Airframe Systems, Inc. v. Raytheon Co., 2010 WL 1239316 (1st Cir. 2010)
A First Circuit panel, including Associate Supreme Court Justice (ret.) David Souter sitting by designation, issued a decision on claim preclusion in a copyright case this past week. I was not aware of retired Supreme Court Justices hearing appeals, but Jonathan Adler pointed in early February at Volokh to a Ninth Circuit decision actually penned by retired Associate Supreme Court Justice O’Connor. It’s an interesting occurrence, regardless.
Aircraft Integration Systems was a company that performed maintenance on and updated aircraft. AIS used software as part of its operations, which it licensed from Airframe. According to the allegations, during an on-site consultation, a former Airframe employee, without authorization, download onto AIS’s servers source code that would allow for the modification of its software. This occurrence was discovered by Airframe five years later. At the time AIS was allegedly using the source code, it was an unincorporated business division of Raytheon. It was later sold to another company, L-3, after the software was no longer being used.
Airframe brought suit against L-3 and its former employee in the Southern District of New York, alleging, inter alia, that L-3 (1) had conspired its former employee to obtain its source code; (2) that L-3 could have used the source code to modify and update Airframe software without paying Airframe for license renewals or software updates (but the complaint did not claim such use had occurred); and (3), that L-3′s ongoing possession of the source code infringed Airframe’s exclusive rights under the Copyright Act.
L-3 filed a motion to dismiss, which was granted.The S.D.N.Y. found that Airframe had failed to allege that L-3 had actually used the source code, only that it could have done so, and could not show infringement under the facts pled. Airframe Sys., Inc. v. L-3 Commc’ns Corp., No. 05-cv-7638, 2006 WL 2588016, at *3-4 (S.D.N.Y. Sept. 6, 2006).
Electing not to appeal, Airframe then filed a second action in the District Court in Massachusetts. The Massachusetts suit differed from the New York suit in two respects: first, it alleged use of the software and not only retention of the software; and, secondly, Airframe brought suit against Raytheon, which had owned AIS as an unincorporated division at the time of the alleged infringement.
The District Court of Massachusetts found that the claims were precluded. Airframe appealled the decision in regard to Raytheon. Airframe made two arguments as to why the present suit against Raytheon is distinguishable from the New York suit for purposes of a claim preclusion analysis.
Airframe first contended that the causes of action in the New York suit, which claimed infringement based on unauthorized possession of its source code, were different from its present claims of infringement based on the unauthorized use of its source code to modify software. The First Circuit (Stahl, Souter, Lynch writing) found that both claims arose under a common nucleas of operative facts. The Circuit found that Airframe could have made both claims in the New York suit and chose not to do so. The Circuit further noted that Airframe sought leave to amend its New York complaint to add the infringing use claim; that the S.D.N.Y. impliedly denied the request; and Airframe did not appeal that decision.
Airframe argued, secondly, that the S.D.N.Y. suit did not name Raytheon as a defendant, which it claimed was not an identical party to L-3 because they were not in privity. The First Circuit rejected this contention finding that modern claim preclusion doctrine applies in a broader set of circumstances than those found in common law privity. Stated the Circuit:
Raytheon and L-3 were sufficiently related parties for Raytheon to be able to invoke claim preclusion in the Massachusetts suit. Airframe’s claims are, and always have been, about the actions of a single business unit, AIS. Raytheon and L-3 had a close and significant relationship as AIS’s former and current owners in the relevant period. In the New York suit, Airframe could have sued Raytheon and L-3, but instead tried to hold L-3 liable for AIS’s actions under both L-3′s and Raytheon’s ownership. Airframe made a number of strategic choices; claim preclusion doctrine requires it to live with those choices.