Situation Management Systems, Inc. v. Asp. Consulting LLC

United States Court of Appeals
For the First Circuit

Nos. 08-1543; 08-1585

SITUATION MANAGEMENT SYSTEMS, INC.,

Plaintiff, Appellant/Cross-Appellee,

ASP. CONSULTING LLC,

Defendant, Appellee/Cross-Appellant,

ASP. CONSULTING GROUP,

Defendant.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Lynch, Chief Judge,
Torruella and Boudin, Circuit Judges.

William F. Dolan with whom Jones Day, Ryan C. Siden, and Siden
& Associates, P.C. were on brief for appellant/cross-appellee.
Evan Fray-Witzer and Law Office of Evan Fray-Witzer on brief
for the Association of Learning Providers and Blanchard Training
and Development, Inc., amici curiae.
James J. Foster with whom Wolf, Greenfield & Sacks, P.C. was
on brief for appellee/cross-appellant.

March 19, 2009
LYNCH, Chief Judge. The plaintiff consulting company, as

part of its services to domestic and international clients, uses

copyrighted training materials of several hundred pages geared

toward teaching techniques for effective communication and

negotiation within the workplace. It sued a competitor saying that

the competitor had copied and used training materials substantially

similar to plaintiff's in violation of the copyright laws.

This case concerns the proper application of two

definitional criteria for what subject matter is eligible for

see 17 U.S.C. § 102(a) ("Copyright protection subsists . . . in

original works of authorship . . . ."), which is a constitutional

prerequisite for copyright protection. See Feist Publ'ns, Inc. v.

Rural Tel. Serv. Co., 499 U.S. 340, 351 (1991). The second is the

statutory codification of the exclusion from copyright protection

for processes and systems. See 17 U.S.C. § 102(b) ("In no case

does copyright protection for an original work of authorship extend

to any idea, procedure, process, system, method of operation,

concept, principle, or discovery, regardless of the form in which

it is described, explained, illustrated, or embodied in such

work."). Indeed, the statutory restriction in § 102(b) is a

codification of "[t]he most fundamental axiom of copyright law

. . . that '[n]o author may copyright his ideas or the facts he

narrates.'" Feist, 499 U.S. at 344-45 (second alteration in

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original) (quoting Harper & Row Publishers, Inc. v. Nation Enters.,

471 U.S. 539, 556 (1985)).

Here, the district court considered the plaintiff's works

"largely noncopyrightable because they are devoted to describing a

process or because they are not original." Situation Mgmt. Sys. v.

ASP Consulting Group, 535 F. Supp. 2d 231, 240 (D. Mass. 2008). To

reach this conclusion, the district court treated the originality

requirement as functionally equivalent to a novelty standard.

E.g., id. at 243 (finding that the plaintiff's work "does not

constitute original expression because it is merely a summary of

common-sense communication skills"). It read the statutory

exclusion of processes and systems from copyright protection as

barring protection for descriptions of processes and systems.

E.g., id. at 240 (finding the plaintiff's works largely unprotected

by copyright because "they focus on concepts and teach a

noncopyrightable process"). The court also found the plaintiff's

works noncopyrightable based upon its own subjective assessment of

the works' creative worth. E.g., id. at 239 (describing SMS's

works as "fodder for sardonic workplace humor" and as "aggressively

vapid").

A brief from amici, an industry association along with

another company that produces corporate training materials, argues

that the district court's conclusions have implications far beyond

the dispute between the parties to this case and put at risk the

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legitimate copyright expectations of the more than $100 billion

management training industry. Indeed, amici argue that under the

district court's approach, those in the training industry would

have difficulty obtaining effective copyright protection for their

works. We vacate the district court's finding of noninfringement

and remand for further proceedings consistent with this opinion.

For more than thirty years, plaintiff Situation

Management Systems, Inc. ("SMS") has provided consulting services

aimed at improving employee communication and negotiation skills

within the workplace. As part of its services, SMS has developed

a series of training materials focused on teaching effective

communication and negotiation techniques. Companies buy these

materials from SMS and use them in employee training workshops.

SMS typically charges its clients $200 to $250 per participant for

the use of its materials. SMS's clients include Anheuser-Busch,

General Mills, NASA, Pfizer, Procter & Gamble, Verizon, and

companies abroad.

