Data General Corp. v. Grumman Systems Support Corp.

United States Court of Appeals

For the First Circuit

No. 93-1637

DATA GENERAL CORPORATION, ET AL.,

Plaintiffs, Appellees,

v.

GRUMMAN SYSTEMS SUPPORT CORPORATION,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Walter Jay Skinner, Senior U.S. District Judge]

Before

Torruella, Cyr and Stahl,
Circuit Judges.

Charles A. Gilman, with whom Cahill, Gordon & Reindel, Robert A.

Alessi, Marshall Cox, Allen S. Joslyn, Immanuel Kohn, William T.

Lifland, Gerard M. Meistrell, Roy L. Regozin, Dean Ringel, Laurence T.

Sorkin, Goodwin, Procter & Hoar, and Coudert Brothers, were on brief

for appellant.
Robert S. Frank, Jr., with whom Robert M. Buchanan,Jr.,

Brian A. Davis, Choate, Hall & Stewart, Jacob Frank, and Morris G.

Nicholson, were on brief for appellees.

September 14, 1994

STAHL, Circuit Judge. Grumman Systems Support
STAHL, Circuit Judge.

Corporation ("Grumman") assigns error to the district court's

handling of litigation arising from Grumman's acquisition,

duplication, and use of MV/Advanced Diagnostic Executive

System ("ADEX"), a sophisticated computer program developed

by Data General Corporation ("DG") to diagnose problems in

DG's MV computers. DG claimed that Grumman had infringed

DG's ADEX copyrights and misappropriated trade secrets

embodied in ADEX. A jury agreed, awarding DG $27,417,000 in

damages (excluding prejudgment interest and attorney's fees).

Grumman contends that the district court prematurely

dismissed its affirmative defenses and counterclaims and

committed several errors during and after the trial.

While this case raises numerous issues touching on

copyright law, Grumman's most intriguing argument --

presented below as both a defense and a counterclaim -- is

that DG illegally maintained its monopoly in the market for

service of DG computers by unilaterally refusing to license

ADEX to Grumman and other competitors. The antitrust claims

are intriguing because they present a curious conflict,

namely, whether (and to what extent) the antitrust laws, in

the absence of any statutory exemption, must tolerate short-

term harm to the competitive process when such harm is caused

by the otherwise lawful exercise of an economically potent

"monopoly" in a copyrighted work.

-2-
2

After a careful analysis, we affirm on all but one

relatively minor issue concerning the calculation of damages.

I.

BACKGROUND1
BACKGROUND

DG and Grumman are competitors in the market for

service of computers manufactured by DG, and the present

litigation stems from the evolving nature of their

competitive relationship. DG not only designs and

manufactures computers, but also offers a line of products

and services for the maintenance and repair of DG computers.

Although DG has no more than a 5% share of the highly

competitive "primary market" for mini-computers, DG occupies

approximately 90% of the "aftermarket" for service of DG

computers. As a group, various "third party maintainers"

("TPMs") earn roughly 7% of the service revenues; Grumman is

the leading TPM with approximately 3% of the available

service business. The remaining equipment owners (typically

large companies in the high technology industry) generally

maintain their own computers and peripherals, although they

occasionallyneed outsideservice ona"time andmaterials" basis.

1. Because the bulk of the fact-related issues on appeal
concern the district court's analysis of the record on
summary judgment, we generally present the evidence in a
light most favorable to Grumman. See, e.g., Levy v. FDIC, 7

F.3d 1054, 1056 (1st Cir. 1993). Naturally, where the story
touches on matters necessarily decided by the jury, we
present the evidence in a manner most favorable to DG. See,

e.g., Toucet v. Maritime Overseas Corp., 991 F.2d 5, 11 (1st

Cir. 1993) (review of jury's damage award).

-3-
3

A. Computer Service: Outputs and Inputs

Support service for DG computers entails a variety

of activities and a corresponding array of goods and

services. The principal activities are maintenance and

repair of computer equipment. Maintenance includes care of

parts subject to failure as well as replacement of hardware

components to bring equipment up to date. Repair involves

the diagnosis and correction of hardware failure. Service

technicians remedy equipment problems either by actually

mending a malfunctioning part (e.g., reformatting a "broken"

disk drive) or replacing the part.

Each of these support service "outputs" benefit

from a range of "inputs." For example, engineering change

orders, along with certain documentation and parts, allow

service technicians to make technological updates to computer

hardware. In order to identify the existence and location of

a malfunctioning part, a service technician may use

diagnostics (now increasingly sophisticated software),

schematics (maps of the location and function of hardware

elements), and various types of documentation, together with

the technician's own experience acquired by diagnosing

equipment problems. In order to actually mend a

malfunctioning part, a technician might fix the part on the

spot with routine tools or sophisticated software (e.g., a

software diagnostic that can reformat a disk drive), or send

-4-
4

the part to a repair depot run either by the technician's

employer or another service organization. The repair of a

malfunctioning part often requires very detailed information

about the part (such as the information provided by

schematics and other documentation), and may in turn require

smaller replacement parts. Finally, replacement of parts

naturally requires the availability of spares. At the core

of this litigation is a dispute about Grumman's access to

software diagnostics and other service "tools" produced by DG

for use in the repair, upgrading, and maintenance of DG

equipment.

B. TPM Access to Service Inputs

DG's policies concerning TPM access to DG's service

tools have developed over time. As described below, DG's

policies have evolved through three stages.

1. Initial Suspicion

TPMs made their debut in the 1970s while DG was

still relatively new to the computer manufacturing market.

DG was suspicious of the ability of TPMs, often run and

staffed by former DG technicians, to service DG computers

without running afoul of DG's intellectual property rights or

confidentiality agreements binding on former DG employees.

In 1975, DG converted its suspicions into legal

claims, filing suit against Lloyd Root and Robert Montgomery,

two of its former employees, as well as Computer Systems

-5-
5

Support Corporation ("CSSC"), the TPM that Root and

Montgomery had founded after leaving DG.2 DG's principal

allegations were that Root and Montgomery had breached their

employment agreements by taking DG information with them when

they left DG, and that CSSC personnel had been making

unauthorized use of DG proprietary information. It was

unclear, however, whether the proprietary items that CSSC was

using were items sold or licensed to equipment owners

(pursuant to agreements which arguably permitted some use by

TPMs),3 or items taken directly from DG by Root and

Montgomery.

Lacking promising proof to support its claims, DG

proposed a settlement whereby CSSC would agree to return any

proprietary information that Root and Montgomery unlawfully

took from DG, and DG would expressly authorize CSSC (and its

successors) to use DG proprietary information in the

maintenance and repair of DG computers.4 CSSC accepted, and

2. For the sake of simplicity, we will refer to all three of
the 1975 defendants as "CSSC."

3. There is some evidence that during the 1970s DG sold or
licensed proprietary information to equipment owners under
agreements which permitted owners to allow third parties to
use that information to service the owners' computers.

4. DG and Grumman (which acquired CSSC in 1984) vigorously
dispute the precise scope of this authorization. See infra

Sections II.C.1.a and III.A.3.

-6-
6

the parties signed a settlement agreement in 1976 ("the

Settlement Agreement").5

2. Peaceful Coexistence

From 1976 until some point in the mid-1980s, DG

affirmatively encouraged the growth of TPMs with relatively

liberal policies concerning TPM access to service tools. DG

sold or licensed diagnostics directly to TPMs, and allowed

TPMs to use diagnostics sold or licensed to DG equipment

owners. DG did not restrict access by TPMs to spare parts

manufactured by DG or other manufacturers. DG allowed (or at

least tolerated) requests by TPMs for DG's repair depot to

fix malfunctioning circuit boards, the heart of a computer's

central processing unit ("CPU"). DG sold at least some

schematics and other documentation to TPMs. DG also sold

TPMs engineering change order kits. And finally, DG training

classes were open to TPM field engineers. Grumman suggests

that DG's liberal policies were beneficial to DG because

increased capacity (and perhaps competition) in the service

aftermarket would be a selling point for DG equipment.6

3. Increased Restrictions

5. Another provision of the Settlement Agreement prohibited
CSSC from using DG proprietary information in the design or
manufacture of computer equipment. That provision is not at
issue in this case.

6. Grumman acquired CSSC in 1984, thereby becoming a
successor in interest to CSSC's rights under the 1976
Settlement Agreement.

-7-
7

In the mid-1980s, DG altered its strategy. With

the goal of maximizing revenues from its service business, DG

began to refuse to provide many service tools directly to

TPMs. DG would not allow TPMs to use the DG repair depot,

nor would it permit TPMs to purchase schematics,

documentation, "change order" kits, or certain spare parts.

DG no longer allowed TPM technicians to attend DG training

classes. Finally, DG developed and severely restricted the

licensing of ADEX, a new software diagnostic for its MV

computers. The MV series was at once DG's most advanced

computer hardware and an increasingly important source of

sales and service revenue for DG.

A number of items unavailable to TPMs directly from

DG were either available to all equipment owners (even

customers of TPMs) from DG, or were available to TPMs from

sources other than DG. For example, DG depot service, change

order kits, and at least some documentation were available to

all equipment owners. There is also evidence that Grumman

had its own repair depot and that Grumman could make use of

repair depots run by other service organizations (sometimes

called "fourth party maintainers"). Likewise, there is

evidence that TPMs could purchase at least some spare parts

from sources other than DG.

The situation was different with respect to ADEX.

DG service technicians would use ADEX in performing service

-8-
8

for DG equipment owners. DG would also license ADEX for the

exclusive use of the in-house technicians of equipment owners

who perform most of their own service.7 However, DG would

not license ADEX to its own service customers or to the

customers of TPMs. Nor was ADEX available to TPMs from

sources other than DG. At least two other diagnostics

designed to service DG's MV computers may have become

available as early as 1989, but no fully functional

substitute was available when this case was tried in 1992.

Grumman found various ways to skirt DG's ADEX

restrictions. Some former DG employees, in violation of

their employment agreements, brought copies of ADEX when they

joined Grumman. In addition, DG field engineers often stored

copies of ADEX at the work sites of their service customers,

who were bound to preserve the confidentiality of any DG

proprietary information in their possession. Although DG

service customers had an obligation to return copies of ADEX

to DG should they cancel their service agreement and switch

to a TPM, few customers did so. It is essentially undisputed

that Grumman technicians used and duplicated copies of ADEX

left behind by DG field engineers. There is also

uncontroverted evidence that Grumman actually acquired copies

of ADEX in this manner in order to maintain libraries of

7. This latter group is comprised of Cooperative Maintenance
Organizations ("CMOs").

-9-
9

diagnostics so that Grumman technicians could freely

duplicate and use any copy of ADEX to service any of

Grumman's customers with DG's MV computers.

-10-
10

C. The Present Litigation

In 1988, DG filed suit against Grumman in the

United States District Court for the District of

Massachusetts.8 DG patterned its suit after a similar

action it brought against Service & Training, Inc. ("STI") in

the United States District Court for the District of

Maryland. See Service & Training, Inc. v. Data General

Corp., 737 F. Supp. 334 (D. Md. 1990), aff'd on other

grounds, 963 F.2d 680 (4th Cir. 1992) ("STI"). STI was

another TPM in the DG aftermarket and a successor to

Montgomery's interest in the 1976 Settlement Agreement. In

one count, DG alleged that Grumman's use and duplication of

ADEX infringed DG's ADEX copyrights, and requested injunctive

relief, 17 U.S.C. 502 (1988), as well as actual damages and

profits, 17 U.S.C. 504(b) (1988). In another count, DG

alleged that Grumman had violated Massachusetts trade secrets

law by misappropriating copies of ADEX in violation of

confidentiality agreements binding on former DG employees and

DG service customers. On December 29, 1988, the district

court issued a preliminary injunction prohibiting Grumman

8. Grumman subsequently filed an action in the United States
District Court for the Northern District of California
alleging that DG had violated California's antitrust laws.
See Grumman Sys. Support Corp. v. Data General Corp., 125

F.R.D. 160 (N.D. Cal. 1988). That court later dismissed
Grumman's action on the grounds that the claim was a
compulsory counterclaim to DG's copyright infringement action
pending in the District of Massachusetts. Id.

-11-
11

from using ADEX. See Data General Corp. v. Grumman Sys.

Support Corp., No. 88-0033-S (D. Mass. Dec. 29, 1988)

("Grumman I").9 The parties then prepared for trial.10

1. Pre-Trial Issues

Grumman raised a host of affirmative defenses and

counterclaims, all eventually rejected by the district court

in response to DG's motions for partial summary judgment.

Three of these issues play a pivotal role in Grumman's

appeal.

a. 1976 Settlement Agreement

Grumman alleged that the 1976 Settlement

Agreement authorized it (as a successor to CSSC) to "acquire,

possess, copy and use" all DG diagnostics, including ADEX.

Liberally construed, Grumman's allegation of a right to "copy

and use" ADEX fairly includes an allegation that Grumman has

9. The jury subsequently found that Grumman continued to use
ADEX in violation of the injunction. That finding is
unchallenged on appeal.

10. In the course of the pre- and post-trial litigation, the
district court issued a series of published and unpublished
opinions which contain additional background material. See,

e.g., Data General Corp. v. Grumman Sys. Support Corp., 761

F. Supp. 185 (D. Mass. 1991) ("Grumman II"); Data General

Corp. v. Grumman Sys. Support Corp., No. 88-0033-S (D. Mass.

May 2, 1991) ("Grumman III"); Data General Corp. v. Grumman

Sys. Support Corp., 795 F. Supp. 501 (D. Mass. 1992)

("Grumman IV"); Data General Corp. v. Grumman Sys. Support

Corp., 834 F. Supp. 477 (D. Mass. 1992) ("Grumman V"); Data

General Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340

(D. Mass. 1993) ("Grumman VI"); Data General Corp. v. Grumman

Sys. Support Corp., 825 F. Supp. 361 (D. Mass. 1993)

("Grumman VII").

-12-
12

a right to copy and use DG diagnostic software in the

possession of DG equipment owners. Judge Skinner rejected

the Settlement Agreement defense by adopting the reasoning of

the STI courts, which had rebuffed the same arguments on a

nearly identical record. See Grumman V, 834 F. Supp. at 482-

83. In the district court decision in STI, Judge Motz

analyzed the language of the Settlement Agreement, testimony

from the lawyers who negotiated it, and evidence of the

parties' subsequent conduct. 737 F. Supp. at 339-41. On the

basis of this evidence, Judge Motz concluded that the

Settlement Agreement did not require DG to license any

proprietary information to CSSC or its customers, nor did the

Settlement Agreement prevent DG from prohibiting CSSC from

copying and using proprietary information in the custody of

DG service customers. Id.11

b. Antitrust Defenses

Grumman also claimed that DG could not maintain its

infringement action because DG had used its ADEX copyrights

to violate Sections 1 and 2 of the Sherman Antitrust Act, 15

U.S.C. 1 and 2 (1988 & Supp. IV 1992).12 Specifically,

Grumman charged that DG misused its copyrights by (1) tying

11. Although the reasoning of the Fourth Circuit's
affirmance differed from that of Judge Motz on other issues,
the two courts appear to have been in total agreement with
respect to the Settlement Agreement issue.

12. Grumman presented the antitrust claims as independent
counterclaims as well.

-13-
13

the availability of ADEX to a consumer's agreement either to

purchase DG support services (a "positive tie") or not to

purchase support services from TPMs (a "negative tie"), and

(2) willfully maintaining its monopoly in the support

services aftermarket by imposing the alleged tie-in and

refusing to deal with TPMs.

Concerning the tying claim, the district court

again adopted the reasoning of the Fourth Circuit in STI,

this time for the proposition that there was insufficient

proof of a tying agreement to withstand summary judgment.

Grumman V, 834 F. Supp. at 484-85. The Fourth Circuit held

that there was no positive tie for two independent reasons.

First, the court noted that DG did not actually license ADEX

to its service customers. STI, 963 F.2d at 686-87. Second,

the court held that there was not enough evidence to prove

that any license to use ADEX was conditioned on the purchase

of DG support services. Id. at 687. The court noted that

there was no explicit tying condition in any written

agreement. Id. The court also noted that there was

insufficient evidence of unwilling purchases of DG support

service so as to justify an inference of an implicit

condition; customers may simply prefer service supported by

ADEX diagnostics over service that is not. Id. at 687-88.

The court further held that there was insufficient evidence

of a negative tie because, on the record before the court,

-14-
14

"[t]he fact that CMOs do not purchase repair services . . .

is at least as consistent with the legitimate and independent

business decision not to purchase unneeded services as it is

with an agreement not to purchase such services." Id. at

686.

Judge Skinner conducted his own exhaustive analysis

of the monopolization claim, concluding that Grumman failed

to "assert[] any facts that would indicate that DG has

engaged in any unlawful exclusionary conduct." Grumman II,

761 F. Supp. at 192. The court essentially narrowed the

question to whether DG's restrictive policies with respect to

TPMs constitute unlawful unilateral refusals to deal,

reasoning that DG's actions do not rise to the level of

unlawful exclusionary conduct for several reasons. The court

agreed with Grumman that this case, like Aspen Skiing Co. v.

Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), raises

"the issue of prior promotion of competition in a market that

is later halted," Grumman II, 761 F. Supp. at 190. The

district court nonetheless concluded that Grumman had failed

to demonstrate that DG's restrictive policies have

unreasonably harmed the competitive process. In particular,

the court noted that DG's policies with respect to most

service products do not prevent TPMs from competing in the

service market because "DG will sell its service products,

except [ADEX and schematics], to any ultimate consumer

-15-
15

regardless of whether [the consumer] now or later use[s] a

TPM." Id. at 191. The court also observed that "TPMs have

demonstrated the ability to develop diagnostics [without

schematics], even if they are not as efficient as MV/ADEX."

