastern's copying adversely effects Triad's ability to sell or license software to automotive parts dealers, the primary users of Triad computers. Southeastern does not compete with Triad to sell or license software, but maintains hardware for the benefit of Triad users. It neither uses nor copies software which the customer does not rightfully possess. In performing maintenance, Southeastern merely moves the customer's own software between different locations within the customer's Triad computer. When the servicing is completed, the customer is left with its same software--no more and no less.

33) In most copyright infringement cases, the alleged infringer is accused of using the copyrighted work to compete with the copyright holder in the market for that work. If the infringing use usurps the market for the copyrighted work, as in piracy cases, that factor will be dispositive. See e.g., Harper & Row, 471 U.S. at 566. In other cases, the infringer unfairly uses the copyrighted work to develop derivative works, thereby affecting the market for the copyrighted work by offering a substantially similar product in competition. Accolade, 977 F.2d at 1523-24. Alternatively, the alleged infringer might use the copyrighted work to develop accessories to be used in conjunction with the copyright holder's works, arguably suppressing demand for the primary product. Lewis Galoob Toys, Inc., 780 F.Supp. at 1294-98. In each instance, the court must determine what market is "relevant" to the copyright and whether that market is adversely affected by the alleged infringer's use. Id.

34) Triad has established the existence of a market among Triad owners for the software that Southeastern copies. Triad licenses use of the software to computer owners in exchange for a royalty fee. Triad does not and cannot contend that Southeastern's use affects this aspect of the market. Instead, Triad focuses on the "potential market" and demand generated by ISOs who need to use/copy Triad software in order to service Triad brand computers. Lewis Galoob Toys Inc. v. Nintendo, Inc., 964 F.2d 965, 971 (9th Cir.1992), cert. denied, 113 S.Ct. 1582 (1993).

35) Because Triad's copyrights do not extend to the methods, procedures and processes involved in servicing a Triad computer, injury to Triad's position in the service market is not cognizable under copyright law. Triad may be able to show that Southeastern's unauthorized use of its operating system software adversely affects Triad's potential market for licensing the software. From the current record, however, the Court is unable to determine the precise effect Southeastern's infringement has on the potential market for or value of Triad's operating system software.

36) Triad claims that when Southeastern copies Triad software without a license, Triad ostensibly loses the opportunity to recover a royalty. The theory is sound. Presumably, Triad could offer its current licensees arrangements under which third parties like Southeastern would be authorized to start up service customers' computers. Alternatively, Triad could offer to license Southeastern's limited use directly. In either case, there is a potential market for licenses authorizing limited copying of Triad operating system software.

37) What is more difficult to ascertain is the extent to which Southeastern's unauthorized use impacts Triad's potential market. Southeastern's service customers know how to start up their computers and do not need to pay Southeastern to do that; the customer pays for service. Theoretically, the customer could start up the computer itself before Southeastern arrives to perform service. Alternatively, a Southeastern representative could instruct the customer to start up or reset the computer whenever necessary to perform various service functions. Either way would avoid infringement and allow Southeastern to service its customers' computers.

38) In order to calculate the extent of Triad's injury, if any, one must assume that Triad would only be able to extract a royalty that Southeastern and/or its customers would willingly pay to avoid the necessity of customers starting up their Triad computers when Southeastern makes service calls. This is the only injury for which Triad can establish a "causal connection between the infringement and a loss of revenue." Harper & Row, 471 U.S. at 567-68. The present record neither suggests the value of such a royalty nor indicates the extent to which the loss of this potential royalty adversely affects the market for or the value of the copyrighted work. Further proof on this issue is needed in order to resolve this aspect of the fair use question.

39) To calculate the extent of Triad's injury from Southeastern's unauthorized creation of backup copies, one assumes that Triad would only be able to extract a royalty that Southeastern and/or its customers would be willing to pay to avoid the necessity of customers making their own backup tapes. Again, there is insufficient proof of the value of such a royalty and of Triad's ability to collect such a fee in the market in which it competes to complete the fair use analysis.

40) To calculate the extent of Triad's injury from Southeastern's use of its customers' copies of Triad service software, it is assumed that Triad would be able to extract a royalty that Southeastern would be willing to pay to use those particular copies of service software. The record is unclear, however, whether Southeastern owns its own copies of the service software but uses its customers' copies as a matter of convenience. [FN8] If Southeastern must rely on customers' copies, the potential royalty Triad might charge could be substantial, since Southeastern would be severely hampered in the service business if it could not use the service software. On the other hand, if Southeastern could avoid using the licensed copies residing in its customers' computer memory, Southeastern would not need to obtain any further licenses of service software from Triad. Because the record is unclear on this point, further evidence is needed to complete analysis of this fair use factor.

