## Facts

- DSC manufactured digital loop carrier (DLC) equipment and proprietary software used by telephone carriers.
- Telephone companies operated DSC systems using interface cards; at power-up, DSC’s software was copied into the card’s memory to run the system.
- DSC distributed the software under written licenses that limited use to DSC hardware, barred transfer, restricted disclosure, and otherwise imposed significant use restrictions.
- Pulse made competing interface cards designed to be compatible with DSC systems so that, when used by telephone companies, DSC’s software would be copied into the Pulse card’s memory during operation.
- DSC sued Pulse for contributory and direct copyright infringement, trade-secret misappropriation under Virginia law, and tortious interference with business expectancy.
- Pulse counterclaimed that DSC infringed Pulse’s U.S. Patent No. 5,263,081 relating to DLC technology.
- The district court granted judgment as a matter of law (JMOL) against DSC on all four of DSC’s claims after DSC’s case-in-chief, and granted summary judgment of noninfringement for DSC on Pulse’s patent counterclaim.

## Issues

1. Whether telephone companies using DSC’s software were “owners of a copy” under 17 U.S.C. § 117, making operational copying into memory an “essential step” and noninfringing.
2. Whether DSC presented sufficient evidence to submit contributory copyright infringement to a jury.
3. Whether DSC presented sufficient evidence of Pulse’s direct copyright infringement to survive JMOL.
4. Whether DSC presented sufficient evidence of trade-secret misappropriation, and whether any trade-secret theory was preempted by federal copyright law.
5. Whether DSC proved a reasonably certain business expectancy and improper interference sufficient to support tortious interference.
6. Whether summary judgment of noninfringement on the ’081 patent was proper in light of claim construction and the infringement record.
7. Whether a copyright misuse defense was ripe for appellate decision.

## Decision

- Reversed JMOL on contributory copyright infringement and remanded for trial.
- Vacated JMOL on direct copyright infringement and trade-secret misappropriation and remanded for further proceedings (including unresolved preemption questions).
- Affirmed JMOL against DSC on tortious interference with business expectancy.
- Vacated summary judgment of noninfringement on Pulse’s ’081 patent counterclaim and remanded due to material disputes tied to claim construction and application.
- Declined to decide copyright misuse because the issue was not ripe given the remand.

## Legal Principles

- Under 17 U.S.C. § 117, the “essential step” copying privilege applies to an “owner of a copy” of a computer program; a party holding only a restricted license may not qualify as an owner.
- Significant contractual restrictions on transfer, disclosure, and use (including hardware-use limitations) can support treating software users as licensees rather than owners for § 117 purposes.
- Contributory copyright infringement may proceed where there is evidence of direct infringing copying by end users and evidence that the defendant knowingly facilitated or induced that copying through product design and marketing.
- JMOL is improper where the evidentiary record permits reasonable inferences supporting infringement or misappropriation, or where dispositive legal issues (including copyright preemption of state claims) require further development.
- Tortious interference with business expectancy requires proof of a concrete, reasonably certain expectancy; speculative future business in a competitive market is insufficient.
- Summary judgment of patent noninfringement is improper when claim construction disputes or factual application disputes could affect the infringement outcome.

## Conclusion

The Federal Circuit held that telephone-company users operating under restrictive software licenses were not necessarily “owners of a copy” under § 117, reinstating DSC’s contributory infringement claim and reviving DSC’s direct infringement and trade-secret claims for further proceedings, while affirming dismissal of tortious interference and vacating the patent noninfringement judgment for reconsideration on a fuller record.


DSC Commc’ns Corp. v. Pulse Commc’ns, Inc., 170 F.3d 1354 (Fed. Cir. 1999)