Id. Lastly, the court suggested that the Sherman Act would

not compel DG to disclose its schematics, in part because

such compulsory disclosure would undermine the incentives of

copyright and patent laws. Id. at 192.13

In rejecting Grumman's motion for reconsideration

of the grant of summary judgment on the monopolization claim,

the district court also directly addressed Grumman's

contention that DG's refusal to license ADEX to TPMs

constitutes exclusionary conduct. The court stated that DG's

refusal to license ADEX to TPMs was not exclusionary because

"DG offers to the public a license to use MV/ADEX on any

computer owned by the customer," and therefore DG "`did not

withhold from one member of the public a service offered to

the rest[.]'" Grumman III, slip op. at 5 (citing Olympia

Equip. Leasing Co. v. Western Union Tel. Co., 797 F.2d 370,

377 (7th Cir. 1986), cert. denied, 480 U.S. 934 (1987)).

c. Federal Preemption of State Trade Secrets

Claim

13. The district court also held that neither ADEX nor DG's
schematics were "essential facilities" that DG (as a
monopolist in the service aftermarket) must share with its
competitors. Id. at 191-92. Grumman does not assign error

to this aspect of the district court's decision.

-16-
16

Grumman unsuccessfully sought to convince the

district court that Section 301 of the Copyright Act of 1976,

17 U.S.C. 301 (1988 & Supp. IV 1992), preempts DG's state

law action for misappropriation of trade secrets. The

district court held that DG's trade secrets claim was not

preempted because DG did not simply allege conduct equivalent

to the copying and use which form the basis of an

infringement claim; instead, DG's trade secrets claim was

based on Grumman's acquisition of ADEX in violation of

confidentiality agreements binding on former DG employees and

service customers. Grumman IV, 795 F. Supp. at 507.

2. Trial Issues

Stripped of its affirmative defenses, Grumman

proceeded to trial. Grumman focused its defensive energies

in two areas. Grumman attacked DG's proof of the prima facie

elements of copyright infringement and misappropriation of

trade secrets, and attempted to undermine DG's broad-gauged

request for compensation for lost profits and disgorgement of

Grumman's MV-related profits.

a. Validity of Copyright Registration

During the trial, it became evident that DG had

made several errors in registering its ADEX copyrights.

After Edward Gove, a DG official, testified that DG had

deposited with the Copyright Office the correct excerpts of

-17-
17

human-readable "source code,"14 Grumman introduced evidence

that there were some errors in the deposits for the first

three versions of ADEX. In rebuttal testimony, Gove

confirmed that there were a number of minor, inadvertent

errors in the deposits that would not affect the operation of

the programs.15

Grumman argued to the district court that any error

in a copyright deposit renders the registration invalid, and

requested that the court so instruct the jury. The district

court refused, instructing the jury instead that minor,

inadvertent errors in the deposit of excerpts of computer

code do not threaten the validity of the copyright

registration. As a fall-back tactic, Grumman renewed its

previous request that the district court compel DG to produce

the entire human-readable source code for each version of

ADEX so that Grumman could more effectively cross-examine

Gove about the significance of the errors. The district

court refused to do so, and later explained its discretionary

decision by finding that "Grumman had an adequate opportunity

14. "Source code" refers to an annotated text, written in a
programming language intelligible to humans, that represents
the set of instructions comprising a particular computer
program. See Computer Assocs. Int'l, Inc. v. Altai, Inc., 22

F.3d 32, 33 n.1 (2d Cir. 1994); Johnson Controls, Inc. v.

Phoenix Control Sys., Inc., 886 F.2d 1173, 1175 n.2 (9th Cir.

1989). "Object code" refers to the text of the same set of
instructions, translated into binary form (a sequence of
zeros and ones) intelligible to the computer itself. See id.

15. The errors are described infra, note 23.

-18-
18

to explore the errors contained in the initial copyright

deposits, to challenge Data General's explanation of those

errors, and to argue these issues before the jury." Grumman

VI, 825 F. Supp. at 352. Using a special verdict form, the

jury found that DG had properly registered each of the ADEX

copyrights.

b. Actual Damages and Profits

Grumman argued that the jury should identify and

ignore that portion of Grumman's profits which was not

attributable to Grumman's use of ADEX. To this end, Grumman

introduced evidence that some of its revenues were derived

from servicing DG computers that cannot or need not be

serviced with ADEX, and that the value of Grumman's use of

ADEX to service customers with MV computers was distinct from

the value of other products and services Grumman provided to

those customers.

In contrast, DG offered evidence that because

equipment owners prefer to purchase all service from one

vendor, equipment owners with both MV computers and other DG

computers ("mixed-equipment customers") would not have

purchased service from Grumman if Grumman had lacked access

to ADEX. DG also offered evidence tending to show that, even

if Grumman did not always use ADEX in servicing a computer,

Grumman could not have attracted and retained its MV-related

business had it not been for Grumman's use of ADEX. DG's

-19-
19

expert witness opined that DG's damages totaled $28,003,000 -

- $26,364,000 in DG's lost profits and $1,639,000 in

nonduplicative profits16 earned by Grumman as a result of

its acquisition and use of ADEX.

Attempting to blunt at least part of DG's sweeping

"but for" theory, Grumman asked the district court to

instruct the jury to discount that portion of Grumman's

profits which was not attributable to the infringement. The

court instructed the jury that DG could recover that portion

of Grumman's profits that was "attributable to the

infringement," but did not elaborate on the jury's task in

this regard. Left to choose between the parties' theories,

the jury apparently accepted the essence of DG's theory,

though the total award of compensatory damages was

$27,417,000, somewhat less than DG requested.17

3. Post-Trial Issues

Grumman sought relief from the judgment on a number

of grounds, two of which are most relevant to this appeal.

a. Actual Damages and Profits

16. "Nonduplicative profits" are those profits earned by
Grumman that would not have been available to DG in the
absence of Grumman's wrongful conduct. See 17 U.S.C.

504(b) (providing that copyright owner may "recover . . . any
profits of the infringer that are attributable to the
infringement and are not taken into account in computing the
actual damages").

17. On the verdict slip, the jury assessed the same amount
of damages -- $27,417,000 -- for Grumman's misappropriation
of trade secrets.

-20-
20

Claiming that the jury's award was speculative and

excessive, Grumman moved for a new trial or, in the

alternative, remittitur. See Fed. R. Civ. P. 59(a). As the

district court related:

Grumman complains that the jury awarded
speculative and excessive damages because
it uncritically adopted the plaintiff's
damage analysis in its entirety which was
built on theoretically unsound and
factually inaccurate assumptions. More
specifically, defendant contends that the
plaintiff's damage analysis failed to
identify relevant revenues, failed to
apply a reasonable profit margin, and
failed to apportion service profits
between infringing and non-infringing
activities.

Grumman VI, 825 F. Supp. at 349 (footnote omitted). The

district court denied the motion, ruling in essence that DG's

theory of damages was proper and that the jury was free to

weigh the testimony of DG's experts more heavily than that of

Grumman's experts. Id. at 349-51.

b. Attorney's Fees

The district court included in its judgment order

an award of attorney's fees under the Copyright Act, although

it appears that the court has not yet fixed the amount.

Grumman argued that the court should not award attorney's

fees because DG had "elected" only those remedies available

under Massachusetts trade secrets law, which does not allow

-21-
21

an award of attorney's fees.18 The district court denied

the motion, finding that DG had merely sought to maximize the

judgment by selecting the most generous body of law for each

element of its recovery. Grumman VI, 825 F. Supp. at 346.

The district court reasoned further that because DG would not

receive a double award of attorney's fees, the judgment was

in no need of correction. Id. at 346-47.

4. Issues on Appeal

Grumman renews its arguments concerning the pre-

trial, trial, and post-trial issues described above. Grumman

claims that the district court erred in entering summary

judgment on its affirmative defenses, questions the propriety

of certain of the district court's jury instructions,

maintains that the jury's award of damages lacks evidentiary

support, and insists that DG is not entitled to recover

attorney's fees. After reviewing the procedural rules that

govern this appeal, we address each of Grumman's arguments in

turn.

II.

PROCEDURAL PRINCIPLES

Because this appeal turns largely on questions of

law, we outline the corresponding standard of review.

Although the reasoning of the court below may provide a

18. Massachusetts law provides for a higher rate of
prejudgment interest on compensatory damages than does
federal law.

-22-
22

useful starting point for analysis, the district court's view

of the law is not binding on a court of appeals. See

Williams v. Poulos, 11 F.3d 271, 278 (1st Cir. 1993) (citing

Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d

453, 457 (1st Cir. 1992)). Thus, we exercise our independent

judgment in evaluating the legal correctness of the district

court's jury instructions. Likewise, we must reach our own

conclusion as to a statute's correct construction. See FDIC

v. Keating, 12 F.3d 314, 316 (1st Cir. 1993).

Similarly, in reviewing a district court's entry of

summary judgment, we determine anew whether the moving party

has shown "that there is no genuine issue as to any material

fact and that [it] is entitled to judgment as a matter of

law." Fed. R. Civ. P. 56(c). See also Bird v. Centennial

Ins. Co., 11 F.3d 228, 231 (1st Cir. 1993). "In this

context, `genuine' means that the evidence about the fact is

such that a reasonable jury could resolve the point in favor

of the nonmoving party and `material' means that the fact is

one that might affect the outcome of the suit under the

governing law." Pagano v. Frank, 983 F.2d 343, 347 (1st Cir.

1993) (citations, internal quotation marks, and brackets

omitted). Although "we read the record and indulge all

inferences in a light most favorable to the non-moving

party," Rivera-Ruiz v. Gonzalez-Rivera, 983 F.2d 332, 334

(1st Cir. 1993), the adverse party cannot defeat a well-

-23-
23

supported motion by "rest[ing] upon the mere allegations or

denials of [its] pleading," Fed. R. Civ. P. 56(e). If the

nonmovant bears the ultimate burden of persuasion with

respect to its claim or defense, it may avert summary

judgment only if it identifies issues genuinely in dispute

and advances convincing theories as to their materiality.

See Pagano, 983 F.2d at 347 (citing Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 247-48 (1986)). Of course, it may

be difficult for a trial court to forecast the reaction of a

reasonable jury to an intricate array of complex theories.

Nonetheless, Rule 56 applies equally to simple cases as well

as cases involving complicated legal principles and theories

of recovery. See, e.g., Amerinet, Inc. v. Xerox Corp., 972

F.2d 1483, 1490 (8th Cir. 1992) ("In complex antitrust cases,

no different or heightened standard for the grant of summary

judgment applies."), cert. denied, 113 S. Ct. 1048 (1993).

Finally, we note that we are at liberty to affirm a

district court's grant of summary judgment "on any ground

supported in the record even if the issue was not pleaded,

tried or otherwise referred to in the proceedings below.'"

de Casenave v. United States, 991 F.2d 11, 12 n.2 (1st Cir.

1993).

III.

DISCUSSION

A. DG's Intellectual Property Claims

-24-
24

We first examine the two arguments that strike at

the heart of DG's right to pursue its claims: DG's alleged

failure to comply with the copyright registration

requirements and the possible preemption of the state trade

secrets claim by Section 301 of the Copyright Act. We then

discuss Grumman's two affirmative defenses -- the 1976

Settlement Agreement Defense and the "misuse" defense -- each

of which is intended to undermine both the copyright claim

and the trade secrets claim. Finally, we review Grumman's

challenges to the award of actual damages, infringer's

profits, and attorney's fees.

1. Validity of Copyright Registration

Registration of a work with the Copyright Office

provides several benefits to a plaintiff in an infringement

action. First, although copyright protection attaches the

day original expression is fixed in a tangible medium, see 17

U.S.C. 102(a) (1988 & Supp. IV 1992), and thus an infringer

may be liable for infringement from that day forward, see 17

U.S.C. 408(a) (1988 & Supp. IV 1992) (providing that

"registration is not a condition of copyright protection"),

registration of the copyright is a prerequisite to suit under

the Copyright Act, 17 U.S.C. 411(a) (1988 & Supp. IV 1992).

Second, upon accepting the registrant's application, fee, and

deposit of a representative copy of the work, see 17 U.S.C.

408, the Copyright Office issues a certificate of

-25-
25

registration, which is admissible in an infringement action

as "prima facie evidence of the validity of the copyright and

of the facts stated in the certificate," 17 U.S.C. 410(c)

(1988).19 In the case of computer programs which, like

ADEX, are either unpublished or published only in machine-

readable form, the copyright owner must deposit "identifying

portions of the program," generally the first and last 25

pages of the human-readable source code 37 C.F.R.

202.20(c)(2)(vii) (1993).20 By questioning DG's compliance

with the registration requirements, Grumman is effectively

claiming that (1) DG may not claim infringement of those ADEX

copyrights for which DG tendered a defective deposit; and (2)

even if DG is free to bring such claims, it is not entitled

to a presumption as to the validity of the copyrights at

issue.

19. To demonstrate copyright infringement, DG had the burden
of demonstrating (1) that it owns a valid copyright in the
versions of ADEX alleged to have been copied, and (2) that
Grumman copied constituent, original elements of ADEX. See

Feist Publications, Inc. v. Rural Tel. Serv. Co., 111 S. Ct.

1282, 1296 (1991); Concrete Mach. Co. v. Classic Lawn

Ornaments, Inc., 843 F.2d 600, 605 (1st Cir. 1988); 3

Melville B. Nimmer & David Nimmer, Nimmer on Copyright

13.01, at 13-5 to 13-6 (1993) (hereinafter "Nimmer").

20. Where the program contains trade secret material, the
copyright regulations permit some portions of the deposit to
be blocked out, and allow a portion of the deposit to be in
machine-readable "object code" (lines of zeroes and ones).
37 C.F.R. 202.20(c)(2)(vii)(A)(2). If the deposit includes
no blocked-out portions and consists entirely of source code,
the first and last ten pages of the program will suffice.
Id.

-26-
26

Essentially, Grumman's argument is that the

district court erred in instructing the jury that minor,

inadvertent errors in material deposited with a registration

application do not affect the validity of the

registration.21 DG admits that there were inadvertent

errors in the material deposited with the registration

application for ADEX Revisions 0.0 to 2.0,22 but maintains

that the errors are inconsequential.23 Grumman does not

21. The district court instructed the jury as follows:

Because the function or registration
[with respect to computer programs] is
symbolic, clerical errors in the
materials deposited with the application
for registration do not affect the
validity of the registration. For
instance, discrepancies in the dates,
filing the wrong pages, or partial pages,
and similar errors, if accepted by the
Copyright Office, do not impeach the
validity and effect of the registration.
If the errors were intentional, however,
for purposes of deceiving the Copyright
Office and perpetrating a fraud, the
errors invalidate the registration.

22. Grumman does not question the validity of the copyright
registration for the last five versions of ADEX, which

Grumman also admitted it copied and used. Therefore,
Grumman's argument, if persuasive, would not constitute a
complete defense to the infringement action; the real issue
is the extent of infringement properly subject to suit.

23. With respect to ADEX Revisions 0.0, 1.0, and 2.0, DG
attempted to deposit the first and last ten pages of source
code (with no trade secrets blocked-out) in accordance with
37 C.F.R. 202.20(c)(2)(vii)(A)(2). In all three instances,
DG deposited the correct last ten pages but did not deposit
the correct first ten pages. Nonetheless, in the case of
ADEX Revisions 1.0 and 2.0, there was only one difference
between the deposited pages and the pages DG intended to

-27-
27

quibble with DG's denial of intent, but argues in effect that

any error, however minor, precludes a finding that the

plaintiff complied with Section 408(b). Alternatively,

Grumman argues that an unintentional error in the deposit may

still invalidate a copyright registration if the error is

material. Grumman contends further that the district court

erred in refusing Grumman's request for production of the

entire source code for each of the first three versions of

ADEX, a decision which allegedly prejudiced Grumman's ability

to demonstrate that the defects in the deposit were not

minor. We address these contentions seriatim.

a. Immaterial Errors in the Copyright Deposit

It is well established that immaterial, inadvertent

errors in an application for copyright registration do not

jeopardize the validity of the registration. See Masquerade

Novelty, Inc. v. Unique Indus., Inc., 912 F.2d 663, 667-68 &

n.5 (3d Cir. 1990); Whimsicality, Inc. v. Rubie's Costume

Co., 891 F.2d 452, 456 (2d Cir. 1989) (citing Eckes v. Card

deposit: the Primary Label Block on the copyright deposit
designates "1982" rather than "1983" as the copyright date.
The same error occurred in the deposit for ADEX Revision 0.0,
although there were three additional errors: two other
discrepancies concerning the Primary Label Block, and one
line of code missing from the deposited pages. The district
court observed that "the Primary Label Block, which contains
descriptive information about the tape, does not instruct or
direct the computer." Grumman VI, 825 F. Supp. at 356. In

addition, Mr. Gove, DG's expert, testified that the few
errors in the deposited pages would have no bearing on the
operation of the programs.

-28-
28

Prices Update, 736 F.2d 859, 861-62 (2d Cir. 1984)); Harris

v. Emus Records Corp., 734 F.2d 1329, 1335 (9th Cir. 1984);

Original Appalachian Artworks, Inc. v. Toy Loft, Inc., 684

F.2d 821, 828 (11th Cir. 1982); 2 Nimmer 7.20, at 7-201

("[A] misstatement or clerical error in the registration

application if unaccompanied by fraud will not invalidate the

copyright nor render the registration certificate incapable

of supporting an infringement action."). In general, an

error is immaterial if its discovery is not likely to have

led the Copyright Office to refuse the application. See

Eckes, 736 F.2d at 861-62.24

Grumman observes that the cases approving

substantial compliance with registration requirements concern

errors in the application, not the deposit, and suggests that

we adopt a rule demanding strict compliance with the deposit

requirement. Although a different rule for deposit errors

might be warranted if the language and underlying purposes of

the deposit requirement were of a significantly different

24. Some courts have suggested that a defendant must show
that it was prejudiced by a fraudulent misstatement or

omission in a registration application, see, e.g., Harris,

734 F.2d at 1335 ("Absent intent to defraud and prejudice,
inaccuracies in copyright registrations do not bar actions
for infringement."), whereas others merely require proof that
an intentional error, if discovered by the Copyright Office,
would have been material to the registration decision, see,

e.g., Eckes, 736 F.2d at 861-62. Any substantive difference

in these standards has no bearing on our decision today.

-29-
29

character than that of the application requirement, we do not

find that to be the case.

In the first place, the registration application

described in Section 409, as well as the deposit described in

Section 408(b), are both equally mandatory components of the

registration process outlined in Section 408(a). Likewise,

just as Section 409 sets forth what an application "shall

include," (emphasis added), Section 408(b) uses the same

phrase to prescribe the contents of the deposit. There is

nothing in this language that would prevent our interpreting

both the application requirements and the deposit

requirements in a consistent and practical manner.

