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Universal Instruments Corp. v. Micro Systems Engineering, Inc.

United States Court of Appeals, Second Circuit

May 8, 2019

Universal Instruments Corporation, Plaintiff-Counter-Defendant-Appellant,
Micro Systems Engineering, Inc., Missouri Tooling & Automation, Inc., Defendants-Counter-Claimants-Appellees [*].

          Argued: September 21, 2018

          On Appeal from the United States District Court for the Northern District of New York

         Appeal from a judgment entered in the United States District Court for the Northern District of New York (Sharpe, J.), dismissing plaintiff's claims for breach of contract, copyright infringement, misappropriation, and unfair competition arising from its sale of equipment and software for an automated assembly system. On appeal, plaintiff contends that the district court erred in granting defendants' motion for judgment as a matter of law.

          Amy Mason Saharia (Kannon K. Shanmugam, Giselle Barcia, Stacie M. Fahsel, on the brief), Williams & Connolly LLP, Washington, D.C.; Anthony L. Meola, Christopher E. Blank, Victor J. Baranowski, Schmeiser, Olsen & Watts LLP, Latham, New York, for Plaintiff-Counter- Defendant-Appellant Universal Instruments Corporation.

          David B. Tulchin (Thomas C. White, Adam R. Brebner, Jacob B. Lieberman, on the brief), Sullivan & Cromwell LLP, New York, New York, for Defendants-Counter-Claimants-Appellee Micro Systems Engineering, Inc.

          Howard J. Kaplan (Marie E. Christiansen, on the brief), Kaplan Rice LLP, New York, New York, for Defendants-Counter-Claimants-Appellee Missouri Tooling & Automation, Inc.

          Before: Walker and Chin, Circuit Judges, and Keenan, District Judge. [**]


         Plaintiff-counter-defendant-appellant Universal Instruments Corporation ("Universal") developed and sold an automated assembly system to defendant-counter-plaintiff-appellee Micro Systems Engineering, Inc. ("MSEI") in 2007 pursuant to a purchase agreement. MSEI developed a multi-phase plan to build a system to automate the handling of medical devices during its quality testing process, and Universal won the bid to provide the equipment for the first phase. MSEI awarded the second and third phases of the project not to Universal but to Universals competitor, defendant-counter-plaintiff-appellee Missouri Tooling & Automation, Inc. ("MTA"). In implementing phases two and three, MSEI and MTA used intellectual property, including computer source code, that Universal had provided for phase one.

         Universal brought this action below alleging, inter alia, that MSEI and MTA had infringed Universals copyright in its source code, breached the terms of the purchase agreement, and misappropriated Universals trade secrets. Certain claims were dismissed on defendants' motion for judgment on the pleadings, and, after discovery, the parties proceeded to a jury trial on the remaining claims. At the close of the evidence, however, the district court granted defendants' motion for judgment as a matter of law. Universal appeals.

         For the reasons set forth below, we affirm the judgment of the district court.


         A. Factual Background

         MSEI is a medical device company that designs and manufactures electronics for implantable pacemakers and defibrillators. Before selling these components, MSEI subjects them to a battery of tests to ensure they are working properly. MSEI sought to automate its then manual system of moving components from one test station to another; to that end, MSEI solicited bids for the development of a Test Handling System (the "THS"). MSEI sought to build the THS in phases. The first phase would automate the handling of some product testing stations with further automation to be added in subsequent phases.

         Beginning in 2006, MSEI obtained bids from suppliers for phase one. One of the bidders was Universal, a developer of automated assembly platforms. MSEI awarded phase one to Universal, and the parties memorialized their agreement in an Equipment Purchase Agreement (the "EPA"), executed in June 2007.

         The THS ultimately developed by Universal had two software components: the station software and the server software. The station software was embedded on each individual Polaris station and "manage[d] the operation of conveyors, elevators, stacks and robotic arms." J. App'x at 2606. This software was stored on each station's programmable logic controller and could be downloaded on site by physically connecting a computer to the station and downloading the source code. Id. at 1299-1300, 1480-81, 1532-34. The server software, on the other hand, was the "brains of the operation," id. at 988, which "synchronized the activities of the hardware and software" and was "responsible for coordinating the movement of the module trays," id. at 2606. The source code for the server could not be downloaded in the same way as the station software, and under the EPA, Universal was under no obligation to provide the server source code to MSEI. Id. at 2344 (providing that "source code will not be provided"). The parties agreed, however, in their Final Customer Acceptance letter (the "FCA") that Universal would provide MSEI with a copy of the server source code at the time of delivery. The THS was delivered in October 2008.