A number of SMS employees, including Dane Harwood and

Alexander Moore, left SMS after Sharon Malouf acquired the company

through bankruptcy proceedings in 2001. Following the end of

Harwood's noncompete period, Harwood and Moore, along with an

executive from a former European sublicensee of SMS, Alon Shklarek,

founded defendant ASP. Consulting LLC ("ASP") in 2003. ASP offers

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training programs similar to SMS's, and the two compete for the

same customers. ASP also has a series of training materials that

focus on the same subject matter and teach similar communication

and negotiation strategies as SMS's.

SMS claims ASP infringed its copyright in three of SMS's

training workbooks: Positive Power & Influence ("PPI"), Positive

Negotiation Program ("PNP"), and Promoting and Implementing

Innovation ("PII"). PPI was first published in 1976 and is

currently in its fourth edition. PPI is SMS's most widely

circulated work and generates approximately seventy-five percent of

SMS's revenues. More than a quarter million people have taken the

PPI course. PNP, now in its third edition, was first published in

1978 and accounts for approximately fifteen percent of SMS's

revenues. PII was first published in 1993 and is a much smaller

part of SMS's business than the other two works at issue. SMS's

works contain hundreds of pages of text, flowcharts, and

illustrations teaching techniques for communication and negotiation

within the workplace.

This suit claims infringement by three of defendant ASP's

workbooks: Communicating 2 Influence ("C2I"), Negotiating

Successful Agreements ("NSA"), and Championing Ideas ("CI"). SMS

claims that ASP's C2I infringes its copyright to PPI, that NSA

infringes PNP, and that CI infringes PII. ASP's works address the

same topics as SMS's. Considering the circumstances under which

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ASP developed its materials, the district court found that this

similarity was no coincidence. Situation Mgmt., 535 F. Supp. 2d at

235. In particular, Harwood, Moore, and Shklarek each had access

to SMS's works prior to forming ASP; Harwood even kept copies of

SMS's works in the attic of his home after he left SMS. And

Harwood and Moore were intimately familiar with SMS's works, having

authored several editions of PPI, PNP, and PII while working at

SMS. Moreover, Harwood and Moore together authored each of the

allegedly infringing works relatively quickly after forming ASP.

For example, they prepared a version of C2I over a period of six to

thirty-four days.

On September 24, 2003, one of SMS's European licensees

contacted Malouf to tell her that ASP's new C2I program was the

same as SMS's PPI. Malouf then visited ASP's website and read a

brief description of C2I, which she found strikingly similar to the

PPI program. Malouf contacted ASP and asked to see ASP's written

materials so that she could assess whether SMS had a claim against

ASP for copyright infringement. SMS and ASP were unable to reach

an agreement regarding the conditions under which Malouf could

inspect ASP's works, and Malouf did not view ASP's works before

filing suit.

On December 28, 2005, based upon the tip from the

European licensee and the information on ASP's website, Malouf

believed that SMS had a viable claim of copyright infringement and

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sued ASP in federal district court in New Hampshire, where SMS has

its principal place of business. That suit was ultimately

dismissed on August 15, 2006 for lack of personal jurisdiction over

ASP.

SMS then sued ASP in the District of Massachusetts on

September 1, 2006. The district court denied the parties cross-

motions for summary judgment, and the parties agreed to treat the

matter as a case stated. The district court held a hearing on

ASP's liability for copyright infringement on November 7, 2007. At

the hearing, SMS stated that it would seek statutory damages, not

its actual damages. SMS had sued ASP before it had incurred any

substantial actual damages as a result of ASP's alleged

infringement. In its post-hearing briefing, SMS explained that it

was seeking statutory damages of $75,000 for each infringing work,

instead of actual damages, because ASP's "sales were apparently

limited (to just a few customers) but [its] conduct was

deliberate."

The district court found that ASP had copied SMS's works.