Nor do the apparent purposes of the deposit

requirement counsel a different result. Although related to

the deposit requirement in Section 407, which is designed to

further the acquisitions policy of the Library of Congress,

the deposit required by Section 408(b) serves the separate

purpose of providing the Library's Copyright Office with

sufficient material to identify the work in which the

registrant claims a copyright. See H.R. Rep. No. 94-1476,

94th Cong., 2d Sess. 5 (1976), reprinted in 1976 U.S.C.C.A.N.

5659, 5766-70; see also 37 C.F.R. 202.20(c)(2)(vii)

(requiring deposit of "identifying portions" of programs that

are unpublished or published only in machine-readable form).

In other words, a key purpose of the Section 408(b) deposit

-30-
30

requirement is to prevent confusion about which work the

author is attempting to register.

A second apparent aim of Section 408(b) is to

furnish the Copyright Office with an opportunity to assess

the copyrightability of the applicant's work. Pursuant to

the Copyright Act, the Register of Copyrights must register a

copyright claim and issue a registration certificate "[w]hen,

after examination, the Register . . . determines that . . .

the material deposited constitutes copyrightable subject

matter." 17 U.S.C. 410(a) (1988).25 Some provisions of

the copyright regulations seek to preserve the same

opportunity for examination in relation to the deposit of a

relatively small subset of a computer program. In adopting

regulations encouraging source code deposits for computer

programs, the Copyright Office explained that "[i]n

registering all copyright claims, the Copyright Office

25. Because Section 410(a) does not specify the nature of
the "examination," and because there is evidence that
Congress intended the government to play a role in copyright
registration that is much more limited than its extensive
responsibilities in overseeing patent registration, the
Copyright Office may have the discretion to limit its
examination to the facial validity of the application and
deposit. See Midway Mfg. Co. v. Bandai-America, Inc., 546 F.

Supp. 125, 143-44 (D.N.J. 1982) (citing, inter alia, Donald

v. Uarco Business Forms, 478 F.2d 764, 765 n.1 (8th Cir.

1973)). Nevertheless, any such discretion resides in the
Copyright Office, not the applicant, for Section 410(a)
suggests that an applicant must always give the Copyright
Office an opportunity to undertake an appropriate

examination.

-31-
31

examines the deposit to determine the existence of

copyrightable authorship." 54 Fed. Reg. 13,173 (1989). In

order to allow the Office to continue this practice, the new

regulations provide, for example, that when the applicant's

deposit contains portions of the source code of an

unpublished computer program with blocked-out trade secrets

the deposit must still "reveal[] an appreciable amount of

original computer code." See 37 C.F.R.

202.20(c)(2)(vii)(A)(2) (emphasis added). On the other hand,

where there are no blocked-out portions in the deposited

portions of a computer program, the regulations do not

specifically require that the deposit contain "an appreciable

amount of original computer code." In other words, the

Copyright Office seems to have assumed that in such cases the

deposited pages are likely to contain sufficient elements of

original expression to determine the copyrightability of the

work at issue. At any rate, it appears that Congress viewed

the deposit requirement as a means of collecting information

that the Copyright Office may use in resolving the question

of copyrightability for the purposes of Section 410.26

26. Another objective of Section 408(b) might be to give
would-be infringers notice of the extent of their civil
liability. Yet, this can hardly have been an important
legislative goal because a copyright owner is free to
register any time before filing suit, even after the act of

infringement. See 17 U.S.C. 408(a); Twentieth Century-Fox

Film Corp. v. Dunnahoo, 637 F.2d 1338, 1342-43 (9th Cir.

1981); see also Olan Mills, Inc. v. Linn Photo Co., 23 F.3d

1345, 1349 (8th Cir. 1994); Konor Enters. v. Eagle

-32-
32

Neither of these objectives differs so

significantly from those of the application requirement as to

justify a departure from the rule governing application

errors. Quite naturally, one important function of a

registration application is to identify the work in which the

applicant claims a copyright. See 17 U.S.C. 409 (1988 &

Supp. IV 1992) (requiring application to include, inter alia,

title of work, dates of completion and publication, along

with "any other information . . . bearing upon the . . .

identification of the work"). Furthermore, like the deposit,

the application also provides some evidence of

copyrightability, because it must identify any preexisting

work from which the author borrowed in creating a compilation

or derivative work. See 17 U.S.C. 409(9). Indeed, the

Copyright Office may often be in a better position to assess

the originality of the work being registered by reviewing a

Publications, Inc., 878 F.2d 138, 140 (4th Cir. 1989). In

addition, because Congress had included a recordation
requirement elsewhere in the copyright laws until 1988, see

17 U.S.C.A. 205(d) (West 1977) (providing that recordation
of transfer of copyright ownership is prerequisite to
infringement suit by transferee), but did not do so in the
context of Section 408, we may infer that affording notice to
potential infringers was not Congress's primary motivation in
drafting Section 408(b). See City of Chicago v.

Environmental Defense Fund, 114 S. Ct. 1588, 1593 (1994) ("It

is generally presumed that Congress acts intentionally and
purposely when it includes particular language in one section
of a statute but omits it in another.") (citation, internal
quotation marks, and brackets omitted); United States ex rel

S. Prawer & Co. v. Fleet Bank, 24 F.3d 320, 329 (1st Cir.

1994) (similar).

-33-
33

list of preexisting works than by conducting a cursory

inspection of the deposited material. And yet, an

inadvertent failure to identify preexisting works on an

application is treated no differently from any other

application error. See, e.g., Toy Loft, 684 F.2d at 828

(analyzing in similar fashion failure to mention co-author

and failure to mention preexisting works).

We conclude that there is no support in law or

reason for a rule that penalizes immaterial, inadvertent

errors in a copyright deposit.27 Accordingly, we find no

flaw in the district court's instruction that such errors "do

not impeach the validity and effect of the registration."

b. Material Errors in the Copyright Deposit

27. Contrary to Grumman's vigorous assertions, this court's
opinion in Unistrut Corp. v. Power, 280 F.2d 18 (1st Cir.

1960), does not compel a different rule. In that case,
plaintiff claimed infringement of the 1942 edition of its
catalog but apparently sought to prove unauthorized copying
at trial by demonstrating the similarity of the defendant's
work to the 1943 edition of plaintiff's catalog, "which
admittedly contained some, unspecified, additions." Id. at

23. Because "there was no proof that copies of this later
edition were deposited with the Copyright Office, and there
was no proof that the infringed material was contained in the
1942 edition," we held that there was insufficient proof of
infringement of the earlier edition. Id. Unistrut is

distinguishable in at least two respects. First, our opinion
in Unistrut does not suggest that the plaintiff mistakenly

deposited the 1943 edition when attempting to register a
copyright claim concerning the 1942 edition; hence, Unistrut

cannot serve as authority on the legal ramifications of
registration errors. Second, in this case there is evidence
that sections of source code from ADEX Revisions 0.0 to 2.0
were among the pages deposited with the Copyright Office,

even if other portions of the deposited material came from
other computer programs.

-34-
34

The law is not quite as settled as to the effect of

an application error that is inadvertent but nonetheless

material. No court has suggested that a registration

premised in part on an unintentional material error would

fail to satisfy the jurisdictional requirement of Section

411(a). At the same time, at least one court has suggested

that in such instances the proper approach might be to

prevent the plaintiff from exploiting the presumption of

validity that ordinarily attaches to a registered copyright

under Section 410(c). Masquerade Novelty, 912 F.2d at 668

n.5 (dictum). We assume for argument's sake that a material

error in a copyright deposit, even if unintentional, may

destroy the presumption of validity.

c. Refusal to Compel Production of Source

Code

Grumman next argues that it was unfairly deprived

of an opportunity to prove that the errors in the deposits

were material. Specifically, Grumman claims that the

district court abused its discretion when, during the trial,

it refused to compel DG to produce roughly 40,000 pages of

source code (on approximately 33,000 floppy disks) for each

of the first three versions of ADEX (0.0 to 2.0). See

Geremia v. First Nat'l Bank, 653 F.2d 1, 5-6 (1st Cir. 1981)

(reviewing denial of mid-trial discovery motion for abuse of

discretion).

-35-
35

Grumman renewed its unsuccessful pre-trial requests

for the source code after Edward Gove, a DG witness, admitted

on cross-examination that there were some discrepancies

between the source code deposited with the Copyright Office

and the actual source code for ADEX 0.0 to 2.0, and then

explained in rebuttal testimony that those errors were minor

and of no consequence to the operation of the diagnostic

program as a whole. In response to the renewed request, DG

provided Grumman with those portions of the source codes for

ADEX Revisions 0.0 to 2.0 necessary to conduct a character-

by-character comparison of the intended deposits of source

code with those portions of source code actually

deposited.28 Nonetheless, Grumman insisted that it was

entitled to the entire source code for all three versions.

Grumman apparently sought the three sets of source

code because it believed that analysis of the entire source

code would permit a more effective cross-examination of the

DG witness about the magnitude of the discrepancies during

DG's rebuttal. It seems that Grumman had one main goal: it

believed it might be able to show that, although the

discrepancies were few in number and seemingly minor in

character, ADEX would not function properly if the source

28. In its brief, DG states that "Data General collected and
provided to Grumman copies of the entire source code of all
of the sub-programs that were, or should have been, filed in
the Copyright Office for each of the relevant revisions of
MV/ADEX." Grumman does not challenge this assertion.

-36-
36

code deposited with the Copyright Office had been inserted

into the versions of ADEX DG intended to register.

The marginal benefit to Grumman of obtaining the

balance of the source code was at best highly uncertain, and

all indications were that such a test would produce no

compelling results. Even if Grumman could demonstrate that

inserting the errors would impair the operation of ADEX, it

is extremely unlikely that this would establish the

materiality of the errors. Grumman does not allege that any

of the errors, if discovered, would have led the Copyright

Office to refuse registration of DG's copyright claims. Nor

does Grumman contend that the Copyright Office would have

been unable to use the correct portions of the deposits to

identify the works DG intended to register or make a

preliminary determination concerning the copyrightability of

those works.29 In contrast, DG produced evidence that

29. If a showing of prejudice is necessary to enable a
defendant to use a registration error as a defense to an
infringement action, see supra note 24, Grumman has failed in

this respect as well because Grumman has not shown that it
was misled as to the copyrightability of ADEX Revisions 0.0
to 2.0. It appears that Grumman has always acted in a manner
consistent with the belief that each revision of ADEX
contains copyrightable elements. In these proceedings,
moreover, Grumman has never seriously argued that the first
three versions of ADEX are entirely devoid of original
computer code, and has consistently admitted that it made
identical copies of the entire contents of each version of
ADEX at issue in this action. Accordingly, we are unable to
see why Grumman was disadvantaged by bearing the burden of
proving that there are no copyrightable elements in the first
three versions of ADEX, a task even Grumman seems to have
forsworn.

-37-
37

production of the requested material would be an extremely

cumbersome process, a point Grumman does not contest. We

find no abuse of discretion in the district court's decision

to deny Grumman's mid-trial discovery request.

2. Preemption of Trade Secrets Claim

Seeking to avoid the additional damages associated

with the trade secrets remedies selected by DG, Grumman

argues that the state claim is preempted by Section 301 of

the Copyright Act, 17 U.S.C. 301(a).

Section 301(a) precludes enforcement of any state

cause of action which is equivalent in substance to a federal

copyright infringement claim.30 See generally Gates Rubber

Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 846-47 (10th

Cir. 1993); Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d

655, 658-60 (4th Cir.), cert. denied, 114 S. Ct. 443 (1993);

1 Nimmer 1.01[B][h], at 1-35 to 1-36.1. Courts have

developed a functional test to assess the question of

equivalence. "[I]f a state cause of action requires an extra

element, beyond mere copying, preparation of derivative

works, performance, distribution or display, then the state

cause of action is qualitatively different from, and not

30. In pertinent part, Section 301(a) provides that "all
legal or equitable rights that are equivalent to any of the
exclusive rights within the general scope of copyright . . .
are governed exclusively by this title. [N]o person is
entitled to any such right or equivalent right in any such
work under the common law or statutes of any State."

-38-
38

subsumed within, a copyright infringement claim and federal

law will not preempt the state action." Gates Rubber, 9 F.3d

at 847 (citing Computer Assocs. Int'l, Inc. v. Altai, Inc.,

982 F.2d 693, 716 (2nd Cir. 1992)).

Not every "extra element" of a state claim will

establish a qualitative variance between the rights protected

by federal copyright law and those protected by state law.

For example, a state claim of tortious interference with

contractual relations may require elements of awareness and

intentional interference not necessary for proof of copyright

infringement. And yet, such an action is equivalent in

substance to a copyright infringement claim where the

additional elements merely concern the extent to which

authors and their licensees can prohibit unauthorized copying

by third parties. Harper & Row, Publishers, Inc. v. Nation

Enters., 723 F.2d 195, 201 (2d Cir. 1983), rev'd on other

grounds, 471 U.S. 539 (1985). Similarly, a state law

misappropriation claim will not escape preemption under

Section 301(a) simply because a plaintiff must prove that

copying was not only unauthorized but also "commercial[ly]

immoral[,]" a mere "label attached to [the same] odious

business conduct." Mayer v. Josiah Wedgwood & Sons, Ltd.,

601 F. Supp. 1523, 1535 (S.D.N.Y. 1985). Nonetheless, a

trade secrets claim that requires proof of a breach of a duty

of confidentiality stands on a different footing. Such

-39-
39

claims are not preempted because participation in the breach

of a duty of confidentiality -- an element that forms no part

of a copyright infringement claim -- represents unfair

competitive conduct qualitatively different from mere

unauthorized copying. See Gates Rubber, 9 F.3d at 847-48;

Trandes Corp., 996 F.2d at 660; Computer Associates, 982 F.2d

at 717; S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1090

n.13 (9th Cir. 1989).31

DG's trade secrets claim fits comfortably within

this category. To demonstrate misappropriation of trade

secrets under Massachusetts law, DG must prove that "(1)

MV/ADEX is a trade secret; (2) Data General took reasonable

steps to preserve the secrecy of MV/ADEX; and (3) Grumman

used improper means, in breach of a confidential

relationship, to acquire and use the trade secret." Grumman

VI, 825 F. Supp. at 357 (citing, inter alia, J.T. Healy &

Son, Inc. v. James A. Murphy & Son, Inc., 260 N.E.2d 723,

729-31 (Mass. 1970)). The district court instructed the jury

31. Grumman insists that acquisition of copyrightable
software in violation of confidentiality agreements is
equivalent to unauthorized copying where, as appears to be
the case here, the defendant does not actually learn the

trade secrets embodied in the software. The qualitative
difference between unauthorized copying and such acts as the
discovery of wrongfully acquired trade secrets and the
illegal use of that knowledge may be more striking than the
difference between unauthorized copying and mere
participation in the breach of a confidentiality agreement.
But we cannot agree that the latter relationship is one of
equivalence.

-40-
40

that "wrongful acquisition" is an element of a Massachusetts

trade secrets claim, and that "[a]cquisition of a trade

secret is wrongful . . . if it is by theft of property known

to belong to another, or by knowing participation in the

breach of an express or implied confidentiality agreement by,

for instance, a former employee or customer of Data General."

(Emphasis added.) Grumman does not assign error to this

portion of the charge, which thus becomes the law of the

case. See United States v. Connell, 6 F.3d 27, 30 (1st Cir.

1993) (explaining that unchallenged legal decisions are

ordinarily unassailable at later stages in litigation).

Furthermore, DG's theory was precisely that Grumman acquired

ADEX by participating in the breach of confidentiality

agreements binding on former employees and service customers

of DG.32 Because the Copyright Act does not prevent the

states from imposing liability for such conduct, the district

court was correct to spare DG's trade secrets claim from

preemption under Section 301(a).

3. 1976 Settlement Agreement Defense

Grumman denies its liability for copyright

infringement and misappropriation of trade secrets, arguing

that the Settlement Agreement contains a license allowing

Grumman to copy and use ADEX in the maintenance and repair of

32. The relevant contract language appears infra, note 37.

-41-
41

DG computers. The district court granted DG's motion for

partial summary judgment on this issue, and Grumman now

appeals that decision on two alternative grounds: (1) the

Settlement Agreement unambiguously grants Grumman a license

to use ADEX; or (2) the Settlement Agreement is at least

ambiguous, and conflicting extrinsic evidence about the scope

of the license presents a factual dispute worthy of

resolution by a jury.

a. Maryland Contract Law

The parties agree that the Settlement Agreement,

executed in Maryland, is governed by Maryland contract law.

Maryland courts do not follow the subjective theory of

contracts, which aims to discover the actual intent of the

parties even at the expense of unambiguous language to the

contrary. See Hershon v. Gibraltar Bldg. & Loan Ass'n, 864

F.2d 848, 851 (D.C. Cir. 1989) (applying Maryland law).

Instead, Maryland subscribes to the objective approach. See

id. Under that approach, a court may consider extrinsic

evidence only in determining whether contract language is

ambiguous. See id. at 852. However, as long as the result

is objectively reasonable, a court may not use extrinsic

evidence "to interpret facially explicit contractual terms."

Id. at 851-52. See also General Motors Acceptance Corp. v.

Daniels, 492 A.2d 1306, 1310 (Md. 1985).

-42-
42

Where contract terms are ambiguous, a court may

look to extrinsic evidence in order to ascertain the

intention of the parties and, if successful, interpret the

contract as a matter of law. See Collier v. MD-Individual

Practice Ass'n, 607 A.2d 537, 541 (Md. 1992); Truck Ins.

Exch. v. Marks Rentals, Inc., 418 A.2d 1187, 1190 (Md. 1980).

If, after such examination, the meaning of the ambiguous

terms remains in genuine dispute, and the dispute is material

to the outcome of the claim or defense at issue, the

ambiguity must be resolved by the trier of fact. See id.;

Monumental Life Ins. Co. v. United States Fidelity & Guar.

Co., 617 A.2d 1163, 1174 (Md. Ct. Spec. App.) ("Only when

there is a bona fide ambiguity in the contract's language or

legitimate doubt as to its application under the

circumstances is the contract submitted to the trier of the

fact for interpretation."), cert. denied, 624 A.2d 491 (Md.