2. The Purpose and Character of Southeastern's Use of Triad Software.

41) The "purpose and character" inquiry bears a close relationship to the fourth statutory factor discussed above. Accolade, 977 F.2d at 1523. Both inquiries require the Court to distinguish between copying that constitutes "simple exploitation of another's creative efforts," and copying incident to a legitimate use of the copyrighted work. Id.

42) If the consumer makes a commercial or profit-making use of the copyrighted work, that use is presumptively unfair. Harper & Row, 471 U.S. at 562; Sony, 464 U.S. at 449. This presumption, however, "can be rebutted by the characteristics of a particular commercial use." Accolade, 977 F.2d 1510, 1522 (9th Cir.1992) (citing Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1152 (9th Cir.1986).

43) Triad argues that because Southeastern uses and copies Triad software to compete with Triad in the service business, the commercial use presumption applies and precludes a finding of fair use. Moreover, because Southeastern adds no creative effort to the copyrighted work, Triad argues that application of the fair use doctrine does not promote creativity as was the case in Accolade. 977 F.2d at 1523.

44) The Court finds that any commercial gain to Southeastern from its use of Triad operating system software is derived primarily from the labor-intensive work of servicing Triad brand computers, not from making infringing copies of Triad operating software. The loading of customers' operating system software into RAM is merely an incidental step in accessing the computer hardware or other software applications that need servicing. Similarly, making archival copies on disk and tape is necessary to proper maintenance.

45) Southeastern does, however, derive some commercial gain directly from its use of licensed service software. Service software helps the technician diagnose problems in a Triad computer system and guides the technician in conducting repairs. To the extent Southeastern uses its customers' copies of Triad service software and not its own, this unauthorized use of Triad's creative expression weighs against a finding of fair use of Triad's service software.

46) The Court may also "consider the public benefit resulting from a particular use notwithstanding the fact that the alleged infringer may gain commercially." Accolade, 977 F.2d at 1523. Here, owners of Triad brand computers benefit from the services Southeastern provides. Further, Southeastern's activity provides Triad computer users a choice and price competition in the service and maintenance markets.

47) The Court finds that because Southeastern's copying of operating system software is incident to a legitimate use of the copyrighted work, because the bulk of Southeastern's commercial gain is not derivative of this use, and because the use creates some public benefit, the presumption of unfair use does not apply to Southeastern's "commercial" use of operating system software. The presumption also does not apply to Southeastern's backup copying while servicing Triad computers. The presumption of unfair use does apply, however, to Southeastern's commercial use of customers' licensed versions of Triad's service software.

3. The Nature of the Copyrighted Work.

48) Not all copyrighted works are entitled to the same level of protection. A copyright does not protect an idea, but only the expression of the idea. Baker v. Selden, 101 U.S. 99. To the extent that a work is functional or factual, it may be copied, id. at 102-04, as may those expressive elements of the work that "must necessarily be used as incident to" expression of the underlying ideas, functional concepts, or facts. Id. at 104. The second statutory factor, the nature of the copyrighted work, reflects this dichotomy between unprotectable ideas and protected expression. See 17 U.S.C. s 102(b).

49) The idea/expression distinction in the context of computer programs has been the source of recent discussion by courts in this and in other circuits. Specifically, the Second Circuit in CAI, developed a useful analytical framework for distinguishing between protectable expression and unprotected ideas, processes, etc. in computer programs. While this framework was developed in the context of a "substantial similarity" inquiry, the Ninth Circuit has noted its relevance to fair use analysis. See e.g., Accolade, 977 F.2d at 1524-26.

50) Under CAI, before two programs are compared for substantial similarity, the district court should undertake a two-step process, "abstraction" and "filtration," which the Court employs here. After the "abstraction" step "breaks down a computer program into its component subroutines," the "filtration" step is used to "identif[y] the idea or core functional element of each" subroutine, thereby isolating the protectable expression for purposes of comparison. Accolade, 977 F.2d at 1525 (citing CAI ). Because similarity is not disputed in this case, the Court need only engage in the first two steps of the analysis.

a. Operating System Software

51) Triad alleges infringement of its operating system software. "Operating systems are the programs that manage the resources of the computer and allocate those resources to other programs that need them." Computer Assoc's Int'l, Inc. v. Altai, Inc., 775 F.Supp. 544, 549-50 (E.D.N.Y.1991), aff'd., 982 F.2d 693 (2d Cir.1992). This is precisely what Triad operating system software does. The subject operating system software includes a "tape driver" and a "disk driver" which contain instructions that allow the computer to operate the tape drive and the disk drive respectively. The software also includes the "scheduler," which allocates access of various applications to the central processing unit, and "applications subroutine libraries," which allow the computer to perform various tasks, such as sorting, required by application programs. Declaration of Philip C. Nash, P 3, at 2.