It recognized that "[i]t is undisputed that Harwood and Moore had

intimate familiarity with SMS's programs because they helped write

them" and that "Harwood, Moore, and at least one other ASP employee

had access to SMS's works during the period when they generated the

accused works." Situation Mgmt., 535 F. Supp. 2d at 235. This

level of access to and familiarity with SMS's works, coupled with

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"[t]he fact that ASP's works address the same topics as SMS's" and

the speed with which ASP produced its own works, indicated "that

the creators of ASP's programs used SMS's materials in creating

their own." Id.

The district court, however, determined that ASP's

copying was not actionable because ASP's works were not

substantially similar to the copyright protected aspects of SMS's

works. It found that "the works at issue are so dominated by

nonprotectable material that it is impossible to reduce the work to

a copyrightable essence or structure." Id. at 240. Accordingly,

it held that the copyright protection for SMS's works "is limited

to little more than [their] original text and formatting." Id. at

241.

Having narrowly defined the scope of SMS's copyright

protection and excluded from consideration a great deal of SMS's

materials, the district court then evaluated the similarities

between the limited universe of SMS's and ASP's works it thought

was subject to copyright protection. The district court recognized

a "few minor incidents of verbatim repetition" between C2I and PPI.

Id. at 244. But after excising from consideration "much of the

substance" of PPI as "simply not copyrightable," id. at 242, it

found that C2I and PPI "as a whole are not substantially similar,"

id. at 244. Likewise, it held that CI "successfully avoided

infringement" of PII because "[t]here is no verbatim replication of

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words or phrases, and the graphical depictions are quite distinct."

Id. at 246. Finally, it found "no structural similarity" between

NSA and PNP, dismissing instances of verbatim copying as "few and

far between" and "of minimal importance." Id. at 248. Finding no

substantial similarity between the aspects of SMS's and ASP's works

that it considered protectable, the district court entered a

judgment of noninfringement. Id. at 249.

SMS timely appealed. The Association of Learning

Providers, an industry association serving training companies, and

Blanchard Training and Development, Inc., who like SMS and ASP

sells corporate training materials, filed a brief as amici curiae

in support of reversal.

The district court denied ASP's request for attorneys'

fees as the prevailing party in a copyright suit under 17 U.S.C.

§ 505. ASP cross-appeals that decision, arguing that SMS brought

this "expensive, unmeritorious litigation" to drive ASP out of

business. The cost of defending this suit, ASP represents, has

rendered it insolvent.

II.

"In a case stated, the parties waive trial and present

the case to the court on the undisputed facts in the pre-trial

record. The court is then entitled to 'engage in a certain amount

of factfinding, including the drawing of inferences.'" TLT Constr.

Corp. v. RI, Inc., 484 F.3d 130, 135 n.6 (1st Cir. 2007) (quoting

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United Paperworkers Int'l Union, Local 14 v. Int'l Paper Co., 64

F.3d 28, 31 (1st Cir. 1995)). We review the district court's

factual findings for clear error and its legal conclusions de novo.

Bunch v. W.R. Grace & Co., 555 F.3d 1, 3 n.4 (1st Cir. 2009). Of

course, a district court's use of incorrect relevant legal

standards will lead to reversal unless that use had no prejudicial

effects.

To establish copyright infringement, the plaintiff must

prove two elements: "(1) ownership of a valid copyright, and (2)

copying of constituent elements of the work that are original."

Feist, 499 U.S. at 361; accord Mag Jewelry Co. v. Cherokee, Inc.,

496 F.3d 108, 114 (1st Cir. 2007). ASP does not dispute that SMS

owns a valid copyright interest in its works, and SMS's

certificates of copyright are prima facie evidence of its ownership

of valid copyright interests in its works, see Johnson v. Gordon,

409 F.3d 12, 17 (1st Cir. 2005).

Our analysis, therefore, focuses entirely on whether the

district court properly applied the second element of the Feist

test. That prong "itself involves two steps: the plaintiff must

show (a) that the defendant actually copied the work as a factual

matter, . . . and (b) that the defendant's 'copying of the

copyrighted material was so extensive that it rendered the

infringing and copyrighted works "substantially similar."'" T-Peg,

Inc. v. Vt. Timber Works, Inc., 459 F.3d 97, 108 (1st Cir. 2006)

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(citations omitted) (quoting Johnson, 409 F.3d at 18). On appeal,

ASP wisely does not contest the district court's finding of actual

copying, so our analysis centers on the district court's

application of the test for substantial similarity.