1993).33

33. Grumman asserts that any ambiguity must be interpreted
against DG as the drafter of the Settlement Agreement.
However, because the Settlement Agreement is the product of
negotiations by sophisticated parties represented by counsel,
this "`secondary rule of construction . . . perhaps should
have but slight force.'" Acme Markets, Inc. v. Dawson

Enters., 251 A.2d 839, 847 (Md. 1969) (quoting Rossi v.

Douglas, 100 A.2d 3, 6 (Md. 1953)). In any event, this

interpretive presumption has no application where, as here,
the record contains extrinsic evidence sufficient to discover
the intention of the parties to the Settlement Agreement.
See Pacific Indem. Co. v. Interstate Fire & Casualty Co., 488

A.2d 486, 497 (Md. 1985); St. Paul Fire & Marine Ins. Co. v.

Pryseski, 438 A.2d 282, 288 (Md. 1981).

-43-
43

b. Areas of Agreement

In order to focus our analysis of DG's entitlement

to summary judgment, we first determine the reach of

Grumman's contentions in light of the existing areas of

agreement.

In the first place, the parties agree that the

existence and scope of a license turn on the interpretation

of the "maintenance or repair" exception to the general

prohibition of paragraph four of the Settlement Agreement,

which provides that Grumman's predecessor "will not, directly

or indirectly, copy or utilize `Proprietary Information' of

DG for the design or manufacture of computers or any other

purpose."34 In addition, DG admits that the Settlement

Agreement gives Grumman a right to use some of DG's

34. In its entirety, paragraph four reads as follows:

4. Defendants [CSSC, Lloyd Root,
and Robert Montgomery] agree, jointly and
severally, that they will not, directly
or indirectly, copy or utilize
"Proprietary Information" of DGC for the
design or manufacture of computers or any
other purpose except [i] maintenance or
repair of DGC equipment, [ii]
installation and integration of equipment
manufactured or sold by companies other
than DGC, or [iii] other purposes
permitted by any proprietary or
confidentiality legends accompanying or
made part of any data or documentation
comprising Proprietary Information.
"Proprietary Information" of DGC shall
mean data and documentation which is
marked confidential or proprietary to DGC
by appropriate legend.

-44-
44

proprietary information for some purposes. Although DG

denies that the Settlement Agreement allows Grumman to use

ADEX itself, DG nonetheless admitted in its answers to

Grumman's request for admissions "that, as part of the

settlement of the CSSC litigation, Data General agreed that

CSSC could use Data General proprietary information that was

defined in the Agreement and the nature of which was then

understood by and agreed to by the parties, to maintain or

repair Data General computers." While the Settlement

Agreement does not bear many of the traits of a traditional

licensing agreement, it does grant some permission to use

DG's intellectual property, at least in certain

circumstances, and therefore creates some type of

"license."35 Consequently, Grumman's defense turns on the

scope of the license.36

35. Because neither party has offered a legal definition of
a license, we will regard the term as carrying its usual
definition: permission to use the property of another.
Black's Law Dictionary 829-30 (5th ed. 1979). A license can

be general, with few or no restrictions, or quite limited.
The use of the word "license" in a contract is clearly
evidence of an intent to permit use, but the absence of the
word is not dispositive, as long as other contract language
grants some permission to use. Cf. 3 Nimmer 10.03[A], at

10-38 (explaining that "[a] nonexclusive license may be
granted orally, or may even be implied from conduct")
(footnotes omitted).

36. DG argues that the Settlement Agreement was not intended
to apply to proprietary information created by DG after
settlement of the 1975 lawsuit. We cannot agree. The
language "`Proprietary Information' of DGC" strikes us as
unambiguous, and unqualifiedly embraces all DG proprietary

-45-
45

Also worthy of note are undisputed facts concerning

the nature of Grumman's acquisition and use of ADEX. Grumman

did not simply gain access to copies of ADEX left at the

sites of former DG service customers solely for the purpose

of using on-site maintenance tools to service computers at

that site. Rather, Grumman acquired copies of ADEX from

former service customers in an effort to expand its own

library of MV diagnostic software, which Grumman technicians

freely copied and used in servicing the computers of any

Grumman customer with MV equipment. Moreover, there is no

evidence that Grumman acquired ADEX from equipment owners at

a time when those equipment owners were also customers of DG.

Nor is there evidence that Grumman acquired ADEX directly

from DG, or from current or former CMO customers. In

addition, the record reveals that DG service customers were

contractually bound both to prevent ADEX from falling into

the hands of third parties such as TPMs and to return copies

of ADEX to DG after the termination of the relevant service

agreement.37 Thus, Grumman acquired ADEX from those

information, whether in existence in 1976 or not. However,
even if the phrase were ambiguous, an examination of the
extrinsic evidence reveals that DG would still not be
entitled to summary judgment on this basis because there is
extrinsic evidence that would allow a reasonable jury to find
that the Settlement Agreement was intended to apply to
information in the future.

37. For example, in one version of DG's On-Call Service
Agreement, service customers agreed "NOT TO DISCLOSE OR MAKE
AVAILABLE TO ANY THIRD PARTY THE PROPRIETARY ITEMS [installed

-46-
46

customers who no longer had lawful possession of the program

and had no right to transfer it.38

The question we must resolve is whether the

"maintenance or repair" exception authorized Grumman both to

gain access to and acquire copies of ADEX in the possession

of former DG service customers despite the fact that these

customers had agreed not only to prevent such third-party

access but also to return copies of ADEX to DG after the

termination of their service contract.

at customer locations by DG;] AND . . . TO RETURN ALL THE
PROPRIETARY ITEMS TO [DG] UPON EXPIRATION OR
CANCELLATION/TERMINATION OF THIS AGREEMENT."

38. Grumman also acquired copies of ADEX from former DG
employees who brought copies of the program with them, in
violation of their employment agreements. Grumman does not
maintain that the Settlement Agreement gives it the right to
duplicate and use copies of ADEX acquired in this manner.

-47-
47

d. Scope of the License

The plain language of the Settlement Agreement does

not answer our question. Despite the fact that the exception

anticipates that Grumman will "copy or utilize" DG

proprietary information for the "maintenance and repair of

DGC equipment," the Settlement Agreement does not specify

whether it merely refers to Grumman's right to gain access to

maintenance tools it finds at a customer site (including the

routine copying and use inherent in the operation of a

computer program), or whether the exception somehow allows

Grumman to acquire such tools for the service of DG computers

at other sites. Similarly, the Settlement Agreement contains

no prescription for resolving potential conflicts between the

"maintenance or repair" exception and provisions in DG's

Service Agreement prohibiting third-party access during the

term of the Agreement and retention of DG proprietary

information thereafter. Accordingly, we turn to the

extrinsic evidence in the record in an attempt to resolve the

ambiguity.

Even when viewed in a light most favorable to

Grumman, the record evidence makes clear that the parties to

the Settlement Agreement intended the "maintenance and

repair" exception to function as what we shall call a "third-

party access agreement," allowing CSSC, Grumman's predecessor

in interest, to gain access to proprietary information that

-48-
48

DG sold, licensed, or otherwise entrusted to owners of DG

equipment. For example, when called to testify in the STI

litigation, Edward Canfield, CSSC's attorney at the time,

used these words to describe his contemporary understanding

of the "maintenance and repair" exception: "If the customer

had it, [CSSC] had a right to use it."39 In addition, the

language of DG licensing agreements in the 1970s as well as

the pleadings in the 1975 litigation strongly corroborate the

view that the settlement negotiations primarily concerned

CSSC's right to use proprietary information in the hands of

DG equipment owners. As late as 1976, DG licensed

proprietary maintenance information to equipment owners under

an agreement which specifically allowed licensees to grant

access to third parties "on LICENSEE's premises with

LICENSEE's permission for purposes specifically related to

LICENSEE's use of the Licensed Program." Moreover, in its

1975 counterclaim, CSSC intimated that DG had begun to

undermine the ability of TPMs to gain access to maintenance

information in the hands of equipment owners, alleging that

DG had attempted "to prevent owners of DGC Mini-computers

from having their equipment serviced and maintained by any

competitor of DGC . . . by restricting the use those owners

make of their owner maintenance information."

39. The district court accepted a transcript of Canfield's
testimony in STI as part of the summary judgment record in

this case.

-49-
49

There is also specific evidence that the parties to

the Settlement Agreement were not negotiating about the

ongoing transfer of proprietary information directly from DG

to CSSC. For example, during the STI trial, counsel for DG

asked Canfield whether, under the Settlement Agreement, DG

had an "obligation to give [CSSC] something." "No sir,"

replied Canfield, "Data General was not offering to give us

anything."

The nature of the "maintenance and repair"

exception as a third-party access agreement has several

ramifications. As a provision designed to ensure access to

Grumman, the exception was arguably intended to override

contrary restrictions in proprietary legends and

confidentiality agreements. Indeed, there is evidence that

this was the case. A letter to Canfield from Carl Kaplan, a

lawyer who represented DG in the settlement negotiations,

outlined the proposed settlement, stating that improper

utilization of DG proprietary information "would be the use

of that information other than as marked by DGC or without

DGC's express written permission." (Emphasis added.) Kaplan

added that "[u]se of DGC proprietary information for the

maintenance of DGC equipment would expressly be permitted the

defendants." Id. In addition, Canfield's deposition

testimony suggests that his primary concern was for DG to

guarantee CSSC's right to use proprietary information

-50-
50

distributed to DG equipment owners, notwithstanding future

restrictions on third-party access to such information.

Thus, a jury could reasonably conclude that the Settlement

Agreement allowed Grumman to gain access to information in

the hands of DG equipment owners for the purpose of

maintaining DG computers, even if equipment owners generally

could not allow third parties access to DG proprietary

information.

Characterizing the exception as a third-party

access agreement also means that Grumman's right to use

copies of ADEX in the possession of DG equipment owners is

necessarily derivative of the rights of those equipment

owners. As a consequence, Grumman only has the right to

operate a customer's copy of ADEX for the benefit of that

customer; there is no basis for the proposition that Grumman

can use its third-party access rights to acquire copies of

ADEX for unlimited copying and use in the service of any MV

computer. Indeed, this was the import of Canfield's

testimony in STI. Referring to a CSSC customer as a "party,"

Canfield stated that he understood the Settlement Agreement

to allow "[CSSC] to use whatever [was] on the party's

equipment . . . for the repair and maintenance of that

party's equipment." (Emphasis added).40 Furthermore, to

40. We note in passing that STI appeared to adopt Canfield's
statement in the course of the STI trial. When Judge Motz

characterized Canfield's testimony as stating that

-51-
51

the extent that an equipment owner no longer has the right to

possess copies of ADEX, as in the case of a former DG service

customer, Grumman's rights as a third party are

extinguished.41

In summary, we conclude that the Settlement

Agreement merely grants Grumman the right to gain access to

copies of ADEX lawfully possessed by a DG equipment owner in

order to service the computers of that particular equipment

owner. Because Grumman's copying and use of ADEX does not

fall within this category, the Settlement Agreement does not

proprietary maintenance tools in the hands of CSSC's
customers "were to be used . . . for the customer's own
computers," counsel for STI responded, "I don't have a
problem with that."

41. Our conclusion that the "maintenance or repair"
exception was intended to be a third-party access agreement
also disposes of Grumman's assertion that the Settlement
Agreement somehow obligates DG to distribute its proprietary
maintenance information either to Grumman's customers or
directly to Grumman. As explained above, the extrinsic
evidence demonstrates that the Agreement concerns Grumman's
right to gain access to proprietary information that DG
distributes to equipment owners. Nowhere does the Agreement
say that DG will distribute to Grumman proprietary
information DG chooses to distribute only to its own field
engineers. Further, it would be unreasonable to interpret
the Agreement as providing for direct licensing of
proprietary information on demand given that the Agreement
did not even allow the individual parties to the Agreement
(Root and Montgomery, both former DG employees) to retain or
purchase any proprietary information they acquired during
their employment with DG. And finally, a mere agreement to
agree to an unspecified future license would be unenforceable
as a matter of contract law. See STI, 737 F. Supp. at 339

(citing First Nat'l Bank v. Burton, Parsons & Co., 470 A.2d

822, 828 (Md. Ct. Spec. App.), cert. denied, 475 A.2d 1201

(Md. 1984)).

-52-
52

serve as a defense either to the infringement action or the

trade secrets claims. The district court did not err in

granting partial summary judgment for DG on Grumman's

Settlement Agreement defense.

-53-
53

4. Misuse Defense

Grumman claims that DG is not entitled to enforce

its copyrights or its rights under state trade secrets law

because it has "misused" those property rights by engaging in

anti-competitive behavior in violation of federal antitrust

laws. DG argues that there is no "copyright misuse" defense

to a federal copyright infringement claim and no applicable

"unclean hands" defense to the state claim for

misappropriation of trade secrets. Alternatively, DG argues

that it did not violate the antitrust laws.

A "copyright misuse" defense is not without legal

support. In a carefully reasoned opinion, the Fourth Circuit

recently approved such a defense after noting that it has

long been recognized in the analogous context of patent

infringement. See Lasercomb America, Inc. v. Reynolds, 911

F.2d 970, 976 (4th Cir. 1990) ("[S]ince copyright and patent

law serve parallel public interests, a `misuse' defense

should apply to infringement actions brought to vindicate

either right."); see also 3 Nimmer 13.09[A], at 13-269 to

13-276 (collecting conflicting decisions of lower courts);

Ramsey Hanna, Note, Misusing Antitrust: The Search for

Functional Copyright Misuse Standards, 46 Stan. L. Rev. 361,

404-10 (1994) (charting the development of the copyright

misuse defense). Although DG correctly notes that the misuse

in Lasercomb (conditioning a copyright license on a

-54-
54

noncompetition agreement) is not identical to the misuse

alleged in this case (tying access to ADEX to the purchase of

DG service and refusing to license ADEX to TPMs), the

reasoning of Lasercomb does not turn on the particular type

of anti-competitive behavior alleged. DG also suggests that

the policy rationale for a copyright misuse defense is weaker

than in the case of patent misuse because an exclusive right

to express an idea in a particular way (a copyright) is a

lesser threat to competition than an exclusive right to use

the idea itself (a patent). We acknowledge that it is often

more difficult to prove an antitrust violation when the claim

rests on the questionable market power associated with a

copyright, but that would not be a reason to prohibit a

defendant from attempting to meet its burden of proof, and

would be a poor reason to refrain entirely from recognizing a

copyright misuse defense.

Nevertheless, this case does not require us to

decide whether the federal copyright law permits a misuse

defense. Nor need we determine whether Massachusetts

recognizes an unclean hands defense to a claim for

misappropriation of trade secrets. Grumman does not claim

that DG misused its copyright or acted inequitably in any

fashion other than through its alleged violations of the

-55-
55

Sherman Act.42 And, because we conclude infra, Section

III.B., that there is insufficient evidence to justify a

trial on either of Grumman's antitrust counterclaims,

Grumman's misuse and unclean hands defenses are equally

devoid of merit.43

5. Damages

Grumman's principal assault on the jury's award of

$27,417,000 in damages (DG's lost profits and Grumman's

42. Note that the Lasercomb court held that a copyright

misuse defense does not require proof of an antitrust
violation, only proof that "the copyright is being used in a
manner violative of the public policy embodied in the grant
of a copyright." 911 F.2d at 978.

43. Even if Grumman's antitrust counterclaims could survive
summary judgment, Grumman would not necessarily have the
privilege of interposing its counterclaims as defenses.
Lasercomb explains that copyright misuse and its ancestor,

patent misuse, are equitable defenses. See 911 F.2d at 976-

77. If copyright misuse is an equitable defense, a defendant
that has itself acted inequitably may not be entitled to
raise such a defense. Cf. 3 Nimmer 13.09[B], at 13-278 to

13-279 (noting the possible propriety of denying a defense of
unclean hands "when the defendant has been guilty of conduct
more unconscionable and unworthy than the plaintiff's").
Mere infringement may not be inequitable in this context
because a misuse defense would appear to sanction at least
some infringement as a necessary measure of self-help. But
violation of a valid injunction against further infringement
issued pursuant to a court's equitable powers would
constitute blatantly inequitable behavior. Here, the jury
specifically found that Grumman violated the district court's
1988 injunction against the use of ADEX. Grumman does not
appeal that finding. Accordingly, while Grumman may be free
to pursue antitrust counterclaims, cf. Perma Life Mufflers,

Inc. v. International Parts Corp., 392 U.S. 134, 138-40

(1968) (holding that doctrine of in pari delicto is not a

defense to an antitrust suit), it would not necessarily be
entitled to raise a defense of copyright misuse predicated on

antitrust violations.

-56-
56

nonduplicative profits) is that the district court failed to

give the jury adequate guidance to find the necessary causal

connection between Grumman's infringement and DG's damages.

Because the calculus of causation is partly a function of the

particular theory of damages advanced by the plaintiff, we

divide our discussion accordingly.

a. Actual Damages

A successful plaintiff in an infringement action is

entitled to "actual damages suffered by [it] as result of the

infringement." 17 U.S.C. 504(b). Actual damages are

generally calculated with reference to the loss in the fair

market value of the copyright, often measured by the profits

lost as a result of the infringement. See, e.g., Eales v.

Envtl. Lifestyles, Inc., 958 F.2d 876, 880 (9th Cir.), cert.

denied, 113 S. Ct. 605 (1992); see generally 3 Nimmer

14.02[A], at 14-8 to 14-9.

The plaintiff bears the burden of proving that the

infringement was the cause of its loss of revenue. See

Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S.

539, 567 (1985); Frank Music Corp. v. MGM, Inc., 772 F.2d

505, 514 n.8 (9th Cir. 1985) (citing Shapiro, Bernstein & Co.

v. 4636 S. Vermont Ave., Inc., 367 F.2d 236, 241 (9th Cir.

