Page:S.O.S. v. Payday.pdf/4

 service, but continued to render services for S.O.S. They continued to work on modifications to the payroll programs, for which they billed S.O.S. $28.00 an hour. They were also entrusted with systems backup, the routine copying of S.O.S.’s programs to protect against accidental loss. In April 1985, Chu and Koyama proposed to Goodman that Payday purchase an in-house computer system equipped with a broad array of software to provide financial services to the entertainment industry. Payday would make this software available to its customers on a timesharing basis. Chu and Koyama would perform programming services for Payday directly, at less than the $50.00 an hour Payday was currently paying S.O.S. for these services.

Notes taken by Goodman indicate concern over the cost of securing a copy of the payroll programs. She noted that Chu and Koyama could “make [a] copy and put [it] somewhere.” Chu and Koyama told her they could change the programs 20%, and that this would make them new programs, no longer the property of S.O.S. They planned to copy the payroll programs into Payday’s computer and then convert them into a different computer language called “BITS BASIC.” Payday intended to send a letter to S.O.S. in July 1983, telling S.O.S. that Payday needed a copy of the payroll programs, but this letter was never sent. Instead, Payday solicited a competing bid from S.O.S. to provide an in-house computer system.

Chu and Koyama met with Oliver on July 6, 1985. They told Oliver that Payday would pay its account balance with S.O.S. if S.O.S. would give Payday an unprotected copy of the payroll programs. Oliver rejected this proposal.

On July 7, 1985, Koyama went to the S.O.S. office and made at least one copy of the payroll software, which he gave to Payday. Oliver began monitoring S.O.S.’s computers for unauthorized entry, and changed the passwords. A day or two later, Chu or Koyama made an unauthorized entry into S.O.S.’s computer system by circumventing the password program.

Payday installed its new computer on July 14, 1985. The next day, Chu and Koyama put into Payday’s computer the payroll software and various other programs taken from S.O.S.’s computer. During the next few days, Chu and Koyama converted the payroll programs from their original language into a format called “ASCII,” which was in turn translated into the BITS BASIC computer language. Payday continued to request a copy of the payroll programs from S.O.S., requests intended, according to S.O.S., to conceal its software piracy. S.O.S. offered to install a protected copy of the software on Payday’s computer, a copy which Payday could use but not enter, copy or change. Payday rejected this offer.

S.O.S. now suspected that Payday had copied its programs, because Payday was servicing its clients and Oliver did not believe Payday had had time independently to create new programs. S.O.S. registered the payroll programs on Oct. 11, 1985, in anticipation of litigation. Payday continued to modify the payroll programs on its computer. S.O.S. and Payday sued one another.

S.O.S. sued for infringement of copyright and pendent state law claims for breach of contract, misappropriation of trade secrets, and account stated. Payday counterclaimed under various state law theories, including abuse of process, breach of contract and tortious breach of the covenant of good faith and fair dealing, and sought a declaratory judgment that S.O.S.’s copyright is invalid. The district court granted summary judgment in favor of Payday on S.O.S.’s copyright infringement, breach of contract, and misappropriation claims, and