52) Given what operating system software does, the Court can turn to the filtration inquiry which "serves 'the purpose of defining the scope of plaintiff's copyright.' " CAI, 982 F.2d at 707 (quoting Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1475 (9th Cir.), cert. denied, 113 S.Ct. 198 (1992). CAI identifies three categories of non-protectable expression: (1) elements dictated by efficiency, derived from the "merger" doctrine; (2) elements dictated by external factors, derived from the "scenes a faire " doctrine; and (3) elements taken from the public domain. Once each of these filters is applied to the identified levels of abstraction, the core of protectable expression can be examined for infringement or weighed in the balance of a fair use analysis.

53) Although efficiency elements and elements taken from the public domain may narrow somewhat the scope of protectable expression in Triad's operating system software, the most important filter here is the elimination of expression dictated by external factors. Any program designer seeking to develop an alternative to Triad's operating system software would encounter several extrinsic considerations stemming from the specialized nature of Triad computer system and the automotive parts industry. Indeed, three of the five types of extrinsic considerations listed in CAI are present in this case, namely: (1) the mechanical specifications of the computer on which the software is intended to run; (2) compatibility requirements with other Triad applications software and utility programs; and (3) demands of the industry being serviced. CAI, 982 F.2d at 709-10 (citing 3 Nimmer s 13.03[F][3], at 13-66-71).

54) If Southeastern attempted to provide service to its customers by first removing Triad's operating system software, it would inevitably need to design substantially similar software to run Triad's highly specialized machines. As a result, the Court finds that, for purposes of this fair use analysis, there is relatively little protectable expression in Triad's operating system software.

55) Furthermore, a Triad brand computer cannot be operated and virtually no maintenance or any other function can be performed without using Triad operating system software. The essential act of turning on the Triad computer functionally requires "copying" portions of Triad's software into the computer's RAM; therefore, the nature of the operating system software and its relationship to any productive use of the computer favors a finding of fair use.

56) "The fact that a work is unpublished is a critical element in its 'nature' " suggesting that pre-publication exploitation of the work would be unfair. Harper & Row, 471 U.S. at 564. Triad has published many copies of its software and makes it available to anyone willing to pay the license fee or, before 1986, willing to purchase it outright. The software's published nature further supports the fairness of the use.

57) Because the Court finds that Triad's operating system software contains unprotected functional elements that cannot be accessed without copying, it is afforded a lower degree of protection. This factor also weighs in favor of fair use.

b. Other Software

58) The software that Triad copies in making backup tapes and auxiliary copies is less clearly functional than the operating system software. Service software is also not clearly functional. As a result, this factor weighs against fair use for Southeastern's use of non-operating system software.

4. Third Statutory Factor: Amount and Substantiality of the Portion Used In

Relation to the Copyrighted Work As a Whole.

59) Southeastern claims that the entire operating system software is never copied at once. Even so, Southeastern's copying would comprise all that any user in Southeastern's position would commercially desire of Triad programs. The repeated nature of Southeastern's use/copying also weighs moderately against a finding of fair use with respect to operating system software. See Harper & Row, 471 U.S. at 564-65 & 569 (" '[T]he Nation took what was essentially the heart of the book.' ").

60) With respect to copies of software to disks and tapes, these copies are fairly transitory since they are merely auxiliary copies made during Southeastern's service calls. This factor weighs moderately in favor of fair use with respect to backup copies.

61) Because the extent of service software copying is uncertain, there is insufficient evidence to determine whether this factor works for or against a finding of fair use.

5. Summary of Fair Use

62) Southeastern's use of operating system software causes an undetermined impact on Triad's potential licensing market. Similarly, further evidence is needed to determine the extent to which Southeastern's practice of making backup copies in the course of servicing Triad computers impacts Triad's potential licensing market. Southeastern's use of its customers' copies of Triad service software also could substantially supplant Triad's potential market for such software. If used as a substitute for Southeastern obtaining or developing its own service software, it provides Southeastern with substantial commercial gain at Triad's expense. Because the record is unclear as to the extent of Southeastern's use of customers' service software, the Court cannot properly weigh the fair use factors at this time. As a result, there are genuine issues of material fact regarding Southeastern's fair use defense which prevents Triad from prevailing at summary judgment on its infringement claims and which preclude summary judgment for Southeastern.

Conclusion

63) For the foregoing reasons, Triad's motions for summary judgment and preliminary injunction on the infringement claim is DENIED. Triad's motion for summary judgment on the parts-related claims is GRANTED. Southeastern's motions for preliminary injunction and summary judgment are DENIED. A status conference is scheduled.

SO ORDERED.

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