The burden is on the plaintiff to prove substantial

similarity between the plaintiff's and defendant's works. T-Peg,

459 F.3d at 108. Substantial similarity exists "if a reasonable,

ordinary observer, upon examination of the two works, would

'conclude that the defendant unlawfully appropriated the

plaintiff's protectable expression.'" Id. at 112 (quoting Johnson,

409 F.3d at 18).

At oral argument, counsel for ASP argued that the

district court's conclusion should best be understood as being that

the amount of copying done was so small as to be de minimis. See

Situation Mgmt., 535 F. Supp. 2d at 244 ("Such de minimis

duplication does not amount to infringement."). Even if that were

accurate, it not sufficient to salvage the district court's finding

of noninfringement, however, for it ignores the fact that the court

first excluded from consideration of the works copied the bulk of

SMS's materials on the grounds that it was not subject to

protection at all. If the court erred in that exclusion, then it

used the wrong measure for substantial similarity.

Further, the de minimis copying doctrine in copyright

does not operate as broadly as ASP suggests. The extent of copying

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from the plaintiff's work is, of course, relevant to the analysis

of substantial similarity. If such a small amount of the

plaintiff's work is copied that the two works cannot be said to be

substantially similar, then no infringement results.1 See 2 Nimmer

& Nimmer, Nimmer on Copyright, § 8.01[G], at 8-26 (2008) ("[F]or

similarity to be substantial, and hence actionable, it must apply

to more than simply a de minimis fragment."). "Used in this

fashion, 'de minimis copying' represents simply the converse of

substantial similarity." Id.

This statement should not be misunderstood. That the

copying involved only a small portion of the plaintiff's work does

not by itself make the copying permissible. Indeed, "even if the

similar material is quantitatively small, if it is qualitatively

important, the trier of fact may properly find substantial

similarity." 4 id. § 13.03[A][2][a], at 13-55. As a result, de

minimis copying is best viewed not as a separate defense to

strength of the plaintiff's proof of substantial similarity.2

1
The extent of copying is also relevant to the fair use
defense, where one factor that determines the applicability of the
defense is "the amount and substantiality of the portion used in
relation to the copyrighted work as a whole." 17 U.S.C. § 107(3).
ASP has not raised a fair use defense in this case.
2
Further, commentators have viewed the de minimis copying
doctrine as relating to instances of fragmented literal similarity,
applicable only where "no more than a line, or a paragraph, or a
page or chapter of the copyrighted work has been appropriated." 4
Nimmer & Nimmer, supra, § 13.03[A][2], at 13-53; see also id.

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Where substantial similarity exists and the fair use doctrine, as

here, is inapplicable, "the overwhelming thrust of authority

upholds liability even under circumstances in which the use of the

copyrighted work is of minimal consequence." 2 Nimmer & Nimmer,

supra, § 8.01[G], at 8-26.

Here, the district court correctly recognized that the de

minimis nature of the copying could lead to a finding of no

substantial similarity. See Situation Mgmt., 535 F. Supp. 2d at

244. But its finding that the ASP's copying was not actionable

because of its de minimis nature was based on its improper

exclusion from consideration of large portions of SMS's works.

The district court also correctly stated the test for

substantial similarity, but then misapplied it. Substantial

similarity "focuses not on every aspect of the copyrighted work,

but on those 'aspects of the plaintiff's work [that] are

protectible under copyright laws and whether whatever copying took

place appropriated those [protected] elements.'" T-Peg, 459 F.3d

at 112 (alterations in original) (quoting Johnson, 409 F.3d at 19).

After identifying the aspects of the plaintiff's work that are

protected by copyright, substantial similarity is assessed by

§ 13.03[A][1][e], at 13-52 to -53 (discussing substantial
similarity under the heading "Similarity of Limited Segments"). On
the facts of this case, however, where SMS has identified hundreds
of instances of verbatim copying and rough paraphrasing in ASP's
works and has also alleged infringement through the overall
structure and arrangement of ASP's works, that aspect of the de
minimis doctrine simply does not arise.