         In 2009, MSEI solicited bids for the next phase ("THS2"). The bid documents for THS2 indicated that MSEI had the responsibility to provide the software for the station and server source code to be used in the project. In April 2010, MSEI awarded the project to MTA, a competitor of Universal, which submitted a lower bid for the project. On April 8, 2010, MSEI and MTA entered into an agreement (the "MTA Agreement"). On April 16, Universal and MTA were notified by email that MSEI had "awarded the business to MTA for the THS line two project." J. App'x at 2878. MTA subsequently sought to purchase Polaris stations from Universal for use in THS2, but on August 4, 2010, Universal declined to sell them to MTA. Thereafter, MSEI downloaded the source code from the individual Polaris stations and the server source code that Universal gave to MSEI on delivery of phase one; it then gave the code to MTA to use in the production of THS2. MSEI and MTA subsequently modified the server source code to meet the requirements of THS2.

         The EPA contains several provisions relating to the parties-intellectual property rights. Section 8 is entitled "Intellectual Property." Section 8.2(d) provides that

[i]f [Universal] uses any Pre-Existing Intellectual Property in connection with this Agreement, [Universal] hereby grants MSEI, MSEI's subcontractors, or suppliers, a non-exclusive, royalty-free, worldwide, perpetual license, to use, reproduce, display, of the Pre-Existing Intellectual Property for MSEI's internal use only.

         J. App'x at 2336. "Pre-Existing Intellectual Property" is defined as "any trade secret, invention, work of authorship, mask work or protectable design that has already been conceived or developed by anyone other than MSEI before [Universal] renders any services under the Agreement." Id.

         Exhibit E to the EPA, entitled "Equipment Acceptance Form," contained a blank form for the parties to fill in upon final delivery and acceptance.

         On October 31, 2008, Universal and MSEI signed a negotiated "Final Customer Acceptance" letter, which stated, among other things, that Universal

agrees to provide the THS server code as is with the understanding that MSEI assumes the risk of invalidating the warranty in the event a change made by MSEI to the source code causes damage to any of the THS line hardware.

J. App'x at 2361.

          B. Procedural Background

         On July 15, 2013, Universal brought this action against MSEI and MTA in the Northern District of New York, alleging copyright infringement, misappropriation of trade secrets, breach of contract, unfair competition, unjust enrichment, and promissory estoppel. On February 24, 2017, the district court granted judgment on the pleadings and dismissed Universals claim for promissory estoppel and its claims against MSEI for unjust enrichment and unfair competition. Universal does not challenge those rulings on appeal.

         In July and August of 2017, the parties proceeded to trial before a jury on the remaining claims - breach of contract, copyright infringement, misappropriation of trade secrets, and as to MTA only, unjust enrichment[1] and unfair competition. After the close of Universals case-in-chief, the district court reserved judgment on defendants' motion for judgment as a matter of law. After six days of trial and following the close of the evidence on August 7, the district court orally granted defendants' renewed motions for judgment as a matter of law. As the district court explained: "The whole issue here is whether or not under the arrangements between the parties, contractual and otherwise, MSEI had permission and/or ownership in the property that was transmitted to them." Spec. App'x at 3. The district found as a matter of law that Universal (1) had a protected intellectually property interest in the system source code, (2) transferred copies of that property to MSEI, and (3) offered no evidence that MSEI had exceeded the scope of its license under the EPA by giving MTA the intellectual property. These findings were dispositive of all claims. The court reaffirmed its ruling in a nine-page order issued the following day. It entered judgment August 9, 2017.

         This appeal followed.


         Universal argues that the district court erred in granting defendants-renewed motion for judgment as a matter of law. In short, it contends that the district court's construction of the EPA is incorrect as a matter of law and that it demonstrated ...

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