1966)). In defining that burden, it is useful to borrow

familiar tort law principles of causation and damages. See

Deltak, Inc. v. Advanced Sys., Inc., 574 F. Supp. 400, 403

-57-
57

(N.D. Ill. 1983) (Posner, J., sitting by designation)

(referring to "normal tort damages principles" in discussion

of copyright damages), vacated on other grounds, 767 F.2d 357

(7th Cir. 1985); 3 Nimmer 14.02[A], at 14-11, 14-20 to 14-

21 n.49.8 (alluding to notions of "but for" and proximate

causation). Thus, the plaintiff should first establish that

the infringement was the cause-in-fact of its loss by showing

with reasonable probability that, but for the defendant's

infringement, the plaintiff would not have suffered the loss.

See, e.g., Robert R. Jones Assocs. v. Nino Homes, 858 F.2d

274, 281 (6th Cir. 1988); 3 Nimmer, 14.02[A], at 14-9; cf.

Harper & Row, 471 U.S. at 567 (noting that in rebuttal

defendant may "show that this damage would have occurred

[anyway] had there been no taking of copyrighted

expression"); Aro Mfg. Co. v. Convertible Top Replacement

Co., 377 U.S. 476, 507 (1964) (noting that actual damages in

patent infringement case are based on "what [the patent

holder's] condition would have been if the infringement had

not occurred") (citation and internal quotation marks

omitted). The plaintiff must also prove that the

infringement was a proximate cause of its loss by

demonstrating that the existence and amount of the loss was a

natural and probable consequence of the infringement. See

Big Seven Music Corp. v. Lennon, 554 F.2d 504, 509 (2d Cir.

1977) ("[D]amages may be recovered only if there is a

-58-
58

necessary, immediate and direct causal connection between the

wrongdoing and the damages."). A plaintiff may seek

compensation for both direct and "indirect" losses, as long

as the losses claimed are not unduly speculative. See

Business Trends Analysts, Inc. v. Freedonia Group, Inc., 887

F.2d 399, 404 (2d Cir. 1989) (recognizing possibility of

recovery for loss of "enhanced good will" and "market

recognition"); Abeshouse v. Ultragraphics, Inc., 754 F.2d

467, 471 (2d Cir. 1985) (ruling that claimed harm to

"reputation" and "marketability" of copyrighted poster was

"too speculative to support any award of actual damages");

Sunset Lamp Corp. v. Alsy Corp., 749 F. Supp. 520, 524-25

(S.D.N.Y. 1990) (recognizing possibility of recovery for lost

sales of noninfringed items); 3 Nimmer 14.02[A], at 14-11

to 14-21. At the same time, the plaintiff need not prove its

loss of revenue with mathematical precision. See, e.g.,

Stevens Linen Assocs. v. Mastercraft Corp., 656 F.2d 11, 14

(2d Cir. 1981) ("In establishing lost sales due to sales of

an infringing product, courts must necessarily engage in some

degree of speculation.").

DG argued at trial that ADEX capability was

essential both to service MV computers and attract customers,

and therefore nearly all of Grumman's MV customers would have

remained with DG (or would have switched back to DG) had

Grumman not touted its possession and use of ADEX. In

-59-
59

opposition, Grumman introduced evidence that ADEX was of

little use to Grumman's field engineers and only a minor

factor in consumer's selection of a service vendor. In

effect, Grumman argued that, even without ADEX, customers

would have switched to (or remained with) Grumman in order to

take advantage of its lower prices and allegedly higher-

quality service.

In its objections to the jury charge, Grumman

expressed concerns about the court's instructions on

causation in the lost profits context. Grumman asked the

court to instruct the jury that it was free to consider

whether factors other than Grumman's infringement enabled

Grumman to win customers from DG. On appeal, Grumman

continues to challenge the adequacy of the district court's

instructions on causation, and raises several questions about

the sufficiency of the evidence.

(1) Jury Instructions

The district court's charge, relevant portions of

which are set forth in the margin, invited the jury to

consider the "diverse factors" that make up a customer's

choice of a service organization, and properly allowed the

jury to consider whether the majority of MV equipment owners

would have turned to DG for service had Grumman not possessed

-60-
60

and used ADEX.44 The instructions also introduced the jury

to the concept of proximate cause. The charge not only

mentioned the concept by name but also gave it content by

explaining, among other things, that the plaintiff "bears the

burden of proving its damages to a reasonable degree of

certainty," may not be compensated for "purely speculative"

damages, and is entitled only to "reasonable" damages. We

conclude that the charge adequately equipped the jury to

determine whether or not DG had established the requisite

causal link between Grumman's infringement and the profits DG

claimed to have lost.45

44. In its charge, the district court stated:

If you conclude that Grumman would not
have been in the business of servicing MV
computers but for its possession and use
of MV/ADEX, or that some or all of
Grumman's customers would not have hired
Grumman to maintain or repair their
computers if Grumman had not infringed
Data General's copyrights, then you
should consider what percentage of those
customers would have done business with
Data General instead.

You may take into account all the
diverse factors which . . . might bear on
the determination, including price,
customer loyalty and level of customer
satisfaction.

45. Grumman's other challenges to the jury instructions are
either meritless or moot. First, Grumman claims that an
apportionment instruction (the subject of the following
section) would have affected the outcome of the lost profits
analysis. As we explained above, however, the district
court's instructions enabled the jury to make findings about
the relative role of infringing and noninfringing factors in

-61-
61

(2) Sufficiency of the Evidence

Grumman's challenge to the evidentiary basis for

the jury's award of actual damages is less developed and

equally unavailing. Upsetting a jury's damage award is a

daunting task for any appellant, for we must draw all

reasonable inferences in favor of the verdict, upholding the

award if it derives from "any rational appraisal or estimate

of the damages that could be based on the evidence before the

jury." Anthony v. G.M.D. Airline Servs., 17 F.3d 490, 493

(1st Cir. 1994) (citations and internal quotation marks

omitted). The likelihood of a victorious appeal is

especially remote in the absence of rigorous argumentation.

Cf. Chakrabarti v. Cohen, F.3d , (1st Cir. 1994)

[Nos. 92-1987 and 92-1988, slip op. at 8] (suggesting that,

when challenging the sufficiency of the evidence, a

customers' selection of Grumman over DG. Further examination
of the value added by Grumman to its own products would have
been unnecessary. Second, Grumman contends that it was
impermissible for DG to calculate its lost profits based on
its monopoly prices. This argument is untimely because
Grumman did not raise this issue in its objections to the
jury instructions. In any event, Grumman has not established
that DG's exploitation of its monopoly is unlawful, infra,

Section III.B.2., and has not provided any authority for the
proposition that actual damages cannot be based on the loss
of lawful monopoly profits. Third, Grumman suggests that the

damage award was inflated because the jury was improperly
forbidden from considering the extent to which the 1976
Settlement Agreement authorized Grumman's use of ADEX.
However, as illustrated supra, Section III.A.3., Grumman did

not present trialworthy evidence that the Settlement
Agreement authorized the acquisition and use of ADEX in any
meaningful sense.

-62-
62

defendant-appellant must make a "serious effort . . . to

analyze the evidence taking it in the light most favorable to

[the plaintiff] and resolving credibility issues in [the

plaintiff's] favor"). Moreover, the calculation of lost

profits will always involve "some degree of speculation."

Stevens Linen Assocs., 656 F.2d at 14. As a result, we rely

on the appellant to specify with some precision the manner in

which unduly speculative reasoning is likely to have infected

the jury's verdict.

Grumman raises several specific concerns. First,

Grumman complains that the jury had no basis to conclude that

Grumman would not be in the MV business because DG's damage

expert, Alan Friedman, did not consider the relative

infrequency of Grumman's use of ADEX, or the value Grumman

added to its product through "substantially lower prices,

superior service and higher level of customer satisfaction."

Grumman's ultimate concern is that "no attempt at

apportionment was made." But Friedman did not set out to

show that there was nothing attractive about Grumman service

apart from its possession and use of ADEX. Instead, he

reported -- and the jury apparently believed -- that, for

most owners of MV equipment, ADEX capability was the critical

attribute in a service vendor. As a result, Friedman

concluded, ADEX capability was the sine qua non of Grumman's

success in its chosen niche as a national vendor of MV

-63-
63

service. Drawing all reasonable inferences in favor of DG,

we conclude that a reasonable jury was free to agree.

Grumman also argues that the jury must have

improperly followed Friedman's lead in adding to the lost

profits figure all of the service and hardware needs of

Grumman's MV customers that DG was capable of filling.

Grumman notes that Friedman based his testimony on evidence

that customers prefer to have a single vendor of service, but

claims that this evidence deserves little weight because

"customers that had gone to [Grumman] had already

demonstrated their particular price/service sensitivity."

Viewed in a light most favorable to the verdict, however, the

record evidence adequately supports the inference that

Friedman invited the jury to draw. For example, while MV

equipment owners may have switched to Grumman in search of

lower prices and better service, the evidence suggests that

none of them had to give up a preference for single sourcing

to do so. Indeed, the evidence suggests that Grumman's

drawing power was due in part to its ability to be a single

source of service, particularly for customers with multiple

brands of computer equipment. Nor did Grumman attempt to

rebut Friedman's view with evidence of MV equipment owners

who sacrificed their preference for single sourcing in

-64-
64

certain circumstances.46 More importantly, Friedman did

not presume that customers would be entirely insensitive to

issues of price and quality. In calculating DG's lost

profits, he reduced the figure by an estimate of the business

DG would itself have lost to competition from TPMs.47

Finally, we note that DG did not seek compensation for a loss

in "goodwill" or "market recognition" that was difficult to

ascertain, cf. Business Trends, 887 F.2d at 404, but rather

for the loss of a reasonably verifiable number of customers

with a limited and predictable set of service needs and a

demonstrated tendency to satisfy those needs by turning to a

single vendor. In short, the evidence does not suggest that

the jury's award of actual damages falls outside the "`wide

range of arguable appropriateness.'" Toucet v. Maritime

46. Such rebuttal evidence, if it existed, should have been
easily within Grumman's reach. For example, the evidence
suggests that purchasers of DG equipment generally used DG
service in the initial warranty period. Thus, owners of DG
equipment might periodically upgrade a portion of their
equipment, and therefore there would be times when one owner
will have some newly upgraded equipment still under warranty
and some older equipment no longer under warranty. Grumman
could readily have introduced evidence that some of these
equipment owners ignored their single-vendor preference by
turning to a TPM for service of equipment not under warranty.
Similarly, it would not have been difficult for Grumman to
discredit Friedman's opinion by showing that DG had a
significant number of price-conscious service customers who
regularly turned to other vendors when purchasing new
equipment, or that customers who purchased DG service on a
"time and materials" basis often used TPMs as well.

47. In estimating this "volume loss," Friedman assumed that,
without ADEX, Grumman would not have been among the TPMs
competing for MV-related business.

-65-
65

Overseas Corp., 991 F.2d 5, 11 (1st Cir. 1993) (quoting

Wagenmann v. Adams, 829 F.2d 196, 216 (1st Cir. 1987)).

b. Infringer's Profits

In addition to actual damages, a copyright

plaintiff may also recover the infringer's nonduplicative

profits, i.e., "any profits of the infringer that are

attributable to the infringement and are not taken into

account in computing the actual damages." 17 U.S.C.

504(b). In the context of infringer's profits, the plaintiff

must meet only a minimal burden of proof in order to trigger

a rebuttable presumption that the defendant's revenues are

entirely attributable to the infringement; the burden then

shifts to the defendant to demonstrate what portion of its

revenues represent profits, and what portion of its profits

are not traceable to the infringement. See id.; Frank Music,

772 F.2d at 514; Cream Records, Inc. v. Jos. Schlitz Brewing

Co., 754 F.2d 826, 828 (9th Cir. 1985). Specifically,

Section 504(b) provides:

In establishing the infringer's profits,
the copyright owner is required to
present proof only of the infringer's
gross revenue, and the infringer is
required to prove his or her deductible
expenses and the elements of profit
attributable to factors other than the
copyrighted work.48

48. Contrary to DG's unsupported assertions, a defendant in
a Massachusetts trade secrets action appears to have the same
right to ask for apportionment along with the same burden of
proof. Citing 17 U.S.C. 504(b) as persuasive authority,

-66-
66

DG introduced evidence that, of Grumman's gross

revenue from MV-related business during the period 1984 to

1990, $5.4 million consisted of business eliminated from the

calculation of DG's lost profits. Although no further proof

was required, DG accepted Grumman's estimates of its profit

margin, and concluded that Grumman's nonduplicative profits

amounted to approximately $1.6 million.49 Anticipating

Grumman's attempt to prove the need for apportionment, DG

also argued that, without ADEX, Grumman would not have been

in the MV service business on a national scale, and that

the Massachusetts Supreme Judicial Court has set forth the
following rule for apportionment in trade secrets cases:

Once a plaintiff demonstrates that a
defendant made a profit from the sale of
products produced by improper use of a
trade secret, the burden shifts to the
defendant to demonstrate those costs
properly to be offset against its profit
and the portion of its profit
attributable to factors other than the
trade secret.

USM Corp. v. Marson Fastener Corp., 467 N.E.2d 1271, 1276

(Mass. 1984). See also Jet Spray Cooler, Inc. v. Crampton,

385 N.E.2d 1349, 1358-59 n.14 (Mass. 1979) (citing, inter

alia, Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45,

48 (2d Cir. 1939), aff'd, 309 U.S. 390 (1940)).

49. This amount included DG's estimated "volume loss" and
"excluded revenue." "Volume loss" represents the MV-related
business that DG would have lost in competition with TPMs
even if DG had been the only service vendor with ADEX
capability. "Excluded revenue" represents the MV-related
business that DG did not have the capacity or the desire to
seek, such as service contracts for certain systems with at
least one non-DG CPU or service contracts for certain non-DG
peripheral equipment attached to DG CPUs.

-67-
67

therefore Grumman would not have earned the remainder of its

MV-related profits. In other words, DG's theory was that

because ADEX capability was generally essential to attract

customers with MV computers, few such customers would have

chosen Grumman as a service vendor, causing Grumman to leave

(or perhaps never enter) the national market for service of

MV-related equipment. Thus, according to DG, Grumman's

nonduplicative profits were the indirect result of consumer

choices distorted by Grumman's infringement.

It is unclear whether Grumman contested DG's theory

on the merits, although Grumman did introduce some expert

testimony that owners of MV equipment were relatively

indifferent to the ADEX issue in their choice of service

vendors. As amplified by its arguments on appeal, however,

Grumman's primary strategy was to invite the jury to take

Grumman's infringement as a given, and focus instead on why

its customers were willing to pay for Grumman service.

Grumman argued that factors other than its possession and use

of ADEX contributed to its customers' willingness to pay, and

that it was entitled to retain a corresponding share of the

resulting profits. Grumman introduced some evidence tending

to show that its customers attached high value to the price

and quality of Grumman service, as well as Grumman's ability

to service non-DG equipment in a mixed-equipment system.

-68-
68

Recognizing that DG's "but for" theory focused on a

different aspect of consumer behavior than Grumman's

"contributing factors" theory, Grumman argued below that the

court's instructions should leave the jury free to adopt

either line of reasoning. Grumman's suggested method of

doing so was for the court to instruct the jury on the

concept of apportionment of infringer's profits set forth in

Section 504(b). The district court agreed that the jury

could adopt the approach best suited to the circumstances,

but refused to give an explicit instruction on apportionment.

Assuming for the moment that Grumman was entitled

to invite the jury to adopt its analytical framework, we do

not believe that the court's instruction "properly

apprise[d]" the jury of the validity of such an approach.

Joia v. Jo-Ja Serv. Corp., 817 F.2d 908, 912 (1st Cir. 1987),

cert. denied, 484 U.S. 1008 (1988). Although the district

court instructed the jury to include among infringer's

profits only those revenues "attributable to the

infringement," at no point did the court fully reveal or

explain the relatively difficult statutory concept of

"elements of profit attributable to factors other than the

copyrighted work." 17 U.S.C. 504(b). As noted in the

preceding section, the court did refer (at least in its

instruction on actual damages) to "diverse factors" which

might have influenced customers' choice of Grumman over DG,

-69-
69

but the court did not inform the jury that there may have

been many reasons for customers' willingness to pay for

Grumman service apart from the fact that Grumman possessed

and used ADEX. Cf. Walker v. Forbes, Inc., No. 93-1273, 1994

WL 287173, at *7 (4th Cir. June 30, 1994) (praising district

court's "rich and detailed instructions . . . explaining . .

. the correct apportionment of profit attributable to the

infringement, [and] faithfully explaining the rules and

procedures set out in the statute").

It is unclear why, if the district court chose to

reject Grumman's proposed instruction, it did not simply read

to the jury the language of Section 504(b). We may overlook

its failure to do so only if there is no basis in law or fact

for the application of Grumman's theory. See Joia, 817 F.2d

at 912 (holding that "all parties are entitled to an adequate

jury instruction upon the controlling issues"); cf. Allen v.

Chance Mfg. Co., 873 F.2d 465, 470 (1st Cir. 1989) (holding

that remand on basis of instructional error is required only

if error "may have unfairly affected the jury's

conclusions"). For the reasons set forth below, we believe

that Grumman's theory is firmly rooted in the law of

copyright and the record of this case.

The defendant's burden under the apportionment

provision of Section 504(b) is primarily to demonstrate the

absence of a causal link between the infringement and all or

-70-
70

part of the profits claimed by the plaintiff. See Walker,

1994 WL 287173, at *3-4 (describing Section 504(b) as "a rule

of causation"). Because the rebuttable presumption of

causation represents a presumption as to both cause-in-fact

and proximate cause, there are two avenues of attack

available to a copyright defendant. First, the defendant can

attempt to show that consumers would have purchased its

product even without the infringing element. See, e.g., id.

at *4 (holding that district court properly allowed the

defendant to show that an unauthorized reproduction of a

photograph in an issue of its magazine had no causal relation

to "amounts of revenue . . . committed to the issue sight

unseen").50 Alternatively, the defendant may show that the

existence and amount of its profits are not the natural and

probable consequences of the infringement alone, but are also

the result of other factors which either add intrinsic value

to the product or have independent promotional value. See,

e.g., Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390,

407-08 (1940) (approving apportionment where profits of

defendant's film were largely attributable not to the

plaintiff's pirated story but rather to the "drawing power"

of the star performers and the artistry of others involved in

50. Note, however, that if the plaintiff cannot prove actual
damages and the defendant shows that none of its gain is
attributable to the infringement, the plaintiff would still
be entitled to elect statutory damages. See 17 U.S.C. 504(c)

(1988); see generally 3 Nimmer 14.04, at 14-47 to 14-79.

