Corp. v. Transportation Credit Clearing House, Inc., 59 Misc. 2d 226, 298 N.Y.S.2d 392, 395 (N.Y. City Civ. Ct. 1969), rev'd on other grounds, 64 Misc. 2d 910, 316 N.Y.S.2d 585 (1st Dep't 1970)). The applicability of Article Two to a transaction is not defeated by the use of a license in lieu of a sale if the license provides for transfer of some of the incidents of goods ownership. Colonial Life Ins. Co. of America v. Electronic Data Sys. Corp., 817 F. Supp. 235, 239 (D.N.H. 1993); Communications Groups, Inc. v. Warner Communications, Inc., 138 Misc. 2d 80, 527 N.Y.S.2d 341, 344-45 (N.Y. City Civ. Ct. 1988).
Under the UCC, "'goods' means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities . . . and things in action." Id. § 2-105. Generally, software is considered a "good," even though a finished software product may reflect a substantial investment of programming services. Communications Groups, 527 N.Y.S.2d at 344; Schroders, Inc. v. Hogan Sys., Inc., 137 Misc. 2d 738, 522 N.Y.S.2d 404, 406 (Sup. Ct. New York County 1987); see generally Bonna Lynn Horovitz, Note, Computer Software as a Good Under the Uniform Commercial Code: Taking a Byte Out of the Intangibility Myth, 65 B.U. L. Rev. 129 (1985). However, copyrights, patents, and trademarks are classified as "general intangibles" under the UCC and are distinguished from goods. N.Y. U.C.C. Law § 9-106 & New York Annotations (McKinney 1990); see Grappo v. Alitalia Linee Aeree Italiane, S.p.A., 56 F.3d 427, 431 (2d Cir. 1995).
The SDLA provided for two licenses. Under the first license, Architectronics granted CSI the right to use its DynaMenu software prototypes for joint venture-related purposes only. That license gave CSI a tool necessary for the development of the "Derivative Work," a new display driver. Under the second license, CSI granted Architectronics and CADSource the right to use, copy, and distribute the "Derivative Work." That license was the centerpiece of the transaction, because it provided Architectronics and CADSource with the valuable right to manufacture the new display driver and sell it to the public. Architectronics and CADSource bargained primarily for the right to mass-market the product, not for the right to install single copies of the display driver onto their own PCs. See generally Andrew Rodau, Computer Software: Does Article 2 of the Uniform Commercial Code Apply?, 35 Emory L.J. 853, 874-883 (1986) (distinguishing tangible software use rights from intangible intellectual property rights). CSI's upside in the deal also was linked to the rights to reproduce and distribute: the parties anticipated thousands of sales of the new product (Lewis Aff. P 32), and Architectronics and CADSource promised to pay CSI a $ 20-per-copy royalty on those sales. CSI stood to gain in royalties a sum that would dwarf the $ 2,000 development fee. Because the predominant feature of the SDLA was a transfer of intellectual property rights, the agreement is not subject to Article Two of the UCC.
Plaintiff's second contract claim therefore is timely because plaintiff filed suit within six years of CSI's first attempt to repudiate the SDLA.
C. Statute of Limitations -- Trade Secret Misappropriation
New York trade secret misappropriation claims are governed by the three-year statute of limitations for suits based on injury to property. N.Y. Civ. Prac. L. & R. § 214(4) (McKinney 1990); see Galet v. Carolace Embroidery Prods. Co., 1994 U.S. Dist. LEXIS 14060, No. 91 Civ. 7991, 1994 WL 542275, *4 (S.D.N.Y. Oct. 5, 1994); Construction Technology, Inc. v. Lockformer Co., 704 F. Supp. 1212, 1224 (S.D.N.Y. 1989); Lemelson v. Carolina Enterprises, Inc., 541 F. Supp. 645, 658 (S.D.N.Y. 1982). Accrual of a claim for trade secret misappropriation occurs as follows:
If a defendant misappropriates and discloses a trade secret, he becomes liable to plaintiff upon disclosure. On the other hand, if the defendant keeps the secret confidential yet makes use of it to his own commercial advantage, each successive use constitutes a new actionable tort for purposes of the Statute of Limitations.
Id. at 659. This rule reflects the principle that "once the information is no longer secret or confidential, there is no property to protect." Construction Technology, 704 F. Supp. at 1225.
Plaintiff's trade secret claims thus are timely if and only if (1) the alleged unlawful use of plaintiff's trade secrets occurred no earlier than December 18, 1989, and (2) the trade secrets were not extinguished by disclosure before that date. Defendants argue that the trade secrets were publicly disclosed on January 15, 1989 when CSI released GT ICON, a product allegedly incorporating misappropriated trade secrets. Plaintiff claims that misappropriated secrets were not disclosed to the public until the release of GT FLEXICON in June 1990.