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comparing the protected elements of the plaintiff's work as a whole

against the defendant's work. Johnson, 409 F.3d at 18. In

performing the substantial similarity analysis, a court should be

careful not to over-dissect the plaintiff's work, causing it to

ignore the plaintiff's protectable expression. See CMM Cable Rep,

Inc. v. Ocean Coast Props., Inc., 97 F.3d 1504, 1515 (1st Cir.

1996) (recognizing "the potential 'danger . . . that courts . . .

will so "dissect" the work as to classify all its elements as

unprotectable . . . [thereby possibly] blind[ing it] to the

expressiveness of their ensemble'" (alterations in original)

(quoting J.C. Ginsburg, Four Reasons and a Paradox: The Manifest

Superiority of Copyright over Sui Generis Protection of Computer

Software, 94 Colum. L. Rev. 2259, 2561 (1994))).

Here, the district court erred in determining which

aspects of SMS's works were subject to copyright protection. This

error prevented it from meaningfully analyzing the similarities

between SMS's and ASP's works, caused prejudice, and requires

reversal. We explain.

A. The Originality Requirement

The originality requirement for copyright protection is

not particularly rigorous. "Original, as the term is used in

the author (as opposed to copied from other works), and that it

possesses at least some minimal degree of creativity." Feist, 499

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U.S. at 345. "[T]he requisite level of creativity is extremely

low; even a slight amount will suffice." Id.

Originality under copyright -- unlike the intellectual

property protection provided under patent law, see 35 U.S.C.

§ 102 -- "does not signify novelty," Feist, 499 U.S. at 345. It

merely means that the author did not himself copy his work from

another source. Indeed, even a work that is identical to another

is original for purposes of copyright protection so long as the

author created it independently. Id. at 345-46.

Similarly, a work's entitlement to copyright protection

does not depend in any way upon the court's subjective assessment

of its creative worth. See Bleistein v. Donaldson Lithographing

Co., 188 U.S. 239, 251 (1903) ("It would be a dangerous undertaking

for persons trained only to the law to constitute themselves final

judges of the worth of pictorial illustrations . . . ."); see also

Feist, 499 U.S. at 345 (recognizing that the "vast majority of

works" possess the requisite "creative spark" for originality, "'no

matter how crude, humble, or obvious' it might be" (quoting 1

Here, the district court stated the correct standard for

originality under copyright law, see Situation Mgmt., 535 F. Supp.

2d at 238, but misapplied it. The district court erroneously

treated copyright law's originality requirement as functionally

equivalent to a novelty standard. For example, the district court

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found SMS's works unoriginal because, in its view, they are "filled

with generalizations, platitudes, and observations of the obvious,"

id. at 239, contain "not-so-stunning revelation[s]," id. at 240,

and teach, "[a]t their creative zenith, . . . common-sense

communication skills," id. at 241.

Moreover, the district court's originality analysis was

obviously tainted by its own subjective assessment of the works'

creative worth. Its assessment of originality displayed nothing

but pejorative disdain for the value of SMS's works. E.g., id. at

239 ("[The plaintiff's works] are dominated by unprotectable

material. These works exemplify the sorts of training programs

that serve as fodder for sardonic workplace humor that has given

rise to the popular television show The Office and the movie Office

Space. They are aggressively vapid -- hundreds of pages filled

with generalizations, platitudes, and observations of the obvious."

(footnote omitted)). Yet neither the works' absolute novelty nor

their creative value determines whether they are original for

purposes of copyright protection.

On the record evidence and applying the correct standard,

SMS's works easily satisfy the originality requirement for

works from another source, making them unoriginal to SMS. And

SMS's works, which include text, flowcharts, and illustrations

explaining techniques for communication and negotiation, certainly

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demonstrate the requisite "minimal degree of creativity," Feist,

499 U.S. at 345, for copyright protection. Thus, the district

court erroneously excluded large portions of SMS's works from

consideration under its substantial similarity analysis based upon

its misapplication of the originality requirement. This mistake

mattered to the outcome of the case. We hold that SMS has

satisfied the originality requirement for the three works in

question.

B. The Statutory Exclusion for Processes and Systems

The copyright statute excludes from protection the

processes and systems described in a work. See 17 U.S.C. § 102(b).