-71-
71

the creation of the film); Abend v. MCA, Inc., 863 F.2d 1465,

1480 (9th Cir. 1988) (remanding for apportionment where

factors other than the underlying story -- particularly the

talent and popularity of Alfred Hitchcock, Jimmy Stewart, and

Grace Kelly -- "clearly contributed" to the success of the

film "Rear Window"), aff'd on other grounds, 495 U.S. 207

(1990); Sygma Photo News, Inc. v. High Soc'y Magazine, Inc.,

778 F.2d 89, 96 (2d Cir. 1985) (apportioning profits from

sales of "Celebrity Skin" magazine where promotional cover

contained not only infringing photograph of Raquel Welch but

also a list of other nude celebrity photographs contained

within); Cream Records, 754 F.2d at 828-29 (upholding

apportionment of profits from malt liquor sales apparently

based on popularity of noninfringing product and promotional

value of noninfringing elements of defendant's commercial);

cf. USM Corp., 467 N.E.2d at 1277 (trade secrets; recognizing

that apportionment would have been proper if defendant had

demonstrated that factors such as "management skill" or

"capital investment" had contributed to the success of its

product). Grumman apparently wished to tread the second

path, and it was unquestionably entitled to do so.

Grumman also suggests on appeal that the jury

should have been instructed that it could not accept DG's

theory on the apportionment issue because DG gave little or

no weight to Grumman's contributions. But the only argument

-72-
72

presented to the district court was that the court should add

an instruction to inform the jury that it was permitted to

apportion Grumman's profits. It is usually imprudent for a

court of appeals to pass on an issue not presented to the

district court in the first instance, and we decline to do so

in these circumstances. See, e.g., Mariani v. Doctors

Assocs., 983 F.2d 5, 8 n.4 (1st Cir. 1993) ("We have

repeatedly warned that we will not entertain arguments made

for the first time on appeal.") (citing FDIC v. World Univ.,

Inc., 978 F.2d 10, 13 (1st Cir. 1992)); United States v.

Zannino, 895 F.2d 1, 17 (1st Cir.) ("[A] litigant has an

obligation to spell out its arguments squarely and

distinctly, or else forever hold its peace.") (citations and

internal quotation marks omitted), cert. denied, 494 U.S.

1082 (1990).

We are compelled to add, however, that an

instruction on apportionment would not rob DG's theory of all

possible meaning. In the first place, DG was free to argue

that Grumman's infringement was a "but for" cause of

Grumman's nonduplicative profits, even if the court should

have explained to the jury that Grumman could still satisfy

its burden by demonstrating the absence of proximate

causation. In addition, DG was entitled to argue that

Grumman's infringement should be viewed as the sole or

overriding cause of Grumman's profits. Cf. Frank Music, 772

-73-
73

F.2d at 518 (noting that "no one element was the sole or

overriding reason" for the success of defendant's infringing

"Hallelujah Hollywood" stage show).

Moreover, although apportionment primarily depends

on questions of causation, it is ultimately a delicate

exercise informed by considerations of fairness and public

policy, as well as fact. The doctrine of apportionment was

"established upon equitable principles" in the analogous

context of patent infringement. Sheldon, 309 U.S. at 401.

And, in adopting the principle of apportionment for copyright

cases, the Court observed that "[e]quity is concerned with

making a fair apportionment so that neither party will have

what justly belongs to the other." Id. at 408 (emphasis

added). See also 3 Nimmer 14.03[C], at 14-42 (noting that

Copyright Act of 1976 "expressly adopted" the apportionment

principle announced in Sheldon). In fact, the burden-

shifting rule in Sheldon (and Section 504(b)) is itself an

equitable response to an infringer who has frustrated the

task of apportionment by co-mingling profits. See Sheldon,

309 U.S. at 401 ("[T]he defendant, being responsible for the

blending of the lawful with the unlawful, had to abide the

consequences, as in the case of one who has wrongfully

produced a confusion of goods.") (referring to Callaghan v.

Myers, 128 U.S. 617 (1888)). Equitable factors may also

affect the substance of the apportionment analysis. For

-74-
74

example, where the plaintiff cannot prove actual damages and

the defendant's profits are only from the sale of a

noninfringing product, the only way to prevent unjust

enrichment may be to place more weight on the profit-

generating effect of an infringing sales tool used to promote

that product. See, e.g., Konor Enters. v. Eagle

Publications, Inc., 878 F.2d 138, 140 (4th Cir. 1989)

(suggesting that defendant may not be entitled to retain any

of the profits from sale of advertising space where it is

"plausible . . . that all profits were a direct result" of

infringing marketing information distributed to potential

advertisers).

Similarly, the policies underlying the Copyright

Act may play some role in the apportionment of profits. For

example, Sheldon and its progeny suggest that apportionment

is almost always available in the context of infringing

derivative works, perhaps in part because original expression

added by the infringer is itself entitled to copyright

protection. Furthermore, where the plaintiff is seeking to

vindicate its right to exclude others rather than its right

to collect a licensing fee, see 17 U.S.C. 106 (1988 & Supp.

IV 1992) (describing rights of copyright owner), it may be

more appropriate to view the infringement as an "overriding"

cause of the defendant's profits. In such cases, rigid

isolation of the value of the infringement to the defendant

-75-
75

(which would approximate a "reasonable" licensing fee) would

effectively condone a license the plaintiff never wished to

grant. Lastly, we note that an unjust enrichment theory aims

to strip the defendant of its ill-gotten gains, see, e.g., 3

Nimmer 14.01[A], at 14-6, encourage compliance with the

Copyright Act, see, e.g., Walker, 1994 WL 287173, at *2

(noting that an award of infringer's profits "makes the

infringer realize that it is cheaper to buy than to steal"),

and perhaps "compensate" a plaintiff unable to prove actual

damages, see Sheldon, 309 U.S. at 399 (describing the goal of

an award of infringer's profits as "just compensation for the

wrong"). Therefore, apportionment of infringer's profits may

be particularly appropriate where a concurrent award of

actual damages significantly serves all three purposes.51

In light of the discussion above, we hold that

Grumman was entitled to an instruction on apportionment in

order to allow the jury to determine whether and to what

51. Our discussion of equitable and policy considerations is
intended to aid courts in apportioning profits when the
parties submit the issue of infringer's profits to the court,
see Sid & Marty Krofft Television Productions, Inc. v.

McDonald's Corp., 562 F.2d 1157, 1175 (9th Cir. 1977) (noting

that parties may stipulate to bench trial on issue of
infringer's profits), and to provide some rational
explanation for the discordant aspects of the case law on
apportionment. While a court may instruct the jury that
damages should be "reasonable" (as the court in this case did
without objection from either party), we do not hold that a
court may ask the jury itself to weigh matters of equity and
public policy.

-76-
76

extent apportionment of its nonduplicative profits was

reasonable under the circumstances of this case.

Whether a remand is necessary is a different

question, but one readily resolved. Grumman clearly

introduced evidence that would have permitted a jury to find

that Grumman's customers were willing to pay for Grumman

service for reasons beyond its possession and use of ADEX.

Indeed, we believe that Grumman's evidence is sufficiently

compelling that Grumman is entitled to some apportionment as

a matter of law. Because the absence of an explicit

instruction on apportionment "may have unfairly affected the

jury's conclusions," Allen, 873 F.2d at 470, we remand the

case to the district court for an appropriate resolution of

theissue ofapportionment ofGrumman's nonduplicativeprofits.52

52. In order to avoid undue confusion and unnecessary
proceedings, we add the following procedural notes to assist
the district court in resolving the issue of apportionment of
Grumman's nonduplicative profits.
Cognizant of our authority to take whatever action "may
be just under the circumstances," 28 U.S.C. 2106, we
believe that remittitur would provide the most equitable and
efficient means of remedying the error. The factual record
was highly developed at trial on the issue of Grumman's
profits, leaving a trail adequate to allow the district court
to approximate the effect of the erroneous instruction on the
jury's verdict. See 6A James Wm. Moore, et al., Moore's

Federal Practice 59.08[7], at 59-207 (2d ed. 1994)

(explaining that if "the effect of [an erroneous instruction]
can be reasonably approximated to a definite portion of the
amount of the verdict, the appellate court may condition its
affirmance on the plaintiff remitting that amount of the
verdict which is apparently traceable to the error below").
Moreover, Grumman requested remittitur as an alternative
remedy in its Rule 59 motion.

-77-
77

6. Attorney's Fees

Because it appears that an award of attorney's fees

has not been quantified, see Grumman VII, 825 F. Supp. at 370

(ordering DG to resubmit its application for attorney's

fees), the merits of such an award are not before this court.

Nonetheless, Grumman mounts a procedural attack that does

appear to be ripe for review. Grumman claims that (1) DG

"elected" the state trade secrets remedy over any remedy

available under the Copyright Act, and (2) since attorney's

fees are only available under the Copyright Act, and not

We are aware that the jury did not separately award
actual damages and infringer's profits. Nevertheless, the
verdict is relatively close to the amount DG requested and it
is extremely unlikely that the jury would not have relied
primarily on one or the other of the competing expert
theories. DG requested $28,003,000 in damages, consisting of
$26,364,000 in lost profits and $1,639,000 in nonduplicative
profits. The jury awarded DG a total of $27,417,000 in
damages -- $586,000 less than the requested amount. As a
result, DG appears to have won infringer's profits of at
least $1,053,000 ($27,417,000 - $26,364,000) and at most
$1,639,000. While we do not mandate this particular
analysis, we are confident that the district court, with its
superior understanding of the voluminous record, will be able
to estimate either the relevant figures or, if necessary, the
"maximum effect" of the error on the jury's verdict. See id.

59.09[7], at 59-207 to 59-208 ("Even when the effect of the
error cannot be allocated to a distinct portion of the
verdict, remittitur may still be used if the maximum effect
of the error can be established.").
If DG were to refuse remittitur in favor of a new jury
trial on the issue of apportionment of Grumman's
nonduplicative profits, we hope that the parties will
negotiate in good faith to settle the remanded portion of the
case or at least agree to a more expeditious procedure. See,

e.g., Sid & Marty Krofft, 562 F.2d at 1175 (noting that right

to jury trial extends to adjudication of claim for
infringer's profits but that parties may stipulate to bench
trial).

-78-
78

state trade secrets law, DG is not entitled to any attorney's

fees. Grumman is wrong in both respects. DG did not simply

elect state law remedies. DG proposed a judgment form,

wholly adopted by the district court, that included (1) the

compensatory damages awarded by the jury,53 (2) state law

statutory damages, (3) state law prejudgment interest, and

(4) federal law attorney's fees. Nor was DG required to

forsake nonduplicative elements of the various federal and

state law remedies. See Foley v. City of Lowell, 948 F.2d

10, 17 (1st Cir. 1991) (suggesting that, as long as the

damages are "segregated into federal and state components,"

plaintiff need not choose one body of law under which all

damages will be paid); cf. Freeman v. Package Mach. Co., 865

F.2d 1331, 1343-45 (1st Cir. 1988) (holding that plaintiff

may not receive award based on federal and state law so as to

receive double recovery for same element of relief);

Schroeder v. Lotito, 747 F.2d 801, 802 (1st Cir. 1984) (per

curiam) (approving judgment for state law accounting of

profits and federal law attorney's fees). Because DG has not

requested a double award of attorney's fees, there was no

error in the award of attorney's fees under federal law.

53. The jury awarded the same amount of compensatory damages
for both the federal copyright infringement claim and the
state trade secrets claim.

-79-
79

B. Grumman's Antitrust Counterclaims

The district court granted DG's motions for summary

judgment with respect to Grumman's tying claim under Section

1 of the Sherman Act as well as its monopolization claim

under Section 2. We affirm both rulings, although on

somewhat different grounds.

1. Illegal Tying

Section 1 of the Sherman Act prohibits a seller

from "tying" the sale of one product to the purchase of a

second product if the seller thereby avoids competition on

the merits of the "tied" product. See 15 U.S.C. 1 ("Every

contract . . . in restraint of trade or commerce . . . is

declared to be illegal."); Jefferson Parish Hosp. Dist. No. 2

v. Hyde, 466 U.S. 2, 9-18 (1984); Lee v. Life Ins. Co. of N.

Am., 23 F.3d 14, 16 (1st Cir. 1994); Grappone, Inc. v. Subaru

of New England, Inc., 858 F.2d 792, 794-97 (1st Cir. 1988)

(Breyer, J.); Wells Real Estate, Inc. v. Greater Lowell Bd.

of Realtors, 850 F.2d 803, 814-15 (1st Cir.), cert. denied,

488 U.S. 955 (1988). In addition to outlawing "positive"

ties likely to restrain competition, Section 1 also forbids

"negative" ties -- arrangements conditioning the sale of one

product on an agreement not to purchase a second product from

competing suppliers. See Eastman Kodak Co. v. Image

Technical Servs., Inc., 112 S. Ct. 2072, 2079 (1992) (citing

-80-
80

Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5-6

(1958)); Lee, 23 F.3d at 16.

There are essentially four elements of a per se54

tying claim: (1) the tying and tied products are actually

two distinct products; (2) there is an agreement or

condition, express or implied, that establishes a tie; (3)

the entity accused of tying has sufficient economic power in

the market for the tying product to distort consumers'

choices with respect to the tied product; and (4) the tie

forecloses a substantial amount of commerce in the market for

the tied product. See, e.g., Kodak, 112 S. Ct. at 2079-81;

Grappone, 858 F.2d at 794; see also STI, 963 F.2d at 683.

Grumman claims that DG unlawfully restrained

competition in the sale of MV service by tying access to ADEX

(the tying product) to an equipment owner's promise to either

purchase service from DG (a positive tie) or not purchase

service from any other vendor (a negative tie). While a

substantial amount of commerce is potentially involved, DG's

motions for summary judgment claimed that there was no proof

of any of the first three elements of a tying claim. The

district court denied DG's first motion for summary judgment

54. Grumman does not argue at this stage that DG violated
the "rule of reason" and proceeds only on a "per se" theory.

See Jefferson Parish, 466 U.S. at 29-31 (noting that in

absence of per se liability, antitrust plaintiff must prove

that defendant's conduct had an "actual adverse effect on
competition").

-81-
81

but then granted its renewed motion, stating in a sparse

opinion that, as in STI, there was "no evidence which would

warrant a finding of the existence of a tying agreement."

Grumman V, 834 F. Supp. at 485. See also STI, 963 F.2d at

686 ("[STI's] evidence at bottom shows nothing more than a

unilateral decision by Data General to license MV/ADEX to

CMOs but not to others."). We agree with the district

court's conclusion that there is insufficient evidence of a

negative tying arrangement, but believe that the allegation

of a positive tie falters at an earlier step.

a. Two Products

To establish the existence of two separate

products, Grumman must identify the products at issue in each

tie and demonstrate that "there is `sufficient demand for the

purchase of [the tied product] separate from [the tying

product] to identify a distinct product market in which it is

efficient to offer [the tied product] separately from [the

tying product].'" STI, 963 F.2d at 684 (brackets in

original) (quoting Jefferson Parish, 466 U.S. at 21-22. See

also Jefferson Parish, 466 U.S. at 40 (O'Connor, J.,

concurring) ("When the economic advantages of joint packaging

are substantial the package is not appropriately viewed as

two products, and that should be the end of the tying

inquiry."); Lee, 23 F.3d at 16 n.6 (noting that there must be

evidence of "sufficient consumer demand for each individual

-82-
82

product, and not merely as part of an integrated product

`package'") (emphasis in original).

While Grumman has characterized the tying product

in general terms as "access to ADEX," Grumman actually

identifies two different tying products: ADEX service (a

service) and ADEX software (a good). With respect to the

positive tie, Grumman alleges that DG will not provide ADEX

service (i.e., use of ADEX by a DG service technician) to

equipment owners unless they also purchase DG support

services. With respect to the negative tie, Grumman alleges

that DG will not license ADEX software to equipment owners

unless they agree not to purchase support services from a

TPM.

Grumman has not introduced evidence that ADEX

service is a product separate from other components of

service. There is no evidence that any customer has

purchased, or would wish to purchase, ADEX service separately

from the purchase of other components of service. Nor is

there evidence that it would be efficient for any entity to

provide ADEX service separately from other components of

service.55

55. The Fourth Circuit came to a similar conclusion on a
nearly identical record when it rejected STI's tying claim:

If "access to" MV/ADEX and repair
services are considered to be the
products in question, appellants have
clearly failed to produce sufficient

-83-
83

In contrast, the record does contain evidence that

ADEX software is a product separate from support services.

It is undisputed that CMO customers wish to license -- and

have licensed -- ADEX software without purchasing support

services from DG or a TPM. There is also evidence that some

of Grumman's customers would consider licensing ADEX from DG

so that Grumman could continue to service their MV computers.

In addition, the summary judgment record would support a

finding that for many years DG provided diagnostics and other

service "tools" to computer purchasers as part of a computer

equipment package, regardless whether the owner performed

self-maintenance or hired DG or a TPM to maintain the

computers. In fact, there is evidence that through the early

1980s, DG provided service "tools" -- including diagnostic

software other than ADEX -- directly to TPMs. Finally, there

is some evidence that other computer manufacturers (IBM,

Digital Equipment Corporation, and Wang) have licensed or

sold diagnostics to those other than their service customers.

evidence that the products are in fact
separate. On the record before us,
demand for mere "access to" MV/ADEX, in
contrast to demand for licenses to use
MV/ADEX, is indistinguishable from demand
for repair services. Appellants have
introduced no evidence that there are
customers who would purchase MV/ADEX-
assisted diagnostic services separately
from all other repair services for Data
General equipment.

STI, 963 F.2d at 685 n.9.