It is not clear whether the release of GT ICON amounted to a public disclosure of trade secrets that may have been used by the programmers who created the software. There is no evidence that a user of GT ICON could have discovered such trade secrets by inspecting the product. See id. The technology may have been concealed within impenetrable programming codes, making reverse engineering difficult or impossible. Alternatively, it is possible that CSI used the misappropriated technology to create GT ICON without actually disclosing the secret know-how in the released product. Because neither party has raised or addressed this issue, it would be inappropriate to grant summary judgment on the trade secret claims on limitations grounds.
D. Statute of Limitations -- Copyright Infringement
Claims for copyright infringement are governed by a three-year statute of limitations. 17 U.S.C. § 507(b) (1994). The first allegedly infringing product sold by defendants, GT ICON, was released in January 1989, over three years before the filing of this action. (CSI Local Rule 3(g) Statement P 64) However, "every act of infringement is a distinct harm giving rise to an independent claim for relief," Stone v. Williams, 970 F.2d 1043, 1049-50 (2d Cir. 1992), cert. denied, 508 U.S. 906, 124 L. Ed. 2d 243, 113 S. Ct. 2331 (1993), and much of the damages plaintiff claims arise from sales of copies of GT FLEXICON beginning in June 1990. Because at least some portion of plaintiff's copyright claim clearly is not time-barred, summary judgment on that claim on statute of limitations grounds is not warranted.
Defendants argue that plaintiff's copyright claims must be dismissed because plaintiff failed to record the instrument that transferred copyright rights in the "Derivative Work," the SDLA, with the United States Copyright Office.
In 1988, pursuant to the Berne Convention for the Protection of Literary and Artistic Works, Congress adopted amendments to the Copyright Act relaxing various formal requirements. See generally Orrin G. Hatch, Better Late Than Never: Implementation of the 1886 Berne Convention, 22 Cornell Int'l L.J. 171, 191-95 (1989). Those amendments took effect on March 15, 1989. Basic Books, Inc. v. Kinko's Graphics Corp., 758 F. Supp. 1522, 1541 n.19 (S.D.N.Y. 1991). As to claims accruing after that date, recordation of the instrument of transfer is not a jurisdictional prerequisite to the filing of a suit for copyright infringement by an assignee of copyright rights. R&R Recreation Prods., Inc. v. Joan Cook, Inc., 1992 U.S. Dist. LEXIS 5176, No. 91 Civ. 2589, 1992 WL 88171, *4 (S.D.N.Y. Apr. 14, 1992). To the extent plaintiff's copyright claim is based on CSI's release of GT FLEXICON in June 1990, recordation is not necessary.
To the extent plaintiff's copyright claim is based on the release of GT ICON in January 1989, recordation of the instrument of transfer is a prerequisite to suit under former § 205(d) of the Copyright Act, because the 1988 amendments to that provision do not apply retroactively. 17 U.S.C. § 205(d) (1988). However, courts repeatedly held under former § 205(d) that recordation after the filing of the suit cured the defect. See, e.g., Kenbrooke Fabrics, Inc. v. Soho Fashions, Inc., 690 F. Supp. 298, 302 (S.D.N.Y. 1988); Wales Indus., Inc. v. Hasbro Bradley, Inc., 612 F. Supp. 510, 514 (S.D.N.Y. 1985); Northern Songs, Ltd. v. Distinguished Productions, Inc., 581 F. Supp. 638, 641 (S.D.N.Y. 1984). Because plaintiff submitted the SDLA to the Copyright Office for recordation in March 1996 (Abramson Aff. Ex. 32), plaintiff's copyright claims accruing before March 1989 are not subject to dismissal for failure to record. Of course, recovery on those claims will be barred on limitations grounds absent some reason for tolling.
Defendants also challenge plaintiff's standing to sue for copyright infringement, pointing out that the allegedly infringed copyright in the "Artist XJ10 GT protected mode driver with GT Flexicon," which was registered on December 31, 1990, belongs to CSI. But CSI's ownership of the copyright does not bar suit by Architectronics here. Plaintiff alleges that the copyright in question is for the "Derivative Work" described in the SDLA, the rights to which were exclusively licensed to Architectronics and CADSource. As an exclusive licensee of copyright rights, plaintiff enjoys "all of the protection and remedies accorded to the owner" under federal copyright law. 17 U.S.C. § 201(d)(2) (1994). CSI, as owner and licensor of the copyright, "may be liable to the exclusive licensee for copyright infringement, if the licensor exercises rights that have theretofore been exclusively licensed." 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 12.02[b] (1996); see United States Naval Institute v. Charter Communications, Inc., 936 F.2d 692, 695 (2d Cir. 1991).
The merits of plaintiff's trade secret claims are governed by Minnesota law for at least three reasons. First, the duty of confidentiality upon which the claim is premised was imposed by a contract executed in Minnesota and specifying that its terms shall be construed according to Minnesota law. Second, the allegedly infringing products were created in Minnesota by a Minnesota defendant. Third, all parties have relied on Minnesota law in their memoranda.
A. Minnesota Trade Secret Law
Under the Uniform Trade Secrets Act ("UTSA") as enacted in Minnesota, a trade secret is defined as
information, including a formula, pattern, compilation, program, device, method, technique or process that
(i) derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and