When Congress revised the copyright code in 1976, it recognized

that "[§] 102(b) in no way enlarges or contracts the scope of

restate, in the context of the new single Federal system of

remains unchanged." H.R. Rep. No. 94-1476, reprinted in 1976

U.S.C.C.A.N. 5659, 5670 (1976).

That idea/expression dichotomy is the "most fundamental

axiom of copyright law," Feist, 499 U.S. at 344, and "assures

authors the right to their original expression, but encourages

others to build freely upon the ideas and information conveyed by

a work," id. at 349-50. That is, descriptions of a process or

system are copyrightable, but the underlying process or system

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itself is not. See Matthews v. Freedman, 157 F.3d 25, 27 (1st Cir.

1998) ("[C]opyright protects the original expressions of ideas but

not the ideas expressed."). At least one circuit court has

rejected as "absurd" the argument that management training

materials contain no protectable expression because they teach a

noncopyrightable process. See Kepner-Tregoe, Inc. v. Leadership

Software, Inc., 12 F.3d 527, 534 (5th Cir. 1994).

Thus, to the extent that SMS's works teach a process or

system for effective communication and negotiation, others may

freely describe that process or system by using their own original

expression. But others may not appropriate SMS's expression when

describing that process or system.

Here, the district court improperly denied copyright

protection to large portions of SMS's works because it, in an error

of law, found "they focus on concepts and teach a noncopyrightable

process." Situation Mgmt., 535 F. Supp. 2d at 240; see also id. at

241 (finding that "the structure or essence of SMS's works is not

copyrightable" because, unlike a work of fiction that has a plot

and characters, they merely discuss processes and ideas). The fact

that SMS's works describe processes or systems does not make their

expression noncopyrightable. See Feist, 499 U.S. at 350-51

(holding that a factual compilation may be entitled to copyright

protection if it features an original selection or arrangement of

facts even though the underlying facts themselves are

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noncopyrightable). SMS's creative choices in describing those

processes and systems, including the works' overall arrangement and

structure, are subject to copyright protection. See id.

(recognizing that the original selection and arrangement of

noncopyrightable elements is entitled to copyright protection).

The district court's analysis did what we cautioned against in CMM

Cable, 97 F.3d at 1515: it lost sight of the expressiveness of the

works as a whole by focusing too closely on their noncopyrightable

elements.

Because the original selection and arrangement of

noncopyrightable elements is itself copyrightable, the district

court also erred in limiting the narrow copyright protection it

allowed for SMS's works "to little more than [their] original text

and formatting." Situtation Mgmt., 535 F. Supp. 2d at 241. There

are numerous ways to teach the concepts and processes disclosed in

SMS's works and so SMS need not show "'near identity' between the

works at issue" to prove copyright infringement. Concrete Mach.

Co. v. Classic Lawn Ornaments, Inc., 843 F.2d 600, 606 (1st Cir.

1988) (quoting Sid & Marty Krofft Television Prods., Inc. v.

McDonald's Corp., 562 F.2d 1157, 1167 (9th Cir. 1977)). This is

not a situation where the idea and expression have merged because

"there is essentially only one way to express an idea," making

copying of the expression permissible. Id. Because of its legal

error, the court's resulting factual conclusions regarding

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substantial similarity are clearly erroneous. These determinations

are vacated and may be determined at a new trial.

III.

The district court's analysis of substantial similarity

improperly excluded from consideration large portions of SMS's

works under the mistaken belief that they are unoriginal or a

noncopyrightable process or system, making its assessment of

substantial similarity clearly erroneous. We leave undisturbed the

district court's finding of actual copying and hold, as a matter of

law, that SMS's works both satisfy the originality requirement for

textual level even though they describe processes and systems. We

leave the analysis of the question of substantial similarity

between SMS's and ASP's works within the framework we have outlined

to be addressed on remand.

We vacate the district court's finding of noninfringement

and remand for further proceedings consistent with this opinion.

Because we vacate the district court's finding of noninfringement,

we need not address the substance of the attorneys' fees issue

raised by ASP's cross-appeal. See 17 U.S.C. § 505 (allowing the

award of fees to the prevailing party in a copyright infringement

suit). Each party will bear its own costs.

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