-84-
84

Viewed in a light most favorable to Grumman, the record

reveals a genuine dispute as to whether ADEX software and

support services for DG computers are distinct products for

the purposes of a tying analysis.56 Consequently, we may

proceed to determine whether Grumman has introduced

sufficient proof that DG has conditioned the licensing of

ADEX to CMOs on the agreement of these customers not to

purchase service from TPMs.

b. Tying Arrangement

Proof of a tying arrangement generally requires

evidence that the supplier's sale of the tying product is

conditioned upon the unwilling purchase of the tied product

from the supplier or an unwilling promise not to purchase the

tied product from any other supplier. See, e.g., Jefferson

Parish, 466 U.S. at 12 ("[T]he essential characteristic of an

invalid tying arrangement lies in the seller's exploitation

of its control over the tying product to force the buyer into

the purchase of a tied product that the buyer either did not

want at all, or might have preferred to purchase elsewhere on

different terms."); Wells Real Estate, 850 F.2d at 814

("Tying arrangements involve the use of leverage over the

market for one product . . . to coerce purchases of a second

product . . . ."). In the absence of an explicit tying

56. Again, the Fourth Circuit reached a similar conclusion
for similar reasons. See STI, 963 F.2d at 684-85.

-85-
85

agreement, conditioning may be inferred from evidence

indicating that the supplier has actually coerced the

purchase or non-purchase of another product. See Amerinet,

Inc. v. Xerox Corp., 972 F.2d 1483, 1500 (8th Cir. 1992),

cert. denied, 113 S. Ct. 1048 (1993); Advanced Computer

Servs., Inc. v. MAI Sys. Corp., 845 F. Supp. 356, 368

(E.D.Va. 1994) (citing John H. Shenefield & Irwin M. Stelzer,

The Antitrust Laws: A Primer 72 (1993) ("In the absence of an

explicit agreement requiring the purchase as a condition of

the sale, courts will accept proof suggesting any kind of

coercion by the seller or unwillingness to take the second

product by the buyer.")); see also Tic-X-Press, Inc. v. Omni

Promotions Co., 815 F.2d 1407, 1418 (11th Cir. 1987) ("It is

well established that coercion may be established by showing

that the facts and circumstances surrounding the transaction

as a practical matter forced the buyer into purchasing the

tied product."). In essence, whether the conditioning is

explicit or implicit, we will not consider the anti-

competitive effects of a tie to be unreasonable per se unless

there is evidence that the supplier of the tying product has

actually used its market power to impose the condition.

Grumman points to only one alleged negative tying

arrangement, asserting that DG's Cooperative Maintenance

Agreement ("CMO Agreement") contains an explicit tying

condition. The CMO Agreement indeed states that DG designed

-86-
86

the CMO program for "customers who perform their own

maintenance" and that one qualifying criterion for CMO status

is that the customer "[m]aintain[] systems which were

purchased either for itself or for resale to its customers

[as an official DG distributor]." And, although the record

suggests that CMOs may still purchase DG service (and

presumably TPM service) on a "time and materials" basis,57

CMOs do not enter contracts with either DG or TPMs for

ongoing support services. DG and Grumman both agree that

CMOs cannot allow TPMs to use copies of ADEX licensed by a

CMO.

Grumman's allegation of an illegal tie cannot go to

a jury on a record so sparse. Before turning to the

principal flaw in Grumman's case, we note that these facts

lend only modest support to the accusation that CMOs have

actually promised not to purchase support services from TPMs.

The CMO Agreement does require that participants maintain

their own computers, but nowhere does the agreement define

self-maintenance status in detail or elaborate on the

consequences to a CMO if it enters a service contract with a

57. Frederick Raley, Jr., a DG official, testified at his
deposition that "self-maintaining" CMO customers would still
be able to use DG service, except that "they wouldn't be a
contract customer, they would be a time and materials
customer." This portion of Raley's deposition was actually
placed in the record by Grumman as part of an exhibit to an

affidavit supporting Grumman's opposition to one of DG's
motions for summary judgment.

-87-
87

TPM. In fact, as we have noted, there is some evidence in

the record that CMOs are free to purchase support services

from others without adverse consequences, at least on a "time

and materials" basis.

More importantly, there is virtually no evidence

that any CMO has unwillingly chosen to maintain its own

computers. Although there is some evidence that DG officials

designed the CMO program in part to prevent loss of DG

revenue to TPMs, there is no evidence that consumers became

CMO customers for any reason other than their belief that the

CMO program was a "product" superior to TPM service. Indeed,

while Grumman has argued tirelessly that DG service customers

are forced to swallow overpriced and inferior support

service, Grumman has offered no evidence that CMO customers

are similarly disadvantaged. There is not a single affidavit

in the record in which a CMO customer expresses either

displeasure with the CMO program or an unfulfilled desire to

switch to a TPM.58 Nor is there any other type of evidence

that DG equipment owners capable of maintaining their own

equipment would be more satisfied as TPM customers than as

CMO customers. Consequently, the evidence in the record

58. Likewise, there is no evidence in the record that former
TPM customers have reluctantly terminated their relationship
with Grumman in order to participate in the CMO program.
Cf. Kodak, 112 S. Ct. at 2081 (noting that record contained

evidence that "consumers have switched to Kodak service even
though they preferred [TPM] service").

-88-
88

would not allow a reasonable jury to find that the CMO

program is "an inferior or overpriced product," Amerinet, 972

F.2d at 1501, protected from competition by DG's exploitation

of its control over ADEX.

In conclusion, Grumman's allegation of a positive

tie between ADEX service and DG support services fails in the

absence of proof that these services are truly two distinct

products. Grumman's allegation of a negative tie between

ADEX software and non-purchase of TPM support services fails

in the absence of proof that DG coerced consumers to accept

such an arrangement. Accordingly, the district court did not

err in granting DG's motion for summary judgment on Grumman's

tying counterclaim.

2. Monopolization

In addition to alleging unlawful tying, Grumman

accused DG of willfully maintaining its monopoly in the

aftermarket for service of DG computers in violation of

Section 2 of the Sherman Act, 15 U.S.C. 2, which prohibits

the monopolization of "any part of the trade or commerce

among the several States." To survive summary judgment on

its willful maintenance claim, Grumman must demonstrate a

genuine dispute about the existence of two elements: (1) DG's

possession of monopoly power in the market59 for support

59. DG does not seriously dispute Grumman's contention that
the aftermarket for service of DG computers comprises the
"relevant market" for purposes of antitrust analysis.

-89-
89

services of DG computers; and (2) DG's maintenance of that

power through "exclusionary conduct." Town of Concord v.

Boston Edison Co., 915 F.2d 17, 21 (1st Cir. 1990) (Breyer,

C.J.) (citing, inter alia, United States v. Grinnell Corp.,

384 U.S. 563, 570-71 (1966)), cert. denied, 499 U.S. 931

(1991). The district court assumed the existence of monopoly

power but granted summary judgment on the grounds that

Grumman had not demonstrated the need for a trial on the

element of exclusionary conduct. We follow suit.60

"Exclusionary conduct" is defined as "`conduct,

other than competition on the merits or restraints reasonably

"necessary" to competition on the merits, that reasonably

appears capable of making a significant contribution to

creating or maintaining monopoly power.'" Town of Concord,

915 F.2d at 21 (quoting Barry Wright Corp. v. ITT Grinnell

Corp., 724 F.2d 227, 230 (1st Cir. 1983) (Breyer, J.), and 3

Phillip Areeda & Donald F. Turner, Antitrust Law 626, at 83

Accordingly, and in view of our disposition of this case on
other grounds, we need not consider this issue.

60. We note, however, that the record does contain evidence
of DG's monopoly power in the assumed service aftermarket for
DG computers. In addition to DG's monopoly share (over 90%)
of the service aftermarket, the record contains evidence of
barriers to entry (e.g., costs to TPMs of obtaining
diagnostics and other service "tools"), market imperfections
(e.g., high information costs for computer purchasers and
high switching costs for DG equipment owners), and more
importantly, supracompetitive service prices and price
discrimination among DG service customers.

-90-
90

(1978) (hereinafter "Areeda & Turner")). We label as

improper that conduct which harms the competitive process and

not conduct which simply harms competitors. Id. That

process is harmed when conduct "obstructs the achievement of

competition's basic goals -- lower prices, better products,

and more efficient production methods." Id. at 21-22. Cf.

Olympia Equip. Leasing Co. v. Western Union Tel. Co., 797

F.2d 370, 375 (7th Cir. 1986) (describing shift in the

emphasis of "antitrust policy . . . from the protection of

competition as a process of rivalry to the protection of

competition as a means of promoting economic efficiency"),

cert. denied, 480 U.S. 934 (1987). In contrast, exclusionary

conduct does not include behavior which poses no unreasonable

threat to consumer welfare but is merely a manifestation of

healthy competition, an absence of competition, or a natural

monopoly. See, e.g., United States v. Grinnell Corp., 384

U.S. 563, 570-71 (1966) (holding that Section 2 punishes only

"willful acquisition or maintenance [of monopoly power] as

distinguished from growth or development as a consequence of

a superior product, business acumen, or historic accident").

Grumman's primary contention is that DG's

unilateral refusal to license ADEX to anyone other than

qualified self-maintainers constitutes exclusionary

-91-
91

conduct.61 Grumman also attacks as exclusionary DG's

refusal to provide other service tools directly to TPMs. We

first review the principles governing the analysis of a

monopolist's unilateral refusal to deal, and then discuss

whether a unilateral refusal to license a copyrighted work

might ever deserve to be condemned as exclusionary. We hold

below that the desire of an author to be the exclusive user

of its original work is a presumptively legitimate business

justification for the author's refusal to license to

competitors. We hold further that Grumman has not presented

sufficient proof to rebut this presumption and thereby avert

summary judgment. In particular, we find no merit in

Grumman's contention that DG acted in an exclusionary fashion

in discontinuing its liberal policies allowing TPM access to

diagnostic software. Finally, we conclude that no reasonable

jury could find that DG's restrictions on TPM access to other

service tools amount to exclusionary conduct.

a. Unilateral Refusals to Deal

Because a monopolization claim does not require

proof of concerted activity, even the unilateral actions of a

monopolist can constitute exclusionary conduct. See 15

61. Grumman also seeks to portray the alleged positive and
negative tying arrangements as exclusionary conduct violative
of Section 2. We do not consider this argument because of
our determination in the previous section that DG's ADEX
policies cannot properly be described as arrangements
conditioning the sale of one product on the purchase or non-
purchase of another.

-92-
92

U.S.C. 2 (referring to "[e]very person who shall monopolize

. . . or combine or conspire with any other person . . . to

monopolize") (emphasis added); Moore v. Jas. H. Matthews &

Co., 473 F.2d 328, 332 (9th Cir. 1973) (observing that

"section 2 is not limited to concerted activity"). Thus, a

monopolist's unilateral refusal to deal with its competitors

(as long as the refusal harms the competitive process) may

constitute prima facie evidence of exclusionary conduct in

the context of a Section 2 claim. See Kodak, 112 S. Ct. at

2091 n.32 (citing Aspen Skiing Co. v. Aspen Highlands Skiing

Corp., 472 U.S. 585, 602-05 (1985)). A monopolist may

nevertheless rebut such evidence by establishing a valid

business justification for its conduct. See Kodak, 112 S.

Ct. at 2091 n. 32 (suggesting that monopolist may rebut an

inference of exclusionary conduct by establishing "legitimate

competitive reasons for the refusal"); Aspen Skiing, 472 U.S.

at 608 (suggesting that sufficient evidence of harm to

consumers and competitors triggers further inquiry as to

whether the monopolist has "persuade[d] the jury that its

[harmful] conduct was justified by [a] normal business

purpose"). In general, a business justification is valid if

it relates directly or indirectly to the enhancement of

consumer welfare. Thus, pursuit of efficiency and quality

control might be legitimate competitive reasons for an

otherwise exclusionary refusal to deal, while the desire to

-93-
93

maintain a monopoly market share or thwart the entry of

competitors would not. See Kodak, 112 S. Ct. at 2091

(discussing the validity and sufficiency of various business

justifications); Aspen Skiing, 472 U.S. at 608-11 (same); see

generally 7 Areeda & Turner 1504, at 377-83; 9 Areeda &

Turner 1713, 1716-17, at 148-61, 185-239. In essence, a

unilateral refusal to deal is prima facie exclusionary if

there is evidence of harm to the competitive process; a valid

business justification requires proof of countervailing

benefits to the competitive process.

Despite the theoretical possibility, there have

been relatively few cases in which a unilateral refusal to

deal has formed the basis of a successful Section 2 claim.

Several of the cases commonly cited for a supposed duty to

deal were actually cases of joint conduct in which some

competitors joined to frustrate others. See Associated Press

v. United States, 326 U.S. 1 (1945); United States v.

Terminal R.R. Ass'n, 224 U.S. 383 (1912). Prior to Aspen

Skiing, the case that probably came closest to condemning a

true unilateral refusal to deal was Otter Tail Power Co. v.

United States, 410 U.S. 366 (1973), which condemned the

refusal of a wholesale power supplier either to sell

wholesale power to municipal systems or to "wheel power" when

Otter Tail's retail franchises expired and local

municipalities sought to supplant Otter Tail's local

-94-
94

distributors. The case not only involved a capital-intensive

public utility facility -- which could not effectively be

duplicated and occupied a distinct separate market -- but the

Supreme Court laid considerable emphasis on "supported"

findings in the district court "that Otter Tail's refusals to

sell at wholesale or to wheel were solely to prevent

municipal power systems from eroding its monopolistic

position." 410 U.S. at 378.

In Aspen Skiing, the Court criticized a

monopolist's unilateral refusal to deal in a very different

situation, casting serious doubt on the proposition that the

Court has adopted any single rule or formula for determining

when a unilateral refusal to deal is unlawful. In that case,

an "all-Aspen" ski ticket -- valid at any mountain in Aspen -

- had been developed and jointly marketed when the three

(later four) ski areas in Aspen were owned by independent

entities. 472 U.S. at 589. Some time after Aspen Skiing

Company ("Ski Co.") came into control of three of the four

ski areas, Ski Co. refused to continue a joint agreement with

Aspen Highlands Skiing Corp. ("Highlands"), the owner of the

fourth area. Id. at 592-93. Although there was no

"essential facility" involved, the Court found that it was

exclusionary for Ski Co., as a monopolist, to refuse to

continue a presumably efficient "pattern of distribution that

-95-
95

had originated in a competitive market and had persisted for

several years." Id. at 603.

It is not entirely clear whether the Court in Aspen

Skiing merely intended to create a category of refusal-to-

deal cases different from the essential facilities category

or whether the Court was inviting the application of more

general principles of antitrust analysis to unilateral

refusals to deal. We follow the parties' lead in assuming

that Grumman need not tailor its argument to a preexisting

"category" of unilateral refusals to deal.

b. Unilateral Refusals to License

DG attempts to undermine Grumman's monopolization

claim by proposing a powerful irrebuttable presumption: a

unilateral refusal to license a copyright can never

constitute exclusionary conduct. We agree that some type of

presumption is in order, but reach that conclusion only after

an exhaustive inquiry touching on the general character of

presumptions, the role of market analysis in the copyright

context, existing responses to the tension between the

antitrust and patent laws, the nature of the rights extended

by the copyright laws, and our duty to harmonize two

conflicting statutes.

(1) The Propriety of a Presumption

We begin our analysis with two observations.

First, DG's rule of law could be characterized as either an

-96-
96

empirical assumption or a policy preference. For example, if

we were convinced that refusals to license a copyright always

have a net positive effect on the competitive process, we

might adopt a presumption to this effect in order to preclude

wasteful litigation about a known fact. On the other hand,

if we were convinced that the rights enumerated in the

Copyright Act should take precedence over the

responsibilities set forth in the Sherman Act, regardless of

the realities of the market, we might adopt a blanket rule of

preference. DG's argument contains elements of both

archetypal categories of presumptions.

Second, we note that the phrase "competitive

process" may need some refinement in order to evaluate either

an empirical assumption or a policy presumption concerning

the desirability of unilateral refusals to license a

copyright. Antitrust law generally seeks to punish and

prevent harm to consumers in particular markets, with a focus

on relatively specific time periods. See, e.g., Jefferson

Parish, 466 U.S. at 18 (holding that "any inquiry into the

validity of a tying arrangement must focus on the market or

markets in which the two products are sold, for that is where

the anticompetitive forcing has its impact"). Thus, in

determining whether conduct is exclusionary in the context of

a monopolization claim, we ordinarily focus on harm to the

competitive process in the relevant market and time period.

-97-
97

See generally 3 Areeda & Turner 517-28, at 346-88, 533-

36, at 406-431. Confining the competitive process in this

way assists courts in deciding particular disputes based

primarily on case-specific adjudicative facts rather than

generally-applicable "legislative" facts or assumptions. The

use and protection of copyrights also affects the

"competitive process," but it may not be appropriate to judge

the effect of the use of a copyright by looking only at one

market or one time period.

We now consider what appears to be an empirical

proclamation from DG: "[T]he refusal to make one's

innovation available to rivals . . . is pro-competitive

conduct."62 As support, DG cites Grinnell, 384 U.S. at

570-71, in which the Court held that willful maintenance of

monopoly does not include "growth or development as a

consequence of a superior product." It is not the

superiority of a work that allows the author to exclude

others, however, but rather the limited monopoly granted by

copyright law. Moreover, one reason why the Copyright Act

fosters investment and innovation is that it may allow the

author to earn monopoly profits by licensing the copyright to

others or reserving the copyright for the author's exclusive

62. Elsewhere in its brief, DG adds that DG's "refus[al] to
allow Grumman to use MV/ADEX is . . . the precise conduct
that the antitrust and copyright laws are designed to
encourage."

-98-
98

use. See Sony Corp. of Am. v. Universal City Studios, Inc.,

464 U.S. 417, 429 (1984) (explaining that the limited

copyright monopoly "is intended to motivate the creative

activity of authors and inventors by the provision of a

special reward"). Thus, at least in a particular market and

for a particular period of time, the Copyright Act tolerates

behavior that may harm both consumers and competitors. Cf.

SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1203 (2d Cir. 1981)

("[T]he primary purpose of the antitrust laws -- to preserve

competition -- can be frustrated, albeit temporarily, by a

holder's exercise of the patent's inherent exclusionary power

during its term."), cert. denied, 455 U.S. 1016 (1982).

DG does not in fact argue that consumers are better

off in the short term because of the inability of TPMs to

license ADEX. Instead, DG suggests that allowing copyright

owners to exclude others from the use of their works creates

incentives which ultimately work to the benefit of consumers

in the DG service aftermarket as well as to the benefit of

consumers generally. In other words, DG seeks to justify any

immediate harm to consumers by pointing to countervailing

long-term benefits. Certainly, a monopolist's refusal to

license others to use a commercially successful patented idea

is likely to have more profound anti-competitive consequences

than a refusal to allow others to duplicate the copyrighted

expression of an unpatented idea (although such differences

-99-
99

may become less pronounced if copyright law becomes

increasingly protective of intellectual property such as

computer software). But by no means is a monopolist's

refusal to license a copyright entirely "pro-competitive"

within the ordinary economic framework of the Sherman Act.

Accordingly, it may be inappropriate to adopt an empirical

assumption that simply ignores harm to the competitive

process caused by a monopolist's unilateral refusal to

license a copyright. Even if it is clear that exclusive use

of a copyright can have anti-competitive consequences, some

type of presumption may nevertheless be appropriate as a

matter of either antitrust law or copyright law.

(2) Antitrust Law and the Accommodation of

Patent Rights

Antitrust law is somewhat instructive. Although

creation and protection of original works of authorship may

be a national pastime, the Sherman Act does not explicitly

exempt such activity from antitrust scrutiny and courts

should be wary of creating implied exemptions. See Square D

Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409,

421 (1986) ("[E]xemptions from the antitrust laws are

strictly construed and strongly disfavored."); cf. Flood v.

Kuhn, 407 U.S. 258 (1972) (holding that the longstanding

judicially created exemption of professional baseball from

the Sherman Act is an established "aberration" in which

Congress has acquiesced). The Supreme Court has suggested

-100-
100

that an otherwise reasonable yet anti-competitive use of a

copyright should not "be deemed a per se violation of the

Sherman Act," Broadcast Music, Inc. v. CBS, Inc., 441 U.S.

1, 19 (1979), but a monopolistic refusal to license might

still violate the rule of reason, see Rural Tel. Serv. Co. v.

Feist Publications, Inc., 957 F.2d 765, 767-69 (10th Cir.)

(analyzing reasonableness of monopolist's unilateral refusal

to license copyrighted telephone listings to a competing

distributor of telephone directories), cert. denied, 113 S.

Ct. 490 (1992).63 Should an antitrust plaintiff be allowed

63. It is in any event well settled that concerted and
contractual behavior that threatens competition is not immune
from antitrust inquiry simply because it involves the
exercise of copyright privileges. See, e.g., Kodak, 112 S.

Ct. at 2089 n.29 ("The Court has held many times that power
gained through some natural and legal advantage such as a
patent, copyright, or business acumen can give rise to
liability if `a seller exploits his dominant position in one
market to expand his empire into the next.'") (quoting Times-

Picayune Publishing Co. v. United States, 345 U.S. 594, 611

(1953) (tying case)); United States v. Paramount Pictures,

Inc., 334 U.S. 131, 143 (1948) (holding that horizontal

conspiracy to engage in price-fixing in copyright licenses is
illegal per se); id. at 159 (holding that block-booking of

motion pictures -- "a refusal to license one or more
copyrights unless another copyright is accepted" -- is an
illegal tying arrangement); Straus v. American Publishers'

Ass'n, 231 U.S. 222, 234 (1913) ("No more than the patent

statute was the copyright act intended to authorize
agreements in unlawful restraint of trade . . . ."); Digidyne

Corp. v. Data General Corp., 734 F.2d 1336 (9th Cir. 1984)

(affirming finding of illegal tie between copyrighted
software and computer hardware), cert. denied, 473 U.S. 908

(1985); cf. Miller Insituform, Inc. v. Insituform of N. Am.,

Inc., 830 F.2d 606, 608-09 & n.4 (6th Cir. 1987) (describing

ways in which patent holder may violate the antitrust laws),
cert. denied, 484 U.S. 1064 (1988); United States v.

Westinghouse Elec. Corp., 648 F.2d 642, 646-47 (9th Cir.

1981) (same).

-101-
101

to demonstrate the anti-competitive effects of a monopolist's

unilateral refusal to grant a copyright license? Would the

monopolist then have to justify its refusal to license by

introducing evidence that the protection of the copyright

laws enabled the author to create a work which advances

consumer welfare?

The courts appear to have partly settled an

analogous conflict between the patent laws and the antitrust

laws, treating the former as creating an implied limited

exception to the latter. In Simpson v. Union Oil Co., 377

U.S. 13, 24 (1964), the Supreme Court stated that "[t]he

patent laws which give a 17-year monopoly on `making, using,

or selling the invention' are in pari materia with the

antitrust laws and modify them pro tanto." Similarly, we

have suggested that the exercise of patent rights is a

"legitimate means" by which a firm may maintain its monopoly

power. Barry Wright, 724 F.2d at 230. Other courts have

specifically held that a monopolist's unilateral refusal to

license a patent is ordinarily not properly viewed as

exclusionary conduct. See Miller Insituform, 830 F.2d at 609

("A patent holder who lawfully acquires a patent cannot be

held liable under Section 2 of the Sherman Act for

maintaining the monopoly power he lawfully acquired by

refusing to license the patent to others."); Westinghouse,

648 F.2d at 647 (finding no antitrust violation because

-102-
102

"Westinghouse has done no more than to license some of its

patents and refuse to license others"); SCM Corp., 645 F.2d

at 1206 (holding that "where a patent has been lawfully

acquired, subsequent conduct permissible under the patent

laws cannot trigger any liability under the antitrust laws");

see also 3 Areeda & Turner 704, at 114 ("The patent is

itself a government grant of monopoly and is therefore an

exception to usual antitrust rules."). This exception is

inoperable if the patent was unlawfully "acquired." SCM

Corp., 645 F.2d at 1208-09 (analyzing legality of Xerox's

acquisition of plain-paper copier patent); see generally 3

Areeda & Turner 705-707, at 117-45 (discussing effect of

patent acquisition, internal development of patents, and

improprieties in patent procurement on applicability of

antitrust laws).

The "patent exception" is largely a means of

resolving conflicting rights and responsibilities, i.e., a

policy presumption. See, e.g., Miller Insituform, 830 F.2d

at 609 (declaring summarily that "[t]here is no adverse

effect on competition since, as a patent monopolist, [the

patent holder] had [the] exclusive right to manufacture, use,

and sell his invention.") (emphasis added). At the same

time, the exception is grounded in an empirical assumption

that exposing patent activity to wider antitrust scrutiny

would weaken the incentives underlying the patent system,

-103-
103

thereby depriving consumers of beneficial products. See,

e.g., SCM Corp., 645 F.2d at 1209 (holding that imposition of

antitrust liability for an arguably unreasonable refusal to

license a lawfully acquired patent "would severely trample

upon the incentives provided by our patent laws and thus

undermine the entire patent system").

(3) Copyright Law

Copyright law provides further guidance. The

Copyright Act expressly grants to a copyright owner the

exclusive right to distribute the protected work by "transfer

of ownership, or by rental, lease, or lending." 17 U.S.C.

106. Consequently, "[t]he owner of the copyright, if [it]

pleases, may refrain from vending or licensing and content

[itself] with simply exercising the right to exclude others

from using [its] property." Fox Film Corp. v. Doyal, 286

U.S. 123, 127 (1932). See also Stewart v. Abend, 495 U.S.

207, 229 (1990). We may also venture to infer that, in

passing the Copyright Act, Congress itself made an empirical

assumption that allowing copyright holders to collect license

fees and exclude others from using their works creates a

system of incentives that promotes consumer welfare in the

long term by encouraging investment in the creation of

desirable artistic and functional works of expression. See

Feist Publications, Inc. v. Rural Tel. Serv. Co., 111 S. Ct.

1282, 1290 (1991) ("The primary objective of a copyright is

-104-
104

not to reward the labor of authors, but `[t]o promote the

Progress of Science and useful Arts.'") (brackets in

original) (quoting U.S. Const. art. I. 8, cl. 8); Sony

Corp., 464 U.S. at 429 (discussing goals and incentives of

copyright protection); Twentieth Century Music Corp. v.

Aiken, 422 U.S. 151, 156 (1975) ("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."). We cannot require antitrust defendants to prove and

reprove the merits of this legislative assumption in every

case where a refusal to license a copyrighted work comes

under attack. Nevertheless, although "nothing in the

copyright statutes would prevent an author from hoarding all

of his works during the term of the copyright," Stewart, 495

U.S. at 228-29 (emphasis added), the Copyright Act does not

explicitly purport to limit the scope of the Sherman Act.

And, if the Copyright Act is silent on the subject generally,

the silence is particularly acute in cases where a monopolist

harms consumers in the monopolized market by refusing to

license a copyrighted work to competitors.

We acknowledge that Congress has not been entirely

silent on the relationship between antitrust and intellectual

property laws. Congress amended the patent laws in 1988 to

provide that "[n]o patent owner otherwise entitled to relief

-105-
105

for infringement . . . of a patent shall be denied relief or

deemed guilty of misuse or illegal extension of the patent

right by reason of [the patent owner's] refus[al] to license

or use any rights to the patent." 35 U.S.C. 271(d) (1988).

Section 271(d) clearly prevents an infringer from using a

patent misuse defense when the patent owner has unilaterally

refused a license, and may even herald the prohibition of all

antitrust claims and counterclaims premised on a refusal to

license a patent. See Richard Calkins, Patent Law: The

Impact of the 1988 Patent Misuse Reform Act and Noerr-

Pennington Doctrine on Misuse Defenses and Antitrust

Counterclaims, 38 Drake L. Rev. 192-97 (1988-89).

Nevertheless, while Section 271(d) is indicative of

congressional "policy" on the need for antitrust law to

accommodate intellectual property law, Congress did not

similarly amend the Copyright Act.

(4) Harmonizing the Sherman Act and the

Copyright Act

Since neither the Sherman Act nor the Copyright Act

works a partial repeal of the other, and since implied

repeals are disfavored, e.g., Watt v. Alaska, 451 U.S. 259,

267 (1981), we must harmonize the two as best we can, id.,

mindful of the legislative and judicial approaches to similar

conflicts created by the patent laws. We must not lose sight

of the need to preserve the economic incentives fueled by the

Copyright Act, but neither may we ignore the tension between

-106-
106

the two very different policies embodied in the Copyright Act

and the Sherman Act, both designed ultimately to improve the

welfare of consumers in our free market system. Drawing on

our discussion above, we hold that while exclusionary conduct

can include a monopolist's unilateral refusal to license a

copyright, an author's desire to exclude others from use of

its copyrighted work is a presumptively valid business

justification for any immediate harm to consumers.64

c. DG's Refusal to License ADEX to non-CMOs

Having arrived at the applicable legal standards,

we may resolve Grumman's principal allegation of exclusionary

conduct. Although there may be a genuine factual dispute

about the effect on DG equipment owners of DG's refusal to

license ADEX to TPMs, DG's desire to exercise its rights

under the Copyright Act is a presumptively valid business

justification.

Apparently sensing the uphill nature of its

allegation of an exclusionary refusal to license, Grumman

seeks to overcome any obstacles primarily by characterizing

DG's licensing policies as a monopolist's exclusionary

withdrawal of assistance within the framework of Aspen

64. Wary of undermining the Sherman Act, however, we do not
hold that an antitrust plaintiff can never rebut this
presumption, for there may be rare cases in which imposing
antitrust liability is unlikely to frustrate the objectives
of the Copyright Act.

-107-
107

Skiing. Citing Aspen Skiing, Grumman contends that DG's

refusal to license ADEX to TPMs, in light of the fact that DG

previously allowed TPMs to use DG diagnostics, is

exclusionary conduct because "[a] monopolist that has helped

a market develop may not withdraw its support without

legitimate business justifications."

Assuming that such a claim can overcome the

presumption that a refusal to license is not exclusionary, we

nevertheless hold that Aspen Skiing cannot apply to the facts

of this case. The reasoning of Aspen Skiing has little to do

with the fact that defendant Ski Co. withdrew assistance upon

which competitors may have relied when entering the market.

Rather, the decision turns on a comparison of the behavior of

firms in a competitive market (the Aspen ski market) with a

monopolist's behavior once competition has been curtailed.

The Court noted that the rich soil of competition had

produced the all-mountain ticket in Aspen and other

multimountain areas, justifying an "infer[ence] that such

tickets satisfy consumer demand in free competitive markets."

472 U.S. at 603. See also Olympia Equip., 797 F.2d at 377

(suggesting that the facts in Aspen Skiing indicate that

"competition required some cooperation among competitors" in

the Aspen ski market). Ski Co.'s decision to eliminate the

ticket in later years was a sign that the weeds of monopoly

had begun to take hold, to the possible detriment of consumer

-108-
108

welfare. Aspen Skiing, 472 U.S. at 604. Finally, after

canvassing evidence of consumer preferences concerning skiing

options at Aspen, the Court concluded that Ski Co.'s new

policies did in fact harm consumers. Id. at 605-607. In

short, instead of prescribing a categorical approach, Aspen

Skiing ultimately calls for an inquiry that is relatively

routine in antitrust analysis: namely, whether the

monopolist's actions unjustifiably harm the competitive

process by frustrating consumer preferences and erecting

barriers to competition. Cf. Olympia Equip., 797 F.2d at 379

("If [Aspen Skiing] stands for any principle that goes beyond

its unusual facts, it is that a monopolist may be guilty of

monopolization if it refuses to cooperate with a competitor

in circumstances where some cooperation is indispensable to

effective competition.").

Grumman attempts to analogize this case to Aspen

Skiing by focusing on the fact that DG once encouraged firms

to enter the DG service aftermarket by allowing liberal

access to service tools, but no longer does so. The

analytical framework of Aspen Skiing cannot function in these

circumstances, however, because we are unable to view DG's

market practices in both competitive and noncompetitive

conditions. While TPMs have made inroads in the market for

service of DG computers, DG has always been a monopolist in

that market, and competitive conditions have never prevailed.

-109-
109

Therefore, it would not be "appropriate to infer" from DG's

change of heart that its former policies "satisfy consumer

demand in free competitive markets." Aspen Skiing, 472 U.S.

at 603.

Nor does it appear that Grumman would be able at

trial to overcome the presumption on any other theory. There

is no evidence that DG acquired its ADEX copyrights in any

unlawful manner; indeed, the record suggests that DG

developed all its software internally. Cf. 3 Areeda & Turner

706, at 127-28 (arguing that although an internally

developed patent may be as exclusionary as one acquired from

outside a firm, labelling the former as exclusionary would

"discourage progressiveness by monopolists"). And, while

there is evidence that DG knew that developing a "proprietary

position" in the area of diagnostic software would help to

maintain its monopoly in the aftermarket for service of DG

computers, there is also evidence that DG set out to create a

state-of-the-art diagnostic that would help to improve the

quality of DG service. Cf. id. 706, at 128-29 (suggesting

that "nearly all commercial research rests on a mixture of

motivations" and that a search for an overriding "antisocial"

motivation would be unilluminating). In fact, there is

clearly some evidence that ADEX is a significant benefit to

owners of DG's MV computers. ADEX is a better product than

any other diagnostic for MV computers. The use of ADEX

-110-
110

appears to have increased the efficiency and reduced the cost

of service because technicians can locate problems more

quickly and, through the use of the software's "remote

assistance" capability, can arrive at customer sites having

determined ahead of time what replacement parts are

necessary. In addition to the possibility of lower prices

occasioned by such gains in efficiency, ADEX also promises to

lower prices through gains in effectiveness. For example,

customers may save the cost of replacing expensive hardware

components because the use of advanced diagnostics increases

the possibility that technicians can locate a problem and

repair the component.

d. DG's Other Restrictive Policies

Grumman's other allegations of exclusionary conduct

are equally devoid of merit and require no extended analysis.

It is essentially undisputed that DG will not provide spare

parts, depot repair services, certain documentation, change

order kits, or schematics to TPMs. But there is no evidence

of any resulting harm to DG equipment owners. DG makes most

of these items available directly to equipment owners.

Equipment owners "may purchase . . . depot repair services,

rev-ups [change order kits], and spare parts directly from

DG, regardless of whether their computers are serviced by DG,

TPMs, or themselves." Grumman II, 761 F. Supp. at 189. We

cannot presume that elimination of an intermediate seller of

-111-
111

such items harms consumers; indeed, consumers are likely to

benefit by not having to accept TPMs' mark-up of DG prices.

Further, a direct sales policy does not act as a significant

barrier to market entry by competitors offering lower prices

for higher quality support services. TPM technicians may

identify broken parts for the customer to send to DG's repair

depot, use the change order kits to upgrade a customer's

computer, and install spare parts the customer has ordered

from DG.

Neither equipment owners nor TPMs may purchase

schematics (blueprints of equipment that often contain

manufacturing secrets), but Grumman has not introduced

sufficient evidence that this policy constitutes exclusionary

conduct. Grumman's theory below was that DG's refusal to

sell schematics to TPMs prevented TPMs from acquiring the

information necessary to develop fully competitive

substitutes for ADEX. Even a monopolist, however, "may

normally keep its innovations secret from its rivals as long

as it wishes." Berkey Photo, Inc. v. Eastman Kodak Co., 603

F.2d 263, 281 (2d Cir. 1979), cert. denied, 444 U.S. 1093

(1980). DG's policy might be exclusionary if DG had sought

to alter its equipment (and therefore the schematics

describing that equipment) in order to prevent technological

advances by TPMs. But, as the district court noted, "Grumman

. . . makes no allegations that DG has in fact attempted to

-112-
112

subvert competitors' efforts to develop and implement

competing diagnostics." Grumman II, 761 F. Supp. at 191.

In conclusion, Grumman has not produced evidence

from which a jury could find that DG engaged in exclusionary

conduct by unilaterally refusing to license ADEX or sell

schematics to TPMs, or by only selling other service tools

directly to equipment owners. Therefore, there was no error

in the district court's entry of summary judgment on

Grumman's monopolization claim.

IV.

CONCLUSION

For the foregoing reasons, we affirm the district

court in every respect save for its failure to instruct the

jury on its duty to consider Grumman's plea for apportionment

of Grumman's nonduplicative profits.65 We remand the case

to the district court for the sole purpose of resolving that

issue.

So ordered.

65. We have considered all of Grumman's other arguments, and
find none of sufficient merit to alter our conclusions.

-113-
113